e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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(Mark One) |
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2007
OR
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[ ] TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 |
For the transition period from to
Commission file number 1-13175
VALERO ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware
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74-1828067 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
One Valero Way
San Antonio, Texas
(Address of principal executive offices)
78249
(Zip Code)
(210) 345-2000
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
X No __
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (Check one).
Large
accelerated filer X
Accelerated
filer __
Non-accelerated filer __
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes __ No
X
The number of shares of the registrants only class of common stock, $0.01 par value, outstanding
as of April 30, 2007 was 548,990,535.
VALERO ENERGY CORPORATION AND SUBSIDIARIES
INDEX
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Page |
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39 |
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44 |
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45 |
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46 |
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2
PART
I - FINANCIAL INFORMATION
Item 1. Financial Statements
VALERO ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Millions of Dollars, Except Par Value)
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March 31, |
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December 31, |
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2007 |
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2006 |
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(Unaudited) |
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ASSETS |
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Current assets: |
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Cash and temporary cash investments |
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$ |
1,696 |
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$ |
1,590 |
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Restricted cash |
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31 |
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31 |
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Receivables, net |
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4,173 |
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4,389 |
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Inventories |
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4,835 |
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4,430 |
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Income taxes receivable |
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- |
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32 |
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Deferred income taxes |
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147 |
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143 |
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Prepaid expenses and other |
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113 |
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145 |
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Total current assets |
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10,995 |
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10,760 |
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Property, plant and equipment, at cost |
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24,793 |
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24,377 |
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Accumulated depreciation |
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(3,499 |
) |
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(3,279 |
) |
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Property, plant and equipment, net |
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21,294 |
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21,098 |
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Intangible assets, net |
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293 |
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303 |
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Goodwill |
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4,209 |
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4,211 |
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Deferred charges and other assets, net |
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1,396 |
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1,381 |
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Total assets |
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$ |
38,187 |
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$ |
37,753 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Current portion of long-term debt and capital lease obligations |
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$ |
297 |
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$ |
476 |
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Accounts payable |
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6,970 |
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6,864 |
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Accrued expenses |
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465 |
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510 |
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Taxes other than income taxes |
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577 |
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586 |
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Income taxes payable |
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434 |
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23 |
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Deferred income taxes |
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291 |
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363 |
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Total current liabilities |
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9,034 |
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8,822 |
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Long-term debt and capital lease obligations, less current portion |
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4,649 |
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4,657 |
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Deferred income taxes |
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4,048 |
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4,047 |
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Other long-term liabilities |
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1,726 |
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1,622 |
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Commitments and contingencies (Note 14) |
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Stockholders equity: |
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Common stock, $0.01 par value; 1,200,000,000 shares
authorized;
627,501,593 and 627,501,593 shares issued |
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6 |
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6 |
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Additional paid-in capital |
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7,543 |
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7,779 |
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Treasury stock, at cost; 35,461,598 and 23,738,162 common
shares |
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(2,074 |
) |
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(1,396 |
) |
Retained earnings |
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13,022 |
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11,951 |
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Accumulated other comprehensive income |
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233 |
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265 |
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Total stockholders equity |
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18,730 |
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18,605 |
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Total liabilities and stockholders equity |
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$ |
38,187 |
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$ |
37,753 |
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See Condensed Notes to Consolidated Financial Statements.
3
VALERO
ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME
(Millions of Dollars, Except per Share Amounts)
(Unaudited)
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Three
Months Ended March 31, |
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2007 |
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2006 |
Operating revenues (1) |
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$ |
19,698 |
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$ |
20,927 |
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Costs and expenses: |
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Cost of sales |
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16,308 |
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18,085 |
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Refining operating expenses |
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975 |
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926 |
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Retail selling expenses |
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171 |
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172 |
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General and administrative expenses |
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145 |
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151 |
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Depreciation and amortization expense |
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334 |
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260 |
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Total costs and expenses |
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17,933 |
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19,594 |
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Operating income |
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1,765 |
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1,333 |
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Equity in earnings of NuStar Energy L.P. |
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- |
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12 |
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Other income, net |
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5 |
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- |
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Interest and debt expense: |
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Incurred |
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(90 |
) |
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(96 |
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Capitalized |
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31 |
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37 |
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Income before income tax expense |
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1,711 |
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1,286 |
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Income tax expense |
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567 |
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437 |
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Net income |
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1,144 |
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|
849 |
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Preferred stock dividends |
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- |
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1 |
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Net income applicable to common stock |
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$ |
1,144 |
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$ |
848 |
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Earnings per common share |
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$ |
1.91 |
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$ |
1.37 |
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Weighted-average common shares outstanding
(in millions) |
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599 |
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|
619 |
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Earnings per common share - assuming dilution |
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$ |
1.86 |
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$ |
1.32 |
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Weighted-average common equivalent shares
outstanding (in millions) |
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615 |
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|
644 |
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Dividends per common share |
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$ |
0.12 |
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$ |
0.06 |
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Supplemental information: |
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(1) Includes excise taxes on sales by our U.S. retail
system |
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$ |
196 |
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$ |
194 |
|
See Condensed Notes to Consolidated Financial Statements.
4
VALERO ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions of Dollars)
(Unaudited)
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Three
Months Ended March 31, |
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2007 |
|
2006 |
Cash flows from operating activities: |
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|
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Net income |
|
$ |
1,144 |
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$ |
849 |
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
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Depreciation and amortization expense |
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|
334 |
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|
260 |
|
Stock-based compensation expense |
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30 |
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23 |
|
Deferred income tax expense |
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44 |
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|
120 |
|
Changes in current assets and current liabilities |
|
|
338 |
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|
537 |
|
Changes in deferred charges and credits and other, net |
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|
(4 |
) |
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(49 |
) |
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Net cash provided by operating activities |
|
|
1,886 |
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|
1,740 |
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Cash flows from investing activities: |
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Capital expenditures |
|
|
(551 |
) |
|
|
(775 |
) |
Deferred turnaround and catalyst costs |
|
|
(129 |
) |
|
|
(199 |
) |
Contingent payments in connection with acquisitions |
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|
(50 |
) |
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|
(50 |
) |
Other investing activities, net |
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|
7 |
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|
11 |
|
|
|
|
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Net cash used in investing activities |
|
|
(723 |
) |
|
|
(1,013 |
) |
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Cash flows from financing activities: |
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|
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Long-term note repayments |
|
|
(183 |
) |
|
|
(220 |
) |
Bank credit agreements: |
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|
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Borrowings |
|
|
- |
|
|
|
280 |
|
Repayments |
|
|
- |
|
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|
(280 |
) |
Purchase of treasury stock |
|
|
(904 |
) |
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|
(590 |
) |
Issuance of common stock in connection with
employee benefit plans |
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|
37 |
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32 |
|
Benefit from tax deduction in excess of recognized
stock-based
compensation cost |
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|
63 |
|
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|
89 |
|
Common and preferred stock dividends |
|
|
(73 |
) |
|
|
(38 |
) |
|
|
|
|
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Net cash used in financing activities |
|
|
(1,060 |
) |
|
|
(727 |
) |
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Effect of foreign exchange rate changes on cash |
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|
3 |
|
|
|
- |
|
|
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|
|
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Net increase in cash and temporary cash investments |
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|
106 |
|
|
|
- |
|
Cash and temporary cash investments at beginning of period |
|
|
1,590 |
|
|
|
436 |
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Cash and temporary cash investments at end of period |
|
$ |
1,696 |
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|
$ |
436 |
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|
See Condensed Notes to Consolidated Financial Statements.
5
VALERO ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Millions of Dollars)
(Unaudited)
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|
|
|
|
|
|
|
|
Three
Months Ended March 31, |
|
|
2007 |
|
2006 |
Net income |
|
$ |
1,144 |
|
|
$ |
849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
20 |
|
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|
(8 |
) |
|
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Pension and other postretirement benefits net loss
reclassified into income, net of income tax
benefit of $1 and $- |
|
|
1 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
Net loss on derivative instruments
designated and qualifying as cash flow hedges: |
|
|
|
|
|
|
|
|
Net gain (loss) arising during the period,
net of income tax (expense) benefit of
$23 and $(1) |
|
|
(42 |
) |
|
|
2 |
|
Net gain reclassified into income,
net of income tax expense of $6 and $3 |
|
|
(11 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
Net loss on cash flow hedges |
|
|
(53 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss |
|
|
(32 |
) |
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
1,112 |
|
|
$ |
837 |
|
|
|
|
|
|
|
|
|
|
See Condensed Notes to Consolidated Financial Statements.
6
VALERO ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION, PRINCIPLES OF CONSOLIDATION AND SIGNIFICANT ACCOUNTING POLICIES
As used in this report, the terms Valero, we, us, or our may refer to Valero Energy
Corporation, one or more of its consolidated subsidiaries, or all of them taken as a whole.
These unaudited consolidated financial statements include the accounts of Valero and subsidiaries
in which Valero has a controlling interest. Intercompany balances and transactions have been
eliminated in consolidation. Investments in significant non-controlled entities are accounted for
using the equity method of accounting.
These unaudited consolidated financial statements have been prepared in accordance with United
States generally accepted accounting principles (GAAP) for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of
1934. Accordingly, they do not include all of the information and notes required by GAAP for
complete consolidated financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included. All such adjustments are of a
normal recurring nature unless disclosed otherwise. Financial information for the three months
ended March 31, 2007 and 2006 included in these Condensed Notes to Consolidated Financial
Statements is derived from our unaudited consolidated financial statements. Operating results for
the three months ended March 31, 2007 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2007.
The consolidated balance sheet as of December 31, 2006 has been derived from the audited financial
statements as of that date. For further information, refer to the consolidated financial
statements and notes thereto included in our Annual Report on Form 10-K for the year ended December
31, 2006.
On December 22, 2006, we sold our remaining ownership interest in NuStar GP Holdings, LLC (formerly
Valero GP Holdings, LLC), which indirectly owns the general partner interest, the incentive
distribution rights, and a 21.4% limited partner interest in NuStar Energy L.P. (formerly Valero
L.P.). As a result, the statement of income reflects no equity in earnings of NuStar Energy L.P.
subsequent to December 21, 2006.
Reclassifications
Certain previously reported amounts have been reclassified to conform to the 2007 presentation,
including reflecting in our consolidated statement of cash flows for 2006 gross borrowings and
repayments under our uncommitted bank credit facilities and presenting those amounts, along with
borrowings and repayments under our committed bank credit facilities, separate from borrowings and
repayments related to our long-term notes. The reclassifications also affected amounts previously
reported in our consolidated statement of income in 2006 for operating revenues, cost of sales, and
retail selling expenses. Commencing January 1, 2007, third-party processing costs associated with
certain credit card transactions processed on behalf of our
distributors and dealers are being netted against fees received from distributors and dealers to better reflect
the nature of the credit card transactions. These reclassified income statement amounts were as
follows (in millions):
7
VALERO ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended March 31, 2006 |
|
|
Previously |
|
|
|
|
|
Currently |
|
|
Reported |
|
Increase
(Decrease) |
|
Reported |
Operating revenues |
|
$ |
20,941 |
|
|
$ |
(14 |
) |
|
$ |
20,927 |
|
Cost of sales |
|
|
18,082 |
|
|
|
3 |
|
|
|
18,085 |
|
Retail selling expenses |
|
|
189 |
|
|
|
(17 |
) |
|
|
172 |
|
2. ACCOUNTING PRONOUNCEMENTS
FASB Statement No. 155
In February 2006, the Financial Accounting Standards Board (FASB) issued Statement No. 155,
Accounting for Certain Hybrid Financial Instruments, which amends Statement No. 133, Accounting
for Derivative Instruments and Hedging Activities, and Statement No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. This statement
improves the financial reporting of certain hybrid financial instruments and simplifies the
accounting for these instruments. In particular, Statement No. 155 (i) permits fair value
remeasurement for any hybrid financial instrument that contains an embedded derivative that
otherwise would require bifurcation, (ii) clarifies which interest-only and principal-only strips
are not subject to the requirements of Statement No. 133, (iii) establishes a requirement to
evaluate interests in securitized financial assets to identify interests that are freestanding
derivatives or that are hybrid financial instruments that contain an embedded derivative requiring
bifurcation, (iv) clarifies that concentrations of credit risk in the form of subordination are not
embedded derivatives, and (v) amends Statement No. 140 to eliminate the prohibition on a qualifying
special-purpose entity from holding a derivative financial instrument that pertains to a beneficial
interest other than another derivative financial instrument. The adoption of Statement No. 155 on
January 1, 2007 has not affected our financial position or results of operations.
