CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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1.
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BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
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Basis of Presentation
General
As used in this report, the terms “Valero,” “we,” “us,” or “our” may refer to Valero Energy Corporation, one or more of its consolidated subsidiaries, or all of them taken as a whole.
These unaudited financial statements have been prepared in accordance with United States (U.S.) generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934. Accordingly, they do not include all of the information and notes required by U.S.
GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal recurring nature unless disclosed otherwise. Operating results for the
nine
months ended
September 30, 2017
are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.
The balance sheet as of
December 31, 2016
has been derived from our audited financial statements as of that date. For further information, refer to our financial statements and notes thereto included in our annual report on Form 10-K for the year ended
December 31, 2016
.
Reclassifications
Effective January 1, 2017, we revised our reportable segments to reflect a new reportable segment — VLP. The results of the VLP segment include the results of Valero Energy Partners LP (VLP), our majority-owned master limited partnership. Our prior period segment information has been retrospectively adjusted to reflect our current segment presentation. See
Note 10
for additional information.
Certain amounts reported for the three and
nine
months ended
September 30, 2016
have been reclassified to conform to the 2017 presentation. The changes were primarily due to the separate presentation of depreciation and amortization expense related to operating expenses and general and administrative expenses.
Significant Accounting Policies
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 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.
Accounting Pronouncements Adopted During the Period
In July 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-11, “Inventory (Topic 330),” to simplify the measurement of inventory measured using the first-in, first-out or average cost methods. The provisions of this ASU require the inventory to be measured at the lower of cost and net realizable value rather than the lower of cost or market. Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The provisions of this ASU are to be applied prospectively and are effective for annual reporting periods beginning after December 15, 2016, and interim reporting periods within those annual periods, with early adoption permitted. Our adoption of this ASU effective January 1,
VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2017 did not affect our financial position or results of operations since the majority of our inventory is stated at last-in, first-out (LIFO).
In October 2016, the FASB issued ASU No. 2016-16, “Income Taxes (Topic 740),” to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. The provisions of this ASU require an entity to recognize the income tax consequences of intra-entity transfers of assets other than inventory immediately when the transfer occurs. These provisions are effective for annual reporting periods beginning after December 15, 2017, and interim reporting periods within those annual periods, with early adoption permitted. The provisions should be applied on a modified retrospective basis with a cumulative-effect adjustment to the opening balance of retained earnings as of the beginning of the period of adoption to recognize the income tax consequences of intra-entity transfers of assets that occurred before the adoption date. Our early adoption of this ASU using the modified retrospective method effective January 1, 2017 did not have a material effect on our financial position or results of operations. Adoption of this guidance more accurately reflects the economics of an intra-entity asset transfer when it occurs by eliminating the previous exception that prohibited the recognition of the income tax consequences of an intra-entity asset transfer until the asset had been sold to an outside party.
In October 2016, the FASB issued ASU No. 2016-17, “Consolidation (Topic 810),” to provide guidance on how a reporting entity that is a single decision maker of a variable interest entity (VIE) should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary. The provisions of this ASU are effective for annual reporting periods beginning after December 15, 2016, and interim reporting periods within those annual periods, with early adoption permitted. The provisions should be applied on a retrospective basis to all relevant prior periods beginning with the fiscal year in which the VIE guidance was adopted with a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Our adoption of this ASU effective January 1, 2017 did not affect our financial position or results of operations.
In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805),” to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The provisions of this ASU provide a more robust framework to use in determining when a set of assets and activities is a business by clarifying the requirements related to inputs, processes, and outputs. These provisions are to be applied prospectively and are effective for annual reporting periods beginning after December 15, 2017, with early adoption permitted. Our early adoption of this ASU effective January 1, 2017 did not affect our financial position or results of operations. However, more of our future acquisitions may be accounted for as asset acquisitions.
Accounting Pronouncements Not Yet Adopted
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” to clarify the principles for recognizing revenue. This new standard is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual periods. We have completed our evaluation of the provisions of this standard and concluded that our adoption will not change the amount or timing of revenues recognized by us, nor will it affect our financial position. The majority of our revenues are generated from the sale of refined petroleum products and ethanol. These revenues are largely based on the current spot (market) prices of the products sold, which represent consideration specifically allocable to the products being sold on a given day, and we recognize those revenues
VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
upon delivery and transfer of title to the products to our customers. The time at which delivery and transfer of title occurs is the point when our control of the products is transferred to our customers and when our performance obligation to our customers is fulfilled. We will adopt this new standard effective January 1, 2018, and we will use the modified retrospective method of adoption as permitted by the standard. Under that method, the cumulative effect of initially applying the standard is recognized as an adjustment to the opening balance of retained earnings, and revenues reported in the periods prior to the date of adoption are not changed. We do not, however, expect to make such an adjustment to retained earnings. We are currently developing our revenue disclosures and enhancing our accounting systems to enable the preparation of such disclosures as well as the implementation of our internal controls.
In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments—Overall (Subtopic 825-10),” to enhance the reporting model for financial instruments regarding certain aspects of recognition, measurement, presentation, and disclosure. The provisions of this ASU are effective for annual reporting periods beginning after December 15, 2017, and interim reporting periods within those annual periods. This ASU is to be applied using a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The adoption of this ASU effective January 1, 2018 will not affect our financial position or results of operations, but will result in revised disclosures.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” to increase the transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This new standard is effective for annual reporting periods beginning after December 15, 2018, and interim reporting periods within those annual periods, with early adoption permitted. We will adopt this new standard on January 1, 2019 and we expect to use the modified retrospective method of adoption as permitted by the standard. We are developing enhanced contracting and lease evaluation processes and information systems to support such processes, as well as new and enhanced accounting systems to account for our leases and support the required disclosures. We continue to evaluate the effect that adopting this standard will have on our financial statements and related disclosures.
In March 2017, the FASB issued ASU No. 2017-07, “Compensation—Retirement Benefits (Topic 715),” which requires employers to report the service cost component of net periodic pension cost and net periodic postretirement benefit cost in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period. It also requires the other components of net periodic pension cost and net periodic postretirement benefit cost (non-service cost components) to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. This ASU is to be applied retrospectively for income statement items and prospectively for any capitalized benefit costs. The provisions of this ASU are effective for annual reporting periods beginning after December 15, 2017, and interim reporting periods within those annual periods, with early adoption permitted. The adoption of this ASU effective January 1, 2018 will not affect our financial position or results of operations, but will result in the reclassification of the non-service cost components from “operating expenses (excluding depreciation and amortization)” and “general and administrative expenses (excluding depreciation and amortization)” to “other income, net.”
In May 2017, the FASB issued ASU No. 2017-09, “Compensation—Stock Compensation (Topic 718),” to reduce diversity in practice, as well as reduce cost and complexity regarding a change to the terms or conditions
VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
of a share-based payment award. The provisions of this ASU are effective for annual reporting periods beginning after December 15, 2017, and interim reporting periods within those annual periods, with early adoption permitted. The adoption of this ASU effective January 1, 2018 will not have an immediate effect on our financial position or results of operations as it will be applied prospectively to an award modified on or after adoption.
