UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☑
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 001-13175
VALERO ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
74-1828067
(I.R.S. Employer
Identification No.)
One Valero Way
San Antonio, Texas 78249
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (210) 345-2000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common stock
Trading Symbol(s)
Name of each exchange on which registered
VLO
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☑ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company”
in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☑
Accelerated filer ☐
Non-accelerated filer ☐
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
The aggregate market value of the voting and non-voting common stock held by non-affiliates was approximately $35.5 billion based on the last sales price
quoted as of June 28, 2019 on the New York Stock Exchange, the last business day of the registrant’s most recently completed second fiscal quarter.
As of January 31, 2020, 409,337,126 shares of the registrant’s common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
We intend to file with the Securities and Exchange Commission a definitive Proxy Statement for our Annual Meeting of Stockholders scheduled for April 30,
2020, at which directors will be elected. Portions of the 2020 Proxy Statement are incorporated by reference in Part III of this Form 10-K and are deemed to
be a part of this report.
Table of Contents
CROSS-REFERENCE SHEET
The following table indicates the headings in the 2020 Proxy Statement where certain information required in Part III of this Form 10-K may be
found.
Form 10-K Item No. and Caption
Heading in 2020 Proxy Statement
10. Directors, Executive Officers and
Corporate Governance
11. Executive Compensation
Information Regarding the Board of Directors,
Independent Directors, Audit Committee, Proposal No. 1
Election of Directors, Information Concerning Nominees
and Other Directors, Identification of Executive Officers,
and Governance Documents and Codes of Ethics
Compensation Committee, Compensation Discussion and
Analysis, Executive Compensation, Director
Compensation, Pay Ratio Disclosure, and Certain
Relationships and Related Transactions
12. Security Ownership of Certain Beneficial
Owners and Management and Related
Stockholder Matters
Beneficial Ownership of Valero Securities and Equity
Compensation Plan Information
13. Certain Relationships and Related
Transactions, and
Director Independence
Certain Relationships and Related Transactions and
Independent Directors
14. Principal Accountant Fees and Services
KPMG LLP Fees and Audit Committee Pre-Approval
Policy
Copies of all documents incorporated by reference, other than exhibits to such documents, will be provided without charge to each person who
receives a copy of this Form 10-K upon written request to Valero Energy Corporation, Attn: Secretary, P.O. Box 696000, San Antonio, Texas
78269-6000.
i
PART I
Items 1. & 2.
Item 1A.
Item 1B.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Signature
CONTENTS
Business and Properties
Overview
Available Information
Valero’s Operations
Environmental Matters
Properties
Risk Factors
Unresolved Staff Comments
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
ii
PAGE
1
1
1
1
2
9
9
10
18
18
19
20
20
22
23
57
59
146
146
146
146
146
146
146
146
146
147
147
151
Table of Contents
The terms “Valero,” “we,” “our,” and “us,” as used in this report, may refer to Valero Energy Corporation, to one or more of its consolidated
subsidiaries, or to all of them taken as a whole. In this Form 10-K, we make certain forward-looking statements, including statements regarding
our plans, strategies, objectives, expectations, intentions, and resources under the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. You should read our forward-looking statements together with our disclosures beginning on page 23 of this report under
the heading: “CAUTIONARY STATEMENT FOR THE PURPOSE OF SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995.”
ITEMS 1. and 2. BUSINESS AND PROPERTIES
OVERVIEW
PART I
We are a Fortune 500 company based in San Antonio, Texas. Our corporate offices are at One Valero Way, San Antonio, Texas, 78249, and our
telephone number is (210) 345-2000. We were incorporated in Delaware in 1981 under the name Valero Refining and Marketing Company. We
changed our name to Valero Energy Corporation on August 1, 1997. Our common stock trades on the New York Stock Exchange (NYSE)
under the trading symbol “VLO.” On January 31, 2020, we had 10,222 employees.
We own 15 petroleum refineries located in the United States (U.S.), Canada, and the United Kingdom (U.K.) with a combined throughput
capacity of approximately 3.15 million barrels per day (BPD). Our refineries produce conventional gasolines, premium gasolines, gasoline
meeting the specifications of the California Air Resources Board (CARB), diesel, low-sulfur diesel, ultra-low-sulfur diesel, CARB diesel, other
distillates, jet fuel, asphalt, petrochemicals, lubricants, and other refined petroleum products. We also own 14 ethanol plants located in the Mid-
Continent region of the U.S. with a combined production capacity of approximately 1.73 billion gallons per year. We are also a joint venture
partner in Diamond Green Diesel Holdings LLC (DGD), which owns and operates a renewable diesel plant in Norco, Louisiana. We sell our
products in the wholesale rack or bulk markets in the U.S., Canada, the U.K., Ireland, and Latin America. Approximately 7,000 outlets carry
our brand names.
On January 10, 2019, we completed our acquisition of all of the outstanding publicly held common units of Valero Energy Partners LP (VLP)
as described in Note 2 of Notes to Consolidated Financial Statements, which is incorporated herein by reference.
AVAILABLE INFORMATION
Our website address is www.valero.com. Information on our website is not part of this report. Our annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and other reports, as well as any amendments to those reports, filed with (or furnished to)
the U.S. Securities and Exchange Commission (SEC) are available on our website (under About Valero > Investor Relations > Financial
Information > SEC Filings) free of charge, soon after we file or furnish such material. In this same location, we also post our corporate
governance guidelines and other governance policies, codes of ethics, and the charters of the committees of our board of directors. These
documents are available in print to any stockholder that makes a written request to Valero Energy Corporation, Attn: Secretary, P.O. Box
696000, San Antonio, Texas 78269-6000.
1
Table of Contents
VALERO’S OPERATIONS
Effective January 1, 2019, we revised our reportable segments to align with certain changes in how our chief operating decision maker manages
and allocates resources to our business. Accordingly, we created a new reportable segment — renewable diesel — because of the growing
importance of renewable fuels in the market and the growth of our investments in renewable fuels production. The renewable diesel segment
includes the operations of DGD, which were transferred from the refining segment on January 1, 2019. Also effective January 1, 2019, we no
longer have a VLP segment, and we include the operations of VLP in our refining segment. This change was made because of the Merger
Transaction with VLP, as defined and discussed in Note 2 of Notes to Consolidated Financial Statements, which is incorporated herein by
reference, and the resulting change in how we manage VLP’s operations. We no longer manage VLP as a business but as logistics assets that
support the operations of our refining segment.
As a result, as of December 31, 2019, we had three reportable segments as follows:
•
•
•
Refining segment includes our refining operations, the associated marketing activities, and logistics assets that support our refining
operations;
Ethanol segment includes our ethanol operations, the associated marketing activities, and logistics assets that support our ethanol
operations; and
Renewable diesel segment includes the operations of DGD, our consolidated joint venture, as discussed in Note 12 of Notes to
Consolidated Financial Statements, which is incorporated herein by reference.
Financial information about these segments is presented in Note 17 of Notes to Consolidated Financial Statements, which is incorporated herein
by reference.
2
Table of Contents
REFINING
Refining Operations
As of December 31, 2019, our refining operations included 15 petroleum refineries in the U.S., Canada, and the U.K., with a combined total
throughput capacity of approximately 3.15 million BPD. The following table presents the locations of these refineries and their approximate
feedstock throughput capacities as of December 31, 2019.
Refinery
U.S.
Benicia
Wilmington
Meraux
St. Charles
Ardmore
Memphis
Corpus Christi (b)
Houston
McKee
Port Arthur
Texas City
Three Rivers
Canada
Quebec City
U.K.
Pembroke
Total
________________________
(a)
Location
California
California
Louisiana
Louisiana
Oklahoma
Tennessee
Texas
Texas
Texas
Texas
Texas
Texas
Quebec, Canada
Wales, U.K.
Throughput
Capacity (a)
(BPD)
170,000
135,000
135,000
340,000
90,000
195,000
370,000
255,000
200,000
395,000
260,000
100,000
235,000
270,000
3,150,000
“Throughput capacity” represents estimated capacity for processing crude oil, inter-mediates, and other feedstocks. Total estimated crude oil capacity
is approximately 2.6 million BPD.
(b) Represents the combined capacities of two refineries – the Corpus Christi East and Corpus Christi West Refineries.
3
Table of Contents
The following table presents the percentages of principal charges and yields (on a combined basis) for all of our refineries for 2019, during
which period our total combined throughput volumes averaged approximately 3.0 million BPD.
Combined Total Refining System Charges and Yields
Charges
Yields
sour crude oil
sweet crude oil
residual fuel oil
other feedstocks
blendstocks
gasolines and blendstocks
distillates
other products (primarily includes petrochemicals,
gas oils, No. 6 fuel oil, petroleum coke, sulfur
and asphalt)
23%
54%
7%
5%
11%
48%
38%
14%
California
Benicia Refinery. Our Benicia Refinery is located northeast of San Francisco on the Carquinez Straits of San Francisco Bay. It processes sour
crude oils into gasoline, diesel, jet fuel, and asphalt. Gasoline production is primarily California Reformulated Blendstock Gasoline for
Oxygenate Blending (CARBOB), which meets CARB specifications when blended with ethanol. The refinery receives crude oil feedstocks via
a marine dock and crude oil pipelines connected to a southern California crude oil delivery system. Most of the refinery’s products are
distributed via pipeline and truck rack into northern California markets.
Wilmington Refinery. Our Wilmington Refinery is located near Los Angeles. The refinery processes a blend of heavy and high-sulfur crude oils.
The refinery produces CARBOB gasoline, diesel, CARB diesel, jet fuel, and asphalt. The refinery is connected by pipeline to marine terminals
and associated dock facilities that move and store crude oil and other feedstocks. Refined petroleum products are distributed via pipeline
systems to various third-party terminals in southern California, Nevada, and Arizona.
Louisiana
Meraux Refinery. Our Meraux Refinery is located approximately 15 miles southeast of New Orleans along the Mississippi River. The refinery
processes sour and sweet crude oils into gasoline, diesel, jet fuel, and high sulfur fuel oil. The refinery receives crude oil at its dock and has
access to the Louisiana Offshore Oil Port. Finished products are shipped from the refinery’s dock and through the Colonial pipeline. The
refinery is located about 40 miles from our St. Charles Refinery, allowing for integration of feedstocks and refined petroleum product blending.
St. Charles Refinery. Our St. Charles Refinery is located approximately 25 miles west of New Orleans along the Mississippi River. The refinery
processes sour crude oils and other feedstocks into gasoline and diesel. The refinery receives crude oil over docks and has access to the
Louisiana Offshore Oil Port. Finished products are shipped over these docks and through our Parkway pipeline and the Bengal pipeline, which
ultimately provide access to the Plantation and Colonial pipeline networks.
4
Table of Contents
Oklahoma
Ardmore Refinery. Our Ardmore Refinery is located in Oklahoma, approximately 100 miles south of Oklahoma City. It processes sweet and
sour crude oils into gasoline, diesel, and asphalt. The refinery predominantly receives Permian Basin and Cushing-sourced crude oil via third-
party pipelines. Refined petroleum products are transported via rail, trucks, and the Magellan pipeline system.
Tennessee
Memphis Refinery. Our Memphis Refinery is located in Tennessee along the Mississippi River. It processes primarily sweet crude oils. Most of
its production is gasoline, diesel, and jet fuels. Crude oil supply is primarily from Cushing, Oklahoma over the Diamond Pipeline. Crude oil can
also be received, along with other feedstocks, via barge. Most of the refinery’s products are distributed via truck rack and barges.
Texas
Corpus Christi East and West Refineries. Our Corpus Christi East and West Refineries are located on the Texas Gulf Coast along the
Corpus Christi Ship Channel. The East Refinery processes sour crude oil, and the West Refinery processes sweet crude oil, sour crude oil, and
residual fuel oil. The feedstocks are delivered by tanker and barge via deepwater docking facilities along the Corpus Christi Ship Channel, and
West Texas or South Texas crude oil is delivered via pipelines. The refineries’ physical locations allow for the transfer of various feedstocks
and blending components between them. The refineries produce gasoline, aromatics, jet fuel, diesel, and asphalt. Truck racks service local
markets for gasoline, diesel, jet fuels, liquefied petroleum gases, and asphalt. These and other finished products are also distributed by ship and
barge across docks and third-party pipelines.
Houston Refinery. Our Houston Refinery is located on the Houston Ship Channel. It processes sweet crude and intermediate oils into gasoline,
jet fuel, and diesel. The refinery successfully commissioned a new alkylation unit in 2019. The refinery receives its feedstocks primarily by
various interconnecting pipelines and also has waterborne-receiving capability at deepwater docking facilities along the Houston Ship Channel.
The majority of its finished products are delivered to local, mid-continent U.S., and northeastern U.S. markets through various pipelines,
including the Colonial and Explorer pipelines.
McKee Refinery. Our McKee Refinery is located in the Texas Panhandle. It processes primarily sweet crude oils into gasoline, diesel, jet fuels,
and asphalt. The refinery has access to local and Permian Basin crude oil sources via third-party pipelines. Refined petroleum products are
transported primarily via third-party pipelines and rail to markets in Texas, New Mexico, Arizona, Colorado, Oklahoma, and Mexico.
Port Arthur Refinery. Our Port Arthur Refinery is located on the Texas Gulf Coast approximately 90 miles east of Houston. The refinery
processes heavy sour crude oils and other feedstocks into gasoline, diesel, and jet fuel. The refinery receives crude oil by rail, marine docks,
and pipelines. Finished products are distributed into the Colonial, Explorer, and other pipelines, and across the refinery docks into ships and
barges.
Texas City Refinery. Our Texas City Refinery is located southeast of Houston on the Houston Ship Channel. The refinery processes crude oils
into gasoline, diesel, and jet fuel. The refinery receives its feedstocks by pipeline and by ship or barge via deepwater docking facilities along
the Houston Ship Channel. The refinery uses ships and barges, as well as the Colonial, Explorer, and other pipelines for distribution of its
products.
Three Rivers Refinery. Our Three Rivers Refinery is located in South Texas between Corpus Christi and San Antonio. It primarily processes
sweet crude oils into gasoline, distillates, and aromatics. The refinery has access to crude oil from West Texas and South Texas through third-
party pipelines and trucks. The refinery distributes its refined petroleum products primarily through third-party pipelines.
5
Table of Contents
Canada
Quebec City Refinery. Our Quebec City Refinery is located in Lévis, Canada (near Quebec City). It processes sweet crude oils into gasoline,
diesel, jet fuel, heating oil, and low-sulfur fuel oil. The refinery receives crude oil by ship at its deepwater dock on the St. Lawrence River and
by pipeline and ship from western Canada. The refinery transports its products through our pipeline from Quebec City to our terminal in
Montreal and to various other terminals throughout eastern Canada by rail, ships, trucks, and third-party pipelines.
U.K.
Pembroke Refinery. Our Pembroke Refinery is located in the County of Pembrokeshire in southwest Wales, U.K. The refinery processes
primarily sweet crude oils into gasoline, diesel, jet fuel, heating oil, and low-sulfur fuel oil. The refinery receives all of its feedstocks and
delivers some of its products by ship and barge via deepwater docking facilities along the Milford Haven Waterway, with its remaining products
being delivered through our Mainline pipeline system and by trucks.
Feedstock Supply
Our crude oil feedstocks are purchased through a combination of term and spot contracts. Our term supply agreements are at market-related
prices and are purchased directly or indirectly from various national oil companies as well as international and U.S. oil companies. The
contracts generally permit the parties to amend the contracts (or terminate them), effective as of the next scheduled renewal date, by giving the
other party proper notice within a prescribed period of time (e.g., 60 days, 6 months) before expiration of the current term. The majority of the
crude oil purchased under our term contracts is purchased at the producer’s official stated price (i.e., the “market” price established by the seller
for all purchasers) and not at a negotiated price specific to us.
Marketing
Overview
We sell refined petroleum products in both the wholesale rack and bulk markets. These sales include refined petroleum products that are
manufactured in our refining operations, as well as refined petroleum products purchased or received on exchange from third parties. Most of
our refineries have access to marine transportation facilities and interconnect with common-carrier pipeline systems, allowing us to sell
products in the U.S., Canada, the U.K., and other countries.
Wholesale Rack Sales
We sell our gasoline and distillate products, as well as other products, such as asphalt, lube oils, and natural gas liquids (NGLs), on a wholesale
basis through an extensive rack marketing network. The principal purchasers of our refined petroleum products from terminal truck racks are
wholesalers, distributors, retailers, and truck-delivered end users throughout the U.S., Canada, the U.K., Ireland, and Latin America.
The majority of our rack volume is sold through unbranded channels. The remainder is sold to distributors and dealers that are members of the
Valero-brand family that operate 5,158 branded sites in the U.S., 874 branded sites in the U.K. and Ireland, and 795 branded sites in Canada as
of December 31, 2019. These sites are independently owned and are supplied by us under multi-year contracts. For branded sites, products are
sold under the Valero®, Beacon®, Diamond Shamrock®, and Shamrock® brands in the U.S., the Texaco® brand in the U.K. and Ireland, and the
Ultramar® brand in Canada.
Bulk Sales
We also sell our gasoline and distillate products, as well as other products, such as asphalt, petrochemicals, and NGLs, through bulk sales
channels in the U.S. and international markets. Our bulk sales are made to
6
Table of Contents
various oil companies, traders, and bulk end-users, such as railroads, airlines, and utilities. Our bulk sales are transported primarily by pipeline,
barges, and tankers to major tank farms and trading hubs.
We also enter into refined petroleum product exchange and purchase agreements. These agreements help minimize transportation costs,
optimize refinery utilization, balance refined petroleum product availability, broaden geographic distribution, and provide access to markets not
connected to our refined product pipeline systems. Exchange agreements provide for the delivery of refined petroleum products by us to
unaffiliated companies at our and third-parties’ terminals in exchange for delivery of a similar amount of refined petroleum products to us by
these unaffiliated companies at specified locations. Purchase agreements involve our purchase of refined petroleum products from third parties
with delivery occurring at specified locations.
Logistics
We own logistics assets (crude oil pipelines, refined petroleum product pipelines, terminals, tanks, marine docks, truck rack bays, and other
assets) that support our refining operations.
ETHANOL
We own 14 ethanol plants with a combined ethanol production capacity of 1.73 billion gallons per year. Our ethanol plants are dry mill facilities
that process corn to produce ethanol, distillers grains, and corn oil. We source our corn supply from local farmers and commercial elevators.
Our facilities receive corn primarily by rail and truck. We publish on our website a corn bid for local farmers and cooperative dealers to
facilitate corn supply transactions.
We sell our ethanol primarily to refiners and gasoline blenders under term and spot contracts in bulk markets such as New York, Chicago, the
U.S. Gulf Coast, Florida, and the U.S. West Coast. We also export our ethanol into the global markets. We ship our dry distillers grains (DDGs)
by truck or rail primarily to animal feed customers in the U.S. and Mexico. We also sell modified distillers grains locally at our plant sites, and
corn oil by truck and rail. We distribute our ethanol through logistics assets, which include railcars owned by us.
7
Table of Contents
The following table presents the locations of our ethanol plants, their approximate annual production capacities for ethanol (in millions of
gallons) and DDGs (in tons), and their approximate annual corn processing capacities (in millions of bushels).
State
Indiana
Iowa
Michigan
Minnesota
Nebraska
Ohio
South Dakota
Wisconsin
Total
City
Bluffton
Linden
Mount Vernon
Albert City
Charles City
Fort Dodge
Hartley
Lakota
Riga
Welcome
Albion
Bloomingburg
Aurora
Jefferson
Ethanol
Production
Capacity
Production
of DDGs
Corn
Processed
115
135
100
135
140
140
140
110
55
140
135
135
140
110
302,000
355,000
263,000
355,000
368,000
368,000
368,000
289,000
145,000
368,000
355,000
355,000
368,000
352,000
40
47
35
47
49
49
49
38
19
49
47
47
49
41
1,730
4,611,000
606
The combined production of ethanol from our plants averaged 4.3 million gallons per day for 2019.
RENEWABLE DIESEL
Our renewable segment includes the operations of DGD, which owns and operates a biomass-based diesel plant (the DGD Plant) that processes
animal fats, used cooking oils, and other vegetable oils into renewable diesel. The DGD Plant is located next to our St. Charles Refinery in
Norco, Louisiana. During 2019, the DGD Plant’s capacity was approximately 18,000 BPD. The DGD Plant is capable of annually converting
approximately 2.3 billion pounds of rendered and recycled material into more than 275 million gallons of renewable diesel. In 2019, we began
an expansion of the DGD Plant that is expected to increase production up to 675 million gallons of renewable diesel annually. DGD is in the
advanced engineering review phase for a potential new renewable diesel plant to be located in Port Arthur, Texas.
8
Table of Contents
ENVIRONMENTAL MATTERS
We incorporate by reference into this Item the environmental disclosures contained in the following sections of this report:
•
•
•
•
•
Item 1A, “RISK FACTORS”—Compliance with and changes in environmental laws, including proposed climate change laws and
regulations, could adversely affect our performance;
Item 1A, “RISK FACTORS”—Compliance with the U.S. Environmental Protection Agency (EPA) Renewable Fuel Standard (RFS)
could adversely affect our performance;
Item 1A, “RISK FACTORS”—We may incur additional costs as a result of our use of rail cars for the transportation of crude oil
and the products that we manufacture;
Item 3, “LEGAL PROCEEDINGS” under the caption “ENVIRONMENTAL ENFORCEMENT MATTERS,” and;
Item 8, “FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” in Note 8 of Notes to Consolidated Financial
Statements.
Capital Expenditures Attributable to Compliance with Environmental Regulations. In 2019, our capital expenditures attributable to compliance
with environmental regulations were $235 million, and they are currently estimated to be $14 million for 2020 and $20 million for 2021. The
estimates for 2020 and 2021 do not include amounts related to capital investments at our facilities that management has deemed to be strategic
investments. These amounts could materially change as a result of governmental and regulatory actions.
PROPERTIES
Our principal properties are described above under the caption “VALERO’S OPERATIONS,” and that information is incorporated herein by
reference. We believe that our properties and facilities are generally adequate for our operations and that our facilities are maintained in a good
state of repair. As of December 31, 2019, we were the lessee under a number of cancelable and noncancelable leases for certain properties. Our
leases are discussed in Note 5 of Notes to Consolidated Financial Statements, which is incorporated herein by reference. Financial information
about our properties is presented in Note 6 of Notes to Consolidated Financial Statements, which is incorporated herein by reference.
Our patents relating to our refining operations are not material to us as a whole. The trademarks and tradenames under which we conduct our
branded wholesale business — Valero®, Diamond Shamrock®, Shamrock®, Ultramar®, Beacon®, and Texaco®— and other trademarks
employed in the marketing of refined petroleum products are integral to our wholesale rack marketing operations.
9
Table of Contents
ITEM 1A. RISK FACTORS
You should carefully consider the following risk factors in addition to the other information included in this report. Each of these risk factors
could adversely affect our business, operating results, and/or financial condition, as well as adversely affect the value of an investment in our
common stock.
Our financial results are affected by volatile refining margins, which are dependent upon factors beyond our control, including the price of
crude oil and the market price at which we can sell refined petroleum products.
Our financial results are primarily affected by the relationship, or margin, between refined petroleum product prices and the prices for crude oil
and other feedstocks. Historically, refining margins have been volatile, and we believe they will continue to be volatile in the future. Our cost to
acquire feedstocks and the price at which we can ultimately sell refined petroleum products depend upon several factors beyond our control,
including regional and global supply of and demand for crude oil, gasoline, diesel, and other feedstocks and refined petroleum products. These
in turn depend on, among other things, the availability and quantity of imports, the production levels of U.S. and international suppliers, levels
of refined petroleum product inventories, productivity and growth (or the lack thereof) of U.S. and global economies, U.S. relationships with
foreign governments, political affairs, and the extent of governmental regulation.
Some of these factors can vary by region and may change quickly, adding to market volatility, while others may have longer-term effects. The
longer-term effects of these and other factors on refining and marketing margins are uncertain. We do not produce crude oil and must purchase
all of the crude oil we refine. We may purchase our crude oil and other refinery feedstocks long before we refine them and sell the refined
petroleum products. Price level changes during the period between purchasing feedstocks and selling the refined petroleum products from these
feedstocks could have a significant effect on our financial results. A decline in market prices may negatively impact the carrying value of our
inventories.
Economic turmoil and political unrest or hostilities, including the threat of future terrorist attacks, could affect the economies of the U.S. and
other countries. Lower levels of economic activity could result in declines in energy consumption, including declines in the demand for and
consumption of our refined petroleum products, which could cause our revenues and margins to decline and limit our future growth prospects.
Refining margins are also significantly impacted by additional refinery conversion capacity through the expansion of existing refineries or the
construction of new refineries. Worldwide refining capacity expansions may result in refining production capability exceeding refined
petroleum product demand, which would have an adverse effect on refining margins.
A significant portion of our profitability is derived from the ability to purchase and process crude oil feedstocks that historically have been
cheaper than benchmark crude oils, such as Louisiana Light Sweet (LLS) and Brent crude oils. These crude oil feedstock differentials vary
significantly depending on overall economic conditions and trends and conditions within the markets for crude oil and refined petroleum
products, and they could decline in the future, which would have a negative impact on our results of operations.
10
Table of Contents
Compliance with and changes in environmental laws, including proposed climate change laws and regulations, could adversely affect our
performance.
The principal environmental risks associated with our operations are emissions into the air and releases into the soil, surface water, or
groundwater. Our operations are subject to extensive environmental laws and regulations, including those relating to the discharge of materials
into the environment, waste management, pollution prevention measures, greenhouse gas (GHG) emissions, and characteristics and
composition of fuels, including gasoline and diesel. Certain of these laws and regulations could impose obligations to conduct assessment or
remediation efforts at our facilities as well as at formerly owned properties or third-party sites where we have taken wastes for disposal or
where our wastes have migrated. Environmental laws and regulations also may impose liability on us for the conduct of third parties, or for
actions that complied with applicable requirements when taken, regardless of negligence or fault. If we violate or fail to comply with these laws
and regulations, we could be fined or otherwise sanctioned.
Because environmental laws and regulations are becoming more stringent and new environmental laws and regulations are continuously being
enacted or proposed, such as those relating to GHG emissions and climate change, the level of expenditures required for environmental matters
could increase in the future. Current and future legislative action and regulatory initiatives could result in changes to operating permits, material
changes in operations, increased capital expenditures and operating costs, increased costs of the goods we sell, and decreased demand for our
products that cannot be assessed with certainty at this time. We may be required to make expenditures to modify operations, discontinue use of
certain process units, or install pollution control equipment that could materially and adversely affect our business, financial condition, results
of operations, and liquidity.
For example, in 2015, the U.S., Canada, and the U.K. participated in the United Nations Conference on Climate Change, which led to the
creation of the Paris Agreement. The Paris Agreement, which was signed by the U.S. in April 2016, requires countries to review and “represent
a progression” in their intended nationally determined contributions (which set GHG emission reduction goals) every five years beginning in
2020. In November 2019, the current U.S. administration served notice on the United Nations that the U.S. would withdraw from the Paris
Agreement in 2020. There are no guarantees that the Paris Agreement will not be re-implemented in the U.S. or re-implemented in part by
specific U.S. states or local governments. Regardless, the Paris Agreement could still affect our operations in Canada, the U.K., Ireland, and
Latin America. Restrictions on emissions of methane or carbon dioxide that have been or may be imposed in various U.S. states, at the U.S.
federal level, or in other countries could adversely affect the oil and gas industry.
Investor sentiment towards climate change, fossil fuels, and sustainability could adversely affect our business and our stock price.
There have been efforts in recent years aimed at the investment community, including investment advisors, sovereign wealth funds, public
pension funds, universities and other groups, to promote the divestment of shares of energy companies, as well as to pressure lenders and other
financial services companies to limit or curtail activities with energy companies. If these efforts are successful, our stock price and our ability to
access capital markets may be negatively impacted.
Members of the investment community are also increasing their focus on sustainability practices, including practices related to GHGs and
climate change, in the energy industry. As a result, we may face increasing pressure regarding our sustainability disclosures and practices.
Additionally, members of the investment community may screen companies such as ours for sustainability performance before investing in our
stock.
11
Table of Contents
If we are unable to meet the sustainability standards set by these investors, we may lose investors, our stock price may be negatively impacted
and our reputation may be negatively affected.
Severe weather events may have an adverse effect on our assets and operations.
Severe weather events, such as storms, droughts, or floods, could have an adverse effect on our operations. Members within the scientific
community believe that an increasing concentration of GHG emissions in the Earth’s atmosphere may contribute to climate changes that can
have significant physical effects, including an increased frequency and severity of these types of events.
Compliance with the U.S. Environmental Protection Agency (EPA) Renewable Fuel Standard (RFS) could adversely affect our
performance.
The U.S. EPA has implemented the RFS pursuant to the Energy Policy Act of 2005 and the Energy Independence and Security Act of 2007.
The RFS program sets annual quotas for the quantity of renewable fuels (such as ethanol and diesel) that must be blended into transportation
fuels consumed in the U.S. A Renewable Identification Number (RIN) is assigned to each gallon of renewable fuel produced in or imported into
the U.S. As a producer of petroleum-based transportation fuels, we are obligated to blend renewable fuels into the products we produce at a rate
that is at least commensurate to the U.S. EPA’s quota and, to the extent we do not, we must purchase RINs in the open market to satisfy our
obligation under the RFS program.
We are exposed to the volatility in the market price of RINs. We cannot predict the future prices of RINs. RINs prices are dependent upon a
variety of factors, including U.S. EPA regulations, the availability of RINs for purchase, and levels of transportation fuels produced, which can
vary significantly from quarter to quarter. If sufficient RINs are unavailable for purchase, if we have to pay a significantly higher price for
RINs, or if we are otherwise unable to meet the U.S. EPA’s RFS mandates, our results of operations and cash flows could be adversely affected.
Disruption of our ability to obtain crude oil could adversely affect our operations.
A significant portion of our feedstock requirements is satisfied through supplies originating in the Middle East, Africa, Asia, North America,
and South America. We are, therefore, subject to the political, geographic, and economic risks attendant to doing business with suppliers
located in, and supplies originating from, these areas. If one or more of our supply contracts were terminated, or if political events disrupt our
traditional crude oil supply, we believe that adequate alternative supplies of crude oil would be available, but it is possible that we would be
unable to find alternative sources of supply. If we are unable to obtain adequate crude oil volumes or are able to obtain such volumes only at
unfavorable prices, our results of operations could be materially adversely affected, including reduced sales volumes of refined petroleum
products or reduced margins as a result of higher crude oil costs.
In addition, the U.S. government can prevent or restrict us from doing business in or with other countries. These restrictions, and those of other
governments, could limit our ability to gain access to business opportunities in various countries. Actions by both the U.S. and other countries
have affected our operations in the past and will continue to do so in the future.
Any attempt by the U.S. government to withdraw from or materially modify existing international trade agreements could adversely affect
our business, financial condition, and results of operations.
The current U.S. administration has questioned certain existing and proposed trade agreements. For example, the administration withdrew the
U.S. from the Trans-Pacific Partnership. In addition, the administration has
12
Table of Contents
implemented and proposed various trade tariffs, which have resulted in foreign governments responding with tariffs on U.S. goods.
Changes in U.S. social, political, regulatory, and economic conditions or in laws and policies governing foreign trade, manufacturing,
development and investment could adversely affect our business. For example, the imposition of tariffs or other trade barriers with other
countries could affect our ability to obtain feedstocks from international sources, increase our costs and reduce the competitiveness of our
products.
While there is currently a lack of certainty around the likelihood, timing, and details of any such policies and reforms, if the current U.S.
administration takes action to withdraw from, or materially modify, existing international trade agreements, our business, financial condition,
and results of operations could be adversely affected.
We are subject to interruptions and increased costs as a result of our reliance on third-party transportation of crude oil and the products
that we manufacture.
We use the services of third parties to transport feedstocks to our facilities and to transport the products we manufacture to market. If we
experience prolonged interruptions of supply or increases in costs to deliver our products to market, or if the ability of the pipelines, vessels, or
railroads to transport feedstocks or products is disrupted because of weather events, accidents, derailment, collision, fire, explosion,
governmental regulations, or third-party actions, it could have a material adverse effect on our financial position, results of operations, and
liquidity.
We may incur additional costs as a result of our use of rail cars for the transportation of crude oil and the products that we manufacture.
We currently use rail cars for the transportation of some feedstocks to certain of our facilities and for the transportation of some of the products
we manufacture to their markets. We own and lease rail cars for our operations. Rail transportation is subject to a variety of federal, state, and
local regulations, as well as industry practices and customs. New laws and regulations, and changes in existing laws and regulations, are
frequently enacted or proposed, and could result in increased expenditures for compliance, either directly through costs for our owned and
leased rail assets, or as passed along to us by rail carriers and operators. For example, in the past several years, the Department of
Transportation and various agencies within the Department of Transportation, including the Surface Transportation Board, the Pipeline and
Hazardous Materials Safety Administration, and the Federal Railroad Administration, have issued orders and rules pursuant to the Federal
Railroad Safety Act of 1970, the Interstate Commerce Commission Termination Act of 1995, the Rail Safety Improvement Act of 2008, Fixing
America’s Surface Transportation Act of 2015 and other statutory authorities concerning such matters as enhanced tank car standards, positive
train control and other operational controls, safety training programs, and notification requirements. The general trend has been toward greater
regulation of rail transportation over recent years. We do not believe these orders and rules will have a material impact on our financial
position, results of operations, and liquidity, although further changes in law, regulations, or industry practices could require us to incur
additional costs to the extent they are applicable to us.
Competitors that produce their own supply of feedstocks, own their own retail sites, have greater financial resources, or provide alternative
energy sources may have a competitive advantage.
The refining and marketing industry is highly competitive with respect to both feedstock supply and refined petroleum product markets. We
compete with many companies for available supplies of crude oil and other feedstocks and for sites for our refined petroleum products. We do
not produce any of our crude oil feedstocks and, following the separation of our retail business in 2013, we do not have a company-owned retail
network.
13
Table of Contents
Many of our competitors, however, obtain a significant portion of their feedstocks from company-owned production and some have extensive
retail sites. Such competitors are at times able to offset losses from refining operations with profits from producing or retailing operations, and
may be better positioned to withstand periods of depressed refining margins or feedstock shortages.
Some of our competitors also have materially greater financial and other resources than we have. Such competitors have a greater ability to
bear the economic risks inherent in all phases of our industry. In addition, we compete with other industries that provide alternative means to
satisfy the energy and fuel requirements of our industrial, commercial, and individual consumers.
Uncertainty and illiquidity in credit and capital markets can impair our ability to obtain credit and financing on acceptable terms, and can
adversely affect the financial strength of our business partners.
Our ability to obtain credit and capital depends in large measure on capital markets and liquidity factors that we do not control. Our ability to
access credit and capital markets may be restricted at a time when we would like, or need, to access those markets, which could have an impact
on our flexibility to react to changing economic and business conditions. In addition, the cost and availability of debt and equity financing may
be adversely impacted by unstable or illiquid market conditions. Protracted uncertainty and illiquidity in these markets also could have an
adverse impact on our lenders, commodity hedging counterparties, or our customers, causing them to fail to meet their obligations to us. In
addition, decreased returns on pension fund assets may also materially increase our pension funding requirements.
Our access to credit and capital markets also depends on the credit ratings assigned to our debt by independent credit rating agencies. We
currently maintain investment-grade ratings by Standard & Poor’s Ratings Services, Moody’s Investors Service, and Fitch Ratings on our
senior unsecured debt. Ratings from credit agencies are not recommendations to buy, sell, or hold our securities. Each rating should be
evaluated independently of any other rating. We cannot provide assurance that any of our current ratings will remain in effect for any given
period of time or that a rating will not be lowered or withdrawn entirely by a rating agency if, in its judgment, circumstances so warrant.
Specifically, if ratings agencies were to downgrade our long-term rating, particularly below investment grade, our borrowing costs may
increase, which could adversely affect our ability to attract potential investors and our funding sources could decrease. In addition, we may not
be able to obtain favorable credit terms from our suppliers or they may require us to provide collateral, letters of credit, or other forms of
security, which would increase our operating costs. As a result, a downgrade below investment grade in our credit ratings could have a material
adverse impact on our financial position, results of operations, and liquidity.
From time to time, our cash needs may exceed our internally generated cash flow, and our business could be materially and adversely affected
if we were unable to obtain necessary funds from financing activities. From time to time, we may need to supplement our cash generated from
operations with proceeds from financing activities. We have existing revolving credit facilities, committed letter of credit facilities, and an
accounts receivable sales facility to provide us with available financing to meet our ongoing cash needs. In addition, we rely on the
counterparties to our derivative instruments to fund their obligations under such arrangements. Uncertainty and illiquidity in financial markets
may materially impact the ability of the participating financial institutions and other counterparties to fund their commitments to us under our
various financing facilities or our derivative instruments, which could have a material adverse effect on our financial position, results of
operations, and liquidity.
14
Table of Contents
A significant interruption in one or more of our refineries could adversely affect our business.
Our refineries are our principal operating assets. As a result, our operations could be subject to significant interruption if one or more of our
refineries were to experience a major accident or mechanical failure, be damaged by severe weather or other natural or man-made disaster, such
as an act of terrorism, or otherwise be forced to shut down. If any refinery were to experience an interruption in operations, earnings from the
refinery could be materially adversely affected (to the extent not recoverable through insurance) because of lost production and repair costs.
Significant interruptions in our refining system could also lead to increased volatility in prices for crude oil feedstocks and refined petroleum
products, and could increase instability in the financial and insurance markets, making it more difficult for us to access capital and to obtain
insurance coverage that we consider adequate.
A significant interruption related to our information technology systems could adversely affect our business.
Our information technology systems and network infrastructure may be subject to unauthorized access or attack, which could result in (i) a loss
of intellectual property, proprietary information, or employee, customer or vendor data; (ii) public disclosure of sensitive information;
(iii) increased costs to prevent, respond to, or mitigate cybersecurity events, such as deploying additional personnel and protection technologies,
training employees, and engaging third-party experts and consultants; (iv) systems interruption; (v) disruption of our business operations;
(vi) remediation costs for repairs of system damage; (vii) reputational damage that adversely affects customer or investor confidence; and
(viii) damage to our competitiveness, stock price, and long-term stockholder value. A breach could also originate from, or compromise, our
customers’ and vendors’ or other third-party networks outside of our control. A breach may also result in legal claims or proceedings against us
by our shareholders, employees, customers, vendors, and governmental authorities (U.S. and non-U.S.). There can be no assurance that our
infrastructure protection technologies and disaster recovery plans can prevent a technology systems breach or systems failure, which could have
a material adverse effect on our financial position or results of operations. Furthermore, the continuing and evolving threat of cyberattacks has
resulted in increased regulatory focus on prevention. To the extent we face increased regulatory requirements, we may be required to expend
significant additional resources to meet such requirements.
Increasing regulatory focus on privacy and security issues and expanding laws could expose us to increased liability, subject us to lawsuits,
investigations and other liabilities and restrictions on our operations that could significantly and adversely affect our business.
Along with our own data and information in the normal course of our business, we and our partners collect and retain certain data that is subject
to specific laws and regulations. The transfer and use of this data both domestically and across international borders is becoming increasingly
complex. This data is subject to governmental regulation at the federal, state, international, national, provincial and local levels in many areas
of our business, including data privacy and security laws such as the European Union (EU) General Data Protection Regulation (GDPR) and
the California Consumer Privacy Act (CCPA).
The GDPR applies to activities regarding personal data that may be conducted by us, directly or indirectly through vendors and subcontractors,
from an establishment in the EU. As interpretation and enforcement of the GDPR evolves, it creates a range of new compliance obligations,
which could cause us to incur additional costs. Failure to comply could result in significant penalties of up to a maximum of 4 percent of our
global turnover that may materially adversely affect our business, reputation, results of operations, and cash flows.
The CCPA, which came into effect on January 1, 2020, gives California residents specific rights in relation to their personal information,
requires that companies take certain actions, including notifications for security
15
Table of Contents
incidents and may apply to activities regarding personal information that is collected by us, directly or indirectly, from California residents. As
interpretation and enforcement of the CCPA evolves, it creates a range of new compliance obligations, with the possibility for significant
financial penalties for noncompliance that may materially adversely affect our business, reputation, results of operations, and cash flows.
The GDPR and CCPA, as well as other data privacy laws that may become applicable to our business, pose increasingly complex compliance
challenges and potentially elevate our costs. Any failure by us to comply with these laws and regulations, including as a result of a security or
privacy breach, could result in significant penalties and liabilities for us. Additionally, if we acquire a company that has violated or is not in
compliance with applicable data protection laws, we may incur significant liabilities and penalties as a result.
Our business may be negatively affected by work stoppages, slowdowns or strikes by our employees, as well as new labor legislation issued
by regulators.
Workers at some of our refineries are covered by collective bargaining or similar agreements. To the extent we are in negotiations for labor
agreements expiring in the future, there is no assurance an agreement will be reached without a strike, work stoppage, or other labor action.
Any prolonged strike, work stoppage, or other labor action could have an adverse effect on our financial condition or results of operations. In
addition, future federal, state, or foreign labor legislation could result in labor shortages and higher costs, especially during critical maintenance
periods.
We are subject to operational risks and our insurance may not be sufficient to cover all potential losses arising from operating hazards.
Failure by one or more insurers to honor its coverage commitments for an insured event could materially and adversely affect our financial
position, results of operations, and liquidity.
Our operations are subject to various hazards common to the industry, including explosions, fires, toxic emissions, maritime hazards, and
natural catastrophes. As protection against these hazards, we maintain insurance coverage against some, but not all, potential losses and
liabilities. We may not be able to maintain or obtain insurance of the type and amount we desire at reasonable rates. As a result of market
conditions, premiums and deductibles for certain of our insurance policies could increase substantially. In some instances, certain insurance
could become unavailable or available only for reduced amounts of coverage. For example, coverage for hurricane damage is very limited, and
coverage for terrorism risks includes very broad exclusions. If we were to incur a significant liability for which we were not fully insured, it
could have a material adverse effect on our financial position, results of operations, and liquidity.
Our insurance program includes a number of insurance carriers. Significant disruptions in financial markets could lead to a deterioration in the
financial condition of many financial institutions, including insurance companies. We can make no assurances that we will be able to obtain the
full amount of our insurance coverage for insured events.
Large capital projects can take many years to complete, and market conditions could deteriorate over time, negatively impacting project
returns.
We may engage in capital projects based on the forecasted project economics and level of return on the capital to be employed in the project.
Large-scale projects take many years to complete, and market conditions can change from our forecast. As a result, we may be unable to fully
realize our expected returns, which could negatively impact our financial condition, results of operations, and cash flows.
16
Table of Contents
Compliance with and changes in tax laws could adversely affect our performance.
