0001035002-19-000047.txt : 20191107 0001035002-19-000047.hdr.sgml : 20191107 20191107124800 ACCESSION NUMBER: 0001035002-19-000047 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 87 CONFORMED PERIOD OF REPORT: 20190930 FILED AS OF DATE: 20191107 DATE AS OF CHANGE: 20191107 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VALERO ENERGY CORP/TX CENTRAL INDEX KEY: 0001035002 STANDARD INDUSTRIAL CLASSIFICATION: PETROLEUM REFINING [2911] IRS NUMBER: 741828067 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13175 FILM NUMBER: 191199323 BUSINESS ADDRESS: STREET 1: P.O. BOX 696000 CITY: SAN ANTONIO STATE: TX ZIP: 78269-6000 BUSINESS PHONE: 2103452000 MAIL ADDRESS: STREET 1: P.O. BOX 696000 CITY: SAN ANTONIO STATE: TX ZIP: 78269-6000 10-Q 1 vloform10-qx9302019.htm 10-Q Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number 001-13175
VALERO ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
74-1828067
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
One Valero Way
San Antonio, Texas
(Address of principal executive offices)
78249
(Zip Code)
(210345-2000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common stock
 
VLO
 
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
 
Accelerated filer
 
Non-accelerated filer
 
 
 
Smaller reporting company
 
Emerging growth company
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  No 
The number of shares of the registrant’s only class of common stock, $0.01 par value, outstanding as of October 29, 2019 was 410,652,732.
 
 
 
 
 



VALERO ENERGY CORPORATION
TABLE OF CONTENTS
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 




i



PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

VALERO ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(millions of dollars, except par value)
 
September 30,
2019
 
December 31,
2018
 
(unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
2,137

 
$
2,982

Receivables, net
7,994

 
7,345

Inventories
6,376

 
6,532

Prepaid expenses and other
526

 
816

Total current assets
17,033

 
17,675

Property, plant, and equipment, at cost
43,539

 
42,473

Accumulated depreciation
(14,649
)
 
(13,625
)
Property, plant, and equipment, net
28,890

 
28,848

Deferred charges and other assets, net
5,306

 
3,632

Total assets
$
51,229

 
$
50,155

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Current portion of debt and finance lease obligations
$
402

 
$
238

Accounts payable
9,504

 
8,594

Accrued expenses
881

 
630

Taxes other than income taxes payable
1,175

 
1,213

Income taxes payable
168

 
49

Total current liabilities
12,130

 
10,724

Debt and finance lease obligations, less current portion
9,170

 
8,871

Deferred income tax liabilities
4,920

 
4,962

Other long-term liabilities
3,421

 
2,867

Commitments and contingencies

 

Equity:
 
 
 
Valero Energy Corporation stockholders’ equity:
 
 
 
Common stock, $0.01 par value; 1,200,000,000 shares authorized;
673,501,593 and 673,501,593 shares issued
7

 
7

Additional paid-in capital
6,818

 
7,048

Treasury stock, at cost;
262,691,943 and 255,905,051 common shares
(15,472
)
 
(14,925
)
Retained earnings
31,283

 
31,044

Accumulated other comprehensive loss
(1,529
)
 
(1,507
)
Total Valero Energy Corporation stockholders’ equity
21,107


21,667

Noncontrolling interests
481

 
1,064

Total equity
21,588

 
22,731

Total liabilities and equity
$
51,229

 
$
50,155

See Condensed Notes to Consolidated Financial Statements.


1



VALERO ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(millions of dollars, except per share amounts)
(unaudited)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
Revenues (a)
$
27,249

 
$
30,849

 
$
80,445

 
$
88,303

Cost of sales:
 
 
 
 
 
 
 
Cost of materials and other
24,335

 
27,701

 
72,396

 
79,317

Operating expenses (excluding depreciation and amortization
expense reflected below)
1,239

 
1,193

 
3,629

 
3,439

Depreciation and amortization expense
556

 
504

 
1,645

 
1,499

Total cost of sales
26,130

 
29,398

 
77,670

 
84,255

Other operating expenses
10

 
10

 
14

 
41

General and administrative expenses (excluding depreciation and
amortization expense reflected below)
217

 
209

 
625

 
695

Depreciation and amortization expense
11

 
13

 
39

 
39

Operating income
881

 
1,219

 
2,097

 
3,273

Other income, net
34

 
42

 
68

 
88

Interest and debt expense, net of capitalized interest
(111
)
 
(111
)
 
(335
)
 
