VLOValero Energy

We note that you included an investor presentation called Leading Producer of Liquid Transportation Fuels as Exhibit 99.1 to the Form 8-K that you filed on May 1, 2024, and that in presenting information related to Sustaining Capex and Growth Capital Investments on page 56, you show that Total Growth Capital Investments decreased from $1,936 million in 2012 to $1,370 million in 2022 and to $430 million in 2023.

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Please expand your disclosures in your periodic reports as necessary to discuss and analyze the reasons for the decline in your growth capital investments, and the potential impact of the decline in growth capital investments on your short and long-term liquidity and profitability, to comply with Item 303 (b)(1) of Regulation S-K.

As disclosed in the 2023 Form 10-K, we have developed an extensive multi-year capital investment program, which we update and revise based on changing internal and external factors (see the 2023 Form 10-K, page 59). While we provide our expectations with respect to capital investments for the current fiscal year in our annual reports on Form 10-K, our capital investment program aims to manage our capital investments on average over a multi-year period rather than focusing on any one year given the year-to-year variability with respect to timing, costs, and other aspects of capital projects,

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particularly growth capital projects. Capital projects may be accelerated, deferred, or even cancelled based on costs, market and economic conditions, regulatory approvals, project execution, competing uses of capital, and other variables; and capital investments and costs may particularly increase or decrease at the beginning and ending of a project.

We respectfully note that while the Staff’s comment letter discusses changes in our total growth capital investments, our multi-year capital investment program is based on a non-GAAP financial measure that we refer to as “capital investments attributable to Valero” (see the 2023 Form 10-K, page 61 for a definition and reconciliation thereof). We believe capital investments attributable to Valero is an important measure because it more accurately reflects our capital investments.

The Staff’s comment letter refers to a decrease in our total growth capital investments from $1.37 billion in 2022 to $430 million in 2023. Growth capital investments attributable to Valero, however, only decreased from $919 million in 2022 to $309 million in 2023. Contributing to this decrease was a shift in the timing of the construction of Diamond Green Diesel Holdings LLC’s (“DGD”) (a consolidated joint venture) second plant. In our Form 10-K for the fiscal year ended December 31, 2021, which was filed on February 22, 2022 (the “2021 Form 10-K”), we disclosed that “[o]ver the next 15 months, we expect to invest approximately $800 million to complete the construction of DGD’s second plant” and that “[t]his new plant is expected to commence operations in the first quarter of 2023” (see the 2021 Form 10-K, pages 4 and 10). This project was ultimately completed ahead of schedule and began operations in the fourth quarter of 2022. Consequently, in our Form 10-K for the fiscal year ended December 31, 2022, which was filed on February 23, 2023 (the “2022 Form 10-K”), we disclosed that “[t]he second DGD plant commenced operations in the fourth quarter of 2022” (see the 2022 Form 10-K, page 10). As a result, various growth capital investments initially expected to be made in 2023 associated with the completion of this project were accelerated into 2022, resulting in growth capital investments being higher in 2022 and lower in 2023 than initially expected. While this was not the only item that affected our 2022 and 2023 capital investments, it is an example of how the variability in our year-to-year growth capital investments primarily reflects shifts in expected timing and costs of capital projects rather than a change in our capital allocation strategy or underlying fundamentals that would be material to an investor’s understanding of and ability to assess our financial condition and results of operations or our future liquidity or profitability.

Before finalizing our MD&A disclosures, including our disclosures therein with respect to capital investments, we take into consideration each of the items set forth in Item 303 of Regulation S-K and the instructions thereto. Consequently, we believe that the disclosures we make with respect to our capital investments, as outlined above, provide the material information required to be disclosed under Item 303 of Regulation S-K.

However, we acknowledge the Staff’s comment and will include additional disclosure in future annual reports to more clearly describe the potential variability within growth capital investments attributable to Valero. We will also continue to thoroughly assess our financial condition, cash flows, and other changes in financial condition and results of operations and take into consideration each of the items set forth in Item 303 of Regulation S-K, including the instructions thereto, in assessing whether any changes to our capital investments disclosures are necessary.