We are subject to extensive tax liabilities imposed by multiple jurisdictions, including income taxes, indirect taxes (excise/duty, sales/use, gross
receipts, and value-added taxes), payroll taxes, franchise taxes, withholding taxes, and ad valorem taxes. New tax laws and regulations and
changes in existing tax laws and regulations are continuously being enacted or proposed that could result in increased expenditures for tax
liabilities in the future. Many of these liabilities are subject to periodic audits by the respective taxing authority. Subsequent changes to our tax
liabilities as a result of these audits may subject us to interest and penalties.
On December 22, 2017, tax legislation commonly known as the Tax Cuts and Jobs Act of 2017 (Tax Reform) was enacted. Among other things,
Tax Reform reduced the U.S. corporate income tax rate from 35 percent to 21 percent and implemented a new system of taxation for non-U.S.
earnings, including by imposing a one-time tax on the deemed repatriation of undistributed earnings of non-U.S. subsidiaries. Tax Reform also
generally (i) repealed the manufacturing deduction we previously were able to claim, (ii) resulted in a shift from a worldwide system of
taxation to a territorial system of taxation, resulting in a minimum tax on the income of international subsidiaries (the GILTI tax) rather than a
tax deferral on such earnings in certain circumstances, (iii) limits our annual deductions for interest expense to no more than 30 percent of our
“adjusted taxable income” (plus 100 percent of our business interest income) for the year and (iv) permits us to offset only 80 percent (rather
than 100 percent) of our taxable income with any net operating losses we generate after 2017. We have evaluated the effects of Tax Reform,
including the one-time deemed repatriation tax and the re-measurement of our deferred tax assets and liabilities, and the provisions of Tax
Reform, taken as a whole, did not have an adverse impact on our cash tax liabilities, results of operations, or financial condition. We have used
reasonable interpretations and assumptions in applying Tax Reform, but it is possible that the Internal Revenue Service (IRS) could issue
subsequent guidance or take positions on audit that differ from our prior interpretations and assumptions, which could adversely impact our
cash tax liabilities, results of operations, and financial condition.
Our investments in joint ventures and other entities decrease our ability to manage risk.
We conduct some of our operations through joint ventures in which we may share control over certain economic and business interests with our
joint venture partners and in some entities in which we have no ownership or control. Our joint venture partners may have economic, business
or legal interests or goals that are inconsistent with our goals and interests or may be unable to meet their obligations. Failure by us, or an entity
in which we have a joint-venture interest, to adequately manage the risks associated with any acquisitions or joint ventures could have a
material adverse effect on our, or our joint ventures’, financial position, results of operations, and liquidity.
We may incur losses and additional costs as a result of our forward-contract activities and derivative transactions.
We currently use commodity derivative instruments, and we expect to continue their use in the future. If the instruments we use to hedge our
exposure to various types of risk are not effective, we may incur losses. In addition, we may be required to incur additional costs in connection
with future regulation of derivative instruments to the extent it is applicable to us.
Changes in the method of determining the London Interbank Offered Rate (LIBOR), or the replacement of LIBOR with an alternative
reference rate, may adversely affect interest rates.
On July 27, 2017, the Financial Conduct Authority in the U.K. announced that it would phase out LIBOR as a benchmark by the end of 2021. It
is unclear whether new methods of calculating LIBOR will be established such that it continues to exist after 2021, or whether different
benchmark rates used to price indebtedness
17
Table of Contents
will develop. In the future, we may need to renegotiate our financial agreements, including, but not limited to, our revolving credit facility (the
Valero Revolver), or incur other indebtedness, and the phase-out of LIBOR may negatively impact the terms of such indebtedness. In addition,
the overall financial market may be disrupted as a result of the phase-out or replacement of LIBOR. Disruption in the financial market could
have a material adverse effect on our financial position, results of operations, and liquidity.
Changes in the U.K.’s economic and other relationships with the EU could adversely affect us.
In June 2016, the U.K. elected to withdraw from the EU in a national referendum (Brexit). The U.K. withdrew from the EU on January 31,
2020, consistent with the terms of the EU-U.K. Withdrawal Agreement. The terms of that agreement provide for a transition period, from
January 31, 2020 to December 31, 2020, during which the trading relationship between the U.K. and the EU will remain the same while the
U.K. and the EU try to negotiate an agreement regarding their future trading relationship. The ultimate effects of Brexit will depend on whether
an agreement is reached, or on the specific terms of any such agreement that is reached, either of which outcomes could adversely impact the
ability to trade freely between the U.K. and the EU at the end of the transition period and could negatively impact our competitive position,
supplier and customer relationships, and financial performance.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 3. LEGAL PROCEEDINGS
LITIGATION
We incorporate by reference into this Item our disclosures made in Part II, Item 8 of this report included in Note 1 of Notes to Consolidated
Financial Statements under the caption “Legal Contingencies.”
ENVIRONMENTAL ENFORCEMENT MATTERS
While it is not possible to predict the outcome of the following environmental proceedings, if any one or more of them were decided against us,
we believe that there would be no material effect on our financial position, results of operations, or liquidity. We are reporting these
proceedings to comply with SEC regulations, which require us to disclose certain information about proceedings arising under federal, state, or
local provisions regulating the discharge of materials into the environment or protecting the environment if we reasonably believe that such
proceedings will result in monetary sanctions of $100,000 or more.
U.S. EPA (Fuels). In our annual report on Form 10-K for the year ended December 31, 2018, we reported that we had an outstanding Notice of
Violation (NOV) from the U.S. EPA related to violations from a 2015 Mobile Source Inspection. In the fourth quarter of 2019, we received a
draft Consent Order from the U.S. EPA proposing penalties of $3.4 million. We are working with the U.S. EPA to resolve this matter.
Attorney General of the State of Texas (Texas AG) (Corpus Christi Asphalt Plant). In our quarterly report on Form 10-Q for the quarter ended
March 31, 2019, we reported that we had received a letter and draft Agreed Final Judgment from the Texas AG related to a contaminated water
backflow incident that occurred at the Valero Corpus Christi Asphalt Plant. The draft Agreed Final Judgment assesses proposed penalties in the
amount of $1.3 million. We are working with the Texas AG to resolve this matter.
18
Table of Contents
Texas AG (Port Arthur Refinery). In our quarterly report on Form 10-Q for the quarter ended June 30, 2019, we reported that the Texas AG had
filed suit against our Port Arthur Refinery in the 419th Judicial District Court of Travis County, Texas, Cause No. D-1-GN-19-004121, for
alleged violations of the Clean Air Act seeking injunctive relief and penalties. We are working with the Texas AG to resolve this matter.
Texas AG (Houston Terminal). In our annual report on Form 10-K for the year ended December 31, 2018, we reported that we had an
outstanding Notice of Enforcement (NOE) from the Texas Commission on Environmental Quality (TCEQ), and an outstanding Violation
Notice (VN) from the Harris County Pollution Control Services Department, both alleging excess emissions from Tank 003 that occurred
during Hurricane Harvey. On January 27, 2020, the Texas AG filed suit related to this incident against our Houston Terminal in the 419th
Judicial District Court of Travis County, Texas, Cause No. D-1-GN-20-000516 seeking injunctive relief and penalties. We are working with the
Texas AG to resolve this matter.
Bay Area Air Quality Management District (BAAQMD) and Solano County Department of Resource Management Certified Unified Program
Agency (Solano County) (Benicia Refinery). In our quarterly report on Form 10-Q for the quarter ended March 31, 2019, we reported that we
had received multiple VNs issued by the BAAQMD related to an upset of the Flue Gas Scrubber (FGS) at our Benicia Refinery, and a draft
Consent from Solano County related to the FGS incident proposing penalties of $242,840. In our quarterly report on Form 10-Q for the quarter
ended September 30, 2019, we reported that we had resolved the matter with Solano County. We continue to work with the BAAQMD on a
final resolution of the remaining VNs.
BAAQMD (Benicia Refinery). In our annual report on Form 10-K for the year ended December 31, 2018, we reported that we had multiple
outstanding VNs issued by the BAAQMD. These VNs are for various alleged air regulation and air permit violations at our Benicia Refinery
and asphalt plant. We continue to work with the BAAQMD to resolve these VNs.
South Coast Air Quality Management District (SCAQMD) (Wilmington Refinery). In our annual report on Form 10-K for the year ended
December 31, 2018, we reported that we had outstanding Notices of Violation (NOVs) issued by the SCAQMD. These NOVs are for alleged
reporting violations and excess emissions at our Wilmington Refinery. We are working with the SCAQMD to resolve these NOVs.
TCEQ (Port Arthur). In our annual report on Form 10-K for the year ended December 31, 2018, we reported that we had an outstanding NOE
from the TCEQ alleging unauthorized emissions associated with a November 18, 2017 release of crude oil from the 24-inch fill pipe of Tank T-
285. We are working with the TCEQ to resolve this matter.
ITEM 4. MINE SAFETY DISCLOSURES
None.
19
Table of Contents
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Our common stock trades on the NYSE under the trading symbol “VLO.”
As of January 31, 2020, there were 5,082 holders of record of our common stock.
Dividends are considered quarterly by the board of directors, may be paid only when approved by the board, and will depend on our financial
condition, results of operations, cash flows, prospects, industry conditions, capital requirements, and other factors and restrictions our board
deems relevant. There can be no assurance that we will pay a dividend at the rates we have paid historically, or at all, in the future.
The following table discloses purchases of shares of our common stock made by us or on our behalf during the fourth quarter of 2019.
Period
October 2019
November 2019
December 2019
Total Number
of Shares
Purchased
Average
Price Paid
per Share
332,704 $
1,565,500 $
393,694 $
88.06
99.21
94.61
Total Number of
Shares Not
Purchased as Part of
Publicly Announced
Plans or Programs (a)
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
Approximate Dollar
Value of Shares that
May Yet Be Purchased
Under the Plans or
Programs (b)
98,396
107,914
6,984
234,308
1,457,586
386,710
$1.6 billion
$1.5 billion
$1.5 billion
2,291,898 $
Total
____________________________________
(a) The shares reported in this column represent purchases settled in the fourth quarter of 2019 relating to (i) our purchases of shares in open-market
transactions to meet our obligations under stock-based compensation plans and (ii) our purchases of shares from our employees and non-employee
directors in connection with the exercise of stock options, the vesting of restricted stock, and other stock compensation transactions in accordance with
the terms of our stock-based compensation plans.
$1.5 billion
2,078,604
213,294
96.80
(b) On January 23, 2018, we announced that our board of directors authorized our purchase of up to $2.5 billion of our outstanding common stock (the 2018
Program), with no expiration date. As of December 31, 2019, we had $1.5 billion remaining available for purchase under the 2018 Program.
20
Table of Contents
The following performance graph is not “soliciting material,” is not deemed filed with the SEC, and is not to be incorporated by reference into
any of Valero’s filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, as amended, respectively.
This performance graph and the related textual information are based on historical data and are not indicative of future performance. The
following line graph compares the cumulative total return(a) on an investment in our common stock against the cumulative total return of the
S&P 500 Composite Index and an index of peer companies (that we selected) for the five-year period commencing December 31, 2014 and
ending December 31, 2019. Our peer group comprises the following eight companies: BP plc; CVR Energy, Inc.; Delek US Holdings, Inc.;
HollyFrontier Corporation; Marathon Petroleum Corporation; PBF Energy Inc.; Phillips 66; and Royal Dutch Shell plc.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN(a)
Among Valero Energy Corporation, the S&P 500 Index,
and Peer Group
2014
2015
2016
2017
2018
2019
As of December 31,
Valero Common Stock
S&P 500
Peer Group
____________________________________
(a) Assumes that an investment in Valero common stock and each index was $100 on December 31, 2014. “Cumulative total return” is based on share price appreciation plus
100.00 $
100.00
100.00
207.10 $
138.29
134.53
174.54 $
132.23
125.35
147.94 $
113.51
106.16
146.79 $
101.38
88.46
227.53
173.86
137.49
$
reinvestment of dividends from December 31, 2014 through December 31, 2019.
21
Table of Contents
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data for the five-year period ended December 31, 2019 was derived from our audited financial statements. The following
table should be read together with Item 7, “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS” and with the historical financial statements and accompanying notes included in Item 8, “FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.”
The following summaries are in millions of dollars, except for per share amounts:
Revenues
Net income
Earnings per common share –
assuming dilution
Dividends per common share
Total assets
Debt and finance lease
obligations, less current portion
_________________________________________________
(a)
2019
2018
2017 (a)
2016 (b)
2015 (c)
Year Ended December 31,
$
108,324 $
2,784
117,033 $
3,353
93,980 $
4,156
75,659 $
2,417
5.84
3.60
53,864
7.29
3.20
50,155
9.16
2.80
50,158
4.94
2.40
46,173
87,804
4,101
7.99
1.70
44,227
9,178
8,871
8,750
7,886
7,208
Includes the impact of Tax Reform that was enacted on December 22, 2017 and resulted in a net income tax benefit of $1.9 billion as described in
Note 15 of Notes to Consolidated Financial Statements.
(b) Includes a noncash lower of cost or market inventory valuation reserve adjustment that resulted in a net benefit to our results of operations of
(c)
$747 million.
Includes a noncash lower of cost or market inventory valuation reserve adjustment that resulted in a net charge to our results of operations of
$790 million.
22
Table of Contents
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following review of our results of operations and financial condition should be read in conjunction with Item 1A, “RISK FACTORS,” and
Item 8, “FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA,” included in this report.
CAUTIONARY STATEMENT FOR THE PURPOSE OF SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
This report, including without limitation our disclosures below under the heading “OVERVIEW AND OUTLOOK,” includes forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can
identify our forward-looking statements by the words “anticipate,” “believe,” “expect,” “plan,” “intend,” “scheduled,” “estimate,” “project,”
“projection,” “predict,” “budget,” “forecast,” “goal,” “guidance,” “target,” “could,” “would,” “should,” “will,” “may,” and similar expressions.
These forward-looking statements include, among other things, statements regarding:
•
•
•
•
•
•
•
•
•
future refining segment margins, including gasoline and distillate margins;
future ethanol segment margins;
future renewable diesel segment margins;
expectations regarding feedstock costs, including crude oil differentials, and operating expenses;
anticipated levels of crude oil and refined petroleum product inventories;
our anticipated level of capital investments, including deferred turnaround and catalyst cost expenditures, capital expenditures for
environmental and other purposes, and joint venture investments, and the effect of those capital investments on our results of
operations;
anticipated trends in the supply of and demand for crude oil and other feedstocks and refined petroleum products in the regions where
we operate, as well as globally;
expectations regarding environmental, tax, and other regulatory initiatives; and
the effect of general economic and other conditions on refining, ethanol, and renewable diesel industry fundamentals.
We based our forward-looking statements on our current expectations, estimates, and projections about ourselves and our industry. We caution
that these statements are not guarantees of future performance and involve risks, uncertainties, and assumptions that we cannot predict. In
addition, we based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. Accordingly,
our actual results may differ materially from the future performance that we have expressed or forecast in the forward-looking statements.
Differences between actual results and any future performance suggested in these forward-looking statements could result from a variety of
factors, including the following:
•
•
•
•
acts of terrorism aimed at either our facilities or other facilities that could impair our ability to produce or transport refined petroleum
products or receive feedstocks;
political and economic conditions in nations that produce crude oil or consume refined petroleum products;
demand for, and supplies of, refined petroleum products (such as gasoline, diesel, jet fuel, and petrochemicals), ethanol, and renewable
diesel;
demand for, and supplies of, crude oil and other feedstocks;
23
Table of Contents
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the ability of the members of the Organization of Petroleum Exporting Countries to agree on and to maintain crude oil price and
production controls;
the level of consumer demand, including seasonal fluctuations;
refinery overcapacity or undercapacity;
our ability to successfully integrate any acquired businesses into our operations;
the actions taken by competitors, including both pricing and adjustments to refining capacity in response to market conditions;
the level of competitors’ imports into markets that we supply;
accidents, unscheduled shutdowns, or other catastrophes affecting our refineries, machinery, pipelines, equipment, and information
systems, or those of our suppliers or customers;
changes in the cost or availability of transportation for feedstocks and refined petroleum products;
the price, availability, and acceptance of alternative fuels and alternative-fuel vehicles;
the levels of government subsidies for alternative fuels;
the volatility in the market price of biofuel credits (primarily RINs needed to comply with the RFS) and GHG emission credits needed
to comply with the requirements of various GHG emission programs;
delay of, cancellation of, or failure to implement planned capital projects and realize the various assumptions and benefits projected for
such projects or cost overruns in constructing such planned capital projects;
earthquakes, hurricanes, tornadoes, and irregular weather, which can unforeseeably affect the price or availability of natural gas, crude
oil, grain and other feedstocks, refined petroleum products, ethanol, and renewable diesel;
rulings, judgments, or settlements in litigation or other legal or regulatory matters, including unexpected environmental remediation
costs, in excess of any reserves or insurance coverage;
legislative or regulatory action, including the introduction or enactment of legislation or rulemakings by governmental authorities,
including tariffs and tax and environmental regulations, such as those implemented under the California cap-and-trade system and
similar programs, and the U.S. EPA’s regulation of GHGs, which may adversely affect our business or operations;
changes in the credit ratings assigned to our debt securities and trade credit;
changes in currency exchange rates, including the value of the Canadian dollar, the pound sterling, the euro, the Mexican peso, and the
Peruvian sol relative to the U.S. dollar;
overall economic conditions, including the stability and liquidity of financial markets; and
other factors generally described in the “RISK FACTORS” section included in Item 1A, “RISK FACTORS” in this report.
Any one of these factors, or a combination of these factors, could materially affect our future results of operations and whether any forward-
looking statements ultimately prove to be accurate. Our forward-looking statements are not guarantees of future performance, and actual results
and future performance may differ materially from those suggested in any forward-looking statements. We do not intend to update these
statements unless we are required by the securities laws to do so.
All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their
entirety by the foregoing. We undertake no obligation to publicly release any revisions to any such forward-looking statements that may be
made to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.
24
Table of Contents
NON-GAAP FINANCIAL MEASURES
The discussions in “OVERVIEW AND OUTLOOK” and “RESULTS OF OPERATIONS” below include references to financial measures that
are not defined under U.S. generally accepted accounting principles (GAAP). These non-GAAP financial measures include adjusted operating
income (including adjusted operating income for each of our reportable segments) and refining, ethanol, and renewable diesel segment margin.
We have included these non-GAAP financial measures to help facilitate the comparison of operating results between years. See the tables in
note (f) beginning on page 39 for reconciliations of these non-GAAP financial measures to their most directly comparable U.S. GAAP financial
measures. Also in note (f), we disclose the reasons why we believe our use of the non-GAAP financial measures provides useful information.
OVERVIEW AND OUTLOOK
Overview
For 2019, we reported net income attributable to Valero stockholders of $2.4 billion compared to $3.1 billion for 2018, which represents a
decrease of $700 million. This decrease is the result of a $569 million decrease in net income and a $131 million increase in net income
attributable to noncontrolling interests. The increase in net income attributable to noncontrolling interests is primarily due to a $279 million
pre-tax increase in blender’s tax credits recognized in 2019 compared to 2018, of which 50 percent is attributable to the holder of the
noncontrolling interest, as described in note (a) on page 38. The decrease in net income is primarily due to a decrease of $736 million in
operating income between the periods, net of the resulting $177 million decrease in income tax expense.
While operating income decreased by $736 million in 2019 compared to 2018, adjusted operating income decreased by $1.0 billion. Adjusted
operating income excludes adjustments reflected in the table in note (f) on page 42.
The $1.0 billion decrease in adjusted operating income is primarily due to the following:
•
•
•
Refining segment. Refining segment adjusted operating income decreased by $1.1 billion primarily due to weaker discounts on crude
oils and other feedstocks and lower throughput volumes, partially offset by improved distillate margins. This is more fully described on
pages 31 and 32.
Ethanol segment. Ethanol segment adjusted operating income decreased by $78 million primarily due to higher corn prices and higher
operating expenses (excluding depreciation and amortization expense), partially offset by higher ethanol prices. This is more fully
described on page 33.
Renewable diesel segment. Renewable diesel segment adjusted operating income increased by $259 million primarily due to an
increase in renewable diesel sales volumes and an increase in the benefit from the blender’s tax credit resulting from an increase in the
volume of renewable diesel blended with petroleum-based diesel in 2019 compared to 2018. This is more fully described on pages 34
and 35.
25
Table of Contents
Outlook
Below are several factors that have impacted or may impact our results of operations during the first quarter of 2020:
• Distillate margins are expected to begin improving due to an anticipated increase in global demand as trade war tensions ease and
markets comply with the International Maritime Organization’s lower bunker fuel sulfur specifications, which were effective January 1,
2020. Gasoline margins are expected to remain near current levels.
• Discounts for medium and heavy sour crude oils are expected to remain near current levels as compliance with the new bunker fuel
sulfur specifications noted above is expected to reduce demand for high sulfur fuel oils, which compete with sour crude oils as a
refining feedstock.
•
Ethanol margins are expected to decline as domestic inventory levels rise.
• Renewable diesel segment margins are expected to remain near current levels.
• Our refining operations in the U.K. could be adversely affected by Brexit, which formally occurred on January 31, 2020. Although the
legal relationship between the U.K. and the EU has changed, their ongoing relationship will continue to follow the EU’s rules during a
transition period that is set to expire on December 31, 2020. During the transition period, the U.K. and the EU are expected to negotiate
a new free trade agreement, which could negatively impact the operations of our Pembroke Refinery and our marketing operations in
the U.K. and Ireland, as could the failure to reach any agreement. The ultimate effect of Brexit will depend on whether an agreement is
reached, or on the specific terms of any agreement that is reached by the U.K. and the EU. See Item 1A “RISK FACTORS”—Changes
in the U.K.’s economic and other relationships with the EU could adversely affect us.
• Global concern about the coronavirus outbreak could result in lower demand for and consumption of transportation fuels, which would
have a negative impact on our results of operations.
RESULTS OF OPERATIONS
The following tables, including the reconciliations of non-GAAP financial measures to their most directly comparable U.S. GAAP financial
measures in note (f) beginning on page 39, highlight our results of operations, our operating performance, and market reference prices that
directly impact our operations.
Effective January 1, 2019, we revised our reportable segments to align with certain changes in how our chief operating decision maker manages
and allocates resources to our business. Accordingly, we created a new reportable segment — renewable diesel — because of the growing
importance of renewable fuels in the market and the growth of our investments in renewable fuels production. The renewable diesel segment
includes the operations of DGD, which were transferred from the refining segment on January 1, 2019. Also effective January 1, 2019, we no
longer have a VLP segment, and we include the operations of VLP in our refining segment. This change was made because of the Merger
Transaction with VLP, as described in Note 2 of Notes to Consolidated Financial Statements, and the resulting change in how we manage
VLP’s operations. We no longer manage VLP as a business but as logistics assets that support the operations of our refining segment. Our prior
period segment information has been retrospectively adjusted to reflect our current segment presentation.
26
Table of Contents
2019 Compared to 2018
Financial Highlights by Segment and Total Company
(millions of dollars)
Year Ended December 31, 2019
Refining
Ethanol
Renewable
Diesel
Corporate
and
Eliminations
Total
Revenues:
Revenues from external customers
Intersegment revenues
Total revenues
Cost of sales:
Cost of materials and other (a)
Operating expenses (excluding depreciation and
amortization expense reflected below)
Depreciation and amortization expense
Total cost of sales
Other operating expenses (b)
General and administrative expenses (excluding
depreciation and amortization expense reflected
below)
Depreciation and amortization expense
Operating income by segment
Other income, net (d)
Interest and debt expense, net of capitalized
interest
Income before income tax expense
Income tax expense
Net income
Less: Net income attributable to noncontrolling
interests (a)
Net income attributable to
Valero Energy Corporation stockholders
________________
See note references on pages 38 through 42.
$
103,746 $
3,606 $
18
231
970 $
247
103,764
3,837
1,217
93,371
3,239
4,289
2,062
504
90
99,722
3,833
20
1
—
—
—
—
360
75
50
485
—
—
—
$
4,022 $
3 $
732 $
27
2 $
108,324
(496)
(494)
—
108,324
(494)
96,476
—
—
(494)
—
868
53
(921)
4,868
2,202
103,546
21
868
53
3,836
104
(454)
3,486
702
2,784
362
$
2,422
Table of Contents
Financial Highlights by Segment and Total Company (continued)
(millions of dollars)
Year Ended December 31, 2018
Refining
Ethanol
Renewable
Diesel
Corporate
and
Eliminations
Total
Revenues:
Revenues from external customers
Intersegment revenues
Total revenues
Cost of sales:
Cost of materials and other (a)
Operating expenses (excluding depreciation and
amortization expense reflected below)
Depreciation and amortization expense
Total cost of sales
Other operating expenses (b)
General and administrative expenses (excluding
depreciation and amortization expense reflected
below) (c)
Depreciation and amortization expense
Operating income by segment
Other income, net (d)
Interest and debt expense, net of capitalized
interest
Income before income tax expense
Income tax expense (e)
Net income
Less: Net income attributable to noncontrolling
interests (a)
Net income attributable to
Valero Energy Corporation stockholders
________________
See note references on pages 38 through 42.
$
113,093 $
3,428 $
25
210
113,118
3,638
508 $
170
678
101,866
3,008
4,154
1,910
470
78
107,930
3,556
45
—
—
—
—
—
262
66
29
357
—
—
—
$
5,143 $
82 $
321 $
4 $
117,033
(405)
(401)
—
117,033
(404)
104,732
—
—
(404)
—
925
52
(974)
4,690
2,017
111,439
45
925
52
4,572
130
(470)
4,232
879
3,353
231
$
3,122
28
Table of Contents
Average Market Reference Prices and Differentials
Refining
Feedstocks (dollars per barrel)
Brent crude oil
Brent less West Texas Intermediate (WTI) crude oil
Brent less Alaska North Slope (ANS) crude oil
Brent less LLS crude oil
Brent less Argus Sour Crude Index (ASCI) crude oil
Brent less Maya crude oil
LLS crude oil
LLS less ASCI crude oil
LLS less Maya crude oil
WTI crude oil
Year Ended December 31,
2019
2018
Change
$
64.18 $
7.15
(0.86)
1.47
3.56
6.57
62.71
2.09
5.10
57.03
71.62 $
6.71
0.31
1.72
5.20
9.22
69.90
3.48
7.50
64.91
Natural gas (dollars per million British Thermal Units (MMBtu))
2.47
3.23
Products (dollars per barrel)
U.S. Gulf Coast:
Conventional Blendstock of Oxygenate Blending
(CBOB) gasoline less Brent
Ultra-low-sulfur (ULS) diesel less Brent
Propylene less Brent
CBOB gasoline less LLS
ULS diesel less LLS
Propylene less LLS
U.S. Mid-Continent:
CBOB gasoline less WTI
ULS diesel less WTI
North Atlantic:
CBOB gasoline less Brent
ULS diesel less Brent
U.S. West Coast:
CARBOB 87 gasoline less ANS
CARB diesel less ANS
CARBOB 87 gasoline less WTI
CARB diesel less WTI
4.37
14.90
(22.31)
5.84
16.37
(20.84)
13.62
22.77
7.20
17.22
16.28
19.30
24.29
27.31
4.81
14.02
(2.86)
6.53
15.74
(1.14)
13.70
22.82
7.59
16.29
13.05
18.13
19.45
24.53
29
(7.44)
0.44
(1.17)
(0.25)
(1.64)
(2.65)
(7.19)
(1.39)
(2.40)
(7.88)
(0.76)
(0.44)
0.88
(19.45)
(0.69)
0.63
(19.70)
(0.08)
(0.05)
(0.39)
0.93
3.23
1.17
4.84
2.78
Table of Contents
Average Market Reference Prices and Differentials, (continued)
Ethanol
Chicago Board of Trade (CBOT) corn (dollars per bushel)
New York Harbor (NYH) ethanol (dollars per gallon)
$
3.84 $
1.53
3.68 $
1.48
0.16
0.05
Year Ended December 31,
2019
2018
Change
Renewable diesel
New York Mercantile Exchange ULS diesel
(dollars per gallon)
Biodiesel RIN (dollars per RIN)
California Low-Carbon Fuel Standard (dollars per metric ton)
CBOT soybean oil (dollars per pound)
Total Company, Corporate, and Other
1.94
0.48
196.82
0.29
2.09
0.53
168.24
0.30
(0.15)
(0.05)
28.58
(0.01)
The following table includes selected financial data for the total company, corporate, and other for 2019 and 2018. The selected financial data is
derived from the Financial Highlights by Segment and Total Company tables on pages 27 and 28, unless otherwise noted.
Revenues
Cost of sales
General and administrative expenses (excluding depreciation
and amortization expense)
Operating income
Adjusted operating income (see note (f) on page 42)
Other income, net
Income tax expense
Net income attributable to noncontrolling interests
Year Ended December 31,
2019
2018
Change
$
108,324 $
103,546
117,033 $
111,439
868
3,836
3,699
104
702
362
925
4,572
4,713
130
879
231
(8,709)
(7,893)
(57)
(736)
(1,014)
(26)
(177)
131
Revenues decreased by $8.7 billion in 2019 compared to 2018 primarily due to decreases in refined petroleum product prices associated with
sales made by our refining segment. This decline in revenues was partially offset by lower cost of sales of $7.9 billion primarily due to
decreases in crude oil and other feedstock costs and a decrease of $57 million in general and administrative expenses (excluding depreciation
and amortization expense), resulting in a decrease in operating income of $736 million in 2019 compared to 2018.
General and administrative expenses (excluding depreciation and amortization expense) decreased by $57 million in 2019 compared to 2018.
This decrease was primarily due to environmental reserve adjustments of $108 million associated with certain non-operating sites in 2018,
partially offset by increases in legal and other environmental reserves of $24 million and $12 million, respectively, as well as higher taxes other
than income taxes of $8 million and expenses associated with the Merger Transaction with VLP of $7 million.
30
Table of Contents
Adjusted operating income was $3.7 billion in 2019 compared to $4.7 billion in 2018. Details regarding the $1.0 billion decrease in adjusted
operating income between the years are discussed by segment below.
“Other income, net” decreased by $26 million in 2019 compared to 2018. This decrease was primarily due to lower interest income of
$30 million and higher foreign currency transaction losses of $14 million, partially offset by the favorable effect of a $16 million lower charge
for the early redemption of debt between the periods. As described in note (d) on page 39, we redeemed debt in both 2019 and 2018 and
incurred early redemption charges of $22 million and $38 million, respectively.
Income tax expense decreased by $177 million in 2019 compared to 2018 primarily as a result of lower income before income tax expense. Our
effective tax rate was 20 percent for 2019 compared to 21 percent for 2018.
Net income attributable to noncontrolling interests increased by $131 million in 2019 compared to 2018 primarily due to a $279 million
increase in blender’s tax credits recognized in 2019 compared to 2018, of which 50 percent is attributable to the holder of the noncontrolling
interest, as described in note (a) on page 38.
Refining Segment Results
The following table includes selected financial and operating data of our refining segment for 2019 and 2018. The selected financial data is
derived from the Financial Highlights by Segment and Total Company tables on pages 27 and 28, respectively, unless otherwise noted.
Year Ended December 31,
2019
2018
Change
Revenues
Cost of sales
Operating income
Adjusted operating income (see note (f) on page 41)
Margin (see note (f) on page 40)
Operating expenses (excluding depreciation and
amortization expense reflected below)
Depreciation and amortization expense
$
103,764 $
99,722
4,022
4,040
10,391
113,118 $
107,930
5,143
5,180
11,244
4,289
2,062
4,154
1,910
Throughput volumes (thousand BPD) (see note (g) on page 42)
2,952
2,986
(9,354)
(8,208)
(1,121)
(1,140)
(853)
135
152
(34)
Refining segment revenues decreased by $9.3 billion in 2019 compared to 2018 primarily due to decreases in refined petroleum product prices.
This decline in refining segment revenues was partially offset by lower cost of sales of $8.2 billion primarily due to decreases in crude oil and
other feedstock costs, resulting in a decrease in refining segment operating income of $1.1 billion in 2019 compared to 2018.
31
Table of Contents
Refining segment adjusted operating income also decreased by $1.1 billion in 2019 compared to 2018. The components of this decrease, along
with the reasons for the changes in these components, are outlined below.
• Refining segment margin is primarily affected by refined petroleum product prices and the cost of crude oil and other feedstocks. The
market prices for refined petroleum products generally track the price of benchmark crude oils, such as Brent, WTI, and ANS. An
increase in the differential between the market price of the refined petroleum products that we sell and the cost of the reference
benchmark crude oil has a favorable impact on our refining segment margin, while a decline in this differential has a negative impact
on our refining segment margin. Additionally, our refining segment margin is affected by our ability to purchase and process crude oils
and other feedstocks that are priced at a discount to Brent and other benchmark crude oils. While we benefit when we process these
types of crude oils and other feedstocks, that benefit will vary as the discount widens or narrows. Improvement in these discounts has a
favorable impact on our refining segment margin as it lowers our cost of materials; whereas lower discounts result in higher cost of
materials, which has a negative impact on our refining segment margin. The table on page 29 reflects market reference prices and
differentials that we believe had a material impact on the change in our refining segment margin in 2019 compared to 2018. Refining
segment margin decreased by $853 million in 2019 compared to 2018 primarily due to the following:
◦
◦
Lower discounts on crude oils had an unfavorable impact to our refining segment margin of approximately $628 million.
Lower discounts on feedstocks other than crude oils, such as natural gas and residuals, had an unfavorable impact to our refining
segment margin of approximately $360 million.
◦ A decrease in throughput volumes of 34,000 BPD had an unfavorable impact to our refining segment margin of approximately
$128 million.
◦ A decrease in the cost of biofuel credits (primarily RINs in the U.S.) had a favorable impact on our refining segment margin of
$218 million. See Note 20 of Notes to Consolidated Financial Statements for additional information on our government and
regulatory compliance programs.
◦ An increase in distillate margins throughout most of our regions had a favorable impact to our refining segment margin of
approximately $202 million.
• Refining segment operating expenses (excluding depreciation and amortization expense) increased by $135 million primarily due to
higher maintenance costs of $86 million, along with the effect of favorable property tax settlements of $20 million and sales and use
tax refunds of $17 million received in 2018 that did not recur in 2019.
• Refining segment depreciation and amortization expense associated with our cost of sales increased by $152 million primarily due to
higher refinery turnaround and catalyst amortization expense of $82 million and an increase in depreciation expense of $79 million
associated with capital projects that were completed and finance leases that commenced in the latter part of 2018 and early 2019,
partially offset by the write-off of assets that were idled or demolished in 2018 of $15 million.
32
Table of Contents
Ethanol Segment Results
The following table includes selected financial and operating data of our ethanol segment for 2019 and 2018. The selected financial data is
derived from the Financial Highlights by Segment and Total Company tables on pages 27 and 28, respectively, unless otherwise noted.
Revenues
Cost of sales
Operating income
Adjusted operating income (see note (f) on page 41)
Margin (see note (f) on page 40)
Operating expenses (excluding depreciation and
amortization expense reflected below)
Depreciation and amortization expense
Production volumes (thousand gallons per day)
(see note (g) on page 42)
Year Ended December 31,
2019
2018
Change
$
3,837 $
3,833
3
4
598
504
90
3,638 $
3,556
82
82
630
470
78
199
277
(79)
(78)
(32)
34
12
4,269
4,109
160
Ethanol segment revenues increased by $199 million in 2019 compared to 2018 primarily due to an increase in ethanol prices. This
improvement in ethanol segment revenue was outweighed by higher cost of sales of $277 million, resulting in a decrease in ethanol segment
operating income of $79 million in 2019 compared to 2018.
Ethanol segment adjusted operating income decreased by $78 million. The components of this decrease, along with the reasons for the changes
in these components, are outlined below.
•
•
•
Ethanol segment margin is primarily affected by ethanol and corn related co-product prices and the cost of corn. The table on page 30
reflects market reference prices that we believe had a material impact on the change in our ethanol segment margin in 2019 compared
to 2018. Ethanol segment margin decreased by $32 million in 2019 compared to 2018 primarily due to the following:
◦ Higher corn prices had an unfavorable impact to our ethanol segment margin of approximately $166 million.
◦ Higher ethanol prices had a favorable impact to our ethanol segment margin of approximately $123 million.
Ethanol segment operating expenses (excluding depreciation and amortization expense) increased by $34 million primarily due to costs
to operate the three plants acquired from Green Plains, Inc. (Green Plains) in November 2018 of $79 million, partially offset by lower
energy costs of $29 million and lower chemicals and catalyst costs of $12 million incurred by our other ethanol plants.
Ethanol segment depreciation and amortization expense associated with our cost of sales increased by $12 million primarily due to
depreciation expense associated with the three plants acquired from Green Plains in November 2018.
33
Table of Contents
Renewable Diesel Segment Results
The following table includes selected financial and operating data of our renewable diesel segment for 2019 and 2018. The selected financial
data is derived from the Financial Highlights by Segment and Total Company tables on pages 27 and 28, respectively, unless otherwise noted.
Revenues
Cost of sales
Operating income
Adjusted operating income (see note (f) on page 42)
Margin (see note (f) on page 41)
Operating expenses (excluding depreciation and
amortization expense reflected below)
Depreciation and amortization expense
Sales volumes (thousand gallons per day)
(see note (g) on page 42)
Year Ended December 31,
2019
2018
Change
$
1,217 $
485
732
576
701
75
50
678 $
357
321
317
412
66
29
760
431
539
128
411
259
289
9
21
329
Renewable diesel segment revenues increased by $539 million in 2019 compared to 2018 primarily due to an increase in renewable diesel sales
volumes. This improvement in renewable diesel segment revenues was partially offset by higher cost of sales of $128 million, resulting in an
increase in renewable diesel segment operating income of $411 million.
Renewable diesel segment adjusted operating income increased by $259 million in 2019 compared to 2018. The components of this increase,
along with the reasons for the changes in these components, are outlined below.
• Renewable diesel segment margin increased by $289 million in 2019 compared to 2018 primarily due to the following:
◦ An increase in sales volumes of 329,000 gallons per day, which is primarily due to the additional production capacity resulting
from the expansion of the DGD Plant completed in the third quarter of 2018, had a favorable impact to our renewable diesel
segment margin of $162 million.
◦ An increase in the benefit for the blender’s tax credit attributable to volumes blended during 2019 compared to 2018 had a
favorable impact to our renewable diesel segment margin of $119 million. As more fully described in note (a) on page 38, blender’s
tax credits of $275 million and $156 million were attributable to volumes blended during 2019 and 2018, respectively.
• Renewable diesel segment operating expenses (excluding depreciation and amortization expense) increased by $9 million, which is
primarily attributable to increased costs resulting from the expansion of the DGD Plant completed in the third quarter of 2018.
34
Table of Contents
• Renewable diesel segment depreciation and amortization expense associated with our cost of sales increased by $21 million primarily
due to higher turnaround and catalyst amortization expense of $13 million and depreciation expense associated with the expansion of
the DGD Plant completed in the third quarter of 2018 of $5 million.
Financial Highlights by Segment and Total Company
(millions of dollars)
2018 Compared to 2017
Year Ended December 31, 2018
Refining
Ethanol
Renewable
Diesel
Corporate
and
Eliminations
Total
Revenues:
Revenues from external customers
Intersegment revenues
Total revenues
Cost of sales:
Cost of materials and other (a)
Operating expenses (excluding depreciation and
amortization expense reflected below)
Depreciation and amortization expense
Total cost of sales
Other operating expenses (b)
General and administrative expenses (excluding
depreciation and amortization expense reflected
below) (c)
Depreciation and amortization expense
Operating income by segment
Other income, net (d)
Interest and debt expense, net of capitalized
interest
Income before income tax expense
Income tax expense (e)
Net income
Less: Net income attributable to noncontrolling
interests (a)
Net income attributable to
Valero Energy Corporation stockholders
________________
See note references on pages 38 through 42.
$
113,093 $
3,428 $
25
210
113,118
3,638
508 $
170
678
101,866
3,008
4,154
1,910
470
78
107,930
3,556
45
—
—
—
—
—
262
66
29
357
—
—
—
$
5,143
$
82
$
321
$
35
4 $
117,033
(405)
(401)
—
117,033
(404)
104,732
—
—
(404)
—
925
52
(974)
4,690
2,017
111,439
45
925
52
4,572
130
(470)
4,232
879
3,353
231
$
3,122
Table of Contents
Financial Highlights by Segment and Total Company (continued)
(millions of dollars)
Year Ended December 31, 2017
Revenues:
Revenues from external customers
Intersegment revenues
Total revenues
Cost of sales:
Cost of materials and other
Operating expenses (excluding depreciation and
amortization expense reflected below)
Depreciation and amortization expense
Total cost of sales
Other operating expenses (b)
General and administrative expenses (excluding
depreciation and amortization expense reflected
below)
Depreciation and amortization expense
Operating income by segment
Other income, net
Interest and debt expense, net of capitalized
interest
Income before income tax expense
Income tax benefit (e)
Net income
Less: Net income attributable to noncontrolling
interests
Net income attributable to
Valero Energy Corporation stockholders
________________
See note references on pages 38 through 42.
Refining
Ethanol
$
90,258 $
3,324 $
8
176
90,266
3,500
80,160
2,804
4,014
1,824
443
81
85,998
3,328
61
—
—
—
—
—
$
4,207
$
172
$
Renewable
Diesel
Corporate
and
Eliminations
Total
393 $
241
634
498
47
29
574
—
—
—
60
$
5 $
93,980
(425)
(420)
—
93,980
(425)
83,037
—
—
(425)
—
829
52
(876)
4,504
1,934
89,475
61
829
52
3,563
112
(468)
3,207
(949)
4,156
91
$
4,065
36
Table of Contents
Average Market Reference Prices and Differentials
Refining
Feedstocks (dollars per barrel)
Brent crude oil
Brent less WTI crude oil
Brent less ANS crude oil
Brent less LLS crude oil
Brent less ASCI crude oil
Brent less Maya crude oil
LLS crude oil
LLS less ASCI crude oil
LLS less Maya crude oil
WTI crude oil
Year Ended December 31,
2018
2017
Change
$
71.62 $
6.71
0.31
1.72
5.20
9.22
69.90
3.48
7.50
64.91
54.82 $
3.92
0.26
0.69
4.18
7.74
54.13
3.49
7.05
50.90
16.80
2.79
0.05
1.03
1.02
1.48
15.77
(0.01)
0.45
14.01
Natural gas (dollars per MMBtu)
3.23
2.98
0.25
Products (dollars per barrel)
U.S. Gulf Coast:
CBOB gasoline less Brent
ULS diesel less Brent
Propylene less Brent
CBOB gasoline less LLS
ULS diesel less LLS
Propylene less LLS
U.S. Mid-Continent:
CBOB gasoline less WTI
ULS diesel less WTI
North Atlantic:
CBOB gasoline less Brent
ULS diesel less Brent
U.S. West Coast:
CARBOB 87 gasoline less ANS
CARB diesel less ANS
CARBOB 87 gasoline less WTI
CARB diesel less WTI
4.81
14.02
(2.86)
6.53
15.74
(1.14)
13.70
22.82
7.59
16.29
13.05
18.13
19.45
24.53
10.50
13.26
0.48
11.19
13.95
1.17
15.65
18.50
12.57
14.75
18.12
17.11
21.78
20.77
(5.69)
0.76
(3.34)
(4.66)
1.79
(2.31)
(1.95)
4.32
(4.98)
1.54
(5.07)
1.02
(2.33)
3.76
37
Table of Contents
Average Market Reference Prices and Differentials, (continued)
Ethanol
CBOT corn (dollars per bushel)
NYH ethanol (dollars per gallon)
Renewable diesel
New York Mercantile Exchange ULS diesel
(dollars per gallon)
Biodiesel RIN (dollars per RIN)
California Low-Carbon Fuel Standard (dollars per metric ton)
CBOT soybean oil (dollars per pound)
________________
Year Ended December 31,
2018
2017
Change
$
3.68 $
1.48
3.59 $
1.56
0.09
(0.08)
2.09
0.53
168.24
0.30
1.66
1.01
89.26
0.33
0.43
(0.48)
78.98
(0.03)
The following notes relate to references on pages 25 through 36 and pages 43 through 46.
