Separation of Retail Business

3 Months Ended

Mar. 31, 2013

Discontinued Operations and Disposal Groups [Abstract]

SEPARATION OF RETAIL BUSINESS

2. SEPARATION OF RETAIL BUSINESS

On May 1, 2013, we completed the separation of our retail business, creating an independent public company named CST Brands, Inc. (CST). In accordance with a separation and distribution agreement, the separation occurred by way of a pro rata distribution of 80 percent of the outstanding shares of CST common stock to our stockholders on May 1, 2013. Each Valero stockholder received one share of CST common stock for every nine shares of Valero common stock held at the close of business on the record date of April 19, 2013. Fractional shares of CST common stock were not distributed, but instead were aggregated and sold in the open market at prevailing rates with net cash proceeds then distributed pro rata to each Valero stockholder who was entitled to receive fractional shares.

In connection with the separation, we received an aggregate of $1.05 billion in cash, consisting of $550 million from the issuance of short-term debt to a third-party financial institution on April 16, 2013 and $500 million distributed to us by CST on May 1, 2013. The cash distributed to us by CST was borrowed by CST on May 1, 2013 under its senior secured credit facility. See Note 5 for further discussion of that credit facility. Also on May 1, 2013, CST issued $550 million of its senior unsecured bonds to us, and we exchanged those bonds with the third-party financial institution in satisfaction of our short-term debt. Immediately prior to May 1, 2013, subsidiaries of CST held $315 million of cash, and CST retained that cash following the distribution on May 1, 2013. Approximately $265 million of the cash retained by CST resulted from a change in the payment terms from “due upon receipt” to “net 10” days on motor fuel purchased from us, and this change in payment terms was effective prior to May 1, 2013. The new payment terms are consistent with those offered by us to our other creditworthy retail distributors. Also in connection with the separation, we incurred a tax liability of approximately $220 million primarily related to the manner in which the transaction is treated for tax purposes in Canada, and most of these taxes will not be paid until the first half of 2014. Therefore the net cash we will receive as a result of the separation will be approximately $500 million. We expect to liquidate the remaining 20 percent of the outstanding shares of CST common stock that we own within 18 months.

In order to effect the separation and provide a framework for our relationship with CST after the separation, we entered into various agreements with CST, including fuel supply agreements in the U.S. and Canada. The nature and significance of our post-separation participation in the supply of motor fuel to CST represents a continuation of activities with CST for accounting purposes. As such, the historical results of operations related to CST will not be reported by us as discontinued operations in our consolidated statements of income.