Valero 2015 Annual Report Download - page 75

Table of Contents
VALERO ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Financial Instruments
Our financial instruments include cash and temporary cash investments, receivables, payables, debt, capital 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.
Derivatives and Hedging
All derivative instruments, not designated as normal purchases or sales, are recorded in the balance sheet as either assets or liabilities
measured at their fair values. When we enter into a derivative instrument, it is designated as a fair value hedge, a cash flow hedge, an
economic hedge, or a trading derivative. The gain or loss on a derivative instrument designated and qualifying as a fair value hedge, as
well as the offsetting loss or gain on the hedged item attributable to the hedged risk, are recognized currently in income in the same
period. The effective portion of the gain or loss on a derivative instrument designated and qualifying as a cash flow hedge is initially
reported as a component of other comprehensive income and is then recorded in income in the period or periods during which the
hedged forecasted transaction affects income. The ineffective portion of the gain or loss on the cash flow derivative instrument, if any,
is recognized in income as incurred. For our economic hedging relationships (derivative instruments not designated as fair value or cash
flow hedges) and for derivative instruments entered into for trading purposes, the derivative instrument is recorded at fair value and
changes in the fair value of the derivative instrument are recognized currently in income. The cash flow effects of all of our derivative
instruments are reflected in operating activities in the statements of cash flows.
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In May 2014, the Accounting Standards Codification (ASC) was amended and a new accounting standard, ASC Topic 606, “Revenue
from Contracts with Customers,” was issued to clarify the principles for recognizing revenue. The core principle of the new standard is
that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods or services. The standard also requires improved
interim and annual disclosures that enable the users of financial statements to better understand the nature, amount, timing, and
uncertainty of revenues and cash flows arising from contracts with customers. In July 2015, the effective date of the new standard was
deferred by one year. As a result, the standard is effective for annual reporting periods beginning after December 15, 2017, including
interim reporting periods within those reporting periods, and can be adopted either retrospectively to each prior reporting period
presented using a practical expedient, as allowed by the standard, or retrospectively with a cumulative-effect adjustment to retained
earnings as of the date of initial application. Early adoption is permitted, but not before the original effective date, which was for annual
reporting periods beginning after December 15, 2016, including interim reporting periods within those reporting periods. We are
currently evaluating the effect that adopting this standard will have on our financial statements and related disclosures.
In February 2015, the provisions of ASC Topic 810, “Consolidation,” were amended to improve consolidation guidance for certain
types of legal entities. The guidance modifies the evaluation of whether limited partnerships and similar legal entities are variable
interest entities (VIEs) or voting interest entities, eliminates the presumption that a general partner should consolidate a limited
partnership, affects the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee
arrangements and related party relationships, and provides a scope exception from consolidation guidance
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