Kaul 1
Valero Energy
Valero Energy is an independent, multi-national corporation that produces ethanol and is also a
petroleum refiner. They on average have a combined throughput capacity of 3,1 million barrels a day,
which makes them one of the largest contributors to the oil industry world wide. Their sales model for
the refined petroleum products uses wholesale racks and bulk markets. Most of Valero’s logistical assets
support their refining operations, not all Valero owned, while a smaller portion is dedicated to ethanol
production. They own 14 ethanol plants, which have a similar sales model with their refining. On top of
their refining and production, they also are a retail store. This aspect includes company-operated
convenience stores, truck stop facilities and home heating oil operations. All facets of Valero are
segmented based on geographic location, making it easier to analyze their regional sales and
performance. When going through a company’s financial statements, one will always notice the
significant accounting policies and procedures somewhere in the document. This is a requirement
mandated by the SEC and FASB. There are many reasons why these disclosures are required. One is
many accounting standards allow alternative treatment for a same transaction or item. The disclosures
allow for the users of the financial statements to distinguish the process’ behind the company’s financial
reporting. Another is it allows for an easier comparison between the company at hand and the financial
statements of different companies. Some companies will perform an unusual or innovative application
of GAAP, so it allows for the report to have a leg to stand on and will help prevent questions about the
validity of the financial statements. Lastly it benefits financial analysts, who use the footnotes to
determine how various accounting policies used by a company are impacting its reported results and
financial position.
There are a multitude of accounting policies disclosed in EDGAR, but to save space I will discuss
the first six disclosures. The first is on Valero’s use of estimates. They are using this disclosure as a
disclaimer for their financial statements. GAAP requires for the estimation and assumption that effects
on what is reported in the financial statements and it states that the actual results may differ. The
estimates are based on currently available information and can change based on circumstances, causing
revisions to be made. The second accounting policy is on cash equivalents. These are short term,
extremely liquid investments. They are always readily convertible to cash amounts and will mature in a
period less than or equal to three months. Following cash is the receivable’s disclosure. They are carried
at original invoice amount, while maintaining an allowance for doubtful accounts. This is to prepare for
the debts not paid back to Valero. They base this estimate on customer’s historical data of the accounts
that were never repaid and economic factors. The next three policies have far lengthier descriptions.
The first of these is inventory. Inventory is comprised of the cost of refinery feedstocks, refined
petroleum products and grain and ethanol inventories. This disclosure is showing how Valero accounts
for their products on a monetary basis. They determine their inventory count with the Last-in, first-out
method using the dollar value approach. The LIFO inventory is carried at a lower of cost or market.
Similarly, the products purchased for resale are accounted for using the weighted average approach. If
aggregate values of their LIFO or non-LIFO inventories is less than the aggregate cost, Valero will
recognize a loss on the difference. Next is property, plant and equipment and how they incur costs, as
well depreciate their assets. All costs applicable to PPE, whether purchased or constructed is capitalized.
The costs of repairs and maintenance are expensed as incurred. It goes on to explain the cost and
betterments that effect PPE. Valero’s operations are very capital intensive. When making improvements
on property assets, Valero plans for them by creating a multi-year capital program that fluctuates based
on internal and external factors. They depreciate their property using a straight-line basis over the
estimated useful life. Each of Valero’s refineries has a separate composite group, allowing them to more
easily keep track of the property’s depreciation with closer observation. Improvements on composite
