Exhibit 99.01
VALERO ENERGY CORPORATION
AUDIT COMMITTEE PRE-APPROVAL POLICY
I. STATEMENT OF PRINCIPLES
Pursuant to Section 10A of the Securities Exchange Act of 1934, as amended
by Section 202 of the Sarbanes-Oxley Act of 2002 ("SOX Act"), the Audit
Committee of the board of directors (the "Audit Committee") of Valero
Energy Corporation (the "Company") is required to pre-approve the audit
and non-audit services performed by the Company's independent auditor to
assure that the provision of such services does not impair the auditor's
independence. The SEC's rules establish two approaches for pre-approving
services. The two approaches are not mutually exclusive:
o the Audit Committee may pre-approve each particular service on a
case-by-case basis ("separate pre-approval"), and
o the Audit Committee may adopt a pre-approval policy that is detailed
as to the particular types of services that may be provided by the
independent auditor without consideration by the Audit Committee on
a case-by-case basis ("policy-based pre-approval")
The Audit Committee believes that the combination of these approaches in
this policy will provide an effective and efficient procedure to
pre-approve services performed by the independent auditor. Unless a type
of service has received policy-based pre-approval (as specifically
identified in the appendices to this policy), it will require separate
pre-approval by the Audit Committee.
The appendices to this policy contain lists of services that have received
policy-based pre-approval of this Audit Committee in the following
categories (categorized in accordance with the SEC's rules):
o Audit Services
o Audit-Related Services
o Tax Services
o All Other Services
II. TERM OF PRE-APPROVALS
The term of the policy-based pre-approvals stated in the appendices to
this policy is the period from January 1, 2004 to January 19, 2005, unless
the Audit Committee specifically provides for a different period. The
Audit Committee will review and pre-approve, at least annually, the
services that may be provided by the independent auditor. The Audit
Committee will revise the list of policy-based pre-approved services from
time to time as the Committee deems necessary or appropriate.
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III. DELEGATION
In accordance with the SOX Act and SEC rules, the Audit Committee hereby
delegates to its Chairman the authority to grant separate pre-approvals of
services and fees in accordance with this policy. The Audit Committee may
further delegate pre-approval authority from time to time to one or more
of its other members in its discretion. Any committee member to whom
pre-approval authority is delegated shall report any pre-approval
decisions to the full Audit Committee at its next meeting. The Audit
Committee does not delegate its responsibilities to pre-approve services
to any member of the Company's management.
IV. SERVICES FOR WHICH SEPARATE PRE-APPROVAL IS REQUIRED
The terms and fees for the following services of the independent auditor
require separate pre-approval by the Audit Committee:
o the annual financial statement audit, including all audits, reviews,
procedures and other services required to be performed by the
independent auditor to form an opinion on the Company's consolidated
financial statements, and
o the attestation engagement for the independent auditor's report on
management's report on internal controls for financial reporting.
The Audit Committee will monitor these engagements as it deems
appropriate, and will approve, if necessary, any changes in terms,
conditions and fees resulting from changes in engagement scope, changes in
the Company's structure or other matters.
V. SERVICES FOR WHICH POLICY-BASED PRE-APPROVAL IS AVAILABLE
A. AUDIT SERVICES
The Audit Committee may grant policy-based pre-approval for Audit
Services other than the services described in Section IV above. These
Audit Services are generally services that only the Company's
independent auditor reasonably can provide, and include:
o services associated with SEC registration statements (e.g.,
comfort letters, consents), periodic reports and other
documents filed with the SEC or other documents issued in
connection with securities offerings,
o statutory audits or financial audits for subsidiaries or
affiliates of the Company.
The Audit Committee has given policy-based pre-approval for the Audit
Services listed in Appendix A. All other Audit Services must be
separately pre-approved by the Audit Committee.
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B. AUDIT-RELATED SERVICES
Audit-Related Services are assurance and related services that are
reasonably related to the performance of the annual audit or
quarterly review of the Company's financial statements or that are
traditionally performed by the independent auditor. The Audit
Committee may grant policy-based pre-approval for Audit-Related
Services. These services would include:
o employee benefit plan audits,
o due diligence services related to proposed mergers and
acquisitions, and
o assistance with understanding and implementing new accounting
and financial reporting guidance from rulemaking authorities.