(a) Cost of materials and other for the years ended December 31, 2019 and 2018 includes a benefit of $449 million and $170 million, respectively, for the
blender’s tax credit. The benefit recognized in 2019 is attributable to volumes blended during 2019 and 2018 and was recognized in December 2019
because the U.S legislation authorizing the credit was passed and signed into law in that month. The benefit recognized in 2018 is attributable to volumes
blended during 2017 and was recognized in February 2018 because the U.S. legislation authorizing the credit was passed and signed into law in that
month.
The $449 million and $170 million pre-tax benefits are attributable to volumes blended during the three years and are reflected in our reportable
segments as follows (in millions):
Periods to which blender’s tax credit is attributable
2019 blender’s tax credit
2018 blender’s tax credit
Total recognized in 2019
2017 blender’s tax credit
Total recognized in 2018
38
Refining
Renewable
Diesel
Total
$
$
$
$
16 $
2
18 $
10 $
10 $
275 $
156
431 $
160 $
160 $
291
158
449
170
170
Table of Contents
Adjustments to reflect the blender’s tax credits in the period during which the volumes were blended are as follows (in millions):
Refining segment
Total blender’s tax credit recognized in period presented
$
Less: Amount properly reflected in the period associated with volumes blended
Adjustment to reflect blender’s tax credit in proper period
for the refining segment (see note (f))
Renewable diesel segment
Total blender’s tax credit recognized in period presented
Less: Amount properly reflected in the period associated with volumes blended
Adjustment to reflect blender’s tax credit in proper period
for the renewable diesel segment (see note (f))
Total adjustment to reflect blender’s tax credit in proper
period (see note (f))
Year Ended December 31,
2019
2018
2017
18 $
16
2
431
275
156
10 $
2
8
160
156
4
—
10
(10)
—
160
(160)
(170)
$
158 $
12 $
Of the $449 million pre-tax benefit recognized in 2019, $215 million is attributable to noncontrolling interest and $234 million is attributable to Valero
stockholders. Of the $170 million pre-tax benefit recognized in 2018, $80 million is attributable to noncontrolling interest and $90 million is attributable
to Valero stockholders.
(b) Other operating expenses reflects expenses that are not associated with our cost of sales and primarily includes costs to repair, remediate, and restore our
facilities to normal operations following a non-operating event, such as a natural disaster or a major unplanned outage.
(c) General and administrative expenses (excluding depreciation and amortization expense) for the year ended December 31, 2018 includes a charge of
$108 million for environmental reserve adjustments associated with certain non-operating sites.
(d) “Other income, net” for the years ended December 31, 2019 and 2018 includes a $22 million charge from the early redemption of $850 million of our
6.125 percent senior notes due February 1, 2020 and a $38 million charge from the early redemption of $750 million of our 9.375 percent senior notes
due March 15, 2019, respectively.
(e) On December 22, 2017, Tax Reform was enacted, and we recognized an income tax benefit of $1.9 billion in December 2017 that represented our initial
estimate of the impact of Tax Reform. We finalized our estimates during the year ended December 31, 2018 and recorded an income tax benefit of
$12 million during the period.
(f) We use certain financial measures (as noted below) that are not defined under U.S. GAAP and are considered to be non-GAAP financial measures.
We have defined these non-GAAP measures and believe they are useful to the external users of our financial statements, including industry analysts,
investors, lenders, and rating agencies. We believe these measures are useful to assess our ongoing financial performance because, when reconciled to
their most comparable U.S. GAAP measures, they provide improved comparability between periods through the exclusion of certain items that we
believe are not indicative of our core operating performance and that may obscure our underlying business results and trends. These non-GAAP measures
should not be considered as alternatives to their most comparable U.S. GAAP measures nor should they be considered in isolation or as a substitute for
an analysis of our results of operations as reported under U.S. GAAP. In addition, these non-GAAP measures may not be comparable to similarly titled
measures used by other companies because we may define them differently, which diminishes their utility.
39
Table of Contents
Non-GAAP financial measures are as follows:
◦
Refining margin is defined as refining operating income adjusted to reflect the blender’s tax credit in the proper period, and excluding
operating expenses (excluding depreciation and amortization expense), depreciation and amortization expense, and other operating expenses, as
reflected in the table below.
Reconciliation of refining operating income
to refining margin
Refining operating income
Exclude:
Blender’s tax credit (see note (a))
Operating expenses (excluding depreciation and
amortization expense)
Depreciation and amortization expense
Other operating expenses (see note (b))
Year Ended December 31,
2019
2018
2017
$
4,022 $
5,143 $
4,207
2
8
(10)
(4,289)
(2,062)
(20)
(4,154)
(1,910)
(45)
(4,014)
(1,824)
(61)
10,116
Refining margin
$
10,391
$
11,244 $
◦
Ethanol margin is defined as ethanol operating income excluding operating expenses (excluding depreciation and amortization expense),
depreciation and amortization expense, and other operating expenses, as reflected in the table below.
Year Ended December 31,
2019
2018
2017
$
$
3 $
82 $
172
(504)
(90)
(1)
(470)
(78)
—
598 $
630 $
(443)
(81)
—
696
Reconciliation of ethanol operating income
to ethanol margin
Ethanol operating income
Exclude:
Operating expenses (excluding depreciation and
amortization expense)
Depreciation and amortization expense
Other operating expenses (see note (b))
Ethanol margin
40
Table of Contents
◦
Renewable diesel margin is defined as renewable diesel operating income adjusted to reflect the blender’s tax credit in the proper period, and
excluding operating expenses (excluding depreciation and amortization expense) and depreciation and amortization expense, as reflected in the
table below.
Reconciliation of renewable diesel operating income to renewable
diesel margin
Renewable diesel operating income
Exclude:
Blender’s tax credit (see note (a))
Operating expenses (excluding depreciation and
amortization expense)
Depreciation and amortization expense
Renewable diesel margin
Year Ended December 31,
2019
2018
2017
$
$
732 $
321 $
60
156
(75)
(50)
701 $
4
(66)
(29)
412 $
(160)
(47)
(29)
296
◦
Adjusted refining operating income is defined as refining segment operating income adjusted to reflect the blender’s tax credit in the proper
period and excluding other operating expenses, as reflected in the table below.
Reconciliation of refining operating income to adjusted refining
operating income
Refining operating income
Exclude:
Blender’s tax credit (see note (a))
Other operating expenses (see note (b))
Adjusted refining operating income
Year Ended December 31,
2019
2018
2017
$
$
4,022 $
5,143 $
4,207
2
(20)
8
(45)
4,040 $
5,180 $
(10)
(61)
4,278
◦
Adjusted ethanol operating income is defined as ethanol segment operating income excluding other operating expenses as reflected in the
table below.
Year Ended December 31,
2019
2018
2017
Reconciliation of ethanol operating income to adjusted ethanol
operating income
Ethanol operating income
Exclude:
Other operating expenses (see note (b))
Adjusted ethanol operating income
$
$
3 $
82 $
(1)
4 $
—
82 $
172
—
172
41
Table of Contents
◦
Adjusted renewable diesel operating income is defined as renewable diesel segment operating income adjusted to reflect the blender’s tax
credit in the proper period, as reflected in the table below.
Year Ended December 31,
2019
2018
2017
Reconciliation of renewable diesel operating income to adjusted
renewable diesel operating income
Renewable diesel operating income
Exclude:
Blender’s tax credit (see note (a))
Adjusted renewable diesel operating income
$
$
732 $
321 $
60
156
576 $
4
317 $
(160)
220
◦
Adjusted operating income is defined as total company operating income adjusted to reflect the blender’s tax credit in the proper period, and
excluding other operating expenses and environmental reserve adjustments associated with certain non-operating sites, as reflected in the table
below.
Year Ended December 31,
2019
2018
2017
Reconciliation of total company operating income to adjusted
operating income
Total company operating income
Exclude:
Blender’s tax credit (see note (a))
Other operating expenses (see note (b))
Environmental reserve adjustments (see note (c))
Adjusted operating income
$
$
3,836 $
4,572 $
3,563
158
(21)
—
12
(45)
(108)
3,699 $
4,713 $
(170)
(61)
—
3,794
(g) We use throughput volumes, production volumes, and sales volumes for the refining segment, ethanol segment, and renewable diesel segment,
respectively, due to their general use by others who operate facilities similar to those included in our segments.
42
Table of Contents
Total Company, Corporate, and Other
The following table includes selected financial data for the total company, corporate, and other for 2018 and 2017. The selected financial data is
derived from the Financial Highlights by Segment and Total Company tables on pages 35 and 36, unless otherwise noted.
Revenues
Cost of sales
General and administrative expenses (excluding depreciation
and amortization expense)
Operating income
Adjusted operating income (see note (f) on page 42)
Other income, net
Income tax expense (benefit)
Net income attributable to noncontrolling interests
Year Ended December 31,
2018
2017
Change
$
117,033 $
111,439
93,980 $
89,475
23,053
21,964
925
4,572
4,713
130
879
231
829
3,563
3,794
112
(949)
91
96
1,009
919
18
1,828
140
Revenues increased by $23.1 billion in 2018 compared to 2017 primarily due to increases in refined petroleum product prices associated with
sales made by our refining segment. This improvement in revenues was partially offset by higher cost of sales of $22.0 billion primarily due to
increases in crude oil and other feedstock costs, and an increase of $96 million in general and administrative expenses (excluding depreciation
and amortization expense), resulting in an increase in operating income of $1.0 billion in 2018 compared to 2017.
General and administrative expenses (excluding depreciation and amortization expense) increased by $96 million in 2018 compared to 2017.
This increase was primarily due to environmental reserve adjustments of $108 million associated with certain non-operating sites in 2018,
partially offset by expenses incurred in 2017 associated with the termination of the acquisition of certain assets from Plains All American
Pipeline, L.P. of $16 million.
Adjusted operating income was $4.7 billion in 2018 compared to $3.8 billion in 2017. Details regarding the $919 million increase in adjusted
operating income between the years are discussed by segment below.
“Other income, net” increased by $18 million in 2018 compared to 2017. This increase was primarily due to higher equity in earnings
associated with our Diamond pipeline joint venture of $39 million and higher interest income of $29 million, partially offset by a $38 million
charge for the early redemption of debt as described in note (d) on page 39.
Income tax expense increased by $1.8 billion in 2018 compared to 2017 primarily due to the effect from a $1.9 billion income tax benefit in
2017 resulting from Tax Reform, as described in note (e) on page 39. Excluding the effect of Tax Reform from 2017, the effective tax rate for
2017 was 28 percent compared to 21 percent for 2018. The decrease in our effective tax rate is primarily due to the reduction in the U.S.
statutory income tax rate from 35 percent to 21 percent effective January 1, 2018 as a result of Tax Reform.
Net income attributable to noncontrolling interests increased by $140 million in 2018 compared to 2017 primarily due to higher earnings
associated with DGD, which includes a benefit for the blender’s tax credit
43
Table of Contents
of which $80 million is attributable to the holder of the noncontrolling interest, as described in note (a) on page 38.
Refining Segment Results
The following table includes selected financial and operating data of our refining segment for 2018 and 2017. The selected financial data is
derived from the Financial Highlights by Segment and Total Company tables on pages 35 and 36, respectively, unless otherwise noted.
Year Ended December 31,
2018
2017
Change
Revenues
Cost of sales
Operating income
Adjusted operating income (see note (f) on page 41)
Margin (see note (f) on page 40)
Operating expenses (excluding depreciation and
amortization expense reflected below)
Depreciation and amortization expense
$
113,118 $
107,930
5,143
5,180
11,244
4,154
1,910
90,266 $
85,998
4,207
4,278
10,116
4,014
1,824
Throughput volumes (thousand BPD) (see note (g) on page 42)
2,986
2,940
22,852
21,932
936
902
1,128
140
86
46
Refining segment revenues increased by $22.9 billion in 2018 compared to 2017 primarily due to increases in refined petroleum product prices.
This improvement in refining segment revenues was partially offset by higher cost of sales of $21.9 billion primarily due to increases in crude
oil and other feedstock costs, resulting in an increase in refining segment operating income of $936 million in 2018 compared to 2017.
Refining segment adjusted operating income increased by $902 million in 2018 compared to 2017. The components of this increase, along with
the reasons for the changes in these components, are outlined below.
• Refining segment margin is primarily affected by refined petroleum product prices and the cost of crude oil and other feedstocks. The
market prices for refined petroleum products generally track the price of benchmark crude oils, such as Brent, WTI, and ANS. An
increase in the differential between the market price of the refined petroleum products that we sell and the cost of the reference
benchmark crude oil has a favorable impact on our refining segment margin, while a decline in this differential has a negative impact
on our refining segment margin. Additionally, our refining segment margin is affected by our ability to purchase and process crude oils
and other feedstocks that are priced at a discount to Brent and other benchmark crude oils. While we benefit when we process these
types of crude oils and other feedstocks, that benefit will vary as the discount widens or narrows. Improvement in these discounts has a
favorable impact on our refining segment margin as it lowers our cost of materials; whereas lower discounts result in higher cost of
materials, which has a negative impact on our refining segment margin. The table on page 37 reflects market reference prices and
differentials that we believe had a material impact on the change in our refining segment margin in 2018 compared to 2017. Refining
segment margin increased by $1.1 billion in 2018 compared to 2017, primarily due to the following:
◦ An increase in distillate margins throughout all of our regions had a favorable impact to our refining segment margin of
approximately $1.3 billion.
44
Table of Contents
◦ Higher discounts on crude oils had a favorable impact to our refining segment margin of approximately $561 million.
◦ A decrease in the cost of biofuel credits (primarily RINs in the U.S.) had a favorable impact to our refining segment margin of
$406 million. See Note 20 of Notes to Consolidated Financial Statements for additional information on our government and
regulatory compliance programs.
◦ An increase in throughput volumes of 46,000 BPD had a favorable impact to our refining segment margin of approximately
$153 million.
◦ A decrease in gasoline margins throughout all of our regions had an unfavorable impact to our refining segment margin of
approximately $1.3 billion.
• Refining segment operating expenses (excluding depreciation and amortization expense) increased by $140 million primarily due to
higher employee-related expenses of $33 million, an increase in energy costs of $28 million, the effect of a favorable insurance
settlement of $20 million in 2017 for our McKee Refinery, higher maintenance expense of $17 million, and higher chemicals and
catalyst costs of $15 million.
• Refining segment depreciation and amortization expense associated with our cost of sales increased by $86 million primarily due to an
increase in depreciation expense of $44 million associated with capital projects that were completed in the latter part of 2017 and early
2018 and higher refinery turnaround and catalyst amortization expense of $35 million, along with the write-off of assets that were idled
or demolished in 2018 of $15 million.
Ethanol Segment Results
The following table includes selected financial and operating data of our ethanol segment for 2018 and 2017. The selected financial data is
derived from the Financial Highlights by Segment and Total Company tables on pages 35 and 36, respectively, unless otherwise noted.
Revenues
Cost of sales
Operating income
Margin (see note (f) on page 40)
Operating expenses (excluding depreciation and
amortization expense reflected below)
Depreciation and amortization expense
Production volumes (thousand gallons per day)
(see note (g) on page 42)
Year Ended December 31,
2018
2017
Change
$
3,638 $
3,556
82
630
470
78
3,500 $
3,328
172
696
443
81
138
228
(90)
(66)
27
(3)
4,109
3,972
137
Ethanol segment revenues increased by $138 million in 2018 compared to 2017 primarily due to an increase in ethanol sales volumes. This
improvement in ethanol segment revenue was outweighed by higher cost of sales of $228 million, resulting in a decrease in ethanol segment
operating income of $90 million in 2018
45
Table of Contents
compared to 2017. The components of this decrease, along with the reasons for the changes in these components, are outlined below.
•
Ethanol segment margin is primarily affected by ethanol and corn related co-product prices and the cost of corn. The table on page 38
reflects market reference prices that we believe had a material impact on the change in our ethanol segment margin in 2018 compared
to 2017. Ethanol segment margin decreased by $66 million in 2018 compared to 2017 primarily due to the following:
◦
Lower ethanol prices had an unfavorable impact to our ethanol segment margin of approximately $159 million.
◦ Higher corn prices had an unfavorable impact to our ethanol segment margin of approximately $36 million.
◦ Higher prices of the corn related co-products that we produced had a favorable impact to our ethanol segment margin of
approximately $101 million.
◦ Higher production volumes of 137,000 gallons per day had a favorable impact to our ethanol segment margin of approximately
$26 million.
•
Ethanol segment operating expenses (excluding depreciation and amortization expense) increased by $27 million primarily due to costs
to operate the three plants acquired from Green Plains in November 2018 of $14 million and higher chemicals and catalysts costs of
$8 million incurred by our other ethanol plants.
Renewable Diesel Segment Results
The following table includes selected financial and operating data of our renewable diesel segment for 2018 and 2017. The selected financial
data is derived from the Financial Highlights by Segment and Total Company tables on pages 35 and 36, respectively, unless otherwise noted.
Revenues
Cost of sales
Operating income
Adjusted operating income (see note (f) on page 42)
Margin (see note (f) on page 41)
Operating expenses (excluding depreciation and
amortization expense reflected below)
Depreciation and amortization expense
Sales volumes (thousand gallons per day)
(see note (g) on page 42)
$
Year Ended December 31,
2018
2017
Change
678 $
357
321
317
412
66
29
634 $
574
60
220
296
47
29
431
440
44
(217)
261
97
116
19
—
(9)
Renewable diesel segment revenues increased by $44 million in 2018 compared to 2017 primarily due to higher renewable diesel sales prices.
This improvement in renewable diesel segment revenues, along with
46
Table of Contents
a decrease in total cost of sales of $217 million, resulted in an increase in renewable diesel segment operating income of $261 million.
Renewable diesel segment adjusted operating income increased by $97 million in 2018 compared to 2017. The components of this increase,
along with the reasons for the changes in these components are outlined below.
• Renewable diesel segment margin increased by $116 million in 2018 compared to 2017 primarily due to the following:
◦ An increase in renewable diesel prices in 2018 had a favorable impact to our renewable diesel segment margin of $60 million.
◦
Price risk management activities had a favorable impact to our renewable diesel segment margin of $40 million. We recognized a
hedge gain of $29 million in 2018 from commodity derivative instruments associated with our price risk management activities
compared to a loss of $11 million in 2017.
• Renewable diesel segment operating expenses (excluding depreciation and amortization expense) increased by $19 million primarily
attributable to higher chemical and catalyst costs of $10 million and increased costs resulting from the expansion of the DGD Plant
completed in the third quarter of 2018 of $3 million.
LIQUIDITY AND CAPITAL RESOURCES
Overview
We believe that we have sufficient funds from operations and from borrowings under our credit facilities to fund our ongoing operating
requirements and other commitments. We expect that, to the extent necessary, we can raise additional funds from time to time through equity or
debt financings in the public and private capital markets or the arrangement of additional credit facilities. However, there can be no assurances
regarding the availability of any future financings or additional credit facilities or whether such financings or additional credit facilities can be
made available on terms that are acceptable to us.
Our liquidity consisted of the following as of December 31, 2019 (in millions):
Available borrowing capacity from committed facilities:
Valero Revolver
Canadian Revolver
Accounts receivable sales facility
Letter of credit facility
Total available borrowing capacity
Cash and cash equivalents(a)
Total liquidity
$
$
3,966
112
1,200
50
5,328
2,473
7,801
___________________
(a) Excludes $110 million of cash and cash equivalents related to our variable interest entities (VIEs) that is available for use only by our VIEs.
47
Table of Contents
Information about our outstanding borrowings, letters of credit issued, and availability under our credit facilities is reflected in Note 9 of Notes
to Consolidated Financial Statements.
Cash Flows
Components of our cash flows are set forth below (in millions):
Cash flows provided by (used in):
Operating activities
Investing activities
Financing activities
Effect of foreign exchange rate changes on cash
Net increase (decrease) in cash and cash equivalents
Cash Flows for the Year Ended December 31, 2019
Year Ended December 31,
2019
2018
2017
$
$
5,531 $
(3,001)
(2,997)
68
(399) $
4,371 $
(3,928)
(3,168)
(143)
(2,868) $
5,482
(2,382)
(2,272)
206
1,034
Our operations generated $5.5 billion of cash in 2019, driven primarily by net income of $2.8 billion, noncash charges to income of
$2.5 billion, and a positive change in working capital of $294 million. Noncash charges included $2.3 billion of depreciation and amortization
expense and $234 million of deferred income tax expense. See “RESULTS OF OPERATIONS” for further discussion of our operations. The
change in our working capital is detailed in Note 18 of Notes to Consolidated Financial Statements. The source of cash resulting from the
$294 million change in working capital was mainly due to:
•
•
•
•
•
an increase of $1.5 billion in accounts payable due to an increase in commodity prices in December 2019 compared to December 2018
combined with an increase in crude oil volumes purchased and the timing of payments of invoices;
a decrease of $427 million in prepaid expenses and other mainly due to a decrease in income taxes receivable resulting from a refund of
$348 million, including interest, associated with the settlement of the combined audit related to our U.S. federal income tax returns for
2010 and 2011;
an increase of $153 million in income taxes payable primarily resulting from higher pre-tax income in the fourth quarter of 2019;
partially offset by
an increase of $1.5 billion in receivables resulting from (i) an increase in commodity prices in December 2019 compared to December
2018 combined with an increase in sales volumes, and (ii) a receivable of $449 million for the blender’s tax credit attributable to
volumes blended during 2019 and 2018; and
an increase of $385 million in inventories due to an increase in commodity prices in December 2019 compared to December 2018
combined with higher inventory levels.
The $5.5 billion of cash generated by our operations, along with (i) $992 million of proceeds from debt issuances related to our 4.00 percent
Senior Notes, (ii) $239 million of proceeds from borrowings of VIEs, and (iii) $399 million from available cash on hand, were used mainly to:
•
•
•
•
•
fund $2.7 billion in capital investments, as defined in “Capital Investments” on page 50, of which $160 million related to self-funded
capital investments by DGD;
fund $225 million of capital expenditures of VIEs other than DGD;
acquire undivided interests in pipeline and terminal assets for $72 million;
redeem our 6.125 percent Senior Notes for $871 million (or 102.48 percent of stated value);
purchase common stock for treasury of $777 million;
48
Table of Contents
•
•
•
pay common stock dividends of $1.5 billion;
acquire all of the outstanding publicly held common units of VLP for $950 million; and
pay distributions to noncontrolling interests of $70 million.
In addition, during the year ended December 31, 2019, we sold and repaid $900 million of eligible receivables under our accounts receivable
sales facility.
Cash Flows for the Year Ended December 31, 2018
Our operations generated $4.4 billion of cash in 2018, driven primarily by net income of $3.4 billion and noncash charges to income of
$2.3 billion, partially offset by a negative change in working capital of $1.3 billion. Noncash charges included $2.1 billion of depreciation and
amortization expense and $203 million of deferred income tax expense. See “RESULTS OF OPERATIONS” for further discussion of our
operations. The change in our working capital is detailed in Note 18 of Notes to Consolidated Financial Statements. The use of cash resulting
from the $1.3 billion change in working capital was mainly due to:
•
•
•
•
•
an increase of $457 million in receivables resulting from an increase in sales volumes, partially offset by a decrease in commodity
prices;
an increase of $197 million in inventory primarily due to higher inventory levels;
a decrease of $684 million in income taxes payable primarily resulting from (i) $527 million of payments in early 2018 related to 2017
tax liabilities and (ii) $181 million of payments in late 2018 that will be applied to 2019 tax liabilities;
a decrease of $113 million in accrued expenses mainly due to the timing of payments on our environmental compliance program
obligations; partially offset by
an increase of $304 million in accounts payable due to an increase in crude oil and other feedstock volumes purchased, partially offset
by a decrease in commodity prices.
The $4.4 billion of cash generated by our operations, along with (i) $1.3 billion of proceeds from debt issuances and borrowings,
(ii) $109 million of proceeds from borrowings of VIEs, and (iii) $2.9 billion from available cash on hand, were used mainly to:
•
•
•
fund $2.7 billion in capital investments, of which $192 million related to self-funded capital investments by DGD;
fund $124 million of capital expenditures of VIEs other than DGD;
fund (i) $468 million for the Peru Acquisition (as defined and discussed in Note 2 of Notes to Consolidated Financial Statements) in
May 2018; (ii) $320 million for the acquisition of three ethanol plants in November 2018; and (iii) $88 million for other minor
acquisitions;
acquire undivided interests in pipeline and terminal assets for $212 million;
redeem our 9.375 percent Senior Notes for $787 million (or 104.9 percent of stated value);
•
•
• make payments on debt and finance lease obligations of $435 million, of which $410 million related to the repayment of all outstanding
borrowings under VLP’s $750 million senior unsecured revolving credit facility (the VLP Revolver);
retire $137 million of debt assumed in connection with the Peru Acquisition;
purchase common stock for treasury of $1.7 billion;
pay common stock dividends of $1.4 billion; and
pay distributions to noncontrolling interests of $116 million.
•
•
•
•
Cash Flows for the Year Ended December 31, 2017
Our operations generated $5.5 billion of cash in 2017. Net income of $4.2 billion, net of the $1.9 billion noncash benefit from Tax Reform and
other noncash charges of $2.1 billion, and a positive change in working
49
Table of Contents
capital of $1.3 billion were the primary drivers of the cash generated by our operations in 2017. Other noncash charges included $2.0 billion of
depreciation and amortization expense. See “RESULTS OF OPERATIONS” for further discussion of our operations. The Tax Reform benefit
and the change in our working capital are detailed in Notes 15 and 18, respectively, of Notes to Consolidated Financial Statements. The source
of cash resulting from the $1.3 billion change in working capital was mainly due to:
•
•
•
•
an increase of $1.8 billion in accounts payable primarily as a result of an increase in commodity prices;
an increase of $489 million in income taxes payable resulting from deferring the payment of our fourth quarter 2017 estimated taxes to
January 2018, as allowed by tax relief authorization from the IRS; partially offset by
an increase of $870 million in receivables primarily as a result of an increase in commodity prices; and
an increase of $516 million in inventory due to higher volumes held combined with an increase in commodity prices.
The $5.5 billion of cash generated by our operations, along with borrowings of $380 million under the VLP Revolver, were used mainly to:
•
•
•
•
•
•
•
fund $2.3 billion in capital investments, of which $88 million related to self-funded capital investments by DGD;
fund $26 million of capital expenditures of VIEs other than DGD;
acquire an undivided interest in crude system assets for $72 million;
purchase common stock for treasury of $1.4 billion;
pay common stock dividends of $1.2 billion;
pay distributions to noncontrolling interests of $67 million; and
increase available cash on hand by $1.0 billion.
Capital Investments
Our operations, especially those of our refining segment, are highly capital intensive. Each of our refineries comprises a large base of property
assets, consisting of a series of interconnected, highly integrated and interdependent crude oil processing facilities and supporting logistical
infrastructure (Units), and these Units are improved continuously. The cost of improvements, which consist of the addition of new Units and
betterments of existing Units, can be significant. We have historically acquired our refineries at amounts significantly below their replacement
costs, whereas our improvements are made at full replacement value. As such, the costs for improving our refinery assets increase over time
and are significant in relation to the amounts we paid to acquire our refineries. We plan for these improvements by developing a multi-year
capital program that is updated and revised based on changing internal and external factors.
We make improvements to our refineries in order to maintain and enhance their operating reliability, to meet environmental obligations with
respect to reducing emissions and removing prohibited elements from the products we produce, or to enhance their profitability. Reliability and
environmental improvements generally do not increase the throughput capacities of our refineries. Improvements that enhance refinery
profitability may increase throughput capacity, but many of these improvements allow our refineries to process different types of crude oil and
to refine crude oil into products with higher market values. Therefore, many of our improvements do not increase throughput capacity
significantly.
50
Table of Contents
We consider capital investments to include the following:
• Capital expenditures for purchases of, additions to, and improvements in our property, plant, and equipment, including those made by
DGD but excluding other VIEs;
• Deferred turnaround and catalyst cost expenditures, including those made by DGD; and
•
Investments in unconsolidated joint ventures.
We include DGD’s capital expenditures and deferred turnaround and catalyst cost expenditures in capital investments because we, as operator
of DGD, manage its capital projects and expenditures. We do not include the capital expenditures of our other consolidated VIEs in capital
investments because we do not operate those VIEs. In addition, we do not include expenditures for acquisitions and acquisitions of undivided
interests in capital investments.
We expect to make capital investments of approximately $2.5 billion in 2020. Approximately 60 percent of those investments are for sustaining
the business and 40 percent are for growth strategies. However, we continuously evaluate our capital budget and make changes as conditions
warrant. This capital investment estimate excludes potential strategic acquisitions, including acquisitions of undivided interests.
Other Matters Impacting Liquidity and Capital Resources
Stock Purchase Program
On January 23, 2018, our board of directors authorized the 2018 Program for the purchase of our outstanding common stock. As of
December 31, 2019, we had $1.5 billion remaining available for purchase under the 2018 Program with no expiration date. We have no
obligation to make purchases under this program.
Pension Plan Funding
We plan to contribute approximately $140 million to our pension plans and $21 million to our other postretirement benefit plans during 2020.
See Note 13 of Notes to Consolidated Financial Statements for a discussion of our employee benefit plans.
Environmental Matters
Our operations are subject to extensive environmental regulations by governmental authorities relating to the discharge of materials into the
environment, waste management, pollution prevention measures, GHG emissions, and characteristics and composition of gasolines and
distillates. Because environmental laws and regulations are becoming more complex and stringent and new environmental laws and regulations
are continuously being enacted or proposed, the level of future expenditures required for environmental matters could increase in the future. In
addition, any major upgrades in any of our operating facilities could require material additional expenditures to comply with environmental
laws and regulations. See Note 8 of Notes to Consolidated Financial Statements for disclosure of our environmental liabilities.
Tax Matters
We take tax positions in our tax returns from time to time that may not be ultimately allowed by the relevant taxing authority. When we take
such positions, we evaluate the likelihood of sustaining those positions and determine the amount of tax benefit arising from such positions, if
any, that should be recognized in our financial statements. Tax benefits not recognized by us are recorded as a liability for unrecognized tax
benefits, which represents our potential future obligation to various taxing authorities if the tax positions are not sustained.
As of December 31, 2019, our liability for unrecognized tax benefits, excluding related interest and penalties, was $868 million. Of this
amount, $525 million is associated with refund claims associated with taxes paid
51
Table of Contents
on incentive payments received from the U.S. federal government for blending biofuels into refined petroleum products. We recorded a tax
refund receivable of $525 million in connection with our refund claims, but we also recorded a liability for unrecognized tax benefits of
$525 million due to the complexity of this matter and uncertainties with respect to sustaining these refund claims. Therefore, our financial
position, results of operations, and liquidity will not be negatively impacted if we are unsuccessful in sustaining these refund claims. The
remaining liability for unrecognized tax benefits, excluding related interest and penalties, of $343 million represents our potential future
obligations to various taxing authorities if the tax positions associated with that liability are not sustained.
Details about our liability for unrecognized tax benefits, along with other information about our unrecognized tax benefits, are included in
Note 15 of Notes to Consolidated Financial Statements.
Cash Held by Our International Subsidiaries
As of December 31, 2019, $1.5 billion of our cash and cash equivalents was held by our international subsidiaries. Cash held by our
international subsidiaries can be repatriated to us without any U.S. federal income tax consequences as a result of the deemed repatriation
provisions of Tax Reform, but certain other taxes may apply, including, but not limited to, withholding taxes imposed by certain international
jurisdictions and U.S. state income taxes. Therefore, there is a cost to repatriate cash held by certain of our international subsidiaries to us, but
we believe that such amount is not material to our financial position or liquidity.
Concentration of Customers
Our operations have a concentration of customers in the refining industry and customers who are refined petroleum product wholesalers and
retailers. These concentrations of customers may impact our overall exposure to credit risk, either positively or negatively, in that these
customers may be similarly affected by changes in economic or other conditions. However, we believe that our portfolio of accounts receivable
is sufficiently diversified to the extent necessary to minimize potential credit risk. Historically, we have not had any significant problems
collecting our accounts receivable.
OFF-BALANCE SHEET ARRANGEMENTS
We have not entered into any transactions, agreements, or other contractual arrangements that would result in off-balance sheet liabilities.
52
Table of Contents
CONTRACTUAL OBLIGATIONS
Our contractual obligations as of December 31, 2019 are summarized below (in millions).
2020
2021
2022
2023
2024
Thereafter
Total
Payments Due by Year
Debt and finance
lease obligations (a)
$
541 $
103 $
93 $
110 $
82 $
9,485 $
10,414
Debt obligations – interest payments
Operating lease liabilities (b)
Purchase obligations
Other long-term liabilities (c)
464
376
14,284
—
462
250
1,906
160
455
194
1,644
168
449
160
1,565
200
449
125
1,519
215
3,947
498
3,558
2,185
Total
$
15,665 $
2,881 $
2,554 $
2,484 $
2,390 $
19,673 $
6,226
1,603
24,476
2,928
45,647
______________________________
(a) Debt obligations exclude amounts related to unamortized discounts and debt issuance costs. Finance lease obligations include related interest expense.
Debt obligations due in 2020 include $348 million associated with borrowings under the IEnova Revolver (as defined and described in Note 9 of Notes to
Consolidated Financial Statements) for the construction of terminals in Mexico by Central Mexico Terminals (as defined and described in Note 12 of
Notes to Consolidated Financial Statements). The IEnova Revolver is only available to the operations of Central Mexico Terminals, and its creditors do
not have recourse against us.
(b) Operating lease liabilities include related interest expense.
(c) Other long-term liabilities exclude amounts related to the long-term portion of operating lease liabilities that are separately presented above.
Debt and Finance Lease Obligations
Our debt and finance lease obligations are described in Notes 9 and 5, respectively, of Notes to Consolidated Financial Statements.
Our debt and financing agreements do not have rating agency triggers that would automatically require us to post additional collateral.
However, in the event of certain downgrades of our senior unsecured debt by the ratings agencies, the cost of borrowings under some of our
bank credit facilities and other arrangements may increase. As of December 31, 2019, all of our ratings on our senior unsecured debt, including
debt guaranteed by us, are at or above investment grade level as follows:
Rating Agency
Moody’s Investors Service
Standard & Poor’s Ratings Services
Fitch Ratings
Rating
Baa2 (stable outlook)
BBB (stable outlook)
BBB (stable outlook)
We cannot provide assurance that these ratings will remain in effect for any given period of time or that one or more of these ratings will not be
lowered or withdrawn entirely by a rating agency. We note that these credit ratings are not recommendations to buy, sell, or hold our securities.
Each rating should be evaluated independently of any other rating. Any future reduction below investment grade or withdrawal of one or more
of our credit ratings could have a material adverse impact on our ability to obtain short- and long-term financing and the cost of such
financings.
Debt Obligations – Interest Payments
Interest payments for our debt obligations as described in Note 9 of Notes to Consolidated Financial Statements are the expected payments
based on information available as of December 31, 2019.
53
Table of Contents
Operating Lease Liabilities
Our operating lease liabilities arise from leasing arrangements for the right to use various classes of underlying assets as described in Note 5 of
Notes to Consolidated Financial Statements. Operating lease liabilities are recognized for leasing arrangements with terms greater than one year
and are not reduced by minimum lease payments to be received by us under subleases.
Purchase Obligations
A purchase obligation is an enforceable and legally binding agreement to purchase goods or services that specifies significant terms, including
(i) fixed or minimum quantities to be purchased, (ii) fixed, minimum, or variable price provisions, and (iii) the approximate timing of the
transaction. We have various purchase obligations under certain crude oil and other feedstock supply arrangements, industrial gas supply
arrangements (such as hydrogen supply arrangements), natural gas supply arrangements, and various throughput, transportation and terminaling
agreements. We enter into these contracts to ensure an adequate supply of feedstock and utilities and adequate storage capacity to operate our
refineries and ethanol plants. Substantially all of our purchase obligations are based on market prices or adjustments based on market indices.
Certain of these purchase obligations include fixed or minimum volume requirements, while others are based on our usage requirements. The
purchase obligation amounts shown in the preceding table include both short- and long-term obligations and are based on (i) fixed or minimum
quantities to be purchased and (ii) fixed or estimated prices to be paid based on current market conditions.
Other Long-Term Liabilities
Our other long-term liabilities are described in Note 8 of Notes to Consolidated Financial Statements. For purposes of reflecting amounts for
other long-term liabilities in the preceding table, we made our best estimate of expected payments for each type of liability based on
information available as of December 31, 2019.
NEW ACCOUNTING PRONOUNCEMENTS
As discussed in Note 1 of Notes to Consolidated Financial Statements, certain new financial accounting pronouncements became effective
January 1, 2020, or will become effective in the future. The effect on our financial statements upon adoption of these pronouncements is
discussed in the above-referenced note.
CRITICAL ACCOUNTING POLICIES INVOLVING CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The following summary provides
further information about our critical accounting policies that involve critical accounting estimates, and should be read in conjunction with
Note 1 of Notes to Consolidated Financial Statements, which summarizes our significant accounting policies. The following accounting
policies involve estimates that are considered critical due to the level of subjectivity and judgment involved, as well as the impact on our
financial position and results of operations. We believe that all of our estimates are reasonable. Unless otherwise noted, estimates of the
sensitivity to earnings that would result from changes in the assumptions used in determining our estimates is not practicable due to the number
of assumptions and contingencies involved, and the wide range of possible outcomes.
Unrecognized Tax Benefits
We take tax positions in our tax returns from time to time that may not be ultimately allowed by the relevant taxing authority. When we take
such positions, we evaluate the likelihood of sustaining those positions and determine the amount of tax benefit arising from such positions, if
any, that should be recognized in our financial statements. Tax benefits not recognized by us are recorded as a liability for unrecognized tax
54
Table of Contents
benefits, which represents our potential future obligation to various taxing authorities if the tax positions are not sustained.
The evaluation of tax positions and the determination of the benefit arising from such positions that are recognized in our financial statements
requires us to make significant judgments and estimates based on an analysis of complex tax laws and regulations and related interpretations.
These judgments and estimates are subject to change due to many factors, including the progress of ongoing tax audits, case law, and changes
in legislation.
Details of our liability for unrecognized tax benefits, along with other information about our unrecognized tax benefits, are included in Note 15
of Notes to Consolidated Financial Statements.
Environmental Matters
Our operations are subject to extensive environmental regulations by governmental authorities relating primarily to the discharge of materials
into the environment, waste management, and pollution prevention measures. Future legislative action and regulatory initiatives could result in
changes to required operating permits, additional remedial actions, or increased capital expenditures and operating costs that cannot be assessed
with certainty at this time.
Accruals for environmental liabilities are based on best estimates of probable undiscounted future costs over a 20-year time period using
currently available technology and applying current regulations, as well as our own internal environmental policies. However, environmental
liabilities are difficult to assess and estimate due to uncertainties related to the magnitude of possible remediation, the timing of such
remediation, and the determination of our obligation in proportion to other parties. Such estimates are subject to change due to many factors,
including the identification of new sites requiring remediation, changes in environmental laws and regulations and their interpretation,
additional information related to the extent and nature of remediation efforts, and potential improvements in remediation technologies.
The amount of our accruals for environmental matters are included in Note 8 of Notes to Consolidated Financial Statements.
Pension and Other Postretirement Benefit Obligations
We have significant pension and other postretirement benefit liabilities and costs that are developed from actuarial valuations. Inherent in these
valuations are key assumptions including discount rates, expected return on plan assets, future compensation increases, and health care cost
trend rates. These assumptions are disclosed and described in Note 13 of Notes to Consolidated Financial Statements. Changes in these
assumptions are primarily influenced by factors outside of our control. For example, the discount rate assumption represents a yield curve
comprised of various long-term bonds that have an average rating of double-A when averaging all available ratings by the recognized rating
agencies, while the expected return on plan assets is based on a compounded return calculated assuming an asset allocation that is
representative of the asset mix in our pension plans. To determine the expected return on plan assets, we utilized a forward-looking model of
asset returns. The historical geometric average return over the 10 years prior to December 31, 2019 was 9.41 percent. The actual return on
assets for the years ended December 31, 2019, 2018, and 2017 was 23.44 percent, (5.53) percent, and 19.31 percent, respectively. These
assumptions can have a significant effect on the amounts reported in our financial statements.
55
Table of Contents
The following sensitivity analysis shows the effects on the projected benefit obligation as of December 31, 2019 and net periodic benefit cost
for the year ending December 31, 2020 (in millions):
Increase in projected benefit obligation resulting from:
Discount rate decrease of 0.25%
Compensation rate increase of 0.25%
Increase in expense resulting from:
Discount rate decrease of 0.25%
Expected return on plan assets decrease of 0.25%
Compensation rate increase of 0.25%
Pension
Benefits
Other
Postretirement
Benefits
$
134 $
17
12
6
4
10
n/a
—
n/a
n/a
Our net periodic benefit cost is determined using the spot-rate approach. Under this approach, our net periodic benefit cost is impacted by the
spot rates of the corporate bond yield curve used to calculate our liability discount rate. If the yield curve were to flatten entirely and our
liability discount rate remained unchanged, our net periodic benefit cost would increase by $16 million for pension benefits and $2 million for
other postretirement benefits in 2020.
See Note 13 of Notes to Consolidated Financial Statements for a discussion of our pension and other postretirement benefit obligations.
Inventory Valuation
The cost of our inventories is principally determined under the last-in, first-out (LIFO) method using the dollar-value LIFO approach. Our
LIFO inventories are carried at the lower of cost or market value and our non-LIFO inventories are carried at the lower of cost or net realizable
value. The market value of our LIFO inventories is determined based on the net realizable value of the inventories.
We compare the market value of inventories to their cost on an aggregate basis, excluding materials and supplies. In determining the market
value of our inventories, we assume that feedstocks are converted into refined products, which requires us to make estimates regarding the
refined products expected to be produced from those feedstocks and the conversion costs required to convert those feedstocks into refined
products. We also estimate the usual and customary transportation costs required to move the inventory from our plants to the appropriate
points of sale. We then apply an estimated selling price to our inventories. If the aggregate market value is less than cost, we recognize a loss
for the difference in our statements of income.