In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815),” to improve and simplify accounting guidance for hedge accounting. The provisions of this ASU are effective for annual reporting periods beginning after December 15, 2018, and interim reporting periods within those annual periods, with early adoption permitted. We use economic hedges to manage commodity price risk; however, we have not designated these hedges as fair value or cash flow hedges. As a result, the adoption of this ASU effective January 1, 2019 is not expected to affect our financial position or results of operations.
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 and emission credits under various cap-and-trade systems, as defined in
Note 12
); (iv) gains and losses on our commodity derivative instruments; and (v) certain excise taxes.
“Operating expenses (excluding depreciation and amortization expense)” include costs to operate our refineries, ethanol plants, and VLP’s logistics assets, except for depreciation and amortization expense. These costs primarily include employee-related expenses, energy and utility costs, catalysts and chemical costs, and repairs 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 is disclosed by reportable segment in
Note 10
.
“Other operating expenses” include costs, if any, incurred by our reportable segments that are not associated with our cost of sales.
Prior to the Aruba Disposition discussed below, we recognized an asset impairment loss of
$56 million
in June 2016 representing all of the remaining carrying value of our long-lived assets in Aruba. These assets were primarily related to our crude oil and refined petroleum products terminal and transshipment facility in Aruba (collectively, the Aruba Terminal), which were included in our refining segment. We recognized the impairment loss at that time because we concluded that it was more likely than not that we would ultimately transfer ownership of these assets to the Government of Aruba (GOA) as a result of agreements entered into in June 2016 between the GOA, CITGO Aruba Refining N.V. (CAR), and CITGO Petroleum Corporation (together with CAR and certain other affiliates, collectively, CITGO) providing for, among other things, the
VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
GOA’s lease of those assets to CITGO. (See
Note 12
for disclosure related to the method to determine fair value.)
In September 2016 and in connection with the Aruba Disposition discussed below, our U.S. subsidiaries were unable to collect outstanding debt obligations owed to them by our Aruba subsidiaries, which resulted in the recognition by us of an income tax benefit in the U.S. of
$42 million
during the three and
nine
months ended
September 30, 2016
. We had no income tax effect in Aruba from the cancellation of debt or other effects of the Aruba Disposition because of net operating loss carryforwards associated with our operations in Aruba against which we had previously recorded a full valuation allowance.
Effective October 1, 2016, we (i) transferred ownership of all of our assets in Aruba, other than certain hydrocarbon inventories and working capital, to Refineria di Aruba N.V., an entity wholly-owned by the GOA, (ii) settled our obligations under various agreements with the GOA, including agreements that required us to dismantle our leasehold improvements under certain conditions, and (iii) sold the working capital of our Aruba operations, including hydrocarbon inventories, to the GOA and CITGO. We refer to this transaction as the “Aruba Disposition.” The agreements associated with the Aruba Disposition were finalized in September 2016, including approval of such agreements by the Aruba Parliament. We no longer own any assets or have any operations in Aruba.
Inventories consisted of the following (in millions):
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September 30,
2017
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December 31,
2016
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Refinery feedstocks
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$
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2,357
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$
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2,068
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Refined petroleum products and blendstocks
|
3,304
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3,153
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|
Ethanol feedstocks and products
|
223
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|
|
238
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|
Materials and supplies
|
253
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|
|
250
|
|
Inventories
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$
|
6,137
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|
|
$
|
5,709
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|
Inventories are valued at the lower of cost or market. As of
December 31, 2015
, we had a valuation reserve of
$766 million
in order to state our inventories at market. We recorded a change in our lower of cost or market inventory valuation reserve that resulted in a net
benefit to our results of operations of
$747 million
for the
nine
months ended
September 30, 2016
.
As of
September 30, 2017
and
December 31, 2016
, the replacement cost (market value) of LIFO inventories exceeded their LIFO carrying amounts by
$1.9 billion
for both periods. As of
September 30, 2017
and
December 31, 2016
, our non-LIFO inventories accounted for
$770 million
and
$641 million
, respectively, of our total inventories.
VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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4.
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DEBT AND CAPITAL LEASE OBLIGATIONS
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Debt
There was no significant activity related to our debt during the
nine
months ended
September 30, 2017
.
During the
nine
months ended
September 30, 2016
, the following activity occurred related to our debt:
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•
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VLP borrowed
$139 million
and
$210 million
under its
$750 million
senior unsecured revolving credit facility (the VLP Revolver) in connection with VLP’s acquisitions from us of the McKee Terminal Services Business in
April 2016
and the Meraux and Three Rivers Terminal Services Business in
September 2016
, respectively;
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•
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we issued
$1.25 billion
of
3.4
percent senior notes due
September 15, 2026
. Proceeds from this debt issuance totaled
$1.246 billion
and were used in October 2016 to redeem
$750 million
aggregate principal amount of our
6.125 percent
Senior Notes due 2017 and
$200 million
aggregate principal amount of our
7.2 percent
Senior Notes due 2017. We also incurred
$10 million
of debt issuance costs; and
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•
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one of our consolidated joint ventures entered into a
C$72 million
senior secured credit facility.
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We had outstanding borrowings, letters of credit issued, and availability under our credit facilities as follows (in millions):
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September 30, 2017
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Facility
Amount
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Maturity Date
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Outstanding
Borrowings
|
|
Letters of
Credit Issued
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Availability
|
Committed facilities:
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Valero Revolver
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$
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3,000
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|
|
November 2020
|
|
$
|
—
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|
|
$
|
367
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|
|
$
|
2,633
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|
VLP Revolver
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|
$
|
750
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|
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November 2020
|
|
$
|
30
|
|
|
$
|
—
|
|
|
$
|
720
|
|
Canadian Revolver
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|
C$
|
25
|
|
|
November 2017
|
|
C$
|
—
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|
|
C$
|
10
|
|
|
C$
|
15
|
|
Accounts receivable
sales facility
|
|
$
|
1,300
|
|
|
July 2018
|
|
$
|
100
|
|
|
n/a
|
|
|
$
|
1,200
|
|
Letter of credit facility
|
|
$
|
100
|
|
|
November 2017
|
|
n/a
|
|
|
$
|
—
|
|
|
$
|
100
|
|
Uncommitted facilities:
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|
|
|
|
|
|
|
|
|
|
Letter of credit facilities
|
|
n/a
|
|
|
n/a
|
|
n/a
|
|
|
$
|
212
|
|
|
n/a
|
|
Letters of credit issued as of
September 30, 2017
expire at various times in
2017
through
2020
.
In
June 2017
, one of our committed letter of credit facilities with a borrowing capacity of
$125 million
expired and was not renewed.
As of
September 30, 2017
and
December 31, 2016
, the borrowings on the VLP Revolver bear interest at a variable rate, which was
2.75
percent and
2.3125
percent, respectively. As of
September 30, 2017
and
VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016
, the variable interest rate on the accounts receivable sales facility was
1.9124
percent and
1.3422
percent, respectively.
In October 2017, one of our Canadian subsidiaries amended its committed revolving credit facility (the Canadian Revolver) to increase the borrowing capacity from
C$25 million
to
C$75 million
under which it may borrow and obtain letters of credit and to extend the maturity date from
November 2017
to
November 2018
.
In connection with VLP’s acquisitions of Parkway Pipeline LLC and Valero Partners Port Arthur, LLC, subsidiaries of ours that own certain pipeline and terminaling assets, VLP borrowed
$118 million
and
$262 million
, respectively, under the VLP Revolver on November 1, 2017. These borrowings bear interest at variable rates, which were
2.75
percent and
2.875
percent, respectively, as of November 1, 2017.
