Our crude oil feedstocks are purchased through a combination of term and spot contracts. Our term supply agreementscontracts are at market-related prices and feedstocks 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.
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 they interconnect with common-carrier pipeline systems, allowing us to sell products in the U.S., Canada, the U.K., Latin America, and other countries.parts of the world.
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.
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
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. Demand for transportation fuels in Latin America is expected to continue to grow. To support our wholesale rack operations in Latin
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. Our plants receive corn primarily by rail and truck.
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, operatingfinancial condition, results of operations, and/or financial condition,liquidity, as well as adversely affect the value of an investment in our common stock.stock or debt securities.
Risks Related to Our Business, Industry, and Operations
Our financial results are affected by volatile refining margins, which are dependent upon factors beyond our control, including the price of crude oil, corn, and other feedstocks and the market price at which we can sell refined petroleumour products.
Our financial results are primarily affected by the relationship, or margin, between refined petroleumour product prices and the prices for crude oil, corn, and other feedstocks.feedstocks, which can vary based on global, regional, and local market conditions, as well as by type and class of product. Historically, refining and ethanol margins have been volatile, and we believe they will continue to be volatile in the future. We expect that the volume of renewable diesel produced by competitors will increase going forward, and as the market becomes more competitive, or if there are changes in the regulations, policies, and standards affecting the demand for low-carbon fuels, our Renewable Diesel segment may experience increased volatility in product margins. 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,corn, and other feedstocks, gasoline, diesel, other liquid transportation fuels (such as jet fuel, renewable diesel, and refined petroleumethanol), and other 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. The ability of the members of the Organization of Petroleum Exporting Countries (OPEC) to agree on and to maintain crude oil price and production controls has also had, and may continue to have, a significant impact on the market prices of crude oil and certain of our products. Additionally, the regulations, policies, and standards discussed under “ITEMS 1. and 2. BUSINESS AND PROPERTIES—OUR COMPREHENSIVE LIQUID FUELS STRATEGY—Regulations, Policies, and Standards Driving Low-Carbon Fuel Demand” have had, and may continue to have, a significant impact on the market prices of the feedstocks for, and products produced by, our low-carbon fuels businesses. Any adverse change in these regulations, policies, and standards, including the calculation of CI scores, or in our ability to obtain any approved fuel pathways, could have a material adverse effect on the margins we receive for our low-carbon products in certain markets.
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 marketingproduct margins are uncertain. We do not produce crude oil, corn, waste and renewable feedstocks, or other primary feedstocks and must purchase nearly all of the crude oilfeedstocks we refine.process. We maygenerally purchase our crude oil and other refinery feedstocks long before we refineprocess them and sell the refined petroleumresulting products. Price level changes during the period between purchasing feedstocks and selling the refined petroleumresulting products from these feedstockshas had, and in the future could continue to have, a significant effect on our financial results. A decline in market prices maycould negatively impact the carrying value of our inventories.
Economic turmoil, inflation, cybersecurity incidents, 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, renewable diesel, and ethanol margins are also can be significantly impacted by additional refinery conversionthe addition of capacity through the expansion of existing refineriesfacilities or the construction of new refineries.refineries or plants. Worldwide refining capacity expansions may result in refining production capabilitycapacity 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. Previous declines in such differentials have had, and they could decline in theany future whichdeclines would again have, a negative impact on our results of operations.
Compliance withTechnological and changes in environmental laws, including proposed climate change lawsindustry developments, and regulations,evolving investor and market sentiment regarding fossil fuels and GHG emissions, may decrease the demand for our products and 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 increaseA reduction 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 could result from a transition to alternative fuel vehicles by consumers, such as electric vehicles (EVs) and hybrid vehicles, whether as a result of technological or scientific advances, government mandates, or consumer or investor sentiment towards fossil fuels and GHG emissions. New or changing technologies may be developed that cannotmake alternative fuel vehicles more affordable or desirable, including improvements in battery and storage technology, increases to EV driving ranges, increased availability of charging stations and other necessary infrastructure, and increased inventory, which may cause some consumers to shift to alternative fuel vehicles, including vehicles that use alternative fuels other than the liquid fuels we produce.
Additionally, there may be assessed with certaintynew entrants into the renewable fuels industry that could meet demand for lower-carbon transportation fuels and modes of transportation in a more efficient or less costly manner than our technologies and products, which could also have a material adverse effect on our low-carbon fuels businesses. For instance, several other companies have made, or announced interest in making, investments in renewable diesel projects. Should these projects develop, we would face competition from them for feedstocks and customers, which could strain margins on the products we sell and limit the growth and profitability of our low-carbon fuels businesses. It is not possible at this time. We may be requiredtime to make expenditures to modify operations, discontinue usepredict the ultimate form, timing, or extent of certain process units, or install pollution control equipment thatany such developments. However, a reduction in the demand for our products as a result of any of the foregoing events 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 and market sentiment towards climate change, fossil fuels, GHG emissions, environmental justice, and sustainabilityother ESG matters could adversely affect our business, cost of capital, and the price of our common stock price.and debt securities.
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 sharessecurities of energy companies, as well as to pressure lenders and other financial services companies to limit or curtail activities with energy companies. As a result, some financial intermediaries, investors, and other capital markets participants have reduced or ceased lending to, or investing in, companies that operate in industries with higher perceived environmental exposure, such as the energy industry.
Additionally, pension funds at the U.S. state and municipal level, as well as in other countries and jurisdictions across the world, particularly in Europe, have announced similar plans. If these or similar divestment efforts are successful,continued, the price of our common stock priceor debt securities, and our ability to access capital markets or to otherwise obtain new investment or financing, may be negatively impacted.
Members of the investment community are also increasing their focus on sustainabilityESG practices and disclosures, including practicesthose related to GHGsclimate change, GHG emissions targets, business resilience under the assumptions of demand-constrained scenarios, and climate change,net-zero ambitions in the energy industry.industry in particular, as well as diversity, equality, and inclusion initiatives, political activities, and governance standards among companies more generally. As a result, we may face negative publicity, increasing pressure regarding our sustainabilityESG practices and disclosures, and practices. demands for ESG-focused engagement from investors, stakeholders, and other interested parties. This could result in higher costs, disruption and diversion of management attention, an increased strain on our resources, and the implementation of certain ESG practices or disclosures that may present a heightened level of legal and regulatory risk, or that threaten our credibility with other investors and stakeholders. Investors, stakeholders, and other interested parties are also increasingly focusing on issues related to environmental justice. This may result in increased scrutiny, protests, and negative publicity with respect to our business and operations, and those of our counterparties, which could in turn result in the cancellation or delay of projects, the revocation or delay of permits, termination of contracts, lawsuits, regulatory action, and policy change that may adversely affect our business strategy, increase our costs, and adversely affect our reputation and financial performance.
Additionally, members of the investment community may screen companies such as ours for sustainabilityESG performance before investing in our stock.common stock or debt securities, or lending to us. Credit rating agencies are also increasingly using ESG as a factor in their assessments, which could impact our cost of capital or access to financing. There has also been an acceleration in investor demand for ESG investing opportunities, and many institutional investors have committed to increasing the percentage of their portfolios that are allocated towards ESG-focused investments. As a result, there has been a proliferation of ESG-focused investment funds and market participants seeking ESG-oriented investment products. There has also been an increase in third-party providers of company ESG ratings, and more ESG-focused voting policies among proxy advisory firms, portfolio managers, and institutional investors. Some investors and stakeholders are also increasingly focused on pursuing strategies centered on ESG-related activism.
If we are unable to meet the sustainabilityESG standards or investment, lending, ratings, or voting criteria and policies set by these investors,parties, we may lose investors, investors may allocate a portion of their capital away from us, we may become a target for ESG-focused activism, our stockcost of capital may increase, the price of our securities may be negatively impacted, and our reputation may also be negatively affected.
Severe weatherThe ongoing COVID-19 pandemic and the related events and circumstances have had, and may continue to have, an adverse effectnegative impacts 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, ourbusiness, financial condition, results of operations, and cash flowsliquidity and those of our customers, suppliers, and other counterparties.
At the onset of the COVID-19 pandemic in March 2020, governmental authorities around the world imposed restrictions, such as stay-at-home orders and other social distancing measures, to slow the spread of COVID-19. Many companies and individuals implemented similar efforts. These measures resulted in significant economic disruption globally as reduced economic activity negatively impacted many businesses, including ours.
During 2020, we experienced a decline in the demand for most of the liquid transportation fuels that we produce and sell, and thus also a decline in the market prices of those products, due to a decrease in the level of individual movement and travel resulting from the restrictions and general public health concerns. Some governmental authorities began lifting restrictions in the latter part of 2020 and this continued to varying degrees throughout 2021. These actions have contributed to increasing levels of individual movement and travel and a resulting increase in the demand for and market prices of our products. However, some governmental authorities continue to impose some level of restrictions due in part to new outbreaks, including those related to new variants of the virus (such as the delta and omicron variants). Additionally, the lingering effects of the COVID-19 pandemic and variants of the virus continue to negatively impact the level of air travel, global supply chains, and the labor market.
The distribution of vaccines beginning in late 2020 has helped decrease the rates and severity of infection and contributed to the lifting of many restrictions. The ongoing distribution of vaccines may result in the continued lifting of restrictions globally and may be seen as a key factor contributing to the ongoing restoration of public confidence, and thus also to stimulating and increasing global economic activity. However, the risk remains that vaccines may not be distributed widely on a timely basis, they may not be as effective against new variants of the virus, and/or the level of individuals’ willingness to receive a vaccine may not be as strong or as timely as needed. Additionally, some governmental authorities have announced requirements and mandates, including steep fines for noncompliance, on employers concerning workforce vaccination and testing. Many large companies across the world, independent of such government regulations, have also begun implementing vaccine requirements and mandates for their workforces, or as a prerequisite to providing customers certain goods and services in person. These requirements and mandates have evoked mixed reactions and have created additional challenges and costs, both administratively and operationally, for employers (including us and our counterparties) and their workforces. Developments with respect to such requirements and mandates are evolving at a rapid pace and the ultimate impact thereof remains uncertain. The ultimate outcome of the uncertainties and other unforeseen effects of the COVID-19 pandemic could be adversely affected.
The ultimate extent of the impact of the COVID-19 pandemic will depend largely on future developments, particularly within the geographic areas where we operate, and the related impact on overall economic activity, all of which are currently unknown and cannot be predicted with certainty at this time. However, the adverse impacts of the economic effects from the COVID-19 pandemic on our business have been and may continue to be significant.
The adverse effects of the COVID-19 pandemic on our business, financial condition, results of operations, and liquidity have also had, and may continue to have, the effect of heightening many of the other risks described in the other risk factors in this section. Such risk factors may be amended or supplemented by subsequent quarterly reports on Form 10-Q and other reports and documents we file with the SEC after the date of this annual report on Form 10-K.
Our operations depend on natural gas and electricity, and such dependency could materially adversely affect our business, financial condition, results of operations, and liquidity.
Our operations depend on the use of natural gas and electricity. We consume a significant volume of natural gas and a significant amount of electricity to operate our refineries and plants, and natural gas and
electricity prices represent a large cost to our operations. We also purchase other commodities whose price may vary depending on the price of natural gas or electricity. Prices for both natural gas and electricity can be volatile and therefore represent ongoing challenges to our operating results. Additionally, the availability of natural gas and electricity can be affected by weather (such as Winter Storm Uri in 2021), pipeline interruptions, grid outages, and logistics disruptions. As electrification continues to grow, or if there are increased restrictions or costs imposed on the ability of electric utilities to utilize certain energy sources, there will likely be increased strains on, and risk to the integrity and resilience of, electrical grids, and natural gas and electricity supplies around the world, which could negatively affect the cost, reliability, and availability of our natural gas and electricity supplies. Additionally, increased governmental regulations and public opposition to pipeline and electricity generation and transmission projects may result in the underinvestment in, or unavailability of, the logistics assets and infrastructure necessary to obtain natural gas feedstocks and electricity in a reliable and cost-efficient manner.
Although we actively manage these costs through contracting and hedging our exposure to price volatility when appropriate, and by pursuing projects that reduce our reliance on third parties and fortify the resilience of our assets, increases in prices for natural gas and electricity, or disruptions to sources of natural gas and electricity supply, could materially and adversely affect our business, financial condition, results of operations, and liquidity.
Disruption of our ability to obtain crude oil, waste and renewable feedstocks, corn, and other feedstocks could adversely affect our operationsoperations.
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A significant portion of our refining feedstock requirements is satisfied through supplies originating in the Middle East, Africa, Europe, 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 oilfeedstock 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. Our refineries and plants without access to waterborne deliveries or offtake must rely on rail, pipeline, or ground transportation and thus may be more susceptible to such risks. If we are unable to obtain adequate crude oil volumes or are able to obtain such volumes only at unfavorable prices, our business, financial condition, results of operations, and liquidity could be materially adversely affected, including from reduced sales volumes of refined petroleum products or reduced margins as a result of higher crude oil costs.
In addition, Additionally, the U.S. government can prevent or restrict us from doing business in or with other countries. For instance, U.S. sanctions with respect to Iran and Venezuela limit the ability of U.S. companies to engage in oil transactions involving these countries, and currently there is a possibility of increased sanctions against Russia as well as potential responsive countermeasures. These restrictions, and those of other governments, couldmay 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 willmay continue to do so in the future.
Any attemptAlthough Darling, the other joint venture member in DGD, supplies some of DGD’s feedstock at competitive pricing, DGD must still secure a significant amount of its feedstock requirements from other sources. Should Darling’s supply be disrupted or should supply from other sources become limited or only available at unfavorable terms, DGD could be required to develop alternate sources of supply, and it could be required to increase its utilization of feedstocks that produce lower margin products. To the extent the volume of renewable diesel produced by competitors begins to increase, the U.S. government to withdraw from or materially modify existing international trade agreementscompetition for feedstocks will likely increase, which could place downward pressure on the margins associated with the
products produced by DGD. Should DGD’s feedstock supply be disrupted, such an event could adversely affectimpact its and our business, financial condition, and results of operations.operations, and liquidity.
The current U.S. administration has questioned certain existing
Our Ethanol segment relies on corn sourced from local farmers and proposed trade agreements. For example,commercial elevators in the administration withdrewMid-Continent region of the U.S. As a result, the feedstock supply of our Ethanol segment is acutely exposed to the effects that weather and other environmental events occurring in that region can have on the amount or timing of crop production. Crop production can also be affected by governmental policies (such as farming subsidies) and by market factors (such as changes in fertilizer prices). Any reduction or delay in crop production from these or similar events could reduce and disrupt the Trans-Pacific Partnership. In addition, the administration has
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 affectotherwise increase our business. For example, the imposition of tariffs or other trade barriers with other countries could affect our abilitycosts to obtain, feedstocks for our Ethanol segment.
We are subject to risks arising from international sources, increase our costsoperations outside the U.S. and reduce the competitivenessgenerally to worldwide political and economic developments.
We operate and sell some of our products.
While there is currently a lackproducts outside of certainty around the likelihood, timing,U.S., particularly in Canada, Europe, Mexico, Peru, and detailsLatin American countries other than Mexico and Peru. Our business, financial condition, results of operations, and liquidity could be negatively impacted by disruptions in any of these markets, including due to expropriation or impoundment of assets, failure of foreign governments and state-owned entities to honor their contracts, property disputes, economic instability, restrictions on the transfer of funds, duties and tariffs, transportation delays, import and export controls, labor unrest, security issues involving key personnel and governmental decisions, investigations, regulations, issuances or revocations of permits and other authorizations, and changing regulatory and political environments. The occurrence of any such policiesevent could result in commercial restrictions, delay or cancellation of projects, increased costs, and reforms, ifotherwise reduce our profitability in the current U.S. administration takes actionand abroad.
We are also required to withdraw from,comply with U.S. and international laws and regulations. Actual or materially modify, existing international trade agreements,alleged violations of these laws could disrupt our business, cause us to incur significant legal expenses, and result in a material adverse effect on our business, financial condition, and results of operations, could be adversely affected.and liquidity.
We are subject to interruptions and increased costs as a result of our reliance on third-party transportation of crude oil and other feedstocks and the products that we manufacture.
We use the services of third parties to transport feedstocks to our facilitiesrefineries and plants 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, trucks, or railroads to transport feedstocks or products is disrupted because of weather events, cybersecurity incidents, accidents, derailment, collision, fire, explosion,derailments, collisions, fires, explosions, or governmental regulations, or third-party actions, it could have a material adverse effect on our business, financial position,condition, 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 crude oil feedstocks, own their own retail sites, have greater financial resources, or provide alternative energy sources may have a competitive advantageadvantage.
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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 sitesthird-party retail outlets 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.
Many of our competitors, however, obtain a significant portion of their feedstocks from company-owned production and some have extensive networks of retail sites. Such competitors are at times able to offset losses from refining operations with profits from producing or retailing operations, and they 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 may 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.
A significant interruption in one or more of our refineries or renewable diesel or ethanol plants could adversely affect our business.
Our refineries, renewable diesel plant, and ethanol plants are our principal operating assets. As a result, our operations could be subject to significant interruption if one or more of our refineries or plants were to experience a major accident or mechanical failure, be damaged by severe weather or natural disasters (such as hurricanes) or man-made disasters (such as cybersecurity incidents or acts of terrorism), or otherwise be forced to shut down. If any refinery or plant were to experience an interruption in operations, earnings from the refinery or plant could be materially adversely affected (to the extent not recoverable through insurance) because of lost production and repair costs. Significant interruptions in our refining, renewable diesel, or ethanol systems could also lead to increased volatility in prices for crude oil, waste and renewable feedstocks, corn, and many of our products.
Large capital projects can take many years to complete, and the political and regulatory environments or other market conditions may change or deteriorate over time, negatively impacting project returns.
We may engage in capital projects based on the forecasted project economics, political and regulatory environments, and the expected return on the capital to be employed in the project. Large-scale projects take many years to complete, during which time the political and regulatory environment or other market conditions may change from our forecast. As a result, we may not fully realize our expected returns, which could negatively impact our business, financial condition, results of operations, and liquidity.
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, legal, and business interests with other joint venture members. We also conduct some of our operations through entities in which we have no equity ownership interest, such as some of the consolidated variable interest entities (VIEs), as described in Note 13 of Notes to Consolidated Financial Statements. The other joint venture members and the third-party equity holders of the VIEs may have economic, business, or legal interests, opportunities, or goals that are inconsistent with or different from our opportunities, goals, and interests, or may have different liquidity needs or financial condition characteristics than our own, be subject to different legal or contractual obligations than we are, or be unable to meet their obligations. For instance, while we operate the DGD Plant and perform certain day-to-day operating and management functions for DGD as an independent contractor, we do not have full control of every aspect of DGD’s business and certain significant decisions concerning DGD, including, among others, the acquisition or disposition of assets above a certain value threshold, making certain changes to DGD’s business plan, raising debt or equity capital, DGD’s distribution policy, and entering into particular transactions, which also require certain approvals from Darling. Additionally, although we consolidate certain VIEs, we do not have full control of every aspect of these VIEs, or the actions taken by their third-party equity holders, some of which may affect our business, legal position, financial condition, results of operations, and liquidity. Failure by us, an entity in which we have a joint venture interest, or the VIEs to adequately manage the risks associated with such entities, and any differences in views among us and other joint venture members or the third-party equity holders in the VIEs, could
prevent or delay actions that are in the best interest of us, the joint venture, or the VIE, and could have a material adverse effect on our, or the applicable joint venture’s or VIE’s, financial condition, 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 such future regulation is applicable to us.
Legal, Governmental, and Regulatory Risks
Legal, regulatory, and political matters and developments regarding climate change, GHG or other air emissions, fuel efficiency, or the environment may decrease the demand for our petroleum-based products and could adversely affect our performance.
Many state, provincial, and national governments across the world have imposed, and may impose in the future, increases in fuel economy standards, low-carbon fuel standards, restrictions on vehicles using liquid fuel, and other policies or regulations (such as tariffs, tax incentives, or subsidies) aimed at steering the public towards less petroleum-dependent modes of transportation, which could reduce demand for our liquid fuels. For example, in September 2020, the governor of California issued an executive order seeking to require that sales of all new passenger vehicles be zero-emission by 2035 and medium to heavy-duty vehicles be zero-emission by 2045, where feasible. The executive order also requires state agencies to build out sufficient electric vehicle charging infrastructure. Other U.S. and governmental authorities across the world, such as the U.K. and Quebec, have also announced similar plans and/or restrictions with respect to the sale of new internal combustion-engine vehicles.
The U.S. federal government under the current presidential administration has also been aggressive in the scope, magnitude, and number of actions it has taken to regulate climate change, and steer the public towards less petroleum-dependent modes of transportation. For instance, shortly after taking office, the current administration issued a series of executive orders designed to address climate change, as well as an executive order requiring agencies to review environmental actions taken by the previous administration. Additionally, in April 2021, the EPA issued a notice of proposed rulemaking seeking to reinstate California’s prior authority to set vehicle GHG emissions standards, including standards that exceed or conflict with U.S. federal standards. In a parallel action finalized in December 2021, the National Highway Traffic Administration (NHTSA) withdrew its previous regulatory determination in the Safer Affordable Fuel-Efficient Vehicles Rule that California is preempted under the Energy Policy and Conservation Act from regulating fuel economy. Such authority could allow California to impose more stringent requirements on the use of our liquid fuels, such as EV mandates, and could potentially revive other states’ authority to adopt standards similar to California’s standards. If the California waiver is reinstated and California adopts GHG emissions standards different than U.S. federal standards, then, regardless of whether other U.S. states adopt similar standards, the size of the California auto market and the difficulty and expense of designing, manufacturing, and selling alternative vehicle fleets to comply with different standards, such California standards, could become the de facto national standard for vehicles sold for use in the U.S. Further, in August 2021, NHTSA released a new proposed rule that would increase the current corporate average fuel economy (CAFE) and carbon dioxide standards for certain passenger cars and light trucks under the previously adopted Safer Affordable Fuel-Efficient
Vehicles Rule. Higher CAFE standards and fuel efficiency standards may reduce demand for our petroleum-based products. In December 2021, the current U.S. presidential administration issued an executive order that directs the U.S. federal government to use its scale and procurement power to achieve a number of aspirational net-zero emissions goals, including, among others, 100 percent zero-emission vehicle acquisitions by 2035 and 100 percent zero-emission light-duty vehicle acquisitions by 2027. On December 30, 2021, the EPA finalized its “Revised 2023 and Later Model Year Light-Duty Vehicle Greenhouse Gas Emission Standards,” in which the EPA states that its final rule is projected to reduce gasoline consumption by more than 360 billion gallons by 2050, reaching a 15 percent reduction in annual U.S. gasoline consumption in 2050.
Moreover, in 2005, the Kyoto Protocol to the 1992 United Nations (U.N.) Framework Convention on Climate Change, which establishes a binding set of emission targets for GHGs, became binding on all countries that had ratified it. In 2015, the U.N. Climate Change Conference in Paris resulted in the creation of the Paris Agreement. The Paris Agreement requires countries to review and “represent a progression” in their nationally determined contributions, which set emissions reduction goals every five years beginning in 2020. The terms of the Paris Agreement and the executive orders discussed above are expected to result in additional regulations or changes to existing regulations, which could have a material adverse effect on our business in the U.S. and the U.K., and that of our customers. In addition, incentives to conserve energy or use alternative energy sources in many of the countries where we currently operate, or may operate in the future, could have a negative impact on our business across the world.
These and other legal, regulatory, political, and international accord matters and developments regarding climate change, GHG or other air emissions, fuel efficiency, or the environment, including executive orders that mandate or encourage the use of alternative energy sources or discourage or ban the use of internal combustion engines, may increase consumer preferences for, and adoption of, alternative fuel vehicles and decrease demand for our liquid fuels, although they may also increase demand for our low-carbon fuels. These legal, regulatory, and political developments, as well as other similarly focused laws and regulations, such as, among others, the California and Quebec cap-and-trade programs, the U.K. Emissions Trading Scheme, the U.K. Renewable Transport Fuel Obligation, and CARB’s Control Measure for Ocean-Going Vessels At Berth Rule, could also result in increased costs or capital expenditures to (i) operate and maintain our facilities, (ii) install new emission controls at our facilities, and (iii) administer and manage any emissions or blending programs, including acquiring emission credits, allowances, or allotments.
Many of these legal, regulatory, political, and international accord matters and developments are subject to considerable uncertainty due to a number of factors, including technological and economic feasibility, legal challenges, and potential changes in law, regulation, or policy, and it is not possible at this time to predict the ultimate effects of these matters and developments on us. However, a reduction in the demand for our products or an increase in costs or capital expenditures as a result of any of the foregoing events could materially and adversely affect our business, financial condition, results of operations, and liquidity.
Compliance with, or developments concerning, the Renewable and Low-Carbon Fuel Blending Programs, and other regulations, policies, and standards impacting the demand for low-carbon fuels could adversely affect our performance.
As described under “ITEMS 1. and 2. BUSINESS AND PROPERTIES—OUR COMPREHENSIVE LIQUID FUELS STRATEGY—Regulations, Policies, and Standards Driving Low-Carbon Fuel Demand,” governments across the world have issued, or are considering issuing, low-carbon fuel regulations, policies, and standards to help reduce GHG emissions and increase the percentage of low-
carbon fuels in the transportation fuel mix. We strategically market our low-carbon fuels based on regional policies, feedstock preferences, CI scores, and our ability to obtain fuel pathways. A significant portion of our low-carbon fuels are sold in California, Canada, and Europe.
Concerning the RFS, on December 7, 2021, the EPA released a proposed rule to retroactively revise the 2020 RVOs, set overdue RVOs for 2021 and 2022, and propose certain other changes to the RFS including, among others, changes to registration, reporting, recordkeeping, and other requirements. Separately, the EPA proposed to deny more than 60 small refinery exemption (SRE) petitions.
We are exposed to the volatility in the market price of RINs, LCFS credits, and other credits, as described in Note 21 of Notes to Consolidated Financial Statements. We cannot predict the future prices of RINs, LCFS credits, or other credits. Prices for RINs, LCFS credits, and other credits are dependent upon a variety of factors, including, as applicable, EPA regulations, regulations of other countries and jurisdictions, the availability of RINs, LCFS credits, and other credits for purchase, transportation fuel production levels, which can vary significantly each quarter, approved CI pathways, and CI scores. The ultimate outcome of the recently proposed RVOs, RFS changes, and SRE denials may also affect prices. If an insufficient number of RINs, LCFS credits, or other credits is available for purchase, if we have to pay significantly higher prices for them, or if we are otherwise unable to meet the EPA’s RFS mandates or our other obligations under the Renewable and Low-Carbon Fuel Blending Programs, our business, financial condition, results of operations, and liquidity could be adversely affected. Furthermore, to the extent fewer SRE waivers are granted in the future or RVO obligations are reallocated or increased, the demand for and the price of RINs may also increase, and our business, financial condition, results of operations, and liquidity could be adversely affected.
In addition to the RFS and LCFS, we operate in multiple jurisdictions that have issued, or are considering issuing, similar low-carbon fuel regulations, policies, and standards. The RFS, LCFS, and similar U.S. state and international low-carbon fuel regulations, policies, and standards are extremely complex, often have different or conflicting requirements or methodologies, and are frequently evolving, requiring us to periodically update our systems and controls to maintain compliance and monitoring, which could require significant expenditures, and presents an increased risk of administrative error. Our low-carbon fuels businesses could be materially and adversely affected if (i) these regulations, policies, and standards are adversely changed, not enforced, or discontinued, (ii) the benefits therefrom are reduced (such as the 45Q tax credit, the blender’s tax credit, and other incentives), (iii) any of the products we produce are deemed not to qualify for compliance therewith, or (iv) we are unable to satisfy or maintain any approved pathways. Such changes could also negatively impact the economic assumptions and projections with respect to many of our low-carbon projects and could have a material adverse impact on the timing of completion, project returns, and other outcomes with respect to such projects.
Compliance with and changes in environmental, health, and safety laws could adversely affect our performance.
Our operations are subject to extensive environmental, health, and safety laws and regulations, including those relating to the discharge of materials into the environment, waste management, pollution prevention measures, 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 refineries and plants, as well as at formerly owned properties or third-party sites where we have taken wastes for disposal or where our wastes may have migrated. The principal environmental risks associated with our operations are emissions into the air, handling of waste, and releases into the soil, surface water, or groundwater. 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, sanctioned, or enjoined.
Because environmental, health, and safety laws and regulations are becoming more stringent and new environmental, health, and safety laws and regulations are continuously being enacted or proposed, the level of expenditures required for environmental matters could increase in the future. Current and future legislative action and regulatory initiatives could result in increased difficulty in obtaining permits, changes to operating permits, material changes in operations, increased capital expenditures and operating costs, increased costs of the products 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 certain chemicals, or install pollution control equipment that could materially and adversely affect our business, financial condition, results of operations, and liquidity. We may also face liability for personal injury, property damage, natural resource damage, environmental justice impacts, or clean-up costs due to alleged contamination and/or exposure to chemicals or other regulated materials, such as various perfluorinated compounds, per- and polyfluoroalkyl substances, benzene, MTBE, and petroleum hydrocarbons, at or from our current and formerly owned facilities. Such liability or expenditures could materially and adversely affect our business, financial condition, results of operations, and liquidity.
Climate change and “greenwashing” litigation could adversely affect our performance.
We could face increased climate‐related litigation with respect to our operations, disclosures, or products. Governments and private parties across the world, such as California, Vermont, and New York in the U.S., and the Netherlands in Europe, have filed lawsuits or initiated regulatory action against energy companies. The lawsuits allege damages as a result of climate change, and the plaintiffs seek damages and/or abatement under various tort and other theories. Similar lawsuits may be filed in other jurisdictions. Additionally, governments and private parties are also increasingly filing lawsuits or initiating regulatory action based on allegations that certain public statements regarding ESG-related matters and practices by companies are false and misleading “greenwashing” that violate deceptive trade practices and consumer protection statutes. Similar issues can also arise relating to aspirational statements such as net-zero or carbon neutrality targets that are made without an adequate basis to support such statements. While we are currently not a party to any of these lawsuits, they present a high degree of uncertainty regarding the extent to which energy companies face an increased risk of liability stemming from climate change or ESG disclosures and practices.
Any attempt by the U.S. government to withdraw from, re-enter, or materially modify any existing international trade agreements, or enter into any new international trade agreements in the future, could adversely affect our business, financial condition, results of operations, and liquidity.
The previous U.S. presidential administration questioned certain existing and proposed trade agreements. For example, the administration withdrew the U.S. from the Trans-Pacific Partnership. In addition, the previous administration implemented and proposed various trade tariffs, which 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 international trade barriers could affect our ability to obtain feedstocks from international sources, increase our costs, and reduce the competitiveness of our products. Although there is currently uncertainty around the likelihood, timing, and details of many such actions, if the current U.S. administration takes
action to withdraw from, re-enter, or materially modify any existing international trade agreements, or to enter into any new international trade agreements in the future, our business, financial condition, results of operations, and liquidity could be adversely affected.
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 (VAT)), 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 authorities. Although we believe we have used reasonable interpretations and assumptions in calculating our tax liabilities, the final determination of these tax audits and any related proceedings cannot be predicted with certainty. Any adverse outcome of any of such tax audits or related proceedings could result in unforeseen tax-related liabilities that may, individually or in the aggregate, materially affect our cash tax liabilities, and, as a result, our business, financial condition, results of operations, and liquidity. Tax rates in the various jurisdictions in which we operate may change significantly as a result of political or economic factors beyond our control. It is also possible that future changes to tax laws (including tax treaties with any of the jurisdictions in which we operate) could impact our ability to realize the tax savings recorded to date. Additionally, our future effective tax rates could be adversely affected by changes in tax laws (including tax treaties) or their interpretations.
The phase-out or replacement of the London Interbank Offered Rate (LIBOR) with an alternative reference rate may adversely affect financial markets and the interest rates we pay on any floating-rate debt.
On March 5, 2021, the Financial Conduct Authority in the U.K. issued an announcement on the future cessation or loss of representativeness of LIBOR benchmark settings currently published by ICE Benchmark Administration. That announcement confirmed that LIBOR would either cease to be provided by any administrator or would no longer be representative after December 31, 2021 for all non-U.S. dollar LIBOR reference rates and for certain short-term U.S. dollar LIBOR reference rates, and after June 30, 2023 for other reference rates. In the future, we may need to renegotiate our financial agreements, including, but not limited to, our $4.0 billion revolving credit facility, or incur other indebtedness, and we may be required to select and use a replacement reference rate for such debt. Such replacement reference rate could include the secured overnight financing rate, also known as SOFR, published by the Federal Reserve Bank of New York. The phase-out of LIBOR or the use of any replacement reference rate may negatively impact the terms of, and our ability to refinance, such indebtedness and could also adversely affect the interest rate payable on, and the liquidity and value of, such indebtedness. In addition, the overall financial market and the ability to raise future indebtedness in a cost-effective manner may be disrupted as a result of the phase-out or replacement of LIBOR. Disruption in the financial market could have an adverse effect on our business, financial condition, results of operations, and liquidity.
Cyber Security and Privacy Related Risks
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, including ransomware attacks, 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, the price of our common stock or debt securities, and long-term stockholder value. A breach could also originate from or compromise our customers’, vendors’, or other third-party networks outside of our control that could impact our business and operations, as occurred with the Colonial Pipeline cybersecurity incident in May 2021. A breach may also result in legal claims or proceedings against us by our stockholders, employees, customers, vendors, and governmental authorities (U.S. and international). There can be no assurance that our infrastructure protection technologies and disaster recovery plans can prevent technology systems breaches, cyber and ransomware attacks, or systems failures, any of which could have a material adverse effect on our business, financial condition, results of operations, and liquidity. Furthermore, the continuing and evolving threat of cybersecurity incidents has resulted in increased regulatory focus on prevention, such as the directive issued by the U.S. Transportation Security Administration following the Colonial Pipeline cybersecurity incident. To the extent we experience increased regulatory requirements, we may be required to expend significant additional resources to comply therewith or incur fines for noncompliance.
Increasing regulatory focus on data privacy and security issues and expanding or changing 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 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, provincial, and local levels in many areas of our business, including data privacy and security laws such as the California Consumer Privacy Act (CCPA), the U.K. General Data Protection Regulation (GDPR), and Quebec’s recently enacted Bill 64 (Bill 64), which amends the province’s main statute regulating the collection of information.
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 incidents, and may apply to activities regarding personal information that is collected by us, directly or indirectly, from California residents. The recently adopted California Privacy Rights Act also expands the compliance requirements of, and authority to enforce, the CCPA. As the interpretation and enforcement of the CCPA continues to evolve, there may be a range of new compliance obligations and scrutiny, with the possibility for significant financial penalties for noncompliance that may materially adversely affect our business, financial condition, results of operations, and liquidity.
The GDPR applies to activities related to personal data that may be conducted by us, directly or indirectly through vendors and subcontractors, from an establishment in the U.K. The future of the GDPR remains in flux for political reasons. As interpretations and enforcement of the GDPR evolve, they could create a range of new compliance obligations, which could cause us to incur additional costs. Those costs could become even more severe if interpretations or enforcement of the GDPR deviate in the future. In both cases, 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, financial condition, results of operations, and liquidity. Our business and operations may also be impacted if the U.K. Parliament approves new standard contractual clauses (SCCs) for the international transfer of personal data outside of
the U.K. If adopted on March 21, 2022, the new SCCs may apply to our existing contracts involving the international transfer of personal data that is restricted under the GDPR, requiring us to renegotiate any nonconforming contracts by September 21, 2022, which could be expensive and could divert senior management’s attention from our business.
Bill 64, which was adopted in September 2021, is intended to modify the obligations of public bodies and private sector enterprises by modernizing the framework applicable to the protection of personal information. Most provisions of Bill 64 will take effect over the course of the next three years, with some provisions taking effect in September 2022. Bill 64 largely focuses on increasing the number of individual privacy rights and imposes a range of compliance and procedural obligations, with the possibility for significant penalties and private rights of action for noncompliance that may materially adversely affect our business, financial condition, results of operations, and liquidity.
The CCPA, the GDPR, and Bill 64, as well as other data privacy laws that may become applicable to us, pose increasingly complex compliance challenges, as well as monitoring and control obligations, that could raise our costs, and place increased demand on company resources. 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. Further, if we acquire a company that has violated or is not in compliance with these laws and regulations, we may incur significant liabilities and penalties as a result.
General Risk Factors
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.counterparties.
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 ratingsrating 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 business, financial position,condition, 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 intended 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 business, financial position,condition, results of operations, and liquidity.
A significant interruption in oneSevere weather events, such as storms, hurricanes, droughts, or more of our refineriesfloods, could adversely affect our business.
Our refineries are our principal operating assets. As a result,have an adverse effect on 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 inour costs. For instance, severe weather events can have an impact on crops production and reduce the financial and insurance markets, making it more difficult for us to access capital andsupply of, or increase our costs to obtain, insurance coverage that we consider adequate.
A significant interruption related tofeedstocks for our information technology systems could adversely affect our business.
Our information technology systemsEthanol and network infrastructure may be subject to unauthorized access or attack, which couldRenewable Diesel segments. If climate changes result in (i) a loss of intellectual property, proprietary information,more intense or employee, customer or vendor data; (ii) public disclosure of sensitive information; (iii) increased costs to prevent, respond to, or mitigate cybersecurityfrequent severe weather events, such as deploying additional personnelthe physical 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, whichdisruptive effects 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 restrictionsimpact on our operations that could significantly and adversely affect our business.assets.
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
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
Certain employees at somefive of our U.S. refineries, as well as at each of our Canadian and U.K. refineries, are covered by collective bargaining or similar agreements.agreements, which generally have unique and independent expiration dates. 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 at our facilities or at facilities owned or operated by third parties that support our operations could have an adverse effect on our business, financial condition, or results of operations.operations, and liquidity. In addition, future U.S. federal, state, or foreigninternational 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 oneto obtain or more insurers to honor itsmaintain adequate insurance coverage commitments for an insured event could materially and adversely affect our business, financial position,condition, results of operations, and liquidityliquidity.
.
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 desireneed, or at reasonableacceptable 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 loss or liability for which we wereare not fully insured, it could have a material adverse effect on our business, financial position,condition, 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 makeprovide no assurancesassurance 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.31
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.
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
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,condition, results of operations, orand liquidity. We are reporting these proceedings to comply with SEC regulations, which require us to disclose certain information about proceedings arising under U.S. federal, state, or local provisions regulating the discharge of materials into the environment or protecting the environment if we reasonably believe that such proceedings willhave the potential to result in monetary sanctions of $100,000$300,000 or more.
U.S.
EPA (Fuels)(Benicia Refinery). In our annual report on Form 10-K for the year ended December 31, 2018,2020, we reported that wethe EPA had an outstandingissued a Notice of Violation (NOV) from the U.S. EPAPotential Violations and Opportunity to Confer related to violations from a 2015 Mobile Source Inspection. Inseries of inspections conducted by the fourth quarterEPA in 2019 arising out of a 2019 we received a draft Consent Order from the U.S. EPA proposing penalties of $3.4 million.emissions event. 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 atrelated to the Valero Corpus Christi Asphalt Plant. The draft Agreed Final Judgment assesses proposed penalties in the amount of $1.3 million. We are workinghave reached a final agreement with the Texas AG to resolve this matter.resolving the matter upon entry of the Agreed Final Judgment with the court.
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(Benicia Refinery). In our quarterly report on Form 10-Q for the quarter ended March 31, 2019,September 30, 2021, we reported that we had received multiple VNs issued bya Violation Notice from the BAAQMD related to an upset of the Flue Gas Scrubber (FGS)atmospheric emissions at our Benicia Refinery, and a draft Consent from Solano County relatedRefinery. We are working with the BAAQMD to the FGS incident proposing penalties of $242,840.resolve this matter.
Texas Commission on Environmental Quality (TCEQ) (Corpus Christi East Refinery). In our quarterly report on Form 10-Q for the quarter ended September 30, 2019,2021, we reported that we had resolved the matter with Solano County. We continue to work with the BAAQMD onreceived a final resolutionNotice 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 NOEEnforcement 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.relating to Title V permit deviations at our Corpus Christi East Refinery. We are working with the TCEQ to resolve this matter.
ITEM 4. MINE SAFETY DISCLOSURES
None.
PART II
ITEM 5. MARKET FOR REGISTRANT’SREGISTRANT’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, 2020,2022, there were 5,0824,813 holders of record of our common stock.
Dividends are considered quarterly by the board of directors,Board, may be paid only when approved by the board,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 in the future 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 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | | Total Number
of Shares
Purchased | | Average
Price Paid
per Share | | 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) |
| October 2021 | | 3,083 | | | $ | 80.40 | | | 3,083 | | | — | | | $1.4 billion |
| November 2021 | | 147,445 | | | $ | 76.04 | | | 147,445 | | | — | | | $1.4 billion |
| December 2021 | | 7,928 | | | $ | 69.68 | | | 7,928 | | | — | | | $1.4 billion |
| Total | | 158,456 | | | $ | 75.81 | | | 158,456 | | | — | | | $1.4 billion |
________________________
(a)2019.The shares reported in this column represent purchases settled in the fourth quarter of 2021 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.
(b)On January 23, 2018, we announced that our Board 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, 2021, we had $1.4 billion remaining available for purchase under the 2018 Program. We have not purchased any shares of our common stock under the 2018 Program since mid-March 2020, and we will evaluate the timing of repurchases when appropriate. We have no obligation to make purchases under the 2018 Program.
|
| | | | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | 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) |
| October 2019 | | 332,704 |
| | $ | 88.06 |
| | 98,396 |
| | 234,308 |
| | $1.6 billion |
| November 2019 | | 1,565,500 |
| | $ | 99.21 |
| | 107,914 |
| | 1,457,586 |
| | $1.5 billion |
| December 2019 | | 393,694 |
| | $ | 94.61 |
| | 6,984 |
| | 386,710 |
| | $1.5 billion |
| Total | | 2,291,898 |
| | $ | 96.80 |
| | 213,294 |
| | 2,078,604 |
| | $1.5 billion |
| |
(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.
|
| |
(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. |
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’sour 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)3 on an investment in our common stock against the cumulative total return of the S&P 500 Composite Index and an index of peer companiespeers (that we selected) for the five-year period commencing December 31, 20142016 and ending December 31, 2019.2021. Our selected peer group comprises the following eight companies: BP plc;ten members: ConocoPhillips; CVR Energy, Inc.; Delek US Holdings, Inc.; the Energy Select Sector SPDR Fund; EOG Resources, Inc.; HollyFrontier Corporation; Marathon Petroleum Corporation; Occidental Petroleum Corporation; PBF Energy Inc.; and Phillips 66;66. The Energy Select Sector SPDR Fund (XLE) serves as a proxy for stock price performance of the energy sector and Royal Dutch Shell plc.includes energy companies with which we compete for capital. We believe that our peer group represents a group of companies for making head-to-head performance comparisons in a competitive operating environment that is primarily characterized by U.S.-based companies that have business models predominantly consisting of downstream refining operations, together with similarly sized energy companies that share operating similarities to us, and that are in adjacent segments of the oil and gas industry.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN(a)3
Among Valero, Energy Corporation, the S&P 500 Index,
and Peer Group
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, |
| 2016 | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 |
| Valero common stock | $ | 100.00 | | | $ | 139.98 | | | $ | 117.98 | | | $ | 153.80 | | | $ | 99.04 | | | $ | 138.98 | |
| S&P 500 index | 100.00 | | | 121.83 | | | 116.49 | | | 153.17 | | | 181.35 | | | 233.41 | |
| Peer Group | 100.00 | | | 114.94 | | | 107.11 | | | 110.73 | | | 68.00 | | | 110.49 | |
3 Assumes that an investment in Valero common stock, the S&P 500 index, and our peer group was $100 on December 31, 2016. Cumulative total return is based on share price appreciation plus reinvestment of dividends from December 31, 2016 through December 31, 2021.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, |
| | 2014 | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 |
| Valero Common Stock | $ | 100.00 |
| | $ | 146.79 |
| | $ | 147.94 |
| | $ | 207.10 |
| | $ | 174.54 |
| | $ | 227.53 |
|
| S&P 500 | 100.00 |
| | 101.38 |
| | 113.51 |
| | 138.29 |
| | 132.23 |
| | 173.86 |
|
| Peer Group | 100.00 |
| | 88.46 |
| | 106.16 |
| | 134.53 |
| | 125.35 |
| | 137.49 |
|
| |
(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 reinvestment of dividends from December 31, 2014 through December 31, 2019. |
ITEM 6. SELECTED[RESERVED]
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL DATA
The selected financial data for the five-year period ended
December 31, 2019 was derived from our audited financial statements.
The following tablediscussion and analysis is management’s perspective of our current financial condition and results of operations, and should be read togetherin conjunction with Item 7, “MANAGEMENT’S“ITEM 1A. RISK FACTORS” and “ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” included in this report. This discussion and analysis includes the years ended December 31, 2021 and 2020 and comparisons between such years. The discussions for the year ended December 31, 2019 and comparisons between the years ended December 31, 2020 and 2019 have been omitted from this annual report on Form 10-K for the year ended December 31, 2021, as such information can be found in “ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” and within our annual report on Form 10-K for the historical financial statements and accompanying notes included in Item 8, “FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.”year ended December 31, 2020, which was filed on February 23, 2021.
The following summaries are in millions of dollars, except for per share amounts:
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 (a) | | 2016 (b) | | 2015 (c) |
| Revenues | $ | 108,324 |
| | $ | 117,033 |
| | $ | 93,980 |
| | $ | 75,659 |
| | $ | 87,804 |
|
| Net income | 2,784 |
| | 3,353 |
| | 4,156 |
| | 2,417 |
| | 4,101 |
|
Earnings per common share – assuming dilution | 5.84 |
| | 7.29 |
| | 9.16 |
| | 4.94 |
| | 7.99 |
|
| Dividends per common share | 3.60 |
| | 3.20 |
| | 2.80 |
| | 2.40 |
| | 1.70 |
|
| Total assets | 53,864 |
| | 50,155 |
| | 50,158 |
| | 46,173 |
| | 44,227 |
|
Debt and finance lease obligations, less current portion | 9,178 |
| | 8,871 |
| | 8,750 |
| | 7,886 |
| | 7,208 |
|
| |
(a) | 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 $747 million. |
| |
(c) | 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. |
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,” “may,“strive,” “seek,” “potential,” “opportunity,” “aimed,” “considering,” “continue,” and similar expressions.
These forward-looking statements include, among other things, statements regarding:
•the effect, impact, potential duration or timing, or other implications of the COVID-19 pandemic, government restrictions, requirements, or mandates in response thereto, variants of the COVID-19 virus, vaccine distribution and administration levels, economic activity, and global crude oil production levels, and any expectations we may have with respect thereto, including with respect to our responses thereto, our operations and the production levels of our assets;
•future refiningRefining segment margins, including gasoline and distillate margins;margins, and discounts;
•future ethanolRenewable Diesel segment margins;
•future renewable dieselEthanol segment margins;
•expectations regarding feedstock costs, including crude oil differentials, product prices for each of our segments, and operating expenses;
•anticipated levels of crude oil and refined petroleum product inventories;liquid transportation fuel inventories and storage capacity;
•expectations regarding the levels of, and timing with respect to, the production and operations at our existing refineries and plants and projects under construction;
•our anticipated level of capital investments, including deferred turnaround and catalyst cost expenditures, our expected allocation between, and/or within, growth capital expenditures and sustaining capital expenditures, capital expenditures for environmental and other purposes, and joint venture investments, the expected timing applicable to such capital investments and any related projects, and the effect of those capital investments on our business, financial condition, results of operations;operations, and liquidity;
•our anticipated level of cash distributions or contributions, such as our dividend payment rate and contributions to our qualified pension plans and other postretirement benefit plans;
•our ability to meet future cash requirements, whether from funds generated from our operations or our ability to access financial markets effectively, and our ability to maintain sufficient liquidity;
•our evaluation of, and expectations regarding, any future activity under our share repurchase program or transactions involving our debt securities;
•anticipated trends in the supply of, and demand for, crude oil and other feedstocks and refined petroleum products, renewable diesel, and ethanol and corn related co-products in the regions where we operate, as well as globally;
•expectations regarding environmental, tax, and other regulatory initiatives;matters, including the anticipated amounts and timing of payment with respect to our deferred tax liabilities, matters impacting our ability to repatriate cash held by our foreign subsidiaries, and the anticipated effect thereof on our business, financial condition, results of operations, and liquidity;
•the effect of general economic and other conditions on refining, ethanol, and renewable diesel, and ethanol industry fundamentals.fundamentals;
•expectations regarding our risk management activities, including the anticipated effects of our hedge transactions;
•expectations regarding our counterparties, including our ability to pass on increased compliance costs and timely collect receivables, and the credit risk within our accounts receivable or accounts payable;
•expectations regarding adoptions of new, or changes to existing, low-carbon fuel standards or policies, blending and tax credits, or efficiency standards that impact demand for renewable fuels; and
•expectations regarding our publicly announced GHG emissions reduction/offset targets and our current and any future carbon transition projects.