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We note you present a non-GAAP measure titled “gross margin” for your segments. Please utilize an alternate label for this measure to comply with Item 10(e)(1)(ii)(E) of Regulation S-K, which prohibits using titles for non-GAAP measures that are the same as, or confusingly similar to, titles or descriptions used for GAAP financial measures.

In response to the Staff’s comment, we will revise in future filings the label of our non-GAAP measure previously titled “gross margin” to “refining margin” or “ethanol margin,” as applicable, in order to distinguish our non-GAAP financial measure(s) from the GAAP term and to comply with Item 10(e)(1)(ii)(E) of Regulation S-K. Read in the reply ↗

Please describe for us any common characteristics of the amounts you report as cost of sales as opposed to operating expenses, and explain your rationale in making a distinction between these two categories of cost.

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Tell us the extent to which your operating expenses were inventoriable, based on the guidance in FASB ASC 330-10-30-1 through 8, and explain why you believe these costs are not required to be included in the cost of sales measure that you report pursuant to Rule 5-03.2(a) of Regulation S-X.

The common characteristics of our “cost of sales,” as opposed to our “operating expenses,” are that “cost of sales” primarily relate directly to materials that are a component of our products sold. These costs include (i) the direct cost of materials (such as crude oil and other refinery feedstocks, refined petroleum products and blendstocks, and ethanol feedstocks and products) that are a component of our products sold (see Form 10-K, page 84, Note 4); (ii) costs directly related to the delivery (such as shipping and handling costs) of products sold (see Form 10-K, page 79, Product Shipping

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and Handling Costs); (iii) costs directly related to our environmental credit obligations to comply with various governmental and regulatory programs (such as the cost of renewable identification numbers as required by the EPA’s Renewable Fuel Standard and emission credits under various cap-and-trade systems) (see Form 10-K, page 79, Environmental Compliance Program Costs, and page 131, Environmental Compliance Program Price Risk); and (iv) gains and losses on our commodity derivative instruments (see Form 10-K, page 133, Effect of Derivative Instruments on Income and

Other Comprehensive Income). “Operating expenses” include costs to operate our refineries and ethanol plants. These costs primarily include employee-related expenses, energy and utility costs, catalysts and chemical costs, and repairs and maintenance expenses. Based on the guidance in FASB ASC 330-10-30-1, our operating expenses are inventoriable and, therefore, such costs are included in our product inventory. We believe our presentation of these two categories of costs reflects important measures of operating and financial performance of our refining and ethanol results and is consistent with industry practice.

We also believe the presentation of our statement of income appropriately reflects the components that comprise cost of goods sold as indicated by Rule 5-03.2(a) of Regulation S-X. However, based on the information described above and our review of the disclosure requirements of Rule 5-03.2(a), we propose that our line item label for “cost of sales” be revised and presented as “cost of materials and other” in our future filings.

We also propose to include additional disclosures in our future filings to more clearly describe our cost classifications, which consist of “cost of materials and other” and “operating expenses,” presented in our statement of income as follows:

•

“Cost of materials and other primarily relate directly to materials that are a component of our products sold. These costs include (i) the direct cost of materials (such as crude oil and other refinery feedstocks, refined petroleum products and blendstocks, and ethanol feedstocks and products) that are a component of our products sold; (ii) costs related to the delivery (such as shipping and handling costs) of products sold; (iii) costs related to our environmental credit obligations to comply with various governmental and regulatory programs (such as the cost of renewable identification numbers as required by the EPA’s Renewable Fuel Standard and emission credits under various cap-and-trade systems); and (iv) gains and losses on our commodity derivative instruments.”

“Operating expenses include costs to operate our refineries and ethanol plants, excluding depreciation and amortization expense. These costs primarily include employee-related expenses, energy and utility costs, catalysts and chemical costs, and repairs and maintenance expenses. Depreciation and amortization expense is separately presented in our statement of income and disclosed by reportable segment in Note 16.”