Other Disclosures
Interest and debt expense, net of capitalized interest is comprised of the following (in millions):
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Three Months Ended
September 30,
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Nine Months Ended
September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Interest and debt expense
|
$
|
134
|
|
|
$
|
129
|
|
|
$
|
402
|
|
|
$
|
387
|
|
Less capitalized interest
|
20
|
|
|
14
|
|
|
48
|
|
|
53
|
|
Interest and debt expense, net of
capitalized interest
|
$
|
114
|
|
|
$
|
115
|
|
|
$
|
354
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|
$
|
334
|
|
Capital Leases
In January 2017, we recognized capital lease assets and related obligations totaling approximately
$490 million
for the lease of storage tanks located at three of our refineries. These lease agreements have initial terms of
10
years each with successive
10
-year automatic renewals.
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5.
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COMMITMENTS AND CONTINGENCIES
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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 will contain (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 began in 2017 with a total estimated cost of
$840 million
for phases one and two of the project, of which we expect to contribute
50
percent (approximately
$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. We have contributed
$77 million
to MVP through September 2017;
no
further contributions are required to be made during the remainder of 2017.
VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Concurrent with the formation of MVP, we entered into a terminalling agreement with MVP to utilize the MVP Terminal upon completion of phase two of construction, which is expected to occur in early 2020. The terminalling agreement has an initial term of
12
years with
two
five
-year automatic renewals, and year-to-year renewals thereafter.
Due to our membership interest in MVP and because the terminalling agreement was determined to be a capital lease, we are the accounting owner of the MVP Terminal during the construction period. Accordingly, as of
September 30, 2017
, we recorded an asset of
$110 million
in property, plant, and equipment for
100
percent of the construction costs incurred by MVP and a long-term liability of
$55 million
payable to Magellan. The amounts recorded for the portion of the construction costs associated with the payable to Magellan are noncash investing and financing items, respectively.
Central Texas Pipeline and Terminal Projects
We have a
40
percent undivided interest in a project with a subsidiary of Magellan to jointly build a
135
-mile,
16
-inch refined petroleum products pipeline with a capacity of up to
150,000
barrels per day from Houston to Hearne, Texas. The pipeline is expected to be completed in mid-2019. Our estimated cost for our
40
percent undivided interest in this pipeline is
$170 million
.
In addition, we will separately build, own, and operate a terminal in Hearne, a terminal in Williamson County, Texas, and a
70
-mile,
12
-inch refined petroleum products pipeline connecting the two terminals. The new pipeline and terminals are expected to supply up to
60,000
barrels per day into the central Texas area. Our estimated cost for these projects is
$210 million
with expected completion in mid-2019.
Environmental Matters
We are involved, together with several other companies, in an environmental cleanup in the Village of Hartford, Illinois (the Village) and during 2015, one of these companies assumed the ongoing remediation in the Village pursuant to a federal court order. We had previously conducted an initial response in the Village, along with other companies, pursuant to an administrative order issued by the EPA. The parties involved in the initial response may have further claims among themselves for costs already incurred. We also continue to be engaged in site assessment and interim measures at the adjacent shutdown refinery site, which we acquired as part of an acquisition in 2005, and we are in litigation with other potentially responsible parties and the Illinois EPA relating to the remediation of the site. In each of these matters, we have various defenses, limitations, and potential rights for contribution from the other responsible parties. We have recorded a liability for our expected contribution obligations. However, because of the unpredictable nature of these cleanups, the methodology for allocation of liabilities, and the State of Illinois’ failure to directly sue third parties responsible for historic contamination at the site, it is reasonably possible that we could incur a loss in a range of
$0
to
$200 million
in excess of the amount of our accrual to ultimately resolve these matters. Factors underlying this estimated range are expected to change from time to time, and actual results may vary significantly from this estimate.
Litigation Matters
We are party to claims and legal proceedings arising in the ordinary course of business. We have not recorded a loss contingency liability with respect to some of these matters because we have determined that it is remote that a loss has been incurred. For other matters, we have recorded a loss contingency liability where we have determined that it is probable that a loss has been incurred and that the loss is reasonably estimable. These
VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
loss contingency liabilities are not material to our financial position. We re-evaluate and update our loss contingency liabilities as matters progress over time, and we believe that any changes to the recorded liabilities will not be material to our financial position, results of operations, or liquidity.
Reconciliation of Balances
The following is a reconciliation of the beginning and ending balances of equity attributable to our stockholders, equity attributable to noncontrolling interests, and total equity (in millions):
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|
Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
Valero
Stockholders’
Equity
|
|
Non-
controlling
Interests (a)
|
|
Total
Equity
|
|
Valero
Stockholders’
Equity
|
|
Non-
controlling
Interests (a)
|
|
Total
Equity
|
Balance as of
beginning of period
|
$
|
20,024
|
|
|
$
|
830
|
|
|
$
|
20,854
|
|
|
$
|
20,527
|
|
|
$
|
827
|
|
|
$
|
21,354
|
|
Net income
|
1,694
|
|
|
62
|
|
|
1,756
|
|
|
1,922
|
|
|
79
|
|
|
2,001
|
|
Dividends
|
(936
|
)
|
|
—
|
|
|
(936
|
)
|
|
(840
|
)
|
|
—
|
|
|
(840
|
)
|
Stock-based
compensation expense
|
37
|
|
|
—
|
|
|
37
|
|
|
33
|
|
|
—
|
|
|
33
|
|
Stock purchases
in connection with
stock-based
compensation plans
|
(27
|
)
|
|
—
|
|
|
(27
|
)
|
|
(43
|
)
|
|
—
|
|
|
(43
|
)
|
Stock purchases under
purchase program
|
(925
|
)
|
|
—
|
|
|
(925
|
)
|
|
(1,120
|
)
|
|
—
|
|
|
(1,120
|
)
|
Issuance of Valero
Energy Partners LP
common units
|
—
|
|
|
33
|
|
|
33
|
|
|
—
|
|
|
6
|
|
|
6
|
|
Distributions to
noncontrolling interests
|
—
|
|
|
(56
|
)
|
|
(56
|
)
|
|
—
|
|
|
(54
|
)
|
|
(54
|
)
|
Other
|
(14
|
)
|
|
(16
|
)
|
|
(30
|
)
|
|
47
|
|
|
(68
|
)
|
|
(21
|
)
|
Other comprehensive
income (loss)
|
517
|
|
|
1
|
|
|
518
|
|
|
(187
|
)
|
|
1
|
|
|
(186
|
)
|
Balance as of end of period
|
$
|
20,370
|
|
|
$
|
854
|
|
|
$
|
21,224
|
|
|
$
|
20,339
|
|
|
$
|
791
|
|
|
$
|
21,130
|
|
___________________
|
|
(a)
|
The noncontrolling interests relate to third-party ownership interests in VIEs for which we are the primary beneficiary and therefore consolidate. See
Note 7
for information about our consolidated VIEs.
|
VALERO ENERGY CORPORATION
CONDENSED 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
Common
Stock
|
|
Treasury
Stock
|
|
Common
Stock
|
|
Treasury
Stock
|
Balance as of beginning of period
|
673
|
|
|
(222
|
)
|
|
673
|
|
|
(200
|
)
|
Transactions in connection with
stock-based compensation plans:
|
|
|
|
|
|
|
|
Stock issuances
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Stock purchases
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
Stock purchases under purchase program
|
—
|
|
|
(14
|
)
|
|
—
|
|
|
(20
|
)
|
Balance as of end of period
|
673
|
|
|
(236
|
)
|
|
673
|
|
|
(220
|
)
|
Common Stock Dividends
On
November 1, 2017
, our board of directors declared a quarterly cash dividend of
$0.70
per common share payable on
December 12, 2017
to holders of record at the close of business on
November 21, 2017
.
Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive loss by component, net of tax, were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
Foreign
Currency
Translation
Adjustment
|
|
Defined
Benefit
Plans
Items
|
|
Total
|
|
Foreign
Currency
Translation
Adjustment
|
|
Defined
Benefit
Plans
Items
|
|
Total
|
Balance as of
beginning of period
|
$
|
(1,021
|
)
|
|
$
|
(389
|
)
|
|
$
|
(1,410
|
)
|
|
$
|
(605
|
)
|
|
$
|
(328
|
)
|
|
$
|
(933
|
)
|
Other comprehensive income (loss)
before reclassifications
|
509
|
|
|
—
|
|
|
509
|
|
|
(198
|
)
|
|
8
|
|
|
(190
|
)
|
Amounts reclassified from
accumulated other
comprehensive loss
|
—
|
|
|
8
|
|
|
8
|
|
|
—
|
|
|
3
|
|
|
3
|
|
Net other comprehensive income (loss)
|
509
|
|
|
8
|
|
|
517
|
|
|
(198
|
)
|
|
11
|
|
|
(187
|
)
|
Balance as of end of period
|
$
|
(512
|
)
|
|
$
|
(381
|
)
|
|
$
|
(893
|
)
|
|
$
|
(803
|
)
|
|
$
|
(317
|
)
|
|
$
|
(1,120
|
)
|
VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
7.
|
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 (a) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (b) 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.
Our significant VIE’s include:
|
|
•
|
VLP, a publicly traded master limited partnership formed to own, operate, develop, and acquire crude oil and refined petroleum products pipelines, terminals, and other transportation and logistics assets; and
|
|
|
•
|
Diamond Green Diesel Holdings LLC (DGD), a joint venture formed to construct and operate a biodiesel plant that processes animal fats, used cooking oils, and other vegetable oils into renewable green diesel.
|
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 the 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.
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).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
VLP
|
|
DGD
|
|
Other
|
|
Total
|
Assets
|
|
|
|
|
|
|
|
Cash and temporary cash investments
|
$
|
116
|
|
|
$
|
148
|
|
|
$
|
14
|
|
|
$
|
278
|
|
Other current assets
|
1
|
|
|
54
|
|
|
—
|
|
|
55
|
|
Property, plant, and equipment, net
|
955
|
|
|
391
|
|
|
129
|
|
|
1,475
|
|
Liabilities
|
|
|
|
|
|
|
|
Current liabilities
|
$
|
26
|
|
|
$
|
25
|
|
|
$
|
7
|
|
|
$
|
58
|
|
Debt and capital lease obligations,
less current portion
|
525
|
|
|
—
|
|
|
45
|
|
|
570
|
|
VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
VLP
|
|
DGD
|
|
Other
|
|
Total
|
Assets
|
|
|
|
|
|
|
|
Cash and temporary cash investments
|
$
|
71
|
|
|
$
|
167
|
|
|
$
|
15
|
|
|
$
|
253
|
|
Other current assets
|
3
|
|
|
87
|
|
|
—
|
|
|
90
|
|
Property, plant, and equipment, net
|
865
|
|
|
355
|
|
|
133
|
|
|
1,353
|
|
Liabilities
|
|
|
|
|
|
|
|
Current liabilities
|
$
|
15
|
|
|
$
|
17
|
|
|
$
|
7
|
|
|
$
|
39
|
|
Debt and capital lease obligations,
less current portion
|
525
|
|
|
—
|
|
|
46
|
|
|
571
|
|
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 primarily accounted for as equity investments. However,
one
of our non-consolidated VIEs is accounted for under owner accounting and is further described below and in
Note 5
.
As described in
Note 5
, we have a
50
percent membership interest in MVP, which was formed to construct, own, and operate the MVP Terminal. MVP was determined to be a VIE because the power to direct the activities that most significantly impact its economic performance is not required to be held by its
two
members, but is held by Magellan, as operator under a construction, operating, and management agreement with MVP. For this reason and because Magellan holds a
50
percent interest in MVP that provides it with significant economic rights and obligations, we determined that we are not the primary beneficiary. As of
September 30, 2017
, our maximum exposure to loss was
$77 million
, which represents our equity investment in MVP.
VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
8.
|
EMPLOYEE BENEFIT PLANS
|
The components of net periodic benefit cost (credit) related to our defined benefit plans were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
Other Postretirement
Benefit Plans
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Three months ended September 30:
|
|
|
|
|
|
|
|
Service cost
|
$
|
31
|
|
|
$
|
28
|
|
|
$
|
1
|
|
|
$
|
2
|
|
Interest cost
|
21
|
|
|
21
|
|
|
3
|
|
|
3
|
|
Expected return on plan assets
|
(37
|
)
|
|
(35
|
)
|
|
—
|
|
|
—
|
|
Amortization of:
|
|
|
|
|
|
|
|
Net actuarial (gain) loss
|
13
|
|
|
13
|
|
|
—
|
|
|
(1
|
)
|
Prior service credit
|
(5
|
)
|
|
(5
|
)
|
|
(4
|
)
|
|
(4
|
)
|
Special charges (credits)
|
3
|
|
|
(7
|
)
|
|
—
|
|
|
—
|
|
Net periodic benefit cost
|
$
|
26
|
|
|
$
|
15
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30:
|
|
|
|
|
|
|
|
Service cost
|
$
|
92
|
|
|
$
|
84
|
|
|
$
|
4
|
|
|
$
|
5
|
|
Interest cost
|
64
|
|
|
63
|
|
|
8
|
|
|
9
|
|
Expected return on plan assets
|
(112
|
)
|
|
(104
|
)
|
|
—
|
|
|
—
|
|
Amortization of:
|
|
|
|
|
|
|
|
Net actuarial (gain)
loss
|
40
|
|
|
37
|
|
|
(2
|
)
|
|
(1
|
)
|
Prior service credit
|
(15
|
)
|
|
(15
|
)
|
|
(12
|
)
|
|
(12
|
)
|
Special charges (credits)
|
3
|
|
|
(7
|
)
|
|
—
|
|
|
—
|
|
Net periodic benefit cost
(credit)
|
$
|
72
|
|
|
$
|
58
|
|
|
$
|
(2
|
)
|
|
$
|
1
|
|
We contributed
$104 million
and
$132 million
, respectively, to our pension plans and
$17 million
and
$12 million
, respectively, to our other postretirement benefit plans during the
nine
months ended
September 30, 2017
and
2016
. Of the
$104 million
contributed to our pension plans during the
nine
months ended
September 30, 2017
,
$80 million
was discretionary and was contributed during the third quarter of 2017.
As a result of the discretionary pension contributions discussed above, our expected contributions to our pension plans have increased to
$108 million
for 2017. Our anticipated contributions to our other postretirement benefit plans during 2017 have not changed from the amount previously disclosed in our financial statements for the year ended
December 31, 2016
.
VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
9.
|
EARNINGS PER COMMON SHARE
|
Earnings per common share were computed as follows (dollars and shares in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
2017
|
|
2016
|
|
Participating
Securities
|
|
Common
Stock
|
|
Participating
Securities
|
|
Common
Stock
|
Earnings per common share:
|
|
|
|
|
|
|
|
Net income attributable to Valero stockholders
|
|
|
$
|
841
|
|
|
|
|
$
|
613
|
|
Less dividends paid:
|
|
|
|
|
|
|
|
Common stock
|
|
|
308
|
|
|
|
|
275
|
|
Participating securities
|
|
|
1
|
|
|
|
|
1
|
|
Undistributed earnings
|
|
|
$
|
532
|
|
|
|
|
$
|
337
|
|
Weighted-average common shares outstanding
|
2
|
|
|
439
|
|
|
1
|
|
|
458
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
Distributed earnings
|
$
|
0.70
|
|
|
$
|
0.70
|
|
|
$
|
0.60
|
|
|
$
|
0.60
|
|
Undistributed earnings
|
1.21
|
|
|
1.21
|
|
|
0.73
|
|
|
0.73
|
|
Total earnings per common share
|
$
|
1.91
|
|
|
$
|
1.91
|
|
|
$
|
1.33
|
|
|
$
|
1.33
|
|
|
|
|
|
|
|
|
|
Earnings per common share –
assuming dilution:
|
|
|
|
|
|
|
|
Net income attributable to Valero stockholders
|
|
|
$
|
841
|
|
|
|
|
$
|
613
|
|
Weighted-average common shares outstanding
|
|
|
439
|
|
|
|
|
458
|
|
Common equivalent shares
|
|
|
2
|
|
|
|
|
2
|
|
Weighted-average common shares outstanding –
assuming dilution
|
|
|
441
|
|
|
|
|
460
|
|
Earnings per common share – assuming dilution
|
|
|
$
|
1.91
|
|
|
|
|
$
|
1.33
|
|
VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
Participating
Securities
|
|
Common
Stock
|
|
Participating
Securities
|
|
Common
Stock
|
Earnings per common share:
|
|
|
|
|
|
|
|
Net income attributable to Valero stockholders
|
|
|
$
|
1,694
|
|
|
|
|
$
|
1,922
|
|
Less dividends paid:
|
|
|
|
|
|
|
|
Common stock
|
|
|
933
|
|
|
|
|
837
|
|
Participating securities
|
|
|
3
|
|
|
|
|
3
|
|
Undistributed earnings
|
|
|
$
|
758
|
|
|
|
|
$
|
1,082
|
|
Weighted-average common shares outstanding
|
2
|
|
|
444
|
|
|
1
|
|
|
465
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
Distributed earnings
|
$
|
2.10
|
|
|
$
|
2.10
|
|
|
$
|
1.80
|
|
|
$
|
1.80
|
|
Undistributed earnings
|
1.70
|
|
|
1.70
|
|
|
2.32
|
|
|
2.32
|
|
Total earnings per common share
|
$
|
3.80
|
|
|
$
|
3.80
|
|
|
$
|
4.12
|
|
|
$
|
4.12
|
|
|
|
|
|
|
|
|
|
Earnings per common share –
assuming dilution:
|
|
|
|
|
|
|
|
Net income attributable to Valero stockholders
|
|
|
$
|
1,694
|
|
|
|
|
$
|
1,922
|
|
Weighted-average common shares outstanding
|
|
|
444
|
|
|
|
|
465
|
|
Common equivalent shares
|
|
|
2
|
|
|
|
|
2
|
|
Weighted-average common shares outstanding –
assuming dilution
|
|
|
446
|
|
|
|
|
467
|
|
Earnings per common share – assuming dilution
|
|
|
$
|
3.80
|
|
|
|
|
$
|
4.12
|
|
Participating securities include restricted stock and performance awards granted under our 2011 Omnibus Stock Incentive Plan.
VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Effective January 1, 2017, 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 — VLP. The results of the VLP segment, which include the results of our majority-owned master limited partnership referred to by the same name, were transferred from the refining segment. Our prior period segment information has been retrospectively adjusted to reflect our current segment presentation.
As a result, we have
three
reportable segments as follows:
|
|
•
|
Refining segment
includes our refining operations, the associated marketing activities, and certain logistics assets that support our refining operations that are not owned by VLP;
|
|
|
•
|
Ethanol segment
includes our ethanol operations, the associated marketing activities, and logistics assets that support our ethanol operations; and
|
|
|
•
|
VLP segment
includes the results of VLP, which provides transportation and terminaling services in support of our refining segment.
|
Operations that are not included in any of the reportable segments are included in the corporate category.
Our reportable segments are strategic business units that offer different products and services. They are managed separately as each business requires unique technologies and marketing strategies. Performance is evaluated based on segment operating income, 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.
VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table reflects activity related to our reportable segments (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refining
|
|
Ethanol
|
|
VLP
|
|
Corporate
and
Eliminations
|
|
Total
|
Three months ended September 30, 2017:
|
|
|
|
|
|
|
|
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
Operating revenues from external customers
|
$
|
22,728
|
|
|
$
|
834
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
23,562
|
|
Intersegment revenues
|
1
|
|
|
48
|
|
|
110
|
|
|
(159
|
)
|
|
—
|
|
Total operating revenues
|
22,729
|
|
|
882
|
|
|
110
|
|
|
(159
|
)
|
|
23,562
|
|
Cost of sales:
|
|
|
|
|
|
|
|
|
|
Cost of materials and other
|
19,818
|
|
|
669
|
|
|
—
|
|
|
(158
|
)
|
|
20,329
|
|
Operating expenses (excluding depreciation
and amortization expense reflected below)
|
986
|
|
|
114
|
|
|
26
|
|
|
(1
|
)
|
|
1,125
|
|
Depreciation and amortization expense
|
455
|
|
|
17
|
|
|
12
|
|
|
—
|
|
|
484
|
|
Total cost of sales
|
21,259
|
|
|
800
|
|
|
38
|
|
|
(159
|
)
|
|
21,938
|
|
Other operating expenses
|
41
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
44
|
|
General and administrative expenses (excluding
depreciation and amortization expense reflected
below)
|
—
|
|
|
—
|
|
|
—
|
|
|
229
|
|
|
229
|
|
Depreciation and amortization expense
|
—
|
|
|
—
|
|
|
—
|
|
|
13
|
|
|
13
|
|
Operating income (loss) by segment
|
$
|
1,429
|
|
|
$
|
82
|
|
|
$
|
69
|
|
|
$
|
(242
|
)
|
|
$
|
1,338
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2016:
|
|
|
|
|
|
|
|
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
Operating revenues from external customers
|
$
|
18,718
|
|
|
$
|