We based our forward-looking statements on our current expectations, estimates, and projections about ourselves, our industry, and our industry.the global economy and financial markets generally. We caution that these statements are not guarantees of future performance or results and involve known and unknown risks and uncertainties, and assumptions thatthe ultimate outcomes of which we cannot predict.predict with certainty. In addition, we based many of these forward-looking statements on assumptions about future events, thatthe ultimate outcomes of which we cannot predict with certainty and which may prove to be inaccurate. Accordingly, our actual performance or results may differ materially from the future performance or results that we have expressed, suggested, or forecast in the forward-looking statements. Differences between actual performance or results and any future performance or results expressed, suggested, or forecast 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), renewable diesel, and ethanol and renewable diesel;corn related co-products;
•demand for, and supplies of, crude oil and other feedstocks;
•acts of terrorism aimed at either our refineries and plants or third-party facilities that could impair our ability to produce or transport refined petroleum products, renewable diesel, ethanol, or corn related co-products, to receive feedstocks, or otherwise operate efficiently;
•political and economic conditions in nations that produce crude oil or other feedstocks or consume refined petroleum products, renewable diesel, ethanol or corn related co-products;
•the ability of the members of the Organization of Petroleum Exporting CountriesOPEC to agree on and to maintain crude oil price and production controls;
•the level of consumer demand, consumption and overall economic activity, including seasonal fluctuations;
•refinery, renewable diesel plant, or ethanol plant overcapacity or undercapacity;
our ability to successfully integrate•the risk that any acquired businesses into our operations;divestitures may not provide the anticipated benefits or may result in unforeseen detriments;
•the actions taken by competitors, including both pricing and adjustments to refining capacity or renewable fuels production in response to market conditions;
•the level of competitors’ imports into markets that we supply;
•accidents, unscheduled shutdowns, weather events, civil unrest, expropriation of assets, and other economic, diplomatic, legislative, or political events or developments, terrorism, cyberattacks, or other catastrophes or disruptions affecting our refineries,operations, production facilities, machinery, pipelines and other logistics assets, equipment, andor information systems, or thoseany of the foregoing of our suppliers, customers, or customers;third-party service providers;
•changes in the cost or availability of transportation or storage capacity for feedstocks and our products;
•political pressure and influence of environmental groups and other stakeholders upon policies and decisions related to the production, transportation, storage, refining, processing, marketing, and sales of crude oil or other feedstocks, refined petroleum products;products, renewable diesel, ethanol, or corn related co-products;
•the price, availability, technology related to, and acceptance of alternative fuels and alternative-fuel vehicles;vehicles, as well as sentiment and perceptions with respect to GHG emissions more generally;
•the levels of government subsidies for, and executive orders, mandates, or other policies with respect to, alternative fuels;fuels, alternative-fuel vehicles, and other low-carbon technologies or initiatives, including those related to carbon capture, carbon sequestration, and low-carbon fuels, or affecting the price of natural gas and/or electricity;
•the volatility in the market price of biofuelcompliance credits (primarily RINs needed to comply with the RFS) and GHG emission credits needed to comply withunder the requirements of various GHG emissionother environmental emissions 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 irregularother weather events, which can unforeseeably affect the price or availability of electricity, natural gas, crude oil, grainwaste and renewable feedstocks, corn, and other feedstocks, critical supplies, refined petroleum products, ethanol,renewable diesel, and renewable diesel;ethanol;
•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, includingsuch as tariffs, and tax and environmental regulations, such as thosechanges to income tax rates, introduction of a global minimum tax, tax changes or restrictions impacting the foreign repatriation of cash, actions implemented under the California cap-and-trade systemRenewable and similar programs,Low-Carbon Fuel
Blending Programs and the U.S.other environmental emissions programs, including changes to volume requirements or other obligations or exemptions under the RFS, and actions arising from the EPA’s regulationor other governmental agencies’ regulations, policies, or initiatives concerning GHGs, including mandates for or bans of GHGs,specific technology, which may adversely affect our business or operations;
•changing economic, regulatory, and political environments and related events in the various countries in which we operate or otherwise do business, including expropriation or impoundment of assets, failure of foreign governments and state-owned entities to honor their contracts, property disputes, and decisions, investigations, regulations, issuances or revocations of permits and other authorizations, and other actions, policies and initiatives by the states, counties, cities, and other jurisdictions in the countries in which we operate or otherwise do business;
•changes in the credit ratings assigned to our debt securities and trade credit;
•the operating, financing, and distribution decisions of our joint ventures or other joint venture members that we do not control;
•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;
•the adequacy of capital resources and liquidity, including availability, timing, and amounts of cash flow or our ability to borrow or access financial markets;
•the costs, disruption, and diversion of resources associated with campaigns and negative publicity commenced by investors, stakeholders, or other interested parties;
•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“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 expressed, suggested, or forecast in any forward-looking statements. WeSuch forward-looking statements speak only as of the date of this annual report on Form 10-K and we do not intend to update these statements unless we are required by theapplicable 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.foregoing, as it may be updated or modified by our future filings with the SEC. 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.events unless we are required by applicable securities laws to do so.
NON-GAAP FINANCIAL MEASURES
The discussions in “OVERVIEW AND OUTLOOK” andOUTLOOK,” “RESULTS OF OPERATIONS”OPERATIONS,” and “LIQUIDITY AND CAPITAL RESOURCES” 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 (loss) (including adjusted operating income (loss) for each of our reportable segments)segments, as applicable); Refining, Renewable Diesel, and refining, ethanol,Ethanol segment margin; and renewable diesel segment margin.capital investments attributable to Valero. We have included these non-GAAP financial measures to help facilitate the comparison of operating results between years.years, to help assess our cash flows, and because we believe they provide useful information as discussed further below. See the tables in note (f)(e) beginning on page 3951 for reconciliations of these non-GAAP financial measuresadjusted operating income (loss) (including adjusted operating
income (loss) for each of our reportable segments, as applicable) and Refining, Renewable Diesel, and Ethanol segment margin to their most directly comparable U.S. GAAP financial measures. Also in note (f)(e), we disclose the reasons why we believe our use of thesuch non-GAAP financial measures provides useful information. See the table on page 60 for a reconciliation of capital investments attributable to Valero to its most directly comparable GAAP financial measure. On page 59, we disclose the reasons why we believe our use of this non-GAAP financial measure provides useful information.
IMPACT OF THE COVID-19 PANDEMIC TO OUR BUSINESS
The COVID-19 pandemic has negatively impacted our business. Although we experienced improvements in our business in 2021 compared to the significant negative effects from the pandemic in 2020, the long-term implications of the pandemic on our results of operations and financial position remain uncertain. Information about the uncertainties of the COVID-19 pandemic on our business is discussed in ITEM 1A. RISK FACTORS—The ongoing COVID-19 pandemic and the related events and circumstances have had, and may continue to have, negative impacts on our business, financial condition, results of operations, and liquidity and those of our customers, suppliers, and other counterparties.” and Note 2 of Notes to Consolidated Financial Statements.
OVERVIEW AND OUTLOOK
Overview
Business Operations Update
Our business continued to recover throughout 2021 after experiencing significant negative effects from a decrease in demand and market prices for most of our products in 2020 as a result of the COVID-19 pandemic. The outbreak of COVID-19 and its development into a pandemic in March 2020 disrupted the global economy and significantly reduced the demand and market prices for most of our products, primarily gasoline and diesel. However, by mid-2020, we began experiencing increased demand and higher market prices for most of our products, and these improvements continued throughout 2021 along with the ongoing recovery of the global economy as worldwide efforts to address the virus progressed, including the development and distribution of multiple COVID-19 vaccines and therapeutics. Gasoline and diesel demand returned to pre-pandemic levels during 2021 in most of the regions where we operate, and at times during 2021, we experienced demand for diesel in excess of pre-pandemic levels. Jet fuel demand also improved in 2021, although at a slower pace than other products we produce relative to pre-pandemic levels. These improvements in demand and an associated increase in refining margins were primary contributors to us reporting $930 million of net income attributable to Valero stockholders for the year ended December 31, 2021. Our operating results for 2021, including operating results by segment, are described in the following summary, and detailed descriptions can be found below under “RESULTS OF OPERATIONS.”
Our improved 2021 results, however, were negatively impacted by estimated excess energy costs of $579 million ($467 million after taxes) as a result of a significant increase in the cost of electricity and natural gas at certain of our refineries and ethanol plants arising out of Winter Storm Uri in February 2021. In addition, our operations were negatively impacted by Hurricane Ida in August 2021, which caused us to shut down two refineries and our renewable diesel plant in Louisiana in preparation for the storm. Although the refineries and the plant sustained minimal damage from the hurricane, we were delayed from restarting operations until electrical supply and other utilities were restored and from shipping product to our customers until the Mississippi River was reopened to ship and barge traffic.
As a result of our improved business and overall market conditions, our operations generated $5.9 billion of cash in 2021, which included the receipt of our 2020 U.S. federal income tax refund of $962 million in May 2021. This cash was used to make $2.5 billion of capital investments in our business and return $1.6 billion to our stockholders through dividend payments. In addition, we reduced our long-term debt by $1.3 billion in 2021 through a series of debt reduction and refinancing transactions, as described in Note 10 of Notes to Consolidated Financial Statements. As a result of this and other activity, our cash and cash equivalents increased by $809 million during 2021, from $3.3 billion as of December 31, 2020 to $4.1 billion as of December 31, 2021. We had $9.3 billion in liquidity as of December 31, 2021. The components of our liquidity and descriptions of our cash flows, capital investments, and other matters impacting our liquidity and capital resources, can be found below under “LIQUIDITY AND CAPITAL RESOURCES.”
Results for the Year Ended December 31, 2021
For 2019,2021, we reported net income attributable to Valero stockholders of $930 million compared to a net loss attributable to Valero stockholders of $1.4 billion for 2020. The increase 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 iswas 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 inhigher operating income between the periods, net of the resulting $177 million decrease in$3.7 billion, partially offset by higher income tax expense.
Whileexpense of $1.2 billion. The details of our operating income decreased by $736 million in 2019 compared to 2018,(loss) and adjusted operating income decreased(loss) by $1.0 billion.segment and in total are reflected below. Adjusted operating income (loss) excludes the adjustments reflected in the tabletables in note (f)(e) on page 42.51.
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | Change |
| Refining segment: | | | | | |
| Operating income (loss) | $ | 1,862 | | | $ | (1,342) | | | $ | 3,204 | |
| Adjusted operating income (loss) | 1,945 | | | (1,105) | | | 3,050 | |
| Renewable Diesel segment: | | | | | |
| Operating income | 709 | | | 638 | | | 71 | |
| Adjusted operating income | 712 | | | 638 | | | 74 | |
| Ethanol segment: | | | | | |
| Operating income (loss) | 473 | | | (69) | | | 542 | |
| Adjusted operating income (loss) | 522 | | | (36) | | | 558 | |
| Total company: | | | | | |
| Operating income (loss) | 2,130 | | | (1,579) | | | 3,709 | |
| Adjusted operating income (loss) | 2,265 | | | (1,309) | | | 3,574 | |
The $1.0While our operating income increased by $3.7 billion decrease in 2021 compared to 2020, adjusted operating income isincreased by $3.6 billion 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.
|
•Renewable Diesel segment. Renewable Diesel segment adjusted operating income increased by $74 million primarily due to higher renewable diesel prices and higher sales volumes, partially offset by higher feedstock costs, an unfavorable impact from commodity derivative instruments associated with our price risk management activities, and higher operating expenses (excluding depreciation and amortization expense).
Outlook
Below areAs previously discussed, many uncertainties remain with respect to the COVID-19 pandemic, and while it is difficult to predict the ultimate economic impacts that the pandemic will have on us and how quickly we can (or ultimately will) fully recover once the pandemic subsides, we have noted several factors below that have impacted or may impact our results of operations during the first quarter of 2020:2022.
Distillate
•Gasoline and diesel demand has returned to pre-pandemic levels and is expected to follow typical seasonal patterns. Jet fuel demand continues to improve slowly but remains below pre-pandemic levels.
•Sour crude oil discounts are expected to continue to improve as OPEC increases its production of sour crude oils in response to anticipated continued growth in global crude oil demand.
•Renewable diesel margins are expected to begin improving duemoderate from the levels achieved in 2021. Following the start-up of the expansion of the DGD Plant in the fourth quarter of 2021, renewable diesel production capacity increased by 410 million gallons per year, from 290 million gallons 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.700 million gallons per year.
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 from the record high levels achieved in 2021 as domesticethanol inventory levels rise.rise throughout the U.S. market.
Renewable diesel segment margins are expected to remain near current levels.
41
| |
• | 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.
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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,(e), highlight our results of operations, our operating performance, and market reference prices that directly impact our operations. Note references in this section can be found on pages 50 through 53.
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.
2019 Compared to 2018
Financial Highlights by Segment and Total Company
(millions of dollars)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| Refining | | Renewable
Diesel | | Ethanol | | Corporate
and
Eliminations | | Total |
| Revenues: | | | | | | | | | |
| Revenues from external customers | $ | 106,947 | | | $ | 1,874 | | | $ | 5,156 | | | $ | — | | | $ | 113,977 | |
| Intersegment revenues | 14 | | | 468 | | | 433 | | | (915) | | | — | |
| Total revenues | 106,961 | | | 2,342 | | | 5,589 | | | (915) | | | 113,977 | |
| Cost of sales: | | | | | | | | | |
| Cost of materials and other (a) | 97,759 | | | 1,438 | | | 4,428 | | | (911) | | | 102,714 | |
| | | | | | | | | |
Operating expenses (excluding depreciation and amortization expense reflected below) (a) | 5,088 | | | 134 | | | 556 | | | (2) | | | 5,776 | |
| Depreciation and amortization expense | 2,169 | | | 58 | | | 131 | | | — | | | 2,358 | |
| Total cost of sales | 105,016 | | | 1,630 | | | 5,115 | | | (913) | | | 110,848 | |
| Other operating expenses | 83 | | | 3 | | | 1 | | | — | | | 87 | |
General and administrative expenses (excluding depreciation and amortization expense reflected below) | — | | | — | | | — | | | 865 | | | 865 | |
| Depreciation and amortization expense | — | | | — | | | — | | | 47 | | | 47 | |
| | | | | | | | | |
| Operating income by segment | $ | 1,862 | | | $ | 709 | | | $ | 473 | | | $ | (914) | | | 2,130 | |
| Other income, net (c) | | | | | | | | | 16 | |
Interest and debt expense, net of capitalized interest | | | | | | | | | (603) | |
| Income before income tax expense | | | | | | | | | 1,543 | |
| Income tax expense (d) | | | | | | | | | 255 | |
| Net income | | | | | | | | | 1,288 | |
Less: Net income attributable to noncontrolling interests | | | | | | | | | 358 | |
Net income attributable to Valero Energy Corporation stockholders | | | | | | | | | $ | 930 | |
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2019 |
| | Refining | | Ethanol | | Renewable Diesel | | Corporate
and
Eliminations | | Total |
| Revenues: | | | | | | | | | |
| Revenues from external customers | $ | 103,746 |
| | $ | 3,606 |
| | $ | 970 |
| | $ | 2 |
| | $ | 108,324 |
|
| Intersegment revenues | 18 |
| | 231 |
| | 247 |
| | (496 | ) | | — |
|
| Total revenues | 103,764 |
| | 3,837 |
| | 1,217 |
| | (494 | ) | | 108,324 |
|
| Cost of sales: | | | | | | | | | |
| Cost of materials and other (a) | 93,371 |
| | 3,239 |
| | 360 |
| | (494 | ) | | 96,476 |
|
Operating expenses (excluding depreciation and amortization expense reflected below) | 4,289 |
| | 504 |
| | 75 |
| | — |
| | 4,868 |
|
| Depreciation and amortization expense | 2,062 |
| | 90 |
| | 50 |
| | — |
| | 2,202 |
|
| Total cost of sales | 99,722 |
| | 3,833 |
| | 485 |
| | (494 | ) | | 103,546 |
|
| Other operating expenses (b) | 20 |
| | 1 |
| | — |
| | — |
| | 21 |
|
General and administrative expenses (excluding depreciation and amortization expense reflected below) | — |
| | — |
| | — |
| | 868 |
| | 868 |
|
| Depreciation and amortization expense | — |
| | — |
| | — |
| | 53 |
| | 53 |
|
| Operating income by segment | $ | 4,022 |
| | $ | 3 |
| | $ | 732 |
| | $ | (921 | ) | | 3,836 |
|
| Other income, net (d) | | | | | | | | | 104 |
|
Interest and debt expense, net of capitalized interest | | | | | | | | | (454 | ) |
| Income before income tax expense | | | | | | | | | 3,486 |
|
| Income tax expense | | | | | | | | | 702 |
|
| Net income | | | | | | | | | 2,784 |
|
Less: Net income attributable to noncontrolling interests (a) | | | | | | | | | 362 |
|
Net income attributable to Valero Energy Corporation stockholders | | | | | | | | | $ | 2,422 |
|
________________
See note references on pages 38 through 42.
Financial Highlights by Segment and Total Company (continued)
(millions of dollars)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2020 |
| Refining | | Renewable
Diesel | | Ethanol | | Corporate
and
Eliminations | | Total |
| Revenues: | | | | | | | | | |
| Revenues from external customers | $ | 60,840 | | | $ | 1,055 | | | $ | 3,017 | | | $ | — | | | $ | 64,912 | |
| Intersegment revenues | 8 | | | 212 | | | 226 | | | (446) | | | — | |
| Total revenues | 60,848 | | | 1,267 | | | 3,243 | | | (446) | | | 64,912 | |
| Cost of sales: | | | | | | | | | |
| Cost of materials and other (b) | 56,093 | | | 500 | | | 2,784 | | | (444) | | | 58,933 | |
Lower of cost or market (LCM) inventory valuation adjustment | (19) | | | — | | | — | | | — | | | (19) | |
Operating expenses (excluding depreciation and amortization expense reflected below) | 3,944 | | | 85 | | | 406 | | | — | | | 4,435 | |
| Depreciation and amortization expense | 2,138 | | | 44 | | | 121 | | | — | | | 2,303 | |
| Total cost of sales | 62,156 | | | 629 | | | 3,311 | | | (444) | | | 65,652 | |
| Other operating expenses | 34 | | | — | | | 1 | | | — | | | 35 | |
General and administrative expenses (excluding depreciation and amortization expense reflected below) | — | | | — | | | — | | | 756 | | | 756 | |
| Depreciation and amortization expense | — | | | — | | | — | | | 48 | | | 48 | |
| Operating income (loss) by segment | $ | (1,342) | | | $ | 638 | | | $ | (69) | | | $ | (806) | | | (1,579) | |
| Other income, net | | | | | | | | | 132 | |
Interest and debt expense, net of capitalized interest | | | | | | | | | (563) | |
| Loss before income tax benefit | | | | | | | | | (2,010) | |
| Income tax benefit | | | | | | | | | (903) | |
| Net loss | | | | | | | | | (1,107) | |
Less: Net income attributable to noncontrolling interests | | | | | | | | | 314 | |
Net loss attributable to Valero Energy Corporation stockholders | | | | | | | | | $ | (1,421) | |
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2018 |
| | Refining | | Ethanol | | Renewable Diesel | | Corporate
and
Eliminations | | Total |
| Revenues: | | | | | | | | | |
| Revenues from external customers | $ | 113,093 |
| | $ | 3,428 |
| | $ | 508 |
| | $ | 4 |
| | $ | 117,033 |
|
| Intersegment revenues | 25 |
| | 210 |
| | 170 |
| | (405 | ) | | — |
|
| Total revenues | 113,118 |
| | 3,638 |
| | 678 |
| | (401 | ) | | 117,033 |
|
| Cost of sales: | | | | | | | | | |
| Cost of materials and other (a) | 101,866 |
| | 3,008 |
| | 262 |
| | (404 | ) | | 104,732 |
|
Operating expenses (excluding depreciation and amortization expense reflected below) | 4,154 |
| | 470 |
| | 66 |
| | — |
| | 4,690 |
|
| Depreciation and amortization expense | 1,910 |
| | 78 |
| | 29 |
| | — |
| | 2,017 |
|
| Total cost of sales | 107,930 |
| | 3,556 |
| | 357 |
| | (404 | ) | | 111,439 |
|
| Other operating expenses (b) | 45 |
| | — |
| | — |
| | — |
| | 45 |
|
General and administrative expenses (excluding depreciation and amortization expense reflected below) (c) | — |
| | — |
| | — |
| | 925 |
| | 925 |
|
| Depreciation and amortization expense | — |
| | — |
| | — |
| | 52 |
| | 52 |
|
| Operating income by segment | $ | 5,143 |
| | $ | 82 |
| | $ | 321 |
| | $ | (974 | ) | | 4,572 |
|
| Other income, net (d) | | | | | | | | | 130 |
|
Interest and debt expense, net of capitalized interest | | | | | | | | | (470 | ) |
| Income before income tax expense | | | | | | | | | 4,232 |
|
| Income tax expense (e) | | | | | | | | | 879 |
|
| Net income | | | | | | | | | 3,353 |
|
Less: Net income attributable to noncontrolling interests (a) | | | | | | | | | 231 |
|
Net income attributable to Valero Energy Corporation stockholders | | | | | | | | | $ | 3,122 |
|
________________
See note references on pages 38 through 42.
Average Market Reference Prices and Differentials
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | Change |
| Refining | | | | | |
| Feedstocks (dollars per barrel) | | | | | |
| Brent crude oil | $ | 64.18 |
| | $ | 71.62 |
| | $ | (7.44 | ) |
| Brent less West Texas Intermediate (WTI) crude oil | 7.15 |
| | 6.71 |
| | 0.44 |
|
| Brent less Alaska North Slope (ANS) crude oil | (0.86 | ) | | 0.31 |
| | (1.17 | ) |
| Brent less LLS crude oil | 1.47 |
| | 1.72 |
| | (0.25 | ) |
| Brent less Argus Sour Crude Index (ASCI) crude oil | 3.56 |
| | 5.20 |
| | (1.64 | ) |
| Brent less Maya crude oil | 6.57 |
| | 9.22 |
| | (2.65 | ) |
| LLS crude oil | 62.71 |
| | 69.90 |
| | (7.19 | ) |
| LLS less ASCI crude oil | 2.09 |
| | 3.48 |
| | (1.39 | ) |
| LLS less Maya crude oil | 5.10 |
| | 7.50 |
| | (2.40 | ) |
| WTI crude oil | 57.03 |
| | 64.91 |
| | (7.88 | ) |
| | | | | | |
| Natural gas (dollars per million British Thermal Units (MMBtu)) | 2.47 |
| | 3.23 |
| | (0.76 | ) |
| | | | | | |
| Products (dollars per barrel) | | | | | |
| U.S. Gulf Coast: | | | | | |
Conventional Blendstock of Oxygenate Blending (CBOB) gasoline less Brent | 4.37 |
| | 4.81 |
| | (0.44 | ) |
| Ultra-low-sulfur (ULS) diesel less Brent | 14.90 |
| | 14.02 |
| | 0.88 |
|
| Propylene less Brent | (22.31 | ) | | (2.86 | ) | | (19.45 | ) |
| CBOB gasoline less LLS | 5.84 |
| | 6.53 |
| | (0.69 | ) |
| ULS diesel less LLS | 16.37 |
| | 15.74 |
| | 0.63 |
|
| Propylene less LLS | (20.84 | ) | | (1.14 | ) | | (19.70 | ) |
| U.S. Mid-Continent: | | | | | |
| CBOB gasoline less WTI | 13.62 |
| | 13.70 |
| | (0.08 | ) |
| ULS diesel less WTI | 22.77 |
| | 22.82 |
| | (0.05 | ) |
| North Atlantic: | | | | | |
| CBOB gasoline less Brent | 7.20 |
| | 7.59 |
| | (0.39 | ) |
| ULS diesel less Brent | 17.22 |
| | 16.29 |
| | 0.93 |
|
| U.S. West Coast: | | | | | |
| CARBOB 87 gasoline less ANS | 16.28 |
| | 13.05 |
| | 3.23 |
|
| CARB diesel less ANS | 19.30 |
| | 18.13 |
| | 1.17 |
|
| CARBOB 87 gasoline less WTI | 24.29 |
| | 19.45 |
| | 4.84 |
|
| CARB diesel less WTI | 27.31 |
| | 24.53 |
| | 2.78 |
|
| | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | | |
| Refining | | | | | | |
| Feedstocks (dollars per barrel) | | | | | | |
| Brent crude oil | $ | 70.79 | | | $ | 43.15 | | | | |
| Brent less West Texas Intermediate (WTI) crude oil | 2.83 | | | 3.84 | | | | |
| Brent less Alaska North Slope (ANS) crude oil | 0.35 | | | 0.82 | | | | |
| Brent less LLS crude oil | 1.33 | | | 1.91 | | | | |
| Brent less Argus Sour Crude Index (ASCI) crude oil | 3.92 | | | 3.26 | | | | |
| Brent less Maya crude oil | 6.48 | | | 6.89 | | | | |
| LLS crude oil | 69.46 | | | 41.24 | | | | |
| LLS less ASCI crude oil | 2.59 | | | 1.35 | | | | |
| LLS less Maya crude oil | 5.15 | | | 4.98 | | | | |
| WTI crude oil | 67.97 | | | 39.31 | | | | |
| | | | | | |
| Natural gas (dollars per million British Thermal Units) | 7.85 | | | 2.00 | | | |
| | | | | | |
| Products (dollars per barrel) | | | | | | |
| U.S. Gulf Coast: | | | | | | |
Conventional Blendstock of Oxygenate Blending (CBOB) gasoline less Brent | 13.66 | | | 2.97 | | | | |
| Ultra-low-sulfur (ULS) diesel less Brent | 13.75 | | | 7.11 | | | | |
| Propylene less Brent | (6.43) | | | (12.12) | | | | |
| CBOB gasoline less LLS | 14.99 | | | 4.88 | | | | |
| ULS diesel less LLS | 15.08 | | | 9.02 | | | | |
| Propylene less LLS | (5.10) | | | (10.22) | | | | |
| U.S. Mid-Continent: | | | | | | |
| CBOB gasoline less WTI | 17.36 | | | 6.96 | | | | |
| ULS diesel less WTI | 18.70 | | | 12.11 | | | | |
| North Atlantic: | | | | | | |
| CBOB gasoline less Brent | 16.89 | | | 5.50 | | | | |
| ULS diesel less Brent | 15.91 | | | 9.17 | | | | |
| U.S. West Coast: | | | | | | |
| CARBOB 87 gasoline less ANS | 24.17 | | | 10.33 | | | | |
| CARB diesel less ANS | 17.60 | | | 12.42 | | | | |
| CARBOB 87 gasoline less WTI | 26.64 | | | 13.36 | | | | |
| CARB diesel less WTI | 20.08 | | | 15.44 | | | | |
Average Market Reference Prices and Differentials, (continued)
| | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | | |
| Renewable Diesel | | | | | | |
New York Mercantile Exchange ULS diesel (dollars per gallon) | $ | 2.07 | | | $ | 1.25 | | | | |
| Biodiesel RIN (dollars per RIN) | 1.49 | | | 0.64 | | | | |
| California LCFS (dollars per metric ton) | 177.78 | | | 200.12 | | | | |
| Chicago Board of Trade (CBOT) soybean oil (dollars per pound) | 0.58 | | | 0.32 | | | | |
| | | | | | |
| Ethanol | | | | | | |
| | | | | | |
| CBOT corn (dollars per bushel) | 5.80 | | | 3.64 | | | | |
| New York Harbor ethanol (dollars per gallon) | 2.49 | | | 1.36 | | | | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | Change |
| Ethanol | | | | | |
| Chicago Board of Trade (CBOT) corn (dollars per bushel) | $ | 3.84 |
| | $ | 3.68 |
| | $ | 0.16 |
|
| New York Harbor (NYH) ethanol (dollars per gallon) | 1.53 |
| | 1.48 |
| | 0.05 |
|
| | | | | | |
| Renewable diesel | | | | | |
New York Mercantile Exchange ULS diesel (dollars per gallon) | 1.94 |
|
| 2.09 |
|
| (0.15 | ) |
| Biodiesel RIN (dollars per RIN) | 0.48 |
|
| 0.53 |
|
| (0.05 | ) |
| California Low-Carbon Fuel Standard (dollars per metric ton) | 196.82 |
|
| 168.24 |
|
| 28.58 |
|
| CBOT soybean oil (dollars per pound) | 0.29 |
|
| 0.30 |
|
| (0.01 | ) |
Total Company, Corporate, and Other
The following table includes selected financial data for the total company, corporate, and other for 20192021 and 2018.2020. The selected financial data is derived from the Financial Highlights by Segment and Total Company tables, on pages 27 and 28, unless otherwise noted.
| | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | Change | |
| Revenues | $ | 113,977 | | | $ | 64,912 | | | $ | 49,065 | | |
| Cost of materials and other (see notes (a) and (b)) | 102,714 | | | 58,933 | | | 43,781 | | |
Operating expenses (excluding depreciation and amortization expense) (see note (a)) | 5,776 | | | 4,435 | | | 1,341 | | |
| Last-in, first-out (LIFO) liquidation adjustment (see note (b)) | — | | | 224 | | | (224) | | |
General and administrative expenses (excluding depreciation and amortization expense) | 865 | | | 756 | | | 109 | | |
| | | | | | |
| Operating income (loss) | 2,130 | | | (1,579) | | | 3,709 | | |
| Adjusted operating income (loss) (see note (e)) | 2,265 | | | (1,309) | | | 3,574 | | |
| Other income, net (see note (c)) | 16 | | | 132 | | | (116) | | |
| Interest and debt expense, net of capitalized interest | (603) | | | (563) | | | (40) | | |
| Income tax expense (benefit) (see note (d)) | 255 | | | (903) | | | 1,158 | | |
| Net income attributable to noncontrolling interests | 358 | | | 314 | | | 44 | | |
| | | | | | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | Change |
| Revenues | $ | 108,324 |
| | $ | 117,033 |
| | $ | (8,709 | ) |
| Cost of sales | 103,546 |
| | 111,439 |
| | (7,893 | ) |
General and administrative expenses (excluding depreciation and amortization expense) | 868 |
| | 925 |
| | (57 | ) |
| Operating income | 3,836 |
| | 4,572 |
| | (736 | ) |
| Adjusted operating income (see note (f) on page 42) | 3,699 |
| | 4,713 |
| | (1,014 | ) |
| Other income, net | 104 |
| | 130 |
| | (26 | ) |
| Income tax expense | 702 |
| | 879 |
| | (177 | ) |
| Net income attributable to noncontrolling interests | 362 |
| | 231 |
| | 131 |
|
Revenues decreasedincreased by $8.7$49.1 billion in 20192021 compared to 20182020 primarily due to decreasesincreases in refined petroleumthe product prices of the petroleum-based transportation fuels associated with sales made by our refining segment. This declineincrease in revenues was partially offset by loweran increase in cost of salesmaterials and other of $7.9$43.8 billion primarily due to decreasesincreases in crude oil and other feedstock costs; higher operating expenses (excluding depreciation and amortization expense) of $1.3 billion, which includes the impact of estimated excess energy costs of $532 million arising out of Winter Storm Uri; and a decrease of $57 millionan increase in general and administrative expenses (excluding depreciation and amortization expense), resulting of $109 million primarily due to an increase in certain employee compensation expenses of $69 million, higher advertising expenses of $15 million, and higher charitable contributions of $12 million. The increase in cost of materials and other was partially offset by the favorable effect from a $224 million LIFO liquidation adjustment in 2020.
These changes resulted in a decrease$3.7 billion increase in operating income, from an operating loss of $736 million$1.6 billion in 2019 compared2020 to 2018.operating income of $2.1 billion in 2021.
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.
Adjusted operating income was $3.7increased by $3.6 billion, from an adjusted operating loss of $1.3 billion in 2019 compared2020 to $4.7adjusted operating income of $2.3 billion in 2018. Details regarding the $1.02021. The components of this $3.6 billion decreaseincrease in adjusted operating income between the years are discussed by segment below.in the segment analyses that follow.
“Other income, net” decreased by $26$116 million in 20192021 compared to 2018. This decrease was2020 primarily due to lower interest incomea charge of $30$193 million from the early redemption and higher foreign currency transaction lossesretirement of $14debt and an asset impairment loss of $24 million resulting from the cancellation of a pipeline extension project by our nonconsolidated joint venture, Diamond Pipeline LLC, partially offset by the favorable effectgain of $62 million on the sale of a $16 million lower charge for the early redemption of debt between the periods. As24.99 percent membership interest in MVP Terminalling, LLC (MVP). These items occurred in 2021 and are more fully described in note (d) on page 39,(c).
“Interest and debt expense, net of capitalized interest” increased by $40 million in 2021 compared to 2020 primarily due to the effect of 2021 reflecting a full year of interest expense associated with $4.0 billion aggregate principal amount of debt we redeemedissued in public debt offerings in both 2019 and 2018 and incurred early redemption charges2020. See Note 10 of $22 million and $38 million, respectively.Notes to Consolidated Financial Statements for additional information.
Income tax expense decreasedincreased by $177 million$1.2 billion in 20192021 compared to 20182020 primarily as a result of lowerhigher income before income tax expense. Our effectiveIn addition, the increase in income tax expense was impacted by a $64 million charge, which resulted from certain statutory tax rate changes in 2021, as discussed in note (d), as well as a higher benefit in 2020 of $304 million associated with the U.S. federal tax net operating loss for 2020, which was 20 percentcarried back to 2015 when the U.S. federal statutory rate was 35 percent. See Note 16 of Notes to Consolidated Financial Statements for 2019 compared to 21 percent for 2018.additional information on these tax matters.
Net income attributable to noncontrolling interests increased by $131$44 million in 20192021 compared to 20182020 primarily due to higher earnings associated with DGD, a $279 million increase in blender’s tax credits recognized in 2019 comparedconsolidated joint venture. See Note 13 of Notes to 2018, of which 50 percent is attributable to the holder of the noncontrolling interest, as described in note (a) on page 38.Consolidated Financial Statements regarding our accounting for DGD.
Refining Segment Results
The following table includes selected financial and operating data of our refiningRefining segment for 20192021 and 2018.2020. 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, |
| 2021 | | 2020 | | Change |
| Operating income (loss) | $ | 1,862 | | | $ | (1,342) | | | $ | 3,204 | |
| Adjusted operating income (loss) (see note (e)) | 1,945 | | | (1,105) | | | 3,050 | |
| | | | | |
| | | | | |
| Refining margin (see note (e)) | $ | 9,202 | | | $ | 4,977 | | | $ | 4,225 | |
Operating expenses (excluding depreciation and amortization expense reflected below) (see note (a)) | 5,088 | | | 3,944 | | | 1,144 | |
| Depreciation and amortization expense | 2,169 | | | 2,138 | | | 31 | |
| | | | | |
| Throughput volumes (thousand BPD) (see note (f)) | 2,787 | | | 2,555 | | | 232 | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | Change |
| Revenues | $ | 103,764 |
| | $ | 113,118 |
| | $ | (9,354 | ) |
| Cost of sales | 99,722 |
| | 107,930 |
| | (8,208 | ) |
| Operating income | 4,022 |
| | 5,143 |
| | (1,121 | ) |
| Adjusted operating income (see note (f) on page 41) | 4,040 |
| | 5,180 |
| | (1,140 | ) |
| Margin (see note (f) on page 40) | 10,391 |
| | 11,244 |
| | (853 | ) |
Operating expenses (excluding depreciation and amortization expense reflected below) | 4,289 |
| | 4,154 |
| | 135 |
|
| Depreciation and amortization expense | 2,062 |
| | 1,910 |
| | 152 |
|
| | | | | | |
| Throughput volumes (thousand BPD) (see note (g) on page 42) | 2,952 |
| | 2,986 |
| | (34 | ) |
Refining segment revenues decreasedoperating income increased by $9.3$3.2 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.
2021; however, Refining segment adjusted operating income, also decreasedwhich excludes the adjustments in the table in note (e), increased by $1.1$3.1 billion in 20192021 compared to 2018.2020. The components of this decrease,increase in the adjusted results, along with the reasons for the changes in thesethose components, are outlined below.
•Refining segment margin increased by $4.2 billion in 2021 compared to 2020.
Refining segment margin is primarily affected by refined petroleum productthe prices of the petroleum-based transportation fuels that we sell 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 productsfeedstocks 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.process. The table on page 2944 reflects market reference prices and differentials that we believe had a material impact on the change in our refiningRefining segment margin in 20192021 compared to 2018.2020.
The increase in Refining segment margin decreased by $853 million in 2019 compared to 2018was 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. |
◦An increase in gasoline margins had a favorable impact of approximately $3.8 billion.
◦An increase in distillate (primarily diesel) margins had a favorable impact of approximately $1.7 billion.
◦An increase in throughput volumes of 232,000 BPD had a favorable impact of approximately $766 million. As noted above in “OVERVIEW AND OUTLOOK—Overview—Business Operations Update,” we continued to recover from the negative impacts of the COVID-19 pandemic throughout 2021 and have increased production of most of our products at our refineries to align with improvements in demand.
◦An increase in the cost of credits (primarily RINs) needed to comply with the Renewable and Low-Carbon Fuels Blending Programs had an unfavorable impact of $1.3 billion.
◦Lower discounts on crude oils had an unfavorable impact of approximately $710 million.
•Refining segment operating expenses (excluding depreciation and amortization expense) increased by $135$1.1 billion primarily due to higher energy costs of $845 million, which includes the effect of estimated excess energy costs arising out of Winter Storm Uri of $478 million (see note (a)), and an increase in certain employee compensation expenses of $138 million.
Renewable Diesel Segment Results
The following table includes selected financial and operating data of our Renewable Diesel segment for 2021 and 2020. The selected financial data is derived from the Financial Highlights by Segment and Total Company tables, unless otherwise noted.
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | Change |
| Operating income | $ | 709 | | | $ | 638 | | | $ | 71 | |
| Adjusted operating income (see note (e)) | 712 | | | 638 | | | 74 | |
| | | | | |
| | | | | |
| Renewable Diesel margin (see note (e)) | $ | 904 | | | $ | 767 | | | $ | 137 | |
Operating expenses (excluding depreciation and amortization expense reflected below) | 134 | | | 85 | | | 49 | |
| Depreciation and amortization expense | 58 | | | 44 | | | 14 | |
| | | | | |
| Sales volumes (thousand gallons per day) (see note (f)) | 1,014 | | | 787 | | | 227 | |
Renewable Diesel segment operating income increased by $71 million in 2021; however, Renewable Diesel segment adjusted operating income, which excludes the adjustment in the table in note (e), increased by $74 million in 2021 compared to 2020. The components of this increase in the adjusted results, along with the reasons for the changes in those components, are outlined below.
•Renewable Diesel segment margin increased by $137 million in 2021 compared to 2020.
Renewable Diesel segment margin is primarily affected by the price of the renewable diesel that we sell and the cost of the feedstocks that we process. The table on page 45 reflects market reference prices that we believe had a material impact on the change in our Renewable Diesel segment margin in 2021 compared to 2020.
The increase in Renewable Diesel segment margin was primarily due to the following:
◦Higher renewable diesel prices had a favorable impact of approximately $768 million.
◦An increase in sales volumes of 227,000 gallons per day had a favorable impact of approximately $202 million. The increase in sales volume was primarily due to the additional production capacity resulting from the expansion of the DGD Plant that commenced operations in the fourth quarter of 2021.
◦An increase in the cost of the feedstocks we process had an unfavorable impact of approximately $731 million.
◦Price risk management activities had an unfavorable impact of $80 million. We recognized a hedge loss of $46 million in 2021 compared to a hedge gain of $34 million in 2020.
•Renewable Diesel segment operating expenses (excluding depreciation and amortization expense) increased by $49 million primarily due to higher maintenancechemical and catalyst costs of $86$14 million, along with the effect
higher outside services of $20$11 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 expensecertain employee compensation expenses of $79$11 million, associated with capital projects that were completed and finance leases that commenced in the latter parthigher energy costs of 2018 and early 2019, partially offset by the write-off of assets that were idled or demolished in 2018 of $15$4 million.
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.
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | Change |
| Revenues | $ | 3,837 |
| | $ | 3,638 |
| | $ | 199 |
|
| Cost of sales | 3,833 |
| | 3,556 |
| | 277 |
|
| Operating income | 3 |
| | 82 |
| | (79 | ) |
| Adjusted operating income (see note (f) on page 41) | 4 |
| | 82 |
| | (78 | ) |
| Margin (see note (f) on page 40) | 598 |
| | 630 |
| | (32 | ) |
Operating expenses (excluding depreciation and amortization expense reflected below) | 504 |
| | 470 |
| | 34 |
|
| Depreciation and amortization expense | 90 |
| | 78 |
| | 12 |
|
| | | | | | |
Production volumes (thousand gallons per day) (see note (g) on page 42) | 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.
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.
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | Change |
| Revenues | $ | 1,217 |
| | $ | 678 |
| | $ | 539 |
|
| Cost of sales | 485 |
| | 357 |
| | 128 |
|
| Operating income | 732 |
| | 321 |
| | 411 |
|
| Adjusted operating income (see note (f) on page 42) | 576 |
| | 317 |
| | 259 |
|
| Margin (see note (f) on page 41) | 701 |
| | 412 |
| | 289 |
|
Operating expenses (excluding depreciation and amortization expense reflected below) | 75 |
| | 66 |
| | 9 |
|
| Depreciation and amortization expense | 50 |
| | 29 |
| | 21 |
|
| | | | | | |
Sales volumes (thousand gallons per day) (see note (g) on page 42) | 760 |
| | 431 |
| | 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.
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.
2018 Compared to 2017
Financial Highlights by Segment and Total Company
(millions of dollars)
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2018 |
| | Refining | | Ethanol | | Renewable Diesel | | Corporate
and
Eliminations | | Total |
| Revenues: | | | | | | | | | |
| Revenues from external customers | $ | 113,093 |
| | $ | 3,428 |
| | $ | 508 |
| | $ | 4 |
| | $ | 117,033 |
|
| Intersegment revenues | 25 |
| | 210 |
| | 170 |
| | (405 | ) | | — |
|
| Total revenues | 113,118 |
| | 3,638 |
| | 678 |
| | (401 | ) | | 117,033 |
|
| Cost of sales: | | | | | | | | | |
| Cost of materials and other (a) | 101,866 |
| | 3,008 |
| | 262 |
| | (404 | ) | | 104,732 |
|
Operating expenses (excluding depreciation and amortization expense reflected below) | 4,154 |
| | 470 |
| | 66 |
| | — |
| | 4,690 |
|
| Depreciation and amortization expense | 1,910 |
| | 78 |
| | 29 |
| | — |
| | 2,017 |
|
| Total cost of sales | 107,930 |
| | 3,556 |
| | 357 |
| | (404 | ) | | 111,439 |
|
| Other operating expenses (b) | 45 |
| | — |
| | — |
| | — |
| | 45 |
|
General and administrative expenses (excluding depreciation and amortization expense reflected below) (c) | — |
| | — |
| | — |
| | 925 |
| | 925 |
|
| Depreciation and amortization expense | — |
| | — |
| | — |
| | 52 |
| | 52 |
|
| Operating income by segment | $ | 5,143 |
|
| $ | 82 |
|
| $ | 321 |
|
| $ | (974 | ) | | 4,572 |
|
| Other income, net (d) | | | | | | | | | 130 |
|
Interest and debt expense, net of capitalized interest | | | | | | | | | (470 | ) |
| Income before income tax expense | | | | | | | | | 4,232 |
|
| Income tax expense (e) | | | | | | | | | 879 |
|
| Net income | | | | | | | | | 3,353 |
|
Less: Net income attributable to noncontrolling interests (a) | | | | | | | | | 231 |
|
Net income attributable to Valero Energy Corporation stockholders | | | | | | | | | $ | 3,122 |
|
________________
See note references on pages 38 through 42.
Financial Highlights by Segment and Total Company (continued)
(millions of dollars)
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2017 |
| | Refining | | Ethanol | | Renewable Diesel | | Corporate
and
Eliminations | | Total |
| Revenues: | | | | | | | | | |
| Revenues from external customers | $ | 90,258 |
| | $ | 3,324 |
| | $ | 393 |
| | $ | 5 |
| | $ | 93,980 |
|
| Intersegment revenues | 8 |
| | 176 |
| | 241 |
| | (425 | ) | | — |
|
| Total revenues | 90,266 |
| | 3,500 |
| | 634 |
| | (420 | ) | | 93,980 |
|
| Cost of sales: | | | | | | | | | |
| Cost of materials and other | 80,160 |
| | 2,804 |
| | 498 |
| | (425 | ) | | 83,037 |
|
Operating expenses (excluding depreciation and amortization expense reflected below) | 4,014 |
| | 443 |
| | 47 |
| | — |
| | 4,504 |
|
| Depreciation and amortization expense | 1,824 |
| | 81 |
| | 29 |
| | — |
| | 1,934 |
|
| Total cost of sales | 85,998 |
| | 3,328 |
| | 574 |
| | (425 | ) | | 89,475 |
|
| Other operating expenses (b) | 61 |
| | — |
| | — |
| | — |
| | 61 |
|
General and administrative expenses (excluding depreciation and amortization expense reflected below) | — |
| | — |
| | — |
| | 829 |
| | 829 |
|
| Depreciation and amortization expense | — |
| | — |
| | — |
| | 52 |
| | 52 |
|
| Operating income by segment | $ | 4,207 |
|
| $ | 172 |
|
| $ | 60 |
|
| $ | (876 | ) |
| 3,563 |
|
| Other income, net | | | | | | | | | 112 |
|
Interest and debt expense, net of capitalized interest | | | | | | | | | (468 | ) |
| Income before income tax expense | | | | | | | | | 3,207 |
|
| Income tax benefit (e) | | | | | | | | | (949 | ) |
| Net income | | | | | | | | | 4,156 |
|
Less: Net income attributable to noncontrolling interests | | | | | | | | | 91 |
|
Net income attributable to Valero Energy Corporation stockholders | | | | | | | | | $ | 4,065 |
|
________________
See note references on pages 38 through 42.
Average Market Reference Prices and Differentials
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 | | Change |
| Refining | | | | | |
| Feedstocks (dollars per barrel) | | | | | |
| Brent crude oil | $ | 71.62 |
| | $ | 54.82 |
| | $ | 16.80 |
|
| Brent less WTI crude oil | 6.71 |
| | 3.92 |
| | 2.79 |
|
| Brent less ANS crude oil | 0.31 |
| | 0.26 |
| | 0.05 |
|
| Brent less LLS crude oil | 1.72 |
| | 0.69 |
| | 1.03 |
|
| Brent less ASCI crude oil | 5.20 |
| | 4.18 |
| | 1.02 |
|
| Brent less Maya crude oil | 9.22 |
| | 7.74 |
| | 1.48 |
|
| LLS crude oil | 69.90 |
| | 54.13 |
| | 15.77 |
|
| LLS less ASCI crude oil | 3.48 |
| | 3.49 |
| | (0.01 | ) |
| LLS less Maya crude oil | 7.50 |
| | 7.05 |
| | 0.45 |
|
| WTI crude oil | 64.91 |
| | 50.90 |
| | 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 | 4.81 |
| | 10.50 |
| | (5.69 | ) |
| ULS diesel less Brent | 14.02 |
| | 13.26 |
| | 0.76 |
|
| Propylene less Brent | (2.86 | ) | | 0.48 |
| | (3.34 | ) |
| CBOB gasoline less LLS | 6.53 |
| | 11.19 |
| | (4.66 | ) |
| ULS diesel less LLS | 15.74 |
| | 13.95 |
| | 1.79 |
|
| Propylene less LLS | (1.14 | ) | | 1.17 |
| | (2.31 | ) |
| U.S. Mid-Continent: | | | | | |
| CBOB gasoline less WTI | 13.70 |
| | 15.65 |
| | (1.95 | ) |
| ULS diesel less WTI | 22.82 |
| | 18.50 |
| | 4.32 |
|
| North Atlantic: | | | | | |
| CBOB gasoline less Brent | 7.59 |
| | 12.57 |
| | (4.98 | ) |
| ULS diesel less Brent | 16.29 |
| | 14.75 |
| | 1.54 |
|
| U.S. West Coast: | | | | | |
| CARBOB 87 gasoline less ANS | 13.05 |
| | 18.12 |
| | (5.07 | ) |
| CARB diesel less ANS | 18.13 |
| | 17.11 |
| | 1.02 |
|
| CARBOB 87 gasoline less WTI | 19.45 |
| | 21.78 |
| | (2.33 | ) |
| CARB diesel less WTI | 24.53 |
| | 20.77 |
| | 3.76 |
|
Average Market Reference Prices and Differentials, (continued)
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 | | Change |
| Ethanol | | | | | |
| CBOT corn (dollars per bushel) | $ | 3.68 |
| | $ | 3.59 |
| | $ | 0.09 |
|
| NYH ethanol (dollars per gallon) | 1.48 |
| | 1.56 |
| | (0.08 | ) |
| | | | | | |
| Renewable diesel | | | | | |
New York Mercantile Exchange ULS diesel (dollars per gallon) | 2.09 |
|
| 1.66 |
|
| 0.43 |
|
| Biodiesel RIN (dollars per RIN) | 0.53 |
|
| 1.01 |
|
| (0.48 | ) |
| California Low-Carbon Fuel Standard (dollars per metric ton) | 168.24 |
|
| 89.26 |
|
| 78.98 |
|
| CBOT soybean oil (dollars per pound) | 0.30 |
|
| 0.33 |
|
| (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):
|
| | | | | | | | | | | |
| | Refining | | Renewable Diesel | | Total |
| Periods to which blender’s tax credit is attributable | | | | | |
| 2019 blender’s tax credit | $ | 16 |
| | $ | 275 |
| | $ | 291 |
|
| 2018 blender���s tax credit | 2 |
| | 156 |
| | 158 |
|
| Total recognized in 2019 | $ | 18 |
| | $ | 431 |
| | $ | 449 |
|
| | | | | | |
| 2017 blender’s tax credit | $ | 10 |
| | $ | 160 |
| | $ | 170 |
|
| Total recognized in 2018 | $ | 10 |
| | $ | 160 |
| | $ | 170 |
|
Adjustments to reflect the blender’s tax credits in the period during which the volumes were blended are as follows (in millions):
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| Refining segment | | | | | |
| Total blender’s tax credit recognized in period presented | $ | 18 |
| | $ | 10 |
| | $ | — |
|
| Less: Amount properly reflected in the period associated with volumes blended | 16 |
| | 2 |
| | 10 |
|
Adjustment to reflect blender’s tax credit in proper period for the refining segment (see note (f)) | 2 |
| | 8 |
| | (10 | ) |
| Renewable diesel segment | | | | | |
| Total blender’s tax credit recognized in period presented | 431 |
| | 160 |
| | — |
|
| Less: Amount properly reflected in the period associated with volumes blended | 275 |
| | 156 |
| | 160 |
|
Adjustment to reflect blender’s tax credit in proper period for the renewable diesel segment (see note (f)) | 156 |
| | 4 |
| | (160 | ) |
Total adjustment to reflect blender’s tax credit in proper period (see note (f)) | $ | 158 |
| | $ | 12 |
| | $ | (170 | ) |
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.