56
Table of Contents
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
COMMODITY PRICE RISK
We are exposed to market risks related to the volatility in the price of crude oil, refined petroleum products (primarily gasoline and distillate),
renewable diesel, grain (primarily corn), renewable diesel feedstocks, and natural gas used in our operations. To reduce the impact of price
volatility on our results of operations and cash flows, we use commodity derivative instruments, including futures and options to manage the
volatility of:
•
•
inventories and firm commitments to purchase inventories generally for amounts by which our current year inventory levels
(determined on a LIFO basis) differ from our previous year-end LIFO inventory levels; and
forecasted feedstock and refined petroleum product purchases, refined petroleum product sales, renewable diesel sales, or natural gas
purchases to lock in the price of those forecasted transactions at existing market prices that we deem favorable.
Our positions in commodity derivative instruments are monitored and managed on a daily basis by our risk control group to ensure compliance
with our stated risk management policy that has been approved by our board of directors.
The following sensitivity analysis includes all of our derivative instruments entered into for purposes other than trading with which we have
market risk (in millions):
Gain (loss) in fair value resulting from:
10% increase in underlying commodity prices
10% decrease in underlying commodity prices
December 31,
2019
2018
$
(39) $
38
2
(6)
See Note 20 of Notes to Consolidated Financial Statements for notional volumes associated with these derivative contracts as of December 31,
2019.
COMPLIANCE PROGRAM PRICE RISK
We are exposed to market risk related to the volatility in the price of credits needed to comply with various governmental and regulatory
environmental compliance programs. To manage this risk, we enter into contracts to purchase these credits when prices are deemed favorable.
Some of these contracts are derivative instruments; however, we elect the normal purchase exception and do not record these contracts at their
fair values. As of December 31, 2019 and 2018, the amount of gain or loss in the fair value of derivative instruments that would have resulted
from a 10 percent increase or decrease in the underlying price of the contracts was not material. See Note 20 of Notes to Consolidated Financial
Statements for a discussion about these compliance programs.
57
Table of Contents
INTEREST RATE RISK
The following table provides information about our debt instruments (dollars in millions), the fair values of which are sensitive to changes in
interest rates. Principal cash flows and related weighted-average interest rates by expected maturity dates are presented.
December 31, 2019
Expected Maturity Dates
2020 (a)
2021
2022
2023
2024
There-
after
Total (b)
— $
—%
$
453
5.0%
$
$
11
5.0%
6
4.5%
— $
—%
6
4.5%
$
— $
—%
19
4.5%
$
— $
—%
— $
—%
8,474
$
5.2%
— $
—%
8,485
$
5.2%
484
$
5.0%
December 31, 2018
Expected Maturity Dates
2019 (a)
2020
2021
2022
2023
There-
after
Total (b)
— $
—%
$
214
4.6%
$
$
850
6.1%
5
4.7%
$
$
10
5.0%
5
4.7%
— $
—%
5
4.7%
$
— $
—%
20
4.7%
$
7,474
$
5.4%
— $
—%
8,334
$
5.5%
249
$
4.6%
Fair
Value
10,099
484
Fair
Value
8,737
249
Fixed rate
Average interest rate
Floating rate (c)
Average interest rate
Fixed rate
Average interest rate
Floating rate (c)
Average interest rate
$
$
$
$
________________________
(a) As of December 31, 2019 and 2018, our floating rate debt due in 2020 and 2019 includes $348 million and $109 million, respectively, associated with
borrowings under the IEnova Revolver for the construction of terminals in Mexico by Central Mexico Terminals. The IEnova Revolver is only available
to the operations of Central Mexico Terminals, and its creditors do not have recourse against us.
(b) Excludes unamortized discounts and debt issuance costs.
(c) As of December 31, 2019 and 2018, we had an interest rate swap associated with $36 million and $40 million, respectively, of our floating rate debt
resulting in an effective interest rate of 3.85 percent as of each of those reporting dates. The fair value of the swap was immaterial for all periods
presented.
FOREIGN CURRENCY RISK
As of December 31, 2019, we had foreign currency contracts to purchase $739 million of U.S. dollars and $2.3 billion of U.S. dollar equivalent
Canadian dollars. Our market risk was minimal on these contracts, as all of them matured on or before February 15, 2020.
58
Table of Contents
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate “internal control over financial reporting” (as defined in Rule 13a-
15(f) under the Securities Exchange Act of 1934) for Valero Energy Corporation. Our management evaluated the effectiveness of Valero’s
internal control over financial reporting as of December 31, 2019. In its evaluation, management used the criteria established in Internal
Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Management believes that as of December 31, 2019, our internal control over financial reporting was effective based on those criteria.
Our independent registered public accounting firm has issued an attestation report on the effectiveness of our internal control over financial
reporting, which begins on page 62 of this report.
59
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Valero Energy Corporation:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Valero Energy Corporation and subsidiaries (the Company) as of
December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the
years in the three-year period ended December 31, 2019, and the related notes (collectively, the consolidated financial statements). In our
opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31,
2019 and 2018, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2019, in
conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 26,
2020 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our
audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error
or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe
that our audits provide a reasonable basis for our opinion.
60
Table of Contents
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the
consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgment. The communication of a
critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by
communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to
which it relates.
Assessment of gross unrecognized tax benefits
As discussed in Note 15 to the consolidated financial statements, as of December 31, 2019, the Company has gross unrecognized tax
benefits, excluding related interest and penalties, of $897 million. The Company’s tax positions are subject to examination by local taxing
authorities and the resolution of such examinations may span multiple years. Due to the complexities inherent in the interpretation of
income tax laws in domestic and international jurisdictions, it is uncertain whether some of the Company’s income tax positions will be
sustained upon examination.
We identified the assessment of the Company’s gross unrecognized tax benefits as a critical audit matter because complex auditor judgment
was required in evaluating the Company’s interpretation of income tax laws and assessing the Company’s estimate of the ultimate
resolution of its income tax positions.
The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over
the Company’s income tax process, including controls to evaluate which of the Company’s income tax positions may not be sustained upon
examination and estimate the gross unrecognized tax benefits.
We involved domestic and international income tax professionals with specialized skills and knowledge, who assisted in:
• Obtaining an understanding and evaluating the Company’s income tax positions as filed or intended to be filed;
•
Evaluating the Company’s interpretation of income tax laws by developing an independent assessment of the Company’s income
tax positions and comparing the results to the Company’s assessment;
•
Inspecting settlements with applicable taxing authorities; and
• Assessing the expiration of applicable statutes of limitations.
In addition, we evaluated the Company’s ability to estimate its gross unrecognized tax benefits by comparing historical uncertain income
tax positions, including the gross unrecognized tax benefits, to actual results upon conclusion of tax examinations.
We have served as the Company’s auditor since 2004.
/s/ KPMG LLP
San Antonio, Texas
February 26, 2020
61
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Valero Energy Corporation:
Opinion on Internal Control Over Financial Reporting
We have audited Valero Energy Corporation’s and subsidiaries’ (the Company) internal control over financial reporting as of December 31,
2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive
income, equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes (collectively, the
consolidated financial statements), and our report dated February 26, 2020 expressed an unqualified opinion on those consolidated financial
statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of
internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that
a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial
62
Table of Contents
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only
in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.
San Antonio, Texas
February 26, 2020
/s/ KPMG LLP
63
VALERO ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(millions of dollars, except par value)
ASSETS
December 31,
2019
2018
Table of Contents
Current assets:
Cash and cash equivalents
Receivables, net
Inventories
Prepaid expenses and other
Total current assets
Property, plant, and equipment, at cost
Accumulated depreciation
Property, plant, and equipment, net
Deferred charges and other assets, net
Total assets
Current liabilities:
LIABILITIES AND EQUITY
Current portion of debt and finance lease obligations
Accounts payable
Accrued expenses
Taxes other than income taxes payable
Income taxes payable
Total current liabilities
Debt and finance lease obligations, less current portion
Deferred income tax liabilities
Other long-term liabilities
Commitments and contingencies
Equity:
Valero Energy Corporation stockholders’ equity:
Common stock, $0.01 par value; 1,200,000,000 shares authorized;
673,501,593 and 673,501,593 shares issued
Additional paid-in capital
Treasury stock, at cost;
264,209,742 and 255,905,051 common shares
Retained earnings
Accumulated other comprehensive loss
Total Valero Energy Corporation stockholders’ equity
Noncontrolling interests
Total equity
Total liabilities and equity
See Notes to Consolidated Financial Statements.
64
$
$
$
$
2,583 $
8,904
7,013
469
18,969
44,294
(15,030)
29,264
5,631
53,864 $
494 $
10,205
949
1,304
208
13,160
9,178
5,103
3,887
7
6,821
(15,648)
31,974
(1,351)
21,803
733
22,536
53,864 $
2,982
7,345
6,532
816
17,675
42,473
(13,625)
28,848
3,632
50,155
238
8,594
630
1,213
49
10,724
8,871
4,962
2,867
7
7,048
(14,925)
31,044
(1,507)
21,667
1,064
22,731
50,155
Table of Contents
Revenues (a)
Cost of sales:
VALERO ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(millions of dollars, except per share amounts)
Cost of materials and other
Operating expenses (excluding depreciation and amortization
expense reflected below)
Depreciation and amortization expense
Total cost of sales
Other operating expenses
General and administrative expenses (excluding depreciation and
amortization expense reflected below)
Depreciation and amortization expense
Operating income
Other income, net
Interest and debt expense, net of capitalized interest
Income before income tax expense (benefit)
Income tax expense (benefit)
Net income
Less: Net income attributable to noncontrolling interests
Net income attributable to Valero Energy Corporation stockholders
Earnings per common share
Weighted-average common shares outstanding (in millions)
Earnings per common share – assuming dilution
Weighted-average common shares outstanding –
assuming dilution (in millions)
_______________________________________________
Supplemental information:
(a) Includes excise taxes on sales by certain of our international
operations
See Notes to Consolidated Financial Statements.
65
Year Ended December 31,
2019
2018
2017
$
108,324 $
117,033 $
93,980
96,476
104,732
83,037
4,868
2,202
103,546
21
4,690
2,017
111,439
45
4,504
1,934
89,475
61
868
53
3,836
104
(454)
3,486
702
925
52
4,572
130
(470)
4,232
879
2,784
362
2,422 $
3,353
231
3,122 $
5.84 $
413
7.30 $
426
5.84 $
7.29 $
414
428
$
$
$
829
52
3,563
112
(468)
3,207
(949)
4,156
91
4,065
9.17
442
9.16
444
$
5,595 $
5,626 $
5,573
Table of Contents
VALERO ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(millions of dollars)
Net income
Other comprehensive income (loss):
Foreign currency translation adjustment
Net gain (loss) on pension
and other postretirement benefits
Net loss on cash flow hedges
Other comprehensive income (loss) before
income tax expense (benefit)
Income tax expense (benefit) related to
items of other comprehensive income (loss)
Other comprehensive income (loss)
Comprehensive income
Less: Comprehensive income attributable
to noncontrolling interests
Comprehensive income attributable to
Valero Energy Corporation stockholders
Year Ended December 31,
2019
2018
2017
$
2,784 $
3,353 $
4,156
349
(234)
(8)
107
(48)
155
2,939
(517)
49
—
(468)
10
(478)
2,875
361
229
514
(65)
—
449
(21)
470
4,626
91
$
2,578 $
2,646 $
4,535
See Notes to Consolidated Financial Statements.
66
Table of Contents
VALERO ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY
(millions of dollars)
Valero Energy Corporation Stockholders’ Equity
Common
Stock
Additional
Paid-in
Capital
Treasury
Stock
Retained
Earnings
Balance as of December 31, 2016
$
Net income
Dividends on common stock
($2.80 per share)
Stock-based compensation expense
Transactions in connection with
stock-based compensation plans
Stock purchases under purchase programs
Issuance of Valero Energy Partners LP
common units
Contributions from noncontrolling interests
Distributions to noncontrolling interests
Other
Other comprehensive income
Balance as of December 31, 2017
Reclassification of stranded income
tax effects
Net income
Dividends on common stock
($3.20 per share)
Stock-based compensation expense
Transactions in connection with
stock-based compensation plans
Stock purchases under purchase programs
Contributions from noncontrolling interests
Distributions to noncontrolling interests
Other
Other comprehensive loss
Balance as of December 31, 2018
Net income
Dividends on common stock
($3.60 per share)
Stock-based compensation expense
Transactions in connection with
stock-based compensation plans
Stock purchases under purchase program
Acquisition of Valero Energy Partners LP
publicly held common units
Distributions to noncontrolling interests
Other
Other comprehensive income (loss)
Balance as of December 31, 2019
$
7 $
—
—
—
—
—
—
—
—
—
—
7
—
—
—
—
—
—
—
—
—
—
7
—
—
—
—
—
—
—
—
—
7 $
7,088 $ (12,027) $ 26,366 $
—
4,065
—
—
68
(82)
—
—
—
—
(35)
—
7,039
—
—
—
82
(70)
—
—
—
(3)
—
7,048
—
—
77
(50)
—
—
—
(1,242)
—
19
(1,307)
—
—
—
—
—
(13,315)
—
—
—
—
(99)
(1,511)
—
—
—
—
(14,925)
—
—
—
30
(753)
—
—
—
—
—
11
—
29,200
91
3,122
(1,369)
—
—
—
—
—
—
—
31,044
2,422
(1,492)
—
—
—
(328)
—
74
—
—
—
—
—
6,821 $ (15,648) $ 31,974 $
—
—
—
—
Accumulated
Other
Comprehensive
Loss
Total
(1,410) $ 20,024 $
—
—
—
—
—
—
—
—
—
470
(940)
(91)
—
—
—
—
—
—
—
—
(476)
(1,507)
—
—
—
—
—
—
—
—
156
4,065
(1,242)
68
(63)
(1,307)
—
—
—
(24)
470
21,991
—
3,122
(1,369)
82
(169)
(1,511)
—
—
(3)
(476)
21,667
2,422
(1,492)
77
(20)
(753)
(328)
—
74
156
(1,351) $ 21,803 $
See Notes to Consolidated Financial Statements.
67
Non-
controlling
Interests
Total
Equity
830 $ 20,854
91
4,156
—
—
—
—
33
30
(67)
(8)
—
909
—
231
—
—
—
—
32
(116)
10
(2)
1,064
362
—
—
—
—
(1,242)
68
(63)
(1,307)
33
30
(67)
(32)
470
22,900
—
3,353
(1,369)
82
(169)
(1,511)
32
(116)
7
(478)
22,731
2,784
(1,492)
77
(20)
(753)
(70)
(950)
(622)
(70)
—
(1)
155
733 $ 22,536
74
Table of Contents
VALERO ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions of dollars)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization expense
Deferred income tax expense (benefit)
Changes in current assets and current liabilities
Changes in deferred charges and credits and
other operating activities, net
Net cash provided by operating activities
Cash flows from investing activities:
Capital expenditures (excluding variable interest entities (VIEs))
Capital expenditures of VIEs:
Diamond Green Diesel Holdings LLC (DGD)
Other VIEs
Deferred turnaround and catalyst cost expenditures (excluding VIEs)
Deferred turnaround and catalyst cost expenditures of DGD
Investments in unconsolidated joint ventures
Peru Acquisition, net of cash acquired
Acquisition of ethanol plants
Acquisitions of undivided interests
Minor acquisitions
Other investing activities, net
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from debt issuances and borrowings (excluding VIEs)
Proceeds from borrowings of VIEs
Repayments of debt and finance lease obligations (excluding VIEs)
Repayments of debt of VIEs
Purchases of common stock for treasury
Common stock dividends
Acquisition of Valero Energy Partners LP publicly held common units
Contributions from noncontrolling interests
Distributions to noncontrolling interests
Other financing activities, net
Net cash used in financing activities
Effect of foreign exchange rate changes on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
See Notes to Consolidated Financial Statements.
68
Year Ended December 31,
2019
2018
2017
$
2,784 $
3,353 $
4,156
2,255
234
294
(36)
5,531
2,069
203
(1,297)
43
4,371
1,986
(2,543)
1,289
594
5,482
(1,627)
(1,463)
(1,269)
(142)
(225)
(762)
(18)
(164)
—
(3)
(72)
—
12
(165)
(124)
(888)
(27)
(181)
(468)
(320)
(212)
(88)
8
(84)
(26)
(519)
(4)
(406)
—
—
(72)
—
(2)
(3,001)
(3,928)
(2,382)
1,892
239
(1,805)
(6)
(777)
(1,492)
(950)
—
(70)
(28)
(2,997)
68
1,258
109
(1,353)
(6)
(1,708)
(1,369)
—
32
(116)
(15)
(3,168)
(143)
(399)
2,982
2,583 $
(2,868)
5,850
2,982 $
$
380
—
(15)
(6)
(1,372)
(1,242)
—
30
(67)
20
(2,272)
206
1,034
4,816
5,850
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION, AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business
The terms “Valero,” “we,” “our,” and “us,” as used in this report, may refer to Valero Energy Corporation, one or more of its consolidated
subsidiaries, or all of them taken as a whole.
We are an international manufacturer and marketer of transportation fuels and petrochemical products. We own and operate 15 petroleum
refineries with a combined throughput capacity of approximately 3.15 million barrels per day and 14 ethanol plants with a combined production
capacity of approximately 1.73 billion gallons per year as of December 31, 2019. The petroleum refineries are located in the United States
(U.S.), Canada, and the United Kingdom (U.K.), and the ethanol plants are located in the Mid-Continent region of the U.S. We are also a joint
venture partner in DGD, which owns and operates a renewable diesel plant in Norco, Louisiana. We sell our products in the wholesale rack or
bulk markets in the U.S., Canada, the U.K., Ireland, and Latin America. Approximately 7,000 outlets carry our brand names.
Basis of Presentation
General
These consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles (GAAP) and with the
rules and regulations of the U.S. Securities and Exchange Commission (SEC).
Reclassifications
Effective January 1, 2019, we revised our reportable segments to reflect a new reportable segment — renewable diesel. The renewable diesel
segment includes the operations of DGD, our consolidated joint venture as discussed in Note 12, that were transferred from the refining
segment. Also effective January 1, 2019, we no longer have a VLP segment, and we now include the operations of Valero Energy Partners LP
and its consolidated subsidiaries (VLP) in our refining segment. Our prior period segment information has been retrospectively adjusted to
reflect our current segment presentation. See Note 2 regarding our merger with VLP, which occurred on January 10, 2019, and Note 17 for
segment information.
Prior year amounts for capital expenditures and deferred turnaround and catalyst cost expenditures in the consolidated statements of cash flows
have been reclassified to conform to the 2019 presentation to separately provide these expenditures for us and our consolidated VIEs.
Significant Accounting Policies
Principles of Consolidation
These financial statements include those of Valero, our wholly owned subsidiaries, and VIEs in which we have a controlling financial interest.
Our VIEs are described in Note 12. The ownership interests held by others in the VIEs are recorded as noncontrolling interests. Intercompany
items and transactions have been eliminated in consolidation. Investments in less than wholly owned entities where we have significant
influence are accounted for using the equity method.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual
69
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
results could differ from those estimates. On an ongoing basis, we review our estimates based on currently available information. Changes in
facts and circumstances may result in revised estimates.
Cash Equivalents
Our cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and have a maturity of
three months or less when acquired.
Receivables
Trade receivables are carried at original invoice amount. We maintain an allowance for doubtful accounts, which is adjusted based on
management’s assessment of our customers’ historical collection experience, known credit risks, and industry and economic conditions.
Inventories
The cost of refinery feedstocks and refined petroleum products, grain and ethanol, and renewable diesel feedstocks (animal fats, used cooking
oils, and other vegetable oils) and renewable diesel is determined under the last-in, first-out (LIFO) method using the dollar-value LIFO
approach, with any increments valued based on average purchase prices during the year. Our LIFO inventories are carried at the lower of cost
or market. The cost of products purchased for resale and the cost of materials and supplies are determined principally under the weighted-
average cost method. Our non-LIFO inventories are carried at the lower of cost or net realizable value. If the aggregate market value of our
LIFO inventories or the aggregate net realizable value of our non-LIFO inventories is less than the related aggregate cost, we recognize a loss
for the difference in our statements of income.
Property, Plant, and Equipment
The cost of property, plant, and equipment (property assets) purchased or constructed, including betterments of property assets, is capitalized.
However, the cost of repairs to and normal maintenance of property assets is expensed as incurred. Betterments of property assets are those that
extend the useful life, increase the capacity or improve the operating efficiency of the asset, or improve the safety of our operations. The cost of
property assets constructed includes interest and certain overhead costs allocable to the construction activities.
Our operations, especially those of our refining segment, are highly capital intensive. Each of our refineries comprises a large base of property
assets, consisting of a series of interconnected, highly integrated and interdependent crude oil processing facilities and supporting logistical
infrastructure (Units), and these Units are continuously improved. Improvements consist of the addition of new Units and betterments of
existing Units. We plan for these improvements by developing a multi-year capital program that is updated and revised based on changing
internal and external factors.
Depreciation of property assets used in our refining and renewable diesel segments is recorded on a straight-line basis over the estimated useful
lives of these assets primarily using the composite method of depreciation. We maintain a separate composite group of property assets for each
of our refineries and our renewable diesel plant. We estimate the useful life of each group based on an evaluation of the property assets
comprising the group, and such evaluations consist of, but are not limited to, the physical inspection of the assets to determine their condition,
consideration of the manner in which the assets are maintained, assessment of the
70
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
need to replace assets, and evaluation of the manner in which improvements impact the useful life of the group. The estimated useful lives of
our composite groups range primarily from 20 to 30 years.
Under the composite method of depreciation, the cost of an improvement is added to the composite group to which it relates and is depreciated
over that group’s estimated useful life. We design improvements to our refineries and renewable diesel plant in accordance with engineering
specifications, design standards, and practices accepted in our industry, and these improvements have design lives consistent with our estimated
useful lives. Therefore, we believe the use of the group life to depreciate the cost of improvements made to the group is reasonable because the
estimated useful life of each improvement is consistent with that of the group.
Also under the composite method of depreciation, the historical cost of a minor property asset (net of salvage value) that is retired or replaced is
charged to accumulated depreciation and no gain or loss is recognized in income. However, a gain or loss is recognized in income for a major
property asset that is retired, replaced, sold, or for an abnormal disposition of a property asset (primarily involuntary conversions). Gains and
losses are reflected in depreciation and amortization expense, unless such amounts are reported separately due to materiality.
Depreciation of property assets used in our ethanol segment is recorded on a straight-line basis over the estimated useful lives of the related
assets. The estimated useful life of our grain processing equipment is 20 years.
Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or the estimated useful life of the related asset.
Finance lease ROU (defined below) assets are amortized as discussed in “Leases” below.
Deferred Charges and Other Assets
“Deferred charges and other assets, net” primarily include the following:
•
•
•
•
•
•
•
turnaround costs, which are incurred in connection with planned major maintenance activities at our refineries, ethanol plants, and
renewable diesel plant, are deferred when incurred and amortized on a straight-line basis over the period of time estimated to lapse until
the next turnaround occurs;
fixed-bed catalyst costs, representing the cost of catalyst that is changed out at periodic intervals when the quality of the catalyst has
deteriorated beyond its prescribed function, are deferred when incurred and amortized on a straight-line basis over the estimated useful
life of the specific catalyst;
operating lease ROU (defined below) assets, which are amortized as discussed in “Leases” below;
investments in unconsolidated joint ventures;
income taxes receivable;
intangible assets, which are amortized over their estimated useful lives; and
goodwill.
71
Table of Contents
Leases
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
We evaluate if a contract is or contains a lease at inception of the contract. If we determine that a contract is or contains a lease, we recognize a
right-of-use (ROU) asset and lease liability at the commencement date of the lease based on the present value of lease payments over the lease
term. The present value of the lease payments is determined by using the implicit rate when readily determinable. If not determinable, our
centrally managed treasury group provides an incremental borrowing rate based on quoted interest rates obtained from financial institutions.
The rate used is for a term similar to the duration of the lease based on information available at the commencement date. Lease terms include
options to extend or terminate the lease when it is reasonably certain that we will exercise those options.
We recognize ROU assets and lease liabilities for leasing arrangements with terms greater than one year. Except for the marine transportation
asset class, we account for lease and non-lease components in a contract as a single lease component for all classes of underlying assets. Our
marine transportation contracts include non-lease components, such as maintenance and crew costs. We allocate the consideration in these
contracts based on pricing information provided by the third-party broker.
Expense for an operating lease is recognized as a single lease cost on a straight-line basis over the lease term and is reflected in the appropriate
income statement line item based on the leased asset’s function. Amortization expense of a finance lease ROU asset is recognized on a straight-
line basis over the lesser of the useful life of the leased asset or the lease term. However, if the lease transfers ownership of the finance lease
ROU asset to us at the end of the lease term, the finance lease ROU asset is amortized over the useful life of the leased asset. Amortization
expense is reflected in “depreciation and amortization expense.” Interest expense is incurred based on the carrying value of the lease liability
and is reflected in “interest and debt expense, net of capitalized interest.”
Impairment of Assets
Long-lived assets are tested for recoverability whenever events or changes in circumstances indicate that the carrying amount of the asset may
not be recoverable. A long-lived asset is not recoverable if its carrying amount exceeds the sum of the undiscounted cash flows expected to
result from its use and eventual disposition. If a long-lived asset is not recoverable, an impairment loss is recognized for the amount by which
the carrying amount of the long-lived asset exceeds its fair value, with fair value determined based on discounted estimated net cash flows or
other appropriate methods.
We evaluate our equity method investments for impairment when there is evidence that we may not be able to recover the carrying amount of
our investments or the investee is unable to sustain an earnings capacity that justifies the carrying amount. A loss in the value of an investment
that is other than a temporary decline is recognized currently in income based on the difference between the estimated current fair value of the
investment and its carrying amount.
Asset Retirement Obligations
We record a liability, which is referred to as an asset retirement obligation, at fair value for the estimated cost to retire a tangible long-lived
asset at the time we incur that liability, which is generally when the asset is purchased, constructed, or leased. We record the liability when we
have a legal obligation to incur costs to retire the asset and when a reasonable estimate of the fair value of the liability can be made. If a
reasonable
72
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
estimate cannot be made at the time the liability is incurred, we record the liability when sufficient information is available to estimate the
liability’s fair value.
We have obligations with respect to certain of our assets related to our refining and ethanol segments to clean and/or dispose of various
component parts of the assets at the time they are retired. However, these component parts can be used for extended and indeterminate periods
of time as long as they are properly maintained and/or upgraded. It is our practice and current intent to maintain all our assets and continue
making improvements to those assets based on technological advances. As a result, we believe that our assets related to our refining and ethanol
segments have indeterminate lives for purposes of estimating asset retirement obligations because dates or ranges of dates upon which we
would retire such assets cannot reasonably be estimated at this time. We will recognize a liability at such time when sufficient information
exists to estimate a date or range of potential settlement dates that is needed to employ a present value technique to estimate fair value.
Environmental Matters
Liabilities for future remediation costs are recorded when environmental assessments and/or remedial efforts are probable and the costs can be
reasonably estimated. Other than for assessments, the timing and magnitude of these accruals generally are based on the completion of
investigations or other studies or a commitment to a formal plan of action. Amounts recorded for environmental liabilities have not been
reduced by possible recoveries from third parties and have not been measured on a discounted basis.
Legal Contingencies
We are subject to legal proceedings, claims, and liabilities that arise in the ordinary course of business. We accrue losses associated with legal
claims when such losses are probable and reasonably estimable. If we determine that a loss is probable and cannot estimate a specific amount
for that loss but can estimate a range of loss, the best estimate within the range is accrued. If no amount within the range is a better estimate
than any other, the minimum amount of the range is accrued. Estimates are adjusted as additional information becomes available or
circumstances change. Legal defense costs associated with loss contingencies are expensed in the period incurred.
Foreign Currency Translation
Generally, our international subsidiaries use their local currency as their functional currency. Balance sheet amounts are translated into U.S.
dollars using exchange rates in effect as of the balance sheet date. Income statement amounts are translated into U.S. dollars using the exchange
rates in effect at the time the underlying transactions occur. Foreign currency translation adjustments are recorded as a component of
accumulated other comprehensive loss.
Revenue Recognition
Our revenues are primarily generated from contracts with customers. We generate revenue from contracts with customers from the sale of
products by our refining, ethanol, and renewable diesel segments. Revenues are recognized when we satisfy our performance obligation to
transfer products to our customers, which typically occurs at a point in time upon shipment or delivery of the products, and for an amount that
reflects the transaction price that is allocated to the performance obligation.
The customer is able to direct the use of, and obtain substantially all of the benefits from, the products at the point of shipment or delivery. As a
result, we consider control to have transferred upon shipment or delivery
73
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
because we have a present right to payment at that time, the customer has legal title to the asset, we have transferred physical possession of the
asset, and the customer has significant risks and rewards of ownership of the asset.
Our contracts with customers state the final terms of the sale, including the description, quantity, and price for goods sold. Payment is typically
due in full within two to ten days of delivery. In the normal course of business, we generally do not accept product returns.
The transaction price is the consideration that we expect to be entitled to in exchange for our products. The transaction price for substantially all
of our contracts is generally based on commodity market pricing (i.e., variable consideration). As such, this market pricing may be constrained
(i.e., not estimable) at the inception of the contract but will be recognized based on the applicable market pricing, which will be known upon
transfer of the goods to the customer. Some of our contracts also contain variable consideration in the form of sales incentives to our customers,
such as discounts and rebates. For contracts that include variable consideration, we estimate the factors that determine the variable
consideration in order to establish the transaction price.
We have elected to exclude from the measurement of the transaction price all taxes assessed by governmental authorities that are both imposed
on and concurrent with a specific revenue-producing transaction and collected by us from a customer (e.g., sales tax, use tax, value-added tax,
etc.). We continue to include in the transaction price excise taxes that are imposed on certain inventories in our international operations. The
amount of such taxes is provided in supplemental information in a footnote on the statements of income.
There are instances where we provide shipping services in relation to the goods sold to our customer. Shipping and handling costs that occur
before the customer obtains control of the goods are deemed to be fulfillment activities and are included in cost of materials and other. We have
elected to account for shipping and handling activities that occur after the customer has obtained control of a good as fulfillment activities
rather than as a promised service and we have included these activities in cost of materials and other.
We enter into certain purchase and sale arrangements with the same counterparty that are deemed to be made in contemplation of one another.
We combine these transactions and present the net effect in cost of materials and other. We also enter into refined petroleum product exchange
transactions to fulfill sales contracts with our customers by accessing refined petroleum products in markets where we do not operate our own
refineries. These refined petroleum product exchanges are accounted for as exchanges of nonmonetary assets, and no revenues are recorded on
these transactions.
Cost Classifications
“Cost of materials and other” primarily includes the cost of materials that are a component of our products sold. These costs include (i) the
direct cost of materials (such as crude oil and other refinery feedstocks, refined petroleum products and blendstocks, and ethanol feedstocks and
products) that are a component of our products sold; (ii) costs related to the delivery (such as shipping and handling costs) of products sold;
(iii) costs related to our environmental credit obligations to comply with various governmental and regulatory programs (such as the cost of
Renewable Identification Numbers (RINs) as required by the U.S. Environmental Protection Agency’s (EPA) Renewable Fuel Standard,
emission credits under various cap-and-trade systems, as defined in Note 19); (iv) the blender’s tax credit recognized on qualified biodiesel
mixtures; (v) gains and losses on our commodity derivative instruments; and (vi) certain excise taxes.
74
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
“Operating expenses (excluding depreciation and amortization expense)” include costs to operate our refineries, ethanol plants, and logistics
assets, except for depreciation and amortization expense. These costs primarily include employee-related expenses, energy and utility costs,
catalysts and chemical costs, and repair and maintenance expenses.
“Depreciation and amortization expense” associated with our operations is separately presented in our statement of income as a component of
cost of sales and general and administrative expenses and is disclosed by reportable segment in Note 17.
“Other operating expenses” include costs, if any, incurred by our reportable segments that are not associated with our cost of sales.
Environmental Compliance Program Costs
We purchase credits in the open market to meet our obligations under various environmental compliance programs. We purchase biofuel credits
(primarily RINs in the U.S.) to comply with government regulations that require us to blend a certain percentage of biofuels into the products
we produce. To the degree that we are unable to blend biofuels at the required percentage, we must purchase biofuel credits to meet our
obligation. We purchase greenhouse gas (GHG) emission credits to comply with government regulations concerning various GHG emission
programs, including cap-and-trade systems. These programs are described in Note 20 under “Environmental Compliance Program Price Risk.”
The costs of purchased biofuel credits and GHG emission credits are charged to cost of materials and other as such credits are needed to satisfy
our obligation. To the extent we have not purchased enough credits to satisfy our obligation as of the balance sheet date, we charge cost of
materials and other for such deficiency based on the market price of the credits as of the balance sheet date, and we record a liability for our
obligation to purchase those credits. See Note 19 for disclosure of our fair value liability.
Stock-Based Compensation
Compensation expense for our share-based compensation plans is based on the fair value of the awards granted and is recognized in income on
a straight-line basis over the shorter of (i) the requisite service period of each award or (ii) the period from the grant date to the date retirement
eligibility is achieved if that date is expected to occur during the vesting period established in the award.
Income Taxes
Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred amounts are measured using enacted tax rates expected to apply to taxable income in the year those temporary
differences are expected to be recovered or settled. Deferred tax assets are reduced by unrecognized tax benefits, if such items may be available
to offset the unrecognized tax benefit. Stranded income tax effects are released from accumulated other comprehensive loss to retained earnings
on an individual item basis as those items are reclassified into income.
We have elected to classify any interest expense and penalties related to the underpayment of income taxes in income tax expense.
75
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
We have elected to treat the global intangible low-taxed income (GILTI) tax as a period expense.
Earnings per Common Share
Earnings per common share is computed by dividing net income attributable to Valero stockholders by the weighted-average number of
common shares outstanding for the year. Participating securities are included in the computation of basic earnings per share using the two-class
method. Earnings per common share – assuming dilution is computed by dividing net income attributable to Valero stockholders by the
weighted-average number of common shares outstanding for the year increased by the effect of dilutive securities. Potentially dilutive securities
are excluded from the computation of earnings per common share – assuming dilution when the effect of including such shares would be
antidilutive.
Financial Instruments
Our financial instruments include cash and cash equivalents, receivables, payables, debt, operating and finance lease obligations, commodity
derivative contracts, and foreign currency derivative contracts. The estimated fair values of these financial instruments approximate their
carrying amounts, except for certain debt as discussed in Note 19.
Derivatives and Hedging
All derivative instruments, not designated as normal purchases or sales, are recorded in the balance sheet as either assets or liabilities measured
at their fair values with changes in fair value recognized currently in income. To manage commodity price risk, we primarily use cash flow
hedges and economic hedges, and we also use fair value hedges from time to time. The cash flow effects of all of our derivative instruments are
reflected in operating activities in the consolidated statements of cash flows.
Accounting Pronouncements Adopted During 2019
Topic 842
We adopted the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 842, “Leases,”
(Topic 842) on January 1, 2019. Topic 842 increases the transparency and comparability among organizations by recognizing lease assets and
lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Topic 842 supersedes previous lease
accounting requirements under FASB ASC Topic 840, “Leases,” (Topic 840). We adopted Topic 842 using the optional transition method that
permits us to record a cumulative-effect adjustment and apply the new disclosure requirements beginning in 2019 and continue to present
comparative period information as required under Topic 840; however, we did not have a cumulative-effect adjustment to the opening balance
of retained earnings at the date of adoption.
In addition, we elected the transition practical expedient package that permits us to not reassess our prior conclusions about lease identification,
lease classification, and initial direct costs under the new standard, as well as the practical expedient that permits us to not assess existing land
easements under the new standard. See “Leases” above for a discussion of our revised accounting policy and also see Note 5 for information on
our leases.
In preparation for the adoption of Topic 842, we enhanced our contracting and lease evaluation systems and related processes, and we
developed a new lease accounting system to capture our leases and support the
76
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
required disclosures. We integrated our lease accounting system with our general ledger and modified our related procurement and payment
processes.
Adoption of this standard resulted in (i) the recognition of ROU assets and lease liabilities for our operating leases of $1.3 billion, (ii) the
derecognition of existing assets under construction of $539 million related to a build-to-suit lease arrangement with respect to the MVP
Terminal (see Note 10 under “Contractual Capital Commitments—MVP Terminal”), and (iii) the presentation of new disclosures about our
leasing activities beginning in the first quarter of 2019. Adoption of this standard did not impact our results of operations or liquidity, and our
accounting for finance leases is substantially unchanged.
Other
In addition to the adoption of Topic 842 discussed above, we adopted the following Accounting Standards Update (ASU) on January 1, 2019.
Our adoption of this ASU did not affect our financial statements or related disclosures.
ASU
2017-12
Derivatives and Hedging (Topic 815): Targeted
Improvements to Accounting for Hedging Activities
Basis of
Adoption
Cumulative
effect
Accounting Pronouncements Adopted on January 1, 2020
The following ASUs were adopted on January 1, 2020, and our adoption did not have a material impact on our financial statements or related
disclosures.
ASU
2016-13
Financial Instruments—Credit Losses (Topic 326):
Measurement of Credit Losses on Financial
Instruments (including codification improvements in
ASUs 2018-19 and 2019-11 and ASU 2020-02—
Financial Instruments—Credit Losses (Topic 326):
Amendments to SEC Paragraphs Pursuant to SEC Staff
Accounting Bulletin No. 119)
Basis of
Adoption
Cumulative
effect
2018-15
Intangibles—Goodwill and Other—Internal-Use
Prospectively
Software (Subtopic 350-40): Customer’s Accounting
for Implementation Costs Incurred in a Cloud
Computing Arrangement That Is a Service Contract
Income Taxes (Topic 740): Simplifying the Accounting
for Income Taxes
2019-12
Prospectively
77
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. MERGER AND ACQUISITIONS
Merger with VLP
On January 10, 2019, we completed our acquisition of all of the outstanding publicly held common units of VLP pursuant to a definitive
Agreement and Plan of Merger (Merger Agreement, and together with the transactions contemplated thereby, the Merger Transaction) with
VLP. Upon completion of the Merger Transaction, each outstanding publicly held common unit was converted into the right to receive
$42.25 per common unit in cash without any interest thereon, and all such publicly traded common units were automatically canceled and
ceased to exist. Upon completion of the Merger Transaction, we paid aggregate merger consideration of $950 million, which was funded with
available cash on hand.
Prior to the completion of the Merger Transaction, we consolidated the financial statements of VLP (see Note 12) and reflected noncontrolling
interests on our balance sheet for the portion of VLP’s partners’ capital held by VLP’s public common unitholders. Upon completion of the
Merger Transaction, VLP became our indirect wholly owned subsidiary and, as a result, we no longer reflect noncontrolling interests on our
balance sheet with respect to VLP. In addition, we no longer attribute a portion of VLP’s net income to noncontrolling interests. Because we
had a controlling financial interest in VLP before the Merger Transaction and retained our controlling financial interest in VLP after the Merger
Transaction, the change in our ownership interest in VLP as a result of the merger was accounted for as an equity transaction. Accordingly, we
did not recognize a gain or loss on the Merger Transaction.
Acquisition of Ethanol Plants
On November 15, 2018, we acquired three ethanol plants from two subsidiaries of Green Plains Inc. for total cash consideration of $320 million
including working capital of $20 million. The ethanol plants are located in Bluffton, Indiana; Lakota, Iowa; and Riga, Michigan with a
combined ethanol production capacity of 280 million gallons per year. This acquisition was accounted for as an asset acquisition.
Peru Acquisition
On May 14, 2018, we acquired 100 percent of the issued and outstanding equity interests in Pure Biofuels del Peru S.A.C. (now known as
Valero Peru S.A.C.) (Valero Peru) from Pegasus Capital Advisors L.P. and various minority equity holders. Valero Peru markets refined
petroleum products through its logistics assets in Peru. Valero Peru owns a terminal at the Port of Callao, near Lima, with approximately
1 million barrels of storage capacity for refined petroleum and renewable products. Through one of its subsidiaries, Valero Peru also owns a
180,000-barrel storage terminal in Paita, in northern Peru, which is scheduled to commence operations in the second quarter of 2020, pending
regulatory approvals. This acquisition, which is referred to as the Peru Acquisition, was consistent with our general business strategy and
broadens the geographic diversity of our refining segment. This acquisition was accounted for as a business combination.
78
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the fair values of the assets acquired and liabilities assumed at the acquisition date, based on an independent
appraisal that was completed in the fourth quarter of 2018 (in millions). We paid $468 million from available cash on hand, of which
$132 million was for working capital. During the third and fourth quarters of 2018, we recognized immaterial adjustments to the preliminary
amounts recorded for the Peru Acquisition with a corresponding adjustment to goodwill due to the completion of the independent appraisal.
These adjustments did not have a material effect on our results of operations for the year ended December 31, 2018.
Current assets, net of cash acquired
Property, plant, and equipment
Deferred charges and other assets
Current liabilities, excluding current portion of debt
Debt assumed, including current portion
Deferred income tax liabilities
Other long-term liabilities
Noncontrolling interest
Total consideration, net of cash acquired
$
$
158
102
466
(26)
(137)
(62)
(27)
(6)
468
Deferred charges and other assets primarily include identifiable intangible assets of $200 million and goodwill of $260 million. Identifiable
intangible assets, which consist of customer contracts and relationships, are amortized on a straight-line basis over ten years. Goodwill is
calculated as the excess of the consideration transferred over the estimated fair values of the underlying tangible and identifiable intangible
assets acquired and liabilities assumed. Goodwill represents the future economic benefits expected to be recognized from our expansion into the
Latin American refined petroleum products markets arising from other assets acquired that were not individually identified and separately
recognized. We determined that the entire balance of goodwill is related to the refining segment. None of the goodwill is deductible for tax
purposes.
Our statements of income include the results of operations of Valero Peru since the date of acquisition, and such results are reflected in the
refining segment. Results of operations since the date of acquisition, supplemental pro forma financial information, and acquisition-related
costs have not been presented for the Peru Acquisition as such information is not material to our results of operations.
79
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. RECEIVABLES
Receivables consisted of the following (in millions):
Receivables from contracts with customers
Receivables from certain purchase and sale arrangements
Commodity derivative and foreign currency
contract receivables
Other receivables
Total receivables
Allowance for doubtful accounts
Receivables, net
December 31,
2019
2018
$
$
5,610 $
2,484
116
730
8,940
(36)
8,904 $
4,673
2,311
229
166
7,379
(34)
7,345
There were no significant changes in our allowance for doubtful accounts during the years ended December 31, 2019, 2018, and 2017.
4.