(356
)
Income before income tax expense
804

 
1,150

 
1,830

 
3,005

Income tax expense
165

 
276

 
376

 
674

Net income
639

 
874

 
1,454

 
2,331

Less: Net income attributable to noncontrolling interests
30

 
18

 
92

 
161

Net income attributable to Valero Energy Corporation stockholders
$
609

 
$
856

 
$
1,362

 
$
2,170

 
 
 
 
 
 
 
 
Earnings per common share
$
1.48

 
$
2.01

 
$
3.28

 
$
5.05

Weighted-average common shares outstanding (in millions)
412

 
425

 
415

 
428

 
 
 
 
 
 
 
 
Earnings per common share – assuming dilution
$
1.48

 
$
2.01

 
$
3.28

 
$
5.05

Weighted-average common shares outstanding –
assuming dilution (in millions)
413

 
427

 
416

 
430

_______________________________________________
 
 
 
 
 
 
 
Supplemental information:
 
 
 
 
 
 
 
(a)    Includes excise taxes on sales by certain of our international
operations
$
1,399

 
$
1,338

 
$
4,139

 
$
4,272


See Condensed Notes to Consolidated Financial Statements.


2



VALERO ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(millions of dollars)
(unaudited)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
Net income
$
639

 
$
874

 
$
1,454

 
$
2,331

Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustment
(180
)
 
23

 
(25
)
 
(223
)
Net gain on pension and other postretirement
benefits
3

 
8

 
8

 
25

Net gain (loss) on cash flow hedges
(4
)
 

 
1

 

Other comprehensive income (loss) before
income tax expense
(181
)
 
31

 
(16
)
 
(198
)
Income tax expense related to items of
other comprehensive income (loss)

 
1

 
2

 
5

Other comprehensive income (loss)
(181
)
 
30

 
(18
)
 
(203
)
Comprehensive income
458

 
904

 
1,436

 
2,128

Less: Comprehensive income attributable
to noncontrolling interests
28

 
21

 
96

 
162

Comprehensive income attributable to
Valero Energy Corporation stockholders
$
430

 
$
883

 
$
1,340

 
$
1,966


See Condensed Notes to Consolidated Financial Statements.


3



VALERO ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY
(millions of dollars)
(unaudited)
 
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 June 30, 2019
$
7

 
$
6,812

 
$
(15,170
)
 
$
31,046

 
$
(1,350
)
 
$
21,345

 
$
492

 
$
21,837

Net income

 

 

 
609

 

 
609

 
30

 
639

Dividends on common stock
($0.90 per share)

 

 

 
(372
)
 

 
(372
)
 

 
(372
)
Stock-based compensation
expense

 
9

 

 

 

 
9

 

 
9

Transactions in connection
with stock-based
compensation plans

 
(3
)
 
4

 

 

 
1

 

 
1

Stock purchases under
purchase program

 

 
(306
)
 

 

 
(306
)
 

 
(306
)
Distributions to noncontrolling
interests

 

 

 

 

 

 
(39
)
 
(39
)
Other comprehensive loss

 

 

 

 
(179
)
 
(179
)
 
(2
)
 
(181
)
Balance as of September 30, 2019
$
7

 
$
6,818

 
$
(15,472
)
 
$
31,283


$
(1,529
)

$
21,107


$
481


$
21,588

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of June 30, 2018
$
7

 
$
7,032

 
$
(13,923
)
 
$
29,915

 
$
(1,262
)
 
$
21,769

 
$
1,035

 
$
22,804

Net income

 

 

 
856

 

 
856

 
18

 
874

Dividends on common stock
($0.80 per share)

 

 

 
(341
)
 

 
(341
)
 

 
(341
)
Stock-based compensation
expense

 
11

 

 

 

 
11

 

 
11

Transactions in connection
with stock-based
compensation plans

 

 
(15
)
 

 

 
(15
)
 

 
(15
)
Stock purchases under
purchase program

 

 
(396
)
 

 

 
(396
)
 

 
(396
)
Distributions to noncontrolling
interests

 

 

 

 

 

 
(13
)
 
(13
)
Other

 
(1
)
 

 

 

 
(1
)
 
7

 
6

Other comprehensive income

 

 

 

 
27

 
27

 
3

 
30

Balance as of September 30, 2018
$
7

 
$
7,042


$
(14,334
)

$
30,430


$
(1,235
)

$
21,910


$
1,050


$
22,960


See Condensed Notes to Consolidated Financial Statements.