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.
|
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 |
Reconciliation of refining operating income to refining margin | | | | | |
| Refining operating income | $ | 4,022 |
| | $ | 5,143 |
| | $ | 4,207 |
|
| Exclude: | | | | | |
| Blender’s tax credit (see note (a)) | 2 |
| | 8 |
| | (10 | ) |
Operating expenses (excluding depreciation and amortization expense) | (4,289 | ) | | (4,154 | ) | | (4,014 | ) |
| Depreciation and amortization expense | (2,062 | ) | | (1,910 | ) | | (1,824 | ) |
| Other operating expenses (see note (b)) | (20 | ) | | (45 | ) | | (61 | ) |
| Refining margin | $ | 10,391 |
|
| $ | 11,244 |
| | $ | 10,116 |
|
| |
◦ | 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 |
Reconciliation of ethanol operating income to ethanol margin | | | | | |
| Ethanol operating income | $ | 3 |
| | $ | 82 |
| | $ | 172 |
|
| Exclude: | | | | | |
Operating expenses (excluding depreciation and amortization expense) | (504 | ) | | (470 | ) | | (443 | ) |
| Depreciation and amortization expense | (90 | ) | | (78 | ) | | (81 | ) |
| Other operating expenses (see note (b)) | (1 | ) | | — |
| | — |
|
| Ethanol margin | $ | 598 |
| | $ | 630 |
| | $ | 696 |
|
| |
◦ | 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.
|
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2019 |
| 2018 |
| 2017 |
| Reconciliation of renewable diesel operating income to renewable diesel margin | | | | | |
| Renewable diesel operating income | $ | 732 |
| | $ | 321 |
| | $ | 60 |
|
| Exclude: | | | | | |
| Blender’s tax credit (see note (a)) | 156 |
| | 4 |
| | (160 | ) |
Operating expenses (excluding depreciation and amortization expense) | (75 | ) | | (66 | ) | | (47 | ) |
| Depreciation and amortization expense | (50 | ) | | (29 | ) | | (29 | ) |
| Renewable diesel margin | $ | 701 |
| | $ | 412 |
| | $ | 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.
|
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| Reconciliation of refining operating income to adjusted refining operating income | | | | | |
| Refining operating income | $ | 4,022 |
| | $ | 5,143 |
| | $ | 4,207 |
|
| Exclude: | | | | | |
| Blender’s tax credit (see note (a)) | 2 |
| | 8 |
| | (10 | ) |
| Other operating expenses (see note (b)) | (20 | ) | | (45 | ) | | (61 | ) |
| Adjusted refining operating income | $ | 4,040 |
| | $ | 5,180 |
| | $ | 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 | $ | 3 |
| | $ | 82 |
| | $ | 172 |
|
| Exclude: | | | | | |
| Other operating expenses (see note (b)) | (1 | ) | | — |
| | — |
|
| Adjusted ethanol operating income | $ | 4 |
| | $ | 82 |
| | $ | 172 |
|
| |
◦ | 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 | $ | 732 |
| | $ | 321 |
| | $ | 60 |
|
| Exclude: | | | | | |
| Blender’s tax credit (see note (a)) | 156 |
| | 4 |
| | (160 | ) |
| Adjusted renewable diesel operating income | $ | 576 |
| | $ | 317 |
| | $ | 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 | $ | 3,836 |
| | $ | 4,572 |
| | $ | 3,563 |
|
| Exclude: | | | | | |
| Blender’s tax credit (see note (a)) | 158 |
| | 12 |
| | (170 | ) |
| Other operating expenses (see note (b)) | (21 | ) | | (45 | ) | | (61 | ) |
| Environmental reserve adjustments (see note (c)) | — |
| | (108 | ) | | — |
|
| Adjusted operating income | $ | 3,699 |
| | $ | 4,713 |
| | $ | 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. |
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.
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 | | Change |
| Revenues | $ | 117,033 |
| | $ | 93,980 |
| | $ | 23,053 |
|
| Cost of sales | 111,439 |
| | 89,475 |
| | 21,964 |
|
General and administrative expenses (excluding depreciation and amortization expense) | 925 |
| | 829 |
| | 96 |
|
| Operating income | 4,572 |
| | 3,563 |
| | 1,009 |
|
| Adjusted operating income (see note (f) on page 42) | 4,713 |
| | 3,794 |
| | 919 |
|
| Other income, net | 130 |
| | 112 |
| | 18 |
|
| Income tax expense (benefit) | 879 |
| | (949 | ) | | 1,828 |
|
| Net income attributable to noncontrolling interests | 231 |
| | 91 |
| | 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 $96million in general and administrative expenses (excluding depreciation and amortization expense), resulting in an increase in operating income of $1.0billion 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 $919million 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 $39million and higher interest income of $29 million, partially offset by a $38million 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 $1.9billion 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 28percent compared to 21percent for 2018. The decrease in our effective tax rate is primarily due to the reduction in the U.S. statutory income tax rate from 35percent to 21percent 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
of which $80million 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 | $ | 113,118 |
| | $ | 90,266 |
| | $ | 22,852 |
|
| Cost of sales | 107,930 |
| | 85,998 |
| | 21,932 |
|
| Operating income | 5,143 |
| | 4,207 |
| | 936 |
|
| Adjusted operating income (see note (f) on page 41) | 5,180 |
| | 4,278 |
| | 902 |
|
| Margin (see note (f) on page 40) | 11,244 |
| | 10,116 |
| | 1,128 |
|
Operating expenses (excluding depreciation and amortization expense reflected below) | 4,154 |
| | 4,014 |
| | 140 |
|
| Depreciation and amortization expense | 1,910 |
| | 1,824 |
| | 86 |
|
| | | | | | |
| Throughput volumes (thousand BPD) (see note (g) on page 42) | 2,986 |
| | 2,940 |
| | 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 $21.9billion 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 page37 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. |
| |
◦ | 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 ethanolEthanol segment for 20182021 and 2017.2020. 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 | $ | 3,638 |
| | $ | 3,500 |
| | $ | 138 |
|
| Cost of sales | 3,556 |
| | 3,328 |
| | 228 |
|
| Operating income | 82 |
| | 172 |
| | (90 | ) |
| Margin (see note (f) on page 40) | 630 |
| | 696 |
| | (66 | ) |
Operating expenses (excluding depreciation and amortization expense reflected below) | 470 |
| | 443 |
| | 27 |
|
| Depreciation and amortization expense | 78 |
| | 81 |
| | (3 | ) |
| |
|
| |
|
| |
|
|
Production volumes (thousand gallons per day) (see note (g) on page 42) | 4,109 |
| | 3,972 |
| | 137 |
|
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | Change |
| Operating income (loss) | $ | 473 | | | $ | (69) | | | $ | 542 | |
| Adjusted operating income (loss) (see note (e)) | 522 | | | (36) | | | 558 | |
| | | | | |
| Ethanol margin (see note (e)) | $ | 1,161 | | | $ | 461 | | | $ | 700 | |
Operating expenses (excluding depreciation and amortization expense reflected below) (see note (a)) | 556 | | | 406 | | | 150 | |
| Depreciation and amortization expense | 131 | | | 121 | | | 10 | |
| | | | | |
| Production volumes (thousand gallons per day) (see note (f)) | 3,949 | | | 3,588 | | | 361 | |
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 $90increased by $542 million in 2018
2021; however, Ethanol segment adjusted operating income, which excludes the adjustments in the table in note (e), increased by $558 million in 2021 compared to 2017.2020. The components of this decrease,increase in the adjusted results, along with the reasons for the changes in these components, are outlined below.
•Ethanol segment margin increased by $700 million in 2021 compared to 2020.
Ethanol segment margin is primarily affected by prices of the ethanol and corn related co-product pricesco-products that we sell and the cost of corn.corn that we process. The table on page 3845 reflects market reference prices that we believe had a material impact on the change in our ethanolEthanol segment margin in 20182021 compared to 2017.2020.
The increase in Ethanol segment margin decreased by $66 million in 2018 compared to 2017was 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. |
◦Higher ethanol prices had a favorable impact of approximately $1.4 billion.
◦Higher prices on the co-products that we produce, primarily DDGs, had a favorable impact of approximately $270 million.
◦An increase in production volumes of 361,000 gallons per day had a favorable impact of approximately $114 million. As noted above in “OVERVIEW AND OUTLOOK—Overview—Business Operations Update,” we continued to recover from the impacts of the COVID-19 pandemic throughout 2021 and have increased the aggregate production of ethanol across our plants to align with improvements in demand.
◦Higher corn prices had an unfavorable impact of approximately $1.1 billion.
•Ethanol segment operating expenses (excluding depreciation and amortization expense) increased by $27$150 million primarily due to higher energy costs, to operatewhich includes the three plants acquired from Green Plains in November 2018effect of $14estimated excess energy costs arising out of Winter Storm Uri of $54 million and higher chemicals and catalysts costs of $8 million incurred by our other ethanol plants.(see note (a)).
Renewable Diesel Segment Results
________________________
The following table includes selected financial and operating datanotes relate to references on pages 42 through 50.
(a)In mid-February 2021, many of our renewable diesel segment for 2018refineries and 2017.plants were impacted to varying extents by the severe cold, utility disruptions, and higher energy costs arising out of Winter Storm Uri. The selected financial data is derivedhigher energy costs resulted 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 | $ | 678 |
| | $ | 634 |
| | $ | 44 |
|
| Cost of sales | 357 |
| | 574 |
| | (217 | ) |
| Operating income | 321 |
| | 60 |
| | 261 |
|
| Adjusted operating income (see note (f) on page 42) | 317 |
| | 220 |
| | 97 |
|
| Margin (see note (f) on page 41) | 412 |
| | 296 |
| | 116 |
|
Operating expenses (excluding depreciation and amortization expense reflected below) | 66 |
| | 47 |
| | 19 |
|
| Depreciation and amortization expense | 29 |
| | 29 |
| | — |
|
| | | | | | |
Sales volumes (thousand gallons per day) (see note (g) on page 42) | 431 |
| | 440 |
| | (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
a decrease in total cost of sales of $217 million, resulted in an increase in renewable dieselthe prices of natural gas and electricity that significantly exceeded rates that we consider normal, such as the average rates we incurred the month preceding the storm. As a result, our operating income for the year ended December 31, 2021 includes estimated excess energy costs of $579 million.
The above-mentioned pre-tax estimated excess energy charge is reflected in our statement of income line items and attributable to our reportable segments for the year ended December 31, 2021 as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Refining | | Renewable
Diesel | | Ethanol | | Total |
| Cost of materials and other | $ | 47 | | | $ | — | | | $ | — | | | $ | 47 | |
Operating expenses (excluding depreciation and amortization expense) | 478 | | | — | | | 54 | | | 532 | |
| Total estimated excess energy costs | $ | 525 | | | $ | — | | | $ | 54 | | | $ | 579 | |
(b)Cost of materials and other for the year ended December 31, 2020 includes a charge of $224 million related to the liquidation of LIFO inventory layers attributable to our Refining and Ethanol segments. Our inventory levels decreased throughout 2020 due to lower production resulting from lower demand for our products caused by the negative economic impacts of COVID-19 on our business. As a result, our inventory levels at December 31, 2020 were below their December 31, 2019 levels. Of the $224 million charge recognized for the year ended December 31, 2020, $222 million and $2 million is attributable to our Refining and Ethanol segments, respectively.
(c)“Other income, net” for the year ended December 31, 2021 includes the following:
•a gain of $62 million on the sale of a 24.99 percent membership interest in MVP, a nonconsolidated joint venture with a subsidiary of Magellan Midstream Partners, L.P., for $270 million;
•a charge of $24 million representing our portion of the asset impairment loss recognized by Diamond Pipeline LLC, a nonconsolidated joint venture with a subsidiary of Plains All American Pipeline, L.P., resulting from the joint venture’s cancellation of its pipeline extension project; and
•a charge of $193 million from the early redemption and retirement of approximately $2.1 billion aggregate principal amount of various series of our senior notes during the year ended December 31, 2021.
(d)Certain statutory income tax rate changes (primarily an increase in the U.K. rate from 19 percent to 25 percent effective in 2023) were enacted during the year ended December 31, 2021 that resulted in the remeasurement of our deferred tax liabilities. Under GAAP, we are required to recognize the effect of a change in tax law in the period of enactment. As a result, we recognized deferred income tax expense of $64 million during the year ended December 31, 2021, which represents the net increase in our deferred tax liabilities resulting from the changes in the tax rates.
(e)We use certain financial measures (as noted below) that are not defined under 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 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 GAAP measures nor should they be considered in isolation or as a substitute for an analysis of our results of operations as reported under 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.
Non-GAAP financial measures are as follows:
•Refining margin is defined as Refining 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(loss) excluding the reasons forLIFO liquidation adjustment, 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 segmentLCM inventory valuation adjustment, operating expenses (excluding depreciation and amortization expense) increased by $19 million primarily attributable to higher chemical, depreciation and catalyst costs of $10 millionamortization expense, and increased costs resulting from the expansion of the DGD Plant completedother operating expenses, as reflected in the third quartertable below.
| | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | |
| 2021 | | | | 2020 | | | | | | |
Reconciliation of Refining operating income (loss) to Refining margin | | | | | | | | | | | |
| Refining operating income (loss) | $ | 1,862 | | | | | $ | (1,342) | | | | | | | |
| Adjustments: | | | | | | | | | | | |
| | | | | | | | | | | |
| LIFO liquidation adjustment (see note (b)) | — | | | | | 222 | | | | | | | |
| LCM inventory valuation adjustment | — | | | | | (19) | | | | | | | |
Operating expenses (excluding depreciation and amortization expense) (see note (a)) | 5,088 | | | | | 3,944 | | | | | | | |
| Depreciation and amortization expense | 2,169 | | | | | 2,138 | | | | | | | |
| Other operating expenses | 83 | | | | | 34 | | | | | | | |
| Refining margin | $ | 9,202 | | | | | $ | 4,977 | | | | | | | |
•Renewable Diesel margin is defined as Renewable Diesel segment 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, | | |
| 2021 | | | | 2020 | | | | | | |
Reconciliation of Renewable Diesel operating income to Renewable Diesel margin | | | | | | | | | | | |
| Renewable Diesel operating income | $ | 709 | | | | | $ | 638 | | | | | | | |
| Adjustments: | | | | | | | | | | | |
Operating expenses (excluding depreciation and amortization expense) | 134 | | | | | 85 | | | | | | | |
| Depreciation and amortization expense | 58 | | | | | 44 | | | | | | | |
| Other operating expenses | 3 | | | | | — | | | | | | | |
| Renewable Diesel margin | $ | 904 | | | | | $ | 767 | | | | | | | |
•Ethanol margin is defined as Ethanol segment operating income (loss) excluding the LIFO liquidation adjustment, 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, | | |
| 2021 | | | | 2020 | | | | | | |
Reconciliation of Ethanol operating income (loss) to Ethanol margin | | | | | | | | | | | |
| Ethanol operating income (loss) | $ | 473 | | | | | $ | (69) | | | | | | | |
| Adjustments: | | | | | | | | | | | |
| LIFO liquidation adjustment (see note (b)) | — | | | | | 2 | | | | | | | |
Operating expenses (excluding depreciation and amortization expense) (see note (a)) | 556 | | | | | 406 | | | | | | | |
| Depreciation and amortization expense | 131 | | | | | 121 | | | | | | | |
| Other operating expenses | 1 | | | | | 1 | | | | | | | |
| Ethanol margin | $ | 1,161 | | | | | $ | 461 | | | | | | | |
•Adjusted Refining operating income (loss) is defined as Refining segment operating income (loss) excluding the LIFO liquidation adjustment, the LCM inventory valuation adjustment, and other operating expenses, as reflected in the table below.
| | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | |
| 2021 | | | | 2020 | | | | | | |
Reconciliation of Refining operating income (loss) to adjusted Refining operating income (loss) | | | | | | | | | | | |
| Refining operating income (loss) | $ | 1,862 | | | | | $ | (1,342) | | | | | | | |
| Adjustments: | | | | | | | | | | | |
| | | | | | | | | | | |
| LIFO liquidation adjustment (see note (b)) | — | | | | | 222 | | | | | | | |
| LCM inventory valuation adjustment | — | | | | | (19) | | | | | | | |
| Other operating expenses | 83 | | | | | 34 | | | | | | | |
| Adjusted Refining operating income (loss) | $ | 1,945 | | | | | $ | (1,105) | | | | | | | |
•Adjusted Renewable Diesel operating income is defined as Renewable Diesel segment operating income excluding other operating expenses, as reflected in the table below.
| | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | |
| 2021 | | | | 2020 | | | | | | |
Reconciliation of Renewable Diesel operating income to adjusted Renewable Diesel operating income | | | | | | | | | | | |
| Renewable Diesel operating income | $ | 709 | | | | | $ | 638 | | | | | | | |
| Adjustment: Other operating expenses | 3 | | | | | — | | | | | | | |
| Adjusted Renewable Diesel operating income | $ | 712 | | | | | $ | 638 | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | |
| 2021 | | | | 2020 | | | | | | |
Reconciliation of Ethanol operating income (loss) to adjusted Ethanol operating income (loss) | | | | | | | | | | | |
| Ethanol operating income (loss) | $ | 473 | | | | | $ | (69) | | | | | | | |
| Adjustments: | | | | | | | | | | | |
| Changes in estimated useful lives of two ethanol plants | 48 | | | | | 30 | | | | | | | |
| LIFO liquidation adjustment (see note (b)) | — | | | | | 2 | | | | | | | |
| Other operating expenses | 1 | | | | | 1 | | | | | | | |
| Adjusted Ethanol operating income (loss) | $ | 522 | | | | | $ | (36) | | | | | | | |
•Adjusted operating income (loss) is defined as total company operating income (loss) excluding the LIFO liquidation adjustment, the LCM inventory valuation adjustment, the changes in estimated useful lives of two of our ethanol plants, and other operating expenses, as reflected in the table below.
| | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | |
| 2021 | | | | 2020 | | | | | | |
Reconciliation of total company operating income (loss) to adjusted operating income (loss) | | | | | | | | | | | |
| Total company operating income (loss) | $ | 2,130 | | | | | $ | (1,579) | | | | | | | |
| Adjustments: | | | | | | | | | | | |
| LIFO liquidation adjustment (see note (b)) | — | | | | | 224 | | | | | | | |
| LCM inventory valuation adjustment | — | | | | | (19) | | | | | | | |
| Changes in estimated useful lives of two ethanol plants | 48 | | | | | 30 | | | | | | | |
| Other operating expenses | 87 | | | | | 35 | | | | | | | |
| Adjusted operating income (loss) | $ | 2,265 | | | | | $ | (1,309) | | | | | | | |
(f)We use throughput volumes, sales volumes, and production volumes for the Refining segment, Renewable Diesel segment, and Ethanol segment, respectively, due to their general use by others who operate facilities similar to those included in our segments.
LIQUIDITY AND CAPITAL RESOURCES
Overview
Our liquidity was positively impacted by the cash generated by our operations in 2021 notwithstanding the lingering impacts of the COVID-19 pandemic, excess energy costs arising out of Winter Storm Uri, and the effects of Hurricane Ida, as described in “OVERVIEW AND OUTLOOK—Overview—Business Operations Update.”
We completed debt reduction and refinancing transactions in 2021 that reduced our long-term debt by $1.3 billion. Our refinancing transactions included the issuance of $500 million of 2.800 percent Senior Notes due December 1, 2031 and $950 million of 3.650 percent Senior Notes due December 1, 2051. Proceeds from these issuances and cash on hand were used to repurchase and retire, or redeem approximately $2.1 billion of various series of our senior notes. In addition, we redeemed our $575 million Floating Rate Senior Notes due September 15, 2023.
In February 2022, we completed additional debt reduction and refinancing transactions that reduced our long-term debt by an additional $750 million. These additional refinancing transactions included the issuance of $650 million of 4.000 percent Senior Notes due June 1, 2052. Proceeds from this issuance and cash on hand were used to repurchase and retire approximately$1.4 billion of various series of our senior notes.
Our Liquidity
Our liquidity consisted of the following as of December 31, 2021 (in millions):
| | | | | | | | | | | | | | |
| Available capacity from our committed facilities (a): | | | | | | | | |
| Valero Revolver | | | | | | | | $ | 3,712 | |
| Canadian Revolver (b) | | | | | | | | 115 | |
| Accounts receivable sales facility | | | | | | | | 1,300 | |
| Letter of credit facility | | | | | | | | 50 | |
| Total available capacity | | | | | | | | 5,177 | |
| Cash and cash equivalents (c) | | | | | | | | 4,086 | |
| Total liquidity | | | | | | | | $ | 9,263 | |
_______________________
(a)Excludes the committed facilities of the consolidated VIEs.
(b)The amount for our Canadian Revolver is shown in U.S. dollars. As set forth in the summary of our credit facilities in Note 10 of Notes to Consolidated Financial Statements, the availability under our Canadian Revolver as of December 31, 2021 in Canadian dollars was C$145 million.
(c)Excludes $36 million of cash and cash equivalents related to the consolidated VIEs that is available for use only by the VIEs.
Information about our outstanding borrowings, letters of credit issued, and availability under our credit facilities is reflected in Note 10 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, 2021, all of our ratings on our senior unsecured debt, including debt guaranteed by us, were at or above investment grade level as follows:
| | | | | | | | |
| Rating Agency | | Rating |
| Moody’s Investors Service | | Baa2 (negative outlook) |
| Standard & Poor’s Ratings Services | | BBB (stable outlook) |
| Fitch Ratings | | 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.
We believe that we have sufficient funds from operations and from borrowingsavailable capacity under our credit facilities to fund our ongoing operating requirements and other commitments.commitments over the next 12 months and thereafter for the foreseeable future. We expect that, to the extent necessary, we can raise additional funds from time to timecash 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 | | $ | 3,966 |
|
| Canadian Revolver | | 112 |
|
| Accounts receivable sales facility | | 1,200 |
|
| Letter of credit facility | | 50 |
|
| Total available borrowing capacity | | 5,328 |
|
Cash and cash equivalents(a) | | 2,473 |
|
| Total liquidity | | $ | 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. |
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):
| | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | |
| Cash flows provided by (used in): | | | | | |
| Operating activities | $ | 5,859 | | | $ | 948 | | | |
| Investing activities | (2,159) | | | (2,425) | | | |
| Financing activities: | | | | | |
| Debt issuances and borrowings | 1,828 | | | 4,570 | | | |
Repayments of debt and finance lease obligations (including premiums on early redemption and retirement of debt) | (3,214) | | | (495) | | | |
| Other financing activities | (1,460) | | | (1,998) | | | |
| Financing activities | (2,846) | | | 2,077 | | | |
| Effect of foreign exchange rate changes on cash | (45) | | | 130 | | | |
| Net increase in cash and cash equivalents | $ | 809 | | | $ | 730 | | | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| Cash flows provided by (used in): | | | | | |
| Operating activities | $ | 5,531 |
| | $ | 4,371 |
| | $ | 5,482 |
|
| Investing activities | (3,001 | ) | | (3,928 | ) | | (2,382 | ) |
| Financing activities | (2,997 | ) | | (3,168 | ) | | (2,272 | ) |
| Effect of foreign exchange rate changes on cash | 68 |
| | (143 | ) | | 206 |
|
| Net increase (decrease) in cash and cash equivalents | $ | (399 | ) | | $ | (2,868 | ) | | $ | 1,034 |
|
Cash Flows for the Year Ended December 31, 20192021
In 2021, we used $5.9 billion of cash generated by our operations and $1.8 billion in debt issuances and borrowings to make $2.2 billion of investments in our business, repay $3.2 billion of debt and finance lease obligations (including premiums on the early redemption and retirement of debt), fund $1.5 billion
of other financing activities, and increase our available cash on hand by $809 million. The debt issuances, borrowings, and repayments are described in Note 10 of Notes to Consolidated Financial Statements.
As previously noted, our operations generated $5.5$5.9 billion of cash in 2019,2021, driven primarily by net income of $2.8 billion, noncash charges to income of $2.5$2.3 billion,, and a positive change in working capital of $294 million.$2.2 billion, and net income of $1.3 billion. Noncash charges primarily included $2.3$2.4 billionof depreciation and amortization expense and $234a $193 million loss on the early redemption and retirement of debt, partially offset by a $126 million deferred income tax expense. See “RESULTS OF OPERATIONS” for further discussionbenefit and a $62 million gain on the sale of our operations. The changea partial interest in our working capital is detailedMVP, as described in Note 1813 of Notes to Consolidated Financial Statements. The sourceDetails regarding the components of cash resulting from the $294 million change in working capital, was mainly due to:along with the reasons for the changes in those components, are described in Note 19 of Notes to Consolidated Financial Statements. In addition, see “RESULTS OF OPERATIONS” for an analysis of the significant components of our net income.
an increaseOur investing activities of $1.5$2.2 billion consisted of $2.5 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 timingcapital investments, as defined below under “Capital Investments,” 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 auditwhich $1.0 billion related to our U.S. federal income tax returns for 2010self-funded capital investments by DGD 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$110 million related to self-funded capital investments by DGD;
|
fund $225 million of capital expenditures of VIEs other than DGD;DGD, partially offset by $270 million of proceeds received from the sale of a partial interest in MVP, as described in Note 13 of Notes to Consolidated Financial Statements.
acquire undivided interests
Other financing activities of $1.5 billion consisted primarily of $1.6 billion in pipelinedividend payments and terminal assets$27 million for $72 million;
redeem our 6.125 percent Senior Notes for $871 million (or 102.48 percentthe purchase of stated value);
purchase common stock for treasury of $777 million;in connection with stock-based compensation plans, partially offset by $189 million in contributions from noncontrolling interests.
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, 20182020
In 2020, we used $948 million of cash generated by our operations and $4.6 billion in debt issuances and borrowings to make $2.4 billion of investments in our business, repay $495 million of debt and finance lease obligations, fund $2.0 billion of other financing activities, and increase our available cash on hand by $730 million. The debt issuances, borrowings, and repayments are described in Note 10 of Notes to Consolidated Financial Statements.
Our
As previously noted, our operations generated $4.4 billion$948 million of cash in 2018, driven primarily by net income of $3.4 billion and2020, which resulted from noncash charges to income of $2.3$2.4 billion, partially offset by a negativean unfavorable change in working capital of $1.3 billion.$345 million. Noncash charges primarily included $2.1$2.4 billion of depreciation and amortization expense and $203$158 million of deferred income tax expense.See “RESULTS OF OPERATIONS” for further discussion of our operations. The change in our working capital is detailedwas affected primarily by a $740 million use of cash4 resulting from the rapid decline in market prices of refined petroleum products and crude oil as a result of the negative economic effects of the COVID-19 pandemic that impacted our receivables and accounts payable. This use of cash, along with other uses of cash, were partially offset by a $1.0 billion source of cash driven by a reduction in inventory levels on hand. Details regarding the components of the change in working capital, along with the reasons for the changes in those components, are described in Note 1819 of Notes to Consolidated Financial Statements. The useIn addition, see “RESULTS OF OPERATIONS” for an analysis of cash resulting from the $1.3 billion change in working capital was mainly due to:significant components of our net loss.
an increaseOur investing activities of $457 million in receivables resulting from an increase in sales volumes, partially offset by a decrease in commodity prices;
an increase$2.4 billion consisted 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$2.5 billion in capital investments, of which $192$548 million related to self-funded capital investments by DGD;
fund $124DGD and $251 million ofrelated to capital expenditures of VIEs other than DGD;DGD.
fund (i) $468 million for
4 Represents the Peru Acquisition (as definednet cash flow change in “receivables, net” of $3.3 billion and discussedaccounts payable of $4.1 billionduring the year ended December 31, 2020, as described in Note 219 of Notes to Consolidated Financial Statements)Statements.
Other financing activities of $2.0 billion consisted primarily of $1.6 billion in May 2018; (ii) $320dividend payments, $208 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 Flowsand $156 million for the Year Endedpurchase of common stock for treasury.
Our Capital Resources
Our material cash requirements as of December 31, 2017
2021 primarily consist of working capital requirements, capital investments, contractual obligations, and other matters, as described below. Our operations have historically generated $5.5 billion ofpositive 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
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 inflows to fulfill 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:requirements.
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 thoseCapital investments are comprised of our refining segment,capital expenditures, deferred turnaround and catalyst cost expenditures, and investments in nonconsolidated joint ventures, as reflected in our consolidated statements of cash flows as shown on page 75. Capital investments exclude strategic investments or acquisitions, if any.
We also identify our capital investments by the nature of the project with which the expenditure is associated as follows:
•Sustaining capital investments are highly capital intensive. Eachgenerally associated with projects that are expected to extend the lives of our refineries comprises a large base of property assets, consistingsustain their operating capabilities and safety (including deferred turnaround and catalyst cost expenditures), or comply with regulatory requirements. Regulatory compliance capital investments are generally associated with projects that are incurred to comply with governmental regulatory requirements, such as requirements to reduce emissions and prohibited elements from our products.
•Growth capital investments, including low-carbon growth capital investments that support the development and growth of a series of interconnected, highly integratedour low-carbon renewable diesel and interdependent crude oil processing facilities and supporting logistical infrastructure (Units), and these Unitsethanol businesses, are improved continuously. The cost of improvements, which consist ofgenerally associated with projects for the additionconstruction of new Unitsproperty assets that are expected to enhance our profitability and bettermentscash-generating capabilities, including investments in nonconsolidated joint ventures.
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 adeveloped an extensive multi-year capital investment program, that is updatedwhich we update and revisedrevise based on changing internal and external factors. The following table reflects our expected capital investments for the year ending December 31, 2022 by nature of the project and reportable segment, along with historical amounts for the years ended December 31, 2021 and 2020 (in millions). The following table also reflects capital investments attributable to Valero, which is a non-GAAP measure that we define and reconcile to capital investments below under “Capital Investments Attributable to Valero.”
| | | | | | | | | | | | | | | | | |
| Year Ending
December 31,
2022 (a) | | Year Ended
December 31, |
| | 2021 | | 2020 |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Capital investments by nature of the project (b): | | | | | |
| Sustaining capital investments | $ | 1,290 | | | $ | 1,129 | | | $ | 1,126 | |
| Growth capital investments: | | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Low-carbon growth capital investments | 760 | | | 1,042 | | | 566 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Other growth capital investments | 340 | | | 296 | | | 798 | |
| Total growth capital investments | 1,100 | | | 1,338 | | | 1,364 | |
| Total capital investments | $ | 2,390 | | | $ | 2,467 | | | $ | 2,490 | |
| Capital investments by segment: | | | | | |
| Refining | $ | 1,540 | | | $ | 1,378 | | | $ | 1,887 | |
| Renewable Diesel | 780 | | | 1,048 | | | 548 | |
| Ethanol | 40 | | | 15 | | | 21 | |
| Corporate | 30 | | | 26 | | | 34 | |
| Total capital investments | 2,390 | | | 2,467 | | | 2,490 | |
| Adjustments: | | | | | |
Renewable Diesel capital investments attributable to the other joint venture member in DGD | (390) | | | (524) | | | (274) | |
| Capital expenditures of other VIEs | — | | | (110) | | | (251) | |
| Capital investments attributable to Valero | $ | 2,000 | | | $ | 1,833 | | | $ | 1,965 | |
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________________________
(a)All expected amounts for the productsyear ending December 31, 2022 exclude capital expenditures that the consolidated VIEs other than DGD may incur because we produce, or to enhance their profitability. Reliability and environmental improvements generally do not increaseoperate those VIEs.
(b)Capital investments attributable to Valero by nature of the throughput capacitiesproject are as follows (in millions):
| | | | | | | | | | | | | | | | | |
| Year Ending
December 31,
2022 | | Year Ended
December 31, |
| | 2021 | | 2020 |
| | | | | |
| Sustaining capital investments | $ | 1,275 | | | $ | 1,105 | | | $ | 1,110 | |
| Growth capital investments: | | | | | |
| Low-carbon growth capital investments | 385 | | | 538 | | | 308 | |
| Other growth capital investments | 340 | | | 190 | | | 547 | |
| Total growth capital investments | 725 | | | 728 | | | 855 | |
| Total capital investments | $ | 2,000 | | | $ | 1,833 | | | $ | 1,965 | |
We have publicly announced GHG emissions reduction/offset targets for 2025 and 2035. We believe that our expected allocation of growth capital into lower-carbon projects is consistent with such targets. Certain of these lower-carbon projects have been completed or are already in execution and the associated capital investments are included in our expected capital investments for 2022. Our capital investments in future years to achieve these targets are expected to include investments associated with certain lower-carbon projects currently at various stages of progress, evaluation, or approval. See “ITEMS 1. and 2. BUSINESS AND PROPERTIES—OUR COMPREHENSIVE LIQUID FUELS STRATEGY—Our Low-Carbon Projects” for a description of our refineries. Improvementslow-carbon projects.
Capital Investments Attributable to Valero
Capital investments attributable to Valero is a non-GAAP financial measure that enhance refinery profitability may increase throughput capacity, but manyreflects our net share 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.
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’sis defined as all capital expenditures, and deferred turnaround and catalyst cost expenditures, and investments in nonconsolidated joint ventures, excluding the portion of DGD’s capital investments because we, as operatorattributable to the other joint venture member and all of DGD, manage its capital projects and expenditures. We do not include the capital expenditures of our other consolidated VIEsVIEs.
We are a 50 percent joint venture member in DGD and consolidate its financial statements. As a result, all of DGD’s net cash provided by operating activities (or operating cash flow) is included in our consolidated net cash provided by operating activities. DGD’s members use DGD’s operating cash flow (excluding changes in its current assets and current liabilities) to fund its capital investments rather than distribute all of that cash to themselves. Because DGD’s operating cash flow is effectively attributable to each member, only 50 percent of DGD’s capital investments should be attributed to our net share of capital investments. We also exclude all of the capital expenditures of other VIEs that we consolidate 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 more information about the VIEs that we consolidate. We believe capital investments attributable to Valero is an important measure because it more accurately reflects our capital investments.
Capital investments attributable to Valero should not be considered as an alternative to capital investments, which is the most comparable GAAP measure, nor should it be considered in isolation or as a discussionsubstitute for an analysis 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.cash flows as reported under GAAP. In addition, any major upgrades in anythis non-GAAP measure may not be comparable to similarly titled measures used by other companies because we may define it differently, which may diminish its utility.
| | | | | | | | | | | | | | |
| Year Ended December 31, | |
| 2021 | | 2020 | | | |
Reconciliation of capital investments to capital investments attributable to Valero | | | | | | |
| Capital expenditures (excluding VIEs) | $ | 513 | | | $ | 1,014 | | | | |
| Capital expenditures of VIEs: | | | | | | |
| DGD | 1,042 | | | 523 | | | | |
| Other VIEs | 110 | | | 251 | | | | |
Deferred turnaround and catalyst cost expenditures (excluding VIEs) | 787 | | | 623 | | | | |
Deferred turnaround and catalyst cost expenditures of DGD | 6 | | | 25 | | | | |
| Investments in nonconsolidated joint ventures | 9 | | | 54 | | | | |
| Capital investments | 2,467 | | | 2,490 | | | | |
| Adjustments: | | | | | | |
DGD’s capital investments attributable to our joint venture member | (524) | | | (274) | | | | |
| Capital expenditures of other VIEs | (110) | | | (251) | | | | |
| Capital investments attributable to Valero | $ | 1,833 | | | $ | 1,965 | | | | |
Contractual Obligations
Below is a summary of our contractual obligations (in millions) as of December 31, 2021 that are expected to be paid within the next year and thereafter. These obligations are reflected in our balance sheets, except (i) the interest payments related to debt obligations, operating facilities could require material additional expenditures to comply with environmental lawslease liabilities, and regulations. Seefinance lease obligations and (ii) purchase obligations.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Payments Due by Period | | |
| Short-Term | | Long-Term | | | | | | | | | | Total |
| Debt obligations (a) | $ | 1,110 | | | $ | 10,926 | | | | | | | | | | | $ | 12,036 | |
| Interest payments related to debt obligations (b) | 527 | | | 5,868 | | | | | | | | | | | 6,395 | |
| Operating lease liabilities (c) | 351 | | | 1,157 | | | | | | | | | | | 1,508 | |
| Finance lease obligations (c) | 228 | | | 2,476 | | | | | | | | | | | 2,704 | |
| Other long-term liabilities (d) | — | | | 2,464 | | | | | | | | | | | 2,464 | |
| Purchase obligations (e) | 23,211 | | | 8,669 | | | | | | | | | | | 31,880 | |
| | | | | | | | | | | | | |
________________________
(a)Debt obligations are described in Note 810 of Notes to Consolidated Financial Statements, for disclosurewhich is incorporated by reference into this item and includes a maturity analysis of our environmental liabilities.
Tax Matters
We take tax positions in our tax returns from timedebt. Debt obligations exclude amounts related 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 positionsnet unamortized debt issuance costs 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
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.
CONTRACTUAL OBLIGATIONS
Our contractual obligations as of December 31, 2019 are summarized below (in millions).
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Payments Due by Year | | |
| | 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter | | Total |
Debt and finance lease obligations (a) | $ | 541 |
| | $ | 103 |
| | $ | 93 |
| | $ | 110 |
| | $ | 82 |
| | $ | 9,485 |
| | $ | 10,414 |
|
| Debt obligations – interest payments | 464 |
| | 462 |
| | 455 |
| | 449 |
| | 449 |
| | 3,947 |
| | 6,226 |
|
| Operating lease liabilities (b) | 376 |
| | 250 |
| | 194 |
| | 160 |
| | 125 |
| | 498 |
| | 1,603 |
|
| Purchase obligations | 14,284 |
| | 1,906 |
| | 1,644 |
| | 1,565 |
| | 1,519 |
| | 3,558 |
| | 24,476 |
|
| Other long-term liabilities (c) | — |
| | 160 |
| | 168 |
| | 200 |
| | 215 |
| | 2,185 |
| | 2,928 |
|
| Total | $ | 15,665 |
| | $ | 2,881 |
| | $ | 2,554 |
| | $ | 2,484 |
| | $ | 2,390 |
| | $ | 19,673 |
| | $ | 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 | | Rating |
Moody’s Investors Service | | Baa2 (stable outlook) |
Standard & Poor’s Ratings Services | | BBB (stable outlook) |
Fitch Ratings | | 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 (b)– Interest Payments
Interest payments for ourrelated to 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, 2019.2021.
Operating Lease Liabilities
Our operating lease liabilities arise from leasing arrangements for the right to use various classes of underlying assets asand finance lease obligations are described in Note 56 of Notes to Consolidated Financial Statements.Statements, which is incorporated by reference into this item and includes maturity analyses of remaining minimum lease payments. Operating lease liabilities and finance lease obligations reflected in this table include related interest expense.
(d)Other long-term liabilities are recognized for leasing arrangements with terms greater than one year anddescribed in Note 9 of Notes to Consolidated Financial Statements, which is incorporated by reference into this item. Other long-term liabilities exclude amounts related to the long-term portion of operating lease liabilities that are not reduced by minimum lease payments to be received by us under subleases.separately presented above.
(e)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. Certaindescribed in Note 11 of these purchaseNotes to Consolidated Financial Statements, which is incorporated by reference into this item. 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 Liabilities60
Our other long-term liabilities
The amounts outstanding associated with the debt instruments described below are describedreflected in Note 8current portion of Notes to Consolidated Financial Statements. For purposes of reflecting amounts for other long-term liabilitiesdebt and finance lease obligations in the preceding table, we made our best estimate of expected payments for each type of liability based on information availablebalance sheet as of December 31, 2019.2021, and they are also included in the table above in debt obligations – short-term. However, the final cash flows for these instruments cannot be predicted with certainty at this time for the reasons noted below.
•The $300 million of 4.00 percent Gulf Opportunity Zone Revenue Bonds Series 2010 (GO Zone Bonds) are due December 1, 2040, but they are subject to mandatory tender on June 1, 2022 (the Mandatory Tender Date) at a price equal to par plus accrued and unpaid interest up to, but excluding, the Mandatory Tender Date. However, we have the option to effectuate a remarketing of these bonds, and we currently expect to remarket them effective on or soon after the Mandatory Tender Date or otherwise refinance them, but we cannot provide any assurance that we will be able to do so. NEW ACCOUNTING PRONOUNCEMENTS
As discussed•The IEnova Revolver, as defined and described in Note 110 of Notes to Consolidated Financial Statements, certain new financial accounting pronouncements became effectiveis subject to repayment on demand; however, we do not expect the lender to demand repayment during the next 12 months.
We have not entered into any transactions, agreements, or other contractual arrangements that would result in off-balance sheet liabilities.
Other Matters Impacting Liquidity and Capital Resources
Stock Purchase Program
On January 1,23, 2018, our Board authorized the 2018 Program for the purchase of our outstanding common stock.As of December 31, 2021, we had $1.4 billion available for purchase under the 2018 Program, which has no expiration date. We have not purchased any shares of our common stock under the 2018 Program since mid-March 2020, orand we will become effective inevaluate the future. The effect on our financial statements upon adoptiontiming 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 usrepurchases when appropriate. We have no obligation to make estimatespurchases under this program.
Pension Plan Funding
We plan to contribute $116 million to our pension plans 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$22 million to our critical accounting policies that involve critical accounting estimates, and should be read in conjunction withother postretirement benefit plans during 2022. See Note 114 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 allfor a discussion 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.employee benefit plans.
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
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 actionmeasures, GHG emissions, and regulatory initiatives could result in changes tocharacteristics and composition of many of our products. 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 operating permits, additional remedial actions, or increased capital expenditures and operating costs that cannot be assessed with certainty at this time.
Accruals for environmental liabilitiesmatters could increase in the future. See Note 9 of Notes to Consolidated Financial Statements for disclosure of our environmental liabilities.
Tax Matters
During 2020, we deferred payment on $250 million of value-added and motor fuel taxes that were otherwise due in 2020 as permitted by various taxing authorities to help companies address the negative impacts of the COVID-19 pandemic. We paid $220 million of the deferred amount in 2021 and the remaining $30 million in January 2022.
Cash Held by Our Foreign Subsidiaries
As of December 31, 2021, $3.3 billion of our cash and cash equivalents was held by our foreign subsidiaries. Cash held by our foreign subsidiaries can be repatriated to us without any U.S. federal income tax consequences on dividends, but certain other taxes may apply, including, but not limited to, withholding taxes imposed by certain foreign jurisdictions, U.S. state income taxes, and U.S. federal income tax on foreign exchange gains. Therefore, there is a cost to repatriate cash held by certain of our foreign subsidiaries to us. However, we have accrued for withholding taxes and U.S. state income taxes on a portion of the cash held by certain of our foreign subsidiaries and we believe that the remaining cost is not material to our financial position and liquidity.
Concentration of Customers
Our operations have a concentration of customers in the refining industry and customers who are based on bestrefined 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, including the uncertainties concerning the COVID-19 pandemic and volatility in the global crude oil markets. 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. See also “ITEM 1A. RISK FACTORS—Risks Related to Our Business, Industry, and Operations—Legal, regulatory, and political matters and developments regarding climate change, GHG or other air emissions, fuel efficiency, or the environment may decrease the demand for our petroleum-based products and could adversely affect our performance.”
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with 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 probable undiscounted future costs over a 20-year time period using currently available technologyNotes 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 applying current regulations,judgment involved, as well as the impact on our own internal environmental policies. However, environmental liabilitiesfinancial position and results of operations. We believe that all of our estimates are difficultreasonable. Unless otherwise noted, estimates of the sensitivity to assess and estimateearnings that would result from changes in the assumptions used in determining our estimates is not practicable due to uncertainties related to the magnitudenumber of assumptions and contingencies involved, and the wide range of possible remediation,outcomes.
Unrecognized Tax Benefits
We take tax positions in our tax returns from time to time that ultimately may not be allowed by the timingrelevant taxing authorities. When we take such positions, we evaluate the likelihood of sustaining those positions and determine the amount of tax benefit arising from such remediation,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.
The evaluation of tax positions and the determination of the benefit arising from such positions that are recognized in our obligation in proportionfinancial statements requires us to other parties. Such 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 identificationprogress of new sites requiring remediation,ongoing tax audits, case law, and 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.legislation.
The amountDetails of our accrualsliability for environmental mattersunrecognized tax benefits, along with other information about our unrecognized tax benefits, are included in Note 816 of Notes to Consolidated Financial Statements.
PensionImpairment of Long-Lived Assets
Long-lived assets (primarily property, plant, and Other Postretirement Benefit Obligations
We have significant pension and other postretirement benefit liabilities and costsequipment) are tested for recoverability whenever events or changes in circumstances indicate 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 representativecarrying amount of the asset mix in our pension plans. To determinemay not be recoverable. A long-lived asset is not recoverable if its carrying amount exceeds the sum of the undiscounted cash flows expected return on plan assets, we utilizedto result from its use and eventual disposition. If a forward-looking model oflong-lived asset returns. The historical geometric average return over the 10 years prior to December 31, 2019 was 9.41 percent. The actual return on assetsis not recoverable, an impairment loss is recognized for the years ended December 31, 2019, 2018,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.
In order to test for recoverability, we must make estimates of projected cash flows related to the asset being evaluated. Such estimates include, but are not limited to, assumptions about future sales volumes, commodity prices, operating costs, margins, the use or disposition of the asset, the asset’s estimated remaining useful life, and 2017 was 23.44 percent, (5.53) percent,future expenditures necessary to maintain the asset’s existing service potential in light of existing and 19.31 percent, respectively. Theseexpected regulations. Due to the significant subjectivity of the assumptions can have aused to test for recoverability, changes in market conditions could result in significant effect onimpairment charges in the amounts reported infuture, thus affecting our financial statements.earnings.
The following sensitivity analysis shows the effects on the projected benefit obligation asAs of December 31, 2019 and net periodic benefit cost for the year ending December 31, 2020 (in millions):
|
| | | | | | | |
| |
Pension Benefits | | Other Postretirement Benefits |
| Increase in projected benefit obligation resulting from: | | | |
| Discount rate decrease of 0.25% | $ | 134 |
| | $ | 10 |
|
| Compensation rate increase of 0.25% | 17 |
| | n/a |
|
| Increase in expense resulting from: | | | |
| Discount rate decrease of 0.25% | 12 |
| | — |
|
| Expected return on plan assets decrease of 0.25% | 6 |
| | n/a |
|
| Compensation rate increase of 0.25% | 4 |
| | n/a |
|
Our net periodic benefit cost is2021, we 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 discussionthere was noimpairment 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.
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 feedstocks (primarily crude oil, refined petroleumwaste and renewable feedstocks, and corn), the products (primarily gasoline and distillate), renewable diesel, grain (primarily corn), renewable diesel feedstocks,we produce, 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 petroleumand/or 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 boardBoard.
As of directors.
The following sensitivity analysis includesDecember 31, 2021 and 2020, the amount of gain or loss that would have resulted from a 10 percent increase or decrease in the underlying price for all of our commodity derivative instruments entered into for purposes other than trading with which we have market risk (in millions):
|
| | | | | | | |
| | December 31, |
| | 2019 | | 2018 |
| Gain (loss) in fair value resulting from: | | | |
| 10% increase in underlying commodity prices | $ | (39 | ) | | $ | 2 |
|
| 10% decrease in underlying commodity prices | 38 |
| | (6 | ) |
was not material. See Note 2021 of Notes to Consolidated Financial Statements for notional volumes associated with these derivative contracts as of December 31, 2019.2021.