INVENTORIES
Inventories consisted of the following (in millions):
Refinery feedstocks
Refined petroleum products and blendstocks
Ethanol feedstocks and products
Renewable diesel feedstocks and products
Materials and supplies
Inventories
December 31,
2019
2018
$
$
2,399 $
4,034
260
46
274
7,013 $
2,265
3,653
298
52
264
6,532
As of December 31, 2019 and 2018, the replacement cost (market value) of LIFO inventories exceeded their LIFO carrying amounts by
$2.5 billion and $1.5 billion, respectively. Our non-LIFO inventories accounted for $1.4 billion and $1.1 billion of our total inventories as of
December 31, 2019 and 2018, respectively.
80
Table of Contents
5. LEASES
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
General
We have entered into long-term leasing arrangements for the right to use various classes of underlying assets as follows:
•
Pipelines, Terminals, and Tanks includes facilities and equipment used in the storage, transportation, production, and sale of refinery
feedstock, refined petroleum product, and corn inventories;
• Marine Transportation includes time charters for ocean-going tankers and coastal vessels;
•
•
•
•
Rail Transportation includes railcars and related storage facilities;
Feedstock Processing Equipment includes machinery, equipment, and various facilities used in our refining, ethanol, and renewable
diesel operations;
Energy and Gases includes facilities and equipment related to industrial gases and power used in our operations;
Real Estate includes land and rights-of-way associated with our refineries and pipelines, as well as office facilities; and
• Other includes equipment primarily used at our corporate offices, such as printers and copiers.
In addition to fixed lease payments, some arrangements contain provisions for variable lease payments. Certain leases for pipelines, terminals,
and tanks provide for variable lease payments based on, among other things, throughput volumes in excess of a base amount. Certain marine
transportation leases contain provisions for payments that are contingent on usage. Additionally, if the rental increases are not scheduled in the
lease, such as an increase based on subsequent changes in the index or rate, those rents are considered variable lease payments. In all instances,
variable lease payments are recognized in the period in which the obligation for those payments is incurred.
81
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Lease Costs and Other Supplemental Information
In accordance with Topic 842, our total lease cost comprises costs that are included in our income statement, as well as costs capitalized as part
of an item of property, plant, and equipment or inventory. Total lease cost by class of underlying asset was as follows (in millions):
Pipelines,
Terminals,
and Tanks
Transportation
Marine
Rail
Feedstock
Processing
Equipment
Year Ended December 31, 2019
Energy
and
Gases
Real
Estate
Other
Total
Finance lease cost:
Amortization of ROU assets
Interest on lease liabilities
Operating lease cost
Variable lease cost
Short-term lease cost
Sublease income
Total lease cost
$
$
44 $
— $ — $
7 $
3 $
— $
— $
47
182
66
9
—
—
145
35
53
(27)
—
52
—
—
—
1
20
1
29
—
2
9
—
—
—
—
27
1
—
(3)
—
4
—
—
—
54
50
439
103
91
(30)
348 $
206 $
52 $
58 $
14 $
25 $
4 $
707
In accordance with Topic 840, “rental expense, net of sublease rental income” was as follows (in millions):
Minimum rental expense
Contingent rental expense
Total rental expense
Less: Sublease rental income
Rental expense, net of sublease rental income
Year Ended December 31,
2018
2017
515 $
19
534
31
503 $
691
21
712
54
658
$
$
82
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table presents additional information related to our operating and finance leases (in millions, except for lease terms and discount
rates):
December 31, 2019
Operating
Leases
Finance
Leases
Supplemental balance sheet information
ROU assets, net reflected in the following
balance sheet line items:
Property, plant, and equipment, net
Deferred charges and other assets, net
Total ROU assets, net
Current lease liabilities reflected in the following
balance sheet line items:
Current portion of debt and finance lease obligations
Accrued expenses
Noncurrent lease liabilities reflected in the following
balance sheet line items:
Debt and finance lease obligations, less current portion
Other long-term liabilities
$
$
$
— $
1,329
1,329
$
— $
331
—
959
Total lease liabilities
$
1,290
$
790
—
790
41
—
750
—
791
Other supplemental information
Weighted-average remaining lease term
Weighted-average discount rate
7.7 years
19.7 years
4.9%
5.2%
Supplemental cash flow information related to our operating and finance leases is presented in Note 18.
83
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Maturity Analysis
The remaining minimum lease payments due under our long-term leases were as follows (in millions):
2019
2020
2021
2022
2023
2024
Thereafter
Total undiscounted lease payments
Less: Amount associated with discounting
Total lease liabilities
December 31, 2019
December 31, 2018
Operating
Leases
Finance
Leases
Operating
Leases
Capital
Leases
$
$
n/a
376 $
250
194
160
125
498
1,603
313
1,290 $
n/a $
88
86
87
91
82
1,011
1,445 $
654
791
359 $
245
178
146
123
n/a
514
1,565
$
69
65
62
64
65
n/a
957
1,282
676
606
Future Lease Commencement
As described and defined in Note 10, we have a terminaling agreement with MVP to utilize certain assets at the MVP Terminal upon
completion of construction, which is expected to occur during the first quarter of 2020. We expect to recognize a finance lease ROU asset and
related liability of approximately $1.5 billion in 2020 in connection with this agreement.
84
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. PROPERTY, PLANT, AND EQUIPMENT
Major classes of property, plant, and equipment, including assets held under finance leases, consisted of the following (in millions):
December 31,
2019
2018
Land
Crude oil processing facilities
Transportation and terminaling facilities
Grain processing equipment
Administrative buildings
Finance lease ROU assets (see Note 5)
Other
Construction in progress
Property, plant, and equipment, at cost
Accumulated depreciation
Property, plant, and equipment, net
$
$
476 $
32,047
5,179
1,201
1,015
944
1,701
1,731
44,294
(15,030)
29,264 $
416
30,721
4,935
1,212
953
711
1,565
1,960
42,473
(13,625)
28,848
Capital lease assets, as determined in accordance with Topic 840, are presented as “Finance lease ROU assets” as of December 31, 2018.
Effective January 1, 2019, in connection with our adoption of Topic 842, these assets are considered finance lease ROU assets and are
presented as “Finance lease ROU assets.” As further described in Note 5, our finance lease ROU assets arise from leasing arrangements for the
right to use various classes of underlying assets including (i) pipelines, terminals, and tanks, (ii) marine and rail transportation, and
(iii) feedstock processing equipment.
Accumulated amortization on the assets presented as “Finance lease ROU assets” was $155 million and $106 million as of December 31, 2019
and 2018, respectively.
Depreciation expense for the years ended December 31, 2019, 2018, and 2017 was $1.5 billion, $1.4 billion, and $1.3 billion, respectively.
85
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. DEFERRED CHARGES AND OTHER ASSETS
“Deferred charges and other assets, net” consisted of the following (in millions):
Deferred turnaround and catalyst costs, net
Operating lease ROU assets, net (see Note 5)
Investments in unconsolidated joint ventures
Income taxes receivable
Intangible assets, net
Goodwill
Other
Deferred charges and other assets, net
December 31,
2019
2018
$
$
1,778 $
1,329
942
525
283
260
514
5,631 $
1,749
—
542
343
307
260
431
3,632
Amortization expense for deferred turnaround and catalyst costs and intangible assets was $759 million, $668 million, and $650 million for the
years ended December 31, 2019, 2018, and 2017, respectively.
8. ACCRUED EXPENSES AND OTHER LONG-TERM LIABILITIES
Accrued expenses and other long-term liabilities consisted of the following (in millions):
Operating lease liabilities (see Note 5)
Liability for unrecognized tax benefits (see Note 15)
Defined benefit plan liabilities (see Note 13)
Repatriation tax liability (see Note 15) (a)
Environmental liabilities
Wage and other employee-related liabilities
Accrued interest expense
Contract liabilities from contracts with customers
(see Note 17)
Environmental credit obligations (see Note 19)
Other accrued liabilities
Accrued expenses and other long-term liabilities
Accrued
Expenses
December 31,
Other Long-Term
Liabilities
December 31,
2019
2018
2019
2018
331 $
—
37
—
27
292
83
55
31
93
949 $
— $
—
43
—
29
302
93
31
34
98
630 $
959 $
954
834
508
319
121
—
—
—
192
3,887 $
—
721
654
603
327
109
—
—
—
453
2,867
$
$
__________________________
(a) The current portion of repatriation tax liability is included in income taxes payable. As of December 31, 2019, the current portion of repatriation tax
liability was $54 million. There was no current portion of repatriation tax liability as of December 31, 2018.
86
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. DEBT AND FINANCE LEASE OBLIGATIONS
Debt, at stated values, and finance lease obligations consisted of the following (in millions):
Final
Maturity
December 31,
2019
2018
Credit facilities:
Valero Revolver
IEnova Revolver
Canadian Revolver
Accounts receivable sales facility
Public debt:
Valero Senior Notes
6.625%
3.4%
4.0%
6.125%
4.35%
7.5%
4.9%
3.65%
10.5%
8.75%
7.45%
6.75%
VLP Senior Notes
4.375%
4.5%
Gulf Opportunity Zone Revenue Bonds, Series 2010, 4.0%
Debenture, 7.65%
Other debt
Net unamortized debt issuance costs and other
Total debt
Finance lease obligations (see Note 5)
Total debt and finance lease obligations
Less: Current portion
$
2024
2028
2020
2020
2037
2026
2029
2020
2028
2032
2045
2025
2039
2030
2097
2037
2026
2028
2040
2026
Various
Debt and finance lease obligations, less current portion
$
87
— $
348
—
100
1,500
1,250
1,000
—
750
750
650
600
250
200
100
24
500
500
300
100
47
(88)
8,881
791
9,672
494
9,178 $
—
109
—
100
1,500
1,250
—
850
750
750
650
600
250
200
100
24
500
500
300
100
50
(80)
8,503
606
9,109
238
8,871
Table of Contents
Credit Facilities
Valero Revolver
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In March 2019, we amended our revolving credit facility (the Valero Revolver) to increase the borrowing capacity from $3 billion to $4 billion
and to extend the maturity date from November 2020 to March 2024. The Valero Revolver also provides for the issuance of letters of credit of
up to $2.4 billion.
Outstanding borrowings under the Valero Revolver bear interest, at our option, at either (i) the adjusted LIBO rate (as defined in the Valero
Revolver) for the applicable interest period in effect from time to time plus the applicable margin or (ii) the alternate base rate (as defined in the
Valero Revolver) plus the applicable margin. The Valero Revolver also requires payments for customary fees, including facility fees, letter of
credit participation fees, and administrative agent fees. The interest rate and facility fees under the Valero Revolver are subject to adjustment
based upon the credit ratings assigned to our senior unsecured debt.
We had no borrowings or repayments under the Valero Revolver during the years ended December 31, 2019, 2018, and 2017.
VLP Revolver
As of December 31, 2018, VLP had a $750 million senior unsecured revolving credit facility (the VLP Revolver) with a group of lenders that
was scheduled to mature in November 2020. However, on January 10, 2019, in connection with the completion of the Merger Transaction as
described in Note 2, the VLP Revolver was terminated.
During the year ended December 31, 2018, VLP repaid the outstanding balance of $410 million on the VLP Revolver using proceeds from its
public offering of $500 million 4.5 percent Senior Notes as described in “Public Debt” below. During the year ended December 31, 2017, VLP
borrowed $380 million under the revolver and made no repayments.
IEnova Revolver
In February 2018, Central Mexico Terminals (as described in Note 12) entered into a combined $340 million unsecured revolving credit facility
(IEnova Revolver) with IEnova (defined in Note 12) that matures in February 2028. In November 2019, the IEnova Revolver was increased to
$491 million. IEnova may terminate this revolver at any time and demand repayment of all outstanding amounts; therefore, all outstanding
borrowings are reflected in current portion of debt. The IEnova Revolver is available only to the operations of Central Mexico Terminals, and
the creditors of Central Mexico Terminals do not have recourse against us.
Outstanding borrowings under this revolver bear interest at the three-month LIBO rate for the applicable interest period in effect from time to
time plus the applicable margin. The interest rate under this revolver is subject to adjustment, with agreement by both parties, based upon
changes in market conditions. As of December 31, 2019 and 2018, the variable rate was 5.749 percent and 6.046 percent, respectively.
During the year ended December 31, 2019 and 2018, Central Mexico Terminals borrowed $239 million and $109 million, respectively, and had
no repayments under this revolver.
88
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Canadian Revolver
In November 2019, one of our Canadian subsidiaries amended its committed revolving credit facility (the Canadian Revolver) of
C$150 million, under which it may borrow and obtain letters of credit, to extend the maturity date from November 2019 to November 2020.
We had no borrowings or repayments under this revolver during the years ended December 31, 2019, 2018, and 2017.
Accounts Receivable Sales Facility
We have an accounts receivable sales facility with a group of third-party entities and financial institutions to sell up to $1.3 billion of eligible
trade receivables on a revolving basis. In July 2019, we amended our agreement to extend the maturity date to July 2020. Under this program,
one of our marketing subsidiaries (Valero Marketing) sells eligible receivables, without recourse, to another of our subsidiaries (Valero Capital),
whereupon the receivables are no longer owned by Valero Marketing. Valero Capital, in turn, sells an undivided percentage ownership interest
in the eligible receivables, without recourse, to the third-party entities and financial institutions. To the extent that Valero Capital retains an
ownership interest in the receivables it has purchased from Valero Marketing, such interest is included in our financial statements solely as a
result of the consolidation of the financial statements of Valero Capital with those of Valero Energy Corporation; the receivables are not
available to satisfy the claims of the creditors of Valero Marketing or Valero Energy Corporation.
As of December 31, 2019 and 2018, $2.2 billion and $1.8 billion, respectively, of our accounts receivable composed the designated pool of
accounts receivable included in the program. All amounts outstanding under the accounts receivable sales facility are reflected as debt on our
balance sheets and proceeds and repayments are reflected as cash flows from financing activities on the statements of cash flows. As of
December 31, 2019 and 2018, the variable interest rate on the accounts receivable sales facility was 2.3866 percent and 3.0618 percent,
respectively. During the year ended December 31, 2019, we sold and repaid $900 million of eligible receivables under the accounts receivable
sales facility. During the years ended December 31, 2018 and 2017, we had no proceeds from or repayments under the accounts receivable
sales facility.
89
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Summary of Credit Facilities
We had outstanding borrowings, letters of credit issued, and availability under our credit facilities as follows (amounts in millions and currency
in U.S. dollars, except as noted):
Facility
Amount
Maturity Date
Outstanding
Borrowings
December 31, 2019
Letters of Credit
Issued (a)
Availability
Committed facilities:
Valero Revolver
Canadian Revolver
Accounts receivable
sales facility
Letter of credit
facility (b)
Committed facility of
VIE (c):
IEnova Revolver
Uncommitted facilities:
Letter of credit facilities
$
C$
$
$
4,000
March 2024
150 November 2020
$
C$
— $
— C$
1,300
July 2020
$
100
50 November 2020
n/a $
$
491
February 2028
$
348
n/a
n/a
n/a $
34 $
5 C$
n/a $
— $
n/a $
121
3,966
145
1,200
50
143
n/a
__________________________
(a) Letters of credit issued as of December 31, 2019 expire at various times in 2020 through 2021.
(b) The letter of credit facility was amended to reduce the facility from $100 million to $50 million and to extend the maturity date from November 2019 to
November 2020.
(c) Creditors of our VIE do not have recourse against us.
We are charged letter of credit issuance fees under our various uncommitted short-term bank credit facilities. These uncommitted credit
facilities have no commitment fees or compensating balance requirements.
Public Debt
During the year ended December 31, 2019, the following activity occurred:
• We issued $1.0 billion of 4.00 percent Senior Notes due April 1, 2029 (4.00 percent Senior Notes). Proceeds from this debt issuance
totaled $992 million before deducting the underwriting discount and other debt issuance costs. The proceeds were used to redeem our
6.125 percent Senior Notes due February 1, 2020 (6.125 percent Senior Notes) for $871 million, or 102.48 percent of stated value,
which includes an early redemption fee of $21 million that is reflected in “other income, net” in our statement of income for the year
ended December 31, 2019.
•
In connection with the completion of the Merger Transaction as described in Note 2, Valero entered into a guarantee agreement to fully
and unconditionally guarantee the prompt payment, when due, of any amount owed to the holders of VLP’s 4.375 percent Senior Notes
due December 15, 2026 and 4.5 percent Senior Notes due March 15, 2028. See Note 21 for condensed consolidating financial
statements.
90
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During the year ended December 31, 2018, the following activity occurred:
• We issued $750 million of 4.35 percent Senior Notes due June 1, 2028. Proceeds from this debt issuance totaled $749 million before
deducting the underwriting discount and other debt issuance costs. The proceeds were used to redeem our 9.375 percent Senior Notes
due March 15, 2019 for $787 million, or 104.9 percent of stated value, which includes an early redemption fee of $37 million that is
reflected in “other income, net” in our statement of income for the year ended December 31, 2018.
• VLP issued $500 million of 4.5 percent Senior Notes due March 15, 2028. Proceeds from this debt issuance totaled $498 million before
deducting the underwriting discount and other debt issuance costs. The proceeds were available only to the operations of VLP and were
used to repay the outstanding balance of $410 million on the VLP Revolver and $85 million on its notes payable to us, which is
eliminated in consolidation.
During the year ended December 31, 2017, there was no issuance or redemption activity related to our public debt.
Other Debt
During the year ended December 31, 2018, we retired $137 million of debt assumed in connection with the Peru Acquisition with available
cash on hand.
Other Disclosures
“Interest and debt expense, net of capitalized interest” is comprised as follows (in millions):
Interest and debt expense
Less: Capitalized interest
Interest and debt expense, net of
capitalized interest
Year Ended December 31,
2019
2018
2017
$
$
544 $
90
557 $
87
454 $
470 $
539
71
468
Our credit facilities and other debt arrangements contain various customary restrictive covenants, including cross-default and cross-acceleration
clauses.
91
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Principal maturities for our debt obligations as of December 31, 2019 were as follows (in millions):
2020 (a)
2021
2022
2023
2024
Thereafter
Net unamortized debt issuance costs and other
$
453
17
6
19
—
8,474
(88)
Total debt
__________________________
(a) As of December 31, 2019, our debt obligations due in 2020 include $348 million associated with borrowings under the IEnova
8,881
$
Revolver.
10. COMMITMENTS AND CONTINGENCIES
Purchase Obligations
We have various purchase obligations under certain crude oil and other feedstock supply arrangements, industrial gas supply arrangements
(such as hydrogen supply arrangements), natural gas supply arrangements, and various throughput, transportation and terminaling agreements.
We enter into these contracts to ensure an adequate supply of feedstock and utilities and adequate storage capacity to operate our refineries and
ethanol plants. Substantially all of our purchase obligations are based on market prices or adjustments based on market indices. Certain of these
purchase obligations include fixed or minimum volume requirements, while others are based on our usage requirements. None of these
obligations is associated with suppliers’ financing arrangements. These purchase obligations are not reflected as liabilities.
Contractual Capital Commitments
MVP Terminal
We have a 50 percent membership interest in MVP Terminalling, LLC (MVP), a Delaware limited liability company formed in September 2017
with a subsidiary of Magellan Midstream Partners LP (Magellan), to construct, own, and operate the Magellan Valero Pasadena marine terminal
(MVP Terminal) located adjacent to the Houston Ship Channel in Pasadena, Texas. The MVP Terminal contains (i) approximately 5 million
barrels of storage capacity, (ii) a dock with two ship berths, and (iii) a three-bay truck rack facility. In connection with our terminaling
agreement with MVP, described below, we will have dedicated use of (i) approximately 4 million barrels of storage, (ii) one ship berth, and
(iii) the three-bay truck rack facility. Construction of phases one and two of the project began in 2017 with a total cost of $840 million, of
which we have committed to contribute 50 percent ($420 million). The project could expand up to four phases with a total project cost of
approximately $1.4 billion if warranted by additional demand and agreed to by Magellan and us. Since inception, we have contributed
$404 million to MVP, of which $157 million was contributed during the year ended December 31, 2019.
Concurrent with the formation of MVP, we entered into a terminaling agreement with MVP to utilize the MVP Terminal upon completion of
the majority of phase two, which is expected to occur in the first quarter
92
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
of 2020. The terminaling agreement has an initial term of 12 years with two five-year automatic renewals, and year-to-year renewals thereafter.
Prior to our adoption of Topic 842 as described in Note 1, we were considered the accounting owner of the MVP Terminal during the
construction period due to our membership interest in MVP and because we determined that the terminaling agreement was a capital lease.
Accordingly, as of December 31, 2018, we had recorded an asset of $539 million in property, plant, and equipment representing 100 percent of
the construction costs incurred by MVP, as well as capitalized interest incurred by us, and a long-term liability of $292 million payable to
Magellan. The amounts recorded for the portion of the construction costs associated with the payable to Magellan were noncash investing and
financing items, respectively.
On January 1, 2019, as a result of our adoption of Topic 842, we derecognized the asset and liability related to MVP discussed above and
recorded our equity investment in MVP of $247 million, which is included in “deferred charges and other assets, net.” The amounts
derecognized are noncash investing and financing items, respectively. As of December 31, 2019, the carrying value of our equity investment in
MVP was $401 million.
Central Texas Pipeline
We committed to a 40 percent undivided interest in a project with a subsidiary of Magellan to jointly build a 135-mile, 20-inch refined
petroleum products pipeline with a capacity of up to 150,000 barrels per day from Houston to Hearne, Texas. The pipeline was placed in
service in the third quarter of 2019. The cost of our 40 percent undivided interest in the pipeline was $160 million, of which $80 million was
spent during the year ended December 31, 2019.
Self-Insurance
We are self-insured for certain medical and dental, workers’ compensation, automobile liability, general liability, and property liability claims
up to applicable retention limits. Liabilities are accrued for self-insured claims, or when estimated losses exceed coverage limits, and when
sufficient information is available to reasonably estimate the amount of the loss. These liabilities are included in accrued expenses and other
long-term liabilities.
93
Table of Contents
11. EQUITY
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Share Activity
Activity in the number of shares of common stock and treasury stock was as follows (in millions):
Balance as of December 31, 2016
Transactions in connection with
stock-based compensation plans
Stock purchases under purchase programs
Balance as of December 31, 2017
Stock purchases under purchase programs
Balance as of December 31, 2018
Transactions in connection with
stock-based compensation plans
Stock purchases under purchase program
Balance as of December 31, 2019
Common
Stock
Treasury
Stock
673
—
—
673
—
673
—
—
673
(222)
1
(19)
(240)
(16)
(256)
1
(9)
(264)
Preferred Stock
We have 20 million shares of preferred stock authorized with a par value of $0.01 per share. No shares of preferred stock were outstanding as of
December 31, 2019 or 2018.
Treasury Stock
We purchase shares of our common stock as authorized under our common stock purchase program (described below) and to meet our
obligations under employee stock-based compensation plans.
On July 13, 2015, our board of directors authorized us to purchase $2.5 billion of our outstanding common stock with no expiration date, and
we completed that program during 2017. On September 21, 2016, our board of directors authorized our purchase of up to an additional
$2.5 billion with no expiration date, and we completed that program during 2018. On January 23, 2018, our board of directors authorized our
purchase of up to an additional $2.5 billion (the 2018 Program) with no expiration date. During the years ended December 31, 2019, 2018, and
2017, we purchased $752 million, $1.5 billion, and $1.3 billion, respectively, of our common stock under our programs. As of December 31,
2019, we have approval under the 2018 Program to purchase approximately $1.5 billion of our common stock.
Common Stock Dividends
On January 23, 2020, our board of directors declared a quarterly cash dividend of $0.98 per common share payable on March 4, 2020 to holders
of record at the close of business on February 12, 2020.
94
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Income Tax Effects Related to Components of Other Comprehensive Income (Loss)
The tax effects allocated to each component of other comprehensive income (loss) were as follows (in millions):
Year ended December 31, 2019
Foreign currency translation adjustment
Pension and other postretirement benefits:
Loss arising during the year related to:
Net actuarial loss
Prior service cost
Miscellaneous loss
Amounts reclassified into income related to:
Net actuarial loss
Prior service credit
Curtailment and settlement loss
Net loss on pension and other
postretirement benefits
Derivative instruments designated and
qualifying as cash flow hedges:
Net loss arising during the year
Net gain reclassified into income
Net loss on cash flow hedges
Other comprehensive income
Before-Tax
Amount
Tax Expense
(Benefit)
Net Amount
$
349 $
— $
349
(245)
(3)
—
38
(28)
4
(234)
(6)
(2)
(8)
107 $
(54)
(1)
4
9
(6)
1
(47)
(1)
—
(1)
(48) $
(191)
(2)
(4)
29
(22)
3
(187)
(5)
(2)
(7)
155
$
95
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Year ended December 31, 2018
Foreign currency translation adjustment
Pension and other postretirement benefits:
Gain arising during the year related to:
Net actuarial gain
Prior service credit
Amounts reclassified into income related to:
Net actuarial loss
Prior service credit
Curtailment and settlement loss
Net gain on pension and other
postretirement benefits
Other comprehensive loss
Year ended December 31, 2017
Foreign currency translation adjustment
Pension and other postretirement benefits:
Loss arising during the year related to:
Net actuarial loss
Prior service cost
Miscellaneous loss
Amounts reclassified into income related to:
Net actuarial loss
Prior service credit
Curtailment and settlement loss
Net loss on pension and other
postretirement benefits
Other comprehensive income
Before-Tax
Amount
Tax Expense
(Benefit)
Net Amount
$
(517) $
— $
(517)
1
7
63
(29)
7
49
(468) $
—
1
14
(7)
2
10
10 $
1
6
49
(22)
5
39
(478)
514 $
— $
514
(79)
(4)
—
50
(36)
4
(65)
449 $
(29)
(1)
3
18
(13)
1
(21)
(21) $
(50)
(3)
(3)
32
(23)
3
(44)
470
$
$
$
96
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive loss by component, net of tax, were as follows (in millions):
Balance as of December 31, 2016
Other comprehensive income (loss)
before reclassifications
Amounts reclassified from
accumulated other comprehensive
loss
Other comprehensive income (loss)
Balance as of December 31, 2017
Other comprehensive income (loss)
before reclassifications
Amounts reclassified from
accumulated other comprehensive
loss
Other comprehensive income (loss)
Reclassification of stranded income
tax effects
Balance as of December 31, 2018
Other comprehensive income (loss)
before reclassifications
Amounts reclassified from
accumulated other comprehensive
loss
Other comprehensive income (loss)
Balance as of December 31, 2019
$
Foreign
Currency
Translation
Adjustment
Defined
Benefit
Plans
Items
Losses on
Cash Flow
Hedges
Total
$
(1,021) $
(389) $
— $
(1,410)
514
(56)
—
514
(507)
(515)
—
(515)
—
(1,022)
346
12
(44)
(433)
7
32
39
(91)
(485)
(197)
—
—
—
—
—
—
—
—
—
(2)
—
346
(676) $
10
(187)
(672) $
(1)
(3)
(3) $
97
458
12
470
(940)
(508)
32
(476)
(91)
(1,507)
147
9
156
(1,351)
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Gains (losses) reclassified out of accumulated other comprehensive loss and into net income were as follows (in millions):
Details about
Accumulated Other
Comprehensive Loss
Components
Amortization of items related to
defined benefit pension plans:
Net actuarial loss
Prior service credit
Curtailment and settlement
Gains on cash flow hedges:
Commodity contracts
Total reclassifications for the year
Year Ended December 31,
2019
2018
2017
Affected Line
Item in the
Statement of
Income
(38) $
28
(4)
(14)
4
(10) $
(63) $
29
(7)
(41)
9
(32) $
(50) (a) Other income, net
36 (a) Other income, net
(4) (a) Other income, net
(18) Total before tax
6 Tax benefit
(12) Net of tax
2 $
2 $
— $
— $
— Revenues
— Net of tax
(8) $
(32) $
(12) Net of tax
$
$
$
$
$
_________________________
(a) These accumulated other comprehensive loss components are included in the computation of net periodic benefit cost (credit), as discussed in
Note 13.
12. VARIABLE INTEREST ENTITIES
Consolidated VIEs
In the normal course of business, we have financial interests in certain entities that have been determined to be VIEs. We consolidate a VIE
when we have a variable interest in an entity for which we are the primary beneficiary such that we have (i) the power to direct the activities of
the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of or the right to receive
benefits from the VIE that could potentially be significant to the VIE. In order to make this determination, we evaluated our contractual
arrangements with the VIEs, including arrangements for the use of assets, purchases of products and services, debt, equity, or management of
operating activities.
The following discussion summarizes our involvement with our VIEs:
• DGD is a joint venture with a subsidiary of Darling Ingredients Inc. that owns and operates a plant that processes animal fats, used
cooking oils, and other vegetable oils into renewable diesel. The plant is located in Norco, Louisiana next to our St. Charles Refinery.
Our significant agreements with DGD include an operations agreement that outlines our responsibilities as operator of the plant and a
marketing agreement.
98
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As operator, we operate the plant and perform certain day-to-day operating and management functions for DGD as an independent
contractor. The operations agreement provides us (as operator) with certain power to direct the activities that most significantly impact
DGD’s economic performance. Because this agreement conveys such power to us and is separate from our ownership rights, we
determined that DGD was a VIE. For this reason and because we hold a 50 percent ownership interest that provides us with significant
economic rights and obligations, we determined that we are the primary beneficiary of DGD. DGD has risk associated with its
operations because it generates revenues from third-party customers.
• Central Mexico Terminals is a collective group of three subsidiaries of Infraestructura Energetica Nova, S.A.B. de C.V. (IEnova), a
Mexican company and subsidiary of Sempra Energy, a U.S. public company. We have terminaling agreements with Central Mexico
Terminals that represent variable interests because we have determined them to be finance leases due to our exclusive use of the
terminals. Although we do not have an ownership interest in the entities that own each of the three terminals, the finance leases convey
to us (i) the power to direct the activities that most significantly impact the economic performance of all three terminals and (ii) the
ability to influence the benefits received or the losses incurred by the terminals because of our use of the terminals. As a result, we
determined each of the entities was a VIE and that we are the primary beneficiary of each. Substantially all of Central Mexico
Terminals’ revenues will be derived from us; therefore, there is limited risk to us associated with Central Mexico Terminals’ operations.
• We also have financial interests in other entities that have been determined to be VIEs because the entities’ contractual arrangements
transfer the power to us to direct the activities that most significantly impact their economic performance or reduce the exposure to
operational variability and risk of loss created by the entity that otherwise would be held exclusively by the equity owners.
Furthermore, we determined that we are the primary beneficiary of these VIEs because (i) certain contractual arrangements (exclusive
of our ownership rights) provide us with the power to direct the activities that most significantly impact the economic performance of
these entities and/or (ii) our 50 percent ownership interests provide us with significant economic rights and obligations.
The VIEs’ assets can only be used to settle their own obligations and the VIEs’ creditors have no recourse to our assets. We do not provide
financial guarantees to our VIEs. Although we have provided credit facilities to some of our VIEs in support of their construction or acquisition
activities, these transactions are eliminated in consolidation. Our financial position, results of operations, and cash flows are impacted by our
consolidated VIEs’ performance, net of intercompany eliminations, to the extent of our ownership interest in each VIE.
99
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following tables present summarized balance sheet information for the significant assets and liabilities of our VIEs, which are included in
our balance sheets (in millions).
Assets
Cash and cash equivalents
Other current assets
Property, plant, and equipment, net
Liabilities
Current liabilities, including current portion
of debt and finance lease obligations
Debt and finance lease obligations,
less current portion
Assets
Cash and cash equivalents
Other current assets
Property, plant, and equipment, net
Liabilities
Current liabilities, including current portion
of debt and finance lease obligations
Debt and finance lease obligations,
less current portion
$
$
December 31, 2019
Central
Mexico
Terminals
DGD
Other
Total
$
$
85 $
567
706
— $
33
381
25 $
89
105
66 $
409 $
8 $
—
—
31
110
689
1,192
483
31
VLP (a)
DGD
December 31, 2018
Central
Mexico
Terminals
Other
Total
152 $
2
1,409
65 $
112
576
— $
20
156
18 $
64
113
235
198
2,254
27 $
28 $
118 $
9 $
182
990
—
—
34
1,024
____________________
(a) Prior to the completion of the Merger Transaction with VLP on January 10, 2019 as discussed in Note 2, VLP was a publicly traded master limited
partnership that we had determined was a VIE. VLP was formed by us to own, operate, develop, and acquire crude oil and refined petroleum products
pipelines, terminals, and other transportation and logistics assets. As of December 31, 2018, we owned a 66.2 percent limited partner interest and a
2.0 percent general partner interest in VLP, and public unitholders owned a 31.8 percent limited partner interest. Upon completion of the Merger
Transaction, VLP became our indirect wholly owned subsidiary and, as a result, was no longer a VIE.
Non-Consolidated VIEs
We hold variable interests in VIEs that have not been consolidated because we are not considered the primary beneficiary. These non-
consolidated VIEs are not material to our financial position or results of operations and are accounted for as equity investments.
100
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. EMPLOYEE BENEFIT PLANS
Defined Benefit Plans
We have defined benefit pension plans, some of which are subject to collective bargaining agreements, that cover most of our employees. These
plans provide eligible employees with retirement income based primarily on years of service and compensation during specific periods under
final average pay and cash balance formulas. We fund our pension plans as required by local regulations. In the U.S., all qualified pension plans
are subject to the Employee Retirement Income Security Act’s minimum funding standard. We typically do not fund or fully fund U.S.
nonqualified and certain international pension plans that are not subject to funding requirements because contributions to these pension plans
may be less economic and investment returns may be less attractive than our other investment alternatives.
We also provide health care and life insurance benefits for certain retired employees through our postretirement benefit plans. Most of our
employees become eligible for these benefits if, while still working for us, they reach normal retirement age or take early retirement. These
plans are unfunded, and retired employees share the cost with us. Individuals who became our employees as a result of an acquisition became
eligible for postretirement benefits under our plans as determined by the terms of the relevant acquisition agreement.
101
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The changes in benefit obligation related to all of our defined benefit plans, the changes in fair value of plan assets(a), and the funded status of
our defined benefit plans as of and for the years ended were as follows (in millions):
Changes in benefit obligation
Benefit obligation as of beginning of year
Service cost
Interest cost
Participant contributions
Benefits paid
Actuarial (gain) loss
Other
Benefit obligation as of end of year
Changes in plan assets (a)
Fair value of plan assets as of beginning of year
Actual return on plan assets
Valero contributions
Participant contributions
Benefits paid
Other
Fair value of plan assets as of end of year
Reconciliation of funded status (a)
Fair value of plan assets as of end of year
Less: Benefit obligation as of end of year
Funded status as of end of year
Accumulated benefit obligation
Pension Plans
December 31,
Other Postretirement
Benefit Plans
December 31,
2019
2018
2019
2018
2,639 $
119
98
—
(154)
528
9
3,239 $
2,236 $
490
128
—
(154)
9
2,709 $
2,926 $
133
91
—
(207)
(285)
(19)
2,639 $
2,428 $
(130)
156
—
(207)
(11)
2,236 $
292 $
5
11
11
(29)
41
5
336 $
— $
—
18
11
(29)
—
— $
306
6
10
10
(28)
(9)
(3)
292
—
—
18
10
(28)
—
—
2,709 $
3,239
(530) $
2,236 $
2,639
(403) $
— $
336
(336) $
—
292
(292)
3,039 $
2,492
n/a
n/a
$
$
$
$
$
$
$
__________________________
(a) Plan assets include only the assets associated with pension plans subject to legal minimum funding standards. Plan assets associated with U.S.
nonqualified pension plans are not included here because they are not protected from our creditors and therefore cannot be reflected as a reduction from
our obligations under the pension plans. As a result, the reconciliation of funded status does not reflect the effect of plan assets that exist for all of our
defined benefit plans. See Note 19 for the assets associated with certain U.S. nonqualified pension plans.
102
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The actuarial loss for the year ended December 31, 2019 primarily resulted from a decrease in the discount rates used to determine our benefit
obligations for our pension plans from 4.25 percent in 2018 to 3.14 percent in 2019. The actuarial gain for the year ended December 31, 2018
primarily resulted from an increase in the discount rates used to determine our benefit obligations for our pension plans from 3.58 percent in
2017 to 4.25 percent in 2018.
The fair value of our plan assets as of December 31, 2019 was favorably impacted by the return on plan assets resulting primarily from an
improvement in equity market prices for the year. The fair value of our plan assets as of December 31, 2018 was unfavorably impacted by the
negative return on plan assets resulting primarily from a significant decline in equity market prices for the year.
Amounts recognized in our balance sheet for our pension and other postretirement benefits plans include (in millions):
Deferred charges and other assets, net
Accrued expenses
Other long-term liabilities
Pension Plans
December 31,
Other Postretirement
Benefit Plans
December 31,
2019
2018
2019
2018
$
$
5 $
(17)
(518)
(530) $
2 $
(22)
(383)
(403) $
— $
(20)
(316)
(336) $
—
(21)
(271)
(292)
The following table presents information for our pension plans with projected benefit obligations in excess of plan assets (in millions).
Projected benefit obligation
Fair value of plan assets
$
3,182 $
2,647
2,564
2,160
December 31,
2019
2018
The following table presents information for our pension plans with accumulated benefit obligations in excess of plan assets (in millions).
Accumulated benefit obligation
Fair value of plan assets
$
2,760 $
2,402
2,253
1,974
December 31,
2019
2018
103
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Benefit payments that we expect to pay, including amounts related to expected future services that we expect to receive, are as follows for the
years ending December 31 (in millions):
2020
2021
2022
2023
2024
2025-2029
Pension
Benefits
$
Other
Postretirement
Benefits
21
20
20
19
19
88
179 $
219
190
204
205
1,105
We plan to contribute approximately $140 million to our pension plans and $21 million to our other postretirement benefit plans during 2020.
The components of net periodic benefit cost (credit) related to our defined benefit plans were as follows (in millions):
Service cost
Interest cost
Expected return on plan assets
Amortization of:
Net actuarial (gain) loss
Prior service credit
Special charges
Net periodic benefit cost (credit)
Pension Plans
Other Postretirement
Benefit Plans
Year Ended December 31,
Year Ended December 31,
2019
2018
2017
2019
2018
2017
$
$
119 $
98
(166)
41
(19)
4
77 $
133 $
91
(163)
65
(18)
7
115 $
123 $
86
(150)
53
(20)
4
96 $
5 $
11
—
(3)
(9)
1
5 $
6 $
10
—
(2)
(11)
—
3 $
6
10
—
(3)
(16)
—
(3)
The components of net periodic benefit cost (credit) other than the service cost component (i.e., the non-service cost components) are included
in “other income, net” in the statements of income.
Amortization of prior service credit shown in the preceding table was based on a straight-line amortization of the cost over the average
remaining service period of employees expected to receive benefits under each respective plan. Amortization of the net actuarial (gain) loss
shown in the preceding table was based on the straight-line amortization of the excess of the unrecognized (gain) loss over 10 percent of the
greater of the projected benefit obligation or market-related value of plan assets (smoothed asset value) over the average remaining service
period of active employees expected to receive benefits under each respective plan.
104
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Pre-tax amounts recognized in other comprehensive income (loss) were as follows (in millions):
Net gain (loss) arising during
the year:
Net actuarial gain (loss)
Prior service (cost) credit
Net (gain) loss reclassified into
income:
Net actuarial (gain) loss
Prior service credit
Curtailment and settlement loss
Total changes in other
comprehensive income (loss)
Pension Plans
Other Postretirement
Benefit Plans
Year Ended December 31,
Year Ended December 31,
2019
2018
2017
2019
2018
2017
$
(204) $
—
(8) $
7
(73) $
(4)
(41) $
(3)
9 $
—
41
(19)
4
65
(18)
7
53
(20)
4
(3)
(9)
—
(2)
(11)
—
$
(178) $
53 $
(40) $
(56) $
(4) $
(6)
—
(3)
(16)
—
(25)
The pre-tax amounts in accumulated other comprehensive loss that have not yet been recognized as components of net periodic benefit cost
(credit) were as follows (in millions):
Pension Plans
December 31,
Other Postretirement
Benefit Plans
December 31,
2019
2018
2019
2018
$
$
988 $
(90)
898 $
828 $
(108)
720 $
(20) $
(19)
(39) $
(64)
(31)
(95)
Net actuarial (gain) loss
Prior service credit
Total
The weighted-average assumptions used to determine the benefit obligations were as follows:
Discount rate
Rate of compensation increase
Interest crediting rate for
cash balance plans
Pension Plans
December 31,
Other Postretirement
Benefit Plans
December 31,
2019
2018
2019
2018
3.14%
3.75%
4.25%
3.78%
3.03%
3.04%
3.32%
n/a
n/a
4.40%
n/a
n/a
The discount rate assumption used to determine the benefit obligations as of December 31, 2019 and 2018 for the majority of our pension plans
and other postretirement benefit plans was based on the Aon AA Only Above Median yield curve and considered the timing of the projected
cash outflows under our plans. This curve was designed by Aon to provide a means for plan sponsors to value the liabilities of their pension
plans
105
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
or postretirement benefit plans. It is a hypothetical double-A yield curve represented by a series of annualized individual discount rates with
maturities from one-half year to 99 years. Each bond issue underlying the curve is required to have an average rating of double-A when
averaging all available ratings by Moody’s Investors Service, Standard & Poor’s Ratings Services, and Fitch Ratings. Only the bonds
representing the 50 percent highest yielding issuances among those with average ratings of double-A are included in this yield curve.
We based our discount rate assumption on the Aon AA Only Above Median yield curve because we believe it is representative of the types of
bonds we would use to settle our pension and other postretirement benefit plan liabilities as of those dates. We believe that the yields associated
with the bonds used to develop this yield curve reflect the current level of interest rates.
The weighted-average assumptions used to determine the net periodic benefit cost were as follows:
Pension Plans
Other Postretirement
Benefit Plans
Year Ended December 31,
Year Ended December 31,
2019
2018
2017
2019
2018
2017
4.24%
3.59%
4.08%
4.40%
3.72%
4.26%
7.22%
3.78%
7.24%
3.86%
7.29%
3.81%
3.04%
3.04%
3.04%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Discount rate
Expected long-term rate of return
on plan assets
Rate of compensation increase
Interest crediting rate for
cash balance plans
The assumed health care cost trend rates were as follows:
Health care cost trend rate assumed for the next year
Rate to which the cost trend rate was assumed to decline
(the ultimate trend rate)
Year that the rate reaches the ultimate trend rate
December 31,
2019
2018
7.32%
7.29%
5.00%
2026
5.00%
2026
106
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following tables present the fair values of the assets of our pension plans (in millions) as of December 31, 2019 and 2018 by level of the
fair value hierarchy. Assets categorized in Level 1 of the hierarchy are measured at fair value using a market approach based on unadjusted
quoted prices from national securities exchanges. Assets categorized in Level 2 of the hierarchy are measured at net asset value in a market that
is not active. As previously noted, we do not fund or fully fund U.S. nonqualified and certain international pension plans that are not subject to
funding requirements, and we do not fund our other postretirement benefit plans.