The Audit Committee believes that the provision of the Audit-Related
Services listed in Appendix B does not impair the independence of the
auditor, and has given policy-based pre-approval for the
Audit-Related Services listed in Appendix B. All other Audit-Related
Services must be separately pre-approved by the Audit Committee.
C. TAX SERVICES
The Audit Committee believes that the independent auditor can provide
Tax Services to the Company such as tax compliance, tax planning and
tax advice without impairing the auditor's independence. However, the
Audit Committee will not permit the retention of the independent
auditor in connection with a transaction initially recommended by the
independent auditor, the purpose of which may be tax avoidance and
the tax treatment of which may not be supported in the U.S. Internal
Revenue Code and related regulations or in the tax laws and
regulations of any jurisdiction in which the Company is subject to
taxation.
The Audit Committee has given policy-based pre-approval for the Tax
Services listed in Appendix C. All other Tax Services must be
separately pre-approved by the Audit Committee, including Tax
Services related to large and complex transactions and Tax Services
proposed to be provided by the independent auditor to any executive
officer or director of the Company, in his or her individual
capacity, when such services are paid for by the Company.
D. ALL OTHER SERVICES
The Audit Committee may grant policy-based pre-approval for those
permissible non-audit services classified as All Other Services that
it believes are routine, recurring services that would not impair the
independence of the auditor. The Audit Committee has given
policy-based pre-approval for the All Other Services listed in
Appendix D. Any permissible All Other Services that are not listed in
Appendix D must be separately pre-approved by the Audit Committee.
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VI. PROHIBITED NON-AUDIT SERVICES
A list of the SEC's prohibited non-audit services is attached to this
policy as Appendix E. The list sets forth the several services that the
SOX Act and the SEC have specifically identified as services that may not
be performed by the Company's independent auditor. The Audit Committee
will consult the SEC's rules and relevant guidance, with the assistance of
counsel when necessary or appropriate, to determine whether any proposed
service by the independent auditor falls within any category of prohibited
non-audit services.
VII. PRE-APPROVAL FEE LEVELS AND BUDGETED AMOUNTS
Pre-approval fee levels or budgeted amounts for all services to be
provided by the independent auditor will be established at least annually
by the Audit Committee. All services that have received policy-based
pre-approval are subject to the pre-approval fee levels or budgeted
amounts set forth in the appendices to this policy. Any proposed services
exceeding these levels or amounts will require separate pre-approval by
the Audit Committee or by any person to whom pre-approval authority is
granted under Section III above.
VIII. PROCEDURES
Requests or applications to provide services that require separate
approval by the Audit Committee must be submitted to the Audit Committee
by both the independent auditor and the Company's Chief Financial Officer
(or his designee), and must include a joint statement as to whether, in
their view, the request or application is consistent with the SEC's rules
on auditor independence. In connection with the Audit Committee's
consideration of any proposed service, the independent auditor, at the
Committee's request, will provide to the Audit Committee detailed
documentation regarding the specific services to be provided so that the
Committee can make a well-reasoned assessment of the impact of the service
on the auditor's independence.
The Audit Committee hereby designates the Company's Vice President of
Internal Audit (the "Monitor") to monitor the performance of all services
provided by the independent auditor and to determine whether such services
are in compliance with this policy. The Monitor will report to this Audit
Committee on a periodic basis the results of his monitoring.