4



VALERO ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY (Continued)
(millions of dollars)
(unaudited)
 
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

 

 

 
1,362

 

 
1,362

 
92

 
1,454

Dividends on common stock
($2.70 per share)

 

 

 
(1,123
)
 

 
(1,123
)
 

 
(1,123
)
Stock-based compensation
expense

 
30

 

 

 

 
30

 

 
30

Transactions in connection
with stock-based
compensation plans

 
(6
)
 
5

 

 

 
(1
)
 

 
(1
)
Stock purchases under
purchase program

 

 
(552
)
 

 

 
(552
)
 

 
(552
)
Acquisition of Valero Energy
Partners LP publicly held
common units

 
(328
)
 

 

 

 
(328
)
 
(622
)
 
(950
)
Distributions to noncontrolling
interests

 

 

 

 

 

 
(57
)
 
(57
)
Other

 
74

 

 

 

 
74

 

 
74

Other comprehensive
income (loss)

 

 

 

 
(22
)
 
(22
)
 
4

 
(18
)
Balance as of September 30, 2019
$
7

 
$
6,818


$
(15,472
)

$
31,283


$
(1,529
)

$
21,107


$
481


$
21,588

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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

 

 

 
2,170

 

 
2,170

 
161

 
2,331

Dividends on common stock
($2.40 per share)

 

 

 
(1,031
)
 

 
(1,031
)
 

 
(1,031
)
Stock-based compensation
expense

 
40

 

 

 

 
40

 

 
40

Transactions in connection
with stock-based
compensation plans

 
(34
)
 
(115
)
 

 

 
(149
)
 

 
(149
)
Stock purchases under
purchase program

 

 
(904
)
 

 

 
(904
)
 

 
(904
)
Contributions from
noncontrolling interests

 

 

 

 

 

 
32

 
32

Distributions to noncontrolling
interests

 

 

 

 

 

 
(63
)
 
(63
)
Other

 
(3
)
 

 

 

 
(3
)
 
10

 
7

Other comprehensive
income (loss)

 

 

 

 
(204
)
 
(204
)
 
1

 
(203
)
Balance as of September 30, 2018
$
7

 
$
7,042


$
(14,334
)

$
30,430


$
(1,235
)

$
21,910


$
1,050


$
22,960


See Condensed Notes to Consolidated Financial Statements.


5



VALERO ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions of dollars)
(unaudited)
 
Nine Months Ended
September 30,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income
$
1,454

 
$
2,331

Adjustments to reconcile net income to net cash provided by
operating activities:
 
 
 
Depreciation and amortization expense
1,684

 
1,538

Deferred income tax expense (benefit)
19

 
(62
)
Changes in current assets and current liabilities
728

 
(1,174
)
Changes in deferred charges and credits and
other operating activities, net
(62
)
 
60

Net cash provided by operating activities
3,823

 
2,693

Cash flows from investing activities:
 
 
 
Capital expenditures (excluding variable interest entities (VIEs))
(1,179
)
 
(1,025
)
Capital expenditures of VIEs:
 
 
 
Diamond Green Diesel Holdings LLC (DGD)
(91
)
 
(143
)
Other VIEs
(139
)
 
(89
)
Deferred turnaround and catalyst cost expenditures (excluding VIEs)
(583
)
 
(641
)
Deferred turnaround and catalyst cost expenditures of DGD
(16
)
 
(20
)
Investments in unconsolidated joint ventures
(122
)
 
(124
)
Peru Acquisition, net of cash acquired

 
(466
)
Acquisitions of undivided interests
(65
)
 
(181
)
Minor acquisitions

 
(88
)
Other investing activities, net
5

 
9

Net cash used in investing activities
(2,190
)
 
(2,768
)
Cash flows from financing activities:
 
 
 
Proceeds from debt issuances and borrowings (excluding VIEs)
1,892

 
1,258

Proceeds from borrowings of VIEs
148

 
71

Repayments of debt and finance lease obligations (excluding VIEs)
(1,796
)
 
(1,348
)
Repayments of debt of VIEs
(4
)
 
(4
)
Purchases of common stock for treasury
(555
)
 
(1,081
)
Common stock dividends
(1,123
)
 
(1,031
)
Acquisition of Valero Energy Partners LP publicly held common units
(950
)
 

Contributions from noncontrolling interests

 
32

Distributions to noncontrolling interests
(57
)
 
(63
)
Other financing activities, net
(29
)
 
(15
)
Net cash used in financing activities
(2,474
)
 
(2,181
)
Effect of foreign exchange rate changes on cash
(4
)
 
(43
)
Net decrease in cash and cash equivalents
(845
)
 
(2,299
)
Cash and cash equivalents at beginning of period
2,982

 
5,850

Cash and cash equivalents at end of period
$
2,137

 
$
3,551

See Condensed Notes to Consolidated Financial Statements.


6




VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation
General
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.