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Clarify for us the extent to which the amounts included in your line item, Depreciation and amortization expense, are attributable to your cost of sales. If you rely upon the accommodation outlined in SAB Topic 11.B, in excluding depreciation and amortization from certain cost and expense categories, you should separately report depreciation and amortization that is attributable to each line item from which it has

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been excluded.

Approximately 97 percent (or $1.8 billion) of our “depreciation and amortization expense” for the year ended December 31, 2016 relates to “operating expenses” (a component of cost of goods sold) for our refining and ethanol reportable segments, and the remaining 3 percent (or $48 million) relates to our “general and administrative expenses” for our corporate category as disclosed in Note 16 “Segment Information,” on page 120 of the Form 10-K.

In order to clarify our reliance on the accommodation outlined in SAB Topic 11.B to exclude “depreciation and amortization expense” from our “operating

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expenses” and “general and administrative expenses,” we propose presenting these line item labels in the statement of income in our future filings as “operating expenses (excluding depreciation and amortization expense)” and “general and administrative expenses (excluding depreciation and amortization expense),” respectively. Our segment information note will continue to disclose “depreciation and amortization expense” by segment.

In response to Comments 2 and 3, an example of our proposed statement of income presentation based on December 31, 2016 financial information is shown below:

Operating revenues

$

75,659

Costs and expenses:

Cost of materials and other (excluding the lower of cost or market inventory valuation adjustment)

65,962

Lower of cost or market inventory valuation adjustment

(747

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We have read your response to prior comments two and three in which you propose to relabel the line item Cost of sales as “cost of materials and other”, and clarify that amounts reported separately in your Operating expenses line item also include inventoriable costs.

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However, the extent to which all of these costs are inventoriable and appropriately characterized as Cost of sales under generally accepted accounting principles remains unclear. We note that although you propose to make various changes to your Statements of Income and related disclosures, the proposed changes do not include a complete Cost of sales measure and do not separately quantify the amounts of depreciation and amortization expense excluded from individual line items. Given your rationale for presenting the various cost categories, we will not object if you wish to include a subtotal of amounts that are appropriately attributed to the Cost of sales measure that is required by Rule 5-03.2(a) of Regulation S-X. However, if you exclude depreciation and amortization expense from this measure, or other cost categories that follow this measure, the excluded amounts should be quantified on separate lines or parenthetically. Please ensure that your computation is consistent with that utilized in computing the gross profit measure that is required for your quarterly periods.

In order to present a cost of sales measure in our statements of income as required by Rule 5-03.2(a) of Regulation S-X, we will include in our future filings with the Commission a subtotal in our statements of income labeled “cost of sales.” The cost of sales subtotal will be comprised of the cost components attributed to that measure, including depreciation and amortization expense.

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In addition, we will reflect that amount of depreciation and amortization expense as a separate component of cost of sales and will, therefore, parenthetically note that the operating expense component excludes the depreciation and amortization expense component in accordance with the accommodation provided by SAB Topic 11.B. Furthermore, we will separately present in our statements of income the amount of depreciation and amortization expense not attributed to cost of sales and will parenthetically note that general and administrative expenses excludes that depreciation and amortization expense amount.

Based on the foregoing, an example of our proposed statement of income using 2016 financial information is shown below (in millions):

Operating revenues

$

75,659

Cost of sales:

Cost of materials and other

65,962

Operating expenses (excluding depreciation and amortization expense reflected below)

4,207

Depreciation and amortization expense

1,846

Lower of cost or market inventory valuation adjustment

(747

)

Total cost of sales

71,268

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

715

Asset impairment loss

Operating income

3,572

We believe that the inclusion of a cost of sales measure in our statements of income will clarify that its component parts are inventoriable costs.

As noted in our response to comment 2 below, the gross profit measure that will be included in our disclosure of quarterly financial data will be computed as the difference between operating revenues and the cost of sales subtotal.