FASB Statement No. 156
In March 2006, the FASB issued Statement No. 156, Accounting for Servicing of Financial Assets,
which amends Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. Statement No. 156 requires the initial recognition at fair value
of a servicing asset or servicing liability when an obligation to service a financial asset is
undertaken by entering into a servicing contract. The adoption of Statement No. 156 on January 1,
2007 has not affected our financial position or results of operations.
FASB Interpretation No. 48
In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxesan
interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprises financial statements in accordance with
FASB Statement No. 109, Accounting for Income Taxes, by prescribing a recognition threshold and
measurement attribute for the financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. If a tax position is more likely than not to be
sustained upon examination, then an enterprise is required to recognize in its financial
statements the largest amount of benefit that is greater than 50% likely of being realized upon
ultimate settlement. The adoption of FIN 48 on January 1, 2007 did not materially affect our
financial position or results of operations.
We have elected to classify any interest expense related to the underpayment of income taxes in
income tax expense in our consolidated statement of income. Any penalties related to the
underpayment of
8
VALERO ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
income taxes are recorded in the corresponding expense category in our consolidated
statement of income.
EITF Issue No. 06-3
In June 2006, the FASB ratified its consensus on EITF Issue No. 06-3, How Taxes Collected from
Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement
(That Is, Gross versus Net Presentation) (EITF No. 06-3). The scope of EITF No. 06-3 includes any
tax assessed by a governmental authority that is imposed concurrent with or subsequent to a
revenue-producing transaction between a seller and a customer. For taxes within the scope of this
issue that are significant in amount, the consensus requires the following disclosures: (i) the
accounting policy elected for these taxes and (ii) the amount of the taxes reflected gross in the
income statement on an interim and annual basis for all periods presented. The disclosure of those
taxes can be done on an aggregate basis. We adopted the consensus on January 1, 2007. We present
excise taxes on sales by our U.S. retail system on a gross basis with supplemental information
regarding the amount of such taxes included in revenues provided in a footnote on the face of the
income statement. All other excise taxes are presented on a net basis in the income statement.
FASB Statement No. 157
In September 2006, the FASB issued Statement No. 157, Fair Value Measurements. Statement No. 157
defines fair value, establishes a framework for measuring fair value under GAAP, and expands
disclosures about fair value measures. Statement No. 157 is effective for fiscal years beginning
after November 15, 2007, with early adoption encouraged. The provisions of Statement No. 157 are
to be applied on a prospective basis, with the exception of certain financial instruments for which
retrospective application is required. The adoption of Statement No. 157 is not expected to
materially affect our financial position or results of operations.
FASB Statement No. 159
In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities. Statement No. 159 permits entities to choose to measure many financial
instruments and certain other items at fair value that are not currently required to be measured at
fair value. Statement No. 159 is effective for fiscal years beginning after November 15, 2007,
with early adoption permitted provided the entity also elects to apply the provisions of Statement
No. 157. We do not expect the adoption of Statement No. 159 to have any impact on our financial
position or results of operations.
3.
DISPOSITION OF LIMA REFINERY
On May 2, 2007, we entered into an agreement to sell our refinery in Lima, Ohio to Husky Refining
Company, a wholly owned subsidiary of Husky Energy Inc. The sales price is $1.9 billion, plus an
amount equal to net working capital as of the closing date of the sale, which is expected to occur
by the end of the second quarter of 2007. Net proceeds from the sale exceed the carrying amount of
the net assets being sold. The sale is subject to the receipt of required regulatory approvals.
9
VALERO ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. INVENTORIES
Inventories consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
|
|
2007 |
|
2006 |
Refinery feedstocks |
|
$ |
2,466 |
|
|
$ |
1,981 |
|
Refined products and blendstocks |
|
|
2,115 |
|
|
|
2,197 |
|
Convenience store merchandise |
|
|
83 |
|
|
|
85 |
|
Materials and supplies |
|
|
171 |
|
|
|
167 |
|
|
|
|
|
|
|
|
|
|
Inventories |
|
$ |
4,835 |
|
|
$ |
4,430 |
|
|
|
|
|
|
|
|
|
|
As of March 31, 2007 and December 31, 2006, the replacement cost (market value) of LIFO inventories
exceeded their LIFO carrying amounts by approximately $4.4 billion and $2.9 billion, respectively.
5. INVESTMENT IN AND TRANSACTIONS WITH NUSTAR ENERGY L.P.
Our ownership interest in NuStar Energy L.P. as of March 31, 2006 was 23.4%, which was composed of
a 2% general partner interest, incentive distribution rights, and a 21.4% limited partner interest
represented by 627,339 common units and 9,599,322 subordinated units. NuStar GP Holdings, LLC
completed public offerings in July and December 2006 through which we sold all of our ownership
interest in NuStar GP Holdings, LLC. As a result, we no longer owned any interest in NuStar Energy
L.P. as of December 31, 2006. Financial information reported by NuStar Energy L.P. for the three
months ended March 31, 2006 is summarized below (in millions):
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, 2006 |
Revenues |
|
$ |
274 |
|
Operating income |
|
|
56 |
|
Net income |
|
|
39 |
|
Related-Party Transactions
Through December 31, 2006, we provided NuStar Energy L.P. with certain corporate functions for an
annual fee as prescribed by a services agreement. Effective January 1, 2007, the services
agreement was amended to provide for limited services. The amended services agreement provides for
a termination date of December 31, 2010, unless we terminate the agreement earlier, in which case
we are required to pay a termination fee of $13 million. In April, we notified NuStar Energy L.P.
of our decision to terminate the services agreement. Accordingly, the $13 million termination fee
is expected to be paid during the second quarter of 2007.
The following table summarizes the results of transactions with NuStar Energy L.P. for the three
months ended March 31, 2006 (in millions):
|
|
|
|
|
Fees and expenses charged by us to NuStar Energy L.P. |
$ |
26 |
|
|
Fees and expenses charged to us by NuStar Energy L.P. |
|
61 |
|
|
10
VALERO ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. DEBT
On February 1, 2007, we redeemed our 9.25% senior notes for $183 million, or 104.625% of stated
value. These notes had a carrying amount of $187 million on the date of redemption, resulting in a
gain of $4 million that was included in other income, net in the consolidated statement of
income.
During the three months ended March 31, 2007, we had no borrowings under our revolving credit
facilities or our short-term uncommitted bank credit facilities.
In April 2007, we made a scheduled debt repayment of $230 million related to our 6.125% notes.
Also in April 2007, to fund the accelerated share repurchase program discussed in Note 7, we
borrowed $3 billion under a 364-day term credit agreement with a financial institution. The term
loan bears interest at LIBOR plus a margin, or an alternate base rate as defined under the
agreement. The interest rate is subject to adjustment based upon the credit ratings assigned to
our long-term debt. The amount borrowed can be prepaid at any time, and proceeds from any
long-term financing during the term of this agreement, with certain exceptions, must be used to
reduce the amount borrowed under the 364-day term credit agreement.
7. STOCKHOLDERS EQUITY
Treasury Stock
During the three months ended March 31, 2007 and 2006, we purchased 15.6 million and 10.7 million
shares of our common stock at a cost of $904 million and $590 million, respectively, in connection
with the administration of our employee benefit plans and the $2 billion common stock purchase
program authorized by our board of directors. During the three months ended March 31, 2007, we
issued 3.8 million shares from treasury at an average cost of $58.63 per share, and for the three
months ended March 31, 2006, we issued 7.0 million shares from treasury at an average cost of
$52.24 per share, for our employee benefit plans.
During April 2007, we purchased an additional 4.2 million shares at a cost of approximately $275
million, excluding the effect of the accelerated share repurchase program discussed below.
Accelerated Share Repurchase Program
On April 25, 2007, our board of directors approved an amendment to our $2 billion common stock
purchase program to increase the authorized purchases under the program to $6 billion. In
conjunction with the increase in our common stock purchase program, we entered into an agreement
with a financial institution to purchase $3 billion of our shares under an accelerated share
repurchase program, and in late April, approximately 42 million shares were purchased under this
agreement. The purchase of these shares was funded with a short-term bridge loan, which we expect
to replace with longer-term financing. At the expiration of the accelerated share repurchase
program, which is expected to occur in the third quarter of 2007, the cost of the shares purchased
under this accelerated share repurchase program will be adjusted, with the final purchase cost
based on a discount to the average trading price of our common stock, weighted by the daily volume
of shares traded, during the program period. Any adjustment to the cost can be paid in cash or
stock, at our option.
Common Stock Dividends
On April 26, 2007, our board of directors declared a regular quarterly cash dividend of $0.12 per
common share payable on June 13, 2007 to holders of record at the close of business on May 16,
2007.
11
VALERO ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. EARNINGS PER COMMON SHARE
Earnings per common share amounts were computed as follows (dollars and shares in millions, except
per share amounts):
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended March 31, |
|
|
2007 |
|
2006 |
Earnings per Common Share: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,144 |
|
|
$ |
849 |
|
Preferred stock dividends |
|
|
- |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stock |
|
$ |
1,144 |
|
|
$ |
848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding |
|
|
599 |
|
|
|
619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share |
|
$ |
1.91 |
|
|
$ |
1.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per Common Share - Assuming Dilution: |
|
|
|
|
|
|
|
|
Net income applicable to common equivalent shares |
|
$ |
1,144 |
|
|
$ |
849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding |
|
|
599 |
|
|
|
619 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
Stock options |
|
|
15 |
|
|
|
19 |
|
Performance awards and other benefit plans |
|
|
1 |
|
|
|
1 |
|
Mandatory convertible preferred stock |
|
|
- |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
Weighted-average common equivalent shares outstanding |
|
|
615 |
|
|
|
644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share - assuming dilution |
|
$ |
1.86 |
|
|
$ |
1.32 |
|
|
|
|
|
|
|
|
|
|
12
VALERO ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. STATEMENTS OF CASH FLOWS
In order to determine net cash provided by operating activities, net income is adjusted by, among
other things, changes in current assets and current liabilities as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended March 31, |
|
|
2007 |
|
2006 |
Decrease (increase) in current assets: |
|
|
|
|
|
|
|
|
Receivables, net |
|
$ |
221 |
|
|
$ |
450 |
|
Inventories |
|
|
(402 |
) |
|
|
(342 |
) |
Income taxes receivable |
|
|
32 |
|
|
|
62 |
|
Prepaid expenses and other |
|
|
32 |
|
|
|
(11 |
) |
Increase (decrease) in current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
115 |
|
|
|
606 |
|
Accrued expenses |
|
|
(75 |
) |
|
|
(140 |
) |
Taxes other than income taxes |
|
|
(7 |
) |
|
|
(104 |
) |
Income taxes payable |
|
|
422 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
Changes in current assets and current liabilities |
|
$ |
338 |
|
|
$ |
537 |
|
|
|
|
|
|
|
|
|
|
The above changes in current assets and current liabilities differ from changes between amounts
reflected in the applicable consolidated balance sheets for the respective periods for the
following reasons:
|
|
|
the amounts shown above exclude changes in cash and temporary cash investments, deferred
income taxes, and current portion of long-term debt and capital lease obligations, as well
as the effect of certain noncash investing and financing activities discussed below; |
|
|
|
|
previously accrued capital expenditures, deferred turnaround and catalyst costs, and
contingent earn-out payments are reflected in investing activities in the consolidated
statements of cash flows; and |
|
|
|
|
certain differences between consolidated balance sheet changes and consolidated
statement of cash flow changes reflected above result from translating foreign currency
denominated amounts at different exchange rates. |
Noncash financing activities for the three months ended March 31, 2007 included the accrual of $137
million of common stock purchases in the open market for which settlement and payment occurred in
April 2007. There were no significant noncash investing activities for the three months ended March
31, 2007.
Noncash financing activities for the three months ended March 31, 2006 included the conversion of
713,035 shares of preferred stock into 1,413,233 shares of our common stock. There were no
significant noncash investing activities for the three months ended March 31, 2006.
13
VALERO ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Cash flows related to interest and income taxes were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2007 |
|
2006 |
Interest paid (net of amount capitalized) |
|
$ |
13 |
|
|
$ |
15 |
|
Income taxes paid (net of tax refunds received) |
|
|
5 |
|
|
|
151 |
|
10. PRICE RISK MANAGEMENT ACTIVITIES
The net gain (loss) recognized in income representing the amount of hedge ineffectiveness was as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2007 |
|
2006 |
Fair value hedges |
|
$ |
(1 |
) |
|
$ |
(3 |
) |
Cash flow hedges |
|
|
1 |
|
|
|
- |
|
The above amounts were included in cost of sales in the consolidated statements of income. No
component of the derivative instruments gains or losses was excluded from the assessment of hedge
effectiveness. No amounts were recognized in income for hedged firm commitments that no longer
qualify as fair value hedges.