931
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
19,649
|
|
Intersegment revenues
|
—
|
|
|
56
|
|
|
92
|
|
|
(148
|
)
|
|
—
|
|
Total operating revenues
|
18,718
|
|
|
987
|
|
|
92
|
|
|
(148
|
)
|
|
19,649
|
|
Cost of sales:
|
|
|
|
|
|
|
|
|
|
Cost of materials and other
|
16,424
|
|
|
757
|
|
|
—
|
|
|
(148
|
)
|
|
17,033
|
|
Operating expenses (excluding depreciation
and amortization expense reflected below)
|
931
|
|
|
107
|
|
|
24
|
|
|
—
|
|
|
1,062
|
|
Depreciation and amortization expense
|
429
|
|
|
17
|
|
|
12
|
|
|
—
|
|
|
458
|
|
Total cost of sales
|
17,784
|
|
|
881
|
|
|
36
|
|
|
(148
|
)
|
|
18,553
|
|
General and administrative expenses (excluding
depreciation and amortization expense reflected
below)
|
—
|
|
|
—
|
|
|
—
|
|
|
192
|
|
|
192
|
|
Depreciation and amortization expense
|
—
|
|
|
—
|
|
|
—
|
|
|
12
|
|
|
12
|
|
Operating income (loss) by segment
|
$
|
934
|
|
|
$
|
106
|
|
|
$
|
56
|
|
|
$
|
(204
|
)
|
|
$
|
892
|
|
VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refining
|
|
Ethanol
|
|
VLP
|
|
Corporate
and
Eliminations
|
|
Total
|
Nine months ended September 30, 2017:
|
|
|
|
|
|
|
|
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
Operating revenues from external customers
|
$
|
65,030
|
|
|
$
|
2,558
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
67,588
|
|
Intersegment revenues
|
1
|
|
|
136
|
|
|
326
|
|
|
(463
|
)
|
|
—
|
|
Total operating revenues
|
65,031
|
|
|
2,694
|
|
|
326
|
|
|
(463
|
)
|
|
67,588
|
|
Cost of sales:
|
|
|
|
|
|
|
|
|
|
Cost of materials and other
|
57,662
|
|
|
2,166
|
|
|
—
|
|
|
(462
|
)
|
|
59,366
|
|
Operating expenses (excluding depreciation
and amortization expense reflected below)
|
2,935
|
|
|
330
|
|
|
75
|
|
|
(1
|
)
|
|
3,339
|
|
Depreciation and amortization expense
|
1,358
|
|
|
63
|
|
|
36
|
|
|
—
|
|
|
1,457
|
|
Total cost of sales
|
61,955
|
|
|
2,559
|
|
|
111
|
|
|
(463
|
)
|
|
64,162
|
|
Other operating expenses
|
41
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
44
|
|
General and administrative expenses (excluding
depreciation and amortization expense reflected
below)
|
—
|
|
|
—
|
|
|
—
|
|
|
597
|
|
|
597
|
|
Depreciation and amortization expense
|
—
|
|
|
—
|
|
|
—
|
|
|
39
|
|
|
39
|
|
Operating income (loss) by segment
|
$
|
3,035
|
|
|
$
|
135
|
|
|
$
|
212
|
|
|
$
|
(636
|
)
|
|
$
|
2,746
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2016:
|
|
|
|
|
|
|
|
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
Operating revenues from external customers
|
$
|
52,302
|
|
|
$
|
2,645
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
54,947
|
|
Intersegment revenues
|
—
|
|
|
135
|
|
|
258
|
|
|
(393
|
)
|
|
—
|
|
Total operating revenues
|
52,302
|
|
|
2,780
|
|
|
258
|
|
|
(393
|
)
|
|
54,947
|
|
Cost of sales:
|
|
|
|
|
|
|
|
|
|
Cost of materials and other
|
45,790
|
|
|
2,263
|
|
|
—
|
|
|
(393
|
)
|
|
47,660
|
|
Operating expenses (excluding depreciation
and amortization expense reflected below)
|
2,716
|
|
|
305
|
|
|
72
|
|
|
—
|
|
|
3,093
|
|
Depreciation and amortization expense
|
1,308
|
|
|
48
|
|
|
35
|
|
|
—
|
|
|
1,391
|
|
Lower of cost or market inventory
valuation adjustment
|
(697
|
)
|
|
(50
|
)
|
|
—
|
|
|
—
|
|
|
(747
|
)
|
Total cost of sales
|
49,117
|
|
|
2,566
|
|
|
107
|
|
|
(393
|
)
|
|
51,397
|
|
General and administrative expenses (excluding
depreciation and amortization expense reflected
below)
|
—
|
|
|
—
|
|
|
—
|
|
|
507
|
|
|
507
|
|
Depreciation and amortization expense
|
—
|
|
|
—
|
|
|
—
|
|
|
35
|
|
|
35
|
|
Asset impairment loss
|
56
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
56
|
|
Operating income (loss) by segment
|
$
|
3,129
|
|
|
$
|
214
|
|
|
$
|
151
|
|
|
$
|
(542
|
)
|
|
$
|
2,952
|
|
VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Total assets by reportable segment were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
September 30,
2017
|
|
December 31,
2016
|
Refining
|
$
|
39,450
|
|
|
$
|
38,095
|
|
Ethanol
|
1,319
|
|
|
1,316
|
|
VLP
|
1,110
|
|
|
972
|
|
Corporate and eliminations
|
6,109
|
|
|
5,790
|
|
Total assets
|
$
|
47,988
|
|
|
$
|
46,173
|
|
|
|
11.
|
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):
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
2017
|
|
2016
|
Decrease (increase) in current assets:
|
|
|
|
Receivables, net
|
$
|
74
|
|
|
$
|
(278
|
)
|
Inventories
|
(285
|
)
|
|
557
|
|
Prepaid expenses and other
|
138
|
|
|
137
|
|
Increase (decrease) in current liabilities:
|
|
|
|
Accounts payable
|
227
|
|
|
494
|
|
Accrued expenses
|
121
|
|
|
46
|
|
Taxes other than income taxes payable
|
78
|
|
|
8
|
|
Income taxes payable
|
191
|
|
|
(11
|
)
|
Changes in current assets and current liabilities
|
$
|
544
|
|
|
$
|
953
|
|
Noncash investing and financing activities during the
nine
months ended
September 30, 2017
included the recognition of (i) a capital lease asset and related obligation associated with an agreement for storage tanks near three of our refineries as described in
Note 4
and (ii) terminal assets and related obligation recorded under owner accounting as described in
Note 5
. There were no significant noncash investing and financing activities during the
nine
months ended
September 30, 2016
.
Cash flows reflected as “other financing activities, net” for the
nine
months ended
September 30, 2016
included the payment of a long-term liability of
$137 million
owed to a joint venture partner associated with an owner-method joint venture investment.
VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Cash flows related to interest and income taxes were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
2017
|
|
2016
|
Interest paid in excess of amount capitalized
|
$
|
356
|
|
|
$
|
312
|
|
Income taxes paid, net
|
357
|
|
|
305
|
|
|
|
12.
|
FAIR VALUE MEASUREMENTS
|
Recurring Fair Value Measurements
The tables below 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
September 30, 2017
and
December 31, 2016
.