COMPLIANCE PROGRAM PRICE RISK
We are exposed to market risk related to the volatility in the price of credits needed to comply with various governmentalthe Renewable and regulatory environmental compliance programs.Low-Carbon Fuel Blending 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.credits. As of December 31, 20192021 and 2018,2020, 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 2021 of Notes to Consolidated Financial Statements for a discussion about these complianceblending programs.
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. See Note 10 of Notes to Consolidated Financial Statements for additional information related to our debt.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 (a) |
| Expected Maturity Dates | | | | |
| 2022 (b)(c) | | 2023 | | 2024 | | 2025 | | 2026 | | There-
after | | Total | | Fair
Value |
| Fixed rate | $ | 300 | | $ | — | | | $ | 169 | | $ | 1,374 | | $ | 1,726 | | $ | 7,637 | | $ | 11,206 | | $ | 12,838 | |
| Average interest rate | 4.0 | % | | — | % | | 1.2 | % | | 3.0 | % | | 3.9 | % | | 5.0 | % | | 4.5 | % | | |
| Floating rate | $ | 810 | | $ | 20 | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 830 | | $ | 830 | |
| Average interest rate | 3.5 | % | | 3.9 | % | | — | % | | — | % | | — | % | | — | % | | 3.5 | % | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2019 |
| | Expected Maturity Dates | | | | |
| | 2020 (a) | | 2021 | | 2022 | | 2023 | | 2024 | | There- after | | Total (b) | | Fair Value |
| Fixed rate | $ | — |
| | $ | 11 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 8,474 |
| | $ | 8,485 |
| | $ | 10,099 |
|
| Average interest rate | — | % | | 5.0 | % | | — | % | | — | % | | — | % | | 5.2 | % | | 5.2 | % | | |
| Floating rate (c) | $ | 453 |
| | $ | 6 |
| | $ | 6 |
| | $ | 19 |
| | $ | — |
| | $ | — |
| | $ | 484 |
| | $ | 484 |
|
| Average interest rate | 5.0 | % | | 4.5 | % | | 4.5 | % | | 4.5 | % | | — | % | | — | % | | 5.0 | % | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2018 |
| | Expected Maturity Dates | | | | |
| | 2019 (a) | | 2020 | | 2021 | | 2022 | | 2023 | | There- after | | Total (b) | | Fair Value |
| Fixed rate | $ | — |
| | $ | 850 |
| | $ | 10 |
| | $ | — |
| | $ | — |
| | $ | 7,474 |
| | $ | 8,334 |
| | $ | 8,737 |
|
| Average interest rate | — | % | | 6.1 | % | | 5.0 | % | | — | % | | — | % | | 5.4 | % | | 5.5 | % | | |
| Floating rate (c) | $ | 214 |
| | $ | 5 |
| | $ | 5 |
| | $ | 5 |
| | $ | 20 |
| | $ | — |
| | $ | 249 |
| | $ | 249 |
|
| Average interest rate | 4.6 | % | | 4.7 | % | | 4.7 | % | | 4.7 | % | | 4.7 | % | | — | % | | 4.6 | % | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 (a) |
| Expected Maturity Dates | | | | |
| 2021 (c) | | 2022 (b) | | 2023 | | 2024 | | 2025 | | There-
after | | Total | | Fair
Value |
| Fixed rate | $ | — | | | $ | 300 | | $ | 850 | | $ | 925 | | $ | 1,650 | | $ | 8,174 | | $ | 11,899 | | $ | 13,899 | |
| Average interest rate | — | % | | 4.0 | % | | 2.7 | % | | 1.2 | % | | 3.1 | % | | 5.1 | % | | 4.4 | % | | |
| Floating rate | $ | 603 | | $ | 6 | | $ | 595 | | $ | — | | | $ | — | | | $ | — | | | $ | 1,204 | | $ | 1,204 | |
| Average interest rate | 3.9 | % | | 3.0 | % | | 1.4 | % | | — | % | | — | % | | — | % | | 2.7 | % | | |
________________________
| |
(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. |
(a)Excludes unamortized discounts and debt issuance costs.
(b)See “ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS—LIQUIDITY AND CAPITAL RESOURCES—Our Capital Resources—Contractual Obligations” for a discussion of the Mandatory Tender Date and maturity date of our GO Zone Bonds.
(c)Our floating rate debt included outstanding borrowings under the DGD Revolver, the DGD Loan Agreement, and the IEnova Revolver (each as defined and described in Note 10 of Notes to Consolidated Financial Statements). The respective lenders of these debt instruments do not have recourse against us.
FOREIGN CURRENCY RISK
We are exposed to exchange rate fluctuations on transactions related to our foreign 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 often use foreign currency contracts. As of December 31, 2019, we had2021 and 2020, the fair value of our 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 allnot material.
of them matured on or before February 15, 2020.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MANAGEMENT’SMANAGEMENT’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, 2019.2021. 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, 2019,2021, 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 6269 of this report.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TheTo 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, 20192021 and 2018,2020, 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, 2019,2021, 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, 20192021 and 2018,2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2019,2021, 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, 2019,2021, 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, 202022, 2022 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.
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.judgments. 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 1516 to the consolidated financial statements, as of December 31, 2019,2021, the Company has gross unrecognized tax benefits, excluding related interest and penalties, of $897$816 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 internationalforeign 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 complexmatter. 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 following are the primary procedures we performed to address this critical audit matter includedmatter. We evaluated the following. Wedesign and tested the operating effectiveness of certain internal controls over the Company’s income tax process, includingprocess. This included 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•obtaining an understanding and evaluating the Company’s income tax positions as filed or intended to be filed;filed
Evaluating•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;assessment
Inspecting•inspecting settlements and communications with applicable taxing authorities; andauthorities
Assessing•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.
/s/ KPMG LLP
We have served as the Company’s auditor since 2004.
San Antonio, Texas
February 26, 2020
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TheTo the Board of Directors and Stockholders
Valero Energy Corporation:
Opinion on Internal Control Over Financial Reporting
We have audited Valero Energy Corporation’sCorporation and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2019,2021, 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, 2019,2021, 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, 20192021 and 2018,2020, 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, 2019,2021, and the related notes (collectively, the consolidated financial statements), and our report dated February 26, 202022, 2022 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
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.
/s/ KPMG LLP
San Antonio, Texas
February 26, 202022, 2022
VALERO ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(millions of dollars, except par value)
| | | | December 31, | | December 31, |
| | 2019 | | 2018 | | 2021 | | 2020 |
| ASSETS | | | | ASSETS | | | |
| Current assets: | | | | Current assets: | |
| Cash and cash equivalents | $ | 2,583 |
| | $ | 2,982 |
| Cash and cash equivalents | $ | 4,122 | | | $ | 3,313 | |
| Receivables, net | 8,904 |
| | 7,345 |
| Receivables, net | 10,378 | | | 6,109 | |
| Inventories | 7,013 |
| | 6,532 |
| Inventories | 6,265 | | | 6,038 | |
| Prepaid expenses and other | 469 |
| | 816 |
| Prepaid expenses and other | 400 | | | 384 | |
| Total current assets | 18,969 |
| | 17,675 |
| Total current assets | 21,165 | | | 15,844 | |
| Property, plant, and equipment, at cost | 44,294 |
| | 42,473 |
| Property, plant, and equipment, at cost | 49,072 | | | 46,967 | |
| Accumulated depreciation | (15,030 | ) | | (13,625 | ) | Accumulated depreciation | (18,225) | | | (16,578) | |
| Property, plant, and equipment, net | 29,264 |
| | 28,848 |
| Property, plant, and equipment, net | 30,847 | | | 30,389 | |
| Deferred charges and other assets, net | 5,631 |
| | 3,632 |
| Deferred charges and other assets, net | 5,876 | | | 5,541 | |
| Total assets | $ | 53,864 |
| | $ | 50,155 |
| Total assets | $ | 57,888 | | | $ | 51,774 | |
| LIABILITIES AND EQUITY | | | | LIABILITIES AND EQUITY | | | |
| Current liabilities: | | | | Current liabilities: | |
| Current portion of debt and finance lease obligations | $ | 494 |
| | $ | 238 |
| Current portion of debt and finance lease obligations | $ | 1,264 | | | $ | 723 | |
| Accounts payable | 10,205 |
| | 8,594 |
| Accounts payable | 12,495 | | | 6,082 | |
| Accrued expenses | 949 |
| | 630 |
| Accrued expenses | 1,253 | | | 994 | |
| Taxes other than income taxes payable | 1,304 |
| | 1,213 |
| Taxes other than income taxes payable | 1,461 | | | 1,372 | |
| Income taxes payable | 208 |
| | 49 |
| Income taxes payable | 378 | | | 112 | |
| Total current liabilities | 13,160 |
| | 10,724 |
| Total current liabilities | 16,851 | | | 9,283 | |
| Debt and finance lease obligations, less current portion | 9,178 |
| | 8,871 |
| Debt and finance lease obligations, less current portion | 12,606 | | | 13,954 | |
| Deferred income tax liabilities | 5,103 |
| | 4,962 |
| Deferred income tax liabilities | 5,210 | | | 5,275 | |
| Other long-term liabilities | 3,887 |
| | 2,867 |
| Other long-term liabilities | 3,404 | | | 3,620 | |
| Commitments and contingencies |
| |
| Commitments and contingencies | 0 | | 0 |
| Equity: | | | | Equity: | |
| Valero Energy Corporation stockholders’ 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 | 7 |
| | 7 |
| Common stock, $0.01 par value; 1,200,000,000 shares authorized; 673,501,593 and 673,501,593 shares issued | 7 | | | 7 | |
| Additional paid-in capital | 6,821 |
| | 7,048 |
| Additional paid-in capital | 6,827 | | | 6,814 | |
Treasury stock, at cost; 264,209,742 and 255,905,051 common shares | (15,648 | ) | | (14,925 | ) | |
Treasury stock, at cost; 264,305,955 and 265,096,171 common shares | | Treasury stock, at cost; 264,305,955 and 265,096,171 common shares | (15,677) | | | (15,719) | |
| Retained earnings | 31,974 |
| | 31,044 |
| Retained earnings | 28,281 | | | 28,953 | |
| Accumulated other comprehensive loss | (1,351 | ) | | (1,507 | ) | Accumulated other comprehensive loss | (1,008) | | | (1,254) | |
| Total Valero Energy Corporation stockholders’ equity | 21,803 |
| | 21,667 |
| Total Valero Energy Corporation stockholders’ equity | 18,430 | | | 18,801 | |
| Noncontrolling interests | 733 |
| | 1,064 |
| Noncontrolling interests | 1,387 | | | 841 | |
| Total equity | 22,536 |
| | 22,731 |
| Total equity | 19,817 | | | 19,642 | |
| Total liabilities and equity | $ | 53,864 |
| | $ | 50,155 |
| Total liabilities and equity | $ | 57,888 | | | $ | 51,774 | |
See Notes to Consolidated Financial Statements.
VALERO ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(millions of dollars, except per share amounts)
| | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | |
| 2021 | | 2020 | | 2019 | |
| Revenues (a) | $ | 113,977 | | | $ | 64,912 | | | $ | 108,324 | | |
| Cost of sales: | | | | | | |
| Cost of materials and other | 102,714 | | | 58,933 | | | 96,476 | | |
| Lower of cost or market (LCM) inventory valuation adjustment | — | | | (19) | | | — | | |
Operating expenses (excluding depreciation and amortization expense reflected below) | 5,776 | | | 4,435 | | | 4,868 | | |
| Depreciation and amortization expense | 2,358 | | | 2,303 | | | 2,202 | | |
| Total cost of sales | 110,848 | | | 65,652 | | | 103,546 | | |
| Other operating expenses | 87 | | | 35 | | | 21 | | |
General and administrative expenses (excluding depreciation and amortization expense reflected below) | 865 | | | 756 | | | 868 | | |
| Depreciation and amortization expense | 47 | | | 48 | | | 53 | | |
| | | | | | |
| Operating income (loss) | 2,130 | | | (1,579) | | | 3,836 | | |
| Other income, net | 16 | | | 132 | | | 104 | | |
| Interest and debt expense, net of capitalized interest | (603) | | | (563) | | | (454) | | |
| Income (loss) before income tax expense (benefit) | 1,543 | | | (2,010) | | | 3,486 | | |
| Income tax expense (benefit) | 255 | | | (903) | | | 702 | | |
| | | | | | |
| | | | | | |
| Net income (loss) | 1,288 | | | (1,107) | | | 2,784 | | |
| Less: Net income attributable to noncontrolling interests | 358 | | | 314 | | | 362 | | |
Net income (loss) attributable to Valero Energy Corporation stockholders | $ | 930 | | | $ | (1,421) | | | $ | 2,422 | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Earnings (loss) per common share | $ | 2.27 | | | $ | (3.50) | | | $ | 5.84 | | |
| Weighted-average common shares outstanding (in millions) | 407 | | | 407 | | | 413 | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Earnings (loss) per common share – assuming dilution | $ | 2.27 | | | $ | (3.50) | | | $ | 5.84 | | |
Weighted-average common shares outstanding – assuming dilution (in millions) | 407 | | | 407 | | | 414 | | |
| __________________________ | | | | | | |
| Supplemental information: | | | | | | |
(a) Includes excise taxes on sales by certain of our foreign operations | $ | 5,645 | | | $ | 4,797 | | | $ | 5,595 | | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| Revenues (a) | $ | 108,324 |
| | $ | 117,033 |
| | $ | 93,980 |
|
| Cost of sales: | | | | | |
| Cost of materials and other | 96,476 |
| | 104,732 |
| | 83,037 |
|
Operating expenses (excluding depreciation and amortization expense reflected below) | 4,868 |
| | 4,690 |
| | 4,504 |
|
| Depreciation and amortization expense | 2,202 |
| | 2,017 |
| | 1,934 |
|
| Total cost of sales | 103,546 |
| | 111,439 |
| | 89,475 |
|
| Other operating expenses | 21 |
| | 45 |
| | 61 |
|
General and administrative expenses (excluding depreciation and amortization expense reflected below) | 868 |
| | 925 |
| | 829 |
|
| Depreciation and amortization expense | 53 |
| | 52 |
| | 52 |
|
| Operating income | 3,836 |
| | 4,572 |
| | 3,563 |
|
| Other income, net | 104 |
| | 130 |
| | 112 |
|
| Interest and debt expense, net of capitalized interest | (454 | ) | | (470 | ) | | (468 | ) |
| Income before income tax expense (benefit) | 3,486 |
| | 4,232 |
| | 3,207 |
|
| Income tax expense (benefit) | 702 |
| | 879 |
| | (949 | ) |
| Net income | 2,784 |
| | 3,353 |
| | 4,156 |
|
| Less: Net income attributable to noncontrolling interests | 362 |
| | 231 |
| | 91 |
|
| Net income attributable to Valero Energy Corporation stockholders | $ | 2,422 |
| | $ | 3,122 |
| | $ | 4,065 |
|
| | | | | | |
| Earnings per common share | $ | 5.84 |
| | $ | 7.30 |
| | $ | 9.17 |
|
| Weighted-average common shares outstanding (in millions) | 413 |
| | 426 |
| | 442 |
|
| | | | | | |
| Earnings per common share – assuming dilution | $ | 5.84 |
| | $ | 7.29 |
| | $ | 9.16 |
|
Weighted-average common shares outstanding – assuming dilution (in millions) | 414 |
| | 428 |
| | 444 |
|
| _______________________________________________ | | | | | |
| Supplemental information: | | | | | |
(a) Includes excise taxes on sales by certain of our international operations | $ | 5,595 |
| | $ | 5,626 |
| | $ | 5,573 |
|
See Notes to Consolidated Financial Statements.
VALERO ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(millions of dollars)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Net income (loss) | $ | 1,288 | | | $ | (1,107) | | | $ | 2,784 | |
| Other comprehensive income: | | | | | |
| Foreign currency translation adjustment | (47) | | | 161 | | | 349 | |
Net gain (loss) on pension and other postretirement benefits | 378 | | | (80) | | | (234) | |
| Net gain (loss) on cash flow hedges | (2) | | | 2 | | | (8) | |
Other comprehensive income before income tax expense (benefit) | 329 | | | 83 | | | 107 | |
Income tax expense (benefit) related to items of other comprehensive income | 82 | | | (16) | | | (48) | |
| Other comprehensive income | 247 | | | 99 | | | 155 | |
| Comprehensive income (loss) | 1,535 | | | (1,008) | | | 2,939 | |
Less: Comprehensive income attributable to noncontrolling interests | 359 | | | 316 | | | 361 | |
Comprehensive income (loss) attributable to Valero Energy Corporation stockholders | $ | 1,176 | | | $ | (1,324) | | | $ | 2,578 | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| Net income | $ | 2,784 |
| | $ | 3,353 |
| | $ | 4,156 |
|
| Other comprehensive income (loss): | | | | | |
| Foreign currency translation adjustment | 349 |
| | (517 | ) | | 514 |
|
Net gain (loss) on pension and other postretirement benefits | (234 | ) | | 49 |
| | (65 | ) |
| Net loss on cash flow hedges | (8 | ) | | — |
| | — |
|
Other comprehensive income (loss) before income tax expense (benefit) | 107 |
| | (468 | ) | | 449 |
|
Income tax expense (benefit) related to items of other comprehensive income (loss) | (48 | ) | | 10 |
| | (21 | ) |
| Other comprehensive income (loss) | 155 |
| | (478 | ) | | 470 |
|
| Comprehensive income | 2,939 |
| | 2,875 |
| | 4,626 |
|
Less: Comprehensive income attributable to noncontrolling interests | 361 |
| | 229 |
| | 91 |
|
Comprehensive income attributable to Valero Energy Corporation stockholders | $ | 2,578 |
| | $ | 2,646 |
| | $ | 4,535 |
|
See Notes to Consolidated Financial Statements.
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 | | Accumulated
Other
Comprehensive
Loss | | Total | | Non-
controlling
Interests | | Total
Equity |
| Balance as of December 31, 2018 | $ | 7 | | | $ | 7,048 | | | $ | (14,925) | | | $ | 31,044 | | | $ | (1,507) | | | $ | 21,667 | | | $ | 1,064 | | | $ | 22,731 | |
| Net income | — | | | — | | | — | | | 2,422 | | | — | | | 2,422 | | | 362 | | | 2,784 | |
Dividends on common stock ($3.60 per share) | — | | | — | | | — | | | (1,492) | | | — | | | (1,492) | | | — | | | (1,492) | |
| Stock-based compensation expense | — | | | 77 | | | — | | | — | | | — | | | 77 | | | — | | | 77 | |
Transactions in connection with stock-based compensation plans | — | | | (50) | | | 30 | | | — | | | — | | | (20) | | | — | | | (20) | |
| Open market stock purchases | — | | | — | | | (753) | | | — | | | — | | | (753) | | | — | | | (753) | |
Acquisition of Valero Energy Partners LP (VLP) publicly held common units | — | | | (328) | | | — | | | — | | | — | | | (328) | | | (622) | | | (950) | |
| | | | | | | | | | | | | | | |
| Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (70) | | | (70) | |
| Other | — | | | 74 | | | — | | | — | | | — | | | 74 | | | — | | | 74 | |
| Other comprehensive income (loss) | — | | | — | | | — | | | — | | | 156 | | | 156 | | | (1) | | | 155 | |
| Balance as of December 31, 2019 | 7 | | | 6,821 | | | (15,648) | | | 31,974 | | | (1,351) | | | 21,803 | | | 733 | | | 22,536 | |
| Net income (loss) | — | | | — | | | — | | | (1,421) | | | — | | | (1,421) | | | 314 | | | (1,107) | |
Dividends on common stock ($3.92 per share) | — | | | — | | | — | | | (1,600) | | | — | | | (1,600) | | | — | | | (1,600) | |
| Stock-based compensation expense | — | | | 76 | | | — | | | — | | | — | | | 76 | | | — | | | 76 | |
Transactions in connection with stock-based compensation plans | — | | | (83) | | | 59 | | | — | | | — | | | (24) | | | — | | | (24) | |
| Open market stock purchases | — | | | — | | | (130) | | | — | | | — | | | (130) | | | — | | | (130) | |
| | | | | | | | | | | | | | | |
| Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (208) | | | (208) | |
| | | | | | | | | | | | | | | |
| Other comprehensive income | — | | | — | | | — | | | — | | | 97 | | | 97 | | | 2 | | | 99 | |
| Balance as of December 31, 2020 | 7 | | | 6,814 | | | (15,719) | | | 28,953 | | | (1,254) | | | 18,801 | | | 841 | | | 19,642 | |
| Net income | — | | | — | | | — | | | 930 | | | — | | | 930 | | | 358 | | | 1,288 | |
Dividends on common stock ($3.92 per share) | — | | | — | | | — | | | (1,602) | | | — | | | (1,602) | | | — | | | (1,602) | |
| Stock-based compensation expense | — | | | 80 | | | — | | | — | | | — | | | 80 | | | — | | | 80 | |
Transactions in connection with stock-based compensation plans | — | | | (67) | | | 42 | | | — | | | — | | | (25) | | | — | | | (25) | |
| | | | | | | | | | | | | | | |
| Contributions from noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | 189 | | | 189 | |
| Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (2) | | | (2) | |
| | | | | | | | | | | | | | | |
| Other comprehensive income | — | | | — | | | — | | | — | | | 246 | | | 246 | | | 1 | | | 247 | |
| Balance as of December 31, 2021 | $ | 7 | | | $ | 6,827 | | | $ | (15,677) | | | $ | 28,281 | | | $ | (1,008) | | | $ | 18,430 | | | $ | 1,387 | | | $ | 19,817 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Valero Energy Corporation Stockholders’ Equity | | | | |
| | Common Stock | | Additional Paid-in Capital | | Treasury Stock | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total | | Non- controlling Interests | | Total Equity |
| Balance as of December 31, 2016 | $ | 7 |
| | $ | 7,088 |
| | $ | (12,027 | ) | | $ | 26,366 |
| | $ | (1,410 | ) | | $ | 20,024 |
| | $ | 830 |
| | $ | 20,854 |
|
| Net income | — |
| | — |
| | — |
| | 4,065 |
| | — |
| | 4,065 |
| | 91 |
| | 4,156 |
|
Dividends on common stock ($2.80 per share) | — |
| | — |
| | — |
| | (1,242 | ) | | — |
| | (1,242 | ) | | — |
| | (1,242 | ) |
| Stock-based compensation expense | — |
| | 68 |
| | — |
| | — |
| | — |
| | 68 |
| | — |
| | 68 |
|
Transactions in connection with stock-based compensation plans | — |
| | (82 | ) | | 19 |
| | — |
| | — |
| | (63 | ) | | — |
| | (63 | ) |
| Stock purchases under purchase programs | — |
| | — |
| | (1,307 | ) | | — |
| | — |
| | (1,307 | ) | | — |
| | (1,307 | ) |
Issuance of Valero Energy Partners LP
common units | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 33 |
| | 33 |
|
| Contributions from noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 30 |
| | 30 |
|
| Distributions to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (67 | ) | | (67 | ) |
| Other | — |
| | (35 | ) | | — |
| | 11 |
| | — |
| | (24 | ) | | (8 | ) | | (32 | ) |
| Other comprehensive income | — |
| | — |
| | — |
| | — |
| | 470 |
| | 470 |
| | — |
| | 470 |
|
| Balance as of December 31, 2017 | 7 |
| | 7,039 |
| | (13,315 | ) | | 29,200 |
| | (940 | ) | | 21,991 |
| | 909 |
| | 22,900 |
|
Reclassification of stranded income tax effects | — |
| | — |
| | — |
| | 91 |
| | (91 | ) | | — |
| | — |
| | — |
|
| Net income | — |
| | — |
| | — |
| | 3,122 |
| | — |
| | 3,122 |
| | 231 |
| | 3,353 |
|
Dividends on common stock ($3.20 per share) | — |
| | — |
| | — |
| | (1,369 | ) | | — |
| | (1,369 | ) | | — |
| | (1,369 | ) |
| Stock-based compensation expense | — |
| | 82 |
| | — |
| | — |
| | — |
| | 82 |
| | — |
| | 82 |
|
Transactions in connection with stock-based compensation plans | — |
| | (70 | ) | | (99 | ) | | — |
| | — |
| | (169 | ) | | — |
| | (169 | ) |
| Stock purchases under purchase programs | — |
| | — |
| | (1,511 | ) | | — |
| | — |
| | (1,511 | ) | | — |
| | (1,511 | ) |
| Contributions from noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 32 |
| | 32 |
|
| Distributions to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (116 | ) | | (116 | ) |
| Other | — |
| | (3 | ) | | — |
| | — |
| | — |
| | (3 | ) | | 10 |
| | 7 |
|
| Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | (476 | ) | | (476 | ) | | (2 | ) | | (478 | ) |
| Balance as of December 31, 2018 | 7 |
| | 7,048 |
| | (14,925 | ) | | 31,044 |
| | (1,507 | ) | | 21,667 |
| | 1,064 |
| | 22,731 |
|
| Net income | — |
| | — |
| | — |
| | 2,422 |
| | — |
| | 2,422 |
| | 362 |
| | 2,784 |
|
Dividends on common stock ($3.60 per share) | — |
| | — |
| | — |
| | (1,492 | ) | | — |
| | (1,492 | ) | | — |
| | (1,492 | ) |
| Stock-based compensation expense | — |
| | 77 |
| | — |
| | — |
| | — |
| | 77 |
| | — |
| | 77 |
|
Transactions in connection with stock-based compensation plans | — |
| | (50 | ) | | 30 |
| | — |
| | — |
| | (20 | ) | | — |
| | (20 | ) |
| Stock purchases under purchase program | — |
| | — |
| | (753 | ) | | — |
| | — |
| | (753 | ) | | — |
| | (753 | ) |
Acquisition of Valero Energy Partners LP publicly held common units | — |
| | (328 | ) | | — |
| | — |
| | — |
| | (328 | ) | | (622 | ) | | (950 | ) |
| Distributions to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (70 | ) | | (70 | ) |
| Other | — |
| | 74 |
| | — |
| | — |
| | — |
| | 74 |
| | — |
| | 74 |
|
| Other comprehensive income (loss) | — |
| | — |
| | — |
| | — |
| | 156 |
| | 156 |
| | (1 | ) | | 155 |
|
| Balance as of December 31, 2019 | $ | 7 |
| | $ | 6,821 |
| | $ | (15,648 | ) | | $ | 31,974 |
| | $ | (1,351 | ) | | $ | 21,803 |
| | $ | 733 |
| | $ | 22,536 |
|
See Notes to Consolidated Financial Statements.
VALERO ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions of dollars)
| | | | Year Ended December 31, | | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 | | 2021 | | 2020 | | 2019 |
| Cash flows from operating activities: | | | | | | Cash flows from operating activities: | | | | | |
| Net income | $ | 2,784 |
| | $ | 3,353 |
| | $ | 4,156 |
| |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
| Net income (loss) | | Net income (loss) | $ | 1,288 | | | $ | (1,107) | | | $ | 2,784 | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |
| Depreciation and amortization expense | 2,255 |
| | 2,069 |
| | 1,986 |
| Depreciation and amortization expense | 2,405 | | | 2,351 | | | 2,255 | |
| Loss on early redemption and retirement of debt | | Loss on early redemption and retirement of debt | 193 | | | — | | | 22 | |
| LCM inventory valuation adjustment | | LCM inventory valuation adjustment | — | | | (19) | | | — | |
| | Gain on sale of partial interest in MVP Terminalling, LLC (MVP) | | Gain on sale of partial interest in MVP Terminalling, LLC (MVP) | (62) | | | — | | | — | |
| Deferred income tax expense (benefit) | 234 |
| | 203 |
| | (2,543 | ) | Deferred income tax expense (benefit) | (126) | | | 158 | | | 234 | |
| Changes in current assets and current liabilities | 294 |
| | (1,297 | ) | | 1,289 |
| Changes in current assets and current liabilities | 2,225 | | | (345) | | | 294 | |
Changes in deferred charges and credits and other operating activities, net | (36 | ) | | 43 |
| | 594 |
| Changes in deferred charges and credits and other operating activities, net | (64) | | | (90) | | | (58) | |
| Net cash provided by operating activities | 5,531 |
| | 4,371 |
| | 5,482 |
| Net cash provided by operating activities | 5,859 | | | 948 | | | 5,531 | |
| Cash flows from investing activities: | | | | | | Cash flows from investing activities: | | | | | |
| Capital expenditures (excluding variable interest entities (VIEs)) | (1,627 | ) | | (1,463 | ) | | (1,269 | ) | Capital expenditures (excluding variable interest entities (VIEs)) | (513) | | | (1,014) | | | (1,627) | |
| Capital expenditures of VIEs: | | | | | | Capital expenditures of VIEs: | |
| Diamond Green Diesel Holdings LLC (DGD) | (142 | ) | | (165 | ) | | (84 | ) | Diamond Green Diesel Holdings LLC (DGD) | (1,042) | | | (523) | | | (142) | |
| Other VIEs | (225 | ) | | (124 | ) | | (26 | ) | Other VIEs | (110) | | | (251) | | | (225) | |
| Deferred turnaround and catalyst cost expenditures (excluding VIEs) | (762 | ) | | (888 | ) | | (519 | ) | Deferred turnaround and catalyst cost expenditures (excluding VIEs) | (787) | | | (623) | | | (762) | |
| Deferred turnaround and catalyst cost expenditures of DGD | (18 | ) | | (27 | ) | | (4 | ) | Deferred turnaround and catalyst cost expenditures of DGD | (6) | | | (25) | | | (18) | |
| Investments in unconsolidated joint ventures | (164 | ) | | (181 | ) | | (406 | ) | |
| Peru Acquisition, net of cash acquired | — |
| | (468 | ) | | — |
| |
| Acquisition of ethanol plants | (3 | ) | | (320 | ) | | — |
| |
| Acquisitions of undivided interests | (72 | ) | | (212 | ) | | (72 | ) | |
| Minor acquisitions | — |
| | (88 | ) | | — |
| |
| Proceeds from sale of partial interest in MVP | | Proceeds from sale of partial interest in MVP | 270 | | | — | | | — | |
| Investments in nonconsolidated joint ventures | | Investments in nonconsolidated joint ventures | (9) | | | (54) | | | (164) | |
| | Other investing activities, net | 12 |
| | 8 |
| | (2 | ) | Other investing activities, net | 38 | | | 65 | | | (63) | |
| Net cash used in investing activities | (3,001 | ) | | (3,928 | ) | | (2,382 | ) | Net cash used in investing activities | (2,159) | | | (2,425) | | | (3,001) | |
| Cash flows from financing activities: | | | | | | Cash flows from financing activities: | | | | | |
| Proceeds from debt issuances and borrowings (excluding VIEs) | 1,892 |
| | 1,258 |
| | 380 |
| Proceeds from debt issuances and borrowings (excluding VIEs) | 1,446 | | | 4,320 | | | 1,892 | |
| Proceeds from borrowings of VIEs | 239 |
| | 109 |
| | — |
| |
| Proceeds from borrowings of VIEs: | | Proceeds from borrowings of VIEs: | |
| DGD | | DGD | 301 | | | — | | | — | |
| Other VIEs | | Other VIEs | 81 | | | 250 | | | 239 | |
| Repayments of debt and finance lease obligations (excluding VIEs) | (1,805 | ) | | (1,353 | ) | | (15 | ) | Repayments of debt and finance lease obligations (excluding VIEs) | (2,849) | | | (490) | | | (1,790) | |
| Repayments of debt of VIEs | (6 | ) | | (6 | ) | | (6 | ) | |
| Repayments of debt and finance lease obligations of VIEs: | | Repayments of debt and finance lease obligations of VIEs: | |
| DGD | | DGD | (180) | | | — | | | — | |
| Other VIEs | | Other VIEs | (6) | | | (5) | | | (6) | |
| Premiums on early redemption and retirement of debt | | Premiums on early redemption and retirement of debt | (179) | | | — | | | (21) | |
| Purchases of common stock for treasury | (777 | ) | | (1,708 | ) | | (1,372 | ) | Purchases of common stock for treasury | (27) | | | (156) | | | (777) | |
| Common stock dividends | (1,492 | ) | | (1,369 | ) | | (1,242 | ) | |
| Acquisition of Valero Energy Partners LP publicly held common units | (950 | ) | | — |
| | — |
| |
| Common stock dividend payments | | Common stock dividend payments | (1,602) | | | (1,600) | | | (1,492) | |
| Acquisition of VLP publicly held common units | | Acquisition of VLP publicly held common units | — | | | — | | | (950) | |
| Contributions from noncontrolling interests | — |
| | 32 |
| | 30 |
| Contributions from noncontrolling interests | 189 | | | — | | | — | |
| Distributions to noncontrolling interests | (70 | ) | | (116 | ) | | (67 | ) | Distributions to noncontrolling interests | (2) | | | (208) | | | (70) | |
| Other financing activities, net | (28 | ) | | (15 | ) | | 20 |
| Other financing activities, net | (18) | | | (34) | | | (22) | |
| Net cash used in financing activities | (2,997 | ) | | (3,168 | ) | | (2,272 | ) | |
| Net cash provided by (used in) financing activities | | Net cash provided by (used in) financing activities | (2,846) | | | 2,077 | | | (2,997) | |
| Effect of foreign exchange rate changes on cash | 68 |
| | (143 | ) | | 206 |
| Effect of foreign exchange rate changes on cash | (45) | | | 130 | | | 68 | |
| Net increase (decrease) in cash and cash equivalents | (399 | ) | | (2,868 | ) | | 1,034 |
| Net increase (decrease) in cash and cash equivalents | 809 | | | 730 | | | (399) | |
| Cash and cash equivalents at beginning of year | 2,982 |
| | 5,850 |
| | 4,816 |
| Cash and cash equivalents at beginning of year | 3,313 | | | 2,583 | | | 2,982 | |
| Cash and cash equivalents at end of year | $ | 2,583 |
| | $ | 2,982 |
| | $ | 5,850 |
| Cash and cash equivalents at end of year | $ | 4,122 | | | $ | 3,313 | | | $ | 2,583 | |
See Notes to Consolidated Financial Statements.
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| |
1. | DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION, AND SIGNIFICANT ACCOUNTING POLICIES |
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. The term “DGD,” as used in this report, may refer to Diamond Green Diesel Holdings LLC, its wholly owned consolidated subsidiary, or both of them taken as a whole.
We are an internationala multinational manufacturer and marketer of petroleum-based and low-carbon liquid transportation fuels and petrochemical products.products, and we sell our products primarily in the United States (U.S.), Canada, the United Kingdom (U.K.), Ireland, and Latin America. We own and operate 15 petroleum refineries located in the U.S., Canada, and the U.K. with a combined throughput capacity of approximately 3.153.2 million barrels per day as of December 31, 2021. We are a joint venture member in DGD, which owns a renewable diesel plant located in the Gulf Coast region of the U.S. with a production capacity of 700 million gallons per year, and 14we own 12 ethanol plants located in the Mid-Continent region of the U.S. with a combined production capacity of approximately 1.731.6 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.2021.
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. OurCertain 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 to2021 presentation. Prior year amounts that were presented separately provide these expenditures for usour acquisition of ethanol plants and our consolidated VIEs.acquisitions of undivided interests have been combined into “other investing activities, net.”
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. OurThe VIEs that we consolidate are described in Note 12.13. 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
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.
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 amortized cost, which is the original invoice amount.amount adjusted for cash collections, write-offs, and foreign exchange. We maintain an allowance for doubtful accounts,credit losses, which is adjusted based on management’s assessment of our customers’ historical collection experience, known or expected credit risks, and industry and economic conditions.
Inventories
The cost of (i) refinery feedstocks and refined petroleum products grain and ethanol, andblendstocks, (ii) renewable diesel feedstocks (animal(i.e., waste and renewable feedstocks, predominately animal fats, used cooking oils, and other vegetable oils)inedible distillers corn oil) and renewable dieselproducts, and (iii) ethanol feedstocks and products 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. To the extent the aggregate market value of our LIFO inventories subsequently increases, we recognize an increase to the value of our inventories (not to exceed cost) and a gain 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 and plants comprises a large base of property assets, consisting of a series of interconnected, highly integrated and interdependent crude oil and other feedstock processing facilities and supporting logistical infrastructure (Units), and these Units are continuously improved.other property assets that support our business. Improvements consist of the addition of new Units and other property assets and betterments of existing Units.those Units and assets. We plan for these improvements by developing a multi-year capital investment program that is updated and revised based on changing internal and external factors.
Depreciation of property assets used in our refiningcrude oil processing and waste and renewable diesel segmentsfeedstocks processing facilities 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
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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 refineriescrude oil processing and waste and renewable diesel plantfeedstocks processing facilities in accordance with engineering specifications, design standards, and practices we believe to be 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.recognized. 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 propertyour corn processing facilities, administrative buildings, and other assets used in our ethanol segment is recorded on a straight-line basis over the estimated useful lives of the related assets.assets using the component method of deprecation. The estimated useful life of our graincorn processing equipmentfacilities 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)right-of-use assets are amortized as discussed in “Leases” below.below under “Leases.”
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, and ethanol plants, 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)right-of-use assets, which are amortized as discussed inbelow under “Leases” below;;
•investments in unconsolidatednonconsolidated joint ventures;
•noncurrent income taxes receivable;
intangible assets, which are amortized over their estimated useful lives; and
goodwill.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
•goodwill.
Leases
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 readily 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-leasenonlease components in a contract as a single lease component for all classes of underlying assets. Our marine transportation contracts include non-leasenonlease 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 leaselessor 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 “depreciationdepreciation 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 deemed 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 deemed 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.
Goodwill is not amortized, but is tested for impairment annually on October 1st and in interim periods when events or changes in circumstances indicate that the fair value of a reporting unit with goodwill is below its carrying amount. A goodwill impairment loss is recognized for the amount that the carrying
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
amount of a reporting unit, including goodwill, exceeds its fair value, limited to the total amount of goodwill allocated to that reporting unit.
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
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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 toat our refiningrefineries and ethanol segmentsplants 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 assets at our assets related to our refiningrefineries and ethanol segmentsplants 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 internationalforeign 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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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,Refining, Renewable Diesel, and renewable dieselEthanol 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
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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 from receipt of delivery.invoice. 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 internationalforeign 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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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”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, renewable diesel feedstocks and products, 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 governmentalthe Renewable and regulatory programs (such as the costLow-Carbon Fuel Blending Programs defined below under “Costs of Renewable Identification Numbers (RINs) as required by the U.S. Environmental Protection Agency’s (EPA) Renewableand Low-Carbon Fuel Standard, emission credits under various cap-and-trade systems, as defined in Note 19)Blending Programs”; (iv) the blender’s tax credit recognized on qualified biodieselfuel mixtures; (v) gains and losses on our commodity derivative instruments; and (vi) certain excise taxes.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
“Operating expenses (excluding depreciation and amortization expense)” include costs to operate our refineries (and associated logistics assets), renewable diesel plant, and 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”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 17.18.
“Other operating expenses”expenses include costs, if any, incurred by our reportable segments that are not associated with our cost of sales.
Environmental Compliance Program Costs of Renewable and Low-Carbon Fuel Blending Programs
We purchase credits to comply with various governmental and regulatory blending programs, such as the U.S. Environmental Protection Agency’s Renewable Fuel Standard, the California Low Carbon Fuel Standard, and similar programs in other jurisdictions in which we operate (collectively, the open market to meet our obligations under various environmental compliance programs.Renewable and Low-Carbon Fuel Blending Programs). We purchase biofuelcompliance credits (primarily RINs in the U.S.Renewable Identification Numbers (RINs)) to comply with government regulations that require us to blend a certain percentagevolume of biofuelsrenewable and low-carbon fuels into the productspetroleum-based transportation fuels we produce.produce in, or import into, the respective jurisdiction to be consumed therein based on annual quotas. To the degree that we are unable to blend biofuelsrenewable and low-carbon fuels at the required percentage,quotas, we must purchase biofuelcompliance 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.”obligations.
The costs of purchased biofuel credits and GHG emissioncompliance credits are charged to cost of materials and other aswhen such credits are needed to satisfy our obligation.compliance obligations. To the extent we have not purchased enough credits nor entered into fixed-price purchase contracts to satisfy our obligationobligations as of the balance sheet date, we charge cost of materials and other for such deficiency based on the market priceprices of the credits as of the balance sheet date, and we record a liability for our obligation to purchase those credits. See Note 1920 for disclosure of our fair value liability. If the number of purchased credits exceeds our obligation as of the balance sheet date, we record a prepaid asset equal to the amount paid for those excess credits.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 incomeIncome tax effects are released from accumulated other comprehensive loss to retained earnings, when applicable, 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.
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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 19.20.
Derivatives and Hedging
All derivative instruments, not designated as normal purchases or sales, are recordedrecognized in the balance sheet as either assets or liabilities measured at their fair values with changes in fair value recognized currently in income.income or in other comprehensive income as appropriate. 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
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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 CapitalCommitments—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 followingFinancial Accounting Standards Board (FASB) Accounting Standards Update (ASU)2021-01—“Reference Rate Reform (Topic848): Scope” was issued and adopted prospectively by us on January 1, 2019.7, 2021. Our adoption of this ASU did not affect our financial statements or related disclosures.
|
| | | |
ASU | | Basis of
Adoption
|
2017-12 | Derivatives and Hedging (Topic 815): Targeted
Improvements to Accounting for Hedging Activities
| | Cumulative
effect
|
Accounting Pronouncements Adopted on January1, 2020
The following ASUs were adopted on January1, 2020, and our adoption did not have a material impact on our financial statements or related disclosures.
|
| | | |
ASU | | Basis of
Adoption
|
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)
| | Cumulative
effect
|
2018-15 | Intangibles—Goodwill and Other—Internal-Use
Software (Subtopic 350-40): Customer’s Accounting
for Implementation Costs Incurred in a Cloud
Computing Arrangement That Is a Service Contract
| | Prospectively |
2019-12 | Income Taxes (Topic 740): Simplifying the Accounting
for Income Taxes
| | Prospectively |
2. UNCERTAINTIES
At the onset of the COVID-19 pandemic in March 2020, governmental authorities around the world imposed restrictions, such as stay-at-home orders and other social distancing measures, to slow the spread of COVID-19. These measures resulted in significant economic disruption globally as reduced economic activity negatively impacted many businesses, including our business.
During 2020, we experienced a decline in the demand for most of the liquid transportation fuels that we produce and sell, and thus also a decline in the market prices of those products, due to a decrease in the level of individual movement and travel resulting from the restrictions and general public health concerns. Some governmental authorities began lifting restrictions in the latter part of 2020 and this continued to varying degrees throughout 2021. These actions have contributed to increasing levels of individual movement and travel and a resulting increase in the demand for and market prices of our products. However, some governmental authorities continue to impose some level of restrictions due in part to new outbreaks, including those related to new variants of the virus (such as the delta and omicron variants). Additionally, the lingering effects of the COVID-19 pandemic and variants of the virus continue to negatively impact the level of air travel, global supply chains, and the labor market.
The distribution of vaccines beginning in late 2020 has helped decrease the rates and severity of infection and contributed to the lifting of many restrictions. The ongoing distribution of vaccines may result in the continued lifting of restrictions globally and may be seen as a key factor contributing to the ongoing restoration of public confidence, and thus also to stimulating and increasing global economic activity. However, the risk remains that vaccines may not be distributed widely on a timely basis, they may not be as effective against new variants of the virus, and/or the level of individuals’ willingness to receive a vaccine may not be as strong or as timely as needed. Additionally, some governmental authorities have announced requirements and mandates, including steep fines for noncompliance, on employers concerning workforce vaccination and testing. Many large companies across the world, independent of such government regulations, have also begun implementing vaccine requirements and mandates for their workforces, or as a prerequisite to providing customers certain goods and services in person. These requirements and mandates have evoked mixed reactions and have created additional challenges and costs, both administratively and operationally, for employers (including us and our counterparties) and their workforces. Developments with respect to such requirements and mandates are evolving at a rapid pace and the ultimate impact thereof remains uncertain. The ultimate outcome of the uncertainties and other unforeseen effects of the COVID-19 pandemic could result in many adverse consequences including, but not limited to, reduced availability of critical staff necessary to maintain operations, disruption or delays to supply chains for critical equipment or feedstock, inflation, reduced economic activity and individual movement that negatively impact demand for our products, and increased administrative, compliance, and operational costs.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| |
2. | MERGER AND ACQUISITIONS |
Merger with
3. 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 3 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.4. RECEIVABLES
Peru Acquisition
On May 14, 2018, we acquired 100 percentReceivables consisted 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.following (in millions):
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| Receivables from contracts with customers | $ | 6,228 | | | $ | 3,642 | |
| Receivables from certain purchase and sale arrangements | 3,768 | | | 1,212 | |
| Receivables before allowance for credit losses | 9,996 | | | 4,854 | |
| Allowance for credit losses | (28) | | | (47) | |
| Receivables after allowance for credit losses | 9,968 | | | 4,807 | |
| Income taxes receivable | 21 | | | 1,024 | |
| Other receivables | 389 | | | 278 | |
| Receivables, net | $ | 10,378 | | | $ | 6,109 | |
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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 | $ | 158 |
|
| Property, plant, and equipment | 102 |
|
| Deferred charges and other assets | 466 |
|
| Current liabilities, excluding current portion of debt | (26 | ) |
| Debt assumed, including current portion | (137 | ) |
| Deferred income tax liabilities | (62 | ) |
| Other long-term liabilities | (27 | ) |
| Noncontrolling interest | (6 | ) |
| Total consideration, net of cash acquired | $ | 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. NaN 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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Receivables consisted of the following (in millions):
|
| | | | | | | |
| | December 31, |
| | 2019 | | 2018 |
| Receivables from contracts with customers | $ | 5,610 |
| | $ | 4,673 |
|
| Receivables from certain purchase and sale arrangements | 2,484 |
| | 2,311 |
|
Commodity derivative and foreign currency contract receivables | 116 |
| | 229 |
|
| Other receivables | 730 |
| | 166 |
|
| Total receivables | 8,940 |
| | 7,379 |
|
| Allowance for doubtful accounts | (36 | ) | | (34 | ) |
| Receivables, net | $ | 8,904 |
| | $ | 7,345 |
|
There were no significant changes in our allowance for doubtful accounts during the years ended December 31, 2019, 2018, and 2017.
Inventories consisted of the following (in millions):
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| Refinery feedstocks | $ | 1,995 | | | $ | 1,979 | |
| Refined petroleum products and blendstocks | 3,567 | | | 3,425 | |
| Renewable diesel feedstocks and products | 135 | | | 50 | |
| Ethanol feedstocks and products | 273 | | | 297 | |
| Materials and supplies | 295 | | | 287 | |
| | | |
| | | |
| Inventories | $ | 6,265 | | | $ | 6,038 | |
|
| | | | | | | |
| | December 31, |
| | 2019 | | 2018 |
| Refinery feedstocks | $ | 2,399 |
| | $ | 2,265 |
|
| Refined petroleum products and blendstocks | 4,034 |
| | 3,653 |
|
| Ethanol feedstocks and products | 260 |
| | 298 |
|
| Renewable diesel feedstocks and products | 46 |
| | 52 |
|
| Materials and supplies | 274 |
| | 264 |
|
| Inventories | $ | 7,013 |
| | $ | 6,532 |
|
The market value of our LIFO inventories fell below their LIFO inventory carrying amounts as of March 31, 2020, and as a result, we recorded an LCM inventory valuation reserve of $2.5 billion in order to state our inventories at market. As of September 30, 2020, we reevaluated our inventories and determined that our cost was lower than market. As a result, our LCM inventory valuation reserve was fully reversed as of September 30, 2020. The change in our LCM inventory valuation reserve resulted in a net benefit of $19 million for the year ended December 31, 2020 due to the foreign currency translation effect of the portion of the LCM inventory valuation adjustment attributable to our foreign operations. As of December 31, 20192021 and 2018,2020, the replacement cost (market value) of LIFO inventories exceeded their LIFO carrying amounts by $2.5$5.2 billion and $1.5$1.3 billion, respectively.
During the year ended December 31, 2020, we had a liquidation of LIFO inventory layers that increased cost of materials and other by $224 million. Our LIFO inventory levels decreased during the year ended December 31, 2020 due to lower production resulting from lower demand for our products caused by the negative economic impacts of the COVID-19 pandemic on our business.
Our non-LIFO inventories accounted for $1.4 billion and $1.1 billion$918 million of our total inventories as of December 31, 20192021 and 2018,2020, respectively.
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. LEASES
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, ethanol, 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, renewable diesel, and ethanol 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, plants, and pipelines and other logistics assets, as well as office facilities; and
• 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.