For cash flow hedges, gains and losses reported in accumulated other comprehensive income in the
consolidated balance sheets are reclassified into cost of sales when the forecasted transactions
affect income. During the three months ended March 31, 2007, we recognized in accumulated other
comprehensive income unrealized after-tax losses of $42 million on certain cash flow hedges,
primarily related to forward sales of distillates and associated forward purchases of crude oil,
with $7 million of cumulative after-tax losses on cash flow hedges remaining in accumulated other
comprehensive income as of March 31, 2007. We expect that the deferred losses as of March 31,
2007 will be reclassified into
cost of sales over the next nine months as a result of hedged transactions that are forecasted to
occur. The amount ultimately realized in income, however, will differ as commodity prices change.
For the three months ended March 31, 2007 and 2006, there were no amounts reclassified from
accumulated other comprehensive income into income as a result of the discontinuance of cash flow
hedge accounting.
11. INCOME TAXES
As discussed in Note 2, on January 1, 2007, we adopted the provisions of FIN 48. We did not
recognize any change in our liability for uncertain tax positions as a result of our implementation
of FIN 48; however, certain amounts previously reported in deferred income taxes were
reclassified to other long-term liabilities in the consolidated balance sheet as of January 1,
2007. In accordance with the provisions of FIN 48, prior period amounts were not reclassified.
The total amount of unrecognized tax benefits as of January 1, 2007 was $152 million of which $133
million, if recognized, would affect our effective tax rate. Accrued liabilities for interest and
penalties related to unrecognized tax benefits were $29 million as of January 1, 2007. Based on
the number of tax years currently under audit by the relevant federal, state, and foreign tax
authorities, we anticipate that several of these audits may be finalized in the foreseeable future.
However, based on the status of these examinations, and the protocol of finalizing
14
VALERO ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
audits by the
relevant tax authorities, it is not possible to estimate the impact of changes that may result from
such audits, if any, on previously recorded uncertain tax positions. There have been no
significant changes in the status of these examinations during the quarter ended March 31, 2007.
As of January 1, 2007, certain tax years from 1999 through 2006 remained subject to examination by
federal or state tax jurisdictions.
12. SEGMENT INFORMATION
Segment information for our two reportable segments, refining and retail, was as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refining |
|
Retail |
|
Corporate |
|
Total |
Three months ended March 31, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues from external
customers |
|
$ |
17,792 |
|
|
$ |
1,906 |
|
|
$ |
- |
|
|
$ |
19,698 |
|
Intersegment revenues |
|
|
1,309 |
|
|
|
- |
|
|
|
- |
|
|
|
1,309 |
|
Operating income (loss) |
|
|
1,868 |
|
|
|
53 |
|
|
|
(156 |
) |
|
|
1,765 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues from external
customers |
|
|
19,036 |
|
|
|
1,891 |
|
|
|
- |
|
|
|
20,927 |
|
Intersegment revenues |
|
|
1,311 |
|
|
|
- |
|
|
|
- |
|
|
|
1,311 |
|
Operating income (loss) |
|
|
1,472 |
|
|
|
21 |
|
|
|
(160 |
) |
|
|
1,333 |
|
Total assets by reportable segment were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
|
|
2007 |
|
2006 |
Refining |
|
$ |
34,535 |
|
|
$ |
34,275 |
|
Retail |
|
|
1,843 |
|
|
|
1,826 |
|
Corporate |
|
|
1,809 |
|
|
|
1,652 |
|
|
|
|
|
|
|
|
|
|
Total consolidated assets |
|
$ |
38,187 |
|
|
$ |
37,753 |
|
|
|
|
|
|
|
|
|
|
The entire balance of goodwill as of March 31, 2007 and December 31, 2006 has been included in the
total assets of the refining reportable segment.
15
VALERO ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. EMPLOYEE BENEFIT PLANS
The components of net periodic benefit cost related to our defined benefit plans were as follows
for the three months ended March 31, 2007 and 2006 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement |
|
|
Pension Plans |
|
Benefit Plans |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
Components of net periodic benefit cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
24 |
|
|
$ |
25 |
|
|
$ |
3 |
|
|
$ |
3 |
|
Interest cost |
|
|
18 |
|
|
|
16 |
|
|
|
7 |
|
|
|
6 |
|
Expected return on plan assets |
|
|
(21 |
) |
|
|
(14 |
) |
|
|
- |
|
|
|
- |
|
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost (credit) |
|
|
1 |
|
|
|
1 |
|
|
|
(3 |
) |
|
|
(2 |
) |
Net loss |
|
|
2 |
|
|
|
3 |
|
|
|
2 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
24 |
|
|
$ |
31 |
|
|
$ |
9 |
|
|
$ |
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our anticipated contributions to our pension plans during 2007 have not changed from amounts
previously disclosed in our consolidated financial statements for the year ended December 31, 2006.
We have no expected minimum required contribution to our qualified pension plans during 2007 under
the Employee Retirement Income Security Act. There were no contributions made during the three
months ended March 31, 2007. For the three months ended March 31, 2006, we contributed $15 million
to our qualified pension plans.
14. COMMITMENTS AND CONTINGENCIES
Accounts Receivable Sales Facility
As of March 31, 2007, we had an accounts receivable sales facility with a group of third-party
financial institutions to sell on a revolving basis up to $1 billion of eligible trade receivables,
which matures in August 2008. As of March 31, 2007 and December 31, 2006, the amount of eligible
receivables sold to the third-party financial institutions was $1 billion.
Contingent Earn-Out Agreements
In both January 2007 and January 2006, we made previously accrued earn-out payments of $50 million
related to the acquisition of the St. Charles Refinery.
The following table summarizes the aggregate payments we have made through March 31, 2007 and
payment limitations related to the following acquisitions (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate |
|
|
|
|
|
|
Payments |
|
Annual |
|
|
|
|
Made Through |
|
Maximum |
|
Aggregate |
|
|
March 31, 2007 |
|
Limit |
|
Limit |
St. Charles Refinery |
|
$ |
150 |
|
|
$ |
50 |
|
|
$ |
175 |
|
Delaware City Refinery |
|
|
25 |
|
|
|
25 |
|
|
|
50 |
|
16
VALERO ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tax Matters
We are subject to extensive tax liabilities, including federal, state, and foreign income taxes and
transactional taxes such as excise, sales/use, payroll, franchise, withholding, and ad valorem
taxes. New tax laws and regulations and changes in existing tax laws and regulations are
continuously being enacted or proposed that could result in increased expenditures for tax
liabilities in the future.
Effective January 1, 2007, the Government of Aruba (GOA) enacted a turnover tax on revenues from
the sale of goods produced and services rendered in Aruba. The turnover tax, which is 3% for
on-island sales and services and 1% on export sales, is being assessed by the GOA on sales by our
Aruba Refinery. However, due to a previous tax holiday that was granted to our Aruba Refinery by
the GOA through December 31, 2010, we believe that sales by our Aruba Refinery should not be
subject to this turnover tax. As a result, no amounts have been accrued with respect to this
turnover tax. We have filed a request for arbitration with the Netherlands Arbitration Institute
pursuant to which we will seek to enforce our rights under the tax holiday.
McKee Refinery Fire Insurance Recoveries
On February 16, 2007, our McKee Refinery experienced a fire originating in its propane deasphalting
unit. We are in the process of filing a claim with our insurance carriers. At this time we cannot
determine the amount, if any, that may be collected under our insurance policies. Accordingly, no
amounts have been recorded related to this claim.
Cameron Highway Oil Pipeline Joint Venture
We have agreed to make an estimated $190 million cash capital contribution to Cameron Highway Oil
Pipeline Company, representing our 50% portion of the amount required for the Cameron Highway Oil
Pipeline joint venture to redeem its fixed-rate notes. Our capital contribution, along with an
equal capital contribution from the other 50% joint venture partner, will be made, and the joint
ventures debt will be redeemed, by the end of May 2007.
Litigation
MTBE Litigation
As of May 1, 2007, we were named as a defendant in 80 active cases alleging liability related to
MTBE contamination in groundwater. The plaintiffs are generally water providers, governmental
authorities, and private water companies alleging that refiners and marketers of MTBE and gasoline
containing MTBE are liable for manufacturing or distributing a defective product. We have been
named in these lawsuits together with many other refining industry companies. We are being sued
primarily as a refiner and marketer of MTBE and gasoline containing MTBE. We do not own or operate
gasoline station facilities in most of the geographic locations in which damage is alleged to have
occurred. The lawsuits generally seek individual, unquantified compensatory and punitive damages,
injunctive relief, and attorneys fees. All of the cases are, or will be, pending in federal court
and consolidated for pre-trial
proceedings in the U.S. District Court for the Southern District of New York (Multi-District
Litigation Docket No. 1358, In re: Methyl-Tertiary Butyl Ether Products Liability Litigation).
Four of the cases Valero is involved in have been selected by the court as focus cases for
discovery and pre-trial motions. The Suffolk County Water Authority case is scheduled for trial in
January 2008. The United Water New York case may also be tried in 2008. Activity in the
non-focus cases is generally stayed. We believe that we have strong defenses to these claims and
are vigorously defending the cases. We have recorded a loss contingency liability with respect to
this matter in accordance with FASB Statement No. 5. However, due to the inherent uncertainty of
litigation, we believe that it is reasonably possible (as defined
17
VALERO ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
in FASB Statement No. 5) that we
may suffer a loss with respect to one or more of the lawsuits in excess of the amount accrued. We
believe that such an outcome in any one of these lawsuits would not have a material adverse effect
on our results of operations or financial position. However, we believe that an adverse result in
all or a substantial number of these cases could have a material effect on our results of
operations and financial position. An estimate of the possible loss or range of loss from an
adverse result in all or substantially all of these cases cannot reasonably be made.
Retail Fuel Temperature Litigation
Along with several other defendants in the retail petroleum marketing business, we have been named
in 15 consumer class action lawsuits relating to fuel temperature. The complaints, filed in
federal courts in Alabama, Arizona, California, Kansas, Mississippi, Missouri, New Mexico,
Oklahoma, and Tennessee, and in state court in Nevada, allege that because fuel volume increases
with fuel temperature, the defendants have violated state consumer protection laws by failing to
adjust the volume of fuel when the fuel temperature exceeded 60 degrees Fahrenheit. The complaints
seek to certify classes of retail consumers who purchased fuel in Alabama, Arkansas, Arizona,
California, Florida, Georgia, Kansas, Louisiana, Mississippi, Missouri, Nevada, New Jersey, New
Mexico, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, Virginia, and Washington, D.C.
The complaints seek an order compelling the installation of temperature correction devices as well
as associated monetary relief. We anticipate that the federal lawsuits together with similar suits
not involving Valero will be consolidated in a multidistrict litigation case and that the state
court case will be removed and consolidated. We believe that we have several strong defenses to
these lawsuits and intend to contest them. We have not recorded a loss contingency liability with
respect to this matter, but we believe that it is reasonably possible (as defined in FASB Statement
No. 5) that we may suffer a loss with respect to one or more of the lawsuits. An estimate of the
possible loss or range of loss from an adverse result in all or substantially all of these cases
cannot reasonably be made.
Other Litigation
We are also a party to additional claims and legal proceedings arising in the ordinary course of
business. We believe that there is only a remote likelihood that future costs related to known
contingent liabilities related to these legal proceedings would have a material adverse impact on
our consolidated results of operations or financial position.
18
VALERO ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
In conjunction with the acquisition of Premcor Inc. (Premcor) on September 1, 2005, Valero
Energy Corporation has fully and unconditionally guaranteed the following debt of The Premcor
Refining Group Inc. (PRG), a wholly owned subsidiary of Valero Energy Corporation, that was
outstanding as of March 31, 2007:
|
|
|
6.75% senior notes due February 2011, |
|
|
|
|
6.125% senior notes due May 2011, |
|
|
|
|
9.5% senior notes due February 2013, |
|
|
|
|
6.75% senior notes due May 2014, and |
|
|
|
|
7.5% senior notes due June 2015. |
In addition, PRG has fully and unconditionally guaranteed all of the outstanding debt issued by
Valero Energy Corporation.
The following condensed consolidating financial information is provided for Valero and PRG as an
alternative to providing separate financial statements for PRG. The accounts for all companies
reflected herein are presented using the equity method of accounting for investments in
subsidiaries.