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APPENDIX A
PRE-APPROVED AUDIT SERVICES FOR 2004
Dated: January 14, 2004
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SERVICE
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assistance with and review of documents filed with the SEC including
registration statements, reports on Forms 10-K and 10-Q, and other documents
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services associated with other documents issued in connection with securities
offerings (e.g., comfort letters, consents)
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assistance in responding to SEC comment letters
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statutory audits (e.g., FERC audits) and financial audits for subsidiaries of
the Company
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certificates, letters and opinions issued to regulators, agencies and other
third-parties (e.g., insurance, banking, environmental) regarding the Company's
assets and/or operations that only the Company's independent auditors reasonably
can provide
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PRE-APPROVAL FEE LIMIT FOR AUDIT SERVICES (OTHER THAN REGISTRATION STATEMENTS)
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$250,000
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PRE-APPROVAL FEE LIMIT FOR AUDIT SERVICES PERTAINING TO REGISTRATION STATEMENTS
IN CONNECTION WITH SECURITIES OFFERINGS
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$250,000 per registration statement
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APPENDIX B
PRE-APPROVED AUDIT-RELATED SERVICES FOR 2004
Dated: January 14, 2004
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SERVICE
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due diligence services pertaining to potential business acquisitions or
dispositions
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financial statement audits of employee benefit plans
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accounting consultations and audits in connection with acquisitions
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assistance with the Company's compliance initiative concerning the internal
controls report of management as required by Section 404 of the Sarbanes-Oxley
Act of 2002, such services to include (i) reviewing and evaluating the Company's
documentation of internal controls, and (ii) meetings with representatives from
Deloitte & Touche LLP and the Company to discuss the Company's Section 404
compliance program (but this pre-approval expressly does not authorize the
Company to delegate to Ernst & Young LLP management's responsibility to assess
the Company's internal controls over financial reporting)
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consultations concerning principles of accounting and/or financial reporting
treatment (under standards or interpretations by the SEC, FASB or other
regulatory or standard-setting bodies)
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access to and use of E&Y's on-line accounting and auditing information tool (a
resource for accounting and auditing standards and E&Y interpretive guidance)
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agreed-upon or expanded audit procedures related to accounting and/or billing
records required to respond to or comply with financial, accounting or
regulatory reporting matters
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PRE-APPROVAL FEE LIMIT FOR AUDIT-RELATED SERVICES
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$500,000
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APPENDIX C
PRE-APPROVED TAX SERVICES FOR 2004
Dated: January 14, 2004
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SERVICE
Note: The following are subject to the terms of subsection C. of Section V.
of this policy.
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U.S. federal, state and local tax compliance, including the preparation of
original and amended tax returns and claims for refunds
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U.S. federal, state and local tax planning and advice, including assistance with
tax audits and appeals (but expressly excluding advocacy or litigation
services), tax advice related to mergers and acquisitions, tax advice relating
to employee benefit plans, and requests for rulings or technical advice from
taxing authorities
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review of Canadian federal and provincial income tax returns
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Canadian federal and provincial tax planning and advice, including assistance
with tax audits and appeals (but expressly excluding advocacy or litigation
services), and advice relating to the tax effects of certain employee benefit
arrangements
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review of federal, state, local and international income, franchise, and other
tax returns
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licensing and maintenance for TIPS/PetroZone customs software used in Valero's
foreign trade zone operations (FTZ "attribution" software)
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consultation services for compliance with U.S. customs regulations (expressly
excluding advocacy or litigation services) in connection with (a) the purchase
and sale by the Company of petroleum and petroleum-based products, and (b)
mergers, acquisitions and/or joint ventures
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PRE-APPROVAL FEE LIMIT FOR TAX SERVICES
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$750,000
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APPENDIX D
PRE-APPROVED ALL OTHER SERVICES FOR 2004
Dated: January 14, 2004
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SERVICE
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none
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PRE-APPROVAL FEE LIMIT FOR ALL OTHER SERVICES
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$ 0
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APPENDIX E
PROHIBITED NON-AUDIT SERVICES
o Bookkeeping or other services related to the accounting records or
financial statements of the audit client*
o Financial information systems design and implementation*
o Appraisal or valuation services, fairness opinions or
contribution-in-kind reports*
o Actuarial services*
o Internal audit outsourcing services*
o Management functions
o Human resources
o Broker-dealer, investment adviser or investment banking services
o Legal services
o Expert services unrelated to the audit
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* Provision of these non-audit services may be permitted if it is reasonable
to conclude that the results of these services will not be subject to audit
procedures. Materiality is not an appropriate basis upon which to overcome
the rebuttable presumption that prohibited services will be subject to audit
procedures.