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 tables below on a gross basis. We have no derivative contracts that are subject to master netting arrangements that are reflected gross on the balance sheet.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
|
|
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
|
|
Fair Value Hierarchy
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivative
contracts
|
$
|
861
|
|
|
$
|
34
|
|
|
$
|
—
|
|
|
$
|
895
|
|
|
$
|
(882
|
)
|
|
$
|
(11
|
)
|
|
$
|
2
|
|
|
$
|
—
|
|
Foreign currency
contracts
|
6
|
|
|
—
|
|
|
—
|
|
|
6
|
|
|
n/a
|
|
|
n/a
|
|
|
6
|
|
|
n/a
|
|
Investments of certain
benefit plans
|
63
|
|
|
—
|
|
|
8
|
|
|
71
|
|
|
n/a
|
|
|
n/a
|
|
|
71
|
|
|
n/a
|
|
Total
|
$
|
930
|
|
|
$
|
34
|
|
|
$
|
8
|
|
|
$
|
972
|
|
|
$
|
(882
|
)
|
|
$
|
(11
|
)
|
|
$
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivative
contracts
|
$
|
974
|
|
|
$
|
16
|
|
|
$
|
—
|
|
|
$
|
990
|
|
|
$
|
(882
|
)
|
|
$
|
(108
|
)
|
|
$
|
—
|
|
|
$
|
(171
|
)
|
Environmental credit
obligations
|
—
|
|
|
231
|
|
|
—
|
|
|
231
|
|
|
n/a
|
|
|
n/a
|
|
|
231
|
|
|
n/a
|
|
Physical purchase
contracts
|
—
|
|
|
8
|
|
|
—
|
|
|
8
|
|
|
n/a
|
|
|
n/a
|
|
|
8
|
|
|
n/a
|
|
Foreign currency
contracts
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
n/a
|
|
|
n/a
|
|
|
1
|
|
|
n/a
|
|
Total
|
$
|
975
|
|
|
$
|
255
|
|
|
$
|
—
|
|
|
$
|
1,230
|
|
|
$
|
(882
|
)
|
|
$
|
(108
|
)
|
|
$
|
240
|
|
|
|
VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
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
|
|
Fair Value Hierarchy
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivative
contracts
|
$
|
874
|
|
|
$
|
38
|
|
|
$
|
—
|
|
|
$
|
912
|
|
|
$
|
(875
|
)
|
|
$
|
—
|
|
|
$
|
37
|
|
|
$
|
—
|
|
Foreign currency
contracts
|
3
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
n/a
|
|
|
n/a
|
|
|
3
|
|
|
n/a
|
|
Investments of certain
benefit plans
|
58
|
|
|
—
|
|
|
11
|
|
|
69
|
|
|
n/a
|
|
|
n/a
|
|
|
69
|
|
|
n/a
|
|
Total
|
$
|
935
|
|
|
$
|
38
|
|
|
$
|
11
|
|
|
$
|
984
|
|
|
$
|
(875
|
)
|
|
$
|
—
|
|
|
$
|
109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivative
contracts
|
$
|
872
|
|
|
$
|
23
|
|
|
$
|
—
|
|
|
$
|
895
|
|
|
$
|
(875
|
)
|
|
$
|
(20
|
)
|
|
$
|
—
|
|
|
$
|
(88
|
)
|
Environmental credit
obligations
|
—
|
|
|
188
|
|
|
—
|
|
|
188
|
|
|
n/a
|
|
|
n/a
|
|
|
188
|
|
|
n/a
|
|
Physical purchase
contracts
|
—
|
|
|
5
|
|
|
—
|
|
|
5
|
|
|
n/a
|
|
|
n/a
|
|
|
5
|
|
|
n/a
|
|
Total
|
$
|
872
|
|
|
$
|
216
|
|
|
$
|
—
|
|
|
$
|
1,088
|
|
|
$
|
(875
|
)
|
|
$
|
(20
|
)
|
|
$
|
193
|
|
|
|
|
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 and swaps, and as disclosed in
Note 13
, some of these contracts are designated as hedging instruments. These contracts are measured at fair value using the market approach. Exchange-traded futures are valued based on quoted prices from the exchange and are categorized in Level 1 of the fair value hierarchy. Swaps are priced using third-party broker quotes, industry pricing services, and exchange-traded curves, with appropriate consideration of counterparty credit risk, but because they have contractual terms that are not identical to exchange-traded futures instruments with a comparable market price, these financial instruments are categorized in Level 2 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 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 assets categorized in Level 3 of the fair value hierarchy represent insurance contracts, the fair value of which is provided by the insurer.
|
VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
•
|
Foreign currency contracts consist of foreign currency exchange and purchase contracts entered into for our international operations to manage our exposure to exchange rate fluctuations on transactions denominated in currencies other than the local (functional) currencies of those operations. These contracts are valued based on quoted prices from the exchange 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), Quebec’s
Environmental Quality Act
(the Quebec cap-and-trade system), and Ontario’s
Climate Change Mitigation and Low-Carbon Economy Act
(the Ontario cap-and-trade system), (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 further described in
Note 13
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 between levels for assets and liabilities held as of
September 30, 2017
and
December 31, 2016
that were measured at fair value on a recurring basis.
There was
no
significant activity during the three and
nine
months ended
September 30, 2017
and
2016
related to the fair value amounts categorized in Level 3 as of
September 30, 2017
and
December 31, 2016
.
Nonrecurring Fair Value Measurements
As discussed in
Note 2
, we concluded that the Aruba Terminal was impaired as of June 30, 2016, which resulted in an asset impairment loss of
$56 million
that was recorded in June 2016. The fair value of the Aruba Terminal was determined using an income approach and was classified in Level 3. We employed a probability-weighted approach to possible future cash flow scenarios, including transferring ownership of the business to the GOA or continuing to operate the business.
There were
no
assets or liabilities that were measured at fair value on a nonrecurring basis as of
September 30, 2017
and
December 31, 2016
.
VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Other Financial Instruments
Financial instruments that we recognize in our balance sheets at their carrying amounts are shown in the table below along with their associated fair values (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
Financial assets:
|
|
|
|
|
|
|
|
Cash and temporary cash investments
|
$
|
5,176
|
|
|
$
|
5,176
|
|
|
$
|
4,816
|
|
|
$
|
4,816
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
Debt (excluding capital leases)
|
7,930
|
|
|
9,195
|
|
|
7,926
|
|
|
8,882
|
|
The methods and significant assumptions used to estimate the fair value of these financial instruments are as follows:
|
|
•
|
The fair value of cash and temporary cash investments approximates the carrying value due to the low level of credit risk of these assets combined with their short maturities and market interest rates (Level 1).
|
|
|
•
|
The fair value of debt is determined primarily using the market approach based on quoted prices provided by third-party brokers and vendor pricing services (Level 2).
|
|
|
13.
|
PRICE RISK MANAGEMENT ACTIVITIES
|
We are exposed to market risks primarily related to the volatility in the price of commodities, and 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 12
), as summarized below under
“Fair Values of Derivative Instruments,”
with changes in fair value recognized currently in income. 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), grain (primarily corn), soybean oil, 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, swaps, and options. We use the futures markets for the available liquidity, which provides greater flexibility in transacting our hedging and trading operations. We use swaps primarily to manage our price exposure. 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.
VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
To manage commodity price risk, we use economic hedges, which are not designated as fair value or cash flow hedges, and we use fair value and cash flow hedges from time to time. We also enter into certain commodity derivative instruments for trading purposes. Our objectives for entering into hedges or trading derivatives are described below.
|
|
•
|
Economic Hedges
– Economic hedges represent commodity derivative instruments that are used to manage price volatility in certain (i) feedstock and refined petroleum product inventories, (ii) fixed-price purchase contracts, and (iii) forecasted feedstock, refined petroleum product or natural gas purchases and refined petroleum product sales. The objectives of our economic hedges are to hedge price volatility in certain feedstock and refined petroleum product inventories and to lock in the price of forecasted feedstock, refined petroleum product, or natural gas purchases or refined petroleum product sales at existing market prices that we deem favorable. Economic hedges are not designated as fair value or cash flow hedges for accounting purposes, usually due to the difficulty of establishing the required documentation at the date the derivative instrument is entered into for them to qualify as hedging instruments for accounting purposes.
|
As of
September 30, 2017
, we had the following outstanding commodity derivative instruments that were used as 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 those identified as corn contracts that are presented in thousands of bushels and soybean oil contracts that are presented in thousands of pounds).
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Contract Volumes by
Year of Maturity
|
Derivative Instrument
|
|
2017
|
|
2018
|
|
2019
|
Crude oil and refined petroleum products:
|
|
|
|
|
|
|
Swaps – long
|
|
13,369
|
|
|
725
|
|
|
—
|
|
Swaps – short
|
|
12,889
|
|
|
650
|
|
|
—
|
|
Futures – long
|
|
99,816
|
|
|
7,014
|
|
|
—
|
|
Futures – short
|
|
107,940
|
|
|
6,982
|
|
|
—
|
|
Corn:
|
|
|
|
|
|
|
Futures – long
|
|
19,060
|
|
|
20
|
|
|
35
|
|
Futures – short
|
|
24,985
|
|
|
18,070
|
|
|
45
|
|
Physical contracts – long
|
|
13,065
|
|
|
9,223
|
|
|
11
|
|
Soybean oil:
|
|
|
|
|
|
|
Futures – long
|
|
63,059
|
|
|
—
|
|
|
—
|
|
Futures – short
|
|
157,018
|
|
|
—
|
|
|
—
|
|
VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
•
|
Trading Derivatives
– Our objective for entering into commodity derivative instruments for trading purposes is to take advantage of existing market conditions for crude oil and refined petroleum products.
|
As of
September 30, 2017
, we had the following outstanding commodity derivative instruments that were entered into for trading purposes. The information presents the notional volume of outstanding contracts by type of instrument and year of maturity (volumes in thousands of barrels, except those identified as natural gas contracts that are presented in billions of British thermal units and corn contracts that are presented in thousands of bushels).
|
|
|
|
|
|
|
|
|
|
Notional Contract Volumes by
Year of Maturity
|
Derivative Instrument
|
|
2017
|
|
2018
|
Crude oil and refined
petroleum
products:
|
|
|
|
|
Swaps – long
|
|
1,922
|
|
|
134
|
|
Swaps – short
|
|
1,922
|
|
|
134
|
|
Futures – long
|
|
56,273
|
|
|
25,948
|
|
Futures – short
|
|
55,234
|
|
|
26,933
|
|
Options – long
|
|
39,380
|
|
|
142,450
|
|
Options – short
|
|
38,980
|
|
|
142,450
|
|
Natural gas:
|
|
|
|
|
Futures – long
|
|
600
|
|
|
—
|
|
Futures – short
|
|
300
|
|
|
—
|
|
Corn:
|
|
|
|
|
Futures – long
|
|
400
|
|
|
—
|
|
We had no commodity derivative contracts outstanding as of
September 30, 2017
and
2016
or during the
nine
months ended
September 30, 2017
and
2016
that were designated as fair value or cash flow hedges.
Foreign Currency Risk
We are exposed to exchange rate fluctuations on transactions entered into by our international operations that are denominated in currencies other than the local (functional) currencies of those operations. To manage our exposure to these exchange rate fluctuations, we use foreign currency exchange and purchase contracts. These contracts are not designated as hedging instruments for accounting purposes and therefore are classified as economic hedges. As of
September 30, 2017
, we had forward contracts to purchase
$514 million
of U.S. dollars. These commitments matured on or before
October 31, 2017
.
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
VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 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. The cost of meeting our obligations under these compliance programs was
$230 million
and
$198 million
for the three months ended
September 30, 2017
and
2016
, respectively, and
$631 million
and
$532 million
for the
nine
months ended
September 30, 2017
and
2016
, respectively. These amounts are reflected in cost of materials and other.
We are subject to additional requirements under greenhouse gas (GHG) emission programs, including the cap-and-trade systems, as discussed in
Note 12
. 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 three and
nine
months ended
September 30, 2017
and
2016
and expect to continue to recover the majority of these costs in the future. For the three and
nine
months ended
September 30, 2017
and
2016
, 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
September 30, 2017
and
December 31, 2016
(in millions) and the line items in the balance sheets in which the fair values are reflected. See
Note 12
for additional information related to the fair values of our derivative instruments.
As indicated in
Note 12
, 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 tables below, 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.
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet
Location
|
|
September 30, 2017
|
|
|
Asset
Derivatives
|
|
Liability
Derivatives
|
Derivatives not designated as
hedging instruments
|
|
|
|
|
|
Commodity contracts:
|
|
|
|
|
|
Futures
|
Receivables, net
|
|
$
|
861
|
|
|
$
|
974
|
|
Swaps
|
Receivables, net
|
|
27
|
|
|
13
|
|
Options
|
Receivables, net
|
|
7
|
|
|
3
|
|
Physical purchase contracts
|
Inventories
|
|
—
|
|
|
8
|
|
Foreign currency contracts
|
Receivables, net
|
|
6
|
|
|
—
|
|
Foreign currency contracts
|
Accrued expenses
|
|
—
|
|
|
1
|
|
Total
|
|
|
$
|
901
|
|
|
$
|
999
|
|
VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet
Location
|
|
December 31, 2016
|
|
|
Asset
Derivatives
|
|
Liability
Derivatives
|
Derivatives not designated as
hedging instruments
|
|
|
|
|
|
Commodity contracts:
|
|
|
|
|
|
Futures
|
Receivables, net
|
|
$
|
874
|
|
|
$
|
872
|
|
Swaps
|
Receivables, net
|
|
32
|
|
|
21
|
|
Options
|
Receivables, net
|
|
6
|
|
|
2
|
|
Physical purchase contracts
|
Inventories
|
|
—
|
|
|
5
|
|
Foreign currency contracts
|
Receivables, net
|
|
3
|
|
|
—
|
|
Total
|
|
|
$
|
915
|
|
|
$
|
900
|
|
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 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 tables provide information about the gain or loss recognized in income on our derivative instruments and the income statement line items in which such gains and losses are reflected (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Designated as
Economic Hedges
|
|
Location of Gain (Loss)
Recognized in Income
on Derivatives
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
2017
|
|
2016
|
2017
|
|
2016
|
Commodity contracts
|
|
Cost of materials and other
|
|
$
|
(86
|
)
|
|
$
|
42
|
|
|
$
|
(158
|
)
|
|
$
|
(210
|
)
|
Foreign currency contracts
|
|
Cost of materials and other
|
|
(16
|
)
|
|
4
|
|
|
(42
|
)
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading Derivatives
|
|
Location of Gain
Recognized in Income
on Derivatives
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
2017
|
|
2016
|
2017
|
|
2016
|
Commodity contracts
|
|
Cost of materials and other
|
|
$
|
31
|
|
|
$
|
13
|
|
|
$
|
29
|
|
|
$
|
51
|
|