19
VALERO ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Balance Sheet as of March 31, 2007
(unaudited, in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valero |
|
|
|
|
|
Other Non- |
|
|
|
|
|
|
Energy |
|
|
|
|
|
Guarantor |
|
|
|
|
|
|
Corporation |
|
PRG |
|
Subsidiaries |
|
Eliminations |
|
Consolidated |
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and temporary cash investments |
|
$ |
713 |
|
|
$ |
- |
|
|
$ |
983 |
|
|
$ |
- |
|
|
$ |
1,696 |
|
Restricted cash |
|
|
22 |
|
|
|
2 |
|
|
|
7 |
|
|
|
- |
|
|
|
31 |
|
Receivables, net |
|
|
- |
|
|
|
69 |
|
|
|
4,104 |
|
|
|
- |
|
|
|
4,173 |
|
Inventories |
|
|
- |
|
|
|
407 |
|
|
|
4,428 |
|
|
|
- |
|
|
|
4,835 |
|
Income taxes receivable |
|
|
- |
|
|
|
5 |
|
|
|
29 |
|
|
|
(34 |
) |
|
|
- |
|
Deferred income taxes |
|
|
- |
|
|
|
- |
|
|
|
147 |
|
|
|
- |
|
|
|
147 |
|
Prepaid expenses and other |
|
|
- |
|
|
|
8 |
|
|
|
105 |
|
|
|
- |
|
|
|
113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
735 |
|
|
|
491 |
|
|
|
9,803 |
|
|
|
(34 |
) |
|
|
10,995 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, at cost |
|
|
- |
|
|
|
7,463 |
|
|
|
17,330 |
|
|
|
- |
|
|
|
24,793 |
|
Accumulated depreciation |
|
|
- |
|
|
|
(333 |
) |
|
|
(3,166 |
) |
|
|
- |
|
|
|
(3,499 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
- |
|
|
|
7,130 |
|
|
|
14,164 |
|
|
|
- |
|
|
|
21,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net |
|
|
- |
|
|
|
3 |
|
|
|
290 |
|
|
|
- |
|
|
|
293 |
|
Goodwill |
|
|
- |
|
|
|
1,825 |
|
|
|
2,384 |
|
|
|
- |
|
|
|
4,209 |
|
Investment in Valero Energy affiliates |
|
|
2,704 |
|
|
|
771 |
|
|
|
262 |
|
|
|
(3,737 |
) |
|
|
- |
|
Long-term notes receivable from affiliates |
|
|
21,093 |
|
|
|
- |
|
|
|
- |
|
|
|
(21,093 |
) |
|
|
- |
|
Deferred charges and other assets, net |
|
|
196 |
|
|
|
220 |
|
|
|
980 |
|
|
|
- |
|
|
|
1,396 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
24,728 |
|
|
$ |
10,440 |
|
|
$ |
27,883 |
|
|
$ |
(24,864 |
) |
|
$ |
38,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
and capital lease obligations |
|
$ |
293 |
|
|
$ |
1 |
|
|
$ |
3 |
|
|
$ |
- |
|
|
$ |
297 |
|
Accounts payable |
|
|
212 |
|
|
|
176 |
|
|
|
6,582 |
|
|
|
- |
|
|
|
6,970 |
|
Accrued expenses |
|
|
126 |
|
|
|
68 |
|
|
|
271 |
|
|
|
- |
|
|
|
465 |
|
Taxes other than income taxes |
|
|
- |
|
|
|
12 |
|
|
|
565 |
|
|
|
- |
|
|
|
577 |
|
Income taxes payable |
|
|
468 |
|
|
|
- |
|
|
|
- |
|
|
|
(34 |
) |
|
|
434 |
|
Deferred income taxes |
|
|
19 |
|
|
|
272 |
|
|
|
- |
|
|
|
- |
|
|
|
291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
1,118 |
|
|
|
529 |
|
|
|
7,421 |
|
|
|
(34 |
) |
|
|
9,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and capital lease
obligations,
less current portion |
|
|
3,276 |
|
|
|
1,331 |
|
|
|
42 |
|
|
|
- |
|
|
|
4,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term notes payable to affiliates |
|
|
- |
|
|
|
8,111 |
|
|
|
12,982 |
|
|
|
(21,093 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
829 |
|
|
|
5 |
|
|
|
3,214 |
|
|
|
- |
|
|
|
4,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities |
|
|
775 |
|
|
|
202 |
|
|
|
749 |
|
|
|
- |
|
|
|
1,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
6 |
|
|
|
- |
|
|
|
2 |
|
|
|
(2 |
) |
|
|
6 |
|
Additional paid-in capital |
|
|
7,543 |
|
|
|
100 |
|
|
|
1,526 |
|
|
|
(1,626 |
) |
|
|
7,543 |
|
Treasury stock |
|
|
(2,074 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,074 |
) |
Retained earnings |
|
|
13,022 |
|
|
|
161 |
|
|
|
1,963 |
|
|
|
(2,124 |
) |
|
|
13,022 |
|
Accumulated
other comprehensive income (loss) |
|
|
233 |
|
|
|
1 |
|
|
|
(16 |
) |
|
|
15 |
|
|
|
233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
18,730 |
|
|
|
262 |
|
|
|
3,475 |
|
|
|
(3,737 |
) |
|
|
18,730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders
equity |
|
$ |
24,728 |
|
|
$ |
10,440 |
|
|
$ |
27,883 |
|
|
$ |
(24,864 |
) |
|
$ |
38,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
VALERO
ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Balance Sheet as of December 31, 2006
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valero |
|
|
|
|
|
Other Non- |
|
|
|
|
|
|
Energy |
|
|
|
|
|
Guarantor |
|
|
|
|
|
|
Corporation |
|
PRG |
|
Subsidiaries |
|
Eliminations |
|
Consolidated |
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and temporary cash investments |
|
$ |
712 |
|
|
$ |
- |
|
|
$ |
878 |
|
|
$ |
- |
|
|
$ |
1,590 |
|
Restricted cash |
|
|
22 |
|
|
|
2 |
|
|
|
7 |
|
|
|
- |
|
|
|
31 |
|
Receivables, net |
|
|
1 |
|
|
|
81 |
|
|
|
4,307 |
|
|
|
- |
|
|
|
4,389 |
|
Inventories |
|
|
- |
|
|
|
386 |
|
|
|
4,044 |
|
|
|
- |
|
|
|
4,430 |
|
Income tax receivable |
|
|
- |
|
|
|
5 |
|
|
|
32 |
|
|
|
(5 |
) |
|
|
32 |
|
Deferred income taxes |
|
|
- |
|
|
|
- |
|
|
|
143 |
|
|
|
- |
|
|
|
143 |
|
Prepaid expenses and other |
|
|
- |
|
|
|
12 |
|
|
|
133 |
|
|
|
- |
|
|
|
145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
735 |
|
|
|
486 |
|
|
|
9,544 |
|
|
|
(5 |
) |
|
|
10,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, at cost |
|
|
- |
|
|
|
7,437 |
|
|
|
16,940 |
|
|
|
- |
|
|
|
24,377 |
|
Accumulated depreciation |
|
|
- |
|
|
|
(269 |
) |
|
|
(3,010 |
) |
|
|
- |
|
|
|
(3,279 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
- |
|
|
|
7,168 |
|
|
|
13,930 |
|
|
|
- |
|
|
|
21,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net |
|
|
- |
|
|
|
3 |
|
|
|
300 |
|
|
|
- |
|
|
|
303 |
|
Goodwill |
|
|
- |
|
|
|
1,826 |
|
|
|
2,385 |
|
|
|
- |
|
|
|
4,211 |
|
Investment in Valero Energy affiliates |
|
|
2,114 |
|
|
|
705 |
|
|
|
101 |
|
|
|
(2,920 |
) |
|
|
- |
|
Long-term notes receivable from affiliates |
|
|
20,920 |
|
|
|
- |
|
|
|
- |
|
|
|
(20,920 |
) |
|
|
- |
|
Deferred income taxes |
|
|
- |
|
|
|
111 |
|
|
|
- |
|
|
|
(111 |
) |
|
|
- |
|
Deferred charges and other assets, net |
|
|
196 |
|
|
|
229 |
|
|
|
956 |
|
|
|
- |
|
|
|
1,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
23,965 |
|
|
$ |
10,528 |
|
|
$ |
27,216 |
|
|
$ |
(23,956 |
) |
|
$ |
37,753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
and capital lease obligations |
|
$ |
285 |
|
|
$ |
188 |
|
|
$ |
3 |
|
|
$ |
- |
|
|
$ |
476 |
|
Accounts payable |
|
|
80 |
|
|
|
304 |
|
|
|
6,480 |
|
|
|
- |
|
|
|
6,864 |
|
Accrued expenses |
|
|
76 |
|
|
|
79 |
|
|
|
355 |
|
|
|
- |
|
|
|
510 |
|
Taxes other than income taxes |
|
|
- |
|
|
|
21 |
|
|
|
565 |
|
|
|
- |
|
|
|
586 |
|
Income taxes payable |
|
|
21 |
|
|
|
- |
|
|
|
7 |
|
|
|
(5 |
) |
|
|
23 |
|
Deferred income taxes |
|
|
91 |
|
|
|
272 |
|
|
|
- |
|
|
|
- |
|
|
|
363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
553 |
|
|
|
864 |
|
|
|
7,410 |
|
|
|
(5 |
) |
|
|
8,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and capital lease obligations,
less current portion |
|
|
3,281 |
|
|
|
1,333 |
|
|
|
43 |
|
|
|
- |
|
|
|
4,657 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term notes payable to affiliates |
|
|
- |
|
|
|
8,003 |
|
|
|
12,917 |
|
|
|
(20,920 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
868 |
|
|
|
- |
|
|
|
3,290 |
|
|
|
(111 |
) |
|
|
4,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities |
|
|
658 |
|
|
|
227 |
|
|
|
737 |
|
|
|
- |
|
|
|
1,622 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
6 |
|
|
|
- |
|
|
|
2 |
|
|
|
(2 |
) |
|
|
6 |
|
Additional paid-in capital |
|
|
7,779 |
|
|
|
100 |
|
|
|
1,458 |
|
|
|
(1,558 |
) |
|
|
7,779 |
|
Treasury stock |
|
|
(1,396 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,396 |
) |
Retained earnings |
|
|
11,951 |
|
|
|
- |
|
|
|
1,322 |
|
|
|
(1,322 |
) |
|
|
11,951 |
|
Accumulated other comprehensive income |
|
|
265 |
|
|
|
1 |
|
|
|
37 |
|
|
|
(38 |
) |
|
|
265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
18,605 |
|
|
|
101 |
|
|
|
2,819 |
|
|
|
(2,920 |
) |
|
|
18,605 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
23,965 |
|
|
$ |
10,528 |
|
|
$ |
27,216 |
|
|
$ |
(23,956 |
) |
|
$ |
37,753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
VALERO
ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statement of Income for the Three Months Ended March 31, 2007
(unaudited, in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valero |
|
|
|
|
|
Other Non- |
|
|
|
|
|
|
Energy |
|
|
|
|
|
Guarantor |
|
|
|
|
|
|
Corporation |
|
PRG |
|
Subsidiaries |
|
Eliminations |
|
Consolidated |
Operating revenues |
|
$ |
- |
|
|
$ |
5,815 |
|
|
$ |
17,273 |
|
|
$ |
(3,390 |
) |
|
$ |
19,698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
- |
|
|
|
5,079 |
|
|
|
14,619 |
|
|
|
(3,390 |
) |
|
|
16,308 |
|
Refining operating expenses |
|
|
- |
|
|
|
228 |
|
|
|
747 |
|
|
|
- |
|
|
|
975 |
|
Retail selling expenses |
|
|
- |
|
|
|
- |
|
|
|
171 |
|
|
|
- |
|
|
|
171 |
|
General and administrative expenses |
|
|
- |
|
|
|
3 |
|
|
|
142 |
|
|
|
- |
|
|
|
145 |
|
Depreciation and amortization expense |
|
|
- |
|
|
|
85 |
|
|
|
249 |
|
|
|
- |
|
|
|
334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
- |
|
|
|
5,395 |
|
|
|
15,928 |
|
|
|
(3,390 |
) |
|
|
17,933 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
- |
|
|
|
420 |
|
|
|
1,345 |
|
|
|
- |
|
|
|
1,765 |
|
Equity in earnings of subsidiaries |
|
|
927 |
|
|
|
66 |
|
|
|
163 |
|
|
|
(1,156 |
) |
|
|
- |
|
Other income (expense), net |
|
|
357 |
|
|
|
(32 |
) |
|
|
189 |
|
|
|
(509 |
) |
|
|
5 |
|
Interest and debt expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incurred |
|
|
(94 |
) |
|
|
(163 |
) |
|
|
(342 |
) |
|
|
509 |
|
|
|
(90 |
) |
Capitalized |
|
|
- |
|
|
|
1 |
|
|
|
30 |
|
|
|
- |
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
1,190 |
|
|
|
292 |
|
|
|
1,385 |
|
|
|
(1,156 |
) |
|
|
1,711 |
|
Income tax expense (1) |
|
|
46 |
|
|
|
129 |
|
|
|
392 |
|
|
|
- |
|
|
|
567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,144 |
|
|
$ |
163 |
|
|
$ |
993 |
|
|
$ |
(1,156 |
) |
|
$ |
1,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The income tax expense reflected in each column does not include any tax effect of the equity
in earnings of subsidiaries. |
22
VALERO ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statement of Income for the Three Months Ended March 31, 2006
(unaudited, in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valero |
|
|
|
|
|
Other Non- |
|
|
|
|
|
|
Energy |
|
|
|
|
|
Guarantor |
|
|
|
|
|
|
Corporation |
|
PRG |
|
Subsidiaries |
|
Eliminations |
|
Consolidated |
Operating revenues |
|
$ |
- |
|
|
$ |
5,610 |
|
|
$ |
20,704 |
|
|
$ |
(5,387 |
) |
|
$ |
20,927 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
- |
|
|
|
5,141 |
|
|
|
18,331 |
|
|
|
(5,387 |
) |
|
|
18,085 |
|
Refining operating expenses |
|
|
- |
|
|
|
223 |
|
|
|
703 |
|
|
|
- |
|
|
|
926 |
|
Retail selling expenses |
|
|
- |
|
|
|
- |
|
|
|
172 |
|
|
|
- |
|
|
|
172 |
|
General and administrative expenses |
|
|
- |
|
|
|
15 |
|
|
|
136 |
|
|
|
- |
|
|
|
151 |
|
Depreciation and amortization expense |
|
|
- |
|
|
|
43 |
|
|
|
217 |
|
|
|
- |
|
|
|
260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
- |
|
|
|
5,422 |
|
|
|
19,559 |
|
|
|
(5,387 |
) |
|
|
19,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
- |
|
|
|
188 |
|
|
|
1,145 |
|
|
|
- |
|
|
|
1,333 |
|
Equity in earnings of subsidiaries |
|
|
723 |
|
|
|
152 |
|
|
|
204 |
|
|
|
(1,079 |
) |
|
|
- |
|
Equity in earnings of NuStar Energy L.P. |
|
|
- |
|
|
|
- |
|
|
|
12 |
|
|
|
- |
|
|
|
12 |
|
Other income, net |
|
|
311 |
|
|
|
19 |
|
|
|
141 |