These unaudited financial statements have been prepared in accordance with United States (U.S.) generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal recurring nature unless disclosed otherwise. Operating results for the nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.

The balance sheet as of December 31, 2018 has been derived from our audited financial statements as of that date. For further information, refer to our financial statements and notes thereto included in our annual report on Form 10-K for the year ended December 31, 2018.

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 Diamond Green Diesel Holdings LLC (DGD), our consolidated joint venture as discussed in Note 8, which were transferred from the refining segment. Also effective January 1, 2019, we no longer have a VLP segment, and we now include the operations of Valero Energy Partners LP and its consolidated subsidiaries (VLP) in our refining segment. Our prior period segment information has been retrospectively adjusted to reflect our current segment presentation. See Note 2 regarding our merger with VLP, which occurred on January 10, 2019, and Note 11 for segment information.

Certain prior year amounts in the consolidated statement of cash flows have been reclassified to conform to the 2019 presentation.

Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. On an ongoing basis, we review our estimates based on currently available information. Changes in facts and circumstances may result in revised estimates.

Leases
Background
We adopted the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 842, “Leases,” (Topic 842) on January 1, 2019, as described below in “Accounting Pronouncements Adopted on January 1, 2019.” Accordingly, our lease accounting policy has been revised to reflect the adoption of this standard.


7





VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Revised Policy
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, or if not, our incremental borrowing rate for a term similar to the duration of the lease based on information available at the commencement date. Lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise those options.

We recognize ROU assets and lease liabilities for leasing arrangements with terms greater than one year. Except for the marine transportation asset class, we account for lease and non-lease components in a contract as a single lease component for all classes of underlying assets. Our marine transportation contracts include non-lease components such as maintenance and crew costs. We allocate the consideration in these contracts based on pricing information provided by the third-party broker.

Expense for an operating lease is recognized as a single lease cost on a straight-line basis over the lease term and 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 and is reflected in “depreciation and amortization expense.” Interest expense is incurred based on the carrying value of the lease liability and is reflected in “interest and debt expense, net of capitalized interest.”

Accounting Pronouncements Adopted on January 1, 2019
Topic 842
As previously noted, we adopted the provisions of 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 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 accounting policy affected by our adoption of Topic 842. Also see Note 4 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 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


8





VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

a build-to-suit lease arrangement with respect to the MVP Terminal (see Note 6 under “Commitments—MVP Terminal”), and (iii) the presentation of new disclosures about our leasing activities beginning in the first quarter of 2019. Adoption of this standard did not impact our results of operations or liquidity, and our accounting for finance leases is substantially unchanged.
Other
In addition to the adoption of Topic 842 discussed above, we adopted the following Accounting Standards Update (ASU) during the nine months ended September 30, 2019. Our adoption of this ASU did not affect our financial statements or related disclosures.
ASU
 
Adoption Date
 
Basis of
Adoption
2017-12
Derivatives and Hedging (Topic 815): Targeted
Improvements to Accounting for Hedging Activities
 
January 1, 2019
 
Cumulative
effect


Accounting Pronouncements Not Yet Adopted
The following ASUs have not yet been adopted and are not expected to have a material impact on our financial statements or related disclosures.
ASU
 
Expected
Adoption Date
 
Basis of
Adoption
2016-13
Financial Instruments—Credit Losses (Topic 326):
Measurement of Credit Losses on Financial
Instruments
 
January 1, 2020
 
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
 
January 1, 2020
 
Prospectively
2018-17
Consolidation (Topic 810): Targeted Improvements to
Related Party Guidance for Variable Interest
Entities
 
January 1, 2020
 
Cumulative
effect


2.
MERGER AND ACQUISITION

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 8) 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


9





VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

Peru Acquisition
On May 14, 2018, we acquired 100 percent of the issued and outstanding equity interests in Pure Biofuels del Peru S.A.C. (Pure Biofuels) from Pegasus Capital Advisors L.P. and various minority equity holders. Pure Biofuels markets refined petroleum products through its logistics assets in Peru. This acquisition, which is referred to as the Peru Acquisition, was accounted for as a business acquisition.

We paid $466 million from available cash on hand, of which $130 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 an independent appraisal in the fourth quarter of 2018. The assets acquired and the liabilities assumed were recognized at their acquisition-date fair values, as disclosed in Note 2 of Notes to Consolidated Financial Statements included in our annual report on Form 10-K for the year ended December 31, 2018.

3.
INVENTORIES

Inventories consisted of the following (in millions):
 
September 30,
2019

December 31,
2018
Refinery feedstocks
$
2,051

 
$
2,265

Refined petroleum products and blendstocks
3,746

 
3,653

Ethanol feed