In addition, as noted in our response dated September 22, 2017, we will include additional disclosures in our future filings to more clearly describe our cost classifications, which consist of “cost of materials and other” and “operating expenses,” presented in our statements of income.

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We note that you have not disclosed all of the information required by Item 302 of Regulation S-K. Please expand your disclosure to include “gross profit (net sales less costs and expenses associated directly with or allocated to products sold or services rendered),” for each quarterly period within the two most recent fiscal years.

In response to the Staff’s comment, we will expand in future filings with the Commission our tabular disclosure of quarterly financial data required by Item 302 of Regulation S-K to include gross profit, and we will include a footnote to that disclosure to describe that gross profit is computed as the difference between operating revenues and cost of sales. In addition, we will ensure that the sum of the quarterly gross profit amounts equals the gross profit for the applicable annual period as computed from the face of our statements of income.

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We will also note the reason(s) for any material changes in quarterly gross profit.

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You disclose that the decrease in net cash provided by operating activities was due primarily to a $2.7 billion unfavorable effect from changes in working capital, but do not explain the reasons. Please expand your disclosure to encompass the underlying drivers of operating cash flows and any material changes that have led to this effect, consistent with the guidance in Section (IV)(B)(1) of SEC Release No. 34-48960.

We supplementally provide the Staff with the following details (in millions) regarding the $2.7 billion unfavorable effect from changes in working capital between 2014 and 2013:

Note Reference

Unfavorable effect resulting primarily from accounts payable

$

620

(a)

Unfavorable effect resulting from liabilities accrued for taxes other than income taxes

401

(b)

Unfavorable effect resulting from income taxes payable

628

(c)

Unfavorable effect resulting from inventories

1,001

(d)

Other

Unfavorable effect

2,732

The $620 million unfavorable effect was calculated as the net of (1)

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the $3.5 billion favorable effect from changes in accounts receivable between 2014 and 2013 and (2) the $4.1 billion unfavorable effect from changes in accounts payable between 2014 and 2013. (These effects on working capital were calculated directly from amounts reflected in Note 19 of Notes to Consolidated Financial Statements on page 113 of the Form 10-K. That note was referenced in our disclosures on page 43 of the Form 10-K.) The favorable effect in accounts receivable and the unfavorable effect in accounts payable were primarily due to a decrease in commodity prices in the fourth quarter of 2014. The decrease in commodity prices (disclosed in Outlook and in the General section of the comparison of 2014 to 2013 results of operations on pages 26 and 32, respectively, of the Form 10-K) reduced both our accounts receivable and accounts payable balances as of December 31, 2014 compared to December 31, 2013. However, accounts payable decreased to a greater extent resulting in a net negative cash outflow.

Liabilities accrued for taxes other than income taxes include sales and use taxes, value-added taxes (“VAT”), motor fuel taxes, excise/duty taxes, and gross receipts taxes. The liabilities for these taxes typically do not change by a significant amount and, therefore, have a minimal effect on the Company’s cash flows. As a seller of refined products in the United Kingdom (“U.K.”), we charge our U.K. customers VAT, which is subsequently remitted to the U.K. government. In late 2012, our Pembroke Refinery in the U.K. was not operating for an extended period in connection with planned maintenance activities resulting in our need to purchase refined products to supply our customers in the U.K., and we were charged VAT on these purchases of refined products from our vendors. The payment of VAT to our vendors reduced our VAT liability owed to the government resulting in a lower VAT liability as of December 31, 2012. In 2013, the Pembroke Refinery resumed normal operations and we ceased purchasing refined products from others and our VAT liability increased to normal levels and positively affected our cash flows in 2013. Therefore, the $401 million unfavorable effect from changes in liabilities accrued for taxes other than income taxes between 2014 and 2013 was the result of a positive effect in 2013 that did not recur in 2014.