|
|
|
(471 |
) |
|
|
- |
|
Interest and debt expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incurred |
|
|
(88 |
) |
|
|
(159 |
) |
|
|
(320 |
) |
|
|
471 |
|
|
|
(96 |
) |
Capitalized |
|
|
- |
|
|
|
14 |
|
|
|
23 |
|
|
|
- |
|
|
|
37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
946 |
|
|
|
214 |
|
|
|
1,205 |
|
|
|
(1,079 |
) |
|
|
1,286 |
|
Income tax expense (1) |
|
|
97 |
|
|
|
10 |
|
|
|
330 |
|
|
|
- |
|
|
|
437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
849 |
|
|
|
204 |
|
|
|
875 |
|
|
|
(1,079 |
) |
|
|
849 |
|
Preferred stock dividends |
|
|
1 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stock |
|
$ |
848 |
|
|
$ |
204 |
|
|
$ |
875 |
|
|
$ |
(1,079 |
) |
|
$ |
848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The income tax expense reflected in each column does not include any tax effect of the equity
in earnings of subsidiaries. |
23
VALERO ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statement of Cash Flows for the Three Months Ended March 31, 2007
(unaudited, in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valero |
|
|
|
|
|
Other Non- |
|
|
|
|
|
|
Energy |
|
|
|
|
|
Guarantor |
|
|
|
|
|
|
Corporation |
|
PRG |
|
Subsidiaries |
|
Eliminations |
|
Consolidated |
Net cash
provided by operating activities |
|
$ |
725 |
|
|
$ |
209 |
|
|
$ |
952 |
|
|
$ |
- |
|
|
$ |
1,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
- |
|
|
|
(122 |
) |
|
|
(429 |
) |
|
|
- |
|
|
|
(551 |
) |
Deferred turnaround and catalyst costs |
|
|
- |
|
|
|
(14 |
) |
|
|
(115 |
) |
|
|
- |
|
|
|
(129 |
) |
Contingent payments in connection with acquisitions |
|
|
- |
|
|
|
- |
|
|
|
(50 |
) |
|
|
- |
|
|
|
(50 |
) |
Investments
in subsidiaries |
|
|
(73 |
) |
|
|
- |
|
|
|
- |
|
|
|
73 |
|
|
|
- |
|
Return of investment |
|
|
358 |
|
|
|
- |
|
|
|
3 |
|
|
|
(361 |
) |
|
|
- |
|
Net
intercompany loans |
|
|
(133 |
) |
|
|
- |
|
|
|
- |
|
|
|
133 |
|
|
|
- |
|
Other investing activities, net |
|
|
- |
|
|
|
7 |
|
|
|
- |
|
|
|
- |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing
activities |
|
|
152 |
|
|
|
(129 |
) |
|
|
(591 |
) |
|
|
(155 |
) |
|
|
(723 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term note repayments |
|
|
- |
|
|
|
(183 |
) |
|
|
- |
|
|
|
- |
|
|
|
(183 |
) |
Purchase of treasury stock |
|
|
(904 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(904 |
) |
Issuance of common stock in connection with
employee benefit plans |
|
|
37 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
37 |
|
Benefit from tax deduction in excess of recognized
stock-based compensation cost |
|
|
63 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
63 |
|
Common stock dividends |
|
|
(73 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(73 |
) |
Dividends to parent |
|
|
- |
|
|
|
(3 |
) |
|
|
(358 |
) |
|
|
361 |
|
|
|
- |
|
Capital
contributions from parent |
|
|
- |
|
|
|
- |
|
|
|
73 |
|
|
|
(73 |
) |
|
|
- |
|
Net intercompany borrowings (repayments) |
|
|
- |
|
|
|
106 |
|
|
|
27 |
|
|
|
(133 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(877 |
) |
|
|
(80 |
) |
|
|
(258 |
) |
|
|
155 |
|
|
|
(1,060 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange rate changes on cash |
|
|
- |
|
|
|
- |
|
|
|
3 |
|
|
|
- |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and temporary cash
investments |
|
|
- |
|
|
|
- |
|
|
|
106 |
|
|
|
- |
|
|
|
106 |
|
Cash and temporary cash investments
at beginning of period |
|
|
712 |
|
|
|
- |
|
|
|
878 |
|
|
|
- |
|
|
|
1,590 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and temporary cash investments at end of period |
|
$ |
712 |
|
|
$ |
- |
|
|
$ |
984 |
|
|
$ |
- |
|
|
$ |
1,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
VALERO ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statement of Cash Flows for the Three Months Ended March 31, 2006
(unaudited, in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valero |
|
|
|
|
|
Other Non- |
|
|
|
|
|
|
Energy |
|
|
|
|
|
Guarantor |
|
|
|
|
|
|
Corporation |
|
PRG |
|
Subsidiaries |
|
Eliminations |
|
Consolidated |
Net cash provided by (used in) operating activities |
|
$ |
286 |
|
|
$ |
(102 |
) |
|
$ |
1,556 |
|
|
$ |
- |
|
|
$ |
1,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
- |
|
|
|
(235 |
) |
|
|
(540 |
) |
|
|
- |
|
|
|
(775 |
) |
Deferred turnaround and catalyst costs |
|
|
- |
|
|
|
(50 |
) |
|
|
(149 |
) |
|
|
- |
|
|
|
(199 |
) |
Contingent payments in connection with acquisitions |
|
|
- |
|
|
|
- |
|
|
|
(50 |
) |
|
|
- |
|
|
|
(50 |
) |
Net intercompany loan repayments |
|
|
510 |
|
|
|
- |
|
|
|
- |
|
|
|
(510 |
) |
|
|
- |
|
Other investing activities, net |
|
|
- |
|
|
|
4 |
|
|
|
7 |
|
|
|
- |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
510 |
|
|
|
(281 |
) |
|
|
(732 |
) |
|
|
(510 |
) |
|
|
(1,013 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term note repayments |
|
|
(220 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(220 |
) |
Bank credit agreements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings |
|
|
3 |
|
|
|
- |
|
|
|
277 |
|
|
|
- |
|
|
|
280 |
|
Repayments |
|
|
(3 |
) |
|
|
- |
|
|
|
(277 |
) |
|
|
- |
|
|
|
(280 |
) |
Purchase of treasury stock |
|
|
(590 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(590 |
) |
Issuance of common stock in connection with
employee benefit plans |
|
|
32 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
32 |
|
Benefit from tax deduction in excess of recognized
stock-based compensation cost |
|
|
89 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
89 |
|
Common and preferred stock dividends |
|
|
(38 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(38 |
) |
Net intercompany borrowings (repayments) |
|
|
- |
|
|
|
381 |
|
|
|
(891 |
) |
|
|
510 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
(727 |
) |
|
|
381 |
|
|
|
(891 |
) |
|
|
510 |
|
|
|
(727 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and temporary cash
investments |
|
|
69 |
|
|
|
(2 |
) |
|
|
(67 |
) |
|
|
- |
|
|
|
- |
|
Cash and temporary cash investments
at beginning of period |
|
|
11 |
|
|
|
5 |
|
|
|
420 |
|
|
|
- |
|
|
|
436 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and temporary cash investments at end of period |
|
$ |
80 |
|
|
$ |
3 |
|
|
$ |
353 |
|
|
$ |
- |
|
|
$ |
436 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
FORWARD-LOOKING STATEMENTS
This Form 10-Q, including without limitation our discussion below under the heading Results of
Operations Outlook, includes forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify
our forward-looking statements by the words anticipate, believe, expect, plan, intend,
estimate, project, projection, predict, budget, forecast, goal, guidance, target,
will, could, should, may, and similar expressions.
These forward-looking statements include, among other things, statements regarding:
|
|
|
future refining margins, including gasoline and distillate margins; |
|
|
|
|
future retail margins, including gasoline, diesel, home heating oil, and convenience
store merchandise margins; |
|
|
|
|
expectations regarding feedstock costs, including crude oil differentials, and operating
expenses; |
|
|
|
|
anticipated levels of crude oil and refined product inventories; |
|
|
|
|
our anticipated level of capital investments, including deferred refinery turnaround and
catalyst costs and capital expenditures for environmental and other purposes, and the
effect of those capital investments on our results of operations; |
|
|
|
|
anticipated trends in the supply of and demand for crude oil and other feedstocks and
refined products in the United States, Canada, and elsewhere; |
|
|
|
|
expectations regarding environmental, tax, and other regulatory initiatives; and |
|
|
|
|
the effect of general economic and other conditions on refining and retail industry
fundamentals. |
We based our forward-looking statements on our current expectations, estimates, and projections
about ourselves and our industry. We caution that these statements are not guarantees of future
performance and involve risks, uncertainties, and assumptions that we cannot predict. In addition,
we based many of these forward-looking statements on assumptions about future events that may prove
to be inaccurate. Accordingly, our actual results may differ materially from the future
performance that we have expressed or forecast in the forward-looking statements. Differences
between actual results and any future performance suggested in these forward-looking statements
could result from a variety of factors, including the following:
|
|
|
acts of terrorism aimed at either our facilities or other facilities that could impair
our ability to produce or transport refined products or receive feedstocks; |
|
|
|
|
political and economic conditions in nations that consume refined products, including
the United States, and in crude oil producing regions, including the Middle East and South
America; |
|
|
|
|
the domestic and foreign supplies of refined products such as gasoline, diesel fuel, jet
fuel, home heating oil, and petrochemicals; |
|
|
|
|
the domestic and foreign supplies of crude oil and other feedstocks; |
|
|
|
|
the ability of the members of the Organization of Petroleum Exporting Countries (OPEC)
to agree on and to maintain crude oil price and production controls; |
|
|
|
|
the level of consumer demand, including seasonal fluctuations; |
|
|
|
|
refinery overcapacity or undercapacity; |
|
|
|
|
the actions taken by competitors, including both pricing and the expansion and
retirement of refining capacity in response to market conditions; |
|
|
|
|
environmental, tax, and other regulations at the municipal, state, and federal levels
and in foreign countries; |
26
|
|
|
the level of foreign imports of refined products; |
|
|
|
|
accidents or other unscheduled shutdowns affecting our refineries, machinery, pipelines,
or equipment, or those of our suppliers or customers; |
|
|
|
|
changes in the cost or availability of transportation for feedstocks and refined products; |
|
|
|
|
the price, availability, and acceptance of alternative fuels and alternative-fuel vehicles; |
|
|
|
|
delay of, cancellation of, or failure to implement planned capital projects and realize
the various assumptions and benefits projected for such projects or cost overruns in
constructing such planned capital projects; |
|
|
|
|
earthquakes, hurricanes, tornadoes, and irregular weather, which can unforeseeably
affect the price or availability of natural gas, crude oil and other feedstocks, and
refined products; |
|
|
|
|
rulings, judgments, or settlements in litigation or other legal or regulatory matters,
including unexpected environmental remediation costs, in excess of any reserves or
insurance coverage; |
|
|
|
|
legislative or regulatory action, including the introduction or enactment of federal,
state, municipal, or foreign legislation or rulemakings, which may adversely affect our
business or operations; |
|
|
|
|
changes in the credit ratings assigned to our debt securities and trade credit; |
|
|
|
|
changes in currency exchange rates, including the value of the Canadian dollar relative
to the U.S. dollar; and |
|
|
|
|
overall economic conditions. |
Any one of these factors, or a combination of these factors, could materially affect our future
results of operations and whether any forward-looking statements ultimately prove to be accurate.