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Lease Costs and Other Supplemental Information
In accordance with Topic 842, ourOur 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 | | Feedstock
Processing
Equipment | | Energy
and
Gases | | Real
Estate | | Other | | Total |
| | Marine | | Rail | | | | | |
Year ended December 31, 2021 | | | | | | | | | | | | | | | |
| Finance lease cost: | | | | | | | | | | | | | | | |
| Amortization of ROU assets | $ | 137 | | | $ | — | | | $ | 2 | | | $ | 19 | | | $ | 4 | | | $ | — | | | $ | 5 | | | $ | 167 | |
| Interest on lease liabilities | 66 | | | — | | | 1 | | | 3 | | | 2 | | | — | | | — | | | 72 | |
| Operating lease cost | 163 | | | 105 | | | 64 | | | 12 | | | 8 | | | 26 | | | 3 | | | 381 | |
| Variable lease cost | 51 | | | 21 | | | — | | | 2 | | | — | | | 2 | | | 3 | | | 79 | |
| Short-term lease cost | 5 | | | 44 | | | 1 | | | 46 | | | — | | | — | | | — | | | 96 | |
| Sublease income | — | | | (4) | | | — | | | — | | | — | | | (3) | | | — | | | (7) | |
| Total lease cost | $ | 422 | | | $ | 166 | | | $ | 68 | | | $ | 82 | | | $ | 14 | | | $ | 25 | | | $ | 11 | | | $ | 788 | |
| | | | | | | | | | | | | | | |
Year ended December 31, 2020 | | | | | | | | | | | | | | | |
| Finance lease cost: | | | | | | | | | | | | | | | |
| Amortization of ROU assets | $ | 109 | | | $ | — | | | $ | 2 | | | $ | 13 | | | $ | 4 | | | $ | — | | | $ | — | | | $ | 128 | |
| Interest on lease liabilities | 92 | | | — | | | — | | | 3 | | | 3 | | | — | | | — | | | 98 | |
| Operating lease cost | 165 | | | 156 | | | 61 | | | 15 | | | 7 | | | 26 | | | 4 | | | 434 | |
| Variable lease cost | 53 | | | 40 | | | 1 | | | 3 | | | — | | | 2 | | | — | | | 99 | |
| Short-term lease cost | 9 | | | 45 | | | — | | | 37 | | | — | | | — | | | — | | | 91 | |
| Sublease income | — | | | (10) | | | — | | | — | | | — | | | (2) | | | — | | | (12) | |
| Total lease cost | $ | 428 | | | $ | 231 | | | $ | 64 | | | $ | 71 | | | $ | 14 | | | $ | 26 | | | $ | 4 | | | $ | 838 | |
| | | | | | | | | | | | | | | |
Year ended December 31, 2019 | | | | | | | | | | | | | | | |
| Finance lease cost: | | | | | | | | | | | | | | | |
| Amortization of ROU assets | $ | 44 | | | $ | — | | | $ | — | | | $ | 7 | | | $ | 3 | | | $ | — | | | $ | — | | | $ | 54 | |
| Interest on lease liabilities | 47 | | | — | | | — | | | 1 | | | 2 | | | — | | | — | | | 50 | |
| Operating lease cost | 182 | | | 145 | | | 52 | | | 20 | | | 9 | | | 27 | | | 4 | | | 439 | |
| Variable lease cost | 66 | | | 35 | | | — | | | 1 | | | — | | | 1 | | | — | | | 103 | |
| Short-term lease cost | 9 | | | 53 | | | — | | | 29 | | | — | | | — | | | — | | | 91 | |
| Sublease income | — | | | (27) | | | — | | | — | | | — | | | (3) | | | — | | | (30) | |
| Total lease cost | $ | 348 | | | $ | 206 | | | $ | 52 | | | $ | 58 | | | $ | 14 | | | $ | 25 | | | $ | 4 | | | $ | 707 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2019 |
| | Pipelines, Terminals, and Tanks | | Transportation | | Feedstock Processing Equipment | | Energy and Gases | | Real Estate | | Other | | Total |
| | | Marine | | Rail | | | | | |
| Finance lease cost: | | | | | | | | | | | | | | | |
| Amortization of ROU assets | $ | 44 |
| | $ | — |
| | $ | — |
| | $ | 7 |
| | $ | 3 |
| | $ | — |
| | $ | — |
| | $ | 54 |
|
| Interest on lease liabilities | 47 |
| | — |
| | — |
| | 1 |
| | 2 |
| | — |
| | — |
| | 50 |
|
| Operating lease cost | 182 |
| | 145 |
| | 52 |
| | 20 |
| | 9 |
| | 27 |
| | 4 |
| | 439 |
|
| Variable lease cost | 66 |
| | 35 |
| | — |
| | 1 |
| | — |
| | 1 |
| | — |
| | 103 |
|
| Short-term lease cost | 9 |
| | 53 |
| | — |
| | 29 |
| | — |
| | — |
| | — |
| | 91 |
|
| Sublease income | — |
| | (27 | ) | | — |
| | — |
| | — |
| | (3 | ) | | — |
| | (30 | ) |
| Total lease cost | $ | 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):
|
| | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 |
| Minimum rental expense | $ | 515 |
| | $ | 691 |
|
| Contingent rental expense | 19 |
| | 21 |
|
| Total rental expense | 534 |
| | 712 |
|
| Less: Sublease rental income | 31 |
| | 54 |
|
| Rental expense, net of sublease rental income | $ | 503 |
| | $ | 658 |
|
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, 2021 | | December 31, 2020 |
| Operating
Leases | | Finance
Leases | | Operating
Leases | | Finance
Leases |
| Supplemental balance sheet information | | | | | | | |
ROU assets, net reflected in the following balance sheet line items: | | | | | | | |
| Property, plant, and equipment, net | $ | — | | $ | 1,846 | | $ | — | | $ | 1,622 |
| Deferred charges and other assets, net | 1,284 | | — | | 1,204 | | — |
| Total ROU assets, net | $ | 1,284 | | $ | 1,846 | | $ | 1,204 | | $ | 1,622 |
| | | | | | | |
Current lease liabilities reflected in the following balance sheet line items: | | | | | | | |
Current portion of debt and finance lease obligations | $ | — | | $ | 154 | | $ | — | | $ | 120 |
| Accrued expenses | 315 | | — | | 285 | | — |
Noncurrent lease liabilities reflected in the following balance sheet line items: | | | | | | | |
Debt and finance lease obligations, less current portion | — | | 1,766 | | — | | 1,544 |
| Other long-term liabilities | 940 | | — | | 885 | | — |
| Total lease liabilities | $ | 1,255 | | $ | 1,920 | | $ | 1,170 | | $ | 1,664 |
| | | | | | | |
| Other supplemental information | | | | | | | |
| Weighted-average remaining lease term | 7.1 years | | 14.3 years | | 7.6 years | | 14.5 years |
| Weighted-average discount rate | 4.2 | % | | 4.0 | % | | 4.7 | % | | 4.1 | % |
|
| | | | | | | | |
| | | 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 | | $ | — |
| | $ | 790 |
|
| Deferred charges and other assets, net | | 1,329 |
| | — |
|
| Total ROU assets, net | | $ | 1,329 |
| | $ | 790 |
|
| | | | | |
Current lease liabilities reflected in the following balance sheet line items: | | | | |
| Current portion of debt and finance lease obligations | | $ | — |
| | $ | 41 |
|
| Accrued expenses | | 331 |
| | — |
|
Noncurrent lease liabilities reflected in the following balance sheet line items: | | | | |
| Debt and finance lease obligations, less current portion | | — |
| | 750 |
|
| Other long-term liabilities | | 959 |
| | — |
|
| Total lease liabilities | | $ | 1,290 |
| | $ | 791 |
|
| | | | | |
| Other supplemental information | | | | |
| Weighted-average remaining lease term | | 7.7 years |
| | 19.7 years |
|
| Weighted-average discount rate | | 4.9 | % | | 5.2 | % |
Supplemental cash flow information related to our operating and finance leases is presented in Note 18.19.
We have a 25.01 percent membership interest in MVP, a nonconsolidated joint venture with a subsidiary of Magellan Midstream Partners LP (Magellan). MVP owns and operates a marine terminal (the MVP Terminal) located on the Houston Ship Channel in Pasadena, Texas. Concurrent with the formation of MVP, we entered into a terminaling agreement with MVP to utilize the MVP Terminal upon completion of construction of the terminal, whichoccurredin the first quarter of 2020. During the three months ended March 31, 2020, we recognized a finance lease ROU asset and related liability of approximately $1.4 billion in connection with this agreement. The lease term included the initial term of 12 years and renewal option periods. In the fourth quarter of 2020, we evaluated our strategy with regard to certain of our logistics investments, including MVP. As a result of this review, we formally notified MVP that we did not intend to renew the terminaling agreement after its initial noncancelable term. Consequently, we reassessed the lease term and remeasured the finance lease liability based on the shortened lease term. We derecognized approximately $600 million of the finance lease liability and related ROU asset, which were
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
noncash financing and investing activities, respectively. As of December 31, 2020, the total lease liability was approximately $800 million.
Maturity AnalysisAnalyses
TheAs of December 31, 2021, the remaining minimum lease payments due under our long-term leases were as follows (in millions):
| | | | | | | | | | | | | | | |
| Operating
Leases | | Finance
Leases | | | | |
| | | | | | | |
| 2022 | $ | 351 | | | $ | 228 | | | | | |
| 2023 | 280 | | | 230 | | | | | |
| 2024 | 207 | | | 214 | | | | | |
| 2025 | 142 | | | 213 | | | | | |
| 2026 | 111 | | | 190 | | | | | |
| Thereafter | 417 | | | 1,629 | | | | | |
| Total undiscounted lease payments | 1,508 | | | 2,704 | | | | | |
| Less: Amount associated with discounting | 253 | | | 784 | | | | | |
| Total lease liabilities | $ | 1,255 | | | $ | 1,920 | | | | | |
|
| | | | | | | | | | | | | | | |
| | December 31, 2019 | | December 31, 2018 |
| | Operating Leases | | Finance Leases | | Operating Leases | | Capital Leases |
| 2019 | n/a |
| | n/a |
| | $ | 359 |
| | $ | 69 |
|
| 2020 | $ | 376 |
| | $ | 88 |
| | 245 |
| | 65 |
|
| 2021 | 250 |
| | 86 |
| | 178 |
| | 62 |
|
| 2022 | 194 |
| | 87 |
| | 146 |
| | 64 |
|
| 2023 | 160 |
| | 91 |
| | 123 |
| | 65 |
|
| 2024 | 125 |
| | 82 |
| | n/a |
| | n/a |
|
| Thereafter | 498 |
| | 1,011 |
| | 514 |
| | 957 |
|
| Total undiscounted lease payments | 1,603 |
| | 1,445 |
| | $ | 1,565 |
| | 1,282 |
|
| Less: Amount associated with discounting | 313 |
| | 654 |
| | | | 676 |
|
| Total lease liabilities | $ | 1,290 |
| | $ | 791 |
| | | | $ | 606 |
|
Future Lease Commencement7. PROPERTY, PLANT, AND EQUIPMENT
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.
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, |
| 2021 | | 2020 |
| Land | $ | 494 | | | $ | 485 | |
| Crude oil processing facilities | 32,744 | | | 32,246 | |
| Transportation and terminaling facilities | 5,747 | | | 5,290 | |
| Waste and renewable feedstocks processing facilities | 1,826 | | | 631 | |
| Corn processing facilities | 1,216 | | | 1,212 | |
| Administrative buildings | 1,055 | | | 1,038 | |
| Finance lease ROU assets (see Note 6) | 2,293 | | | 1,902 | |
| Other | 1,835 | | | 1,764 | |
| Construction in progress | 1,862 | | | 2,399 | |
| Property, plant, and equipment, at cost | 49,072 | | | 46,967 | |
| Accumulated depreciation | (18,225) | | | (16,578) | |
| Property, plant, and equipment, net | $ | 30,847 | | | $ | 30,389 | |
|
| | | | | | | | |
| | | December 31, |
| | | 2019 | | 2018 |
| Land | | $ | 476 |
| | $ | 416 |
|
| Crude oil processing facilities | | 32,047 |
| | 30,721 |
|
| Transportation and terminaling facilities | | 5,179 |
| | 4,935 |
|
| Grain processing equipment | | 1,201 |
| | 1,212 |
|
| Administrative buildings | | 1,015 |
| | 953 |
|
| Finance lease ROU assets (see Note 5) | | 944 |
| | 711 |
|
| Other | | 1,701 |
| | 1,565 |
|
| Construction in progress | | 1,731 |
| | 1,960 |
|
| Property, plant, and equipment, at cost | | 44,294 |
| | 42,473 |
|
| Accumulated depreciation | | (15,030 | ) | | (13,625 | ) |
| Property, plant, and equipment, net | | $ | 29,264 |
| | $ | 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, 2021, 2020, and 2019 2018,was $1.7 billion, $1.6 billion, and 2017 was $1.5 billion, $1.4 billion, and $1.3 billion, respectively.
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Changes in Useful Lives
In September 2021 and 2020, we reduced the estimated useful lives of our ethanol plants in Jefferson, Wisconsin and Riga, Michigan, respectively, which reduced their net book values to estimated salvage value. The additional depreciation expense for the years ended December 31, 2021 and 2020 of $48 million and $30 million, respectively, resulting from these changes did not have a material impact on our results of operations nor was there a material impact to our financial position.
| |
7. | DEFERRED CHARGES AND OTHER ASSETS |
The Jefferson plant was temporarily idled in 2020 at the onset of the COVID-19 pandemic in response to the decreased demand for ethanol resulting from the effects of the pandemic on our business, and we had previously evaluated this plant for potential impairment assuming that operations would resume. However, we completed an evaluation of the plant during the third quarter of 2021 and concluded that it was no longer a strategic asset for our ethanol business. The plant’s operations permanently ceased at that time.
The Riga plant was temporarily idled in 2019 due to corn quality issues with the local third-party corn feedstock supply. Although we expected operations to resume after an improved corn harvest, we completed an evaluation of this plant during the third quarter of 2020 and concluded that it was no longer a strategic asset for our ethanol business. The plant’s operations permanently ceased at that time.
8. DEFERRED CHARGES AND OTHER ASSETS
“Deferred charges and other assets, net” consisted of the following (in millions):
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| Deferred turnaround and catalyst costs, net | $ | 1,853 | | | $ | 1,703 | |
| Operating lease ROU assets, net (see Note 6) | 1,284 | | | 1,204 | |
| Investments in nonconsolidated joint ventures | 734 | | | 972 | |
| Income taxes receivable | 586 | | | 589 | |
| Goodwill | 260 | | | 260 | |
| Intangible assets, net | 218 | | | 248 | |
| Other | 941 | | | 565 | |
| Deferred charges and other assets, net | $ | 5,876 | | | $ | 5,541 | |
|
| | | | | | | |
| | December 31, |
| | 2019 | | 2018 |
| Deferred turnaround and catalyst costs, net | $ | 1,778 |
| | $ | 1,749 |
|
| Operating lease ROU assets, net (see Note 5) | 1,329 |
| | — |
|
| Investments in unconsolidated joint ventures | 942 |
| | 542 |
|
| Income taxes receivable | 525 |
| | 343 |
|
| Intangible assets, net | 283 |
| | 307 |
|
| Goodwill | 260 |
| | 260 |
|
| Other | 514 |
| | 431 |
|
| Deferred charges and other assets, net | $ | 5,631 |
| | $ | 3,632 |
|
Amortization expense for deferred turnaround and catalyst costs and intangible assets was $759$695 million, $668$748 million, and $650$759 million for the years ended December 31, 2019, 2018,2021, 2020, and 2017,2019, respectively.
The entire balance of goodwill is related to our Refining segment. See Note 18 for information on our reportable segments.
| |
8. | ACCRUED EXPENSES AND OTHER LONG-TERM LIABILITIES |
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. ACCRUED EXPENSES AND OTHER LONG-TERM LIABILITIES
Accrued expenses and other long-term liabilities consisted of the following (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Accrued
Expenses | | Other Long-Term
Liabilities |
| December 31, | | December 31, |
| 2021 | | 2020 | | 2021 | | 2020 |
| Operating lease liabilities (see Note 6) | $ | 315 | | | $ | 285 | | | $ | 940 | | | $ | 885 | |
| Liability for unrecognized tax benefits (see Note 16) | — | | | — | | | 863 | | | 859 | |
| Defined benefit plan liabilities (see Note 14) | 41 | | | 45 | | | 601 | | | 878 | |
| Repatriation tax liability (see Note 16) (a) | — | | | — | | | 367 | | | 422 | |
| Environmental liabilities | 35 | | | 59 | | | 269 | | | 272 | |
| Wage and other employee-related liabilities | 349 | | | 210 | | | 133 | | | 124 | |
| Accrued interest expense | 88 | | | 99 | | | — | | | — | |
Contract liabilities from contracts with customers (see Note 18) | 78 | | | 55 | | | — | | | — | |
| Blending program obligations (see Note 20) | 268 | | | 159 | | | — | | | — | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Other accrued liabilities | 79 | | | 82 | | | 231 | | | 180 | |
| Accrued expenses and other long-term liabilities | $ | 1,253 | | | $ | 994 | | | $ | 3,404 | | | $ | 3,620 | |
|
| | | | | | | | | | | | | | | |
| | Accrued Expenses | | Other Long-Term Liabilities |
| | December 31, | | December 31, |
| | 2019 | | 2018 | | 2019 | | 2018 |
| Operating lease liabilities (see Note 5) | $ | 331 |
| | $ | — |
| | $ | 959 |
| | $ | — |
|
| Liability for unrecognized tax benefits (see Note 15) | — |
| | — |
| | 954 |
| | 721 |
|
| Defined benefit plan liabilities (see Note 13) | 37 |
| | 43 |
| | 834 |
| | 654 |
|
| Repatriation tax liability (see Note 15) (a) | — |
| | — |
| | 508 |
| | 603 |
|
| Environmental liabilities | 27 |
| | 29 |
| | 319 |
| | 327 |
|
| Wage and other employee-related liabilities | 292 |
| | 302 |
| | 121 |
| | 109 |
|
| Accrued interest expense | 83 |
| | 93 |
| | — |
| | — |
|
Contract liabilities from contracts with customers (see Note 17) | 55 |
| | 31 |
| | — |
| | — |
|
| Environmental credit obligations (see Note 19) | 31 |
| | 34 |
| | — |
| | — |
|
| Other accrued liabilities | 93 |
| | 98 |
| | 192 |
| | 453 |
|
| Accrued expenses and other long-term liabilities | $ | 949 |
| | $ | 630 |
| | $ | 3,887 |
| | $ | 2,867 |
|
(a)The current portion of repatriation tax liability is included in income taxes payable. There was no current portion of repatriation tax liability as of December 31, 2021, as it was deemed paid in connection with the additional tax net operating loss (NOL) carryback on the superseding 2020 federal income tax return filed in the fourth quarter of 2021. As of December 31, 2020, the current portion of repatriation tax liability was $54 million.
__________________________
| |
(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 0 current portion of repatriation tax liability as of December 31, 2018. |
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| |
9. | DEBT AND FINANCE LEASE OBLIGATIONS |
10. DEBT AND FINANCE LEASE OBLIGATIONS
Debt, at stated values, and finance lease obligations consisted of the following (in millions):
| | | | | | | | | | | | | | | | | |
| Final
Maturity | | December 31, |
| | 2021 | | 2020 |
| Credit facilities: | | | | | |
| Valero Revolver | 2024 | | $ | — | | | $ | — | |
| Canadian Revolver | 2022 | | — | | | — | |
| Accounts Receivable Sales Facility | 2022 | | — | | | — | |
| 364-Day Revolving Credit Facility | 2021 | | — | | | — | |
| DGD Revolver | 2024 | | 100 | | | — | |
| DGD Loan Agreement | 2022 | | 25 | | | — | |
| IEnova Revolver | 2028 | | 679 | | | 598 | |
| Public debt: | | | | | |
| Valero Senior Notes | | | | | |
| 6.625% | 2037 | | 1,500 | | | 1,500 | |
| 3.400% | 2026 | | 1,250 | | | 1,250 | |
| 2.850% | 2025 | | 1,050 | | | 1,050 | |
| 4.000% | 2029 | | 1,000 | | | 1,000 | |
| 3.650% | 2051 | | 950 | | | — | |
| 4.350% | 2028 | | 750 | | | 750 | |
| 7.5% | 2032 | | 750 | | | 750 | |
| 4.90% | 2045 | | 650 | | | 650 | |
| 2.150% | 2027 | | 600 | | | 600 | |
| 2.800% | 2031 | | 500 | | | — | |
| 3.65% | 2025 | | 324 | | | 600 | |
| 8.75% | 2030 | | 200 | | | 200 | |
| 1.200% | 2024 | | 169 | | | 925 | |
| 10.500% | 2039 | | 113 | | | 250 | |
| 7.45% | 2097 | | 100 | | | 100 | |
| 6.75% | 2037 | | 24 | | | 24 | |
| 2.700% | 2023 | | — | | | 850 | |
| Floating Rate Notes at 1.3665% | 2023 | | — | | | 575 | |
| VLP Senior Notes | | | | | |
| 4.500% | 2028 | | 500 | | | 500 | |
| 4.375% | 2026 | | 376 | | | 500 | |
| Gulf Opportunity Zone Revenue Bonds, Series 2010, 4.00% | 2040 | | 300 | | | 300 | |
| Debenture, 7.65% | 2026 | | 100 | | | 100 | |
| Other debt | 2023 | | 26 | | | 31 | |
| Net unamortized debt issuance costs and other | | | (86) | | | (90) | |
| Total debt | | | 11,950 | | | 13,013 | |
| Finance lease obligations (see Note 6) | | | 1,920 | | | 1,664 | |
| Total debt and finance lease obligations | | | 13,870 | | | 14,677 | |
| Less: Current portion | | | 1,264 | | | 723 | |
| Debt and finance lease obligations, less current portion | | | $ | 12,606 | | | $ | 13,954 | |
|
| | | | | | | | | |
| | Final Maturity | | December 31, |
| | | 2019 | | 2018 |
| Credit facilities: | | | | | |
| Valero Revolver | 2024 | | $ | — |
| | $ | — |
|
| IEnova Revolver | 2028 | | 348 |
| | 109 |
|
| Canadian Revolver | 2020 | | — |
| | — |
|
| Accounts receivable sales facility | 2020 | | 100 |
| | 100 |
|
| Public debt: | | | | | |
| Valero Senior Notes | | | | | |
| 6.625% | 2037 | | 1,500 |
| | 1,500 |
|
| 3.4% | 2026 | | 1,250 |
| | 1,250 |
|
| 4.0% | 2029 | | 1,000 |
| | — |
|
| 6.125% | 2020 | | — |
| | 850 |
|
| 4.35% | 2028 | | 750 |
| | 750 |
|
| 7.5% | 2032 | | 750 |
| | 750 |
|
| 4.9% | 2045 | | 650 |
| | 650 |
|
| 3.65% | 2025 | | 600 |
| | 600 |
|
| 10.5% | 2039 | | 250 |
| | 250 |
|
| 8.75% | 2030 | | 200 |
| | 200 |
|
| 7.45% | 2097 | | 100 |
| | 100 |
|
| 6.75% | 2037 | | 24 |
| | 24 |
|
| VLP Senior Notes | | | | | |
| 4.375% | 2026 | | 500 |
| | 500 |
|
| 4.5% | 2028 | | 500 |
| | 500 |
|
| Gulf Opportunity Zone Revenue Bonds, Series 2010, 4.0% | 2040 | | 300 |
| | 300 |
|
| Debenture, 7.65% | 2026 | | 100 |
| | 100 |
|
| Other debt | Various | | 47 |
| | 50 |
|
| Net unamortized debt issuance costs and other | | | (88 | ) | | (80 | ) |
| Total debt | | | 8,881 |
| | 8,503 |
|
| Finance lease obligations (see Note 5) | | | 791 |
| | 606 |
|
| Total debt and finance lease obligations | | | 9,672 |
| | 9,109 |
|
| Less: Current portion | | | 494 |
| | 238 |
|
| Debt and finance lease obligations, less current portion | | | $ | 9,178 |
| | $ | 8,871 |
|
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Credit Facilities
Valero Revolver
In March 2019, we amended ourWe have a revolving credit facility (the Valero Revolver) to increase thewith a borrowing capacity from $3 billion toof $4 billion and to extend the maturity date from November 2020 tothat matures in 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 0 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 0 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 0 repayments under this revolver.
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Canadian Revolver
In November 2019,2021, 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 20192021 to November 2020.2022. The Canadian Revolver also provides for the issuance of letters of credit.
We had 0 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 2019,2021, we amended our agreement to extendextended the maturity date of this facility to July 2020.2022 and increased the facility amount from $1.0 billion to $1.3 billion. 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, 20192021 and 2018, $2.22020, $2.8 billion and $1.8$1.4 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 activitiesactivities.
364-Day Revolving Credit Facility
In April 2020, we entered into an $875 million 364-Day Credit Agreement (the 364-Day Revolving Credit Facility) with several lenders. This facility provided for a revolving credit facility in an aggregate principal amount of up to $875 million. No borrowings were made under this facility prior to its maturity on the statements of cash flows. As of December 31, 2019April 12, 2021 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 0 proceeds from or repayments under the accounts receivable sales facility.not renewed.
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DGD Revolver
In March 2021, DGD, as described in Note 13, entered into a $400 million unsecured revolving credit facility (the DGD Revolver) with a syndicate of financial institutions that matures in March 2024. DGD has the option to increase the aggregate commitments under the DGD Revolver to $550 million, subject to certain restrictions. Initially, the DGD Revolver also provided for the issuance of letters of credit of up to $10 million. In September 2021, the DGD Revolver was amended to increase the letter of credit sublimit from $10 million to $50 million and to limit DGD’s indebtedness arising under other letters of credit that DGD may obtain up to $25 million at any one time outstanding. This restriction does not impact Valero’s letter of credit facilities. The DGD Revolver is only available to fund the operations of DGD. DGD’s lenders do not have recourse against us. As of December 31, 2021, all outstanding borrowings under this revolver are reflected in current portion of debt as payment is expected to occur in 2022.
Outstanding borrowings under the DGD Revolver generally bear interest, at DGD’s option, at either (i) an alternate base rate plus the applicable margin or (ii) an adjusted London Interbank Offered Rate (LIBOR) for the applicable interest period in effect from time to time plus the applicable margin. As of December 31, 2021, the variable interest rate on the DGD Revolver was 1.860 percent. The DGD Revolver also requires payments for customary fees, including unused commitment fees, letter of credit fees, and administrative agent fees.
DGD Loan Agreement
DGD has a $50 million unsecured revolving loan agreement (the DGD Loan Agreement) with its members (Darling Ingredients Inc. (Darling) and us) that matures on April 29, 2022, unless extended by agreement of the parties. Each member has committed $25 million, resulting in aggregate commitments of $50 million. The DGD Loan Agreement is only available to fund the operations of DGD. Any outstanding borrowings under this revolver represent loans made by the noncontrolling member as any transactions between DGD and us under this revolver are eliminated in consolidation.
Outstanding borrowings under the DGD Loan Agreement bear interest at the LIBO Rate (as defined in the DGD Loan Agreement) for the applicable interest period in effect from time to time plus the applicable margin. As of December 31, 2021, the variable interest rate on the DGD Loan Agreement was 2.603 percent. Principal and accrued interest are due on the last day of the calendar month unless DGD provides at least two days prior written notice of their election to extend repayment to the next calendar month end. As of December 31, 2021, outstanding borrowings under this revolver are reflected in current portion of debt.
IEnova Revolver
Central Mexico Terminals, as described in Note 13, has a combined unsecured revolving credit facility (IEnova Revolver) with IEnova (defined in Note 13) that matures in February 2028. In 2020, the borrowing capacity under the IEnova Revolver was increased from $491 million to $660 million, and during the year ended December 31, 2021, it was increased to $830 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 only available to the operations of Central Mexico Terminals, and the creditors of Central Mexico Terminals do not have recourse against us.
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Outstanding borrowings under the IEnova Revolver bear interest at the three-month LIBOR 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, 2021 and 2020, the variable interest rate was 3.781 percent and 3.870 percent, respectively.
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):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | December 31, 2021 |
| | Facility
Amount | | Maturity Date | | Outstanding
Borrowings | | Letters of Credit
Issued (a) | | Availability |
| | | | | |
| Committed facilities: | | | | | | | | | | |
| Valero Revolver | | $ | 4,000 | | | March 2024 | | $ | — | | | $ | 288 | | | $ | 3,712 | |
| Canadian Revolver | | C$ | 150 | | | November 2022 | | C$ | — | | | C$ | 5 | | | C$ | 145 | |
Accounts receivable sales facility | | $ | 1,300 | | | July 2022 | | $ | — | | | n/a | | $ | 1,300 | |
| Letter of credit facility | | $ | 50 | | | November 2022 | | n/a | | $ | — | | | $ | 50 | |
Committed facilities of VIEs (b): | | | | | | | | | | |
| DGD Revolver | | $ | 400 | | | March 2024 | | $ | 100 | | | $ | — | | | $ | 300 | |
| DGD Loan Agreement (c) | | $ | 25 | | | April 2022 | | $ | 25 | | | n/a | | $ | — | |
| IEnova Revolver | | $ | 830 | | | February 2028 | | $ | 679 | | | n/a | | $ | 151 | |
| Uncommitted facilities: | | | | | | | | | | |
Letter of credit facilities | | n/a | | n/a | | n/a | | $ | 331 | | | n/a |
|
| | | | | | | | | | | | | | | | | | |
| | | | | | | December 31, 2019 |
| | | Facility Amount | | Maturity Date | | Outstanding Borrowings | | Letters of Credit Issued (a) | | Availability |
| | | | | | |
| Committed facilities: | | | | | | | | | | |
| Valero Revolver | | $ | 4,000 |
| | March 2024 | | $ | — |
| | $ | 34 |
| | $ | 3,966 |
|
| Canadian Revolver | | C$ | 150 |
| | November 2020 | | C$ | — |
| | C$ | 5 |
| | C$ | 145 |
|
Accounts receivable sales facility | | $ | 1,300 |
| | July 2020 | | $ | 100 |
| | n/a |
| | $ | 1,200 |
|
Letter of credit facility (b) | | $ | 50 |
| | November 2020 | | n/a |
| | $ | — |
| | $ | 50 |
|
Committed facility of VIE (c): | | | | | | | | | | |
| IEnova Revolver | | $ | 491 |
| | February 2028 | | $ | 348 |
| | n/a |
| | $ | 143 |
|
| Uncommitted facilities: | | | | | | | | | |
|
| Letter of credit facilities | | n/a |
| | n/a | | n/a |
| | $ | 121 |
| | n/a |
|
__________________________(b)Creditors of the VIEs do not have recourse against us.
| |
(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. |
(c)The amounts shown for this facility represent the facility amount available from, and borrowings outstanding to, the noncontrolling member as any transactions between DGD and us under this facility are eliminated in consolidation.
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
96
During the year ended December 31, 2019, the following activityoccurred:
| |
• | 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.
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Activity under our credit facilities was as follows (in millions):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Borrowings: | | | | | |
| Accounts receivable sales facility | $ | — | | | $ | 300 | | | $ | 900 | |
| DGD Revolver | 276 | | | — | | | — | |
| DGD Loan Agreement | 25 | | | — | | | — | |
| IEnova Revolver | 81 | | | 250 | | | 239 | |
| Repayments: | | | | | |
| Accounts receivable sales facility | — | | | (400) | | | (900) | |
| DGD Revolver | (176) | | | — | | | — | |
| | | | | |
Public Debt
During the year ended December 31, 2018,2021, the following activity occurred:
We•In November 2021, we issued $750$500 million of 4.352.800 percent Senior Notes due JuneDecember 1, 2028.2031 and $950 million of 3.650 percent Senior Notes due December 1, 2051. Proceeds from these debt issuances totaled $1.446 billion before deducting the underwriting discounts and other debt issuance costs. In November and December 2021, these proceeds and cash on hand were used to repurchase and retire, or redeem the following notes in connection with our cash tender offers that were publicly announced on November 18, 2021 and updated on December 3, 2021 (in millions):
| | | | | | | | | | | | |
Debt Repurchased and
Retired, or Redeemed | | Principal
Amount | | | | |
| 2.700% Senior Notes due 2023 | | $ | 850 | | | | | |
| | | | | | |
| 1.200% Senior Notes due 2024 | | 756 | | | | | |
| 3.65% Senior Notes due 2025 | | 276 | | | | | |
| 4.375% VLP Senior Notes due 2026 | | 124 | | | | | |
| | | | | | |
| 10.500% Senior Notes due 2039 | | 137 | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Total | | $ | 2,143 | | | | | |
In connection with the early debt redemption and retirement activity described above, we recognized a charge of $193 million in “other income, net” comprised of $179 million of premiums paid, $10 million of unamortized debt discounts and deferred debt costs, and $4 million of bank fees.
•In September 2021, we redeemed our Floating Rate Senior Notes due September 15, 2023 (the Floating Rate Notes) for $575 million.
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During the year ended December 31, 2020, the following activityoccurred:
•In September 2020, we issued the following senior notes:
◦the Floating Rate Notes, which bore interest at a rate of three-month LIBOR plus 1.150 percent per annum, subject to certain adjustments set forth in the terms of the Floating Rate Notes;
◦$925 million of 1.200 percent Senior Notes due March 15, 2024;
◦$400 million of 2.850 percent Senior Notes due April 15, 2025 that constitute an additional issuance of our 2.850 percent Senior Notes due April 15, 2025 that were issued in April 2020 (see below); and
◦$600 million of 2.150 percent Senior Notes due September 15, 2027.
•In April 2020, we issued $850 million of 2.700 percent Senior Notes due April 15, 2023 and $650 million of 2.850 percent Senior Notes due April 15, 2025.
Proceeds from the April and September 2020 debt issuances totaled $4.020 billion before deducting the underwriting discount and other debt issuance costs.
During the year ended December 31, 2019, the following activity occurred:
•We issued $1.0 billion of 4.000 percent Senior Notes due April 1, 2029. Proceeds from this debt issuance totaled $749$992 million before deducting the underwriting discount and other debt issuance costs. The proceeds were used to redeem our 9.3756.125 percent Senior Notes due March 15, 2019February 1, 2020 for $787$871 million, or 104.9 percent of stated value, which includesincluded an early debt redemption feepremium of $37$21 million that is reflected in “other income, net”net.”
•In connection with the completion of the Merger Transaction described in our statementNote 3, Valero Energy Corporation, the parent company, entered into a guarantee agreement to fully and unconditionally guarantee the prompt payment, when due, of income for the year ended December 31, 2018.following debt issued by VLP, one of its wholly owned subsidiaries, that was outstanding upon completion of the Merger Transaction:
VLP issued $500◦$500 million of 4.54.375 percent Senior Notes due December 15, 2026; and
◦$500 million of 4.500 percent Senior Notes due March 15, 2028.
Effective March 31, 2020, we early applied the SEC’s Final Rule Release No. 33-10762, Financial Disclosures About Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities. This rule allowed us to cease providing the previously required condensed consolidating financial information in our periodic reports while the senior notes issued by VLP noted above are outstanding, as VLP’s reporting obligation was suspended on January 22, 2019 in connection with the completion of the Merger Transaction.
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On February 7, 2022 we issued $650 million of 4.000 percent Senior Notes due June 1, 2052. Proceeds from this debt issuance totaled $498$639 million before deducting the underwriting discount and other debt issuance costs. TheOn February 17, 2022, the proceeds were available only to the operations of VLP and cash on hand were used to repayrepurchase and retire the outstanding balance of $410 million on the VLP Revolver and $85 million on itsfollowing notes payable to us, which is eliminated in consolidation.
During the year ended December 31, 2017, there was noissuance 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 our cash tender offers that were publicly announced on February 2, 2022 and updated on February 16, 2022 (in millions):
| | | | | | | | |
| Debt Repurchased and Retired | | Principal
Amount |
| 3.65% Senior Notes due 2025 | | $ | 72 | |
| 2.850% Senior Notes due 2025 | | 507 | |
| 4.375% VLP Senior Notes due 2026 | | 168 | |
| 3.400% Senior Notes due 2026 | | 653 | |
| Total | | $ | 1,400 | |
In connection with the Peru Acquisition with available cash on hand.early debt retirement activity described above, $48 million of premiums were paid.
Other Disclosures
“Interest and debt expense, net of capitalized interest” is comprised as follows (in millions):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Interest and debt expense | $ | 651 | | | $ | 638 | | | $ | 544 | |
| Less: Capitalized interest | 48 | | | 75 | | | 90 | |
Interest and debt expense, net of capitalized interest | $ | 603 | | | $ | 563 | | | $ | 454 | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| Interest and debt expense | $ | 544 |
| | $ | 557 |
| | $ | 539 |
|
| Less: Capitalized interest | 90 |
| | 87 |
| | 71 |
|
Interest and debt expense, net of capitalized interest | $ | 454 |
| | $ | 470 |
| | $ | 468 |
|
Our credit facilities and other debt arrangements contain various customary restrictive covenants, including cross-default and cross-acceleration clauses.
Principal maturities for our debt obligations as of December 31, 2021 were as follows (in millions):
| | | | | |
| 2022 (a) | $ | 1,110 | |
| 2023 | 20 | |
| 2024 | 169 | |
| 2025 | 1,374 | |
| 2026 | 1,726 | |
| Thereafter | 7,637 | |
| Net unamortized debt issuance costs and other | (86) | |
| Total debt | $ | 11,950 | |
________________________
(a)Maturities for 2022 include the DGD Revolver, the DGD Loan Agreement, the IEnova Revolver, and our 4.00 percent Gulf Opportunity Zone Revenue Bonds Series 2010 (GO Zone Bonds). Our GO Zone Bonds are due December 1, 2040, but they are subject to mandatory tender on June 1, 2022 (the Mandatory Tender Date) at a price equal to par plus accrued and unpaid interest up to, but excluding, the Mandatory Tender Date, and are reflected in current portion of debt and finance lease obligations as of December 31, 2021.
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) | $ | 453 |
|
| 2021 | 17 |
|
| 2022 | 6 |
|
| 2023 | 19 |
|
| 2024 | — |
|
| Thereafter | 8,474 |
|
| Net unamortized debt issuance costs and other | (88 | ) |
| Total debt | $ | 8,881 |
|
__________________________
| |
(a) | As of December 31, 2019, our debt obligations due in 2020 include $348 million associated with borrowings under the IEnova 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 thefirst quarter
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
of 2020. The terminaling agreement has an initial term of 12 years with 2 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 propertyother third-party 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.
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):
|
| | | | | |
| | Common Stock | | Treasury Stock |
| Balance as of December 31, 2016 | 673 |
| | (222 | ) |
Transactions in connection with stock-based compensation plans | — |
| | 1 |
|
| Stock purchases under purchase programs | — |
| | (19 | ) |
| Balance as of December 31, 2017 | 673 |
| | (240 | ) |
| Stock purchases under purchase programs | — |
| | (16 | ) |
| Balance as of December 31, 2018 | 673 |
| | (256 | ) |
Transactions in connection with stock-based compensation plans | — |
| | 1 |
|
| Stock purchases under purchase program | — |
| | (9 | ) |
| Balance as of December 31, 2019 | 673 |
| | (264 | ) |
| | | | | | | | | | | |
| Common
Stock | | Treasury
Stock |
| Balance as of December 31, 2018 | 673 | | | (256) | |
Transactions in connection with stock-based compensation plans | — | | | 1 | |
| Open market stock purchases | — | | | (9) | |
| Balance as of December 31, 2019 | 673 | | | (264) | |
Transactions in connection with stock-based compensation plans | — | | | 1 | |
| Open market stock purchases | — | | | (2) | |
| Balance as of December 31, 2020 | 673 | | | (265) | |
Transactions in connection with stock-based compensation plans | — | | | 1 | |
| | | |
| Balance as of December 31, 2021 | 673 | | | (264) | |
Preferred Stock
We have 20 million shares of preferred stock authorized with a par value of $0.01 per share. NaNNo shares of preferred stock were outstanding as of December 31, 20192021 or 2018.2020.
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Treasury Stock
We purchase shares of our outstanding 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 (Board) authorized our purchase of up to an additional $2.5 billion of our outstanding common stock (the 2018 Program) with no expiration date. During the year ended December 31, 2021, we did not purchase any shares of our common stock under the 2018 Program. During the years ended December 31, 2019, 2018,2020 and 2017,2019, we purchased $83 million and $752 million, $1.5 billion, and $1.3 billion, respectively, of our common stock under our programs.the 2018 program. As of December 31, 2019,2021, we have approval under the 2018 Program to purchase approximately $1.5$1.4 billion of our common stock.
Common Stock Dividends
On January 23, 2020,20, 2022, our board of directorsBoard declared a quarterly cash dividend of $0.98 per common share payable on March 4, 20203, 2022 to holders of record at the close of business on February 12, 2020.
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):
|
| | | | | | | | | | | |
| | Before-Tax Amount | | Tax Expense (Benefit) | | Net Amount |
| Year ended December 31, 2019 | | | | | |
| Foreign currency translation adjustment | $ | 349 |
| | $ | — |
| | $ | 349 |
|
| Pension and other postretirement benefits: | | | | | |
| Loss arising during the year related to: | | | | | |
| Net actuarial loss | (245 | ) | | (54 | ) | | (191 | ) |
| Prior service cost | (3 | ) | | (1 | ) | | (2 | ) |
| Miscellaneous loss | — |
| | 4 |
| | (4 | ) |
| Amounts reclassified into income related to: | | | | | |
| Net actuarial loss | 38 |
| | 9 |
| | 29 |
|
| Prior service credit | (28 | ) | | (6 | ) | | (22 | ) |
| Curtailment and settlement loss | 4 |
| | 1 |
| | 3 |
|
Net loss on pension and other postretirement benefits | (234 | ) | | (47 | ) | | (187 | ) |
Derivative instruments designated and qualifying as cash flow hedges: | | | | | |
| Net loss arising during the year | (6 | ) | | (1 | ) | | (5 | ) |
| Net gain reclassified into income | (2 | ) | | — |
| | (2 | ) |
| Net loss on cash flow hedges | (8 | ) | | (1 | ) | | (7 | ) |
| Other comprehensive income | $ | 107 |
| | $ | (48 | ) | | $ | 155 |
|
| | | | | | | | | | | | | | | | | |
| Before-Tax
Amount | | Tax Expense
(Benefit) | | Net Amount |
| Year ended December 31, 2021 | | | | | |
| Foreign currency translation adjustment | $ | (47) | | | $ | — | | | $ | (47) | |
| Pension and other postretirement benefits: | | | | | |
| Gain arising during the year related to: | | | | | |
| Net actuarial gain | 317 | | | 69 | | | 248 | |
| | | | | |
| Prior service cost | (4) | | | (1) | | | (3) | |
| | | | | |
| Amounts reclassified into income related to: | | | | | |
| Net actuarial loss | 80 | | | 18 | | | 62 | |
| Prior service credit | (25) | | | (6) | | | (19) | |
| Curtailment and settlement loss | 8 | | | 2 | | | 6 | |
| Effect of exchange rates | 2 | | | — | | | 2 | |
Net gain on pension and other postretirement benefits | 378 | | | 82 | | | 296 | |
Derivative instruments designated and qualifying as cash flow hedges: | | | | | |
| Net loss arising during the year | (48) | | | (5) | | | (43) | |
| Net loss reclassified into income | 46 | | | 5 | | | 41 | |
| Net loss on cash flow hedges | (2) | | | — | | | (2) | |
| Other comprehensive income | $ | 329 | | | $ | 82 | | | $ | 247 | |
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | |
| Before-Tax
Amount | | Tax Expense
(Benefit) | | Net Amount |
| Year ended December 31, 2020 | | | | | |
| Foreign currency translation adjustment | $ | 161 | | | $ | — | | | $ | 161 | |
| Pension and other postretirement benefits: | | | | | |
| Loss arising during the year related to: | | | | | |
| Net actuarial loss | (128) | | | (26) | | | (102) | |
| | | | | |
| Prior service cost | (5) | | | (1) | | | (4) | |
| | | | | |
| Amounts reclassified into income related to: | | | | | |
| Net actuarial loss | 74 | | | 17 | | | 57 | |
| Prior service credit | (26) | | | (6) | | | (20) | |
| Curtailment and settlement loss | 5 | | | 1 | | | 4 | |
Net loss on pension and other postretirement benefits | (80) | | | (15) | | | (65) | |
Derivative instruments designated and qualifying as cash flow hedges: | | | | | |
| Net gain arising during the year | 36 | | | 3 | | | 33 | |
| Net gain reclassified into income | (34) | | | (4) | | | (30) | |
| Net gain on cash flow hedges | 2 | | | (1) | | | 3 | |
| Other comprehensive income | $ | 83 | | | $ | (16) | | | $ | 99 | |
| | | | | |
| Year ended December 31, 2019 | | | | | |
| Foreign currency translation adjustment | $ | 349 | | | $ | — | | | $ | 349 | |
| Pension and other postretirement benefits: | | | | | |
| Loss arising during the year related to: | | | | | |
| Net actuarial loss | (245) | | | (54) | | | (191) | |
| | | | | |
| Prior service cost | (3) | | | (1) | | | (2) | |
| Miscellaneous loss | — | | | 4 | | | (4) | |
| Amounts reclassified into income related to: | | | | | |
| Net actuarial loss | 38 | | | 9 | | | 29 | |
| Prior service credit | (28) | | | (6) | | | (22) | |
| Curtailment and settlement loss | 4 | | | 1 | | | 3 | |
Net loss on pension and other postretirement benefits | (234) | | | (47) | | | (187) | |
Derivative instruments designated and qualifying as cash flow hedges: | | | | | |
| Net loss arising during the year | (6) | | | (1) | | | (5) | |
| Net gain reclassified into income | (2) | | | — | | | (2) | |
| Net loss on cash flow hedges | (8) | | | (1) | | | (7) | |
| Other comprehensive income | $ | 107 | | | $ | (48) | | | $ | 155 | |
|
| | | | | | | | | | | |
| | Before-Tax Amount | | Tax Expense (Benefit) | | Net Amount |
| Year ended December 31, 2018 | | | | | |
| Foreign currency translation adjustment | $ | (517 | ) | | $ | — |
| | $ | (517 | ) |
| Pension and other postretirement benefits: | | | | | |
| Gain arising during the year related to: | | | | | |
| Net actuarial gain | 1 |
| | — |
| | 1 |
|
| Prior service credit | 7 |
| | 1 |
| | 6 |
|
| Amounts reclassified into income related to: | | | | | |
| Net actuarial loss | 63 |
| | 14 |
| | 49 |
|
| Prior service credit | (29 | ) | | (7 | ) | | (22 | ) |
| Curtailment and settlement loss | 7 |
| | 2 |
| | 5 |
|
Net gain on pension and other postretirement benefits | 49 |
| | 10 |
| | 39 |
|
| Other comprehensive loss | $ | (468 | ) | | $ | 10 |
| | $ | (478 | ) |
| | | | | | |
| Year ended December 31, 2017 | | | | | |
| Foreign currency translation adjustment | $ | 514 |
| | $ | — |
| | $ | 514 |
|
| Pension and other postretirement benefits: | | | | | |
| Loss arising during the year related to: | | | | | |
| Net actuarial loss | (79 | ) | | (29 | ) | | (50 | ) |
| Prior service cost | (4 | ) | | (1 | ) | | (3 | ) |
| Miscellaneous loss | — |
| | 3 |
| | (3 | ) |
| Amounts reclassified into income related to: | | | | | |
| Net actuarial loss | 50 |
| | 18 |
| | 32 |
|
| Prior service credit | (36 | ) | | (13 | ) | | (23 | ) |
| Curtailment and settlement loss | 4 |
| | 1 |
| | 3 |
|
Net loss on pension and other postretirement benefits | (65 | ) | | (21 | ) | | (44 | ) |
| Other comprehensive income | $ | 449 |
| | $ | (21 | ) | | $ | 470 |
|
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Accumulated Other ComprehensiveLoss
Changes in accumulated other comprehensive loss by component, net of tax, were as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Foreign
Currency
Translation
Adjustment | | Defined
Benefit
Plans
Items | | Gains
(Losses) on
Cash Flow
Hedges | | Total |
| Balance as of December 31, 2018 | $ | (1,022) | | | $ | (485) | | | $ | — | | | $ | (1,507) | |
Other comprehensive income (loss) before reclassifications | 346 | | | (197) | | | (2) | | | 147 | |
Amounts reclassified from accumulated other comprehensive loss | — | | | 10 | | | (1) | | | 9 | |
| Other comprehensive income (loss) | 346 | | | (187) | | | (3) | | | 156 | |
| Balance as of December 31, 2019 | (676) | | | (672) | | | (3) | | | (1,351) | |
Other comprehensive income (loss) before reclassifications | 161 | | | (106) | | | 14 | | | 69 | |
Amounts reclassified from accumulated other comprehensive loss | — | | | 41 | | | (13) | | | 28 | |
| | | | | | | |
| Other comprehensive income (loss) | 161 | | | (65) | | | 1 | | | 97 | |
| Balance as of December 31, 2020 | (515) | | | (737) | | | (2) | | | (1,254) | |
Other comprehensive income (loss) before reclassifications | (47) | | | 245 | | | (21) | | | 177 | |
Amounts reclassified from accumulated other comprehensive loss | — | | | 49 | | | 18 | | | 67 | |
| Effect of exchange rates | �� | | | 2 | | | — | | | 2 | |
| Other comprehensive income (loss) | (47) | | | 296 | | | (3) | | | 246 | |
| Balance as of December 31, 2021 | $ | (562) | | | $ | (441) | | | $ | (5) | | | $ | (1,008) | |
|
| | | | | | | | | | | | | | | |
| | Foreign Currency Translation Adjustment | | Defined Benefit Plans Items | | Losses on Cash Flow Hedges | | Total |
| Balance as of December 31, 2016 | $ | (1,021 | ) | | $ | (389 | ) | | $ | — |
| | $ | (1,410 | ) |
Other comprehensive income (loss) before reclassifications | 514 |
| | (56 | ) | | — |
| | 458 |
|
Amounts reclassified from accumulated other comprehensive loss | — |
| | 12 |
| | — |
| | 12 |
|
| Other comprehensive income (loss) | 514 |
| | (44 | ) | | — |
| | 470 |
|
| Balance as of December 31, 2017 | (507 | ) | | (433 | ) | | — |
| | (940 | ) |
Other comprehensive income (loss) before reclassifications | (515 | ) | | 7 |
| | — |
| | (508 | ) |
Amounts reclassified from accumulated other comprehensive loss | — |
| | 32 |
| | — |
| | 32 |
|
| Other comprehensive income (loss) | (515 | ) | | 39 |
| | — |
| | (476 | ) |
Reclassification of stranded income tax effects | — |
| | (91 | ) | | — |
| | (91 | ) |
| Balance as of December 31, 2018 | (1,022 | ) | | (485 | ) | | — |
| | (1,507 | ) |
Other comprehensive income (loss) before reclassifications | 346 |
| | (197 | ) | | (2 | ) | | 147 |
|
Amounts reclassified from accumulated other comprehensive loss | — |
| | 10 |
| | (1 | ) | | 9 |
|
| Other comprehensive income (loss) | 346 |
| | (187 | ) | | (3 | ) | | 156 |
|
| Balance as of December 31, 2019 | $ | (676 | ) | | $ | (672 | ) | | $ | (3 | ) | | $ | (1,351 | ) |
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Gains (losses) reclassified out of accumulated other comprehensiveloss and into net income (loss) were as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Details about
Accumulated Other
Comprehensive Loss
Components | | | | Affected Line
Item in the
Statement of
Income |
| Year Ended December 31, | |
| 2021 | | 2020 | | 2019 | |
Amortization of items related to defined benefit pension plans: | | | | | | | | |
| Net actuarial loss | | $ | (80) | | | $ | (74) | | | $ | (38) | | | (a) Other income, net |
| Prior service credit | | 25 | | | 26 | | | 28 | | | (a) Other income, net |
| Curtailment and settlement | | (8) | | | (5) | | | (4) | | | (a) Other income, net |
| | (63) | | | (53) | | | (14) | | | Total before tax |
| | 14 | | | 12 | | | 4 | | | Tax benefit |
| | $ | (49) | | | $ | (41) | | | $ | (10) | | | Net of tax |
| | | | | | | | |
| Gains (losses) on cash flow hedges: | | | | | | | | |
| Commodity contracts | | $ | (46) | | | $ | 34 | | | $ | 2 | | | Revenues |
| | (46) | | | 34 | | | 2 | | | Total before tax |
| | 5 | | | (4) | | | — | | | Tax (expense) benefit |
| | $ | (41) | | | $ | 30 | | | $ | 2 | | | Net of tax |
| | | | | | | | |
| Total reclassifications for the year | | $ | (90) | | | $ | (11) | | | $ | (8) | | | Net of tax |
________________________
(a)These accumulated other comprehensive loss components are included in the computation of net periodic benefit cost, as discussed in Note 14.