The unfavorable effect associated with income taxes payable resulted primarily from a $400 million tax payment in 2014 that was accrued in 2013 related to 2013 earnings. (This was disclosed in the Tax Matters section of Liquidity and Capital Resources on page 46 of the Form 10-K.) A significant portion of the Company’s 2013 earnings were generated in the fourth quarter of 2013, which led to an income tax liability as of December 31, 2013 that was larger than is typical when earnings are generated more ratably throughout the year. In addition, the Company paid $56 million in taxes in 2014 that were accrued in 2013 related to the settlement of two IRS audits.

The unfavorable effect resulting from the increase in our inventories was due to the build in inventory volumes from 2013 to 2014 as the Company took advantage of the declining commodity prices in the fourth quarter of 2014.

It should be noted that the unfavorable working capital change was not the result of negative trends in the Company’s business, operations, credit policies, or similar substantive matters. We acknowledge that the Company’s disclosures could have provided additional information to clarify the drivers of operating cash flows, but we believe that the cash flow disclosures in the Form 10-K meet the guidance in Section (IV)(B)(1) of SEC Release No. 34-48960 and that no amendment to the Form 10-K to expand the disclosure is necessary. We will endeavor, however, to provide additional disclosure in the Company’s future filings to ensure a more complete understanding of the drivers of operating cash flows.

The Company acknowledges that:

• the Company is responsible for the adequacy and accuracy of the disclosure in the filing;

Staff comments or changes to disclosure in response to Staff comments do not foreclose the Commission from taking any action with respect to the filing; and the Company may not assert Staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.

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We note your disclosure indicating that a material amount of your deferred tax liabilities could be reclassified to current liabilities due to Revenue Agent Reports received from the IRS, and that you have $6.9 billion in deferred tax liabilities as of December 31, 2012. Please expand your disclosure to address the following points.

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(i) Discuss the timing of possible significant reclassifications and payments and the course of action that you might take to make these payments. (ii) Quantify possible reclassifications and interest and penalties (iii) Provide a brief overview of the upcoming and remaining steps you envision as part of contesting the tax positions and assertions taken in the Revenue Agent Reports, and the anticipated duration of these remaining steps. Please include any additional information necessary to comply with the guidance in Item 303(a)(1) of Regulation S-K, Instruction 5 to Item 303(a) of Regulation S-K, and Section IV of SEC Release No. 34-48960 (FR-72).

We received your letter dated April 10, 2013 and advise you that we will provide our response to the comment raised in that letter on or about May 9, 2013, concurrent with filing the Company’s Form 10-Q for the quarter ended March 31, 2013 (the “Form 10-Q”). We are currently preparing the Company’s earnings release and Form 10-Q, and we are also preparing for the spin-off of the Company’s retail business under a new company named CST Brands, Inc., which is expected to occur on May 1, 2013. Because of these matters, we are unable to respond within ten business days from the date of your letter. Read in the reply ↗

We note your obligation to blend biofuels was categorized in Level 1 of the fair value hierarchy as of December 31, 2012, and Level 2 as of March 31, 2013. Tell us your reason for transferring this financial instrument between these two categories and explain why this reason has not been disclosed to comply with FASB ASC 820-10-50-2.

The Company’s obligation to blend biofuels and the liability that may be recognized and disclosed in the recurring fair value measurements table related to that obligation are described in the third bulleted paragraph on page 21 and under “Obligation to Blend Biofuels” on page 28 of the Form 10-Q. The basis for recognizing a liability and the measurement of that liability are also described in the disclosure referred to above on page 21 of the Form 10-Q.

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In addition, we have provided further details regarding the recognition and measurement of the liability in our response to the Staff’s request for clarification of how the Company accounts for RINs and RFTCs in comment #2.

Supplementally, we inform the Staff that the $10 million liability as of December 31, 2012, related to the Company’s obligation to blend biofuels was improperly categorized in the Form 10-K as being measured in accordance with a Level 1 valuation technique. In connection with the preparation of the Form 10-Q and a review of the inputs utilized to measure the fair value of the liability, the Company determined that the fair value measurement technique utilized was more appropriately categorized in Level 2 of the fair value hierarchy because the measurement is based on prices for RINs and RFTCs posted by independent pricing services.