Our forward-looking statements are not guarantees of future performance, and actual results and
future performance may differ materially from those suggested in any forward-looking statements.
We do not intend to update these statements unless we are required by the securities laws to do so.
All subsequent written and oral forward-looking statements attributable to us or persons acting on
our behalf are expressly qualified in their entirety by the foregoing. We undertake no obligation
to publicly release the results of any revisions to any such forward-looking statements that may be
made to reflect events or circumstances after the date of this report or to reflect the occurrence
of unanticipated events.
27
OVERVIEW
In this overview, we set out some of the primary factors that we believe affected our operations in
the first quarter of 2007. Our profitability is substantially determined by the spread between the
price of refined products and the price of crude oil, referred to as the refined product margin.
The strong industry fundamentals for refined products that we experienced throughout 2006 continued
during the first quarter of 2007. Gasoline and distillate demand was strong throughout the first
quarter of 2007. In addition, other factors such as low imports, industry-wide turnaround activity
and unscheduled refinery outages, and the implementation of more restrictive sulfur regulations on
gasoline and diesel resulted in tight supplies of refined products and, combined with the strong
demand, resulted in very favorable refined product margins during the first quarter of 2007.
Since approximately 60% of our total crude oil throughput represents sour crude oil and acidic
sweet crude oil feedstocks that are purchased at prices less than sweet crude oil, our
profitability is also significantly affected by the spread between sweet crude oil and sour crude
oil prices, referred to as the sour crude oil differential. Although first quarter 2007 sour
crude oil differentials relative to West Texas Intermediate (WTI) crude oil declined compared to
the strong 2006 first quarter differentials, these sour crude oil differentials to WTI remained
wide. In addition, the sour crude oil differentials relative to light, sweet crude oils other than
WTI in the first quarter of 2007 were comparable to those experienced in the first quarter of 2006.
On February 16, 2007, our McKee Refinery was shut down due to a fire originating in its propane
deasphalting unit, resulting in reduced operating income of approximately $110 million in the first
quarter of 2007. The refinery recommenced operations on April 15 at a reduced throughput rate,
with run rates at the end of April at about 50% of the refinerys capacity.
The favorable gasoline and distillate margins and continuing wide sour crude oil differentials
discussed above contributed to strong operating results in the first quarter of 2007. We reported
net income of $1.1 billion, or $1.86 per share, for the first quarter of 2007, compared to $849 million, or $1.32 per share, for the first quarter of 2006. In regard to our financial position,
during the first quarter of 2007, we purchased over $900 million of our common stock under our
board-authorized programs and repaid $183 million of callable debt that was due in 2010. Despite
these cash payments and $680 million of capital investments in the first quarter, our cash balance
increased during the quarter to $1.7 billion at the end of March 2007.
28
RESULTS OF OPERATIONS
First Quarter 2007 Compared to First Quarter 2006
Financial Highlights
(millions of dollars, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2007 |
|
2006 |
|
Change |
Operating revenues (a) |
|
$ |
19,698 |
|
|
$ |
20,927 |
|
|
$ |
(1,229 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (a) |
|
|
16,308 |
|
|
|
18,085 |
|
|
|
(1,777 |
) |
Refining operating expenses |
|
|
975 |
|
|
|
926 |
|
|
|
49 |
|
Retail selling expenses (a) |
|
|
171 |
|
|
|
172 |
|
|
|
(1 |
) |
General and administrative expenses |
|
|
145 |
|
|
|
151 |
|
|
|
(6 |
) |
Depreciation and amortization expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Refining |
|
|
305 |
|
|
|
231 |
|
|
|
74 |
|
Retail |
|
|
18 |
|
|
|
20 |
|
|
|
(2 |
) |
Corporate |
|
|
11 |
|
|
|
9 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
17,933 |
|
|
|
19,594 |
|
|
|
(1,661 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
1,765 |
|
|
|
1,333 |
|
|
|
432 |
|
Equity in earnings of NuStar Energy L.P. (b) |
|
|
- |
|
|
|
12 |
|
|
|
(12 |
) |
Other income, net |
|
|
5 |
|
|
|
- |
|
|
|
5 |
|
Interest and debt expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Incurred |
|
|
(90 |
) |
|
|
(96 |
) |
|
|
6 |
|
Capitalized |
|
|
31 |
|
|
|
37 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
1,711 |
|
|
|
1,286 |
|
|
|
425 |
|
Income tax expense |
|
|
567 |
|
|
|
437 |
|
|
|
130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
1,144 |
|
|
|
849 |
|
|
|
295 |
|
Preferred stock dividends |
|
|
- |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stock |
|
$ |
1,144 |
|
|
$ |
848 |
|
|
$ |
296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share assuming dilution |
|
$ |
1.86 |
|
|
$ |
1.32 |
|
|
$ |
0.54 |
|
|
|
|
See the footnote references on page 32. |
29
Operating Highlights
(millions of dollars, except per barrel and per gallon amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2007 |
|
2006 |
|
Change |
Refining: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
1,868 |
|
|
$ |
1,472 |
|
|
$ |
396 |
|
Throughput margin per barrel (c) |
|
$ |
12.06 |
|
|
$ |
10.11 |
|
|
$ |
1.95 |
|
Operating costs per barrel: |
|
|
|
|
|
|
|
|
|
|
|
|
Refining operating expenses |
|
$ |
3.74 |
|
|
$ |
3.56 |
|
|
$ |
0.18 |
|
Depreciation and amortization |
|
|
1.17 |
|
|
|
0.89 |
|
|
|
0.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs per barrel |
|
$ |
4.91 |
|
|
$ |
4.45 |
|
|
$ |
0.46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Throughput volumes (thousand barrels per day): |
|
|
|
|
|
|
|
|
|
|
|
|
Feedstocks: |
|
|
|
|
|
|
|
|
|
|
|
|
Heavy sour crude |
|
|
694 |
|
|
|
765 |
|
|
|
(71 |
) |
Medium/light sour crude |
|
|
627 |
|
|
|
553 |
|
|
|
74 |
|
Acidic sweet crude |
|
|
91 |
|
|
|
66 |
|
|
|
25 |
|
Sweet crude |
|
|
825 |
|
|
|
875 |
|
|
|
(50 |
) |
Residuals |
|
|
245 |
|
|
|
155 |
|
|
|
90 |
|
Other feedstocks |
|
|
152 |
|
|
|
182 |
|
|
|
(30 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total feedstocks |
|
|
2,634 |
|
|
|
2,596 |
|
|
|
38 |
|
Blendstocks and other |
|
|
265 |
|
|
|
294 |
|
|
|
(29 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total throughput volumes |
|
|
2,899 |
|
|
|
2,890 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yields (thousand barrels per day): |
|
|
|
|
|
|
|
|
|
|
|
|
Gasolines and blendstocks |
|
|
1,330 |
|
|
|
1,403 |
|
|
|
(73 |
) |
Distillates |
|
|
963 |
|
|
|
909 |
|
|
|
54 |
|
Petrochemicals |
|
|
91 |
|
|
|
89 |
|
|
|
2 |
|
Other products (d) |
|
|
521 |
|
|
|
494 |
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total yields |
|
|
2,905 |
|
|
|
2,895 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
U.S.: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
24 |
|
|
$ |
- |
|
|
$ |
24 |
|
Company-operated fuel sites (average) |
|
|
963 |
|
|
|
996 |
|
|
|
(33 |
) |
Fuel volumes (gallons per day per site) |
|
|
4,982 |
|
|
|
4,882 |
|
|
|
100 |
|
Fuel margin per gallon |
|
$ |
0.123 |
|
|
$ |
0.100 |
|
|
$ |
0.023 |
|
Merchandise sales |
|
$ |
233 |
|
|
$ |
219 |
|
|
$ |
14 |
|
Merchandise margin (percentage of sales) |
|
|
30.0 |
% |
|
|
29.7 |
% |
|
|
0.3 |
% |
Margin on miscellaneous sales (a) |
|
$ |
25 |
|
|
$ |
20 |
|
|
$ |
5 |
|
Retail selling expenses (a) |
|
$ |
113 |
|
|
$ |
116 |
|
|
$ |
(3 |
) |
Depreciation and amortization expense |
|
$ |
11 |
|
|
$ |
13 |
|
|
$ |
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
Canada: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
29 |
|
|
$ |
21 |
|
|
$ |
8 |
|
Fuel volumes (thousand gallons per day) |
|
|
3,370 |
|
|
|
3,284 |
|
|
|
86 |
|
Fuel margin per gallon |
|
$ |
0.245 |
|
|
$ |
0.225 |
|
|
$ |
0.020 |
|
Merchandise sales |
|
$ |
37 |
|
|
$ |
36 |
|
|
$ |
1 |
|
Merchandise margin (percentage of sales) |
|
|
29.4 |
% |
|
|
27.9 |
% |
|
|
1.5 |
% |
Margin on miscellaneous sales |
|
$ |
9 |
|
|
$ |
8 |
|
|
$ |
1 |
|
Retail selling expenses |
|
$ |
58 |
|
|
$ |
56 |
|
|
$ |
2 |
|
Depreciation and amortization expense |
|
$ |
7 |
|
|
$ |
7 |
|
|
$ |
- |
|
|
|
|
See the footnote references on page 32. |
30
Refining Operating Highlights by Region (e)
(millions of dollars, except per barrel amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2007 |
|
2006 |
|
Change |
Gulf Coast: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
1,083 |
|
|
$ |
1,003 |
|
|
$ |
80 |
|
Throughput volumes (thousand barrels per day) |
|
|
1,525 |
|
|
|
1,512 |
|
|
|
13 |
|
Throughput margin per barrel (c) |
|
$ |
12.35 |
|
|
$ |
11.40 |
|
|
$ |
0.95 |
|
Operating costs per barrel: |
|
|
|
|
|
|
|
|
|
|
|
|
Refining operating expenses |
|
$ |
3.45 |
|
|
$ |
3.18 |
|
|
$ |
0.27 |
|
Depreciation and amortization |
|
|
1.01 |
|
|
|
0.85 |
|
|
|
0.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs per barrel |
|
$ |
4.46 |
|
|
$ |
4.03 |
|
|
$ |
0.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mid-Continent: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
183 |
|
|
$ |
101 |
|
|
$ |
82 |
|
Throughput volumes (thousand barrels per day) |
|
|
505 |
|
|
|
504 |
|
|
|
1 |
|
Throughput margin per barrel (c) |
|
$ |
9.68 |
|
|
$ |
6.56 |
|
|
$ |
3.12 |
|
Operating costs per barrel: |
|
|
|
|
|
|
|
|
|
|
|
|
Refining operating expenses |
|
$ |
4.20 |
|
|
$ |
3.64 |
|
|
$ |
0.56 |
|
Depreciation and amortization |
|
|
1.44 |
|
|
|
0.69 |
|
|
|
0.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs per barrel |
|
$ |
5.64 |
|
|
$ |
4.33 |
|
|
$ |
1.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northeast: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
289 |
|
|
$ |
179 |
|
|
$ |
110 |
|
Throughput volumes (thousand barrels per day) |
|
|
574 |
|
|
|
575 |
|
|
|
(1 |
) |
Throughput margin per barrel (c) |
|
$ |
10.58 |
|
|
$ |
8.50 |
|
|
$ |
2.08 |
|
Operating costs per barrel: |
|
|
|
|
|
|
|
|
|
|
|
|
Refining operating expenses |
|
$ |
3.77 |
|
|
$ |
4.11 |
|
|
$ |
(0.34 |
) |
Depreciation and amortization |
|
|
1.22 |
|
|
|
0.93 |
|
|
|
0.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs per barrel |
|
$ |
4.99 |
|
|
$ |
5.04 |
|
|
$ |
(0.05 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West Coast: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
313 |
|
|
$ |
189 |
|
|
$ |
124 |
|
Throughput volumes (thousand barrels per day) |
|
|
295 |
|
|
|
299 |
|
|
|
(4 |
) |
Throughput margin per barrel (c) |
|
$ |
17.56 |
|
|
$ |
12.61 |
|
|
$ |
4.95 |
|
Operating costs per barrel: |
|
|
|
|
|
|
|
|
|
|
|
|
Refining operating expenses |
|
$ |
4.38 |
|
|
$ |
4.29 |
|
|
$ |
0.09 |
|
Depreciation and amortization |
|
|
1.41 |
|
|
|
1.31 |
|
|
|
0.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs per barrel |
|
$ |
5.79 |
|
|
$ |
5.60 |
|
|
$ |
0.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See the footnote references on page 32. |
31
Average Market Reference Prices and Differentials (f)
(dollars per barrel)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2007 |
|
2006 |
|
Change |
Feedstocks: |
|
|
|
|
|
|
|
|
|
|
|
|
West Texas Intermediate (WTI) crude oil |
|
$ |
58.00 |
|
|
$ |
63.29 |
|
|
$ |
(5.29 |
) |
WTI less sour crude oil at U.S. Gulf Coast (g) |
|
|
5.92 |
|
|
|
7.98 |
|
|
|
(2.06 |
) |
WTI less Mars crude oil |
|
|
4.91 |
|
|
|
7.70 |
|
|
|
(2.79 |
) |
WTI less Alaska North Slope (ANS) crude oil |
|
|
2.30 |
|
|
|
2.41 |
|
|
|
(0.11 |
) |
WTI less Maya crude oil |
|
|
12.63 |
|
|
|
15.61 |
|
|
|
(2.98 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Products: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Gulf Coast: |