Fair Value Hierarchy
Level 1
Level 2
Level 3
Total as of
December 31,
2019
$
Equity securities:
U.S. companies (a)
International companies
Preferred stock
Mutual funds:
International growth
Index funds
Corporate debt instruments (a)
Government securities:
U.S. Treasury securities
Other government securities
Common collective trusts (b)
Pooled separate accounts
Private funds
Insurance contract
Interest and dividends receivable
Cash and cash equivalents
Securities transactions payable, net
Total pension plan assets
$
___________________________
See notes on page 108.
622 $
205
4
123
90
—
53
—
—
—
—
—
5
59
(16)
1,145 $
107
— $
1
—
—
—
293
—
148
751
250
104
17
—
—
—
1,564 $
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
622
206
4
123
90
293
53
148
751
250
104
17
5
59
(16)
2,709
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Fair Value Hierarchy
Level 1
Level 2
Level 3
Total as of
December 31,
2018
$
Equity securities:
U.S. companies (a)
International companies
Preferred stock
Mutual funds:
International growth
Index funds
Corporate debt instruments (a)
Government securities:
U.S. Treasury securities
Other government securities
Common collective trusts (b)
Pooled separate accounts
Private funds
Insurance contract
Interest and dividends receivable
Cash and cash equivalents
Securities transactions payable, net
Total pension plan assets
$
497 $
159
4
97
76
—
45
—
—
—
—
—
5
40
(14)
909 $
— $
1
—
—
—
284
—
138
609
190
87
18
—
—
—
1,327 $
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
497
160
4
97
76
284
45
138
609
190
87
18
5
40
(14)
2,236
__________________________________
(a) This class of securities is held in a wide range of industrial sectors.
(b) This class includes primarily investments in approximately 75 percent equities and 25 percent bonds as of December 31, 2019. As of December 31,
2018, this class included primarily investments in approximately 70 percent equities and 30 percent bonds.
The investment policies and strategies for the assets of our pension plans incorporate a well-diversified approach that is expected to earn long-
term returns from capital appreciation and a growing stream of current income. This approach recognizes that assets are exposed to risk and the
market value of the pension plans’ assets may fluctuate from year to year. Risk tolerance is determined based on our financial ability to
withstand risk within the investment program and the willingness to accept return volatility. In line with the investment return objective and risk
parameters, the pension plans’ mix of assets includes a diversified portfolio of equity and fixed-income investments. Equity securities include
international stocks and a blend of U.S. growth and value stocks of various sizes of capitalization. Fixed income securities include bonds and
notes issued by the U.S. government and its agencies, corporate bonds, and mortgage-backed securities. The aggregate asset allocation is
reviewed on an annual basis. As of December 31, 2019, the target allocations for plan assets under our primary pension plan are 70 percent
equity securities and 30 percent fixed income investments.
The expected long-term rate of return on plan assets is based on a forward-looking expected asset return model. This model derives an expected
rate of return based on the target asset allocation of a plan’s assets.
108
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The underlying assumptions regarding expected rates of return for each asset class reflect Aon’s best expectations for these asset classes. The
model reflects the positive effect of periodic rebalancing among diversified asset classes. We select an expected asset return that is supported by
this model.
Defined Contribution Plans
We have defined contribution plans that cover most of our employees. Our contributions to these plans are based on employees’ compensation
and/or a partial match of employee contributions to the plans. Our contributions to these defined contribution plans were $77 million,
$74 million, and $70 million for the years ended December 31, 2019, 2018, and 2017, respectively.
14. STOCK-BASED COMPENSATION
Overview
Under our 2011 Omnibus Stock Incentive Plan (the OSIP), various stock and stock-based awards may be granted to employees and non-
employee directors. Awards available under the OSIP include, but are not limited to, (i) restricted stock that vests over a period determined by
our compensation committee, (ii) performance awards that vest upon the achievement of an objective performance goal, (iii) options to
purchase shares of common stock, (iv) dividend equivalent rights, and (v) stock unit awards. The OSIP was approved by our stockholders on
April 28, 2011 and re-approved by our stockholders on May 12, 2016. As of December 31, 2019, 7,740,665 shares of our common stock
remained available to be awarded under the OSIP.
We also maintain another stock-based compensation plan under which previously granted equity awards remain outstanding. No additional
grants may be awarded under this plan.
The following table reflects activity related to our stock-based compensation arrangements (in millions):
Stock-based compensation expense:
Restricted stock
Performance awards
Stock options and other awards
Total stock-based compensation expense
Tax benefit recognized on stock-based compensation expense
Tax benefit realized for tax deductions resulting from
exercises and vestings
Effect of tax deductions in excess of recognized
stock-based compensation expense
109
Year Ended December 31,
2019
2018
2017
$
$
$
64 $
23
2
89 $
19 $
17
7
63 $
22
1
86 $
18 $
32
20
58
19
—
77
27
44
24
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following is a discussion of our significant stock-based compensation arrangement.
Restricted Stock
Restricted stock is granted to employees and non-employee directors. Restricted stock granted to employees vests in accordance with individual
written agreements between the participants and us, usually in equal annual installments over a period of three years beginning one year after
the date of grant. Restricted stock granted to our non-employee directors vests in equal annual installments over a period of three years
beginning one year after the date of grant. The fair value of each restricted stock per share is equal to the market price of our common stock. A
summary of the status of our restricted stock awards is presented in the following table.
Nonvested shares as of January 1, 2019
Granted
Vested
Forfeited
Nonvested shares as of December 31, 2019
Weighted-
Average
Grant-Date
Fair Value
Per Share
80.70
98.75
78.54
83.18
93.38
Number of
Shares
1,176,578 $
677,482
(757,217)
(4,989)
1,091,854
As of December 31, 2019, there was $59 million of unrecognized compensation cost related to outstanding unvested restricted stock awards,
which is expected to be recognized over a weighted-average period of approximately two years.
The following table reflects activity related to our restricted stock:
Weighted-average grant-date fair value per share of
restricted stock granted
Fair value of restricted stock vested (in millions)
Year Ended December 31,
2019
2018
2017
$
98.75 $
74
92.12 $
80
79.32
71
110
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. INCOME TAXES
Income Statement Components
Income before income tax expense (benefit) was as follows (in millions):
U.S. operations
International operations
Income before income tax expense (benefit)
Year Ended December 31,
2019
2018
2017
$
$
2,496 $
990
3,486 $
3,168 $
1,064
4,232 $
2,283
924
3,207
Statutory income tax rates applicable to the countries in which we operate were as follows:
U.S.
Canada
U.K.
Ireland
Peru
Mexico
Year Ended December 31,
2019
2018
2017
21%
15%
19%
13%
30%
30%
21%
15%
19%
13%
30%
30%
35%
15%
19%
13%
n/a
n/a
The following is a reconciliation of income tax expense (benefit) computed by applying statutory income tax rates as reflected in the preceding
table to actual income tax expense (benefit) (in millions):
Year ended December 31, 2019
Income tax expense at statutory rates
U.S. state and Canadian provincial
tax expense, net of federal
income tax effect
Permanent differences
GILTI tax (a)
Foreign tax credits
Repatriation withholding tax
Tax effects of income associated
with noncontrolling interests
Other, net
Income tax expense
__________________________
(a) See note on page 112.
U.S.
International
Total
Amount
Percent
Amount
Percent
Amount
Percent
$
524
21.0 % $
147
14.8 % $
671
19.2 %
16
(36)
115
(95)
45
(77)
(36)
456
0.7 %
(1.5)%
4.6 %
(3.8)%
1.8 %
(3.1)%
(1.4)%
18.3 % $
88
10
—
—
—
2
(1)
246
8.9 %
1.0 %
—
—
—
0.2 %
(0.1)%
24.8 % $
104
(26)
115
(95)
45
(75)
(37)
702
3.0 %
(0.7)%
3.3 %
(2.7)%
1.3 %
(2.2)%
(1.1)%
20.1 %
$
111
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Year ended December 31, 2018
Income tax expense at statutory rates
U.S. state and Canadian provincial
tax expense, net of federal
income tax effect
Permanent differences
GILTI tax (a)
Foreign tax credits
Effects of Tax Reform (a)
Tax effects of income associated
with noncontrolling interests
Other, net
Income tax expense
Year ended December 31, 2017
Income tax expense at statutory rates
U.S. state and Canadian provincial
tax expense, net of federal
income tax effect
Permanent differences:
Manufacturing deduction
Other
Change in tax law (a)
Tax effects of income associated
with noncontrolling interests
Other, net
Income tax expense (benefit)
U.S.
International
Total
Amount
Percent
Amount
Percent
Amount
Percent
$
665
21.0 % $
163
15.3% $
828
19.6 %
44
(9)
67
(50)
(12)
(49)
(23)
633
1.4 %
(0.3)%
2.1 %
(1.6)%
(0.4)%
(1.5)%
(0.7)%
20.0 % $
80
—
—
—
—
—
3
246
7.5%
—
—
—
—
—
0.3%
23.1% $
124
(9)
67
(50)
(12)
(49)
(20)
879
2.9 %
(0.2)%
1.6 %
(1.2)%
(0.3)%
(1.2)%
(0.5)%
20.7 %
799
35.0 % $
158
17.1% $
957
29.8 %
37
1.6 %
46
5.0%
83
2.6 %
(42)
(9)
(1,862)
(31)
(52)
(1,160)
(1.8)%
(0.4)%
(81.6)%
(1.4)%
(2.3)%
(50.9)% $
—
—
—
—
7
211
—
—
—
—
0.8%
22.9% $
(42)
(9)
(1,862)
(31)
(45)
(949)
(1.3)%
(0.3)%
(58.1)%
(1.0)%
(1.4)%
(29.7)%
$
$
$
__________________________
(a) See “Tax Reform” below for a discussion of the changes in tax law in the U.S. that were enacted in December 2017.
112
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Components of income tax expense (benefit) were as follows (in millions):
U.S.
International
Total
Year ended December 31, 2019
Current:
Country
U.S. state / Canadian provincial
Total current
Deferred:
Country
U.S. state / Canadian provincial
Total deferred
Income tax expense
Year ended December 31, 2018
Current:
Country
U.S. state / Canadian provincial
Total current
Deferred:
Country
U.S. state / Canadian provincial
Total deferred
Income tax expense
Year ended December 31, 2017
Current:
Country
U.S. state / Canadian provincial
Total current
Deferred:
Country
U.S. state / Canadian provincial
Total deferred
Income tax expense (benefit)
$
$
$
$
$
$
$
$
$
$
$
145
37
182
290
(16)
274
456
432
37
469 (a)
145
19
164 (b)
633
1,305
34
1,339 (a)
(2,522)
23
(2,499) (b)
(1,160)
$
186
100
286
(28)
(12)
(40)
246
141
66
207
25
14
39
246
194
61
255
(29)
(15)
(44)
211
$
$
$
$
$
$
331
137
468
262
(28)
234
702
573
103
676
170
33
203
879
1,499
95
1,594
(2,551)
8
(2,543)
(949)
___________________________
(a) Current income tax expense includes a $21 million benefit and a $781 million expense related to our Tax Reform adjustment for the years ended
December 31, 2018 and 2017, respectively, as described in “Tax Reform” below.
(b) Deferred income tax expense (benefit) includes a $9 million expense and a $2.6 billion benefit related to our Tax Reform adjustment for the years
ended December 31, 2018 and 2017, respectively, as described in “Tax Reform” below.
113
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Income Taxes Paid (Refunded)
Income taxes paid to (received from) U.S. and international taxing authorities were as follows (in millions):
U.S.
International
Income taxes paid (refunded), net
Year Ended December 31,
2019
2018
2017
$
$
(298)
182
(116)
(a) $
$
1,016
345
1,361
$
$
239
171
410
__________________________
(a) This amount includes a refund of $348 million, including interest, that we received related to the settlement of the combined audit of our
U.S. federal income tax returns for 2010 and 2011. See “Tax Returns Under Audit – U.S. Federal” below.
Deferred Income Tax Assets and Liabilities
The tax effects of significant temporary differences representing deferred income tax assets and liabilities were as follows (in millions):
December 31,
2019
2018
$
$
683 $
582
141
213
69
156
1,844
(1,200)
644
4,924
331
217
122
153
5,747
5,103 $
644
523
101
175
71
141
1,655
(1,111)
544
4,589
316
287
142
172
5,506
4,962
Deferred income tax assets:
Tax credit carryforwards
Net operating losses (NOLs)
Inventories
Compensation and employee benefit liabilities
Environmental liabilities
Other
Total deferred income tax assets
Valuation allowance
Net deferred income tax assets
Deferred income tax liabilities:
Property, plant, and equipment
Deferred turnaround costs
Inventories
Investments
Other
Total deferred income tax liabilities
Net deferred income tax liabilities
114
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
We had the following income tax credit and loss carryforwards as of December 31, 2019 (in millions):
U.S. state income tax credits (gross amount)
U.S. state income tax credits (gross amount)
U.S. foreign tax credits
U.S. state NOLs (gross amount)
Amount
Expiration
$
89 2020 through 2033
17 Unlimited
598 2027
10,913 2020 through 2039
We have recorded a valuation allowance as of December 31, 2019 and 2018 due to uncertainties related to our ability to utilize some of our
deferred income tax assets associated with our U.S. foreign tax credits and certain U.S. state income tax credits and NOLs before they expire.
The valuation allowance is based on our estimates of future taxable income in the various jurisdictions in which we operate and the period over
which deferred income tax assets will be recoverable. The valuation allowance increased by $89 million in 2019 primarily due to an increase in
excess U.S. foreign tax credits as well as U.S. state income tax NOLs.
As a part of completing our accounting for Tax Reform in 2018 as described in “Tax Reform” below, we assessed our ability to use our foreign
tax credits to offset the tax on the deemed repatriation of the accumulated earnings and profits of our international subsidiaries and concluded
that our foreign tax credit carryforwards were not more likely than not to be realized, and we recorded a full valuation allowance against the
deferred income tax asset associated with those carryforwards.
As described in “Tax Reform” below, one of the most significant changes in Tax Reform was the shift from a worldwide system of taxation to a
hybrid territorial system. The shift to a hybrid territorial system allows us to distribute cash via a dividend from our international subsidiaries
with a full dividend received deduction in the U.S. As a result, we will not recognize U.S. federal deferred taxes for the future tax consequences
attributable to undistributed earnings of our international subsidiaries. However, there may be a cost to repatriate the undistributed earnings of
certain of our international subsidiaries to us, including, but not limited to, withholding taxes imposed by certain international jurisdictions and
U.S. state income taxes. As of December 31, 2019, the cumulative undistributed earnings of these subsidiaries that is considered permanently
reinvested in those countries were approximately $4.2 billion. It is not practicable to estimate the amount of additional tax that would be
payable on those earnings, if distributed.
115
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unrecognized Tax Benefits
Change in Unrecognized Tax Benefits
The following is a reconciliation of the change in unrecognized tax benefits, excluding related interest and penalties, (in millions):
Balance as of beginning of year
Additions for tax positions related to the current year
Additions for tax positions related to prior years
Reductions for tax positions related to prior years
Reductions for tax positions related to the lapse of
applicable statute of limitations
Settlements
Balance as of end of year
Year Ended December 31,
2019
2018
2017
$
$
970 $
19
30
(101)
(14)
(7)
897 $
941 $
23
28
(19)
(1)
(2)
970 $
936
33
15
(42)
(1)
—
941
Liability for Unrecognized Tax Benefits
The following is a reconciliation of unrecognized tax benefits to our liability for unrecognized tax benefits presented in our balance sheets
(in millions).
Unrecognized tax benefits
Tax refund claims not yet filed but that we intend to file
Interest and penalties
Liability for unrecognized tax benefits presented in our balance sheets
December 31,
2019
2018
$
$
897 $
(29)
100
968 $
970
(277)
88
781
Our liability for unrecognized tax benefits is reflected in the following balance sheet line items (in millions):
Income taxes payable
Other long-term liabilities
Deferred tax liabilities
Liability for unrecognized tax benefits presented in our balance sheets
December 31,
2019
2018
$
$
— $
954
14
968 $
42
721
18
781
As of December 31, 2019, our liability for unrecognized tax benefits includes $525 million of refund claims associated with taxes paid on
incentive payments received from the U.S. federal government for blending biofuels into refined petroleum products. We recorded a tax refund
receivable of $525 million in connection with our refund claims, but we also recorded a liability for unrecognized tax benefits of $525 million
due to the complexity of this matter and uncertainties with respect to sustaining these refund claims. Therefore, our
116
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
financial position, results of operations, and liquidity will not be negatively impacted if we are unsuccessful in sustaining these refund claims.
Other Disclosures
As of December 31, 2019 and 2018, there was $762 million and $807 million, respectively, of unrecognized tax benefits that if recognized
would reduce our annual effective tax rate.
Interest and penalties incurred during the years ended December 31, 2019, 2018, and 2017 was immaterial.
Although reasonably possible, we do not anticipate that any of our tax audits will be resolved in 2020 that would result in a reduction in our
liability for unrecognized tax benefits due to the tax positions being sustained or due to our agreement of their disallowance. Should any
reductions occur, we do not expect they would have a significant impact on our financial statements because such reductions would not
significantly affect our annual effective tax rate.
Tax Returns Under Audit
U.S. Federal
In 2019, we settled the combined audit related to our U.S. federal income tax returns for 2010 and 2011 and received a refund of $348 million,
including interest. We did not have a significant change to our liability for unrecognized tax benefits upon settlement of the audit. As of
December 31, 2019, our U.S. federal income tax returns for 2012 through 2015 were under audit by the IRS. The IRS has proposed adjustments
and we are working with the IRS to resolve these matters. We believe that these matters will be resolved for amounts consistent with our
liability for unrecognized tax benefits associated with these matters.
We have amended our U.S federal income tax returns for 2005 through 2011 to exclude from taxable income incentive payments received from
the U.S. federal government for blending biofuels into refined petroleum products, and we have claimed $525 million in refunds. The 2005
through 2009 amended return refund claims have been disallowed by the IRS and we are currently evaluating our options to contest the
disallowance of these adjustments. As noted above in the discussion of our liability for unrecognized tax benefits, an ultimate disallowance of
these refund claims would not negatively impact our financial position, results of operations, and liquidity.
U.S. State
As of December 31, 2019, our California tax returns for 2004 through 2008 and 2011 through 2016 were under audit by the state of California.
We do not expect the ultimate disposition of these audits will result in a material change to our financial position, results of operations, or
liquidity. We believe these audits will be resolved for amounts consistent with the liability for unrecognized tax benefits associated with these
audits.
International
As of December 31, 2019, our Canadian subsidiary’s federal tax returns for 2013 through 2016 were under audit by the Canada Revenue
Agency (CRA) and our Quebec provincial tax returns for 2013 through 2016 were under audit by Revenue Quebec. We are currently protesting
the proposed adjustments by the CRA for 2013 and 2014 and we do not expect the ultimate disposition of these adjustments will result in a
material change to our financial position, results of operations, or liquidity.
117
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tax Reform
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (Tax Reform) was enacted, which resulted in significant changes to the Code and
was effective beginning on January 1, 2018. The most significant changes affecting us are as follows:
•
•
•
•
•
reduction in the statutory income tax rate from 35 percent to 21 percent;
assessment of a one-time transition tax on deemed repatriated earnings and profits from our international subsidiaries;
shift from a worldwide system of taxation to a hybrid territorial system of taxation, resulting in a minimum tax on the income of
international subsidiaries (the GILTI tax) rather than a tax deferral on such earnings in certain circumstances;
deduction for all of the costs to acquire or construct certain business assets in the year they are placed in service through 2022; and
repeal of the manufacturing deduction;
The following narrative describes the activity that occurred with respect to Tax Reform for the years ended December 31, 2017 and 2018.
We reflected an overall income tax benefit of $1.9 billion for the year ended December 31, 2017 with respect to Tax Reform as a result of the
following:
• We remeasured our U.S. deferred tax assets and liabilities using the 21 percent rate, which resulted in a tax benefit and a reduction to
our net deferred tax liabilities of $2.6 billion.
• We recognized a one-time transition tax of $734 million on the deemed repatriation of previously undistributed accumulated earnings
and profits of our international subsidiaries based on approximately $4.7 billion of the combined earnings and profits of our
international subsidiaries that had not been distributed to us. This transition tax will be remitted to the Internal Revenue Service (IRS)
over the eight-year period provided in the Code, with the first annual remittance paid in 2018.
• We accrued withholding tax of $47 million on a portion of the earnings of one of our international subsidiaries that we have deemed to
not be permanently reinvested in our operations in that country.
Because of the significant and complex changes to the Code from Tax Reform, including the need for regulatory guidance from the IRS to
properly account for many of the provisions, the SEC issued Staff Accounting Bulletin No. 118, “Income Tax Accounting Implications of the
Tax Cuts and Jobs Act,” which required that the effects of Tax Reform be recorded for items where the accounting was complete, as well as for
items where a reasonable estimate could be made (referred to as provisional amounts). For items where reasonable estimates could not be
made, provisional amounts were not recorded and those items continued to be accounted for under the Code prior to changes from Tax Reform
until a reasonable estimate could be made.
118
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the components of our adjustment (in millions) to reflect the effects of Tax Reform for the years ended
December 31, 2018 and 2017, including whether such amounts were complete, provisional, or incomplete. The amounts presented for 2018
were completed during the fourth quarter of 2018.
Income tax benefit from the remeasurement of
U.S. deferred income tax assets and liabilities
Tax on the deemed repatriation of the
accumulated earnings and profits of our
international subsidiaries
Recognition of foreign withholding tax, net of
U.S. federal tax benefit
Deductibility of certain executive compensation
expense
Income tax expense associated with the statutory
income tax rate differential on accrual to
return adjustments that were identified upon
completion of our U.S. federal income
tax return in 2018
Foreign tax credit available to offset the tax on
deemed repatriation of the accumulated
earnings and profits of our international
subsidiaries
Tax Reform benefit
Year Ended December 31,
2017
2018
Accounting
Status
Amount
Accounting
Status
Amount
Cumulative
Tax Reform
Adjustment
Complete
$
(2,643)
Complete
$
— $
(2,643)
Provisional
734
Complete
Complete
47
Complete
Incomplete
—
Complete
6
—
5
740
47
5
Incomplete
—
Complete
9
9
Incomplete
—
Complete
$
(1,862)
$
(32)
(12) $
(32)
(1,874)
119
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. EARNINGS PER COMMON SHARE
Earnings per common share were computed as follows (dollars and shares in millions, except per share amounts):
Earnings per common share
Net income attributable to Valero stockholders
Less: Income allocated to participating securities
Net income available to common shareholders
Weighted-average common shares outstanding
Earnings per common share
Earnings per common share – assuming dilution
Net income attributable to Valero stockholders
Weighted-average common shares outstanding
Effect of dilutive securities
Weighted-average common shares outstanding –
assuming dilution
$
$
$
$
Year Ended December 31,
2019
2018
2017
2,422
$
7
2,415 $
3,122
$
9
3,113 $
413
426
5.84 $
7.30 $
4,065
14
4,051
442
9.17
2,422 $
3,122 $
4,065
413
1
414
426
2
428
442
2
444
Earnings per common share – assuming dilution
$
5.84 $
7.29 $
9.16
Participating securities include restricted stock and performance awards granted under our 2011 Omnibus Stock Incentive Plan. Dilutive
securities include participating securities as well as outstanding stock options granted under our 2011 Omnibus Stock Incentive Plan.
17. REVENUES AND SEGMENT INFORMATION
Revenue from Contracts with Customers
Disaggregation of Revenue
Revenue is presented in the table below under “Segment Information” disaggregated by product because this is the level of disaggregation that
management has determined to be beneficial to users of our financial statements.
Receivables from Contracts with Customers
Our receivables from contracts with customers are included in “receivables, net” as presented in Note 3.
120
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Contract Liabilities from Contracts with Customers
Our contract liabilities from contracts with customers are included in accrued expenses as presented in Note 8. Substantially all of the contract
liabilities as of December 31, 2018 were recognized into revenue during the year ended December 31, 2019.
Remaining Performance Obligations
We have spot and term contracts with customers, the majority of which are spot contracts with no remaining performance obligations. We do
not disclose remaining performance obligations for contracts that have terms of one year or less. The transaction price for our remaining term
contracts includes a fixed component and variable consideration (i.e., a commodity price), both of which are allocated entirely to a wholly
unsatisfied promise to transfer a distinct good that forms part of a single performance obligation. The fixed component is not material and the
variable consideration is highly uncertain. Therefore, as of December 31, 2019, we have not disclosed the aggregate amount of the transaction
price allocated to our remaining performance obligations.
Segment Information
Effective January 1, 2019, we revised our reportable segments to align with certain changes in how our chief operating decision maker manages
and allocates resources to our business. Accordingly, we created a new reportable segment — renewable diesel — because of the growing
importance of renewable fuels in the market and the growth of our investments in renewable fuels production. The renewable diesel segment
includes the operations of DGD, which were transferred from the refining segment on January 1, 2019. Also effective January 1, 2019, we no
longer have a VLP segment, and we include the operations of VLP in our refining segment. This change was made because of the Merger
Transaction with VLP, as described in Note 2, and the resulting change in how we manage VLP’s operations. We no longer manage VLP as a
business but as logistics assets that support the operations of our refining segment. Our prior period segment information has been
retrospectively adjusted to reflect our current segment presentation.
We have three reportable segments — refining, ethanol, and renewable diesel. Each segment is a strategic business unit that offers different
products and services by employing unique technologies and marketing strategies and whose operations and operating performance are
managed and evaluated separately. Operating performance is measured based on the operating income generated by the segment, which
includes revenues and expenses that are directly attributable to the management of the respective segment. Intersegment sales are generally
derived from transactions made at prevailing market rates. The following is a description of each segment’s business operations.
•
•
The refining segment includes the operations of our 15 petroleum refineries, the associated marketing activities, and logistics assets that
support our refining operations. The principal products manufactured by our refineries and sold by this segment include gasolines and
blendstocks, distillates, and other products.
The ethanol segment includes the operations of our 14 ethanol plants, the associated marketing activities, and logistics assets that
support our ethanol operations. The principal products manufactured by our ethanol plants are ethanol and distillers grains. This
segment sells some ethanol to the refining segment for blending into gasoline, which is sold to that segment’s customers as a finished
gasoline product.
121
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
•
The renewable diesel segment includes the operations of DGD, our consolidated joint venture as discussed in Note 12. The principal
product manufactured by DGD and sold by this segment is renewable diesel. This segment sells some renewable diesel to the refining
segment, which is then sold to that segment’s customers.
Operations that are not included in any of the reportable segments are included in the corporate category.
The following tables reflect information about our operating income and total expenditures for long-lived assets by reportable segment
(in millions):
Refining
Ethanol
Renewable
Diesel
Corporate
and
Eliminations
Total
Year ended December 31, 2019
Revenues:
Revenues from external customers
$
103,746 $
3,606 $
Intersegment revenues
Total revenues
Cost of sales:
Cost of materials and other
Operating expenses (excluding depreciation
and amortization expense reflected below)
Depreciation and amortization expense
Total cost of sales
Other operating expenses
General and administrative expenses (excluding
depreciation and amortization expense
reflected below)
Depreciation and amortization expense
Operating income by segment
Total expenditures for long-lived assets (a)
__________________________
(a) See note on page 123.
18
103,764
231
3,837
93,371
3,239
4,289
2,062
504
90
99,722
3,833
20
1
—
—
4,022 $
2,581 $
$
$
—
—
3 $
47 $
122
970 $
247
1,217
360
75
50
485
—
—
—
732 $
160 $
2 $
108,324
(496)
(494)
—
108,324
(494)
96,476
—
—
(494)
—
4,868
2,202
103,546
21
868
53
(921) $
58 $
868
53
3,836
2,846
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Refining
Ethanol
Renewable
Diesel
Corporate
and
Eliminations
Total
Year ended December 31, 2018
Revenues:
Revenues from external customers
$
113,093 $
3,428 $
Intersegment revenues
Total revenues
Cost of sales:
Cost of materials and other
Operating expenses (excluding depreciation
and amortization expense reflected below)
Depreciation and amortization expense
Total cost of sales
Other operating expenses
General and administrative expenses (excluding
depreciation and amortization expense
reflected below)
Depreciation and amortization expense
Operating income by segment
Total expenditures for long-lived assets (a)
Year ended December 31, 2017
Revenues:
Revenues from external customers
Intersegment revenues
Total revenues
Cost of sales:
Cost of materials and other
Operating expenses (excluding depreciation
and amortization expense reflected below)
Depreciation and amortization expense
Total cost of sales
Other operating expenses
General and administrative expenses (excluding
depreciation and amortization expense
reflected below)
Depreciation and amortization expense
$
$
$
25
113,118
210
3,638
101,866
3,008
4,154
1,910
107,930
45
470
78
3,556
—
—
—
5,143 $
2,767 $
—
—
82 $
373 $
90,258 $
3,324 $
8
90,266
176
3,500
80,160
2,804
4,014
1,824
85,998
61
443
81
3,328
—
—
—
—
—
Operating income by segment
$
4,207 $
172 $
508 $
170
678
262
66
29
357
—
—
—
321 $
192 $
393 $
241
634
498
47
29
574
—
—
—
60 $
4 $
117,033
(405)
(401)
—
117,033
(404)
104,732
—
—
(404)
—
925
52
(974) $
44 $
4,690
2,017
111,439
45
925
52
4,572
3,376
5 $
93,980
(425)
(420)
—
93,980
(425)
83,037
—
—
(425)
—
829
52
(876) $
4,504
1,934
89,475
61
829
52
3,563
Total expenditures for long-lived assets (a)
__________________________
(a) Total expenditures for long-lived assets includes amounts related to capital expenditures; deferred turnaround and catalyst costs; and property, plant, and
1,732 $
88 $
84 $
44 $
1,948
$
equipment for acquisitions.
123
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table provides a disaggregation of revenues from external customers for our principal products by reportable segment
(in millions).
Refining:
Gasolines and blendstocks
Distillates
Other product revenues
Total refining revenues
Ethanol:
Ethanol
Distillers grains
Total ethanol revenues
Renewable diesel:
Renewable diesel
Corporate – other revenues
Revenues
Year Ended December 31,
2019
2018
2017
$
42,798 $
51,942
9,006
46,596 $
55,037
11,460
103,746
113,093
2,889
717
3,606
970
2
2,713
715
3,428
508
4
40,347
41,680
8,231
90,258
2,764
560
3,324
393
5
$
108,324 $
117,033 $
93,980
Revenues by geographic area are shown in the following table (in millions). The geographic area is based on location of customer and no
customer accounted for 10 percent or more of our revenues.
U.S.
Canada
U.K. and Ireland
Other countries
Revenues
Year Ended December 31,
2019
2018
2017
$
$
77,173 $
7,915
13,584
9,652
108,324 $
82,992 $
9,211
15,208
9,622
117,033 $
66,614
7,039
11,556
8,771
93,980
Long-lived assets include property, plant, and equipment and certain long-lived assets included in “deferred charges and other assets, net.”
Long-lived assets by geographic area consisted of the following (in millions):
U.S.
Canada
U.K. and Ireland
Other countries
Total long-lived assets
December 31,
2019
2018
$
$
27,485 $
1,886
1,232
497
31,100 $
27,475
1,798
1,113
266
30,652
124
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Total assets by reportable segment were as follows (in millions):
Refining
Ethanol
Renewable diesel
Corporate and eliminations
Total assets
December 31,
2019
2018
$
$
47,067 $
1,615
1,412
3,770
53,864 $
43,488
1,691
787
4,189
50,155
As of December 31, 2019 and 2018, our investments in unconsolidated joint ventures accounted for under the equity method were $942 million
and $542 million, respectively, all of which related to the refining segment and are reflected in “deferred charges and other assets, net” as
presented in Note 7.
18. SUPPLEMENTAL CASH FLOW INFORMATION
In order to determine net cash provided by operating activities, net income is adjusted by, among other things, changes in current assets and
current liabilities as follows (in millions):
Decrease (increase) in current assets:
Receivables, net
Inventories
Prepaid expenses and other
Increase (decrease) in current liabilities:
Accounts payable
Accrued expenses
Taxes other than income taxes payable
Income taxes payable
Changes in current assets and current liabilities
Cash flows related to interest and income taxes were as follows (in millions):
Interest paid in excess of amount capitalized,
including interest on finance leases
Income taxes paid (refunded), net (see Note 15)
125
Year Ended December 31,
2019
2018
2017
(1,468) $
(385)
427
1,534
(27)
60
153
294 $
(457) $
(197)
(77)
304
(113)
(73)
(684)
(1,297) $
(870)
(516)
151
1,842
21
172
489
1,289
Year Ended December 31,
2019
2018
2017
452 $
(116)
463 $
1,361
457
410
$
$
$
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Supplemental cash flow information related to our operating and finance leases was as follows (in millions):
Cash paid for amounts included in the
measurement of lease liabilities:
Operating cash flows
Investing cash flows
Financing cash flows
Changes in lease balances resulting from new
and modified leases (a)
Year Ended
December 31, 2019
Operating
Leases
Finance
Leases
$
441 $
1
—
1,756
50
—
34
239
___________________
(a)
Includes noncash activity of $1.3 billion for operating lease ROU assets recorded on January 1, 2019 upon adoption of Topic 842.
Noncash investing and financing activities for the year ended December 31, 2019 also included the derecognition of the property, plant, and
equipment and the related long-term liability associated with a build-to-suit lease arrangement with respect to the MVP Terminal, and the
subsequent recognition of our investment in MVP, which is the unconsolidated joint venture that owns the MVP Terminal, as described in
Note 10.
Noncash investing and financing activities for the years ended December 31, 2018 and 2017 included the recognition of (i) finance lease assets
and related obligations primarily for the lease of storage tanks and (ii) terminal assets and related obligations under owner accounting as
described in Note 10.
126
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
19. FAIR VALUE MEASUREMENTS
General
U.S. GAAP requires or permits certain assets and liabilities to be measured at fair value on a recurring or nonrecurring basis in our balance
sheets, and those assets and liabilities are presented below under “Recurring Fair Value Measurements” and “Nonrecurring Fair Value
Measurements.” Assets and liabilities measured at fair value on a recurring basis, such as derivative financial instruments, are measured at fair
value at the end of each reporting period. Assets and liabilities measured at fair value on a nonrecurring basis, such as the impairment of
property, plant and equipment, are measured at fair value in particular circumstances.
U.S. GAAP also requires the disclosure of the fair values of financial instruments when an option to elect fair value accounting has been
provided, but such election has not been made. A debt obligation is an example of such a financial instrument. The disclosure of the fair values
of financial instruments not recognized at fair value in our balance sheet is presented below under “Other Financial Instruments.”
U.S. GAAP provides a framework for measuring fair value and establishes a three-level fair value hierarchy that prioritizes inputs to valuation
techniques based on the degree to which objective prices in external active markets are available to measure fair value. Following is a
description of each of the levels of the fair value hierarchy.
•
•
•
Level 1 - Observable inputs, such as unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or
indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets
or liabilities in markets that are not active.
Level 3 - Unobservable inputs for the asset or liability. Unobservable inputs reflect our own assumptions about what market participants
would use to price the asset or liability. The inputs are developed based on the best information available in the circumstances, which
might include occasional market quotes or sales of similar instruments or our own financial data such as internally developed pricing
models, discounted cash flow methodologies, as well as instruments for which the fair value determination requires significant
judgment.
127
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Recurring Fair Value Measurements
The following tables present information (in millions) about our assets and liabilities recognized at their fair values in our balance sheets
categorized according to the fair value hierarchy of the inputs utilized by us to determine the fair values as of December 31, 2019 and 2018.
We have elected to offset the fair value amounts recognized for multiple similar derivative contracts executed with the same counterparty,
including any related cash collateral assets or obligations as shown below; however, fair value amounts by hierarchy level are presented in the
following tables on a gross basis. We have no derivative contracts that are subject to master netting arrangements that are reflected gross on the
balance sheet.
December 31, 2019
Fair Value Hierarchy
Level 1
Level 2
Level 3
Total
Gross
Fair
Value
Effect of
Counter-
party
Netting
Effect of
Cash
Collateral
Netting
Net
Carrying
Value on
Balance
Sheet
Cash
Collateral
Paid or
Received
Not Offset
Assets
Commodity derivative
contracts
Foreign currency
contracts
Investments of certain
benefit plans
$
617 $
— $
— $
617 $
(612) $
— $
5 $
Total
$
709 $
9 $
718 $
(612) $
27
65
—
—
27
—
— $
9
74
n/a
n/a
n/a
27
n/a
— $
74
106
—
n/a
n/a
Liabilities
Commodity derivative
contracts
Environmental credit
obligations
Physical purchase
contracts
Foreign currency
contracts
Total
$
668 $
— $
— $
668 $
(612) $
(56) $
— $
(84)
—
—
10
2
3
—
—
2
3
—
—
10
n/a
n/a
n/a
$
678 $
5 $
— $
683 $
(612) $
n/a
n/a
n/a
(56) $
2
3
10
15
n/a
n/a
n/a
128
Table of Contents
Assets
Commodity derivative
contracts
Foreign currency
contracts
Investments of certain
benefit plans
Total
Liabilities
Commodity derivative
contracts
Environmental credit
obligations
Physical purchase
contracts
Foreign currency
contracts
Total
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2018
Fair Value Hierarchy
Level 1
Level 2
Level 3
Total
Gross
Fair
Value
Effect of
Counter-
party
Netting
Effect of
Cash
Collateral
Netting
Net
Carrying
Value on
Balance
Sheet
Cash
Collateral
Paid or
Received
Not Offset
$
2,792 $
— $
— $ 2,792 $
(2,669) $
(34) $
89 $
4
—
—
4
60
$
2,856 $
—
— $
9
69
9 $ 2,865 $
(2,669) $
n/a
n/a
(34) $
4
69
162
—
n/a
n/a
$
2,681 $
— $
— $ 2,681 $
(2,669) $
(12) $
— $
(136)
—
—
1
$
2,682 $
13
—
13
5
—
18 $
—
—
5
1
— $ 2,700 $
(2,669) $
n/a
n/a
n/a
(12) $
13
5
1
19
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
A description of our assets and liabilities recognized at fair value along with the valuation methods and inputs we used to develop their fair
value measurements are as follows:
• Commodity derivative contracts consist primarily of exchange-traded futures, which are used to reduce the impact of price volatility on
our results of operations and cash flows as discussed in Note 20. These contracts are measured at fair value using a market approach
based on quoted prices from the commodity exchange and are categorized in Level 1 of the fair value hierarchy.
•
•
Physical purchase contracts represent the fair value of fixed-price corn purchase contracts. The fair values of these purchase contracts
are measured using a market approach based on quoted prices from the commodity exchange or an independent pricing service and are
categorized in Level 2 of the fair value hierarchy.
Investments of certain benefit plans consist of investment securities held by trusts for the purpose of satisfying a portion of our
obligations under certain U.S. nonqualified benefit plans. The plan assets categorized in Level 1 of the fair value hierarchy are
measured at fair value using a market approach based on quoted prices from national securities exchanges. The plan assets categorized
in Level 3 of the fair value hierarchy represent insurance contracts, the fair value of which is provided by the insurer.
129
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
•
•
Foreign currency contracts consist of foreign currency exchange and purchase contracts and foreign currency swap agreements related
to our international operations to manage our exposure to exchange rate fluctuations on transactions denominated in currencies other
than the local (functional) currencies of our operations. These contracts are valued based on quoted foreign currency exchange rates
and are categorized in Level 1 of the fair value hierarchy.
Environmental credit obligations represent our liability for the purchase of (i) biofuel credits (primarily RINs in the U.S.) needed to
satisfy our obligation to blend biofuels into the products we produce and (ii) emission credits under the California Global Warming
Solutions Act (the California cap-and-trade system, also known as AB 32) and similar programs, (collectively, the cap-and-trade
systems). To the degree we are unable to blend biofuels (such as ethanol and biodiesel) at percentages required under the biofuel
programs, we must purchase biofuel credits to comply with these programs. Under the cap-and-trade systems, we must purchase
emission credits to comply with these systems. These programs are described in Note 20 under “Environmental Compliance Program
Price Risk.” The liability for environmental credits is based on our deficit for such credits as of the balance sheet date, if any, after
considering any credits acquired or under contract, and is equal to the product of the credits deficit and the market price of these credits
as of the balance sheet date. The environmental credit obligations are categorized in Level 2 of the fair value hierarchy and are
measured at fair value using the market approach based on quoted prices from an independent pricing service.
There were no transfers into or out of Level 3 for assets and liabilities held as of December 31, 2019 and 2018 that were measured at fair value
on a recurring basis.
There was no significant activity during the years ended December 31, 2019, 2018, and 2017 related to the fair value amounts categorized in
Level 3 as of December 31, 2019 and 2018.
Nonrecurring Fair Value Measurements
There were no assets or liabilities that were measured at fair value on a nonrecurring basis as of December 31, 2019 and 2018.
Other Financial Instruments
Financial instruments that we recognize in our balance sheets at their carrying amounts are shown in the following table along with their
associated fair values (in millions):
Financial assets
Cash and cash equivalents
Financial liabilities
December 31, 2019
December 31, 2018
Fair Value
Hierarchy
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Level 1
$
2,583 $
2,583 $
2,982 $
2,982
Debt (excluding finance leases)
Level 2
8,881
10,583
8,503
8,986
130
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
20. PRICE RISK MANAGEMENT ACTIVITIES
We are exposed to market risks primarily related to the volatility in the price of commodities, foreign currency exchange rates, and the price of
credits needed to comply with various government and regulatory programs. We enter into derivative instruments to manage some of these
risks, including derivative instruments related to the various commodities we purchase or produce, and foreign currency exchange and purchase
contracts, as described below under “Risk Management Activities by Type of Risk.” These derivative instruments are recorded as either assets or
liabilities measured at their fair values (see Note 19), as summarized below under “Fair Values of Derivative Instruments.” The effect of these
derivative instruments on our income is summarized below under “Effect of Derivative Instruments on Income.”
Risk Management Activities by Type of Risk
Commodity Price Risk
We are exposed to market risks related to the volatility in the price of crude oil, refined petroleum products (primarily gasoline and distillate),
renewable diesel, grain (primarily corn), renewable diesel feedstocks, and natural gas used in our operations. To reduce the impact of price
volatility on our results of operations and cash flows, we use commodity derivative instruments, such as futures and options. Our positions in
commodity derivative instruments are monitored and managed on a daily basis by our risk control group to ensure compliance with our stated
risk management policy that has been approved by our board of directors.
We primarily use commodity derivative instruments as cash flow hedges and economic hedges. Our objectives for entering into each type of
hedge is described below.
• Cash flow hedges – The objective of our cash flow hedges is to lock in the price of forecasted (i) feedstock, refined petroleum product,
or natural gas purchases, or (ii) refined petroleum product or renewable diesel sales at existing market prices that we deem favorable.