13. VARIABLE INTEREST ENTITIES
|
| | | | | | | | | | | | | | |
Details about Accumulated Other Comprehensive Loss Components | | | | Affected Line Item in the Statement of Income |
| | Year Ended December 31, | |
| | 2019 | | 2018 | | 2017 | |
Amortization of items related to defined benefit pension plans: | | | | | | | | |
| Net actuarial loss | | $ | (38 | ) | | $ | (63 | ) | | $ | (50 | ) | | (a) Other income, net |
| Prior service credit | | 28 |
| | 29 |
| | 36 |
| | (a) Other income, net |
| Curtailment and settlement | | (4 | ) | | (7 | ) | | (4 | ) | | (a) Other income, net |
| | | (14 | ) | | (41 | ) | | (18 | ) | | Total before tax |
| | | 4 |
| | 9 |
| | 6 |
| | Tax benefit |
| | | $ | (10 | ) | | $ | (32 | ) | | $ | (12 | ) | | Net of tax |
| | | | | | | | | |
| Gains on cash flow hedges: | | | | | | | | |
| Commodity contracts | | $ | 2 |
| | $ | — |
| | $ | — |
| | Revenues |
| | | $ | 2 |
| | $ | — |
| | $ | — |
| | Net of tax |
| | | | | | | | | |
| Total reclassifications for the year | | $ | (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,VIE, 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 ourthe consolidated VIEs:
•DGD is a joint venture with a subsidiary of Darling Ingredients Inc. that owns and operates a plant that processes waste and renewable feedstocks (predominately animal fats, used cooking oils, and other vegetable oilsinedible distillers corn 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.
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.S.A.P.I. de C.V. (IEnova), a Mexican company and indirect 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, we believe 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 of the consolidated VIEs can only be used to settle their own obligations and the VIEs’ creditors of the consolidated VIEs have no recourse to our other assets. We generally do not provide financial guarantees to ourthe VIEs. Although we have provided credit facilities to some of ourthe 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 ourthe performance of the consolidated VIEs’ performance,VIEs, net of intercompany eliminations, to the extent of our ownership interest in each VIE.
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following tables present summarized balance sheet information for the significant assets and liabilities of ourthe consolidated VIEs, which are included in our balance sheets (in millions).:
| | | | | | | | | | | | | | | | | | | | | | | |
| DGD | | Central
Mexico
Terminals | | Other | | Total |
| December 31, 2021 | | | | | | | |
| Assets | | | | | | | |
| Cash and cash equivalents | $ | 21 | | | $ | — | | | $ | 15 | | | $ | 36 | |
| Other current assets | 558 | | | 10 | | | 13 | | | 581 | |
| Property, plant, and equipment, net | 2,629 | | | 676 | | | 91 | | | 3,396 | |
| Liabilities | | | | | | | |
Current liabilities, including current portion of debt and finance lease obligations | $ | 398 | | | $ | 729 | | | $ | 9 | | | $ | 1,136 | |
Debt and finance lease obligations, less current portion | 264 | | | — | | | 20 | | | 284 | |
| | | | December 31, 2019 | |
| | DGD | | Central Mexico
Terminals | | Other | | Total | |
| December 31, 2020 | | December 31, 2020 | |
| Assets | | | | | | | | Assets | |
| Cash and cash equivalents | $ | 85 |
| | $ | — |
| | $ | 25 |
| | $ | 110 |
| Cash and cash equivalents | $ | 144 | | | $ | 1 | | | $ | 16 | | | $ | 161 | |
| Other current assets | 567 |
| | 33 |
| | 89 |
| | 689 |
| Other current assets | 219 | | | 24 | | | 8 | | | 251 | |
| Property, plant, and equipment, net | 706 |
| | 381 |
| | 105 |
| | 1,192 |
| Property, plant, and equipment, net | 1,232 | | | 590 | | | 96 | | | 1,918 | |
| Liabilities | | | | | | | | Liabilities | |
Current liabilities, including current portion of debt and finance lease obligations | $ | 66 |
| | $ | 409 |
| | $ | 8 |
| | $ | 483 |
| Current liabilities, including current portion of debt and finance lease obligations | $ | 90 | | | $ | 620 | | | $ | 8 | | | $ | 718 | |
Debt and finance lease obligations, less current portion | — |
| | — |
| | 31 |
| | 31 |
| Debt and finance lease obligations, less current portion | 1 | | | — | | | 25 | | | 26 | |
|
| | | | | | | | | | | | | | | | | | | |
| | December 31, 2018 |
| | VLP (a) | | DGD | | Central Mexico
Terminals | | Other | | Total |
| Assets | | | | | | | | | |
| Cash and cash equivalents | $ | 152 |
| | $ | 65 |
| | $ | — |
| | $ | 18 |
| | $ | 235 |
|
| Other current assets | 2 |
| | 112 |
| | 20 |
| | 64 |
| | 198 |
|
| Property, plant, and equipment, net | 1,409 |
| | 576 |
| | 156 |
| | 113 |
| | 2,254 |
|
| Liabilities | | | | | | | | | |
Current liabilities, including current portion of debt and finance lease obligations | $ | 27 |
| | $ | 28 |
| | $ | 118 |
| | $ | 9 |
| | $ | 182 |
|
Debt and finance lease obligations, less current portion | 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-ConsolidatedNonconsolidated VIEs
We hold variable interests in VIEs that have not been consolidated because we are not considered the primary beneficiary. These non-consolidatednonconsolidated VIEs are not material to our financial position or results of operations and are accounted for as equity investments.
On April 19, 2021, we sold a 24.99 percent membership interest in MVP, a nonconsolidated joint venture with Magellan, for $270 million that resulted in a gain of $62 million, which is included in “other income, net” for the year ended December 31, 2021. MVP owns and operates a marine terminal located on the Houston Ship Channel in Pasadena, Texas. We retained a 25.01 percent membership interest in MVP.
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. EMPLOYEE BENEFIT PLANS
| |
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 all of 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 internationalforeign 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.
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 below were as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Pension Plans | | Other Postretirement
Benefit Plans |
| December 31, | | December 31, |
| 2021 | | 2020 | | 2021 | | 2020 |
| Changes in benefit obligation | | | | | | | |
| Benefit obligation as of beginning of year | $ | 3,625 | | | $ | 3,239 | | | $ | 358 | | | $ | 336 | |
| Service cost | 161 | | | 140 | | | 7 | | | 6 | |
| Interest cost | 73 | | | 85 | | | 7 | | | 9 | |
| | | | | | | |
| Participant contributions | — | | | — | | | 13 | | | 12 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Benefits paid | (284) | | | (195) | | | (29) | | | (28) | |
| Actuarial (gain) loss | (111) | | | 339 | | | (9) | | | 23 | |
| Other | (1) | | | 17 | | | — | | | — | |
| | | | | | | |
| Benefit obligation as of end of year | $ | 3,463 | | | $ | 3,625 | | | $ | 347 | | | $ | 358 | |
| | | | | | | |
| Changes in plan assets (a) | | | | | | | |
| Fair value of plan assets as of beginning of year | $ | 3,067 | | | $ | 2,709 | | | $ | — | | | $ | — | |
| Actual return on plan assets | 389 | | | 413 | | | — | | | — | |
| Company contributions | 135 | | | 129 | | | 16 | | | 16 | |
| Participant contributions | — | | | — | | | 13 | | | 12 | |
| | | | | | | |
| Benefits paid | (284) | | | (195) | | | (29) | | | (28) | |
| Other | (4) | | | 11 | | | — | | | — | |
| | | | | | | |
| Fair value of plan assets as of end of year | $ | 3,303 | | | $ | 3,067 | | | $ | — | | | $ | — | |
| | | | | | | |
| Reconciliation of funded status (a) | | | | | | | |
| Fair value of plan assets as of end of year | $ | 3,303 | | | $ | 3,067 | | | $ | — | | | $ | — | |
| Less: Benefit obligation as of end of year | 3,463 | | | 3,625 | | | 347 | | | 358 | |
| Funded status as of end of year | $ | (160) | | | $ | (558) | | | $ | (347) | | | $ | (358) | |
| | | | | | | |
| Accumulated benefit obligation | $ | 3,238 | | | $ | 3,398 | | | n/a | | n/a |
|
| | | | | | | | | | | | | | | |
| | Pension Plans | | Other Postretirement Benefit Plans |
| | December 31, | | December 31, |
| | 2019 | | 2018 | | 2019 | | 2018 |
| Changes in benefit obligation | | | | | | | |
| Benefit obligation as of beginning of year | $ | 2,639 |
| | $ | 2,926 |
| | $ | 292 |
| | $ | 306 |
|
| Service cost | 119 |
| | 133 |
| | 5 |
| | 6 |
|
| Interest cost | 98 |
| | 91 |
| | 11 |
| | 10 |
|
| Participant contributions | — |
| | — |
| | 11 |
| | 10 |
|
| Benefits paid | (154 | ) | | (207 | ) | | (29 | ) | | (28 | ) |
Actuarial (gain) loss | 528 |
| | (285 | ) | | 41 |
| | (9 | ) |
| Other | 9 |
| | (19 | ) | | 5 |
| | (3 | ) |
| Benefit obligation as of end of year | $ | 3,239 |
| | $ | 2,639 |
| | $ | 336 |
| | $ | 292 |
|
| | | | | | | | |
| Changes in plan assets (a) | | | | | | | |
| Fair value of plan assets as of beginning of year | $ | 2,236 |
| | $ | 2,428 |
| | $ | — |
| | $ | — |
|
| Actual return on plan assets | 490 |
| | (130 | ) | | — |
| | — |
|
| Valero contributions | 128 |
| | 156 |
| | 18 |
| | 18 |
|
| Participant contributions | — |
| | — |
| | 11 |
| | 10 |
|
| Benefits paid | (154 | ) | | (207 | ) | | (29 | ) | | (28 | ) |
| Other | 9 |
| | (11 | ) | | — |
| | — |
|
| Fair value of plan assets as of end of year | $ | 2,709 |
| | $ | 2,236 |
| | $ | — |
| | $ | — |
|
| | | | | | | | |
| Reconciliation of funded status (a) | | | | | | | |
| Fair value of plan assets as of end of year | $ | 2,709 |
| | $ | 2,236 |
| | $ | — |
| | $ | — |
|
| Less: Benefit obligation as of end of year | 3,239 |
| | 2,639 |
| | 336 |
| | 292 |
|
| Funded status as of end of year | $ | (530 | ) | | $ | (403 | ) | | $ | (336 | ) | | $ | (292 | ) |
| | | | | | | | |
| Accumulated benefit obligation | $ | 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 20 for the assets associated with certain U.S. nonqualified pension plans.
__________________________
| |
(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. |
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The actuarialgain for the year ended December 31, 2021 primarily resulted from an increase in the discount rates used to determine our benefit obligations for our pension plans from 2.62 percent in 2020 to 2.93 percent in 2021. The actuarial loss for the year ended December 31, 20192020 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 used2019 to determine our benefit obligations for our pension plans from 3.582.62 percent in 2017 to 4.25 percent in 2018.2020.
The fair value of our plan assets as of December 31, 2019 was2021 and 2020 were favorably impacted by thereturn 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 theeach year.
Amounts recognized in our balance sheet for our pension and other postretirement benefits plans include (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Pension Plans | | Other Postretirement
Benefit Plans |
| December 31, | | December 31, |
| 2021 | | 2020 | | 2021 | | 2020 |
| Deferred charges and other assets, net | $ | 135 | | | $ | 7 | | | $ | — | | | $ | — | |
| Accrued expenses | (19) | | | (24) | | | (22) | | | (21) | |
| Other long-term liabilities | (276) | | | (541) | | | (325) | | | (337) | |
| $ | (160) | | | $ | (558) | | | $ | (347) | | | $ | (358) | |
|
| | | | | | | | | | | | | | | |
| | Pension Plans | | Other Postretirement Benefit Plans |
| | December 31, | | December 31, |
| | 2019 | | 2018 | | 2019 | | 2018 |
| Deferred charges and other assets, net | $ | 5 |
| | $ | 2 |
| | $ | — |
| | $ | — |
|
| Accrued expenses | (17 | ) | | (22 | ) | | (20 | ) | | (21 | ) |
| Other long-term liabilities | (518 | ) | | (383 | ) | | (316 | ) | | (271 | ) |
| | $ | (530 | ) | | $ | (403 | ) | | $ | (336 | ) | | $ | (292 | ) |
The following table presents information for our pension plans with projected benefit obligations in excess of plan assets (in millions).:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| Projected benefit obligation | $ | 335 | | | $ | 3,561 | |
| Fair value of plan assets | 40 | | | 2,997 | |
|
| | | | | | | |
| | December 31, |
| | 2019 | | 2018 |
| Projected benefit obligation | $ | 3,182 |
| | $ | 2,564 |
|
| Fair value of plan assets | 2,647 |
| | 2,160 |
|
The following table presents information for our pension plans with accumulated benefit obligations in excess of plan assets (in millions).:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| Accumulated benefit obligation | $ | 265 | | | $ | 3,336 | |
| Fair value of plan assets | 31 | | | 2,997 | |
|
| | | | | | | |
| | December 31, |
| | 2019 | | 2018 |
| Accumulated benefit obligation | $ | 2,760 |
| | $ | 2,253 |
|
| Fair value of plan assets | 2,402 |
| | 1,974 |
|
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):
| | | | | | | | | | | |
| Pension
Benefits | | Other
Postretirement
Benefits |
| 2022 | $ | 189 | | | $ | 22 | |
| 2023 | 236 | | | 21 | |
| 2024 | 185 | | | 21 | |
| 2025 | 207 | | | 21 | |
| 2026 | 223 | | | 20 | |
| 2027-2031 | 1,068 | | | 91 | |
|
| | | | | | | |
| | Pension Benefits | | Other Postretirement Benefits |
| 2020 | $ | 179 |
| | $ | 21 |
|
| 2021 | 219 |
| | 20 |
|
| 2022 | 190 |
| | 20 |
|
| 2023 | 204 |
| | 19 |
|
| 2024 | 205 |
| | 19 |
|
| 2025-2029 | 1,105 |
| | 88 |
|
We plan to contribute approximately $140$116 million to our pension plans and $21$22 million to our other postretirement benefit plans during 2020.2022.
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 |
| Year Ended December 31, | | Year Ended December 31, |
| 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
| Service cost | $ | 161 | | | $ | 140 | | | $ | 119 | | | $ | 7 | | | $ | 6 | | | $ | 5 | |
| Interest cost | 73 | | | 85 | | | 98 | | | 7 | | | 9 | | | 11 | |
| Expected return on plan assets | (192) | | | (179) | | | (166) | | | — | | | — | | | — | |
| Amortization of: | | | | | | | | | | | |
| Net actuarial (gain) loss | 81 | | | 74 | | | 41 | | | (1) | | | — | | | (3) | |
| Prior service credit | (18) | | | (19) | | | (19) | | | (7) | | | (7) | | | (9) | |
| Special charges | 8 | | | 5 | | | 4 | | | — | | | — | | | 1 | |
| Net periodic benefit cost | $ | 113 | | | $ | 106 | | | $ | 77 | | | $ | 6 | | | $ | 8 | | | $ | 5 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Plans | | Other Postretirement Benefit Plans |
| | Year Ended December 31, | | Year Ended December 31, |
| | 2019 | | 2018 |
| 2017 | | 2019 | | 2018 | | 2017 |
| Service cost | $ | 119 |
| | $ | 133 |
| | $ | 123 |
| | $ | 5 |
| | $ | 6 |
| | $ | 6 |
|
| Interest cost | 98 |
| | 91 |
| | 86 |
| | 11 |
| | 10 |
| | 10 |
|
| Expected return on plan assets | (166 | ) | | (163 | ) | | (150 | ) | | — |
| | — |
| | — |
|
| Amortization of: | | | | | | | | | | | |
| Net actuarial (gain) loss | 41 |
| | 65 |
| | 53 |
| | (3 | ) | | (2 | ) | | (3 | ) |
| Prior service credit | (19 | ) | | (18 | ) | | (20 | ) | | (9 | ) | | (11 | ) | | (16 | ) |
| Special charges | 4 |
| | 7 |
| | 4 |
| | 1 |
| | — |
| | — |
|
| Net periodic benefit cost (credit) | $ | 77 |
| | $ | 115 |
| | $ | 96 |
| | $ | 5 |
| | $ | 3 |
| | $ | (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.net.”
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.
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Pre-tax amounts recognized in other comprehensive income (loss) were as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension Plans | | Other Postretirement
Benefit Plans |
| Year Ended December 31, | | Year Ended December 31, |
| 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
Net gain (loss) arising during the year: | | | | | | | | | | | |
| Net actuarial gain (loss) | $ | 308 | | | $ | (105) | | | $ | (204) | | | $ | 9 | | | $ | (23) | | | $ | (41) | |
| Prior service cost | (4) | | | (5) | | | — | | | — | | | — | | | (3) | |
| | | | | | | | | | | |
Net (gain) loss reclassified into income: | | | | | | | | | | | |
| Net actuarial (gain) loss | 81 | | | 74 | | | 41 | | | (1) | | | — | | | (3) | |
| Prior service credit | (18) | | | (19) | | | (19) | | | (7) | | | (7) | | | (9) | |
| Curtailment and settlement loss | 8 | | | 5 | | | 4 | | | — | | | — | | | — | |
| Effect of exchange rates | 2 | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | |
Total changes in other comprehensive income | $ | 377 | | | $ | (50) | | | $ | (178) | | | $ | 1 | | | $ | (30) | | | $ | (56) | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Plans | | Other Postretirement Benefit Plans |
| | Year Ended December 31, | | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 |
Net gain (loss) arising during the year: | | | | | | | | | | | |
| Net actuarial gain (loss) | $ | (204 | ) | | $ | (8 | ) | | $ | (73 | ) | | $ | (41 | ) | | $ | 9 |
| | $ | (6 | ) |
| Prior service (cost) credit | — |
| | 7 |
| | (4 | ) | | (3 | ) | | — |
| | — |
|
Net (gain) loss reclassified into income: | | | | | | | | | | | |
| Net actuarial (gain) loss | 41 |
| | 65 |
| | 53 |
| | (3 | ) | | (2 | ) | | (3 | ) |
| Prior service credit | (19 | ) | | (18 | ) | | (20 | ) | | (9 | ) | | (11 | ) | | (16 | ) |
| Curtailment and settlement loss | 4 |
| | 7 |
| | 4 |
| | — |
| | — |
| | — |
|
Total changes in other comprehensive income (loss) | $ | (178 | ) | | $ | 53 |
| | $ | (40 | ) | | $ | (56 | ) | | $ | (4 | ) | | $ | (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 | | Other Postretirement
Benefit Plans |
| December 31, | | December 31, |
| 2021 | | 2020 | | 2021 | | 2020 |
| Net actuarial (gain) loss | $ | 615 | | | $ | 1,014 | | | $ | (4) | | | $ | 4 | |
| Prior service credit | (44) | | | (66) | | | (6) | | | (13) | |
| Total | $ | 571 | | | $ | 948 | | | $ | (10) | | | $ | (9) | |
|
| | | | | | | | | | | | | | | |
| | Pension Plans | | Other Postretirement Benefit Plans |
| | December 31, | | December 31, |
| | 2019 |
| 2018 | | 2019 | | 2018 |
| Net actuarial (gain) loss | $ | 988 |
| | $ | 828 |
| | $ | (20 | ) | | $ | (64 | ) |
| Prior service credit | (90 | ) | | (108 | ) | | (19 | ) | | (31 | ) |
| Total | $ | 898 |
| | $ | 720 |
| | $ | (39 | ) | | $ | (95 | ) |
The weighted-average assumptions used to determine the benefit obligations were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Pension Plans | | Other Postretirement
Benefit Plans |
| December 31, | | December 31, |
| 2021 | | 2020 | | 2021 | | 2020 |
| Discount rate | 2.93 | % | | 2.62 | % | | 2.96 | % | | 2.64 | % |
| Rate of compensation increase | 3.70 | % | | 3.66 | % | | n/a | | n/a |
Interest crediting rate for cash balance plans | 3.03 | % | | 3.03 | % | | n/a | | n/a |
|
| | | | | | | | | | | |
| | Pension Plans | | Other Postretirement Benefit Plans |
| | December 31, | | December 31, |
| | 2019 | | 2018 | | 2019 | | 2018 |
| Discount rate | 3.14 | % | | 4.25 | % | | 3.32 | % | | 4.40 | % |
| Rate of compensation increase | 3.75 | % | | 3.78 | % | | n/a |
| | n/a |
|
Interest crediting rate for cash balance plans | 3.03 | % | | 3.04 | % | | n/a |
| | n/a |
|
The discount rate assumption used to determine the benefit obligations as of December 31, 20192021 and 20182020 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, our actuarial consultant, to provide a means for plan sponsors to value the liabilities of their pension plans
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
value the liabilities of their pension plans or postretirement benefit plans. It isTo develop this curve, a hypothetical double-A yield curve represented by a series of annualized individual discount rates with maturities from one-half year to 99 years.years is constructed. Each bond issue underlying the double-A yield 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 this double-A yield curve are then included in thisthe Aon AA Only Above Median 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, |
| 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
| Discount rate | 2.62 | % | | 3.14 | % | | 4.24 | % | | 2.64 | % | | 3.32 | % | | 4.40 | % |
Expected long-term rate of return on plan assets | 7.09 | % | | 7.20 | % | | 7.22 | % | | n/a | | n/a | | n/a |
| Rate of compensation increase | 3.66 | % | | 3.75 | % | | 3.78 | % | | n/a | | n/a | | n/a |
Interest crediting rate for cash balance plans | 3.03 | % | | 3.03 | % | | 3.04 | % | | n/a | | n/a | | n/a |
|
| | | | | | | | | | | | | | | | | |
| | Pension Plans | | Other Postretirement Benefit Plans |
| | Year Ended December 31, | | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 |
| Discount rate | 4.24 | % | | 3.59 | % | | 4.08 | % | | 4.40 | % | | 3.72 | % | | 4.26 | % |
Expected long-term rate of return on plan assets | 7.22 | % | | 7.24 | % | | 7.29 | % | | n/a |
| | n/a |
| | n/a |
|
| Rate of compensation increase | 3.78 | % | | 3.86 | % | | 3.81 | % | | n/a |
| | n/a |
| | n/a |
|
Interest crediting rate for cash balance plans | 3.04 | % | | 3.04 | % | | 3.04 | % | | n/a |
| | n/a |
| | n/a |
|
The assumed health care cost trend rates were as follows:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| Health care cost trend rate assumed for the next year | 6.61 | % | | 6.83 | % |
Rate to which the cost trend rate was assumed to decline (the ultimate trend rate) | 5.00 | % | | 5.00 | % |
| Year that the rate reaches the ultimate trend rate | 2026 | | 2026 |
|
| | | | | |
| | December 31, |
| | 2019 | | 2018 |
| Health care cost trend rate assumed for the next year | 7.32 | % | | 7.29 | % |
Rate to which the cost trend rate was assumed to decline (the ultimate trend rate) | 5.00 | % | | 5.00 | % |
| Year that the rate reaches the ultimate trend rate | 2026 |
| | 2026 |
|
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following tables presenttable presents the fair values of the assets of our pension plans (in millions) as of December 31, 20192021 and 20182020 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.active or inputs other than quoted prices that are observable. No assets were categorized in Level 3 of the hierarchy as of December 31, 2021 or 2020. As previously noted, we do not fund or fully fund U.S. nonqualified and certain internationalforeign pension plans that are not subject to funding requirements, and we do not fund our other postretirement benefit plans.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | | | | | |
| Level 1 | | Level 2 | | Total | | Level 1 | | Level 2 | | Total | | | | | | |
| Equity securities (a) | $ | 681 | | | $ | — | | | $ | 681 | | | $ | 682 | | | $ | — | | | $ | 682 | | | | | | | |
| Mutual funds | 246 | | | — | | | 246 | | | 244 | | | — | | | 244 | | | | | | | |
| Corporate debt instruments (a) | — | | | 355 | | | 355 | | | — | | | 297 | | | 297 | | | | | | | |
| Government securities | 94 | | | 141 | | | 235 | | | 85 | | | 142 | | | 227 | | | | | | | |
| Common collective trusts (b) | — | | | 1,202 | | | 1,202 | | | — | | | 1,066 | | | 1,066 | | | | | | | |
| Pooled separate accounts (c) | — | | | 370 | | | 370 | | | — | | | 316 | | | 316 | | | | | | | |
| Private funds | — | | | 112 | | | 112 | | | — | | | 128 | | | 128 | | | | | | | |
| Insurance contract | — | | | 15 | | | 15 | | | — | | | 15 | | | 15 | | | | | | | |
| Interest and dividends receivable | 5 | | | — | | | 5 | | | 5 | | | — | | | 5 | | | | | | | |
| Cash and cash equivalents | 82 | | | — | | | 82 | | | 98 | | | — | | | 98 | | | | | | | |
| Securities transactions payable, net | — | | | — | | | — | | | (11) | | | — | | | (11) | | | | | | | |
| Total pension plan assets | $ | 1,108 | | | $ | 2,195 | | | $ | 3,303 | | | $ | 1,103 | | | $ | 1,964 | | | $ | 3,067 | | | | | | | |
|
| | | | | | | | | | | | | | | |
| | Fair Value Hierarchy | | Total as of
December 31,
2019 |
| | Level 1 | | Level 2 | | Level 3 | |
| Equity securities: | | | | | | | |
| U.S. companies (a) | $ | 622 |
| | $ | — |
| | $ | — |
| | $ | 622 |
|
| International companies | 205 |
| | 1 |
| | — |
| | 206 |
|
| Preferred stock | 4 |
| | — |
| | — |
| | 4 |
|
| Mutual funds: | | | | | | | |
| International growth | 123 |
| | — |
| | — |
| | 123 |
|
| Index funds | 90 |
| | — |
| | — |
| | 90 |
|
| Corporate debt instruments (a) | — |
| | 293 |
| | — |
| | 293 |
|
| Government securities: | | | | | | | |
| U.S. Treasury securities | 53 |
| | — |
| | — |
| | 53 |
|
| Other government securities | — |
| | 148 |
| | — |
| | 148 |
|
| Common collective trusts (b) | — |
| | 751 |
| | — |
| | 751 |
|
| Pooled separate accounts | — |
| | 250 |
| | — |
| | 250 |
|
| Private funds | — |
| | 104 |
| | — |
| | 104 |
|
| Insurance contract | — |
| | 17 |
| | — |
| | 17 |
|
| Interest and dividends receivable | 5 |
| | — |
| | — |
| | 5 |
|
| Cash and cash equivalents | 59 |
| | — |
| | — |
| | 59 |
|
| Securities transactions payable, net | (16 | ) | | — |
| | — |
| | (16 | ) |
| Total pension plan assets | $ | 1,145 |
| | $ | 1,564 |
| | $ | — |
| | $ | 2,709 |
|
___________________________(b)
See notes on page 108.
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
| | | | | | | | | | | | | | | |
| | Fair Value Hierarchy | | Total as of
December 31,
2018 |
| | Level 1 | | Level 2 | | Level 3 | |
| Equity securities: | | | | | | | |
| U.S. companies (a) | $ | 497 |
| | $ | — |
| | $ | — |
| | $ | 497 |
|
| International companies | 159 |
| | 1 |
| | — |
| | 160 |
|
| Preferred stock | 4 |
| | — |
| | — |
| | 4 |
|
| Mutual funds: | | | | | | | |
| International growth | 97 |
| | — |
| | — |
| | 97 |
|
| Index funds | 76 |
| | — |
| | — |
| | 76 |
|
| Corporate debt instruments (a) | — |
| | 284 |
| | — |
| | 284 |
|
| Government securities: | | | | | | | |
| U.S. Treasury securities | 45 |
| | — |
| | — |
| | 45 |
|
| Other government securities | — |
| | 138 |
| | — |
| | 138 |
|
| Common collective trusts (b) | — |
| | 609 |
| | — |
| | 609 |
|
| Pooled separate accounts | — |
| | 190 |
| | — |
| | 190 |
|
| Private funds | — |
| | 87 |
| | — |
| | 87 |
|
| Insurance contract | — |
| | 18 |
| | — |
| | 18 |
|
| Interest and dividends receivable | 5 |
| | — |
| | — |
| | 5 |
|
| Cash and cash equivalents | 40 |
| | — |
| | — |
| | 40 |
|
| Securities transactions payable, net | (14 | ) | | — |
| | — |
| | (14 | ) |
| Total pension plan assets | $ | 909 |
| | $ | 1,327 |
| | $ | — |
| | $ | 2,236 |
|
__________________________________(c)This class primarily includes investments in approximately 55 percent equities and 45 percent bonds as of December 31, 2021. As of December 31, 2020, this class included primarily investments in approximately 60 percent equities and 40 percent bonds. These pension assets are held by our foreign pension plans.
| |
(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 stockssecurities 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, 2019,2021, the target allocations for plan assets under our primary pension plan are 70 percent equity securities and 30 percent fixed income investments.
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
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 $82 million, $80 million, and $77 million$74 million, and $70 million for the years ended December 31, 2019, 2018,2021, 2020, and 2019, respectively.
2017, respectively.
15. STOCK-BASED COMPENSATION | |
14. | STOCK-BASED COMPENSATION |
Overview
Under our 20112020 Omnibus Stock Incentive Plan (the 2020 OSIP), various stock and stock-based awards may be granted to employees, non-employee directors, and non-employee directors. Awards available under thethird-party service providers. The 2020 OSIP include, but are not limited to,permits grants of (i) restricted stock that vests over a period determined byand restricted stock units; (ii) stock options (including incentive and non-qualified stock options); (iii) stock appreciation rights; (iv) performance awards of cash, stock, or other securities; and (v) other stock-based awards (e.g., stock unit awards). Awards under the 2020 OSIP are granted at the discretion of our compensation committee (ii)and may be subject to vesting or performance awards that vest upon the achievement of an objectiveperiods, performance goal, (iii) options to purchase shares of common stock, (iv) dividend equivalent rights, and (v) stock unit awards.goals, or other restrictions. The 2020 OSIP was approved by our stockholders on April 28,30, 2020, and as of such date, any shares of common stock that were available to be awarded under the 2011 Omnibus Stock Incentive Plan (the 2011 OSIP) became available for issuance under the 2020 OSIP and re-approved by our stockholders on May 12, 2016.any shares of common stock subject to awards under the 2011 OSIP outstanding as of April 30, 2020, that are subsequently forfeited, terminated, canceled or rescinded, settled in cash in lieu of common stock, exchanged for awards not involving common stock, or expire unexercised also become available for issuance under the 2020 OSIP. No future awards will be made under the 2011 OSIP. As of December 31, 2019,7,740,6652021, 13,566,535 shares of our common stock remained available to be awarded under the 2020 OSIP.
We also maintain another stock-based compensation plan under which previously granted equity awards remain outstanding. NaN additional grants may be awarded under this plan.
The following table reflects activity related to our stock-based compensation arrangements (in millions):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Stock-based compensation expense: | | | | | |
| Restricted stock | $ | 65 | | | $ | 63 | | | $ | 64 | |
| Performance awards | 21 | | | 15 | | | 23 | |
| Stock options and other awards | 2 | | | 2 | | | 2 | |
| Total stock-based compensation expense | $ | 88 | | | $ | 80 | | | $ | 89 | |
| Tax benefit recognized on stock-based compensation expense | $ | 13 | | | $ | 13 | | | $ | 19 | |
Tax benefit realized for tax deductions resulting from exercises and vestings | 1 | | | 1 | | | 17 | |
| | | | | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| Stock-based compensation expense: | | | | | |
| Restricted stock | $ | 64 |
| | $ | 63 |
| | $ | 58 |
|
| Performance awards | 23 |
| | 22 |
| | 19 |
|
| Stock options and other awards | 2 |
| | 1 |
| | — |
|
| Total stock-based compensation expense | $ | 89 |
| | $ | 86 |
| | $ | 77 |
|
| Tax benefit recognized on stock-based compensation expense | $ | 19 |
| | $ | 18 |
| | $ | 27 |
|
Tax benefit realized for tax deductions resulting from exercises and vestings | 17 |
| | 32 |
| | 44 |
|
Effect of tax deductions in excess of recognized stock-based compensation expense | 7 |
| | 20 |
| | 24 |
|
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 grantedour most significant stock-based compensation arrangement. Employees, non-employee directors, and third-party service providers are eligible to employees and non-employee directors. Restrictedreceive restricted stock, granted to employeeswhich 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 share of 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.table:
| | | | | | | | | | | |
|
Number of Shares | | Weighted-
Average
Grant-Date
Fair Value
Per Share |
| Nonvested shares as of January 1, 2021 | 1,437,912 | | | $ | 69.47 | |
| Granted | 831,337 | | | 77.71 | |
| Vested | (797,751) | | | 75.36 | |
| Forfeited | (13,307) | | | 70.64 | |
| Nonvested shares as of December 31, 2021 | 1,458,191 | | | 70.93 | |
|
| | | | | | |
|
Number of Shares | | Weighted- Average Grant-Date Fair Value Per Share |
| Nonvested shares as of January 1, 2019 | 1,176,578 |
| | $ | 80.70 |
|
| Granted | 677,482 |
| | 98.75 |
|
| Vested | (757,217 | ) | | 78.54 |
|
| Forfeited | (4,989 | ) | | 83.18 |
|
| Nonvested shares as of December 31, 2019 | 1,091,854 |
| | 93.38 |
|
As of December 31, 2019,2021, there was $59$57 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:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
Weighted-average grant-date fair value per share of restricted stock granted | $ | 77.71 | | | $ | 55.62 | | | $ | 98.75 | |
| Fair value of restricted stock vested (in millions) | 59 | | | 35 | | | 74 | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 |
Weighted-average grant-date fair value per share of restricted stock granted | $ | 98.75 |
| | $ | 92.12 |
| | $ | 79.32 |
|
| Fair value of restricted stock vested (in millions) | 74 |
| | 80 |
| | 71 |
|
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. INCOME TAXES
Income Statement Components
Income (loss) before income tax expense (benefit) was as follows (in millions):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| U.S. operations | $ | 1,023 | | | $ | (2,072) | | | $ | 2,496 | |
| Foreign operations | 520 | | | 62 | | | 990 | |
| Income (loss) before income tax expense (benefit) | $ | 1,543 | | | $ | (2,010) | | | $ | 3,486 | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| U.S. operations | $ | 2,496 |
| | $ | 3,168 |
| | $ | 2,283 |
|
| International operations | 990 |
| | 1,064 |
| | 924 |
|
| Income before income tax expense (benefit) | $ | 3,486 |
| | $ | 4,232 |
| | $ | 3,207 |
|
Statutory income tax rates applicable to the countries in which we operate during each of the years ended December 31, 2021, 2020, and 2019 were as follows:
| | | | | |
| U.S. | 21 | % |
| Canada | 15 | % |
| U.K. | 19 | % |
| Ireland | 13 | % |
| Peru | 30 | % |
| Mexico | 30 | % |
|
| | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| U.S. | 21 | % | | 21 | % | | 35 | % |
| Canada | 15 | % | | 15 | % | | 15 | % |
| U.K. | 19 | % | | 19 | % | | 19 | % |
| Ireland | 13 | % | | 13 | % | | 13 | % |
| Peru | 30 | % | | 30 | % | | n/a |
|
| Mexico | 30 | % | | 30 | % | | 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):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| U.S. | | Foreign | | Total |
| Amount | | Percent | | Amount | | Percent | | Amount | | Percent |
| Year ended December 31, 2021 | | | | | | | | | | | |
| Income tax expense at statutory rates | $ | 215 | | | 21.0 | % | | $ | 73 | | | 14.0 | % | | $ | 288 | | | 18.7 | % |
U.S. state and Canadian provincial tax expense, net of federal income tax effect | 16 | | | 1.6 | % | | 53 | | | 10.2 | % | | 69 | | | 4.5 | % |
| Permanent differences | (34) | | | (3.3) | % | | (14) | | | (2.7) | % | | (48) | | | (3.1) | % |
| Changes in tax law (a) | (10) | | | (1.0) | % | | 74 | | | 14.2 | % | | 64 | | | 4.1 | % |
| CARES Act (b) | (56) | | | (5.5) | % | | — | | | — | | | (56) | | | (3.6) | % |
| GILTI tax | 125 | | | 12.2 | % | | — | | | — | | | 125 | | | 8.1 | % |
| Foreign tax credits | (103) | | | (10.1) | % | | — | | | — | | | (103) | | | (6.7) | % |
| | | | | | | | | | | |
| Settlements | (22) | | | (2.1) | % | | — | | | — | | | (22) | | | (1.4) | % |
Tax effects of income associated with noncontrolling interests | (74) | | | (7.2) | % | | 30 | | | 5.8 | % | | (44) | | | (2.9) | % |
| Other, net | (7) | | | (0.7) | % | | (11) | | | (2.1) | % | | (18) | | | (1.2) | % |
| Income tax expense | $ | 50 | | | 4.9 | % | | $ | 205 | | | 39.4 | % | | $ | 255 | | | 16.5 | % |
|
| | | | | | | | | | | | | | | | | | | | |
| | U.S. | | International | | Total |
| | Amount | | Percent | | Amount | | Percent | | Amount | | Percent |
| Year ended December 31, 2019 | | | | | | | | | | | |
| Income tax expense at statutory rates | $ | 524 |
| | 21.0 | % | | $ | 147 |
| | 14.8 | % | | $ | 671 |
| | 19.2 | % |
U.S. state and Canadian provincial tax expense, net of federal income tax effect | 16 |
| | 0.7 | % | | 88 |
| | 8.9 | % | | 104 |
| | 3.0 | % |
| Permanent differences | (36 | ) | | (1.5 | )% | | 10 |
| | 1.0 | % | | (26 | ) | | (0.7 | )% |
| GILTI tax (a) | 115 |
| | 4.6 | % | | — |
| | — |
| | 115 |
| | 3.3 | % |
| Foreign tax credits | (95 | ) | | (3.8 | )% | | — |
| | — |
| | (95 | ) | | (2.7 | )% |
| Repatriation withholding tax | 45 |
| | 1.8 | % | | — |
| | — |
| | 45 |
| | 1.3 | % |
Tax effects of income associated with noncontrolling interests | (77 | ) | | (3.1 | )% | | 2 |
| | 0.2 | % | | (75 | ) | | (2.2 | )% |
| Other, net | (36 | ) | | (1.4 | )% | | (1 | ) | | (0.1 | )% | | (37 | ) | | (1.1 | )% |
| Income tax expense | $ | 456 |
| | 18.3 | % | | $ | 246 |
| | 24.8 | % | | $ | 702 |
| | 20.1 | % |
See notes on page 117.
116
__________________________
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| U.S. | | Foreign | | Total |
| Amount | | Percent | | Amount | | Percent | | Amount | | Percent |
| Year ended December 31, 2020 | | | | | | | | | | | |
| Income tax benefit at statutory rates | $ | (435) | | | 21.0 | % | | $ | (10) | | | (16.1) | % | | $ | (445) | | | 22.1 | % |
U.S. state and Canadian provincial tax expense (benefit), net of federal income tax effect | (33) | | | 1.6 | % | | 27 | | | 43.5 | % | | (6) | | | 0.3 | % |
| Permanent differences | (23) | | | 1.1 | % | | 15 | | | 24.2 | % | | (8) | | | 0.4 | % |
| CARES Act (b) | (360) | | | 17.4 | % | | — | | | — | | | (360) | | | 17.9 | % |
| | | | | | | | | | | |
| Lapse of federal statute of limitations | (39) | | | 1.8 | % | | — | | | — | | | (39) | | | 1.9 | % |
| | | | | | | | | | | |
| Change in tax law | — | | | — | | | 21 | | | 33.9 | % | | 21 | | | (1.0) | % |
Tax effects of income associated with noncontrolling interests | (66) | | | 3.2 | % | | (8) | | | (12.9) | % | | (74) | | | 3.7 | % |
| Other, net | 7 | | | (0.3) | % | | 1 | | | 1.6 | % | | 8 | | | (0.4) | % |
| Income tax expense (benefit) | $ | (949) | | | 45.8 | % | | $ | 46 | | | 74.2 | % | | $ | (903) | | | 44.9 | % |
| | | | | | | | | | | |
| Year ended December 31, 2019 | | | | | | | | | | | |
| Income tax expense at statutory rates | $ | 524 | | | 21.0 | % | | $ | 147 | | | 14.8 | % | | $ | 671 | | | 19.2 | % |
U.S. state and Canadian provincial tax expense, net of federal income tax effect | 16 | | | 0.7 | % | | 88 | | | 8.9 | % | | 104 | | | 3.0 | % |
| Permanent differences | (36) | | | (1.5) | % | | 10 | | | 1.0 | % | | (26) | | | (0.7) | % |
| | | | | | | | | | | |
| GILTI tax | 115 | | | 4.6 | % | | — | | | — | | | 115 | | | 3.3 | % |
| | | | | | | | | | | |
| Foreign tax credits | (95) | | | (3.8) | % | | — | | | — | | | (95) | | | (2.7) | % |
| Repatriation withholding tax | 45 | | | 1.8 | % | | — | | | — | | | 45 | | | 1.3 | % |
Tax effects of income associated with noncontrolling interests | (77) | | | (3.1) | % | | 2 | | | 0.2 | % | | (75) | | | (2.2) | % |
| Other, net | (36) | | | (1.4) | % | | (1) | | | (0.1) | % | | (37) | | | (1.1) | % |
| Income tax expense | $ | 456 | | | 18.3 | % | | $ | 246 | | | 24.8 | % | | $ | 702 | | | 20.1 | % |
________________________
(a)During the three months ended June 30, 2021, certain statutory income tax rate changes (primarily an increase in the U.K. rate from 19 percent to 25 percent effective in 2023) were enacted that resulted in the remeasurement of our deferred tax liabilities and related deferred income tax expense.