|
|
|
|
|
|
|
|
|
|
|
|
Conventional 87 gasoline less WTI |
|
|
10.22 |
|
|
|
8.00 |
|
|
|
2.22 |
|
No. 2 fuel oil less WTI |
|
|
9.82 |
|
|
|
8.85 |
|
|
|
0.97 |
|
Ultra-low-sulfur diesel less WTI |
|
|
17.36 |
|
|
|
N.A. |
|
|
|
N.A. |
|
Propylene less WTI |
|
|
16.21 |
|
|
|
7.14 |
|
|
|
9.07 |
|
U.S. Mid-Continent: |
|
|
|
|
|
|
|
|
|
|
|
|
Conventional 87 gasoline less WTI |
|
|
12.12 |
|
|
|
8.08 |
|
|
|
4.04 |
|
Low-sulfur diesel less WTI |
|
|
20.33 |
|
|
|
13.27 |
|
|
|
7.06 |
|
U.S. Northeast: |
|
|
|
|
|
|
|
|
|
|
|
|
Conventional 87 gasoline less WTI |
|
|
12.01 |
|
|
|
6.76 |
|
|
|
5.25 |
|
No. 2 fuel oil less WTI |
|
|
11.35 |
|
|
|
9.03 |
|
|
|
2.32 |
|
Lube oils less WTI |
|
|
63.80 |
|
|
|
46.92 |
|
|
|
16.88 |
|
U.S. West Coast: |
|
|
|
|
|
|
|
|
|
|
|
|
CARBOB 87 gasoline less ANS |
|
|
29.98 |
|
|
|
15.21 |
|
|
|
14.77 |
|
CARB diesel less ANS |
|
|
26.54 |
|
|
|
20.97 |
|
|
|
5.57 |
|
|
|
|
The following notes relate to references on pages 29 through 32. |
|
(a) |
|
Certain amounts previously reported in 2006 for operating revenues, cost of sales, and retail
selling expenses have been reclassified for comparability with amounts reported in 2007. |
|
(b) |
|
On December 22, 2006, we sold our remaining ownership interest in NuStar GP Holdings, LLC
(formerly Valero GP Holdings, LLC), which indirectly owns the general partner interest, the
incentive distribution rights, and a 21.4% limited partner interest in NuStar Energy L.P.
(formerly Valero L.P.). As a result, the financial highlights reflect no equity in earnings
of NuStar Energy L.P. subsequent to December 21, 2006. |
|
(c) |
|
Throughput margin per barrel represents operating revenues less cost of sales divided by
throughput volumes. |
|
(d) |
|
Other products primarily include gas oils, No. 6 fuel oil, petroleum coke, and asphalt. |
|
(e) |
|
The regions reflected herein contain the following refineries: the Gulf Coast refining region
includes the Corpus Christi East, Corpus Christi West, Texas City, Houston, Three Rivers,
Krotz Springs, St. Charles, Aruba, and Port Arthur Refineries; the Mid-Continent refining
region includes the McKee, Ardmore, Memphis, and Lima Refineries; the Northeast refining
region includes the Quebec City, Paulsboro, and Delaware City Refineries; and the West Coast
refining region includes the Benicia and Wilmington Refineries. |
|
(f) |
|
The average market reference prices and differentials, with the exception of the propylene
and lube oil differentials, are based on posted prices from Platts Oilgram. The propylene
differential is based on posted propylene prices in Chemical Market Associates, Inc. and the
lube oil differential is based on Exxon Mobil Corporation postings provided by Independent
Commodity Information Services-London Oil Reports. The average market reference prices and
differentials are presented to provide users of the consolidated financial statements with
economic indicators that significantly affect our operations and profitability. |
|
(g) |
|
The market reference differential for sour crude oil is based on 50% Arab Medium and 50% Arab
Light posted prices. |
32
General
Operating revenues decreased 6% for the first quarter of 2007 compared to the first quarter of 2006
primarily as a result of lower sales volumes between the two periods. Operating income of $1.8
billion and net income of $1.1 billion for the three months ended March 31, 2007 increased more
than 30% from the corresponding amounts in the first quarter of 2006 primarily due to a $396
million increase in refining segment operating income and a $32 million increase in retail segment
operating income.
Refining
Operating income for our refining segment increased from $1.5 billion for the first quarter of 2006
to $1.9 billion for the first quarter of 2007, resulting mainly from a 19% increase in throughput
margin per barrel, partially offset by a $123 million increase in refining operating expenses
(including depreciation and amortization expense).
Refining throughput margins for the first quarter of 2007 compared to the first quarter of 2006
were impacted by the following factors:
|
|
|
Gasoline and distillate margins increased significantly in all of our refining regions
in the first quarter of 2007 compared to the margins in the first quarter of 2006. The
improvement in refined product margins for the first quarter of 2007 was primarily due to
an increase in demand combined with a decline in refined product inventory levels resulting
from lower imports, more stringent product specifications and regulations, heavy industry
turnaround activity, and unplanned outages. |
|
|
|
|
Sour crude oil feedstock differentials to WTI crude oil during the first quarter of 2007
were lower than the strong differentials in the first quarter of 2006 as a result of a
temporary oversupply of WTI crude oil, due in part to the market impact resulting from our
McKee Refinery shutdown. However, other light, sweet crude oils priced at a premium to WTI
in the first quarter of 2007; thus, sour crude oil feedstock differentials relative to
those other light, sweet crude oils in the first quarter of 2007 were comparable to the
wide differentials experienced in the first quarter of 2006. These wide differentials are
attributable to continued ample supplies of sour crude oils and heavy sour residual fuel
oils on the world market. Differentials on sour crude oil feedstocks also continued to
benefit from increased demand for sweet crude oil resulting from lower sulfur
specifications for gasoline and diesel and a global increase in refined product demand,
particularly in Asia, which has resulted in higher utilization rates by refineries that
require sweet crude oil as feedstock. |
|
|
|
|
Margins on other refined products such as propylene, petroleum coke, and sulfur improved
from the first quarter of 2006 to the first quarter of 2007 due to a decrease in the price
of crude oil between the periods. |
Refining operating expenses, excluding depreciation and amortization expense, were 5% higher for
the quarter ended March 31, 2007 compared to the quarter ended March 31, 2006 due primarily to
increases in employee compensation and related benefits, maintenance expense, and catalysts and
chemicals, partially offset by decreases in energy costs. Refining depreciation and amortization
expense increased 32% from the first quarter of 2006 to the first quarter of 2007 primarily due to
the implementation of new capital projects, increased turnaround and catalyst amortization, and the
write-off of costs related to the McKee Refinery as a result of the fire it experienced in February
2007.
Retail
Retail
operating income of $53 million for the quarter ended
March 31, 2007 was approximately 150% higher than
the $21 million reported for the quarter ended March 31, 2006. This increase in operating
33
income
was mainly attributable to a $0.02 per gallon increase in average fuel margins in both our U.S. and
Canadian retail operations.
Corporate Expenses and Other
General and administrative expenses, including corporate depreciation and amortization expense,
were essentially unchanged from the first quarter of 2006 to the first quarter of 2007. Expenses
incurred in the first quarter of 2006 attributable to Premcor headquarters personnel were not
incurred in the first quarter of 2007, but such decrease was offset by executive retirement
expenses incurred in the first quarter of 2007.
Equity in earnings of NuStar Energy L.P. is not reflected in the first quarter of 2007 due to the
sale of our remaining ownership interest in NuStar GP Holdings, LLC in December 2006.
Income tax expense increased $130 million from the first quarter of 2006 to the first quarter of
2007 mainly as a result of higher operating income.
OUTLOOK
Since the end of the 2007 first quarter, refining industry fundamentals have remained positive.
U.S. light product inventories, particularly gasoline, have declined relative to prior years due to
prolonged turnarounds, unscheduled refinery outages, lower imports, tighter product specifications,
and strong demand. The low inventories going into the driving season will likely result in
favorable refinery margins through at least the second quarter. In addition, sour crude oil
differentials remained wide relative to alternate sweet crude oils during the month of April 2007
and are expected to remain favorable through the summer due to ample supplies of sour crude oil and
continued strong demand for sweet crude oil.
On February 16, 2007, our McKee Refinery experienced a fire originating in its propane deasphalting
unit. The refinery recommenced operations on April 15, 2007 at approximately 50% of capacity. We
expect throughput rates at the McKee Refinery to increase to 150,000 barrels per day by mid-year
and to reach full capacity by the end of 2007 or early 2008. In regard to other operations, we
have minimal turnaround activity scheduled for the second quarter of 2007. We expect to benefit
during the remainder of 2007 from the completion of significant turnaround and capital improvement
projects, including our crude unit expansion project at our Port Arthur Refinery that was completed
in January.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows for the Three Months Ended March 31, 2007 and 2006
Net cash provided by operating activities for the three months ended March 31, 2007 was $1.9
billion compared to $1.7 billion for the three months ended March 31, 2006. The increase in cash
generated from operating activities was due primarily to the increase in net income discussed above
under Results of Operations, partially offset by a $199 million decrease from an unfavorable
change in working capital between the years. Changes in cash provided by working capital during
the first three months of 2007 and 2006 are shown in Note 9 of Condensed Notes to Consolidated
Financial Statements. Working capital in the first quarter of 2007 was primarily impacted by a
large increase in income taxes payable attributable mainly to operating income generated in the
first quarter of 2007.
The net cash generated from operating activities during the first three months of 2007, combined
with a $63 million benefit from tax deductions in excess of recognized stock-based compensation
cost and $37 million of proceeds from the issuance of common stock related to our employee benefit
plans, were used mainly to:
34
|
|
|
fund $680 million of capital expenditures and deferred turnaround and catalyst costs; |
|
|
|
|
purchase 15.6 million shares of treasury stock at a cost of $904 million; |
|
|
|
|
redeem our 9.25% senior notes for $183 million; |
|
|
|
|
fund $50 million of contingent earn-out payments in connection with the acquisition of
the St. Charles Refinery; |
|
|
|
|
pay common stock dividends of $73 million; and |
|
|
|
|
increase available cash on hand by $106 million. |
The net cash generated from operating activities during the first three months of 2006, combined
with $32 million of proceeds from the issuance of common stock related to our employee benefit
plans and an $89 million benefit from tax deductions in excess of recognized stock-based
compensation cost, were used mainly to:
|
|
|
fund $974 million of capital expenditures and deferred turnaround and catalyst costs; |
|
|
|
|
make scheduled debt repayments of $220 million; |
|
|
|
|
purchase 10.7 million shares of treasury stock at a cost of $590 million; |
|
|
|
|
fund a contingent earn-out payment in connection with the acquisition of the St. Charles
Refinery of $50 million; and |
|
|
|
|
pay common and preferred stock dividends of $38 million. |
Capital Investments
During the three months ended March 31, 2007, we expended $551 million for capital expenditures and
$129 million for deferred turnaround and catalyst costs. Capital expenditures for the three months
ended March 31, 2007 included $160 million of costs related to environmental projects.