The reclassification of the liability from Level 1 to Level 2 was not due to a change in valuation technique, which would result in the disclosures described in FASB ASC 820-10-50-2bb; rather, the reclassification reflects the proper classification of the liability as being measured using a Level 2 valuation technique. Due to the immaterial nature of the liability and the fact that there was no change in the measurement technique, we believe that the disclosures described in FASB ASC 820-10-50-2bb do not apply and that no disclosure is warranted in the Form 10-Q.

We note in the Staff’s comment that the Staff referred to the liability as being associated with a financial instrument. Supplementally, we inform the Staff that the liability is not associated with a financial instrument, primarily because there is no underlying contract associated with that liability. Rather, the liability is a nonfinancial liability that is measured at fair value. We believe that the disclosure on page 21 of the Form 10-Q describes the basis for recognizing the liability and does not indicate that it is associated with a financial instrument. However, we acknowledge that the disclosure provided on page 18 under “General” and on page 19 under “Recurring Fair Value Measurements” of the Form 10-Q could be read to imply that all amounts provided in the tables on pages 19 and 20 of the Form 10-Q are associated with financial instruments. This was not the Company’s intent; therefore, the disclosure under these headings will be revised in the Company’s future filings with the Commission.

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We note your disclosure regarding your market risk exposure to changes in prices in Renewable Identification Numbers (RINs) and Renewable Transport Fuel Certificates (RTFCs). Please disclose your accounting policy for recognizing an obligation to blend biofuels and attributing the accompanying cost to operations.

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Please clarify how you are accounting for RINs and RTFCs acquired in order to fulfill these obligations, including any purchases that occur in advance of recognizing an obligation.

As noted in our response to the Staff’s comment #1, the Company disclosed the basis for recognizing a liability related to its obligation to blend biofuels and the manner in which that liability is measured in the third bulleted paragraph on page 21 of the Form 10-Q. That disclosure refers to the disclosure under “Obligation to Blend Biofuels” on page 28 of the Form 10-Q, which provides further information regarding the Company’s obligation to blend biofuels, as well as the cost recognized by the Company to meet its obligation and the classification of those costs in cost of sales.

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The Company believes that these disclosures describe adequately its accounting policy for recognizing a liability related to its obligation to blend biofuels and the basis for recognizing costs incurred to meet that obligation. As such, the Company believes that it has disclosed its accounting policy. In addition, the Company disclosed the classification of such costs in its income statement. The Company does not believe, however, that U.S. generally accepted accounting principles or the Commission’s rules and regulations require it to disclose the reason for attributing costs to certain income statement line items.

With respect to the Company’s disclosure of its accounting policy for recognizing a liability related to its obligation to blend biofuels and the reason for attributing the cost of meeting that obligation to cost of sales, we supplementally provide the Staff with the following information:

•

The Company provided the disclosures on pages 21 and 28 of the Form 10-Q to help the reader of its financial statements better understand its obligation to blend biofuels and the costs of meeting that obligation. The Company will continue to evaluate the materiality of such costs and any related liability to its results of operations or financial position, respectively. Should such costs or related liability become material, the Company will consider including its accounting policy with respect to this matter within the note to its financial statements that describes its significant accounting policies.

As further discussed below in response to the Staff’s request for clarification of how the Company accounts for its obligation to blend biofuels, it should be noted that the Company purchases biofuels from third parties to blend into its products, and each gallon of biofuel purchased includes a RIN. Upon the sale of the blended product, the Company charges cost of sales for the cost of the blended product, which includes the cost of the biofuel and, inherently, the cost of the RIN. Therefore, even if the Company purchased and blended a sufficient quantity of biofuels such that it was not obligated to purchase RINs in the open market, cost of sales would inherently include the cost of the RIN purchased along with the biofuels. As such, the Company believes that it is appropriate to charge cost of sales for the purchase of RINs needed to meet its obligation to blend biofuels.