(b)See “CARES Act” on page 122 for a discussion of significant changes in tax law in the U.S. that were enacted in 2020.
|
| | | | | | | | | | | | | | | | | | | | |
| | U.S. | | International | | Total |
| | Amount | | Percent | | Amount | | Percent | | Amount | | Percent |
| Year ended December 31, 2018 | | | | | | | | | | | |
| Income tax expense at statutory rates | $ | 665 |
| | 21.0 | % | | $ | 163 |
| | 15.3 | % | | $ | 828 |
| | 19.6 | % |
U.S. state and Canadian provincial tax expense, net of federal income tax effect | 44 |
| | 1.4 | % | | 80 |
| | 7.5 | % | | 124 |
| | 2.9 | % |
| Permanent differences | (9 | ) | | (0.3 | )% | | — |
| | — |
| | (9 | ) | | (0.2 | )% |
| GILTI tax (a) | 67 |
| | 2.1 | % | | — |
| | — |
| | 67 |
| | 1.6 | % |
| Foreign tax credits | (50 | ) | | (1.6 | )% | | — |
| | — |
| | (50 | ) | | (1.2 | )% |
| Effects of Tax Reform (a) | (12 | ) | | (0.4 | )% | | — |
| | — |
| | (12 | ) | | (0.3 | )% |
Tax effects of income associated with noncontrolling interests | (49 | ) | | (1.5 | )% | | — |
| | — |
| | (49 | ) | | (1.2 | )% |
| Other, net | (23 | ) | | (0.7 | )% | | 3 |
| | 0.3 | % | | (20 | ) | | (0.5 | )% |
| Income tax expense | $ | 633 |
| | 20.0 | % | | $ | 246 |
| | 23.1 | % | | $ | 879 |
| | 20.7 | % |
| | | | | | | | | | | | |
| Year ended December 31, 2017 | | | | | | | | | | | |
| Income tax expense at statutory rates | $ | 799 |
| | 35.0 | % | | $ | 158 |
| | 17.1 | % | | $ | 957 |
| | 29.8 | % |
U.S. state and Canadian provincial tax expense, net of federal income tax effect | 37 |
| | 1.6 | % | | 46 |
| | 5.0 | % | | 83 |
| | 2.6 | % |
| Permanent differences: | | | | | | | | | | | |
| Manufacturing deduction | (42 | ) | | (1.8 | )% | | — |
| | — |
| | (42 | ) | | (1.3 | )% |
| Other | (9 | ) | | (0.4 | )% | | — |
| | — |
| | (9 | ) | | (0.3 | )% |
| Change in tax law (a) | (1,862 | ) | | (81.6 | )% | | — |
| | — |
| | (1,862 | ) | | (58.1 | )% |
Tax effects of income associated with noncontrolling interests | (31 | ) | | (1.4 | )% | | — |
| | — |
| | (31 | ) | | (1.0 | )% |
| Other, net | (52 | ) | | (2.3 | )% | | 7 |
| | 0.8 | % | | (45 | ) | | (1.4 | )% |
| Income tax expense (benefit) | $ | (1,160 | ) | | (50.9 | )% | | $ | 211 |
| | 22.9 | % | | $ | (949 | ) | | (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.
|
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Components of income tax expense (benefit) were as follows (in millions):
| | | | | | | | | | | | | | | | | |
| U.S. | | Foreign | | Total |
| Year ended December 31, 2021 | | | | | |
| Current: | | | | | |
| Country | $ | 68 | | | $ | 215 | | | $ | 283 | |
| U.S. state / Canadian provincial | 1 | | | 97 | | | 98 | |
| Total current | 69 | | | 312 | | | 381 | |
| Deferred: | | | | | |
| Country | 5 | | | (63) | | | (58) | |
| U.S. state / Canadian provincial | (24) | | | (44) | | | (68) | |
| Total deferred | (19) | | | (107) | | | (126) | |
| Income tax expense | $ | 50 | | | $ | 205 | | | $ | 255 | |
| | | | | |
| Year ended December 31, 2020 | | | | | |
| Current: | | | | | |
| Country | $ | (1,033) | | | $ | (34) | | | $ | (1,067) | |
| U.S. state / Canadian provincial | 9 | | | (3) | | | 6 | |
| Total current | (1,024) | | | (37) | | | (1,061) | |
| Deferred: | | | | | |
| Country | 126 | | | 53 | | | 179 | |
| U.S. state / Canadian provincial | (51) | | | 30 | | | (21) | |
| Total deferred | 75 | | | 83 | | | 158 | |
| Income tax expense (benefit) | $ | (949) | | | $ | 46 | | | $ | (903) | |
| | | | | |
| Year ended December 31, 2019 | | | | | |
| Current: | | | | | |
| Country | $ | 145 | | | $ | 186 | | | $ | 331 | |
| U.S. state / Canadian provincial | 37 | | | 100 | | | 137 | |
| Total current | 182 | | | 286 | | | 468 | |
| Deferred: | | | | | |
| Country | 290 | | | (28) | | | 262 | |
| U.S. state / Canadian provincial | (16) | | | (12) | | | (28) | |
| Total deferred | 274 | | | (40) | | | 234 | |
| Income tax expense | $ | 456 | | | $ | 246 | | | $ | 702 | |
|
| | | | | | | | | | | |
| | U.S. | | International | | Total |
| Year ended December 31, 2019 | | | | | |
| Current: | | | | | |
| Country | $ | 145 |
| | $ | 186 |
| | $ | 331 |
|
| U.S. state / Canadian provincial | 37 |
| | 100 |
| | 137 |
|
| Total current | 182 |
| | 286 |
| | 468 |
|
| Deferred: | | | | | |
| Country | 290 |
| | (28 | ) | | 262 |
|
| U.S. state / Canadian provincial | (16 | ) | | (12 | ) | | (28 | ) |
| Total deferred | 274 |
| | (40 | ) | | 234 |
|
| Income tax expense | $ | 456 |
| | $ | 246 |
| | $ | 702 |
|
| | | | | | |
| Year ended December 31, 2018 | | | | | |
| Current: | | | | | |
| Country | $ | 432 |
| | $ | 141 |
| | $ | 573 |
|
| U.S. state / Canadian provincial | 37 |
| | 66 |
| | 103 |
|
| Total current | 469 |
| (a) | 207 |
| | 676 |
|
| Deferred: | | | | | |
| Country | 145 |
| | 25 |
| | 170 |
|
| U.S. state / Canadian provincial | 19 |
| | 14 |
| | 33 |
|
| Total deferred | 164 |
| (b) | 39 |
| | 203 |
|
| Income tax expense | $ | 633 |
| | $ | 246 |
| | $ | 879 |
|
| | | | | | |
| Year ended December 31, 2017 | | | | | |
| Current: | | | | | |
| Country | $ | 1,305 |
| | $ | 194 |
| | $ | 1,499 |
|
| U.S. state / Canadian provincial | 34 |
| | 61 |
| | 95 |
|
| Total current | 1,339 |
| (a) | 255 |
| | 1,594 |
|
| Deferred: | | | | | |
| Country | (2,522 | ) | | (29 | ) | | (2,551 | ) |
| U.S. state / Canadian provincial | 23 |
| | (15 | ) | | 8 |
|
| Total deferred | (2,499 | ) | (b) | (44 | ) | | (2,543 | ) |
| Income tax expense (benefit) | $ | (1,160 | ) | | $ | 211 |
| | $ | (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.
|
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Income Taxes Paid (Refunded)
Income taxes paid to (received from) U.S. and internationalforeign taxing authorities were as follows (in millions):
| | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | |
| 2021 | | 2020 | | 2019 | |
| U.S. | $ | (878) | | (a) | $ | 130 | | | $ | (298) | | (b) |
| Foreign | 36 | | | 73 | | | 182 | | |
| Income taxes paid (refunded), net | $ | (842) | | | $ | 203 | | | $ | (116) | | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| U.S. | $ | (298 | ) | (a) | $ | 1,016 |
| | $ | 239 |
|
| International | 182 |
| | 345 |
| | 171 |
|
| Income taxes paid (refunded), net | $ | (116 | ) | | $ | 1,361 |
| | $ | 410 |
|
__________________________(b)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” on page 121.
| |
(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, |
| 2021 | | 2020 |
| Deferred income tax assets: | | | |
| Tax credit carryforwards | $ | 679 | | | $ | 681 | |
| NOLs | 697 | | | 678 | |
| Inventories | 217 | | | 70 | |
| | | |
| Compensation and employee benefit liabilities | 123 | | | 199 | |
| Environmental liabilities | 53 | | | 64 | |
| Other | 149 | | | 128 | |
| Total deferred income tax assets | 1,918 | | | 1,820 | |
| Valuation allowance | (1,262) | | | (1,223) | |
| Net deferred income tax assets | 656 | | | 597 | |
| | | |
| Deferred income tax liabilities: | | | |
| Property, plant, and equipment | 4,866 | | | 4,895 | |
| Deferred turnaround costs | 308 | | | 302 | |
| Inventories | 191 | | | 269 | |
| Investments | 268 | | | 171 | |
| Other | 233 | | | 235 | |
| Total deferred income tax liabilities | 5,866 | | | 5,872 | |
| Net deferred income tax liabilities | $ | 5,210 | | | $ | 5,275 | |
|
| | | | | | | |
| | December 31, |
| | 2019 | | 2018 |
| Deferred income tax assets: | | | |
| Tax credit carryforwards | $ | 683 |
| | $ | 644 |
|
| Net operating losses (NOLs) | 582 |
| | 523 |
|
| Inventories | 141 |
| | 101 |
|
| Compensation and employee benefit liabilities | 213 |
| | 175 |
|
| Environmental liabilities | 69 |
| | 71 |
|
| Other | 156 |
| | 141 |
|
| Total deferred income tax assets | 1,844 |
| | 1,655 |
|
| Valuation allowance | (1,200 | ) | | (1,111 | ) |
| Net deferred income tax assets | 644 |
| | 544 |
|
| | | | |
| Deferred income tax liabilities: | | | |
| Property, plant, and equipment | 4,924 |
| | 4,589 |
|
| Deferred turnaround costs | 331 |
| | 316 |
|
| Inventories | 217 |
| | 287 |
|
| Investments | 122 |
| | 142 |
|
| Other | 153 |
| | 172 |
|
| Total deferred income tax liabilities | 5,747 |
| | 5,506 |
|
| Net deferred income tax liabilities | $ | 5,103 |
| | $ | 4,962 |
|
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
We had the following income tax credit and loss carryforwards as of December 31, 20192021 (in millions):
| | | | | | | | | | | |
| Amount | | Expiration |
| U.S. state income tax credits (gross amount) | $ | 80 | | | 2022 through 2033 |
| U.S. state income tax credits (gross amount) | 21 | | | Unlimited |
| U.S. foreign tax credits | 598 | | | 2027 |
| U.S. state income tax NOLs (gross amount) | 12,394 | | | 2022 through 2041 |
| U.S. state income tax NOLs (gross amount) | 465 | | | Unlimited |
| Foreign NOLs (gross amount) | 38 | | | 2025 through 2031 |
| Foreign NOLs (gross amount) | 59 | | | Unlimited |
| | | |
|
| | | | | |
| | Amount | | Expiration |
| U.S. state income tax credits (gross amount) | $ | 89 |
| | 2020 through 2033 |
| U.S. state income tax credits (gross amount) | 17 |
| | Unlimited |
| U.S. foreign tax credits | 598 |
| | 2027 |
| U.S. state NOLs (gross amount) | 10,913 |
| | 2020 through 2039 |
We have recorded a valuation allowance as of December 31, 20192021 and 20182020 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, certain foreign deferred tax assets, and certain 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$39 million in 20192021 primarily due to an increaseincreases 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.
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):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Balance as of beginning of year | $ | 847 | | | $ | 897 | | | $ | 970 | |
| Additions for tax positions related to the current year | 3 | | | 5 | | | 19 | |
| Additions for tax positions related to prior years | 13 | | | 9 | | | 30 | |
| Reductions for tax positions related to prior years | (25) | | | (20) | | | (101) | |
Reductions for tax positions related to the lapse of applicable statute of limitations | — | | | (44) | | | (14) | |
| Settlements | (22) | | | — | | | (7) | |
| | | | | |
| Balance as of end of year | $ | 816 | | | $ | 847 | | | $ | 897 | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| Balance as of beginning of year | $ | 970 |
| | $ | 941 |
| | $ | 936 |
|
| Additions for tax positions related to the current year | 19 |
| | 23 |
| | 33 |
|
| Additions for tax positions related to prior years | 30 |
| | 28 |
| | 15 |
|
| Reductions for tax positions related to prior years | (101 | ) | | (19 | ) | | (42 | ) |
Reductions for tax positions related to the lapse of applicable statute of limitations | (14 | ) | | (1 | ) | | (1 | ) |
| Settlements | (7 | ) | | (2 | ) | | — |
|
| Balance as of end of year | $ | 897 |
| | $ | 970 |
| | $ | 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).
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| Unrecognized tax benefits | $ | 816 | | | $ | 847 | |
| Tax refund claims not yet filed but that we intend to file | (28) | | | (26) | |
| Interest and penalties | 86 | | | 110 | |
| Liability for unrecognized tax benefits presented in our balance sheets | $ | 874 | | | $ | 931 | |
|
| | | | | | | |
| | December 31, |
| | 2019 | | 2018 |
| Unrecognized tax benefits | $ | 897 |
| | $ | 970 |
|
| Tax refund claims not yet filed but that we intend to file | (29 | ) | | (277 | ) |
| Interest and penalties | 100 |
| | 88 |
|
| Liability for unrecognized tax benefits presented in our balance sheets | $ | 968 |
| | $ | 781 |
|
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Our liability for unrecognized tax benefits is reflected in the following balance sheet line items (in millions):
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| | | |
| Income taxes payable | $ | 1 | | | $ | 59 | |
| Other long-term liabilities | 863 | | | 859 | |
| Deferred tax liabilities | 10 | | | 13 | |
| Liability for unrecognized tax benefits presented in our balance sheets | $ | 874 | | | $ | 931 | |
|
| | | | | | | |
| | December 31, |
| | 2019 | | 2018 |
| Income taxes payable | $ | — |
| | $ | 42 |
|
| Other long-term liabilities | 954 |
| | 721 |
|
| Deferred tax liabilities | 14 |
| | 18 |
|
| Liability for unrecognized tax benefits presented in our balance sheets | $ | 968 |
| | $ | 781 |
|
As of December 31, 2019,2021 and 2020, our liability for unrecognized tax benefits includesincluded $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.petroleum-based transportation fuels. 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
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, 20192021 and 2018,2020, there was $762$708 million and $807$729 million, respectively, of unrecognized tax benefits that if recognized would reduce our annual effective tax rate.
Interest and penalties incurred duringDuring the years ended December 31, 2019, 2018, and 2017 was immaterial.
Althoughnext 12 months, it is reasonably possible we do not anticipate that any of our tax audits will be resolved in 2020 that would result in a reduction inaudit resolutions could reduce our liability for unrecognized tax benefits due to theeither because our tax positions beingare sustained upon audit or duebecause we agree to our agreement of their disallowance. Should any reductions occur, weWe do not expect they wouldthese reductions to have a significantmaterial impact on our financial statements because such reductions would not significantlymaterially 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, 2019,2021, our U.S. federal income tax returns for 2012 through 2015, 2017, and 2018 were under audit by the IRS.Internal Revenue Service (IRS). The IRS has proposed adjustments for certain open years and we are workingcurrently contesting the proposed adjustments with the Office of Appeals of the IRS. We are continuing to work with the IRS to resolve these matters. Wematters and we believe that these mattersthey will be resolved for amounts consistent with our liability forrecorded amounts of 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,petroleum-based transportation fuels, 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 ofhave filed a lawsuit in a U.S. district court seeking refunds for these adjustments.years. 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,condition, results of operations, and liquidity.
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
U.S. State
As of December 31, 2019,In 2021, we settled the audits related to our California tax returns for 2004 through 20082006. We did not have a significant change to our liability for unrecognized tax benefits upon settlement of the audits. As of December 31, 2021, our California tax returns for 2007 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,condition, results of operations, orand liquidity. We believe these audits will be resolved for amounts consistent with the liabilityour recorded amounts for unrecognized tax benefits associated with these audits.
InternationalForeign
As of December 31, 2019,2021, certain of our Canadian subsidiary’ssubsidiaries’ federal tax returns for 2013 through 20162018 were under audit by the Canada Revenue Agency (CRA) and our Quebec provincial tax returns for 2013 through 20162018 were under audit by Revenue Quebec. We are currentlyalso protesting the proposed adjustments related to our Peruvian subsidiary’s federal tax returns for 2016 and 2018, which were under audit by the CRALa Superintendencia Nacional de Aduanas y de Administración Tributaria. Additionally, our U.K. subsidiary’s tax returns for 20132019 and 20142020 were opened for inquiry by Her Majesty’s Revenue and weCustoms. We do not expect the ultimate disposition of these adjustmentsaudits or inquiries will result in a material change to our financial position,condition, results of operations, orand liquidity.
CARES Act
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was enacted, which resulted in significant changes to the U.S. Internal Revenue Code of 1986, as amended. The most significant changes affecting us were as follows:
•Modification of the limitations previously set by Tax Reform by providing that tax NOLs arising in a tax year beginning in 2018, 2019, or 2020 can be carried back five years. This provision allows the taxpayer to recover taxes previously paid at a 35 percent federal income tax rate during tax years prior to 2018. In addition, the CARES Act removed the taxable income limitation to allow a tax NOL to fully offset taxable income for tax years beginning before January 1, 2021.
•Increased the deductibility of interest expense from 30 percent to 50 percent of adjusted taxable income for 2019 and 2020. Also, a taxpayer can elect to use its 2019 adjusted taxable income in 2020 to determine the deductible amount of interest expense in that year.
Our income tax benefit for the year ended December 31, 2020 included a tax benefit of $360 million attributable to the tax NOL carryback provided under the CARES Act for our 2020 tax NOL to our 2015 tax year in which we paid federal income taxes at a 35 percent tax rate. Upon filing our superseding 2020 federal income tax return in the fourth quarter of 2021, we recorded an additional tax benefit of $56 million during the year ended December 31, 2021 related to the additional 2020 tax NOL carryback to 2015.
Other Disclosures
Undistributed Earnings of Foreign Subsidiaries
As of December 31, 2021, the cumulative undistributed earnings of our foreign subsidiaries that is considered permanently reinvested in the relevant foreign countries were approximately $4.5 billion. We
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 changesare able to the Code and was effective beginning on January 1, 2018. The most significant changes affecting us are as follows:
reductiondistribute cash via a dividend from our foreign subsidiaries with a full dividend received deduction in the statutoryU.S. However, there may be a cost to repatriate the undistributed earnings of certain of our foreign subsidiaries to us, including, but not limited to, withholding taxes imposed by certain foreign jurisdictions, U.S. state income taxes, and U.S. federal income tax rate from 35 percenton foreign exchange gains. It is not practicable to 21 percent;estimate the amount of additional tax that would be payable on those earnings, if distributed.
assessmentOur repatriation tax liability relates to our recognition 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.foreign subsidiaries. This transition tax will be remitted to the Internal Revenue Service (IRS)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 significantInterest 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.
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 forpenalties incurred during the years ended December 31, 20182021, 2020, and 2017, including whether such amounts2019 were complete, provisional, or incomplete. The amounts presented for 2018 were completed during the fourth quarter of 2018.immaterial.
|
| | | | | | | | | | | | | | | |
| | Year Ended December 31, | | Cumulative Tax Reform Adjustment |
| | 2017 | | 2018 | |
| | Accounting Status | | Amount | | Accounting Status | | Amount | |
Income tax benefit from the remeasurement of U.S. deferred income tax assets and liabilities | Complete | | $ | (2,643 | ) | | Complete | | $ | — |
| | $ | (2,643 | ) |
Tax on the deemed repatriation of the accumulated earnings and profits of our international subsidiaries | Provisional | | 734 |
| | Complete | | 6 |
| | 740 |
|
Recognition of foreign withholding tax, net of U.S. federal tax benefit | Complete | | 47 |
| | Complete | | — |
| | 47 |
|
Deductibility of certain executive compensation expense | Incomplete | | — |
| | Complete | | 5 |
| | 5 |
|
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 | Incomplete | | — |
| | Complete | | 9 |
| | 9 |
|
Foreign tax credit available to offset the tax on deemed repatriation of the accumulated earnings and profits of our international subsidiaries | Incomplete | | — |
| | Complete | | (32 | ) | | (32 | ) |
| Tax Reform benefit | | | $ | (1,862 | ) | | | | $ | (12 | ) | | $ | (1,874 | ) |
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| |
16. | EARNINGS PER COMMON SHARE |
Earnings (loss) per common share werewas computed as follows (dollars and shares in millions, except per share amounts):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Earnings (loss) per common share: | | | | | |
| Net income (loss) attributable to Valero stockholders | $ | 930 | | | $ | (1,421) | | | $ | 2,422 | |
| Less: Income allocated to participating securities | 6 | | | 5 | | | 7 | |
| Net income (loss) available to common stockholders | $ | 924 | | | $ | (1,426) | | | $ | 2,415 | |
| | | | | |
| Weighted-average common shares outstanding | 407 | | | 407 | | | 413 | |
| | | | | |
| Earnings (loss) per common share | $ | 2.27 | | | $ | (3.50) | | | $ | 5.84 | |
| | | | | |
| Earnings (loss) per common share – assuming dilution: | | | | | |
| Net income (loss) attributable to Valero stockholders | $ | 930 | | | $ | (1,421) | | | $ | 2,422 | |
| Less: Income allocated to participating securities | 6 | | | 5 | | | 7 | |
| Net income (loss) available to common stockholders | $ | 924 | | | $ | (1,426) | | | $ | 2,415 | |
| | | | | |
| Weighted-average common shares outstanding | 407 | | | 407 | | | 413 | |
| Effect of dilutive securities | — | | | — | | | 1 | |
Weighted-average common shares outstanding – assuming dilution | 407 | | | 407 | | | 414 | |
| | | | | |
| Earnings (loss) per common share – assuming dilution | $ | 2.27 | | | $ | (3.50) | | | $ | 5.84 | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| Earnings per common share | | | | | |
| Net income attributable to Valero stockholders | $ | 2,422 |
|
| $ | 3,122 |
|
| $ | 4,065 |
|
| Less: Income allocated to participating securities | 7 |
| | 9 |
| | 14 |
|
| Net income available to common shareholders | $ | 2,415 |
| | $ | 3,113 |
| | $ | 4,051 |
|
| | | | | | |
| Weighted-average common shares outstanding | 413 |
| | 426 |
| | 442 |
|
| | | | | | |
| Earnings per common share | $ | 5.84 |
| | $ | 7.30 |
| | $ | 9.17 |
|
| | | | | | |
| Earnings per common share – assuming dilution | | | | | |
| Net income attributable to Valero stockholders | $ | 2,422 |
| | $ | 3,122 |
| | $ | 4,065 |
|
| | | | | | |
| Weighted-average common shares outstanding | 413 |
| | 426 |
| | 442 |
|
| Effect of dilutive securities | 1 |
| | 2 |
| | 2 |
|
Weighted-average common shares outstanding – assuming dilution | 414 |
| | 428 |
| | 444 |
|
| | | | | | |
| Earnings per common share – assuming dilution | $ | 5.84 |
| | $ | 7.29 |
| | $ | 9.16 |
|
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Participating securities include restricted stock and performance awards granted under our 2020 OSIP or our 2011 Omnibus Stock Incentive Plan.OSIP. Dilutive securities include participating securities as well as outstanding stock options granted under our 2011 Omnibus Stock Incentive Plan.options.
18. REVENUES AND SEGMENT INFORMATION | |
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 CustomersContract Balances
Our receivables from contracts with customers areContract balances were as follows (in millions):
| | | | | | | | | | | | | |
| December 31, | | |
| 2021 | | 2020 | | |
| Receivables from contracts with customers (see Note 4) | $ | 6,228 | | | $ | 3,642 | | | |
| Contract liabilities, included in accrued expenses (see Note 9) | 78 | | | 55 | | | |
During the years ended December 31, 2021, 2020, and 2019, we recognized as revenue $47 million, $50 million, and $31 million, respectively, that was included in “receivables, net” as presented in Note 3.
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, 2020, 2019, and 2018, were recognized into revenue during the year ended December 31, 2019.respectively.
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 notmaterial and the variable consideration is highly uncertain. Therefore, as of December 31, 2019,2021, 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 3 reportable segments — refining, ethanol,Refining, Renewable Diesel, and renewable diesel.Ethanol. 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•The Refining segment includes the operations of our petroleum refineries, the associated activities to market our refined petroleum products, and 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.
|
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
•The Renewable Diesel segment represents the operations of DGD, our consolidated joint venture as discussed in Note 13, and the associated activities to market renewable diesel. 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.
| |
• | •The Ethanol segment includes the operations of our ethanol plants and the associated activities to market our ethanol and co-products. 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.
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 (loss) and total expenditures for long-lived assets by reportable segment (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Refining | | Renewable
Diesel | | Ethanol | | Corporate
and
Eliminations | | Total |
| Year ended December 31, 2021 | | | | | | | | | |
| Revenues: | | | | | | | | | |
| Revenues from external customers | $ | 106,947 | | | $ | 1,874 | | | $ | 5,156 | | | $ | — | | | $ | 113,977 | |
| Intersegment revenues | 14 | | | 468 | | | 433 | | | (915) | | | — | |
| Total revenues | 106,961 | | | 2,342 | | | 5,589 | | | (915) | | | 113,977 | |
| Cost of sales: | | | | | | | | | |
| Cost of materials and other (a) | 97,759 | | | 1,438 | | | 4,428 | | | (911) | | | 102,714 | |
| | | | | | | | | |
Operating expenses (excluding depreciation and amortization expense reflected below) | 5,088 | | | 134 | | | 556 | | | (2) | | | 5,776 | |
| Depreciation and amortization expense | 2,169 | | | 58 | | | 131 | | | — | | | 2,358 | |
| Total cost of sales | 105,016 | | | 1,630 | | | 5,115 | | | (913) | | | 110,848 | |
| Other operating expenses | 83 | | | 3 | | | 1 | | | — | | | 87 | |
General and administrative expenses (excluding depreciation and amortization expense reflected below) | — | | | — | | | — | | | 865 | | | 865 | |
| Depreciation and amortization expense | — | | | — | | | — | | | 47 | | | 47 | |
| | | | | | | | | |
| | | | | | | | | |
| Operating income by segment | $ | 1,862 | | | $ | 709 | | | $ | 473 | | | $ | (914) | | | $ | 2,130 | |
| | | | | | | | | |
| Total expenditures for long-lived assets (b) | $ | 1,374 | | | $ | 1,049 | | | $ | 18 | | | $ | 17 | | | $ | 2,458 | |
|
| | | | | | | | | | | | | | | | | | | |
| | Refining | | Ethanol | | Renewable Diesel | | Corporate and Eliminations | | Total |
| Year ended December 31, 2019 | | | | | | | | | |
| Revenues: | | | | | | | | | |
| Revenues from external customers | $ | 103,746 |
| | $ | 3,606 |
| | $ | 970 |
| | $ | 2 |
| | $ | 108,324 |
|
| Intersegment revenues | 18 |
| | 231 |
| | 247 |
| | (496 | ) | | — |
|
| Total revenues | 103,764 |
| | 3,837 |
| | 1,217 |
| | (494 | ) | | 108,324 |
|
| Cost of sales: | | | | | | | | | |
| Cost of materials and other | 93,371 |
| | 3,239 |
| | 360 |
| | (494 | ) | | 96,476 |
|
Operating expenses (excluding depreciation and amortization expense reflected below) | 4,289 |
| | 504 |
| | 75 |
| | — |
| | 4,868 |
|
| Depreciation and amortization expense | 2,062 |
| | 90 |
| | 50 |
| | — |
| | 2,202 |
|
| Total cost of sales | 99,722 |
| | 3,833 |
| | 485 |
| | (494 | ) | | 103,546 |
|
| Other operating expenses | 20 |
| | 1 |
| | — |
| | — |
| | 21 |
|
General and administrative expenses (excluding depreciation and amortization expense reflected below) | — |
| | — |
| | — |
| | 868 |
| | 868 |
|
| Depreciation and amortization expense | — |
| | — |
| | — |
| | 53 |
| | 53 |
|
| Operating income by segment | $ | 4,022 |
| | $ | 3 |
| | $ | 732 |
| | $ | (921 | ) | | $ | 3,836 |
|
| Total expenditures for long-lived assets (a) | $ | 2,581 |
| | $ | 47 |
| | $ | 160 |
| | $ | 58 |
| | $ | 2,846 |
|
See notes on page 126.
125
__________________________
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Refining | | Renewable
Diesel | | Ethanol | | Corporate
and
Eliminations | | Total |
| Year ended December 31, 2020 | | | | | | | | | |
| Revenues: | | | | | | | | | |
| Revenues from external customers | $ | 60,840 | | | $ | 1,055 | | | $ | 3,017 | | | $ | — | | | $ | 64,912 | |
| Intersegment revenues | 8 | | | 212 | | | 226 | | | (446) | | | — | |
| Total revenues | 60,848 | | | 1,267 | | | 3,243 | | | (446) | | | 64,912 | |
| Cost of sales: | | | | | | | | | |
| Cost of materials and other (a) | 56,093 | | | 500 | | | 2,784 | | | (444) | | | 58,933 | |
| LCM inventory valuation adjustment | (19) | | | — | | | — | | | — | | | (19) | |
Operating expenses (excluding depreciation and amortization expense reflected below) | 3,944 | | | 85 | | | 406 | | | — | | | 4,435 | |
| Depreciation and amortization expense | 2,138 | | | 44 | | | 121 | | | — | | | 2,303 | |
| Total cost of sales | 62,156 | | | 629 | | | 3,311 | | | (444) | | | 65,652 | |
| Other operating expenses | 34 | | | — | | | 1 | | | — | | | 35 | |
General and administrative expenses (excluding depreciation and amortization expense reflected below) | — | | | — | | | — | | | 756 | | | 756 | |
| Depreciation and amortization expense | — | | | — | | | — | | | 48 | | | 48 | |
| | | | | | | | | |
| | | | | | | | | |
| Operating income (loss) by segment | $ | (1,342) | | | $ | 638 | | | $ | (69) | | | $ | (806) | | | $ | (1,579) | |
| | | | | | | | | |
| Total expenditures for long-lived assets (b) | $ | 1,838 | | | $ | 548 | | | $ | 23 | | | $ | 27 | | | $ | 2,436 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Year ended December 31, 2019 | | | | | | | | | |
| Revenues: | | | | | | | | | |
| Revenues from external customers | $ | 103,746 | | | $ | 970 | | | $ | 3,606 | | | $ | 2 | | | $ | 108,324 | |
| Intersegment revenues | 18 | | | 247 | | | 231 | | | (496) | | | — | |
| Total revenues | 103,764 | | | 1,217 | | | 3,837 | | | (494) | | | 108,324 | |
| Cost of sales: | | | | | | | | | |
| Cost of materials and other (a) | 93,371 | | | 360 | | | 3,239 | | | (494) | | | 96,476 | |
Operating expenses (excluding depreciation and amortization expense reflected below) | 4,289 | | | 75 | | | 504 | | | — | | | 4,868 | |
| Depreciation and amortization expense | 2,062 | | | 50 | | | 90 | | | — | | | 2,202 | |
| | | | | | | | | |
| Total cost of sales | 99,722 | | | 485 | | | 3,833 | | | (494) | | | 103,546 | |
| Other operating expenses | 20 | | | — | | | 1 | | | — | | | 21 | |
General and administrative expenses (excluding depreciation and amortization expense reflected below) | — | | | — | | | — | | | 868 | | | 868 | |
| Depreciation and amortization expense | — | | | — | | | — | | | 53 | | | 53 | |
| | | | | | | | | |
| | | | | | | | | |
| Operating income by segment | $ | 4,022 | | | $ | 732 | | | $ | 3 | | | $ | (921) | | | $ | 3,836 | |
| | | | | | | | | |
| Total expenditures for long-lived assets (b) | $ | 2,581 | | | $ | 160 | | | $ | 47 | | | $ | 58 | | | $ | 2,846 | |
________________________
(a)Cost of materials and other for our Renewable Diesel segment is net of blender’s tax credit on qualified fuel mixtures of $371 million, $288 million, and $431 million for the years ended December 31, 2021, 2020, and 2019, respectively. Of the amount recognized in 2019, $156 million related to volumes blended during 2018, given that the legislation that retroactively reinstated the credit was passed and signed into law in December 2019.
(b)Total expenditures for long-lived assets includes amounts related to capital expenditures; deferred turnaround and catalyst costs; and property, plant, and equipment for acquisitions.
|
| | | | | | | | | | | | | | | | | | | |
| | Refining | | Ethanol | | Renewable Diesel | | Corporate and Eliminations | | Total |
| Year ended December 31, 2018 | | | | | | | | | |
| Revenues: | | | | | | | | | |
| Revenues from external customers | $ | 113,093 |
| | $ | 3,428 |
| | $ | 508 |
| | $ | 4 |
| | $ | 117,033 |
|
| Intersegment revenues | 25 |
| | 210 |
| | 170 |
| | (405 | ) | | — |
|
| Total revenues | 113,118 |
| | 3,638 |
| | 678 |
| | (401 | ) | | 117,033 |
|
| Cost of sales: | | | | | | | | | |
| Cost of materials and other | 101,866 |
| | 3,008 |
| | 262 |
| | (404 | ) | | 104,732 |
|
Operating expenses (excluding depreciation and amortization expense reflected below) | 4,154 |
| | 470 |
| | 66 |
| | — |
| | 4,690 |
|
| Depreciation and amortization expense | 1,910 |
| | 78 |
| | 29 |
| | — |
| | 2,017 |
|
| Total cost of sales | 107,930 |
| | 3,556 |
| | 357 |
| | (404 | ) | | 111,439 |
|
| Other operating expenses | 45 |
| | — |
| | — |
| | — |
| | 45 |
|
General and administrative expenses (excluding depreciation and amortization expense reflected below) | — |
| | — |
| | — |
| | 925 |
| | 925 |
|
| Depreciation and amortization expense | — |
| | — |
| | — |
| | 52 |
| | 52 |
|
| Operating income by segment | $ | 5,143 |
| | $ | 82 |
| | $ | 321 |
| | $ | (974 | ) | | $ | 4,572 |
|
| Total expenditures for long-lived assets (a) | $ | 2,767 |
| | $ | 373 |
| | $ | 192 |
| | $ | 44 |
| | $ | 3,376 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2017 | | | | | | | | | |
| Revenues: | | | | | | | | | |
| Revenues from external customers | $ | 90,258 |
| | $ | 3,324 |
| | $ | 393 |
| | $ | 5 |
| | $ | 93,980 |
|
| Intersegment revenues | 8 |
| | 176 |
| | 241 |
| | (425 | ) | | — |
|
| Total revenues | 90,266 |
| | 3,500 |
| | 634 |
| | (420 | ) | | 93,980 |
|
| Cost of sales: | | | | | | | | | |
| Cost of materials and other | 80,160 |
| | 2,804 |
| | 498 |
| | (425 | ) | | 83,037 |
|
Operating expenses (excluding depreciation and amortization expense reflected below) | 4,014 |
| | 443 |
| | 47 |
| | — |
| | 4,504 |
|
| Depreciation and amortization expense | 1,824 |
| | 81 |
| | 29 |
| | — |
| | 1,934 |
|
| Total cost of sales | 85,998 |
| | 3,328 |
| | 574 |
| | (425 | ) | | 89,475 |
|
| Other operating expenses | 61 |
| | — |
| | — |
| | — |
| | 61 |
|
General and administrative expenses (excluding depreciation and amortization expense reflected below) | — |
| | — |
| | — |
| | 829 |
| | 829 |
|
| Depreciation and amortization expense | — |
| | — |
| | — |
| | 52 |
| | 52 |
|
| Operating income by segment | $ | 4,207 |
| | $ | 172 |
| | $ | 60 |
| | $ | (876 | ) | | $ | 3,563 |
|
| Total expenditures for long-lived assets (a) | $ | 1,732 |
| | $ | 84 |
| | $ | 88 |
| | $ | 44 |
| | $ | 1,948 |
|
__________________________
| |
(a) | Total expenditures for long-lived assets includes amounts related to capital expenditures; deferred turnaround and catalyst costs; and property, plant, and equipment for acquisitions. |
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).:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Refining: | | | | | |
| Gasolines and blendstocks | $ | 49,534 | | | $ | 26,278 | | | $ | 42,798 | |
| Distillates | 45,939 | | | 28,234 | | | 51,942 | |
| Other product revenues | 11,474 | | | 6,328 | | | 9,006 | |
| Total refining revenues | 106,947 | | | 60,840 | | | 103,746 | |
| Renewable Diesel: | | | | | |
| Renewable diesel | 1,874 | | | 1,055 | | | 970 | |
| Ethanol: | | | | | |
| Ethanol | 4,122 | | | 2,353 | | | 2,889 | |
| Distillers grains | 1,034 | | | 664 | | | 717 | |
| Total ethanol revenues | 5,156 | | | 3,017 | | | 3,606 | |
| Corporate – other revenues | — | | | — | | | 2 | |
| | | | | |
| Revenues | $ | 113,977 | | | $ | 64,912 | | | $ | 108,324 | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| Refining: | | | | | |
| Gasolines and blendstocks | $ | 42,798 |
| | $ | 46,596 |
| | $ | 40,347 |
|
| Distillates | 51,942 |
| | 55,037 |
| | 41,680 |
|
| Other product revenues | 9,006 |
| | 11,460 |
| | 8,231 |
|
| Total refining revenues | 103,746 |
| | 113,093 |
| | 90,258 |
|
| Ethanol: | | | | | |
| Ethanol | 2,889 |
| | 2,713 |
| | 2,764 |
|
| Distillers grains | 717 |
| | 715 |
| | 560 |
|
| Total ethanol revenues | 3,606 |
| | 3,428 |
| | 3,324 |
|
| Renewable diesel: | | | | | |
| Renewable diesel | 970 |
| | 508 |
| | 393 |
|
| Corporate – other revenues | 2 |
| | 4 |
| | 5 |
|
| Revenues | $ | 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.
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| U.S. | $ | 82,940 | | | $ | 45,174 | | | $ | 77,173 | |
| Canada | 6,597 | | | 4,294 | | | 7,915 | |
| U.K. and Ireland | 13,307 | | | 9,268 | | | 13,584 | |
| Other countries | 11,133 | | | 6,176 | | | 9,652 | |
| Revenues | $ | 113,977 | | | $ | 64,912 | | | $ | 108,324 | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| U.S. | $ | 77,173 |
| | $ | 82,992 |
| | $ | 66,614 |
|
| Canada | 7,915 |
| | 9,211 |
| | 7,039 |
|
| U.K. and Ireland | 13,584 |
| | 15,208 |
| | 11,556 |
|
| Other countries | 9,652 |
| | 9,622 |
| | 8,771 |
|
| Revenues | $ | 108,324 |
| | $ | 117,033 |
| | $ | 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):
|
| | | | | | | |
| | December 31, |
| | 2019 | | 2018 |
| U.S. | $ | 27,485 |
| | $ | 27,475 |
|
| Canada | 1,886 |
| | 1,798 |
|
| U.K. and Ireland | 1,232 |
| | 1,113 |
|
| Other countries | 497 |
| | 266 |
|
| Total long-lived assets | $ | 31,100 |
| | $ | 30,652 |
|
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| U.S. | $ | 28,518 | | | $ | 28,184 | |
| Canada | 1,855 | | | 1,877 | |
| U.K. and Ireland | 1,528 | | | 1,353 | |
| Mexico and Peru | 859 | | | 738 | |
| Total long-lived assets | $ | 32,760 | | | $ | 32,152 | |
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Total assets by reportable segment were as follows (in millions):
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| Refining | $ | 47,365 | | | $ | 42,939 | |
| Renewable Diesel | 3,437 | | | 1,659 | |
| Ethanol | 1,812 | | | 1,728 | |
| Corporate and eliminations | 5,274 | | | 5,448 | |
| Total assets | $ | 57,888 | | | $ | 51,774 | |
|
| | | | | | | |
| | December 31, |
| | 2019 | | 2018 |
| Refining | $ | 47,067 |
| | $ | 43,488 |
|
| Ethanol | 1,615 |
| | 1,691 |
|
| Renewable diesel | 1,412 |
| | 787 |
|
| Corporate and eliminations | 3,770 |
| | 4,189 |
|
| Total assets | $ | 53,864 |
| | $ | 50,155 |
|
As of December 31, 20192021 and 2018,2020, our investments in unconsolidatednonconsolidated joint ventures accounted for under the equity method were $942$734 million and $542$972 million, respectively, all of which related to the refiningRefining segment and are reflected in “deferred charges and other assets, net” as presented in Note 7.8.
| |
18. | SUPPLEMENTAL CASH FLOW INFORMATION |
19. SUPPLEMENTAL CASH FLOW INFORMATION
In order to determine net cash provided by operating activities, net income (loss) is adjusted by, among other things, changes in current assets and current liabilities as follows (in millions):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Decrease (increase) in current assets: | | | | | |
| Receivables, net | $ | (4,382) | | | $ | 2,773 | | | $ | (1,041) | |
| Inventories | (253) | | | 1,007 | | | (385) | |
| | | | | |
| Prepaid expenses and other | (22) | | | 101 | | | — | |
| Increase (decrease) in current liabilities: | | | | | |
| Accounts payable | 6,301 | | | (4,068) | | | 1,534 | |
| Accrued expenses | 253 | | | 48 | | | (27) | |
| Taxes other than income taxes payable | 104 | | | 37 | | | 60 | |
| Income taxes payable | 224 | | | (243) | | | 153 | |
| Changes in current assets and current liabilities | $ | 2,225 | | | $ | (345) | | | $ | 294 | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| Decrease (increase) in current assets: | | | | | |
| Receivables, net | $ | (1,468 | ) | | $ | (457 | ) | | $ | (870 | ) |
| Inventories | (385 | ) | | (197 | ) | | (516 | ) |
| Prepaid expenses and other | 427 |
| | (77 | ) | | 151 |
|
| Increase (decrease) in current liabilities: | | | | | |
| Accounts payable | 1,534 |
| | 304 |
| | 1,842 |
|
| Accrued expenses | (27 | ) | | (113 | ) | | 21 |
|
| Taxes other than income taxes payable | 60 |
| | (73 | ) | | 172 |
|
| Income taxes payable | 153 |
| | (684 | ) | | 489 |
|
| Changes in current assets and current liabilities | $ | 294 |
| | $ | (1,297 | ) | | $ | 1,289 |
|
Changes in current assets and current liabilities for the year ended December 31, 2021 were primarily due to the following:
•The increase in receivables was primarily due to an increase in refined petroleum product prices in December 2021 compared to December 2020 combined with an increase in refined petroleum product sales volumes, partially offset by a decrease in income taxes receivable primarily associated with the receipt of a $962 million refund related to our U.S. federal income tax return for 2020; and
•The increase in accounts payable was primarily due to an increase in crude oil and other feedstock prices in December 2021 compared to December 2020 combined with an increase in crude oil and other feedstock volumes purchased.
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Changes in current assets and current liabilities for the year ended December 31, 2020 were primarily due to the following:
•The decrease in receivables was due to (i) a decrease of $3.3 billion as a result of a decrease in sales volumes combined witha decrease in the prices of our products in December 2020 compared to December 2019 and (ii) the collection of $449 million for a blender’s tax credit receivable attributable to volumes blended during 2019 and 2018, partially offset by an increase in income taxes receivable of $1.0 billion primarily due to the recognition of a current income tax benefit;
•The decrease in inventories was primarily due to a reduction of higher-cost inventory volumes in our Refining segment in December 2020 compared to December 2019; and
•The decrease in accounts payable was due to a decrease in crude oil and other feedstock volumes purchased combined with a decrease in crude oil and other feedstock prices in December 2020 compared to December 2019.
Changes in current assets and current liabilities for the year ended December 31, 2019 were primarily due to the following:
•The increase in receivables was due to (i) an increase in the prices of our products and sales volumes in December 2019 compared to December 2018 and (ii) a receivable of $449 million for the blender’s tax credit attributable to volumes blended during 2019 and 2018, partially offset by an income tax 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;
•The increase in inventories was due to an increase in inventory unit prices and higher inventory levels in December 2019 compared to December 2018;
•The increase in accounts payable was due to an increase in crude oil and other feedstock prices in December 2019 compared to December 2018 combined with an increase in crude oil and other feedstock volumes purchased and the timing of payments of invoices; and
•The increase in income taxes payable was primarily due to higher pre-tax income in the fourth quarter of 2019.
Cash flows related to interest and income taxes were as follows (in millions):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
Interest paid in excess of amount capitalized, including interest on finance leases | $ | 598 | | | $ | 526 | | | $ | 452 | |
| Income taxes paid (refunded), net (see Note 16) | (842) | | | 203 | | | (116) | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 |
Interest paid in excess of amount capitalized, including interest on finance leases | $ | 452 |
| | $ | 463 |
| | $ | 457 |
|
| Income taxes paid (refunded), net (see Note 15) | (116 | ) | | 1,361 |
| | 410 |
|
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):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Operating
Leases | | Finance
Leases | | Operating
Leases | | Finance
Leases | | Operating
Leases | | Finance
Leases |
Cash paid for amounts included in the measurement of lease liabilities: | | | | | | | | | | | |
| Operating cash flows | $ | 397 | | | $ | 72 | | | $ | 444 | | | $ | 97 | | | $ | 441 | | | $ | 50 | |
| Investing cash flows | 1 | | | — | | | 1 | | | — | | | 1 | | | — | |
| Financing cash flows | — | | | 135 | | | — | | | 80 | | | — | | | 40 | |
Changes in lease balances resulting from new and modified leases (a) | 451 | | | 378 | | | 263 | | | 950 | | | 1,756 | | | 239 | |
|
| | | | | | | |
| | Year Ended December 31, 2019 |
| | Operating Leases | | Finance Leases |
Cash paid for amounts included in the measurement of lease liabilities: | | | |
| Operating cash flows | $ | 441 |
| | $ | 50 |
|
| Investing cash flows | 1 |
| | — |
|
| Financing cash flows | — |
| | 34 |
|
Changes in lease balances resulting from new and modified leases (a) | 1,756 |
| | 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
There were no significant noncash investing and financing activities during the years ended December 31, 2021 and 2020, except as noted in the table above.
Prior to our adoption of Topic 842 in 2019, we were considered the accounting owner of the MVP Terminal during its construction 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.
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.” These amounts were 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 10.2019.
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.
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
20. FAIR VALUE MEASUREMENTS
| |
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”Measurements” and ““Nonrecurring Fair Value Measurements.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.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. FollowingThe 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.
|
•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.
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, 20192021 and 2018.2020.
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 |
| | | | | | | | 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 | $ | 617 |
| | $ | — |
| | $ | — |
| | $ | 617 |
| | $ | (612 | ) | | $ | — |
| | $ | 5 |
| | $ | — |
|
Foreign currency contracts | 27 |
| | — |
| | — |
| | 27 |
| | n/a |
| | n/a |
| | 27 |
| | n/a |
|
Investments of certain benefit plans | 65 |
| | — |
| | 9 |
| | 74 |
| | n/a |
| | n/a |
| | 74 |
| | n/a |
|
| Total | $ | 709 |
| | $ | — |
| | $ | 9 |
| | $ | 718 |
| | $ | (612 | ) | | $ | — |
| | $ | 106 |
| | |
| | | | | | | | | | | | | | | | |
| Liabilities | | | | | | | | | | | | | | | |
Commodity derivative contracts | $ | 668 |
| | $ | — |
| | $ | — |
| | $ | 668 |
| | $ | (612 | ) | | $ | (56 | ) | | $ | — |
| | $ | (84 | ) |
Environmental credit obligations | — |
| | 2 |
| | — |
| | 2 |
| | n/a |
| | n/a |
| | 2 |
| | n/a |
|
Physical purchase contracts | — |
| | 3 |
| | — |
| | 3 |
| | n/a |
| | n/a |
| | 3 |
| | n/a |
|
Foreign currency contracts | 10 |
| | — |
| | — |
| | 10 |
| | n/a |
| | n/a |
| | 10 |
| | n/a |
|
| Total | $ | 678 |
| | $ | 5 |
| | $ | — |
| | $ | 683 |
| | $ | (612 | ) | | $ | (56 | ) | | $ | 15 |
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| | | | | | | 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 | $ | 522 | | | $ | — | | | $ | — | | | $ | 522 | | | $ | (444) | | | $ | (15) | | | $ | 63 | | | $ | — | |
Physical purchase contracts | — | | | 4 | | | — | | | 4 | | | n/a | | n/a | | 4 | | | n/a |
Foreign currency contracts | 1 | | | — | | | — | | | 1 | | | n/a | | n/a | | 1 | | | n/a |
Investments of certain benefit plans | 83 | | | — | | | 6 | | | 89 | | | n/a | | n/a | | 89 | | | n/a |
| | | | | | | | | | | | | | | |
| Total | $ | 606 | | | $ | 4 | | | $ | 6 | | | $ | 616 | | | $ | (444) | | | $ | (15) | | | $ | 157 | | | |
| | | | | | | | | | | | | | | |
| Liabilities | | | | | | | | | | | | | | | |
Commodity derivative contracts | $ | 472 | | | $ | — | | | $ | — | | | $ | 472 | | | $ | (444) | | | $ | (28) | | | $ | — | | | $ | (41) | |
Blending program obligations | — | | | 57 | | | — | | | 57 | | | n/a | | n/a | | 57 | | | n/a |
Physical purchase contracts | — | | | 5 | | | — | | | 5 | | | n/a | | n/a | | 5 | | | n/a |
Foreign currency contracts | 10 | | | — | | | — | | | 10 | | | n/a | | n/a | | 10 | | | n/a |
| | | | | | | | | | | | | | | |
| Total | $ | 482 | | | $ | 62 | | | $ | — | | | $ | 544 | | | $ | (444) | | | $ | (28) | | | $ | 72 | | | |
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| | | 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 | $ | 403 | | | $ | — | | | $ | — | | | $ | 403 | | | $ | (373) | | | $ | (18) | | | $ | 12 | | | $ | — | |
Physical purchase contracts | — | | | 13 | | | — | | | 13 | | | n/a | | n/a | | 13 | | | n/a |
| | | | | | | | | | | | | | | |
Investments of certain benefit plans | 74 | | | — | | | 8 | | | 82 | | | n/a | | n/a | | 82 | | | n/a |
| | | | | | | | | | | | | | | |
| Total | $ | 477 | | | $ | 13 | | | $ | 8 | | | $ | 498 | | | $ | (373) | | | $ | (18) | | | $ | 107 | | | |
| | | | | | | | | | | | | | | |
| Liabilities | | | | | | | | | | | | | | | |
Commodity derivative contracts | $ | 405 | | | $ | — | | | $ | — | | | $ | 405 | | | $ | (373) | | | $ | (32) | | | $ | — | | | $ | (44) | |
Blending program obligations | — | | | 96 | | | — | | | 96 | | | n/a | | n/a | | 96 | | | n/a |
| | | | | | | | | | | | | | | |
Foreign currency contracts | 4 | | | — | | | — | | | 4 | | | n/a | | n/a | | 4 | | | n/a |
| Total | $ | 409 | | | $ | 96 | | | $ | — | | | $ | 505 | | | $ | (373) | | | $ | (32) | | | $ | 100 | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2018 |
| | | | 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 | $ | 2,792 |
| | $ | — |
| | $ | — |
| | $ | 2,792 |
| | $ | (2,669 | ) | | $ | (34 | ) | | $ | 89 |
| | $ | — |
|
Foreign currency contracts | 4 |
| | — |
| | — |
| | 4 |
| | n/a |
| | n/a |
| | 4 |
| | n/a |
|
Investments of certain benefit plans | 60 |
| | — |
| | 9 |
| | 69 |
| | n/a |
| | n/a |
| | 69 |
| | n/a |
|
| Total | $ | 2,856 |
| | $ | — |
| | $ | 9 |
| | $ | 2,865 |
| | $ | (2,669 | ) | | $ | (34 | ) | | $ | 162 |
| |
|
| | | | | | | | | | | | | | | | |
| Liabilities | | | | | | | | | | | | | | | |
Commodity derivative contracts | $ | 2,681 |
| | $ | — |
| | $ | — |
| | $ | 2,681 |
| | $ | (2,669 | ) | | $ | (12 | ) | | $ | — |
| | $ | (136 | ) |
Environmental credit obligations | — |
| | 13 |
| | — |
| | 13 |
| | n/a |
| | n/a |
| | 13 |
| | n/a |
|
Physical purchase contracts | — |
| | 5 |
| | — |
| | 5 |
| | n/a |
| | n/a |
| | 5 |
| | n/a |
|
Foreign currency contracts | 1 |
| | — |
| | — |
| | 1 |
| | n/a |
| | n/a |
| | 1 |
| | n/a |
|
| Total | $ | 2,682 |
| | $ | 18 |
| | $ | — |
| | $ | 2,700 |
| | $ | (2,669 | ) | | $ | (12 | ) | | $ | 19 |
| | |
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 20.21. 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.