•
Economic hedges – Our objectives for holding economic hedges are to (i) manage price volatility in certain feedstock and refined
petroleum product inventories and fixed-price purchase contracts, and (ii) lock in the price of forecasted feedstock, refined petroleum
product, or natural gas purchases or refined petroleum product or renewable diesel sales at existing market prices that we deem
favorable.
131
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of December 31, 2019, we had the following outstanding commodity derivative instruments that were used as cash flow hedges and
economic hedges, as well as commodity derivative instruments related to the physical purchase of corn at a fixed price. The information
presents the notional volume of outstanding contracts by type of instrument and year of maturity (volumes in thousands of barrels, except corn
contracts that are presented in thousands of bushels).
Derivatives designated as cash flow hedges
Renewable diesel:
Futures – long
Futures – short
Derivatives designated as economic hedges
Crude oil and refined petroleum products:
Futures – long
Futures – short
Options – long
Options – short
Corn:
Futures – long
Futures – short
Physical contracts – long
Notional Contract Volumes by
Year of Maturity
2020
2021
995
2,492
73,348
76,045
1,550
1,550
50,120
66,575
22,055
—
—
2
—
—
—
—
295
306
Foreign Currency Risk
We are exposed to exchange rate fluctuations on transactions related to our international operations that are denominated in currencies other
than the local (functional) currencies of our operations. To manage our exposure to these exchange rate fluctuations, we use foreign currency
contracts. These contracts are not designated as hedging instruments for accounting purposes and therefore are classified as economic hedges.
As of December 31, 2019, we had foreign currency contracts to purchase $739 million of U.S. dollars and $2.3 billion of U.S. dollar equivalent
Canadian dollars. All of these commitments matured on or before February 15, 2020.
Environmental Compliance Program Price Risk
We are exposed to market risk related to the volatility in the price of credits needed to comply with various governmental and regulatory
environmental compliance programs. To manage this risk, we enter into contracts to purchase these credits when prices are deemed favorable.
Some of these contracts are derivative instruments; however, we elect the normal purchase exception and do not record these contracts at their
fair values. Certain of these programs require us to blend biofuels into the products we produce, and we are subject to such programs in most of
the countries in which we operate. These countries set annual quotas for the percentage of biofuels that must be blended into the motor fuels
consumed in these countries. As a producer of motor fuels from petroleum, we are obligated to blend biofuels into the products we produce at
132
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
a rate that is at least equal to the applicable quota. To the degree we are unable to blend at the applicable rate, we must purchase biofuel credits
(primarily RINs in the U.S.). We are exposed to the volatility in the market price of these credits, and we manage that risk by purchasing
biofuel credits when prices are deemed favorable. For the years ended December 31, 2019, 2018, and 2017, the cost of meeting our obligations
under these compliance programs was $318 million, $536 million, and $942 million, respectively. These amounts are reflected in cost of
materials and other.
We are subject to additional requirements under GHG emission programs, including the cap-and-trade systems, as discussed in Note 19. Under
these cap-and-trade systems, we purchase various GHG emission credits available on the open market. Therefore, we are exposed to the
volatility in the market price of these credits. The cost to implement certain provisions of the cap-and-trade systems are significant; however,
we recovered the majority of these costs from our customers for the years ended December 31, 2019, 2018, and 2017 and expect to continue to
recover the majority of these costs in the future. For the years ended December 31, 2019, 2018, and 2017, the net cost of meeting our
obligations under these compliance programs was immaterial.
Fair Values of Derivative Instruments
The following tables provide information about the fair values of our derivative instruments as of December 31, 2019 and 2018 (in millions)
and the line items in the balance sheets in which the fair values are reflected. See Note 19 for additional information related to the fair values of
our derivative instruments.
As indicated in Note 19, we net fair value amounts recognized for multiple similar derivative contracts executed with the same counterparty
under master netting arrangements, including cash collateral assets and obligations. The following tables, however, are presented on a gross
asset and gross liability basis, which results in the reflection of certain assets in liability accounts and certain liabilities in asset accounts.
Derivatives designated
as hedging instruments
Commodity contracts
Derivatives not designated
as hedging instruments
Commodity contracts
Physical purchase contracts
Foreign currency contracts
Foreign currency contracts
Total
December 31, 2019
December 31, 2018
Balance Sheet
Location
Asset
Derivatives
Liability
Derivatives
Asset
Derivatives
Liability
Derivatives
Receivables, net
$
9 $
20 $
— $
—
Receivables, net
Inventories
Receivables, net
Accrued expenses
$
$
608 $
—
27
—
635 $
648 $
3
—
10
661 $
2,792 $
—
4
—
2,796 $
2,681
5
—
1
2,687
Market Risk
Our price risk management activities involve the receipt or payment of fixed price commitments into the future. These transactions give rise to
market risk, which is the risk that future changes in market conditions
133
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
may make an instrument less valuable. We closely monitor and manage our exposure to market risk on a daily basis in accordance with policies
approved by our board of directors. Market risks are monitored by our risk control group to ensure compliance with our stated risk management
policy. We do not require any collateral or other security to support derivative instruments into which we enter. We also do not have any
derivative instruments that require us to maintain a minimum investment-grade credit rating.
Effect of Derivative Instruments on Income
The following table provides information about the gain (loss) recognized in income on our derivative instruments and the line items in the
statements of income in which such gains (losses) are reflected (in millions).
Derivatives Not Designated
as Hedging Instruments
Commodity contracts
Commodity contracts
Commodity contracts
Foreign currency contracts
Foreign currency contracts
Location of Gain (Loss)
Recognized in Income
on Derivatives
Revenues
Cost of materials and other
Operating expenses
(excluding depreciation and
amortization expense)
Cost of materials and other
Other income, net
Year Ended December 31,
2019
2018
2017
$
5 $
(68)
— $
(165)
—
(21)
75
7
56
(43)
—
(278)
—
(40)
—
21. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
In connection with the completion of the Merger Transaction as described in Note 2, Valero Energy Corporation, the parent company, entered
into a guarantee agreement to fully and unconditionally guarantee the prompt payment, when due, of the following debt issued by Valero
Energy Partners LP, an indirect wholly owned subsidiary of Valero Energy Corporation, that was outstanding as of December 31, 2019:
•
•
4.375 percent Senior Notes due December 15, 2026, and
4.5 percent Senior Notes due March 15, 2028.
The following condensed consolidating financial information is provided as an alternative to providing separate financial statements for Valero
Energy Partners LP, which has no independent assets or operations. The financial position, results of operations, and cash flows of Valero
Energy Partners LP’s wholly owned subsidiaries are included in “Other Non-Guarantor Subsidiaries.” The accounts for all companies reflected
herein are presented using the equity method of accounting for investments in subsidiaries.
134
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Balance Sheet
December 31, 2019
(in millions)
Valero
Energy
Corporation
Valero
Energy
Partners LP
Other Non-
Guarantor
Subsidiaries
Eliminations
Consolidated
ASSETS
Current assets:
Cash and cash equivalents
Receivables, net
Receivables from affiliates
Inventories
Prepaid expenses and other
Total current assets
Property, plant and equipment, at cost
Accumulated depreciation
Property, plant and equipment, net
Investment in affiliates
Deferred charges and other assets, net
Total assets
LIABILITIES AND EQUITY
Current liabilities:
Current portion of debt and finance lease obligations
Accounts payable
Accounts payable to affiliates
Accrued expenses
Taxes other than income taxes payable
Income taxes payable
Total current liabilities
Debt and finance lease obligations, less current portion
Deferred income tax liabilities
Other long-term liabilities
Equity:
Stockholders’ equity:
Common stock
Additional paid-in capital
Treasury stock, at cost
Retained earnings
Partners’ equity
Accumulated other comprehensive loss
Total stockholders’ equity
Noncontrolling interests
Total equity
Total liabilities and equity
— $
—
—
—
—
—
—
—
—
2,673
—
2,673 $
— $
—
1,291
7
—
—
1,298
991
2
—
—
—
—
—
382
—
382
—
382
2,673 $
1,671 $
8,904
13,806
7,013
406
31,800
44,294
(15,030)
29,264
382
4,860
66,306 $
494 $
10,205
4,336
822
1,304
100
17,261
1,092
5,101
1,544
1
9,771
—
31,636
—
(833)
40,575
733
41,308
66,306 $
— $
—
(18,142)
—
—
(18,142)
—
—
—
(40,957)
—
(59,099) $
— $
—
(18,142)
—
—
—
(18,142)
—
—
—
(1)
(9,771)
—
(31,636)
(382)
833
(40,957)
—
(40,957)
(59,099) $
2,583
8,904
—
7,013
469
18,969
44,294
(15,030)
29,264
—
5,631
53,864
494
10,205
—
949
1,304
208
13,160
9,178
5,103
3,887
7
6,821
(15,648)
31,974
—
(1,351)
21,803
733
22,536
53,864
$
$
$
$
912 $
—
4,336
—
63
5,311
—
—
—
37,902
771
43,984 $
— $
—
12,515
120
—
108
12,743
7,095
—
2,343
7
6,821
(15,648)
31,974
—
(1,351)
21,803
—
21,803
43,984 $
135
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Balance Sheet
December 31, 2018
(in millions)
Valero
Energy
Corporation
Valero
Energy
Partners LP
Other Non-
Guarantor
Subsidiaries
Eliminations
Consolidated
ASSETS
Current assets:
Cash and cash equivalents
Receivables, net
Receivables from affiliates
Inventories
Prepaid expenses and other
Total current assets
Property, plant and equipment, at cost
Accumulated depreciation
Property, plant and equipment, net
Investment in affiliates
Long-term notes receivable from affiliates
Deferred charges and other assets, net
Total assets
LIABILITIES AND EQUITY
Current liabilities:
Current portion of debt and finance lease obligations
Accounts payable
Accounts payable to affiliates
Accrued expenses
Accrued expenses to affiliates
Taxes other than income taxes payable
Income taxes payable
Total current liabilities
Debt and finance lease obligations, less current portion
Long-term notes payable to affiliates
Deferred income tax liabilities
Other long-term liabilities
Equity:
Stockholders’ equity:
Common stock
Additional paid-in capital
Treasury stock, at cost
Retained earnings
Partners’ equity
Accumulated other comprehensive loss
Total stockholders’ equity
Noncontrolling interests
Total equity
Total liabilities and equity
152 $
—
2
—
—
154
—
—
—
2,267
—
1
2,422 $
— $
—
837
7
1
—
1
846
990
285
2
—
—
—
—
—
299
—
299
—
299
2,422 $
2,539 $
7,345
10,684
6,532
355
27,455
42,473
(13,625)
28,848
(321)
—
3,059
59,041 $
238 $
8,580
4,370
468
—
1,213
—
14,869
926
—
4,960
879
1
9,754
—
28,305
—
(1,097)
36,963
444
37,407
59,041 $
— $
—
(15,055)
—
(5)
(15,060)
—
—
—
(36,642)
(285)
—
(51,987) $
— $
—
(15,054)
—
(1)
—
(5)
(15,060)
—
(285)
—
—
(1)
(9,754)
—
(28,305)
(299)
1,097
(37,262)
620
(36,642)
(51,987) $
2,982
7,345
—
6,532
816
17,675
42,473
(13,625)
28,848
—
—
3,632
50,155
238
8,594
—
630
—
1,213
49
10,724
8,871
—
4,962
2,867
7
7,048
(14,925)
31,044
—
(1,507)
21,667
1,064
22,731
50,155
$
$
$
$
291
—
4,369
—
466
5,126
—
—
—
34,696
285
572
40,679
$
— $
14
9,847
155
—
—
53
10,069
6,955
—
—
1,988
7
7,048
(14,925)
31,044
—
(1,507)
21,667
—
21,667
40,679
$
$
136
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statement of Income
Year Ended December 31, 2019
(in millions)
Revenues
Cost of sales:
Cost of materials and other
Operating expenses (excluding depreciation and
amortization expense reflected below)
Depreciation and amortization expense
Total cost of sales
Other operating expenses
General and administrative expenses (excluding depreciation
and amortization expense reflected below)
Depreciation and amortization expense
Operating income (loss)
Equity in earnings of subsidiaries
Other income, net
Interest and debt expense, net of capitalized interest
Income before income tax expense (benefit)
Income tax expense (benefit)
Net income
Less: Net income attributable to noncontrolling interests
Valero
Energy
Corporation
Valero
Energy
Partners LP
Other Non-
Guarantor
Subsidiaries
Eliminations
Consolidated
$
— $
— $
108,324 $
— $
108,324
—
—
—
—
—
6
—
(6)
3,006
193
(927)
2,266
(156)
2,422
—
—
—
—
—
—
—
—
—
406
—
(47)
359
—
359
—
96,476
4,868
2,202
103,546
21
862
53
3,842
357
625
(194)
4,630
858
3,772
360
—
—
—
—
—
—
—
—
(3,769)
(714)
714
(3,769)
—
(3,769)
2
96,476
4,868
2,202
103,546
21
868
53
3,836
—
104
(454)
3,486
702
2,784
362
2,422
Net income attributable to stockholders
$
2,422 $
359 $
3,412 $
(3,771) $
137
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statement of Income
Year Ended December 31, 2018
(in millions)
Revenues
Cost of sales:
Cost of materials and other
Operating expenses (excluding depreciation and
amortization expense reflected below)
Depreciation and amortization expense
Total cost of sales
Other operating expenses
General and administrative expenses (excluding depreciation
and amortization expense reflected below)
Depreciation and amortization expense
Operating income (loss)
Equity in earnings of subsidiaries
Other income, net
Interest and debt expense, net of capitalized interest
Income before income tax expense (benefit)
Income tax expense (benefit)
Net income
Less: Net income attributable to noncontrolling interests
Valero
Energy
Corporation
Valero
Energy
Partners LP
Other Non-
Guarantor
Subsidiaries
Eliminations
Consolidated
$
— $
— $
117,033 $
— $
117,033
—
—
—
—
—
2
—
(2)
3,724
220
(913)
3,029
(93)
3,122
—
—
104,732
—
—
—
—
—
—
—
319
2
(55)
266
2
264
—
4,690
2,017
111,439
45
923
52
4,574
196
621
(215)
5,176
970
4,206
163
—
—
—
—
—
—
—
—
(4,239)
(713)
713
(4,239)
—
(4,239)
68
104,732
4,690
2,017
111,439
45
925
52
4,572
—
130
(470)
4,232
879
3,353
231
3,122
Net income attributable to stockholders
$
3,122 $
264 $
4,043 $
(4,307) $
138
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statement of Income
Year Ended December 31, 2017
(in millions)
Revenues
Cost of sales:
Cost of materials and other
Operating expenses (excluding depreciation and
amortization expense reflected below)
Depreciation and amortization expense
Total cost of sales
Other operating expenses
General and administrative expenses (excluding depreciation
and amortization expense reflected below)
Depreciation and amortization expense
Operating income (loss)
Equity in earnings of subsidiaries
Other income, net
Interest and debt expense, net of capitalized interest
Income before income tax expense (benefit)
Income tax expense (benefit)
Net income
Less: Net income attributable to noncontrolling interests
Valero
Energy
Corporation
Valero
Energy
Partners LP
Other Non-
Guarantor
Subsidiaries
Eliminations
Consolidated
$
— $
— $
93,980 $
— $
93,980
—
—
—
—
—
6
—
(6)
5,236
290
(780)
4,740
675
4,065
—
—
—
—
—
—
—
—
—
275
1
(36)
240
2
238
—
83,037
4,504
1,934
89,475
61
823
52
3,569
176
415
(246)
3,914
(1,626)
5,540
29
—
—
—
—
—
—
—
—
(5,687)
(594)
594
(5,687)
—
(5,687)
62
83,037
4,504
1,934
89,475
61
829
52
3,563
—
112
(468)
3,207
(949)
4,156
91
4,065
Net income attributable to stockholders
$
4,065 $
238 $
5,511 $
(5,749) $
139
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statement of Comprehensive Income
Year Ended December 31, 2019
(in millions)
Net income
$
2,422 $
359 $
3,772 $
(3,769) $
2,784
Valero
Energy
Corporation
Valero
Energy
Partners LP
Other Non-
Guarantor
Subsidiaries
Eliminations
Consolidated
Other comprehensive income:
Foreign currency translation adjustment
Net loss on pension and other postretirement benefits
Net loss on cash flow hedges
Other comprehensive income before income tax benefit
Income tax benefit related to items of other
comprehensive income
Other comprehensive income
Comprehensive income
Less: Comprehensive income attributable to noncontrolling
interests
346
(234)
(4)
108
(48)
156
2,578
—
Comprehensive income attributable to stockholders
$
2,578 $
—
—
—
—
—
—
359
286
(19)
(8)
259
(4)
263
4,035
(283)
19
4
(260)
4
(264)
(4,033)
—
359 $
359
2
3,676 $
(4,035) $
349
(234)
(8)
107
(48)
155
2,939
361
2,578
Condensed Consolidating Statement of Comprehensive Income
Year Ended December 31, 2018
(in millions)
Net income
Other comprehensive loss:
Foreign currency translation adjustment
Net gain on pension and other postretirement benefits
Other comprehensive loss before income tax
expense
Income tax expense related to items of other
comprehensive loss
Other comprehensive loss
Comprehensive income
Less: Comprehensive income attributable to
noncontrolling interests
Valero
Energy
Corporation
Valero
Energy
Partners LP
Other Non-
Guarantor
Subsidiaries
Eliminations
Consolidated
$
3,122 $
264 $
4,206 $
(4,239) $
3,353
(515)
49
(466)
10
(476)
2,646
—
—
—
—
—
264
(419)
18
(401)
3
(404)
3,802
417
(18)
399
(3)
402
(3,837)
—
—
161
68
(517)
49
(468)
10
(478)
2,875
229
2,646
Comprehensive income attributable to stockholders
$
2,646 $
264 $
3,641 $
(3,905) $
140
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statement of Comprehensive Income
Year Ended December 31, 2017
(in millions)
Net income
$
4,065 $
238 $
5,540 $
(5,687) $
4,156
Valero
Energy
Corporation
Valero
Energy
Partners LP
Other Non-
Guarantor
Subsidiaries
Eliminations
Consolidated
Other comprehensive income:
Foreign currency translation adjustment
Net gain (loss) on pension and other postretirement benefits
Other comprehensive income before income tax expense
(benefit)
Income tax expense (benefit) related to items of other
comprehensive income
Other comprehensive income
Comprehensive income
Less: Comprehensive income attributable to noncontrolling
interests
514
(65)
449
(21)
470
4,535
—
Comprehensive income attributable to stockholders
$
4,535 $
—
—
—
—
—
238
434
4
438
1
437
5,977
(434)
(4)
(438)
(1)
(437)
(6,124)
—
238 $
29
62
5,948 $
(6,186) $
514
(65)
449
(21)
470
4,626
91
4,535
141
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2019
(in millions)
Net cash provided by (used in) operating activities
$
(131) $
(46) $
6,165 $
(457) $
5,531
Valero
Energy
Corporation
Valero
Energy
Partners LP
Other Non-
Guarantor
Subsidiaries
Eliminations
Consolidated
Cash flows from investing activities:
Capital expenditures (excluding VIEs)
Capital expenditures of VIEs:
DGD
Other VIEs
Deferred turnaround and catalyst cost expenditures (excluding
VIEs)
Deferred turnaround and catalyst cost expenditures of DGD
Investments in unconsolidated joint ventures
Acquisitions of ethanol plants
Acquisitions of undivided interests
Intercompany investing activities
Other investing activities, net
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Proceeds from debt issuances and borrowings (excluding VIEs)
Proceeds from borrowings of VIEs
Repayments of debt and finance lease obligations (excluding
VIEs)
Repayments of debt of VIEs
Intercompany financing activities
Purchases of common stock for treasury
Common stock dividends
Acquisition of VLP publicly held common units
Distributions to noncontrolling interests and unitholders of VLP
Other financing activities, net
Net cash provided by (used in) financing activities
Effect of foreign exchange rate changes on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
—
—
—
—
—
—
—
—
395
—
395
992
—
(871)
—
2,520
(777)
(1,492)
—
—
(15)
357
—
621
291
—
—
—
—
—
—
—
—
2
—
2
—
—
—
—
268
—
—
—
(376)
—
(108)
—
(152)
152
(1,627)
(142)
(225)
(762)
(18)
(164)
(3)
(72)
(2,973)
12
(5,974)
900
239
(934)
(6)
(212)
—
(81)
(950)
(70)
(13)
(1,127)
68
(868)
2,539
Cash and cash equivalents at end of year
$
912 $
— $
1,671 $
—
—
—
—
—
—
—
—
2,576
—
2,576
—
—
—
—
(2,576)
—
81
—
376
—
(2,119)
—
—
—
— $
(1,627)
(142)
(225)
(762)
(18)
(164)
(3)
(72)
—
12
(3,001)
1,892
239
(1,805)
(6)
—
(777)
(1,492)
(950)
(70)
(28)
(2,997)
68
(399)
2,982
2,583
142
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2018
(in millions)
Net cash provided by (used in) operating activities
$
(1,207) $
(51) $
5,828 $
(199) $
4,371
Valero
Energy
Corporation
Valero
Energy
Partners LP
Other Non-
Guarantor
Subsidiaries
Eliminations
Consolidated
Cash flows from investing activities:
Capital expenditures (excluding VIEs)
Capital expenditures of VIEs:
DGD
Other VIEs
Deferred turnaround and catalyst cost expenditures (excluding
VIEs)
Deferred turnaround and catalyst cost expenditures of DGD
Investments in unconsolidated joint ventures
Peru Acquisition, net of cash acquired
Acquisitions of ethanol plants
Acquisitions of undivided interests
Minor acquisitions
Intercompany investing activities
Other investing activities, net
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Proceeds from debt issuances and borrowings (excluding VIEs)
Proceeds from borrowings of VIEs
Repayments of debt and finance lease obligations (excluding
VIEs)
Repayments of debt of VIEs
Intercompany financing activities
Purchases of common stock for treasury
Common stock dividends
Contributions to noncontrolling interests
Distributions to noncontrolling interests and unitholders of VLP
Other financing activities, net
Net cash provided by (used in) financing activities
Effect of foreign exchange rate changes on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
—
—
—
—
—
—
—
—
—
—
758
—
758
750
—
(787)
—
2,106
(1,708)
(1,369)
—
—
2
(1,006)
—
(1,455)
1,746
—
—
—
—
—
—
—
—
—
—
102
—
102
498
—
(410)
—
190
—
—
—
(215)
(4)
59
—
110
42
(1,463)
(165)
(124)
(888)
(27)
(181)
(468)
(320)
(212)
(88)
(2,381)
8
(6,309)
10
109
(156)
(6)
(775)
—
(32)
32
(68)
(13)
(899)
(143)
(1,523)
4,062
Cash and cash equivalents at end of year
$
291 $
152 $
2,539 $
—
—
—
—
—
—
—
—
—
—
1,521
—
1,521
—
—
—
—
(1,521)
—
32
—
167
—
(1,322)
—
—
—
— $
(1,463)
(165)
(124)
(888)
(27)
(181)
(468)
(320)
(212)
(88)
—
8
(3,928)
1,258
109
(1,353)
(6)
—
(1,708)
(1,369)
32
(116)
(15)
(3,168)
(143)
(2,868)
5,850
2,982
143
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2017
(in millions)
Net cash provided by (used in) operating activities
$
(73) $
(34) $
5,720 $
(131) $
5,482
Valero
Energy
Corporation
Valero
Energy
Partners LP
Other Non-
Guarantor
Subsidiaries
Eliminations
Consolidated
Cash flows from investing activities:
Capital expenditures (excluding VIEs)
Capital expenditures of VIEs:
DGD
Other VIEs
Deferred turnaround and catalyst cost expenditures (excluding
VIEs)
Deferred turnaround and catalyst cost expenditures of DGD
Investments in unconsolidated joint ventures
Acquisitions of undivided interests
Intercompany investing activities
Other investing activities, net
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from debt issuances and borrowings (excluding VIEs)
Repayments of debt and finance lease obligations (excluding
VIEs)
Repayments of debt of VIEs
Intercompany financing activities
Purchases of common stock for treasury
Common stock dividends
Contributions from noncontrolling interests
Distributions to noncontrolling interests and unitholders of VLP
Other financing activities, net
Net cash provided by financing activities
Effect of foreign exchange rate changes on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
$
—
—
—
—
—
—
—
(4,002)
—
(4,002)
—
—
—
6,704
(1,372)
(1,242)
—
—
10
4,100
—
25
1,721
1,746 $
144
—
—
—
—
—
—
—
(187)
—
(187)
380
—
—
(63)
—
—
—
(161)
36
192
—
(29)
71
(1,269)
(84)
(26)
(519)
(4)
(406)
(72)
(6,696)
(2)
(9,078)
—
(15)
(6)
4,244
—
(10)
30
(27)
(26)
4,190
206
1,038
3,024
42 $
4,062 $
—
—
—
—
—
—
—
10,885
—
10,885
—
—
—
(10,885)
—
10
—
121
—
(10,754)
—
—
—
— $
(1,269)
(84)
(26)
(519)
(4)
(406)
(72)
—
(2)
(2,382)
380
(15)
(6)
—
(1,372)
(1,242)
30
(67)
20
(2,272)
206
1,034
4,816
5,850
Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
22. QUARTERLY FINANCIAL DATA (Unaudited)
The following tables summarize quarterly financial data for the years ended December 31, 2019 and 2018 (in millions, except per share
amounts).
$
$
Revenues
Gross profit (a)
Operating income
Net income
Net income attributable to
Valero Energy Corporation
stockholders
Earnings per common share
Earnings per common share –
assuming dilution
Revenues
Gross profit (a)
Operating income
Net income
Net income attributable to
Valero Energy Corporation
stockholders
Earnings per common share
Earnings per common share –
assuming dilution
___________________________
(a) Gross profit is calculated as revenues less total cost of sales.
March 31
June 30
September 30
December 31
2019 Quarter Ended
24,263 $
533
308
167
141
0.34
0.34
28,933 $
1,123
908
648
612
1.47
1.47
27,249 $
1,119
881
639
609
1.48
1.48
27,879
2,003
1,739
1,330
1,060
2.58
2.58
March 31
June 30
September 30
December 31
2018 Quarter Ended
31,015 $
1,535
1,253
875
845
1.96
1.96
30,849 $
1,451
1,219
874
856
2.01
2.01
28,730
1,546
1,299
1,022
952
2.26
2.24
26,439 $
1,062
801
582
469
1.09
1.09
145
Table of Contents
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures. Our management has evaluated, with the participation of our principal executive officer and principal
financial officer, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of
1934) as of the end of the period covered by this report, and has concluded that our disclosure controls and procedures were effective as of
December 31, 2019.
Internal Control over Financial Reporting.
(a) Management’s Report on Internal Control over Financial Reporting.
The management report on Valero’s internal control over financial reporting required by Item 9A appears in Item 8 on page 59 of this report,
and is incorporated herein by reference.
(b) Attestation Report of the Independent Registered Public Accounting Firm.
KPMG LLP’s report on Valero’s internal control over financial reporting appears in Item 8 beginning on page 62 of this report, and is
incorporated herein by reference.
(c) Changes in Internal Control over Financial Reporting.
There has been no change in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected,
or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
ITEMS 10-14.
PART III
The information required by Items 10 through 14 of Form 10-K is incorporated herein by reference to the definitive proxy statement for our
2020 annual meeting of stockholders. We expect to file the proxy statement with the SEC on or before March 31, 2020.
146
Table of Contents
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(a) 1. Financial Statements. The following consolidated financial statements of Valero Energy Corporation and its subsidiaries are included
in Part II, Item 8 of this Form 10-K:
Management’s report on internal control over financial reporting
Reports of independent registered public accounting firm
Consolidated balance sheets as of December 31, 2019 and 2018
Consolidated statements of income for the years ended December 31, 2019, 2018, and 2017
Consolidated statements of comprehensive income for the years ended December 31, 2019, 2018, and 2017
Consolidated statements of equity for the years ended December 31, 2019, 2018, and 2017
Consolidated statements of cash flows for the years ended December 31, 2019, 2018, and 2017
Notes to consolidated financial statements
Page
59
60
64
65
66
67
68
69
2. Financial Statement Schedules and Other Financial Information. No financial statement schedules are submitted because either
they are inapplicable or because the required information is included in the consolidated financial statements or notes thereto.
3. Exhibits. Filed as part of this Form 10-K are the following exhibits:
++2.01 — Agreement and Plan of Merger, dated as of October 18, 2018, by and among Valero Energy Corporation; Forest Merger Sub, LLC;
Valero Energy Partners LP; and Valero Energy Partners GP LLC–incorporated by reference to Exhibit 2.1 to Valero’s Current Report
on Form 8-K dated and filed October 18, 2018 (SEC File No. 1-13175).
3.01 — Amended and Restated Certificate of Incorporation of Valero Energy Corporation, formerly known as Valero Refining and Marketing
Company–incorporated by reference to Exhibit 3.1 to Valero’s Registration Statement on Form S-1 (SEC File No. 333-27013) filed
May 13, 1997.
3.02 — Certificate of Amendment (July 31, 1997) to Restated Certificate of Incorporation of Valero Energy Corporation–incorporated by
reference to Exhibit 3.02 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2003 (SEC File No. 1-13175).
3.03 — Certificate of Merger of Ultramar Diamond Shamrock Corporation with and into Valero Energy Corporation dated December 31,
2001–incorporated by reference to Exhibit 3.03 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2003
(SEC File No. 1-13175).
3.04 — Amendment (effective December 31, 2001) to Restated Certificate of Incorporation of Valero Energy Corporation–incorporated by
reference to Exhibit 3.1 to Valero’s Current Report on Form 8-K dated December 31, 2001, and filed January 11, 2002 (SEC File
No. 1-13175).
3.05 — Second Certificate of Amendment (effective September 17, 2004) to Restated Certificate of Incorporation of Valero Energy
Corporation–incorporated by reference to Exhibit 3.04 to Valero’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2004 (SEC File No. 1-13175).
3.06 — Certificate of Merger of Premcor Inc. with and into Valero Energy Corporation effective September 1, 2005–incorporated by
reference to Exhibit 2.01 to Valero’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005 (SEC File No. 1-
13175).
3.07 — Third Certificate of Amendment (effective December 2, 2005) to Restated Certificate of Incorporation of Valero Energy
Corporation–incorporated by reference to Exhibit 3.07 to Valero’s Annual Report on Form 10-K for the year ended December 31,
2005 (SEC File No. 1-13175).
147
Table of Contents
3.08 — Fourth Certificate of Amendment (effective May 24, 2011) to Restated Certificate of Incorporation of Valero Energy Corporation–
incorporated by reference to Exhibit 4.8 to Valero’s Current Report on Form 8-K dated and filed May 24, 2011 (SEC File No. 1-
13175).
3.09 — Fifth Certificate of Amendment (effective May 13, 2016) to Restated Certificate of Incorporation of Valero Energy Corporation–
incorporated by reference to Exhibit 3.02 to Valero’s Current Report on Form 8-K dated May 12, 2016, and filed May 18, 2016 (SEC
File No. 1-13175).
3.10 — Amended and Restated Bylaws of Valero Energy Corporation–incorporated by reference to Exhibit 3.01 to Valero’s Current Report
on Form 8-K dated September 20, 2017 and filed September 21, 2017 (SEC File No. 1-13175).
4.01 — Indenture dated as of December 12, 1997 between Valero Energy Corporation and The Bank of New York–incorporated by reference
to Exhibit 3.4 to Valero’s Registration Statement on Form S-3 (SEC File No. 333-56599) filed June 11, 1998.
4.02 — First Supplemental Indenture dated as of June 28, 2000 between Valero Energy Corporation and The Bank of New York (including
Form of 7 3/4% Senior Deferrable Note due 2005)–incorporated by reference to Exhibit 4.6 to Valero’s Current Report on Form 8-K
dated June 28, 2000, and filed June 30, 2000 (SEC File No. 1-13175).
4.03 — Indenture (Senior Indenture) dated as of June 18, 2004 between Valero Energy Corporation and Bank of New York–incorporated by
reference to Exhibit 4.7 to Valero’s Registration Statement on Form S-3 (SEC File No. 333-116668) filed June 21, 2004.
4.04 — Form of Indenture related to subordinated debt securities–incorporated by reference to Exhibit 4.8 to Valero’s Registration Statement
on Form S-3 (SEC File No. 333-116668) filed June 21, 2004.
4.05 — Indenture dated as of March 10, 2015 between Valero Energy Corporation and U.S. Bank National Association, as trustee-
incorporated by reference to Exhibit 4.1 to Valero’s Registration Statement on Form S-3 (SEC File No. 333-202635) filed March 10,
2015.
4.06 — Indenture, dated as of November 30, 2016, between Valero Energy Partners LP, as issuer, and U.S. Bank National Association, as
trustee–incorporated by reference to Exhibit 4.1 to Valero Energy Partners LP’s Post-Effective Amendment No. 1 to Registration
Statement on Form S-3 (Registration File No. 333-208052) filed November 30, 2016.
4.07 — First Supplemental Indenture (with Parent Guarantee), dated as of January 10, 2019, among Valero Energy Partners LP, as issuer;
Valero Energy Corporation, as parent guarantor; and U.S. Bank National Association, as trustee–incorporated by reference to
Exhibit 4.2 to Valero’s Current Report on Form 8-K dated and filed January 10, 2019 (SEC File No. 1-13175).
4.08 — Specimen Certificate of Common Stock–incorporated by reference to Exhibit 4.1 to Valero’s Registration Statement on Form S-3
(SEC File No. 333-116668) filed June 21, 2004.
*4.09 — Description of Valero Energy Corporation common stock, $0.01 par value.
+10.01 — Valero Energy Corporation Annual Bonus Plan, amended and restated as of February 28, 2018–incorporated by reference to
Exhibit 10.01 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2017 (SEC File No. 1-13175).
+10.02 — Valero Energy Corporation 2005 Omnibus Stock Incentive Plan, amended and restated as of October 1, 2005–incorporated by
reference to Exhibit 10.02 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2009 (SEC File No. 1-13175).
+10.03 — Valero Energy Corporation 2011 Omnibus Stock Incentive Plan, amended and restated February 25, 2016–incorporated by reference
to Exhibit 10.04 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2015 (SEC File No. 1-13175).
+10.04 — Valero Energy Corporation Deferred Compensation Plan, amended and restated as of January 1, 2008–incorporated by reference to
Exhibit 10.04 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2008 (SEC File No. 1-13175).
+10.05 — Valero Energy Corporation Amended and Restated Supplemental Executive Retirement Plan, amended and restated as of
November 10, 2008–incorporated by reference to Exhibit 10.08 to Valero’s Annual Report on Form 10-K for the year ended
December 31, 2008 (SEC File No. 1-13175).
148
Table of Contents
+10.06 — Valero Energy Corporation Excess Pension Plan, as amended and restated effective December 31, 2011–incorporated by reference to
Exhibit 10.10 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2011 (SEC File No. 1-13175).
+10.07 — Form of Change of Control Severance Agreement (Tier I) between Valero Energy Corporation and executive officer–incorporated by
reference to Exhibit 10.15 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2011 (SEC File No. 1-13175).
+10.08 — Form of Change of Control Severance Agreement (Tier II) between Valero Energy Corporation and executive officer–incorporated
by reference to Exhibit 10.16 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2013 (SEC File No. 1-
13175).
+10.09 — Form of Amendment (dated January 7, 2013) to Change of Control Severance Agreements (to eliminate excise tax gross-up benefit)–
incorporated by reference to Exhibit 10.17 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2012 (SEC File
No. 1-13175).
+10.10 — Form of Change of Control Severance Agreement (Tier II-A) between Valero Energy Corporation and executive officer–incorporated
by reference to Exhibit 10.02 to Valero’s Current Report on Form 8-K dated November 2, 2016, and filed November 7, 2016 (SEC
File No. 1-13175).
+10.11 — Schedule of Tier II-A Change of Control Agreements–incorporated by reference to Exhibit 10.11 to Valero’s Annual Report on
Form 10-K for the year ended December 31, 2018 (SEC File No. 1-13175).
+10.12 — Form of Amendment (dated January 17, 2017) to Change of Control Severance Agreements, amending Section 9 thereof–
incorporated by reference to Exhibit 10.01 to Valero’s Current Report on Form 8-K dated and filed January 17, 2017 (SEC File
No. 1-13175).
*+10.13 — Form of Performance Share Award Agreement pursuant to the Valero Energy Corporation 2011 Omnibus Stock Incentive Plan.
+10.14 — Form of Stock Option Agreement pursuant to the Valero Energy Corporation 2011 Omnibus Stock Incentive Plan–incorporated by
reference to Exhibit 10.21 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2011 (SEC File No. 1-13175).
+10.15 — Form of Performance Stock Option Agreement pursuant to the Valero Energy Corporation 2011 Omnibus Stock Incentive Plan–
incorporated by reference to Exhibit 10.21 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2012 (SEC File
No. 1-13175).
+10.16 — Form of Restricted Stock Agreement pursuant to the Valero Energy Corporation 2011 Omnibus Stock Incentive Plan–incorporated by
reference to Exhibit 10.25 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2012 (SEC File No. 1-13175).
*+10.17 — Long-Term Incentive Agreement dated as of December 18, 2019, between Valero Energy Corporation and R. Lane Riggs.
+10.18 — Form of Stock Unit Award Agreement for Non-Employee Directors (standard)-incorporated by reference to Exhibit 10.01 to Valero’s
Current Report on Form 8-K dated April 30, 2019, and filed May 1, 2019 (SEC File No. 1-13175).
+10.19 — Form of Stock Unit Award Agreement for Non-Employee Directors (with one-year hold provision)-incorporated by reference to
Exhibit 10.02 to Valero’s Current Report on Form 8-K dated April 30, 2019, and filed May 1, 2019 (SEC File No. 1-13175).
10.20 — Fourth Amended and Restated Revolving Credit Agreement, dated as of March 19, 2019, among Valero Energy Corporation, as
Borrower; JPMorgan Chase Bank, N.A., as Administrative Agent; and the lenders named therein–incorporated by reference to
Exhibit 10.1 to Valero’s Current Report on Form 8-K dated March 19, 2019, and filed March 19, 2019 (SEC File No. 1-13175).
14.01 — Code of Ethics for Senior Financial Officers–incorporated by reference to Exhibit 14.01 to Valero’s Annual Report on Form 10-K for
the year ended December 31, 2003 (SEC File No. 1-13175).
*21.01 — Valero Energy Corporation subsidiaries.
*23.01 — Consent of KPMG LLP dated February 26, 2020.
149
Table of Contents
*24.01 — Power of Attorney dated February 26, 2020 (on the signature page of this Form 10-K).
*31.01 — Rule 13a-14(a) Certification (under Section 302 of the Sarbanes-Oxley Act of 2002) of principal executive officer.
*31.02 — Rule 13a-14(a) Certification (under Section 302 of the Sarbanes-Oxley Act of 2002) of principal financial officer.
**32.01 — Section 1350 Certifications (under Section 906 of the Sarbanes-Oxley Act of 2002).
99.01 — Audit Committee Pre-Approval Policy–incorporated by reference to Exhibit 99.01 to Valero’s Annual Report on Form 10-K for the
year ended December 31, 2017 (SEC File No. 1-13175).
***101.INS — Inline XBRL Instance Document–the instance document does not appear in the Interactive Data File because its XBRL tags are
embedded within the Inline XBRL document.
***101.SCH — Inline XBRL Taxonomy Extension Schema Document.
***101.CAL — Inline XBRL Taxonomy Extension Calculation Linkbase Document.
***101.DEF — Inline XBRL Taxonomy Extension Definition Linkbase Document.
***101.LAB — Inline XBRL Taxonomy Extension Label Linkbase Document.
***101.PRE — Inline XBRL Taxonomy Extension Presentation Linkbase Document.
***104 — Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
______________
*
Filed herewith.
** Furnished herewith.
*** Submitted electronically herewith.
+
Identifies management contracts or compensatory plans or arrangements required to be filed as an exhibit hereto.
++ Certain schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The registrant agrees to furnish supplementally a copy of any such
omitted schedule to the SEC upon request.
Pursuant to paragraph 601(b)(4)(iii)(A) of Regulation S-K, the registrant has omitted from the foregoing listing of exhibits, and hereby agrees to furnish to the
SEC upon its request, copies of certain instruments, each relating to debt not exceeding 10 percent of the total assets of the registrant and its subsidiaries on a
consolidated basis.
150
Table of Contents
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 26, 2020
VALERO ENERGY CORPORATION
(Registrant)
By:
/s/ Joseph W. Gorder
(Joseph W. Gorder)
Chairman of the Board
and Chief Executive Officer
151
Table of Contents
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Joseph W. Gorder, Donna M.
Titzman, and Jason W. Fraser, or any of them, each with power to act without the other, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all subsequent amendments and supplements to this
Annual Report on Form 10-K, and to file the same, or cause to be filed the same, with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto each said attorney-in-fact and agent full power to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby qualifying and confirming all that said
attorney-in-fact and agent or his substitute or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature
/s/ Joseph W. Gorder
(Joseph W. Gorder)
/s/ Donna M. Titzman
(Donna M. Titzman)
/s/ H. Paulett Eberhart
(H. Paulett Eberhart)
/s/ Kimberly S. Greene
(Kimberly S. Greene)
/s/ Deborah P. Majoras
(Deborah P. Majoras)
/s/ Donald L. Nickles
(Donald L. Nickles)
/s/ Philip J. Pfeiffer
(Philip J. Pfeiffer)
/s/ Robert A. Profusek
(Robert A. Profusek)
/s/ Stephen M. Waters
(Stephen M. Waters)
/s/ Randall J. Weisenburger
(Randall J. Weisenburger)
/s/ Rayford Wilkins, Jr.
(Rayford Wilkins, Jr.)
Title
Date
Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)
Executive Vice President
and Chief Financial Officer
(Principal Financial and Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
Director
152
February 26, 2020
February 26, 2020
February 26, 2020
February 26, 2020
February 26, 2020
February 26, 2020
February 26, 2020
February 26, 2020
February 26, 2020
February 26, 2020
February 26, 2020
DESCRIPTION OF SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934
Exhibit 4.09
As of February 26, 2020, Valero Energy Corporation (the “Company”) had one class of securities registered under Section 12 of the Securities
Exchange Act of 1934, as amended: common stock, par value 0.01 per share (“common stock”). The following description of the Company’s
common stock is a summary and is not complete. For a complete description, please refer to our certificate of incorporation (as amended to
date, our “Certificate of Incorporation”) and bylaws (as amended to date, our “Bylaws”), which we have incorporated by reference as
exhibits to the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. References to “we,” “our” and “us” refer to
the Company, unless the context otherwise requires. References to “stockholders” refer to holders of our common stock, unless the context
otherwise requires.
Description of Common Stock
Our authorized common stock consists of 1,200,000,000 shares, par value $0.01 per share. Each share of common stock is entitled to
participate equally in dividends as and when declared by our board of directors. The payment of dividends on our common stock may be
limited by obligations we may have to holders of any preferred stock.