In response to the Staff’s request to clarify how the Company accounts for RINs and RTFCs acquired to fulfill its obligation to blend biofuels, we supplementally provide the Staff with the following overview of the Company’s accounting, beginning with the initial recognition of a liability related to the Company’s obligation to blend biofuels. We refer only to RINs in this overview; however, the Company’s accounting for RFTCs is applied in a consistent manner.

The Company is obligated by government regulations to blend a certain percentage of biofuels into the products it produces that are consumed in the U.S. The Company purchases biofuels from third parties and blends those biofuels into its products, and each gallon of biofuel purchased includes a RIN. To the degree the Company is unable to blend biofuels at the required percentage, a RIN deficit is generated and the Company must acquire that number of RINs by the annual reporting deadline in order to remain in compliance with applicable regulations. At the end of each month, the Company determines whether or not it has a RIN deficit related to the annual reporting period to date. If a RIN deficit exists, the Company records a liability equal to the product of the RIN deficit and the market price of a RIN as of the balance sheet date, and it charges cost of sales for an equal amount. This process occurs each month and the liability is trued-up, along with a related charge to or reduction in cost of sales based on the RIN deficit and the market value of a RIN at that time. It should be noted that this liability is the nonfinancial liability measured at fair value, which is discussed in our response to the Staff’s comment #1 and disclosed in the fair value measurements table.

From time to time, the Company purchases RINs from third parties and charges cost of sales for an amount equal to the purchase price. In connection with the month-end process discussed above, RINs purchased reduces the RIN deficit used to true-up the liability. Again, the amount by which the liability is trued-up results in a charge to or reduction in costs of sales. Therefore, if a sufficient number of RINs were purchased resulting in there being no RIN deficit at the end of the month, the liability recorded at the previous month-end would be adjusted to zero and cost of sales would be reduced by an equal amount. This properly results in the net charge to cost of sales being equal to the actual purchase price of the RINs. If the number of RINs acquired to date exceeds the RIN deficit at that time, the Company records a prepaid asset equal to the product of the RIN excess and the purchase price of those RINs. The prepaid asset is amortized to cost of sales as the Company generates an additional need for RINs as a result of not meeting the required blending percentage.

Also from time to time, the Company may enter into contracts with third parties to purchase RINs for delivery in the future at a fixed price. These forward purchase contracts are derivative instruments; however, the Company elects the normal purchase and sale exception with respect to these derivative instruments because it expects to use the RINs acquired under these contracts in the normal course of its business in order to satisfy its RIN deficit. As a result, there is no accounting by the Company for these contracts at the time they are entered into with the third parties. However, because the biofuels blending obligation is ultimately determined on an annual basis and the RINs to be acquired under these contracts will be delivered during that period, the Company includes these RINs in its month-end determination of whether it has a RIN deficit or excess. Should there be a RIN deficit at month-end before considering RINs associated with these contracts, cost of sales is charged for an amount equal to the product of the number of contracted RINs (not to exceed the RIN deficit) and the contracted price of those RINs, and an accrued liability is recorded for an equal amount. If there is no longer a RIN deficit after considering contracted RINs, the liability related to the Company’s obligation to blend biofuels recorded at the previous month-end is adjusted to zero and cost of sales would be reduced by an equal amount, consistent with the situation described in the previous bulleted paragraph. However, should there continue to be a RIN deficit after considering the contracted RINs, the liability related to the Company’s obligation to blend biofuels is trued-up, along with a related charge to or reduction in cost of sales, in a manner consistent with the process described above. Finally, in the situation where there is a RIN excess after considering contracted RINs, the Company does not record a prepaid asset for those excess RINs because the Company has not yet taken delivery of those RINs or paid for them.

The Company acknowledges that:

the Company is responsible for the adequacy and accuracy of the disclosure in the filing;

Staff comments or changes to disclosure in response to Staff comments do not foreclose the Commission from taking any action with respect to the filing; and the Company may not assert Staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the U.S.

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