Valero 2015 Annual Report Download - page 36

Table of Contents
Ethanol Operating Highlights (a) (b)
(millions of dollars, except per gallon amounts)
Year Ended December 31,
2015
2014
Change
Ethanol (c):
Operating income $ 192
$ 782
$ (590)
Production (thousand gallons per day) 3,827
3,422
405
Gross margin per gallon of production (d) $ 0.49
$ 1.06
$ (0.57)
Operating costs per gallon of production:
Operating expenses 0.32
0.39
(0.07)
Depreciation and amortization expense 0.03
0.04
(0.01)
Total operating costs per gallon of production 0.35
0.43
(0.08)
Operating income per gallon of production $ 0.14
$ 0.63
$ (0.49)
Operating income from above $ 192
$ 782
$ (590)
Lower of cost or market inventory valuation adjustment (b) (50)
—
(50)
LIFO gain (a) —
4
(4)
Total ethanol operating income $ 142
$ 786
$ (644)
________________
See note references below.
The following notes relate to references on pages 28 through 32.
(a) Cost of sales for the year ended December 31, 2014 reflects a LIFO gain of $233 million ($151 million after taxes), of which $229 million is attributable
to our refining segment and $4 million is attributable to our ethanol segment. These amounts have been excluded from (1) the segment and regional
throughput margins per barrel and the regional operating income amounts for the refining segment, and (2) the operating income and gross margin per
gallon of production amounts for the ethanol segment.
(b) In December 2015, we recorded a lower of cost or market inventory valuation adjustment of $790 million ($624 million after taxes), of which
$740 million is attributable to our refining segment and $50 million is attributable to our ethanol segment. In accordance with U.S. generally accepted
accounting principles (GAAP), we are required to state our inventories at the lower of cost or market. Cost is primarily determined using the LIFO
inventory valuation methodology, whereby the most recently incurred costs are charged to cost of sales in the statement of income and inventories are
valued at base layer acquisition costs in the balance sheet. Market is determined based on an assessment of the net realizable value of our inventory. In
periods where the market price of our inventory falls below cost, we record an inventory valuation adjustment to write down the value to market in
accordance with U.S. GAAP. The lower of cost or market inventory valuation adjustment for the year ended December 31, 2015 has been excluded from
(1) the segment and regional throughput margins per barrel and the regional operating income amounts for the refining segment, and (2) the gross
operating income and the gross margin per gallon of production amounts for the ethanol segment. This adjustment is further discussed in Note 6 of Notes
to Consolidated Financial Statements.
(c) The LIFO gain of $233 million recorded in 2014 (see note (a)) and the lower of cost or market inventory valuation adjustment of $790 million recorded
in 2015 (see note (b)) are reflected in refining operating income and ethanol operating income for the years ended December 31, 2015 and 2014, but are
excluded from throughput margin per barrel and operating income per barrel for the refining segment, and from gross margin per gallon and operating
income per gallon for the ethanol segment, respectively, as also described in notes (a) and (b).
(d) Throughput margin per barrel represents operating revenues less cost of sales of our refining segment divided by throughput volumes. Gross margin per
gallon of production represents operating revenues less cost of sales of our ethanol segment divided by production volumes.
(e) Other products primarily include petrochemicals, gas oils, No. 6 fuel oil, petroleum coke, sulfur, and asphalt.
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