Common stockholders are entitled to one vote for each share held on all matters submitted to them. Our common stock does not have
cumulative voting rights, meaning that holders of a majority of the shares of common stock voting for the election of directors can elect all the
directors if they choose to do so.
If we liquidate or dissolve our business, the holders of common stock will share ratably in the distribution of assets available for distribution
to stockholders after creditors are paid and preferred stockholders receive their distributions. The shares of common stock have no preemptive
rights and are not convertible, redeemable or assessable or entitled to the benefits of any sinking fund.
All issued and outstanding shares of common stock are fully paid and nonassessable.
Anti-Takeover Provisions
The provisions of the Delaware General Corporation Law (as amended to date, the “DGCL”), our Certificate of Incorporation and our
Bylaws, summarized below may have an anti-takeover effect and may delay, deter or prevent a tender offer or takeover attempt that a
stockholder might consider in his or her best interest, including those attempts that might result in a premium over the market price for our
common stock.
Preferred Stock
Our authorized preferred stock consists of 20,000,000 shares, par value $0.01 per share, issuable in series. No shares of preferred stock
were outstanding as of December 31, 2019. Our board of directors can, without action by stockholders, issue one or more series of preferred
stock. The board can determine for each series the number of shares, designation, relative voting rights, dividend rates, liquidation and other
rights, preferences and limitations. In some cases, the issuance of preferred stock could delay or discourage a change in control of us.
The issuance of preferred stock, while providing desired flexibility in connection with possible acquisitions and other corporate purposes,
could adversely affect the voting power of holders of our common stock. It could also affect the likelihood that holders of our common stock
will receive dividend payments and payments upon liquidation.
Fair Price Provision
Our Certificate of Incorporation contains a fair price provision. Mergers, consolidations and other business combinations involving us and
an “interested stockholder” require the approval of holders of at least 66 2/3% of our outstanding voting stock, including 66 2/3% of our
outstanding voting stock not owned by the interested stockholder or its affiliates. Interested stockholders include any holder of 15% or more of
our outstanding voting stock. The 66 2/3% voting requirement does not apply, however, if the “continuing directors,” as defined in our
Certificate of Incorporation, approve the business combination, or the business combination meets other specified conditions.
Liability of Our Directors
As permitted by the DGCL, we have included in our Certificate of Incorporation a provision that limits our directors’ liability for monetary
damages for breach of their fiduciary duty of care to us and our stockholders. The provision does not affect the liability of a director:
•
•
•
•
for any breach of his/her duty of loyalty to us or our stockholders;
for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
for the declaration or payment of unlawful dividends or unlawful stock repurchases or redemptions; and
for any transaction from which the director derived an improper personal benefit.
This provision also does not affect a director’s responsibilities under any other laws, such as the federal securities laws or state or federal
environmental laws.
Stockholder Proposals and Director Nominations
Our stockholders can submit stockholder proposals and nominate candidates for our board of directors if the stockholders follow advance
notice procedures described in our Bylaws.
Generally, stockholders must submit a written notice between 90 and 120 days before the first anniversary of the date of our previous year’s
annual stockholders’ meeting. To nominate directors, the notice must include, among certain other information further described in our Bylaws,
the name and address of the stockholder and any Stockholder Associated Person (as defined in our Bylaws), the class or series and number of
shares beneficially owned by the stockholder and any Stockholder Associated Person, information about the nominee, the stockholder and any
Stockholder Associated Person required by the Securities and Exchange Commission (the “SEC”), a signed and completed questionnaire with
respect to the background and qualification of the nominee, and a description of certain arrangements, understandings and relationships
between the stockholder and any Stockholder Associated Person, on the one hand, and the nominee, on the other hand. To make stockholder
proposals, other than those related to the nomination of a director, the notice must include, among certain other information further described in
our Bylaws, a description of the proposal, the reasons for bringing the proposal before the meeting, the name and address of the stockholder and
any Stockholder Associated Person, any information about the stockholder and any Stockholder Associated Person required by the SEC, the
class or series and number of shares owned by the stockholder and any
Stockholder Associated Person, any material interest of the stockholder and any Stockholder Associated Person in the proposal, a description of
any arrangements or understandings with respect to the proposal that exist between the stockholder and any Stockholder Associated Person and
any other person, and a description of all agreements, arrangements or understandings by, or on behalf of, such stockholder or Stockholder
Associated Person, the effect or intent of which is to mitigate loss, manage risk or benefit from changes in the share price of the Company’s
common stock, or maintain, increase or decrease the voting power of the stockholder or Stockholder Associated Person with respect thereto.
In each case, if we have changed the date of the annual meeting to more than 30 days before or 60 days after the anniversary date of our
previous year’s annual stockholders’ meeting, stockholders must submit the notice between 90 and 120 days prior to such annual meeting or no
later than 10 days after the day we make public the date of the annual meeting.
Director nominations and stockholder proposals that are late or that do not include all required information may be rejected. This could
prevent stockholders from bringing certain matters before an annual meeting, including making nominations for directors.
Delaware Anti-takeover Statute
We are a Delaware corporation and are subject to Section 203 of the DGCL. In general, Section 203 prevents us from engaging in a
business combination with an “interested stockholder” (generally, a person owning 15% or more of our outstanding voting stock) for three
years following the time that person becomes a 15% stockholder unless one of the following is satisfied:
•
•
•
before that person became a 15% stockholder, our board of directors approved the transaction in which the stockholder became a
15% stockholder or approved the business combination;
upon completion of the transaction that resulted in the stockholder’s becoming a 15% stockholder, the stockholder owned at least
85% of our voting stock outstanding at the time the transaction began (excluding stock held by directors who are also officers and
by employee stock plans that do not provide employees with the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer); and
after the transaction in which that person became a 15% stockholder, the business combination is approved by our board of
directors and authorized at a stockholders’ meeting by at least two-thirds of the outstanding voting stock not owned by the 15%
stockholder.
Under Section 203, these restrictions also do not apply to certain business combinations proposed by a 15% stockholder following the
disclosure of an extraordinary transaction with a person who was not a 15% stockholder during the previous three years or who became a 15%
stockholder with the approval of a majority of our directors. This exception applies only if the extraordinary transaction is approved or not
opposed by a majority of our directors who were directors before any person became a 15% stockholder in the previous three years, or the
successors of these directors that are elected or recommended for election by a majority of such directors.
Other Provisions
Our Certificate of Incorporation also provides that:
•
•
stockholders may act only at an annual or special meeting and not by written consent;
an 80% vote of the outstanding voting stock is required for the stockholders to amend our Bylaws; and
•
an 80% vote of the outstanding voting stock is required to amend our Certificate of Incorporation with respect to certain matters,
including those described in the first two bullet points above.
Transfer Agent and Registrar
Computershare Investor Services, LLC, is our transfer agent and registrar.
Stock Exchange Listing
Our common stock is listed on the New York Stock Exchange and trades under the symbol “VLO.”
PERFORMANCE SHARE AGREEMENT
Exhibit 10.13
This Performance Share Agreement (the “Agreement”) is entered into as of Oct. 30, 2019, by and between Valero Energy Corporation, a
Delaware corporation (“Valero”), and [name], a participant (the “Participant”) in Valero’s 2011 Omnibus Stock Incentive Plan (as may be
amended, the “Plan”), pursuant to and subject to the provisions of the Plan.
1.
Grant of Performance Shares. Valero hereby grants to Participant [no. of shares] Performance Shares pursuant to Section 6.7 of the
Plan. The Performance Shares represent rights to receive shares of Common Stock of Valero, subject to the terms and conditions of this
Agreement and the Plan.
2.
Vesting and Delivery of Shares.
A. Vesting. The Performance Shares granted hereunder shall vest over a period of three years in equal, one-third increments with the
first increment vesting on the date of the regularly scheduled meeting of the Board’s Compensation Committee in January 2021,
and the second and third increments vesting on the Committee’s meeting dates in January 2022 and January 2023, respectively
(each of these vesting dates is referred to as a “Normal Vesting Date”); any award(s) of shares of Common Stock resulting in
connection with such vesting shall be subject to the Compensation Committee’s verification of attainment of the Performance
Objectives described in Section 4 below. If the Committee is unable to meet in January of a given year, then the Normal Vesting
Date for that year will be the date not later than March 31 of that year as selected by the Compensation Committee.
B. Rights. Until shares of Common Stock are actually issued to Participant (or his or her estate) in settlement of the Performance
Shares, neither Participant nor any person claiming by, through or under Participant shall have any rights as a stockholder of
Valero (including, without limitation, voting rights or any right to receive dividends or other distributions except as expressly
provided in this Agreement) with respect to such shares.
C. Distribution. Any shares of Common Stock to be distributed under the terms of this Agreement shall be distributed as soon as
administratively practicable after Performance Objectives described in Section 4 below have been verified by the Compensation
Committee, but not later than two-and-one-half months following the end of the year in which such verification occurred.
3.
Performance Period. Except as provided below with respect to a Change of Control (as defined in the Plan), the “Performance Period”
for any Performance Shares eligible to vest on any Normal Vesting Date shall be as follows:
A. First Segment. The Performance Period for the first one-third vesting of Performance Shares (those vesting on the Normal
Vesting Date in January 2021) shall be the calendar year ending on December 31, 2020.
B. Second Segment. The Performance Period for the second one-third vesting of Performance Shares (those vesting on the Normal
Vesting Date in January 2022) shall be the two calendar years ending December 31, 2021.
C. Third Segment. The Performance Period for the final one-third vesting of Performance Shares (those vesting on the Normal
Vesting Date in January 2023) shall be the three calendar years ending December 31, 2022.
4. Performance Objectives.
A. Total Shareholder Return. Total Shareholder Return (“TSR”) will be compiled for a peer group of companies (the “Target
Group”) for the Performance Period immediately preceding each Normal Vesting Date. TSR for each such company is measured
by dividing (A) the sum of (i) the dividends on the common stock of such company during the Performance Period, assuming
dividend reinvestment, and (ii) the difference between the average closing price of a share of such company’s common stock for
the 15 trading days ending December 31 at the end of the Performance Period and the average closing price of such shares for the
15 trading days ending December 31 immediately prior to the beginning of the Performance Period (appropriately adjusted for any
stock dividend, stock split, spin-off, merger or other similar corporate events), by (B) the average closing price of a share of such
company’s common stock for the 15 trading days ending December 31 immediately prior to the beginning of the Performance
Period.
B. Target Group. The applicable Target Group shall be selected by the Compensation Committee, acting in its sole discretion, each
year not later than 90 days after the commencement of the calendar year preceding each Normal Vesting Date. The same Target
Group shall be used to measure TSR with regard to all Performance Shares vesting under all Performance Award Agreements of
Valero having a similar Normal Vesting Date.
C.
Performance Ranking and Award of Common Shares. For each Performance Period, the TSR for Valero and each company in
the Target Group shall be arranged by rank from highest performer to lowest performer according to the TSR achieved by each
company. Shares of Common Stock will be awarded to Participant in accordance with Valero’s percentile ranking within the
Target Group. The number of shares of Common Stock, if any, that Participant will be entitled to receive in settlement of the
vested Performance Shares will be determined on each Normal Vesting Date and, subject to the provisions of the Plan and this
Agreement, on such Normal Vesting Date, the following percentage of the vested Performance Shares will be awarded as shares
of Common Stock to the Participant when Valero’s TSR during the Performance Period falls within the following percentiles
(“Percentiles”):
Ranking
1
2
3
4
5
6
7
8
9
10
11
Percentile
100.0%
90.0%
80.0%
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
Payout
200.0%
200.0%
175.0%
150.0%
125.0%
100.0%
75.0%
50.0%
25.0%
0.0%
0.0%
D. Unearned Shares. Any Performance Shares not awarded as shares of Common Stock on a Normal Vesting Date will expire and
be forfeited; such Performance Shares may not be carried forward for any additional Performance Period.
Page 2
5.
Dividend Equivalent Award. In addition to the Performance Shares granted in Section 1, the Participant is granted a Dividend
Equivalent Award payable in shares of Common Stock, as provided herein. On each Normal Vesting Date, the amount of dividends
paid to holders of Common Stock during the applicable Performance Period shall be determined with respect to the Participant’s
Performance Shares that are vesting on that Normal Vesting Date — calculated as if the Performance Shares were outstanding shares of
Common Stock (the resulting value being hereafter referred to as the “Target Dividend Equivalent Value”). The Target Dividend
Equivalent Value shall then be subject to further calculation according to Valero’s TSR ranking during the Performance Period as
prescribed in Section 4.C. above (i.e., payout from 0% to 200% depending on Valero’s TSR ranking). The number of shares of
Common Stock payable to Participant with respect to the Dividend Equivalent Award is equal to (x) the Target Dividend Equivalent
Value multiplied by the Performance Period’s payout percentage calculated per Section 4.C., divided by (y) the Fair Market Value of
the Common Stock on the Normal Vesting Date (the resulting number being rounded up to the nearest whole number of shares). See
Exhibit A for an example of this calculation.
6.
Termination of Employment.
A. Voluntary Termination, Termination for “Cause,” and Early Retirement. If Participant’s employment is
(i) voluntarily terminated by the Participant (other than through retirement at age 60+, death or disability), including
termination in connection with Participant’s voluntary early retirement (i.e., prior to age 60),
(ii)terminated by Valero for “cause” (as defined pursuant to the Plan),
then those Performance Shares that are outstanding and have not vested as of the effective date of termination shall thereupon be
forfeited.
B. Retirement. If a Participant’s employment is terminated through his or her retirement when the Participant is age 60 or older, then
any Performance Shares that (i) have not theretofore vested or been forfeited, and (ii) were granted at least one year prior to the
Participant’s effective date of retirement, shall continue to remain outstanding and shall vest on the Normal Vesting Dates
according to their original vesting schedule.
But any outstanding Performance Shares that were granted within one year of such Participant’s effective date of retirement shall
be prorated as follows. The outstanding Performance Shares shall be prorated based on the number of months worked from the
date of grant to the Participant’s retirement date (rounding upward), and the prorated number of Performance Shares shall
thereafter vest on the Normal Vesting Dates according to their original vesting schedule. Example:
13,530 Performance Shares granted on October 30, 2019,
Participant retires at age 60+ effective April 15, 2020,
•
•
• working period is calculated as 6 months (5 full months plus partial month rounding upward to 6 months),
•
original grant is adjusted by 6/12ths (50%) resulting in 6,765 Performance Shares to vest according to their original
vesting schedule.
C. Death, Disability, Involuntary Termination Other Than for “Cause,” and Change of Control. If a Participant’s employment
is terminated (i) through death or disability, or (ii) by Valero other than for cause (as determined pursuant to the Plan), or (iii) as a
result of a Change of Control (as described in the Plan) (each of the foregoing is hereafter referred to as a “Trigger
Page 3
Date”), then each Performance Period with respect to any Performance Shares that have not vested or been forfeited shall be
terminated effective as of such Trigger Date; the TSR for Valero and for each company in the Target Group shall be determined for
each such shortened Performance Period and the percentage of Performance Shares to be awarded as shares of Common Stock for
each such shortened Performance Period shall be determined in accordance with Section 4 and shall be distributed as soon as
administratively practicable thereafter.
(i) For purposes of determining the number of Performance Shares to be received as of any Trigger Date, the Target Group as
most recently determined by the Compensation Committee prior to the Trigger Date shall be used.
(ii) If the Trigger Date is the result of a Change of Control, then the number of shares of Common Stock to be awarded to the
Participant shall be prorated commensurate with the length of service of the Participant during each Performance Period.
See Exhibit B for an example of this calculation.
7.
Cash Payment Election. Effective on any Normal Vesting Date (or Trigger Date under Section 6.C), the Participant (or the
Participant’s estate under Section 6.C) may elect to receive up to 50% of the after-tax value of the aggregate number of shares of
Common Stock earned on such Normal Vesting Date (or Trigger Date) in cash, with the remainder paid in shares of Common Stock.
Example:
•
•
•
•
following the calculation of Valero’s performance against the Target Group for the two-year performance period ending
December 31, 2021, it is determined that the Participant is entitled to receive 4,000 shares of Common Stock on the
Normal Vesting Date occurring in January 2022 (the “2022 Normal Vesting Date”),
the 4,000 shares have an aggregate tax value of $300,000 (4,000 shares times an assumed $75 FMV per share on the
2022 Normal Vesting Date), and the Participant has made a tax withholding election of 39.6%,
the after-tax value of the 4,000 shares of Common Stock awarded on the 2022 Normal Vesting Date is $181,200
($300,000 times 60.4%),
the Participant may elect to receive up to $90,600 ($181,200 times 50%) in cash on the 2022 Normal Vesting Date.
8.
9.
10.
Plan Incorporated by Reference. The Plan is incorporated into this Agreement by this reference and is made a part hereof for all
purposes. Capitalized terms not otherwise defined in this Agreement shall have the meaning specified in the Plan.
No Assignment. This Agreement and the Participant’s interest in the Performance Shares granted by this Agreement are of a personal
nature, and, except as expressly permitted under the Plan, Participant’s rights with respect thereto may not be sold, mortgaged, pledged,
assigned, transferred, conveyed or disposed of in any manner by Participant, except by an executor or beneficiary pursuant to a will or
pursuant to the laws of descent and distribution. Any such attempted sale, mortgage, pledge, assignment, transfer, conveyance or
disposition is void, and Valero will not be bound thereby.
Integration. This Agreement constitutes the entire agreement of the parties relating to the transactions contemplated hereby, and
supersedes all provisions and concepts contained in all prior contracts or agreements between the Participant and Valero, including that
certain Change of Control Severance Agreement (“COC Agreement”) between Participant and Valero. For avoidance of doubt,
Participant acknowledges that in the context of a Change of Control of Valero, the terms of this
Page 4
11.
12.
Agreement shall prevail over the terms of the COC Agreement with respect to the vesting of the Performance Shares granted under this
Agreement.
Successors. This Agreement shall be binding upon any successors of Valero and upon the beneficiaries, legatees, heirs, administrators,
executors, legal representatives, successors and permitted assigns of Participant.
Code Section 409A. This Agreement is intended to comply, and shall be administered consistently in all respects, with Section 409A
of the Internal Revenue Code of 1986, as amended (the “Code”), and the regulations and additional guidance promulgated thereunder
to the extent applicable. Accordingly, Valero shall have the authority to take any action, or refrain from taking any action, with respect
to this Agreement that is reasonably necessary to ensure compliance with Code Section 409A (provided that Valero shall choose the
action that best preserves the value of payments and benefits provided to Participant under this Agreement that is consistent with Code
Section 409A), and the parties agree that this Agreement shall be interpreted in a manner that is consistent with Code Section 409A. In
furtherance, but not in limitation of the foregoing:
(a)
(b)
(c)
(d)
in no event may Participant designate, directly or indirectly, the calendar year of any payment to be made hereunder;
to the extent the Participant is a “specified employee” within the meaning of Code Section 409A, payments, if any, that
constitute a “deferral of compensation” under Code Section 409A and that would otherwise become due during the first six
months following Participant’s termination of employment shall be delayed and all such delayed payments shall be paid in full
in the seventh month after such termination date, provided that the above delay shall not apply to any payment that is excepted
from coverage by Code Section 409A, such as a payment covered by the short-term deferral exception described in Treasury
Regulations Section 1.409A-1(b)(4);
notwithstanding any other provision of this Agreement, a termination, resignation or retirement of Participant’s employment
hereunder shall mean and be interpreted consistent with a “separation from service” within the meaning of Code Section 409A;
terms defined in this section will have the meanings given such terms under Section 409A if and to the extent required to
comply with Section 409A. Notwithstanding any other provision hereof, Valero makes no representations or warranties and
will have no liability to Participant or any other person if any provision of or payment under this Agreement is determined to
constitute deferred compensation subject to Section 409A but does not satisfy the conditions of Section 409A.
Page 5
Executed effective as of the date first written above.
VALERO ENERGY CORPORATION
Senior Vice President-Human Resources & Administration
[name], Participant
Page 6
Exhibit A
Example of Potential Payout of Dividend Equivalent Award in Shares of Common Stock
(per Section 5 of the Agreement)
Assumptions and Calculations (for illustration purposes only):
1.
2.
3.
4.
5.
6.
7.
Assume the Participant was granted 12,000 Performance Shares on October 31, 2019.
Assume the Normal Vesting Date for the second segment of these Performance Shares is January 22, 2022. On that date 4,000 Performance Shares
(12,000 / 3 = 4,000) vest with respect to the two-year Performance Period ending December 31, 2021.
Assume the cumulative amount of dividends paid to holders of Common Stock during the Performance Period is $7.20 per share (determined as
follows).
dividends paid in 1Q20
2Q20
3Q20
4Q20
1Q21
2Q21
3Q21
4Q21
$0.90
$0.90
$0.90
$0.90
$0.90
$0.90
$0.90
$0.90
$7.20 per share
The “Target Dividend Equivalent Value” is $28,800 (4,000 Performance Shares vesting, multiplied by $7.20 accumulated dividends per share).
Valero’s TSR ranking for the Performance Period is determined (per Section 4.C.) to generate a payout of 150.0%.
The Fair Market Value of the Common Stock on the vesting date is $75.00.
Based on the foregoing, the total number of shares of Common Stock earned by the Participant on the vesting date is 6,576. The calculation is
illustrated below.
Section 4.C.
4,000
Performance Shares vesting
x 150.0%
multiply by TSR ranking payout percentage
6,000
common shares earned for Performance Shares
Section 5.
$
$
28,800.00
Target Dividend Equivalent Value
x 150.0%
multiply by TSR ranking payout percentage
43,200.00
dividend equivalent based on segment performance
/ $75.00
divided by FMV per share
576
common shares earned for Dividend Equivalent Award (rounded up)
6,576
total common shares earned on vesting date
Exhibit A
Exhibit B
Example of Potential Payout in a Change of Control Context
(per Section 6.C.(ii) of the Agreement)
Assumptions and Calculations (for illustration purposes only):
1.
2.
3.
4.
5.
Assume the Participant was granted 15,000 Performance Shares on October 30, 2019.
Assume Participant’s employment is terminated on June 30, 2020 as a result of a Change of Control.
Per Section 6.C. of the Agreement, all Performance Periods for all segments (First Segment, Second Segment, Third Segment (See Section 3)) are
shortened to end on June 30, 2020.
As a result of the TSR calculations of Section 4.C., Valero is ranked in the 90.0 percentile for each shortened Performance Period, resulting in a
200% payout of common shares in each instance.
Payout of common shares to the Participant is prorated based on the Participant’s length of service during the original Performance Periods.
First Segment calculation.
15,000 / 3 = 5,000 performance shares.
6 months of service in the 12-month Performance Period.
5,000 perf. shares
x 200% payout
10,000 common shares x 6 / 12 =
Second Segment calculation.
15,000 / 3 = 5,000 performance shares.
6 months of service in the 24-month Performance Period.
5,000 perf. shares
x 200% payout
10,000 common shares x 6 / 24 =
Third Segment calculation.
15,000 / 3 = 5,000 performance shares.
6 months of service in the 36-month Performance Period.
5,000 perf. shares
x 200% payout
10,000 common shares x 6 / 36 =
Total payout
Exhibit B
5,000 common shares
2,500 common shares
1,667 common shares
9,167 common shares
LONG-TERM INCENTIVE AGREEMENT
Exhibit 10.17
This Long-Term Incentive Agreement (the “Agreement”) is entered into as of December 18, 2019 (the “Effective Date”) by and between
Valero Energy Corporation, a Delaware corporation (“Valero”), and R. LANE RIGGS, Executive Vice President and Chief Operating
Officer (the “Officer”).
Whereas, the Compensation Committee of the Board of Directors of Valero has approved a long-term incentive compensation
arrangement between Valero and the Officer.
Now, therefore, the parties hereto wish to memorialize the terms and conditions of the compensation arrangement by the execution and
delivery of this Agreement, and the parties hereby agree as follows.
1.
2.
Certain Defined Terms. Capitalized terms used herein but not otherwise defined herein shall have the meanings given to them in the
Valero Energy Corporation 2011 Omnibus Stock Incentive Plan (the “Plan”).
Long-Term Incentive Awards. For so long as the Officer remains an employee of Valero (or one of its Affiliates) continuously from
the Effective Date through each of the grant dates listed in the table below (each, a “Grant Date”), Valero agrees to grant to the Officer,
on each Grant Date, shares of Restricted Stock (“Restricted Shares”) having the respective aggregate Fair Market Value listed in the
table below. The Restricted Shares shall vest (become nonforfeitable) in increments, subject to Section 4 below, on the vesting dates
(each, a “Vesting Date”) scheduled below.
Grant Date
Dec. 18, 2019
Aggregate FMV
Vesting Dates
$1,000,000
in equal 1/3 increments on:
Dec. 18, 2020
Dec. 18, 2021
Dec. 18, 2022
Feb. 26, 2020
$2,000,000
in equal 1/3 increments on:
Feb. 26, 2021
Feb. 26, 2022
Feb. 26, 2023
Feb. 23, 2021
$2,000,000
in equal 1/2 increments on:
Feb. 23, 2022
Feb. 23, 2023
3.
Restricted Stock Agreements. On each Grant Date, Valero and the Officer shall enter into a Restricted Stock Agreement substantially
in the form of the agreement attached hereto as Exhibit A.
Page 1
4.
Termination of Employment.
A. Voluntary Termination, Termination for “Cause”. If the Officer’s employment is:
(i) voluntarily terminated by the Officer, including termination in connection with the Officer’s voluntary early retirement (i.e.,
prior to age 60), or
(ii)terminated by Valero for “Cause” (as defined in the Plan),
then those Restricted Shares that are outstanding and have not vested as of the effective date of the Officer’s termination of
employment shall thereupon be forfeited.
B. Death or Disability. If the Officer’s employment is terminated as a result of his death or disability, then any outstanding
Restricted Shares held by the Officer that remain unvested as of the date of his death or disability shall immediately vest and
become non-forfeitable as of such date.
Cash Payment Election. Effective on any Vesting Date, the Officer may elect to receive up to 50% of the after-tax value of the
aggregate number of shares of Restricted Stock vesting on such Vesting Date in cash, with the remainder paid in shares of Common
Stock. Example:
•
•
•
•
assume that the Officer is entitled to receive 4,000 shares of Common Stock on a Vesting Date,
assume that the 4,000 shares have an aggregate tax value of $380,000 (4,000 shares times an assumed $95 FMV per share
on the Vesting Date), and the Officer has made a tax withholding election of 39.6%,
the after-tax value of the 4,000 shares of Common Stock awarded on the Vesting Date is $229,520 ($380,000 times
60.4%),
the Officer may elect to receive up to $114,760 ($229,520 times 50%) in cash on the Vesting Date.
No Assignment. This Agreement and the Officer’s rights and interests granted by this Agreement are of a personal nature, and, except
as expressly permitted under the Plan, Officer’s rights with respect thereto may not be sold, mortgaged, pledged, assigned, transferred,
conveyed or disposed of in any manner by Officer. Any such attempted sale, mortgage, pledge, assignment, transfer, conveyance or
disposition is void, and Valero will not be bound thereby.
Interpretation of Terms. The terms and conditions of this Agreement shall prevail over any conflicting provisions in the Plan.
Employment at Will. This Agreement is not an employment contract. Neither this Agreement nor any Restricted Stock Agreement
entered into pursuant to this Agreement shall confer upon the Officer any right with respect to the continuance of the Officer’s
employment by Valero or any of its subsidiaries or affiliates.
Successors. This Agreement shall be binding upon any successors of Valero and upon the beneficiaries, legatees, heirs, administrators,
executors, legal representatives, successors and permitted assigns of Officer.
5.
6.
7.
8.
9.
10.
Governing Law. This Agreement shall be construed under and governed by the laws of the State of Texas.
Page 2
Executed as of the Effective Date stated above.
VALERO ENERGY CORPORATION
by: /s/ Joseph W. Gorder
Joseph W. Gorder
Chief Executive Officer
/s/ R. Lane Riggs
R. LANE RIGGS
Page 3
Exhibit A
Form of RESTRICTED STOCK AGREEMENT
This Restricted Stock Agreement (this “Agreement”) is between Valero Energy Corporation (“Valero”), and R. Lane Riggs, an employee of Valero or one
of its Affiliates (“Employee”), who agree as follows:
1. Introduction. Pursuant to that certain Long-Term Incentive Agreement dated as of Dec. 18, 2019 (the “LTI Agreement”) and the Valero Energy
Corporation [___] Omnibus Stock Incentive Plan (as may be amended, the “Plan”), on «Grant_Date», Employee was awarded «Shares_Granted» shares of
Common Stock of Valero under the Plan as Restricted Stock (“Restricted Stock”). The parties hereby enter into this Agreement to evidence the terms,
conditions and restrictions applicable to the Restricted Stock.
2. The Plan, the LTI Agreement, Restrictions, Vesting. The terms and conditions of the Plan and the LTI Agreement are incorporated herein by
reference for all purposes, and Employee hereby agrees to the terms and conditions stated therein applicable to the Restricted Stock and the rights and powers
of Valero and the Committee as provided therein. In addition, Employee agrees as follows:
2.01 Except to the extent otherwise provided in the Plan or this Agreement, shares of Restricted Stock issued to Employee under the Plan
may not be sold, exchanged, pledged, hypothecated, transferred, garnished or otherwise disposed of or alienated prior to vesting.
shall vest and accrue to Employee in the following increments: [insert vesting schedule applicable to the Grant].
2.02 Except to the extent otherwise provided in the Plan, Employee’s rights to and interest in the shares of Restricted Stock described herein
2.03 Employee agrees that in lieu of certificates representing Employee’s shares of Restricted Stock, the Restricted Stock and any Shares
issuable in connection with their vesting may be issued in uncertificated form pursuant to the Direct Registration Service of Valero’s stock transfer agent.
2.04 If, as the result of a stock split, stock dividend, combination of shares or any other change, including an exchange of securities for any
reason, the Employee shall be entitled to new or additional or different shares of stock or securities, such stock or securities shall be subject to the terms and
conditions of the Plan and this Agreement.
3. Dividends and Voting. The outstanding shares of Restricted Stock shall enjoy the rights and privileges (including voting rights and the right to
receive dividends) described in Section 6.4(b)(ii) of the Plan.
4. Limitation. The Employee shall have no rights with respect to any shares of Restricted Stock not expressly conferred by the LTI Agreement, the
Plan or this Agreement.
5. Miscellaneous. All capitalized terms contained in this Agreement shall have the definitions set forth in the LTI Agreement or the Plan unless
otherwise defined herein. This Agreement shall be binding upon the parties hereto and their respective beneficiaries, heirs, administrators, executors, legal
representatives and successors.
6. Code Section 409A. The issuance of shares under this Award shall be made on or as soon as reasonably practical following the applicable date
of vesting, but in any event no later than the 15th day of the third month following the end of the year in which the applicable date of vesting occurs. With
respect to the receipt of dividends, the payment of dividends shall be made by the last day of the fiscal quarter during which dividends on Valero common
stock are paid, but in any event by no later than the 15th day of the month following the end of the year in which the applicable dividends on Valero common
stock are paid. This Agreement and the award evidenced hereby are intended to comply, and shall be administered consistently, in all respects with
Section 409A of the Internal Revenue Code and the regulations promulgated thereunder to the extent applicable to the Employee. If necessary in order to
ensure such compliance, this Agreement may be reformed consistent with guidance issued by the Internal Revenue Service.
Exhibit A
Effective as of the ___ day of ____________, 20___.
VALERO ENERGY CORPORATION
______________________________________
name:
title:
______________________________________
R. Lane Riggs
Employee
Exhibit A
Subsidiaries of Valero Energy Corporation
as of February 13, 2020
Exhibit 21.01
Name of Entity
State of Incorporation/Organization
AIR BP-PBF DEL PERU SAC
BELFAST STORAGE LTD
CANADIAN ULTRAMAR COMPANY
COLONNADE TEXAS INSURANCE COMPANY, LLC
COLONNADE VERMONT INSURANCE COMPANY
DIAMOND ALTERNATIVE ENERGY, LLC
DIAMOND ALTERNATIVE ENERGY OF CANADA INC.
DIAMOND GREEN DIESEL HOLDINGS LLC
DIAMOND GREEN DIESEL LLC
DIAMOND K RANCH LLC
DIAMOND OMEGA COMPANY, L.L.C.
DIAMOND SHAMROCK REFINING COMPANY, L.P.
DIAMOND UNIT INVESTMENTS, L.L.C.
DSRM NATIONAL BANK
ENTERPRISE CLAIMS MANAGEMENT, INC.
GCP LOGISTICS COMPANY LLC
GOLDEN EAGLE ASSURANCE LIMITED
HAMMOND MAINLINE PIPELINE LLC
HUNTWAY REFINING COMPANY
MAINLINE PIPELINES LIMITED
MAPLE ETHANOL LTD.
MICHIGAN REDEVELOPMENT GP, LLC
MICHIGAN REDEVELOPMENT, L.P.
MRP PROPERTIES COMPANY, LLC
NECHES RIVER HOLDING CORP.
OCEANIC TANKERS AGENCY LIMITED
PARKWAY PIPELINE LLC
PENTA TANKS TERMINALS S.A.
PICKARD PLACE CONDOMINIUM ASSOCIATION
PI DOCK FACILITIES LLC
PORT ARTHUR COKER COMPANY L.P.
PREMCOR USA INC.
PROPERTY RESTORATION, L.P.
PURE BIOFUELS HOLDINGS L.P.
SABINE RIVER HOLDING CORP.
SABINE RIVER LLC
Peru
Northern Ireland
Nova Scotia
Texas
Vermont
Delaware
Canada
Delaware
Delaware
Texas
Delaware
Delaware
Delaware
U.S.A.
Texas
Delaware
British Columbia
Delaware
Delaware
England and Wales
Virgin Islands (U.K.)
Delaware
Delaware
Michigan
Delaware
Quebec
Delaware
Peru
Michigan
Delaware
Delaware
Delaware
Delaware
Alberta
Delaware
Delaware
SAINT BERNARD PROPERTIES COMPANY LLC
SUNBELT REFINING COMPANY, L.P.
THE PREMCOR PIPELINE CO.
THE PREMCOR REFINING GROUP INC.
THE SHAMROCK PIPE LINE CORPORATION
TRANSPORT MARITIME ST. LAURENT INC.
ULTRAMAR ACCEPTANCE INC.
ULTRAMAR ENERGY INC.
ULTRAMAR INC.
V-TEX LOGISTICS LLC
VALERO ADMINISTRATIVE SERVICES DE MÉXICO, S.A. DE C.V.
VALERO ARUBA ACQUISITION COMPANY I, LTD.
VALERO ARUBA FINANCE INTERNATIONAL, LTD.
VALERO ARUBA HOLDING COMPANY N.V.
VALERO ARUBA HOLDINGS INTERNATIONAL, LTD.
VALERO ARUBA MAINTENANCE/OPERATIONS COMPANY N.V.
VALERO (BARBADOS) SRL
VALERO BROWNSVILLE TERMINAL LLC
VALERO CANADA FINANCE, INC.
VALERO CANADA L.P.
VALERO CAPITAL CORPORATION
VALERO COKER CORPORATION ARUBA N.V.
VALERO CUSTOMS & TRADE SERVICES, INC.
VALERO ENERGY ARUBA II COMPANY
VALERO ENERGY INC.
VALERO ENERGY (IRELAND) LIMITED
VALERO ENERGY LTD
VALERO ENERGY PARTNERS GP LLC
VALERO ENERGY PARTNERS LP
VALERO ENERGY UK LTD
VALERO ENTERPRISES, INC.
VALERO EQUITY SERVICES LTD
VALERO FINANCE L.P. I
VALERO FINANCE L.P. II
VALERO FINANCE L.P. III
VALERO FOREST CONTRIBUTION LLC
VALERO GRAIN MARKETING, LLC
VALERO HOLDCO UK LTD
VALERO HOLDINGS, INC.
VALERO INTERNATIONAL HOLDINGS, INC.
VALERO LATIN AMERICA SERVICES LLC
VALERO LIVE OAK LLC
VALERO LOGISTICS IRELAND LIMITED
Delaware
Delaware
Delaware
Delaware
Delaware
Quebec
Canada
Delaware
Nevada
Delaware
Mexico
Virgin Islands (U.K.)
Virgin Islands (U.K.)
Aruba
Virgin Islands (U.K.)
Aruba
Barbados
Texas
Delaware
Newfoundland
Delaware
Aruba
Delaware
Cayman Islands
Canada
Ireland
England and Wales
Delaware
Delaware
England and Wales
Delaware
England and Wales
Newfoundland
Newfoundland
Newfoundland
Delaware
Texas
United Kingdom
Delaware
Nevada
Delaware
Texas
Ireland
VALERO LOGISTICS UK LTD
VALERO MARKETING AND SUPPLY COMPANY
VALERO MARKETING AND SUPPLY DE MÉXICO S.A. DE C.V.
VALERO MARKETING AND SUPPY INTERNATIONAL LTD.
VALERO MARKETING AND SUPPLY (PANAMA) LLC
VALERO MARKETING IRELAND LIMITED
VALERO MKS LOGISTICS, L.L.C.
VALERO NEDERLAND COÖPERATIEF U.A.
VALERO NEW AMSTERDAM B.V.
VALERO OPERATIONAL SERVICES DE MÉXICO, S.A. DE C.V.
VALERO OPERATIONS SUPPORT, LTD
VALERO PARTNERS CCTS, LLC
VALERO PARTNERS CORPUS EAST, LLC
VALERO PARTNERS CORPUS WEST, LLC
VALERO PARTNERS EP, LLC
VALERO PARTNERS HOUSTON, LLC
VALERO PARTNERS LOUISIANA, LLC
VALERO PARTNERS LUCAS, LLC
VALERO PARTNERS MCKEE, LLC
VALERO PARTNERS MEMPHIS, LLC
VALERO PARTNERS MERAUX, LLC
VALERO PARTNERS NORTH TEXAS, LLC
VALERO PARTNERS OPERATING CO. LLC
VALERO PARTNERS PAPS, LLC
VALERO PARTNERS PORT ARTHUR, LLC
VALERO PARTNERS SOUTH TEXAS, LLC
VALERO PARTNERS TEXAS CITY, LLC
VALERO PARTNERS THREE RIVERS, LLC
VALERO PARTNERS WEST MEMPHIS, LLC
VALERO PARTNERS WEST TEXAS, LLC
VALERO PARTNERS WYNNEWOOD, LLC
VALERO PAYMENT SERVICES COMPANY
VALERO PEMBROKESHIRE LLC
VALERO PEMBROKESHIRE OIL TERMINAL LTD
VALERO (PERU) HOLDINGS GP LLC
VALERO (PERU) HOLDINGS LIMITED
VALERO PERU S.A.C.
VALERO PLAINS COMPANY LLC
VALERO POWER MARKETING LLC
VALERO RAIL OPERATIONS DE MÉXICO, S.A. DE C.V.
VALERO REFINING AND MARKETING COMPANY
VALERO REFINING COMPANY-ARUBA N.V.
VALERO REFINING COMPANY-CALIFORNIA
England and Wales
Delaware
Mexico
Cayman Islands
Delaware
Ireland
Delaware
The Netherlands
The Netherlands
Mexico
England and Wales
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Virginia
Delaware
England and Wales
Delaware
British Columbia
Peru
Texas
Delaware
Mexico
Delaware
Aruba
Delaware
VALERO REFINING COMPANY-OKLAHOMA
VALERO REFINING COMPANY-TENNESSEE, L.L.C.
VALERO REFINING-MERAUX LLC
VALERO REFINING-NEW ORLEANS, L.L.C.
VALERO REFINING-TEXAS, L.P.
VALERO RENEWABLE FUELS COMPANY, LLC
VALERO SECURITY SYSTEMS, INC.
VALERO SERVICES, INC.
VALERO SKELLYTOWN PIPELINE, LLC
VALERO TEJAS COMPANY LLC
VALERO TERMINAL HOLDCO LTD
VALERO TERMINALING AND DISTRIBUTION COMPANY
VALERO TERMINALING AND DISTRIBUTION DE MEXICO, S.A. DE C.V.
VALERO TEXAS POWER MARKETING, INC.
VALERO ULTRAMAR HOLDINGS INC.
VALERO UNIT INVESTMENTS, L.L.C.
VALERO WEST WALES LLC
VRG PROPERTIES COMPANY
VTD PROPERTIES COMPANY
WARSHALL COMPANY LLC
ZELIG COMMERCIAL, INC.
Michigan
Delaware
Delaware
Delaware
Texas
Texas
Delaware
Delaware
Delaware
Delaware
England and Wales
Delaware
Mexico
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Panama
Consent of Independent Registered Public Accounting Firm
Exhibit 23.01
The Board of Directors and Stockholders
Valero Energy Corporation:
We consent to the incorporation by reference in the registration statements, as amended, on Form S-3ASR (Registration No. 333-224993) and
Form S-8 (Registration Nos. 333-106620, 333-129032, 333-136333, 333-174721, and 333-205756) of Valero Energy Corporation and
subsidiaries of our reports dated February 26, 2020, with respect to the consolidated balance sheets of Valero Energy Corporation and
subsidiaries as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, equity, and cash flows
for each of the years in the three-year period ended December 31, 2019, and the related notes (collectively, the “consolidated financial
statements”), and the effectiveness of internal control over financial reporting as of December 31, 2019, which reports appear in the
December 31, 2019 annual report on Form 10‑K of Valero Energy Corporation and subsidiaries.
San Antonio, Texas
February 26, 2020
/s/ KPMG LLP
Exhibit 31.01
CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Joseph W. Gorder, certify that:
1. I have reviewed this annual report on Form 10-K of Valero Energy Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: February 26, 2020
/s/ Joseph W. Gorder
Joseph W. Gorder
Chief Executive Officer
Exhibit 31.02
CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Donna M. Titzman, certify that:
1. I have reviewed this annual report on Form 10-K of Valero Energy Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: February 26, 2020
/s/ Donna M. Titzman
Donna M. Titzman
Executive Vice President and Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.01
In connection with the Annual Report of Valero Energy Corporation (the Company) on Form 10-K for the year ended December 31, 2019, as
filed with the Securities and Exchange Commission on the date hereof (the Report), the undersigned hereby certifies, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1.
2.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
/s/ Joseph W. Gorder
Joseph W. Gorder
Chief Executive Officer
February 26, 2020
A signed original of the written statement required by Section 906 has been provided to Valero Energy Corporation and will be retained by Valero Energy
Corporation and furnished to the Securities and Exchange Commission or its staff upon request.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Valero Energy Corporation (the Company) on Form 10-K for the year ended December 31, 2019, as
filed with the Securities and Exchange Commission on the date hereof (the Report), the undersigned hereby certifies, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1.
2.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
/s/ Donna M. Titzman
Donna M. Titzman
Executive Vice President and Chief Financial Officer
February 26, 2020
A signed original of the written statement required by Section 906 has been provided to Valero Energy Corporation and will be retained by Valero Energy
Corporation and furnished to the Securities and Exchange Commission or its staff upon request.