•Foreign currency contracts consist of foreign currency exchange and purchase contracts and foreign currency swap agreements related to our foreign 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.
•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
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
in Level 3 of the fair value hierarchy represent insurance contracts, the fair value of which is provided by the insurer.
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Foreign currency contracts consist of foreign currency exchangecompliance credits needed to satisfy our blending obligations under the Renewable 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 andLow-Carbon Fuel Blending Programs. The blending program obligations are categorized in Level 12 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 using a market approach based on a recurring basis.quoted prices from an independent pricing service.
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 0no assets or liabilities that were measured at fair value on a nonrecurring basis as of December 31, 20192021 and 2018.2020.
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):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2021 | | December 31, 2020 |
| Fair Value
Hierarchy | | Carrying
Amount | | Fair
Value | | Carrying
Amount | | Fair
Value |
| Financial assets: | | | | | | | | | |
| Cash and cash equivalents | Level 1 | | $ | 4,122 | | | $ | 4,122 | | | $ | 3,313 | | | $ | 3,313 | |
| Financial liabilities: | | | | | | | | | |
| Debt (excluding finance leases) | Level 2 | | 11,950 | | | 13,668 | | | 13,013 | | | 15,103 | |
|
| | | | | | | | | | | | | | | | | |
| | | | December 31, 2019 | | December 31, 2018 |
| | Fair Value Hierarchy | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
| Financial assets | | | | | | | | | |
| Cash and cash equivalents | Level 1 | | $ | 2,583 |
| | $ | 2,583 |
| | $ | 2,982 |
| | $ | 2,982 |
|
| Financial liabilities | | | | | | | | | |
| Debt (excluding finance leases) | Level 2 | | 8,881 |
| | 10,583 |
| | 8,503 |
| | 8,986 |
|
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 governmentthe Renewable and regulatory programs.Low-Carbon Fuel Blending 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)20), as summarized below under ““Fair Values of Derivative Instruments.Instruments.” The effect of these derivative instruments on our income and other comprehensive income is summarized below under ““Effect of Derivative Instruments on Income.Income and Other Comprehensive 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 feedstocks (primarily crude oil, refined petroleumwaste and renewable feedstocks, and corn), the products (primarily gasoline and distillate), renewable diesel, grain (primarily corn), renewable diesel feedstocks,we produce, 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 boardBoard.
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of December 31, 2019,2021, 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).
| | | | | | | | | | | | |
| | Notional Contract
Volumes by
Year of Maturity | | | | |
| | 2022 | | | | |
| Derivatives designated as cash flow hedges: | | | | | | |
| Refined petroleum products: | | | | | | |
| Futures – long | | 525 | | | | | |
| Futures – short | | 3,385 | | | | | |
| | | | | | |
| Derivatives designated as economic hedges: | | | | | | |
| Crude oil and refined petroleum products: | | | | | | |
| | | | | | |
| | | | | | |
| Futures – long | | 50,234 | | | | | |
| Futures – short | | 51,001 | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Corn: | | | | | | |
| Futures – long | | 46,850 | | | | | |
| Futures – short | | 89,765 | | | | | |
| Physical contracts – long | | 41,360 | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
|
| | | | | | |
| | | Notional Contract Volumes by Year of Maturity |
| | | 2020 | | 2021 |
| Derivatives designated as cash flow hedges | | | | |
| Renewable diesel: | | | | |
| Futures – long | | 995 |
| | — |
|
| Futures – short | | 2,492 |
| | — |
|
| | | | | |
| Derivatives designated as economic hedges | | | | |
| Crude oil and refined petroleum products: | | | | |
| Futures – long | | 73,348 |
| | 2 |
|
| Futures – short | | 76,045 |
| | — |
|
| Options – long | | 1,550 |
| | — |
|
| Options – short | | 1,550 |
| | — |
|
| Corn: | | | | |
| Futures – long | | 50,120 |
| | — |
|
| Futures – short | | 66,575 |
| | 295 |
|
| Physical contracts – long | | 22,055 |
| | 306 |
|
Foreign Currency Risk
We are exposed to exchange rate fluctuations on transactions related to our internationalforeign 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 often 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, 2019,2021, we had foreign currency contracts to purchase $739$707 million of U.S. dollars and $2.3$1.2 billion of U.S. dollar equivalent Canadian dollars. All ofOf these commitments, $1.7 billion matured on or before February 15, 2020.2022and the remaining $200 million will mature byFebruary 28, 2022.
Environmental Compliance Program
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Renewable and Low-Carbon Fuel Blending Programs Price Risk
We are exposed to market risk related to the volatility in the price of credits needed to comply with various governmentalthe Renewable and regulatory environmental compliance programs.Low-Carbon Fuel Blending Programs. To manage this risk, we enter into contracts to purchase these credits when prices are deemed favorable.credits. 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 programsThe Renewable and Low-Carbon Fuel Blending Programs require us to blend biofuelsa certain volume of renewable and low-carbon fuels into the productspetroleum-based transportation fuels 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 blendedor import into, the motor fuelsrespective jurisdiction to be consumed in these countries. As a producer of motor fuels from petroleum, we are obligated to blend biofuels into the products we produce at
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
a rate that is at least equal to the applicable quota.therein based on annual quotas. To the degree we are unable to blend at the applicable rate,required quotas, we must purchase biofuelcompliance credits (primarily RINs in the U.S.)RINs). 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, 2018,2021, 2020, and 2017,2019, the cost of meeting our credit obligations under these compliance programsthe Renewable and Low-Carbon Fuel Blending Programs was $318 million, $536$2.1 billion, $767 million, and $942$368 million, respectively. These amountsrespectively, which 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 Of these costs, $145 million, $119 million, and $50 million, respectively, were recovered directly from our customers for the years ended December 31, 2019customers.
, 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, 20192021 and 20182020 (in millions) and the line items in the balance sheets in which the fair values are reflected. See Note 1920 for additional information related to the fair values of our derivative instruments.
As indicated in Note 19,20, 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,table, however, areis 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.accounts:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance Sheet
Location | | December 31, 2021 | | December 31, 2020 |
| | Asset
Derivatives | | Liability
Derivatives | | Asset
Derivatives | | Liability
Derivatives |
Derivatives designated as hedging instruments: | | | | | | | | | |
| Commodity contracts | Receivables, net | | $ | 3 | | | $ | 26 | | | $ | 4 | | | $ | 17 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Derivatives not designated as hedging instruments: | | | | | | | | | |
| Commodity contracts | Receivables, net | | $ | 519 | | | $ | 446 | | | $ | 399 | | | $ | 388 | |
| | | | | | | | | |
| | | | | | | | | |
| Physical purchase contracts | Inventories | | 4 | | | 5 | | | 13 | | | — | |
| Foreign currency contracts | Receivables, net | | 1 | | | — | | | — | | | — | |
| Foreign currency contracts | Accrued expenses | | — | | | 10 | | | — | | | 4 | |
| Total | | | $ | 524 | | | $ | 461 | | | $ | 412 | | | $ | 392 | |
|
| | | | | | | | | | | | | | | | | |
| | Balance Sheet Location | | December 31, 2019 | | December 31, 2018 |
| | | Asset
Derivatives | | Liability
Derivatives | | Asset
Derivatives | | Liability
Derivatives |
Derivatives designated as hedging instruments | | | | | | | | | |
| Commodity contracts | Receivables, net | | $ | 9 |
| | $ | 20 |
| | $ | — |
| | $ | — |
|
| | | | | | | | | | |
Derivatives not designated as hedging instruments | | | | | | | | | |
| Commodity contracts | Receivables, net | | $ | 608 |
| | $ | 648 |
| | $ | 2,792 |
| | $ | 2,681 |
|
| Physical purchase contracts | Inventories | | — |
| | 3 |
| | — |
| | 5 |
|
| Foreign currency contracts | Receivables, net | | 27 |
| | — |
| | 4 |
| | — |
|
| Foreign currency contracts | Accrued expenses | | — |
| | 10 |
| | — |
| | 1 |
|
| Total | | | $ | 635 |
| | $ | 661 |
| | $ | 2,796 |
| | $ | 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
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.Board. Market risks are
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 and Other Comprehensive Income
The following table provides information about the gain (loss) recognized in income and other comprehensive income due to fair value adjustments of our cash flow hedges (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivatives in
Cash Flow Hedging
Relationships | | Location of Gain (Loss)
Recognized in Income
on Derivatives | | Year Ended December 31, | | |
| 2021 | | 2020 | | 2019 | | |
| Commodity contracts: | | | | | | | | | | |
Gain (loss) recognized in other comprehensive income (loss) on derivatives | | n/a | | $ | (44) | | | $ | 38 | | | $ | (6) | | | |
Gain (loss) reclassified from accumulated other comprehensive loss into income | | Revenues | | (46) | | | 34 | | | 2 | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
For cash flow hedges, no component of any derivative instrument’s gains or losses was excluded from the assessment of hedge effectiveness for the years ended December 31, 2021, 2020, and 2019. For the years ended December 31, 2021, 2020, and 2019, cash flow hedges primarily related to forward sales of renewable diesel. The estimated deferred after-tax loss that is expected to be reclassified into revenuesover the next 12 months as a result of the hedged transactions that are forecasted to occur as of December 31, 2021 was immaterial. For the years ended December 31, 2021, 2020, and 2019, there were no amounts reclassified from accumulated other comprehensive loss into income as a result of the discontinuance of cash flow hedge accounting. The changes in accumulated other comprehensive loss by component, net of tax, for the years ended December 31, 2021, 2020, and 2019 are described in Note 12.
The following table provides information about the gain (loss) recognized in income on our derivative instruments with respect to our economic hedges and our foreign currency hedges and the line items in the statements of income in which such gains (losses) are reflected (in millions).:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivatives Not
Designated as
Hedging Instruments | | Location of Gain (Loss)
Recognized in Income
on Derivatives | | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| Commodity contracts | | Revenues | | $ | 28 | | | $ | — | | | $ | 5 | |
| Commodity contracts | | Cost of materials and other | | (86) | | | 99 | | | (68) | |
| Commodity contracts | | Operating expenses
(excluding depreciation and
amortization expense) | | 54 | | | 2 | | | — | |
| Foreign currency contracts | | Cost of materials and other | | 9 | | | 27 | | | (21) | |
| Foreign currency contracts | | Other income, net | | 44 | | | (13) | | | 75 | |
|
| | | | | | | | | | | | | | |
Derivatives Not Designated as Hedging Instruments | | Location of Gain (Loss) Recognized in Income on Derivatives | | Year Ended December 31, |
| | | 2019 | | 2018 | | 2017 |
| Commodity contracts | | Revenues | | $ | 5 |
| | $ | — |
| | $ | — |
|
| Commodity contracts | | Cost of materials and other | | (68 | ) | | (165 | ) | | (278 | ) |
| Commodity contracts | | Operating expenses (excluding depreciation and amortization expense) | | — |
| | 7 |
| | — |
|
| Foreign currency contracts | | Cost of materials and other | | (21 | ) | | 56 |
| | (40 | ) |
| Foreign currency contracts | | Other income, net | | 75 |
| | (43 | ) | | — |
|
| |
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.
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 | $ | 912 |
| | $ | — |
| | $ | 1,671 |
| | $ | — |
| | $ | 2,583 |
|
| Receivables, net | — |
| | — |
| | 8,904 |
| | — |
| | 8,904 |
|
| Receivables from affiliates | 4,336 |
| | — |
| | 13,806 |
| | (18,142 | ) | | — |
|
| Inventories | — |
| | — |
| | 7,013 |
| | — |
| | 7,013 |
|
| Prepaid expenses and other | 63 |
| | — |
| | 406 |
| | — |
| | 469 |
|
| Total current assets | 5,311 |
| | — |
| | 31,800 |
| | (18,142 | ) | | 18,969 |
|
| Property, plant and equipment, at cost | — |
| | — |
| | 44,294 |
| | — |
| | 44,294 |
|
| Accumulated depreciation | — |
| | — |
| | (15,030 | ) | | — |
| | (15,030 | ) |
| Property, plant and equipment, net | — |
| | — |
| | 29,264 |
| | — |
| | 29,264 |
|
| Investment in affiliates | 37,902 |
| | 2,673 |
| | 382 |
| | (40,957 | ) | | — |
|
| Deferred charges and other assets, net | 771 |
| | — |
| | 4,860 |
| | — |
| | 5,631 |
|
| Total assets | $ | 43,984 |
| | $ | 2,673 |
| | $ | 66,306 |
| | $ | (59,099 | ) | | $ | 53,864 |
|
| LIABILITIES AND EQUITY |
| Current liabilities: | | | | | | | | | |
| Current portion of debt and finance lease obligations | $ | — |
| | $ | — |
| | $ | 494 |
| | $ | — |
| | $ | 494 |
|
| Accounts payable | — |
| | — |
| | 10,205 |
| | — |
| | 10,205 |
|
| Accounts payable to affiliates | 12,515 |
| | 1,291 |
| | 4,336 |
| | (18,142 | ) | | — |
|
| Accrued expenses | 120 |
| | 7 |
| | 822 |
| | — |
| | 949 |
|
| Taxes other than income taxes payable | — |
| | — |
| | 1,304 |
| | — |
| | 1,304 |
|
| Income taxes payable | 108 |
| | — |
| | 100 |
| | — |
| | 208 |
|
| Total current liabilities | 12,743 |
| | 1,298 |
| | 17,261 |
| | (18,142 | ) | | 13,160 |
|
| Debt and finance lease obligations, less current portion | 7,095 |
| | 991 |
| | 1,092 |
| | — |
| | 9,178 |
|
| Deferred income tax liabilities | — |
| | 2 |
| | 5,101 |
| | — |
| | 5,103 |
|
| Other long-term liabilities | 2,343 |
| | — |
| | 1,544 |
| | — |
| | 3,887 |
|
| Equity: | | | | | | | | | |
| Stockholders’ equity: | | | | | | | | |
| Common stock | 7 |
| | — |
| | 1 |
| | (1 | ) | | 7 |
|
| Additional paid-in capital | 6,821 |
| | — |
| | 9,771 |
| | (9,771 | ) | | 6,821 |
|
| Treasury stock, at cost | (15,648 | ) | | — |
| | — |
| | — |
| | (15,648 | ) |
| Retained earnings | 31,974 |
| | — |
| | 31,636 |
| | (31,636 | ) | | 31,974 |
|
| Partners’ equity | — |
| | 382 |
| | — |
| | (382 | ) | | — |
|
| Accumulated other comprehensive loss | (1,351 | ) | | — |
| | (833 | ) | | 833 |
| | (1,351 | ) |
| Total stockholders’ equity | 21,803 |
| | 382 |
| | 40,575 |
| | (40,957 | ) | | 21,803 |
|
| Noncontrolling interests | — |
| | — |
| | 733 |
| | — |
| | 733 |
|
| Total equity | 21,803 |
| | 382 |
| | 41,308 |
| | (40,957 | ) | | 22,536 |
|
| Total liabilities and equity | $ | 43,984 |
| | $ | 2,673 |
| | $ | 66,306 |
| | $ | (59,099 | ) | | $ | 53,864 |
|
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 | $ | 291 |
| | $ | 152 |
| | $ | 2,539 |
| | $ | — |
| | $ | 2,982 |
|
| Receivables, net | — |
| | — |
| | 7,345 |
| | — |
| | 7,345 |
|
| Receivables from affiliates | 4,369 |
| | 2 |
| | 10,684 |
| | (15,055 | ) | | — |
|
| Inventories | — |
| | — |
| | 6,532 |
| | — |
| | 6,532 |
|
| Prepaid expenses and other | 466 |
| | — |
| | 355 |
| | (5 | ) | | 816 |
|
| Total current assets | 5,126 |
| | 154 |
| | 27,455 |
| | (15,060 | ) | | 17,675 |
|
| Property, plant and equipment, at cost | — |
| | — |
| | 42,473 |
| | — |
| | 42,473 |
|
| Accumulated depreciation | — |
| | — |
| | (13,625 | ) | | — |
| | (13,625 | ) |
| Property, plant and equipment, net | — |
| | — |
| | 28,848 |
| | — |
| | 28,848 |
|
| Investment in affiliates | 34,696 |
| | 2,267 |
| | (321 | ) | | (36,642 | ) | | — |
|
| Long-term notes receivable from affiliates | 285 |
| | — |
| | — |
| | (285 | ) | | — |
|
| Deferred charges and other assets, net | 572 |
| | 1 |
| | 3,059 |
| | — |
| | 3,632 |
|
| Total assets | $ | 40,679 |
| | $ | 2,422 |
| | $ | 59,041 |
| | $ | (51,987 | ) | | $ | 50,155 |
|
| LIABILITIES AND EQUITY |
| Current liabilities: | | | | | | | | | |
| Current portion of debt and finance lease obligations | $ | — |
| | $ | — |
| | $ | 238 |
| | $ | — |
| | $ | 238 |
|
| Accounts payable | 14 |
| | — |
| | 8,580 |
| | — |
| | 8,594 |
|
| Accounts payable to affiliates | 9,847 |
| | 837 |
| | 4,370 |
| | (15,054 | ) | | — |
|
| Accrued expenses | 155 |
| | 7 |
| | 468 |
| | — |
| | 630 |
|
| Accrued expenses to affiliates | — |
| | 1 |
| | — |
| | (1 | ) | | — |
|
| Taxes other than income taxes payable | — |
| | — |
| | 1,213 |
| | — |
| | 1,213 |
|
| Income taxes payable | 53 |
| | 1 |
| | — |
| | (5 | ) | | 49 |
|
| Total current liabilities | 10,069 |
| | 846 |
| | 14,869 |
| | (15,060 | ) | | 10,724 |
|
| Debt and finance lease obligations, less current portion | 6,955 |
| | 990 |
| | 926 |
| | — |
| | 8,871 |
|
| Long-term notes payable to affiliates | — |
| | 285 |
| | — |
| | (285 | ) | | — |
|
| Deferred income tax liabilities | — |
| | 2 |
| | 4,960 |
| | — |
| | 4,962 |
|
| Other long-term liabilities | 1,988 |
| | — |
| | 879 |
| | — |
| | 2,867 |
|
| Equity: | | | | | | | | | |
| Stockholders’ equity: | | | | | | | | |
| Common stock | 7 |
| | — |
| | 1 |
| | (1 | ) | | 7 |
|
| Additional paid-in capital | 7,048 |
| | — |
| | 9,754 |
| | (9,754 | ) | | 7,048 |
|
| Treasury stock, at cost | (14,925 | ) | | — |
| | — |
| | — |
| | (14,925 | ) |
| Retained earnings | 31,044 |
| | — |
| | 28,305 |
| | (28,305 | ) | | 31,044 |
|
| Partners’ equity | — |
| | 299 |
| | — |
| | (299 | ) | | — |
|
| Accumulated other comprehensive loss | (1,507 | ) | | — |
| | (1,097 | ) | | 1,097 |
| | (1,507 | ) |
| Total stockholders’ equity | 21,667 |
| | 299 |
| | 36,963 |
| | (37,262 | ) | | 21,667 |
|
| Noncontrolling interests | — |
| | — |
| | 444 |
| | 620 |
| | 1,064 |
|
| Total equity | 21,667 |
| | 299 |
| | 37,407 |
| | (36,642 | ) | | 22,731 |
|
| Total liabilities and equity | $ | 40,679 |
| | $ | 2,422 |
| | $ | 59,041 |
| | $ | (51,987 | ) | | $ | 50,155 |
|
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statement of Income
Year Ended December 31, 2019
(in millions)
|
| | | | | | | | | | | | | | | | | | | |
| | Valero
Energy
Corporation | | Valero
Energy
Partners LP | | Other Non-
Guarantor
Subsidiaries | | Eliminations | | Consolidated |
| Revenues | $ | — |
| | $ | — |
| | $ | 108,324 |
| | $ | — |
| | $ | 108,324 |
|
| Cost of sales: | | | | | | | | | |
| Cost of materials and other | — |
| | — |
| | 96,476 |
| | — |
| | 96,476 |
|
| Operating expenses (excluding depreciation and amortization expense reflected below) | — |
| | — |
| | 4,868 |
| | — |
| | 4,868 |
|
| Depreciation and amortization expense | — |
| | — |
| | 2,202 |
| | — |
| | 2,202 |
|
| Total cost of sales | — |
| | — |
| | 103,546 |
| | — |
| | 103,546 |
|
| Other operating expenses | — |
| | — |
| | 21 |
| | — |
| | 21 |
|
| General and administrative expenses (excluding depreciation and amortization expense reflected below) | 6 |
| | — |
| | 862 |
| | — |
| | 868 |
|
| Depreciation and amortization expense | — |
| | — |
| | 53 |
| | — |
| | 53 |
|
| Operating income (loss) | (6 | ) | | — |
| | 3,842 |
| | — |
| | 3,836 |
|
| Equity in earnings of subsidiaries | 3,006 |
| | 406 |
| | 357 |
| | (3,769 | ) | | — |
|
| Other income, net | 193 |
| | — |
| | 625 |
| | (714 | ) | | 104 |
|
| Interest and debt expense, net of capitalized interest | (927 | ) | | (47 | ) | | (194 | ) | | 714 |
| | (454 | ) |
| Income before income tax expense (benefit) | 2,266 |
| | 359 |
| | 4,630 |
| | (3,769 | ) | | 3,486 |
|
| Income tax expense (benefit) | (156 | ) | | — |
| | 858 |
| | — |
| | 702 |
|
| Net income | 2,422 |
| | 359 |
| | 3,772 |
| | (3,769 | ) | | 2,784 |
|
| Less: Net income attributable to noncontrolling interests | — |
| | — |
| | 360 |
| | 2 |
| | 362 |
|
| Net income attributable to stockholders | $ | 2,422 |
| | $ | 359 |
| | $ | 3,412 |
| | $ | (3,771 | ) | | $ | 2,422 |
|
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statement of Income
Year Ended December 31, 2018
(in millions)
|
| | | | | | | | | | | | | | | | | | | |
| | Valero
Energy
Corporation | | Valero
Energy
Partners LP | | Other Non-
Guarantor
Subsidiaries | | Eliminations | | Consolidated |
| Revenues | $ | — |
| | $ | — |
| | $ | 117,033 |
| | $ | — |
| | $ | 117,033 |
|
| Cost of sales: | | | | | | | | | |
| Cost of materials and other | — |
| | — |
| | 104,732 |
| | — |
| | 104,732 |
|
| Operating expenses (excluding depreciation and amortization expense reflected below) | — |
| | — |
| | 4,690 |
| | — |
| | 4,690 |
|
| Depreciation and amortization expense | — |
| | — |
| | 2,017 |
| | — |
| | 2,017 |
|
| Total cost of sales | — |
| | — |
| | 111,439 |
| | — |
| | 111,439 |
|
| Other operating expenses | — |
| | — |
| | 45 |
| | — |
| | 45 |
|
| General and administrative expenses (excluding depreciation and amortization expense reflected below) | 2 |
| | — |
| | 923 |
| | — |
| | 925 |
|
| Depreciation and amortization expense | — |
| | — |
| | 52 |
| | — |
| | 52 |
|
| Operating income (loss) | (2 | ) | | — |
| | 4,574 |
| | — |
| | 4,572 |
|
| Equity in earnings of subsidiaries | 3,724 |
| | 319 |
| | 196 |
| | (4,239 | ) | | — |
|
| Other income, net | 220 |
| | 2 |
| | 621 |
| | (713 | ) | | 130 |
|
| Interest and debt expense, net of capitalized interest | (913 | ) | | (55 | ) | | (215 | ) | | 713 |
| | (470 | ) |
| Income before income tax expense (benefit) | 3,029 |
| | 266 |
| | 5,176 |
| | (4,239 | ) | | 4,232 |
|
| Income tax expense (benefit) | (93 | ) | | 2 |
| | 970 |
| | — |
| | 879 |
|
| Net income | 3,122 |
| | 264 |
| | 4,206 |
| | (4,239 | ) | | 3,353 |
|
| Less: Net income attributable to noncontrolling interests | — |
| | — |
| | 163 |
| | 68 |
| | 231 |
|
| Net income attributable to stockholders | $ | 3,122 |
| | $ | 264 |
| | $ | 4,043 |
| | $ | (4,307 | ) | | $ | 3,122 |
|
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statement of Income
Year Ended December 31, 2017
(in millions)
|
| | | | | | | | | | | | | | | | | | | |
| | Valero
Energy
Corporation | | Valero
Energy
Partners LP | | Other Non-
Guarantor
Subsidiaries | | Eliminations | | Consolidated |
| Revenues | $ | — |
| | $ | — |
| | $ | 93,980 |
| | $ | — |
| | $ | 93,980 |
|
| Cost of sales: | | | | | | | | | |
| Cost of materials and other | — |
| | ��� |
| | 83,037 |
| | — |
| | 83,037 |
|
| Operating expenses (excluding depreciation and amortization expense reflected below) | — |
| | — |
| | 4,504 |
| | — |
| | 4,504 |
|
| Depreciation and amortization expense | — |
| | — |
| | 1,934 |
| | — |
| | 1,934 |
|
| Total cost of sales | — |
| | — |
| | 89,475 |
| | — |
| | 89,475 |
|
| Other operating expenses | — |
| | — |
| | 61 |
| | — |
| | 61 |
|
| General and administrative expenses (excluding depreciation and amortization expense reflected below) | 6 |
| | — |
| | 823 |
| | — |
| | 829 |
|
| Depreciation and amortization expense | — |
| | — |
| | 52 |
| | — |
| | 52 |
|
| Operating income (loss) | (6 | ) | | — |
| | 3,569 |
| | — |
| | 3,563 |
|
| Equity in earnings of subsidiaries | 5,236 |
| | 275 |
| | 176 |
| | (5,687 | ) | | — |
|
| Other income, net | 290 |
| | 1 |
| | 415 |
| | (594 | ) | | 112 |
|
| Interest and debt expense, net of capitalized interest | (780 | ) | | (36 | ) | | (246 | ) | | 594 |
| | (468 | ) |
| Income before income tax expense (benefit) | 4,740 |
| | 240 |
| | 3,914 |
| | (5,687 | ) | | 3,207 |
|
| Income tax expense (benefit) | 675 |
| | 2 |
| | (1,626 | ) | | — |
| | (949 | ) |
| Net income | 4,065 |
| | 238 |
| | 5,540 |
| | (5,687 | ) | | 4,156 |
|
| Less: Net income attributable to noncontrolling interests | — |
| | — |
| | 29 |
| | 62 |
| | 91 |
|
| Net income attributable to stockholders | $ | 4,065 |
| | $ | 238 |
| | $ | 5,511 |
| | $ | (5,749 | ) | | $ | 4,065 |
|
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statement of Comprehensive Income
Year Ended December 31, 2019
(in millions)
|
| | | | | | | | | | | | | | | | | | | |
| | Valero
Energy
Corporation | | Valero
Energy
Partners LP | | Other Non-
Guarantor
Subsidiaries | | Eliminations | | Consolidated |
| Net income | $ | 2,422 |
| | $ | 359 |
| | $ | 3,772 |
| | $ | (3,769 | ) | | $ | 2,784 |
|
| Other comprehensive income: | | | | | | | | | |
| Foreign currency translation adjustment | 346 |
| | — |
| | 286 |
| | (283 | ) | | 349 |
|
| Net loss on pension and other postretirement benefits | (234 | ) | | — |
| | (19 | ) | | 19 |
| | (234 | ) |
| Net loss on cash flow hedges | (4 | ) | | — |
| | (8 | ) | | 4 |
| | (8 | ) |
| Other comprehensive income before income tax benefit | 108 |
| | — |
| | 259 |
| | (260 | ) | | 107 |
|
| Income tax benefit related to items of other comprehensive income | (48 | ) | | — |
| | (4 | ) | | 4 |
| | (48 | ) |
| Other comprehensive income | 156 |
| | — |
| | 263 |
| | (264 | ) | | 155 |
|
| Comprehensive income | 2,578 |
| | 359 |
| | 4,035 |
| | (4,033 | ) | | 2,939 |
|
| Less: Comprehensive income attributable to noncontrolling interests | — |
| | — |
| | 359 |
| | 2 |
| | 361 |
|
| Comprehensive income attributable to stockholders | $ | 2,578 |
| | $ | 359 |
| | $ | 3,676 |
| | $ | (4,035 | ) | | $ | 2,578 |
|
Condensed Consolidating Statement of Comprehensive Income
Year Ended December 31, 2018
(in millions)
|
| | | | | | | | | | | | | | | | | | | |
| | Valero
Energy
Corporation | | Valero
Energy
Partners LP | | Other Non-
Guarantor
Subsidiaries | | Eliminations | | Consolidated |
| Net income | $ | 3,122 |
| | $ | 264 |
| | $ | 4,206 |
| | $ | (4,239 | ) | | $ | 3,353 |
|
| Other comprehensive loss: | | | | | | | | | |
| Foreign currency translation adjustment | (515 | ) | | — |
| | (419 | ) | | 417 |
| | (517 | ) |
| Net gain on pension and other postretirement benefits | 49 |
| | — |
| | 18 |
| | (18 | ) | | 49 |
|
| Other comprehensive loss before income tax expense | (466 | ) | | — |
| | (401 | ) | | 399 |
| | (468 | ) |
| Income tax expense related to items of other comprehensive loss | 10 |
| | — |
| | 3 |
| | (3 | ) | | 10 |
|
| Other comprehensive loss | (476 | ) | | — |
| | (404 | ) | | 402 |
| | (478 | ) |
| Comprehensive income | 2,646 |
| | 264 |
| | 3,802 |
| | (3,837 | ) | | 2,875 |
|
| Less: Comprehensive income attributable to noncontrolling interests | — |
| | — |
| | 161 |
| | 68 |
| | 229 |
|
| Comprehensive income attributable to stockholders | $ | 2,646 |
| | $ | 264 |
| | $ | 3,641 |
| | $ | (3,905 | ) | | $ | 2,646 |
|
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statement of Comprehensive Income
Year Ended December 31, 2017
(in millions)
|
| | | | | | | | | | | | | | | | | | | |
| | Valero
Energy
Corporation | | Valero
Energy
Partners LP | | Other Non-
Guarantor
Subsidiaries | | Eliminations | | Consolidated |
| Net income | $ | 4,065 |
| | $ | 238 |
| | $ | 5,540 |
| | $ | (5,687 | ) | | $ | 4,156 |
|
| Other comprehensive income: | | | | | | | | | |
| Foreign currency translation adjustment | 514 |
| | — |
| | 434 |
| | (434 | ) | | 514 |
|
| Net gain (loss) on pension and other postretirement benefits | (65 | ) | | — |
| | 4 |
| | (4 | ) | | (65 | ) |
| Other comprehensive income before income tax expense (benefit) | 449 |
| | — |
| | 438 |
| | (438 | ) | | 449 |
|
| Income tax expense (benefit) related to items of other comprehensive income | (21 | ) | | — |
| | 1 |
| | (1 | ) | | (21 | ) |
| Other comprehensive income | 470 |
| | — |
| | 437 |
| | (437 | ) | | 470 |
|
| Comprehensive income | 4,535 |
| | 238 |
| | 5,977 |
| | (6,124 | ) | | 4,626 |
|
| Less: Comprehensive income attributable to noncontrolling interests | — |
| | — |
| | 29 |
| | 62 |
| | 91 |
|
| Comprehensive income attributable to stockholders | $ | 4,535 |
| | $ | 238 |
| | $ | 5,948 |
| | $ | (6,186 | ) | | $ | 4,535 |
|
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2019
(in millions)
|
| | | | | | | | | | | | | | | | | | | |
| | Valero
Energy
Corporation | | Valero
Energy
Partners LP | | Other Non-
Guarantor
Subsidiaries | | Eliminations | | Consolidated |
| Net cash provided by (used in) operating activities | $ | (131 | ) | | $ | (46 | ) | | $ | 6,165 |
| | $ | (457 | ) | | $ | 5,531 |
|
| Cash flows from investing activities: | | | | | | | | | |
| Capital expenditures (excluding VIEs) | — |
| | — |
| | (1,627 | ) | | — |
| | (1,627 | ) |
| Capital expenditures of VIEs: | | | | | | | | | |
| DGD | — |
| | — |
| | (142 | ) | | — |
| | (142 | ) |
| Other VIEs | — |
| | — |
| | (225 | ) | | — |
| | (225 | ) |
| Deferred turnaround and catalyst cost expenditures (excluding VIEs) | — |
| | — |
| | (762 | ) | | — |
| | (762 | ) |
| Deferred turnaround and catalyst cost expenditures of DGD | — |
| | — |
| | (18 | ) | | — |
| | (18 | ) |
| Investments in unconsolidated joint ventures | — |
| | — |
| | (164 | ) | | — |
| | (164 | ) |
| Acquisitions of ethanol plants | — |
| | — |
| | (3 | ) | | — |
| | (3 | ) |
| Acquisitions of undivided interests | — |
| | — |
| | (72 | ) | | — |
| | (72 | ) |
| Intercompany investing activities | 395 |
| | 2 |
| | (2,973 | ) | | 2,576 |
| | — |
|
| Other investing activities, net | — |
| | — |
| | 12 |
| | — |
| | 12 |
|
| Net cash provided by (used in) investing activities | 395 |
| | 2 |
| | (5,974 | ) | | 2,576 |
| | (3,001 | ) |
| Cash flows from financing activities: | | | | | | | | | |
| Proceeds from debt issuances and borrowings (excluding VIEs) | 992 |
| | — |
| | 900 |
| | — |
| | 1,892 |
|
| Proceeds from borrowings of VIEs | — |
| | — |
| | 239 |
| | — |
| | 239 |
|
| Repayments of debt and finance lease obligations (excluding VIEs) | (871 | ) | | — |
| | (934 | ) | | — |
| | (1,805 | ) |
| Repayments of debt of VIEs | — |
| | — |
| | (6 | ) | | — |
| | (6 | ) |
| Intercompany financing activities | 2,520 |
| | 268 |
| | (212 | ) | | (2,576 | ) | | — |
|
| Purchases of common stock for treasury | (777 | ) | | — |
| | — |
| | — |
| | (777 | ) |
| Common stock dividends | (1,492 | ) | | — |
| | (81 | ) | | 81 |
| | (1,492 | ) |
| Acquisition of VLP publicly held common units | — |
| | — |
| | (950 | ) | | — |
| | (950 | ) |
| Distributions to noncontrolling interests and unitholders of VLP | — |
| | (376 | ) | | (70 | ) | | 376 |
| | (70 | ) |
| Other financing activities, net | (15 | ) | | — |
| | (13 | ) | | — |
| | (28 | ) |
| Net cash provided by (used in) financing activities | 357 |
| | (108 | ) | | (1,127 | ) | | (2,119 | ) | | (2,997 | ) |
| Effect of foreign exchange rate changes on cash | — |
| | — |
| | 68 |
| | — |
| | 68 |
|
| Net increase (decrease) in cash and cash equivalents | 621 |
| | (152 | ) | | (868 | ) | | — |
| | (399 | ) |
| Cash and cash equivalents at beginning of year | 291 |
| | 152 |
| | 2,539 |
| | — |
| | 2,982 |
|
| Cash and cash equivalents at end of year | $ | 912 |
| | $ | — |
| | $ | 1,671 |
| | $ | — |
| | $ | 2,583 |
|
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2018
(in millions)
|
| | | | | | | | | | | | | | | | | | | |
| | Valero
Energy
Corporation | | Valero
Energy
Partners LP | | Other Non-
Guarantor
Subsidiaries | | Eliminations | | Consolidated |
| Net cash provided by (used in) operating activities | $ | (1,207 | ) | | $ | (51 | ) | | $ | 5,828 |
| | $ | (199 | ) | | $ | 4,371 |
|
| Cash flows from investing activities: | | | | | | | | | |
| Capital expenditures (excluding VIEs) | — |
| | — |
| | (1,463 | ) | | — |
| | (1,463 | ) |
| Capital expenditures of VIEs: | | | | | | | | | |
| DGD | — |
| | — |
| | (165 | ) | | — |
| | (165 | ) |
| Other VIEs | — |
| | — |
| | (124 | ) | | — |
| | (124 | ) |
| Deferred turnaround and catalyst cost expenditures (excluding VIEs) | — |
| | — |
| | (888 | ) | | — |
| | (888 | ) |
| Deferred turnaround and catalyst cost expenditures of DGD | — |
| | — |
| | (27 | ) | | — |
| | (27 | ) |
| Investments in unconsolidated joint ventures | — |
| | — |
| | (181 | ) | | — |
| | (181 | ) |
| Peru Acquisition, net of cash acquired | — |
| | — |
| | (468 | ) | | — |
| | (468 | ) |
| Acquisitions of ethanol plants | — |
| | — |
| | (320 | ) | | — |
| | (320 | ) |
| Acquisitions of undivided interests | — |
| | — |
| | (212 | ) | | — |
| | (212 | ) |
| Minor acquisitions | — |
| | — |
| | (88 | ) | | — |
| | (88 | ) |
| Intercompany investing activities | 758 |
| | 102 |
| | (2,381 | ) | | 1,521 |
| | — |
|
| Other investing activities, net | — |
| | — |
| | 8 |
| | — |
| | 8 |
|
| Net cash provided by (used in) investing activities | 758 |
| | 102 |
| | (6,309 | ) | | 1,521 |
| | (3,928 | ) |
| Cash flows from financing activities: | | | | | | | | | |
| Proceeds from debt issuances and borrowings (excluding VIEs) | 750 |
| | 498 |
| | 10 |
| | — |
| | 1,258 |
|
| Proceeds from borrowings of VIEs | — |
| | — |
| | 109 |
| | — |
| | 109 |
|
| Repayments of debt and finance lease obligations (excluding VIEs) | (787 | ) | | (410 | ) | | (156 | ) | | — |
| | (1,353 | ) |
| Repayments of debt of VIEs | — |
| | — |
| | (6 | ) | | — |
| | (6 | ) |
| Intercompany financing activities | 2,106 |
| | 190 |
| | (775 | ) | | (1,521 | ) | | — |
|
| Purchases of common stock for treasury | (1,708 | ) | | — |
| | — |
| | — |
| | (1,708 | ) |
| Common stock dividends | (1,369 | ) | | — |
| | (32 | ) | | 32 |
| | (1,369 | ) |
| Contributions to noncontrolling interests | — |
| | — |
| | 32 |
| | — |
| | 32 |
|
| Distributions to noncontrolling interests and unitholders of VLP | — |
| | (215 | ) | | (68 | ) | | 167 |
| | (116 | ) |
| Other financing activities, net | 2 |
| | (4 | ) | | (13 | ) | | — |
| | (15 | ) |
| Net cash provided by (used in) financing activities | (1,006 | ) | | 59 |
| | (899 | ) | | (1,322 | ) | | (3,168 | ) |
| Effect of foreign exchange rate changes on cash | — |
| | — |
| | (143 | ) | | — |
| | (143 | ) |
| Net increase (decrease) in cash and cash equivalents | (1,455 | ) | | 110 |
| | (1,523 | ) | | — |
| | (2,868 | ) |
| Cash and cash equivalents at beginning of year | 1,746 |
| | 42 |
| | 4,062 |
| | — |
| | 5,850 |
|
| Cash and cash equivalents at end of year | $ | 291 |
| | $ | 152 |
| | $ | 2,539 |
| | $ | — |
| | $ | 2,982 |
|
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2017
(in millions)
|
| | | | | | | | | | | | | | | | | | | |
| | Valero
Energy
Corporation | | Valero
Energy
Partners LP | | Other Non-
Guarantor
Subsidiaries | | Eliminations | | Consolidated |
| Net cash provided by (used in) operating activities | $ | (73 | ) | | $ | (34 | ) | | $ | 5,720 |
| | $ | (131 | ) | | $ | 5,482 |
|
| Cash flows from investing activities: | | | | | | | | | |
| Capital expenditures (excluding VIEs) | — |
| | — |
| | (1,269 | ) | | — |
| | (1,269 | ) |
| Capital expenditures of VIEs: | | | | | | | | | |
| DGD | — |
| | — |
| | (84 | ) | | — |
| | (84 | ) |
| Other VIEs | — |
| | — |
| | (26 | ) | | — |
| | (26 | ) |
| Deferred turnaround and catalyst cost expenditures (excluding VIEs) | — |
| | — |
| | (519 | ) | | — |
| | (519 | ) |
| Deferred turnaround and catalyst cost expenditures of DGD | — |
| | — |
| | (4 | ) | | — |
| | (4 | ) |
| Investments in unconsolidated joint ventures | — |
| | — |
| | (406 | ) | | — |
| | (406 | ) |
| Acquisitions of undivided interests | — |
| | — |
| | (72 | ) | | — |
| | (72 | ) |
| Intercompany investing activities | (4,002 | ) | | (187 | ) | | (6,696 | ) | | 10,885 |
| | — |
|
| Other investing activities, net | — |
| | — |
| | (2 | ) | | — |
| | (2 | ) |
| Net cash used in investing activities | (4,002 | ) | | (187 | ) | | (9,078 | ) | | 10,885 |
| | (2,382 | ) |
| Cash flows from financing activities: | | | | | | | | | |
| Proceeds from debt issuances and borrowings (excluding VIEs) | — |
| | 380 |
| | — |
| | — |
| | 380 |
|
| Repayments of debt and finance lease obligations (excluding VIEs) | — |
| | — |
| | (15 | ) | | — |
| | (15 | ) |
| Repayments of debt of VIEs | — |
| | — |
| | (6 | ) | | — |
| | (6 | ) |
| Intercompany financing activities | 6,704 |
| | (63 | ) | | 4,244 |
| | (10,885 | ) | | — |
|
| Purchases of common stock for treasury | (1,372 | ) | | — |
| | — |
| | — |
| | (1,372 | ) |
| Common stock dividends | (1,242 | ) | | — |
| | (10 | ) | | 10 |
| | (1,242 | ) |
| Contributions from noncontrolling interests | — |
| | — |
| | 30 |
| | — |
| | 30 |
|
| Distributions to noncontrolling interests and unitholders of VLP | — |
| | (161 | ) | | (27 | ) | | 121 |
| | (67 | ) |
| Other financing activities, net | 10 |
| | 36 |
| | (26 | ) | | — |
| | 20 |
|
| Net cash provided by financing activities | 4,100 |
| | 192 |
| | 4,190 |
| | (10,754 | ) | | (2,272 | ) |
| Effect of foreign exchange rate changes on cash | — |
| | — |
| | 206 |
| | — |
| | 206 |
|
| Net increase (decrease) in cash and cash equivalents | 25 |
| | (29 | ) | | 1,038 |
| | — |
| | 1,034 |
|
| Cash and cash equivalents at beginning of year | 1,721 |
| | 71 |
| | 3,024 |
| | — |
| | 4,816 |
|
| Cash and cash equivalents at end of year | $ | 1,746 |
| | $ | 42 |
| | $ | 4,062 |
| | $ | — |
| | $ | 5,850 |
|
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).
|
| | | | | | | | | | | | | | | |
| | 2019 Quarter Ended |
| | March 31 | | June 30 | | September 30 | | December 31 |
| Revenues | $ | 24,263 |
| | $ | 28,933 |
| | $ | 27,249 |
| | $ | 27,879 |
|
| Gross profit (a) | 533 |
| | 1,123 |
| | 1,119 |
| | 2,003 |
|
| Operating income | 308 |
| | 908 |
| | 881 |
| | 1,739 |
|
| Net income | 167 |
| | 648 |
| | 639 |
| | 1,330 |
|
Net income attributable to Valero Energy Corporation stockholders | 141 |
| | 612 |
| | 609 |
| | 1,060 |
|
| Earnings per common share | 0.34 |
| | 1.47 |
| | 1.48 |
| | 2.58 |
|
Earnings per common share – assuming dilution | 0.34 |
| | 1.47 |
| | 1.48 |
| | 2.58 |
|
| | | | | | | | |
| | 2018 Quarter Ended |
| | March 31 | | June 30 | | September 30 | | December 31 |
| Revenues | $ | 26,439 |
| | $ | 31,015 |
| | $ | 30,849 |
| | $ | 28,730 |
|
| Gross profit (a) | 1,062 |
| | 1,535 |
| | 1,451 |
| | 1,546 |
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| Operating income | 801 |
| | 1,253 |
| | 1,219 |
| | 1,299 |
|
| Net income | 582 |
| | 875 |
| | 874 |
| | 1,022 |
|
Net income attributable to Valero Energy Corporation stockholders | 469 |
| | 845 |
| | 856 |
| | 952 |
|
| Earnings per common share | 1.09 |
| | 1.96 |
| | 2.01 |
| | 2.26 |
|
Earnings per common share – assuming dilution | 1.09 |
| | 1.96 |
| | 2.01 |
| | 2.24 |
|
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(a) | Gross profit is calculated as revenues less total cost of sales. |
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, 20192021.
.
Internal Control over Financial Reporting.
(a)(a) Management’sManagement’s Report on Internal Control over Financial Reporting.
The management report on Valero’sour internal control over financial reporting required by Item 9Athis item appears in Item 8“ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” on page 5966 of this report, and is incorporated herein by reference.reference into this item.
(b)(b) Attestation Report of the Independent Registered Public Accounting Firm.
(c)(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.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III
ITEMS 10-14.
The information required by ItemsITEMS 10 through 14 of Form 10-K is incorporated herein by reference into these items to the definitive proxy statement for our 20202022 annual meeting of stockholders. We expect to file the proxy statement with the SEC on or before March 31, 2020.2022. No other information other than what is required to satisfy ITEMS 10 through 14 of Form 10-K is incorporated by reference into these items from such proxy statement. See the cross-reference sheet on page “i.”
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
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Auditor name: KPMG LLP; Auditor Firm ID: 185; Auditor location: San Antonio, Texas |
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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:
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| | Index to Exhibits |
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| 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. |
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| ***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. |
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| ***101.SCH | — | Inline XBRL Taxonomy Extension Schema Document. |
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| ***101.CAL | — | Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
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| ***101.DEF | — | Inline XBRL Taxonomy Extension Definition Linkbase Document. |
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| ***101.LAB | — | Inline XBRL Taxonomy Extension Label Linkbase Document. |
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| ***101.PRE | — | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
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| ***104 | — | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
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| *** | Submitted electronically herewith. |
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| + | Identifies management contracts or compensatory plans or arrangements required to be filed as an exhibit hereto. |
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| ++ | 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.
ITEM 16. FORM 10-K SUMMARY
None.
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.
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| VALERO ENERGY CORPORATION (Registrant)
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| By: | /s/ Joseph W. Gorder |
| | (Joseph W. Gorder) |
| | Chairman of the Board
and Chief Executive Officer
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Date: February 26, 2020
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, and RichardJ. Walsh, 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 Reportannual 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.
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| Signature | | Title | | Date |
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| /s/ Joseph W. Gorder | | Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer) | | February 22, 2022 |
| (Joseph W. Gorder) | | |
| | | | |
Signature | | Title | | Date |
| | | | |
/s/ JosephJason W. GorderFraser | | Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)
| | February 26, 2020 |
(Joseph W. Gorder) | | |
| | | | |
/s/ Donna M. Titzman | | Executive Vice President
and Chief Financial Officer
(Principal Financial and Accounting Officer)
| | February 26, 202022, 2022 |
(Donna M. Titzman)Jason W. Fraser) | | |
| | | | |
| /s/ Fred M. Diaz | | Director | | February 22, 2022 |
| (Fred M. Diaz) | | |
| | | | |
| /s/ H. Paulett Eberhart | | Director | | February 26, 202022, 2022 |
| (H. Paulett Eberhart) | | |
| | | | |
| /s/ Kimberly S. Greene | | Director | | February 26, 202022, 2022 |
| (Kimberly S. Greene) | | |
| | | | |
| /s/ Deborah P. Majoras | | Director | | February 26, 202022, 2022 |
| (Deborah P. Majoras) | | |
| | | | |
| /s/ Eric D. Mullins | | Director | | February 22, 2022 |
| (Eric D. Mullins) | | |
| | | | |
| /s/ Donald L. Nickles | | Director | | February 26, 202022, 2022 |
| (Donald L. Nickles) | | |
| | | | |
| /s/ Philip J. Pfeiffer | | Director | | February 26, 202022, 2022 |
| (Philip J. Pfeiffer) | | |
| | | | |
| /s/ Robert A. Profusek | | Director | | February 26, 202022, 2022 |
| (Robert A. Profusek) | | |
| | | | |
| /s/ Stephen M. Waters | | Director | | February 26, 202022, 2022 |
| (Stephen M. Waters) | | |
| | | | |
| /s/ Randall J. Weisenburger | | Director | | February 26, 202022, 2022 |
| (Randall J. Weisenburger) | | |
| | | | |
| /s/ Rayford Wilkins, Jr. | | Director | | February 26, 202022, 2022 |
| (Rayford Wilkins, Jr.) | | |