In connection with our acquisition of the St. Charles Refinery in 2003, the seller is entitled to
receive payments in any of the seven years following this acquisition if certain average refining
margins during any of those years exceed a specified level. In connection with the Premcor
Acquisition in 2005, we assumed Premcors obligation under a contingent earn-out agreement related
to Premcors acquisition of the Delaware City Refinery from Motiva Enterprises LLC. Any payments
due under these earn-out arrangements are limited based on annual and aggregate limits. In January
2007, we made an earn-out payment of $50 million related to the St. Charles Refinery. Based on
margin levels through April 2007, an earn-out payment of $25 million (the maximum
remaining payment based on the aggregate limitation under the agreement) related to the acquisition
of the Delaware City Refinery will be due in the second quarter of 2007.
For 2007, we expect to incur approximately $3.5 billion for capital investments, including
approximately $3.1 billion for capital expenditures (approximately $800 million of which is for
environmental projects) and approximately $400 million for deferred turnaround and catalyst costs.
The capital expenditure estimate excludes anticipated expenditures related to the earn-out
contingency agreements discussed above and strategic acquisitions. We continuously evaluate our
capital budget and make changes as economic conditions warrant.
We have agreed to make an estimated $190 million cash capital contribution to Cameron Highway Oil
Pipeline Company, representing our 50% portion of the amount required for the Cameron Highway Oil
Pipeline joint venture to redeem its fixed-rate notes. Our capital contribution, along with an
equal capital contribution from the other 50% joint venture partner, will be made, and the joint
ventures debt will be redeemed, by the end of May 2007.
35
Lima
Refinery Disposition
On May 2, 2007, we entered into an agreement to sell our refinery in Lima, Ohio to Husky Refining
Company, a wholly owned subsidiary of Husky Energy Inc. The sales price is $1.9 billion, plus an
amount equal to net working capital as of the closing date of the sale, which is expected to occur
by the end of the second quarter of 2007. Net proceeds from the sale exceed the carrying amount of
the net assets being sold. The sale is subject to the receipt of required regulatory approvals.
Contractual Obligations
As of March 31, 2007, our contractual obligations included long-term debt, capital lease
obligations, operating leases, purchase obligations, and other long-term liabilities. Except as
discussed below, there were no significant changes to our contractual obligations during the three
months ended March 31, 2007.
On February 1, 2007, we redeemed our 9.25% senior notes for $183 million, or 104.625% of stated
value. In addition, in April 2007, we made a scheduled debt repayment of $230 million related to
our 6.125% notes.
In
April 2007, to fund the accelerated share repurchase program
discussed in Note 7 of Condensed Notes to Consolidated Financial
Statements, we borrowed $3
billion under a 364-day term credit agreement with a financial institution. The term loan bears
interest at LIBOR plus a margin, or an alternate base rate as defined under the agreement. The
interest rate is subject to adjustment based upon the credit ratings assigned to our long-term
debt. The amount borrowed can be prepaid at any time, and proceeds from any long-term financing
during the term of this agreement, with certain exceptions, must be used to reduce the amount
borrowed under the 364-day term credit agreement.
As of March 31, 2007, our short-term and long-term purchase obligations increased by approximately
$2 billion from the amount reported as of December 31,
2006, resulting from, among other items, new refined
product purchase contracts entered into in the first quarter of 2007.
Our agreements do not have rating agency triggers that would automatically require us to post
additional collateral. However, in the event of certain downgrades of our senior unsecured debt to
below investment grade ratings by Moodys Investors Service and Standard & Poors Ratings Services,
the cost of borrowings under some of our bank credit facilities and other arrangements would
increase. As of March 31, 2007, all of our ratings on our senior unsecured debt are at or above
investment grade level as follows:
|
|
|
Rating
Agency |
|
Rating |
Standard & Poors Ratings Services |
|
BBB (stable outlook) |
Moodys Investors Service |
|
Baa3 (stable outlook) |
Fitch Ratings |
|
BBB (stable outlook) |
Upon our announcement of both the increase in our common stock purchase program to $6 billion and
the $3 billion accelerated share repurchase program, each of the rating agencies affirmed our
ratings, with Moodys Investors Service changing its outlook from stable to positive.
Other Commercial Commitments
As of March 31, 2007, our committed lines of credit included:
|
|
|
|
|
|
|
Borrowing |
|
|
|
|
Capacity |
|
Expiration |
Revolving credit facility |
|
$2.5 billion |
|
August 2011 |
Canadian revolving credit facility |
|
Cdn. $115 million |
|
December 2010 |
36
As of March 31, 2007, we had $451 million of letters of credit outstanding under our uncommitted
short-term bank credit facilities and $208 million of letters of credit outstanding under our
committed revolving credit facility. Under our Canadian committed revolving credit facility, we
had Cdn. $7 million of letters of credit outstanding as of March 31, 2007. These letters of credit
expire during 2007, 2008, and 2009.
Stock Purchase Programs
During the first quarter of 2007, we had two stock purchase programs that had been previously
approved by our board of directors, which authorized our purchase of treasury stock in open market
transactions to satisfy employee benefit plan requirements as well as a $2 billion common stock
purchase program. Stock purchases under the $2 billion program during the first quarter of 2007
were made from time to time at prevailing prices as permitted by securities laws and other legal
requirements, subject to market conditions and other factors. The program does not have a
scheduled expiration date.
During the first quarter of 2007, we purchased 15.6 million shares of our common stock at a cost of
$904 million in connection with the administration of our employee benefit plans and the $2 billion
common stock purchase program authorized by our board of directors. During April 2007, we
purchased an additional 4.2 million shares at a cost of approximately $275 million, excluding the
effect of the accelerated share repurchase program discussed below.
On April 25, 2007, our board of directors approved an amendment to our $2 billion common stock
purchase program to increase the authorized purchases under the program to $6 billion. In
conjunction with the increase in our common stock purchase program, we entered into an agreement
with a financial institution to purchase $3 billion of our shares under an accelerated share
repurchase program, and in late April, approximately 42 million shares were purchased under this
agreement. The purchase of these shares was funded with a short-term bridge loan, which we expect
to replace with longer-term financing. At the expiration of the accelerated share repurchase
program, which is expected to occur in the third quarter of 2007, the cost of the shares purchased
under this accelerated share repurchase program will be adjusted, with the final purchase cost
based on a discount to the average trading price of our common stock, weighted by the daily volume
of shares traded, during the program period. Any adjustment to the cost can be paid in cash or
stock, at our option.
McKee Refinery Fire Insurance Recoveries
On February 16, 2007, our McKee Refinery experienced a fire originating in its propane deasphalting
unit. We are in the process of filing a claim with our insurance carriers. At this time we cannot
determine the amount, if any, that may be collected under our insurance policies. Accordingly, no
amounts have been recorded related to this claim.
Tax Matters
We are subject to extensive tax liabilities, including federal, state, and foreign income taxes and
transactional taxes such as excise, sales/use, payroll, franchise, withholding, and ad valorem
taxes. New tax laws and regulations and changes in existing tax laws and regulations are
continuously being enacted or proposed that could result in increased expenditures for tax
liabilities in the future.
Effective January 1, 2007, the Government of Aruba (GOA) enacted a turnover tax on revenues from
the sale of goods produced and services rendered in Aruba. The turnover tax, which is 3% for
on-island sales and services and 1% on export sales, is being assessed by the GOA on sales by our
Aruba Refinery. However, due to a previous tax holiday that was granted to our Aruba Refinery by
the GOA through December 31, 2010, we believe that sales by our Aruba Refinery should not be
subject to this turnover tax. As a result, no amounts have been accrued with respect to this
turnover tax. We have filed a request for arbitration with the Netherlands Arbitration Institute
pursuant to which we will seek to enforce our rights under the tax holiday.
37
Other
Although we have no expected minimum required contribution to our qualified pension plans during
2007 under the Employee Retirement Income Security Act, we expect to contribute $100 million to our
qualified pension plans during 2007.
We are subject to extensive federal, state, and local environmental laws and regulations, including
those relating to the discharge of materials into the environment, waste management, pollution
prevention measures, greenhouse gas emissions, and characteristics and composition of gasolines and
distillates. Because environmental laws and regulations are becoming more complex and stringent
and new environmental laws and regulations are continuously being enacted or proposed, the level of
future expenditures required for environmental matters could increase in the future. In addition,
any major upgrades in any of our refineries could require material additional expenditures to
comply with environmental laws and regulations.
We believe that we have sufficient funds from operations and, to the extent necessary, from the
public and private capital markets and bank markets, to fund our ongoing operating requirements.
We expect that, to the extent necessary, we can raise additional funds from time to time through
equity or debt financings. However, there can be no assurances regarding the availability of any
future financings or whether such financings can be made available on terms that are acceptable to
us.
OFF-BALANCE SHEET ARRANGEMENTS
Accounts Receivable Sales Facility
As of March 31, 2007, we had an accounts receivable sales facility with a group of third-party
financial institutions to sell on a revolving basis up to $1 billion of eligible trade receivables,
which matures in August 2008. As of March 31, 2007 and December 31, 2006, the amount of eligible
receivables sold to the third-party financial institutions was $1 billion.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in accordance with United States generally accepted
accounting principles requires management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes. Actual results could
differ from those estimates. Our critical accounting policies are disclosed in our Annual Report
on Form 10-K for the year ended December 31, 2006.
As discussed in Note 2 of Condensed Notes to Consolidated Financial Statements, certain new
financial accounting pronouncements have been issued which either have already been reflected in
the accompanying consolidated financial statements, or will become effective for our financial
statements at various dates in the future.
38
Item 3. Quantitative and Qualitative Disclosures About Market Risk
COMMODITY PRICE RISK
The following tables provide information about our derivative commodity instruments as of March 31,
2007 and December 31, 2006 (dollars in millions, except for the weighted-average pay and receive
prices as described below), including:
|
|
|
fair value hedges which are used to hedge our recognized refining inventories (which had
a carrying amount of $4.6 billion and $4.2 billion as of March 31, 2007 and December 31,
2006, respectively, and a fair value of $9.0 billion and $7.1 billion as of March 31, 2007
and December 31, 2006, respectively) and unrecognized firm commitments (i.e., binding
agreements to purchase inventories in the future); |
|
|
|
|
cash flow hedges which are used to hedge our forecasted feedstock and product purchases,
refined product sales, and natural gas purchases; |
|
|
|
|
economic hedges (hedges not designated as fair value or cash flow hedges) which are used to: |
|
- |
|
manage price volatility in refinery feedstock and refined product inventories, and |
|
|
- |
|
manage price volatility in forecasted feedstock and product purchases, refined
product sales, and natural gas purchases; and |
|
|
|
derivative commodity instruments held or issued for trading purposes. |
The gain or loss on a derivative instrument designated and qualifying as a fair value hedge and the
offsetting loss or gain on the hedged item 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 hedges and for derivative instruments
entered into by us 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 following tables include only open positions at the end of the reporting period, and therefore
do not include amounts related to closed cash flow hedges for which the gain or loss remains in
accumulated other comprehensive income pending consummation of the forecasted transactions.
Contract volumes are presented in thousands of barrels (for crude oil and refined products) or in
billions of British thermal units (for natural gas). The weighted-average pay and receive prices
represent amounts per barrel (for crude oil and refined products) or amounts per million British
thermal units (for natural gas). Volumes shown for swaps represent notional volumes, which are
used to calculate amounts due under the agreements. For futures, the contract value represents the
contract price of either the long or short position multiplied by the derivative contract volume,
while the market value amount represents the period-end market price of the commodity being hedged
multiplied by the derivative contract volume. The pre-tax fair value for futures, swaps, and
options represents the fair value of the derivative contract. The pre-tax fair value for swaps
represents the excess of the receive price over the pay price multiplied by the notional contract
volumes. For futures and options, the pre-tax fair value represents (i) the excess of the market
value amount over the contract amount for long positions, or (ii) the excess of the contract amount
over the market value amount for short positions. Additionally, for futures and options, the
weighted-average pay price represents the contract price for long positions and the
weighted-average receive price represents the contract price for short positions. The
weighted-average pay price and weighted-average receive price for options represents their strike
price.
39
|
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|
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|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2007 |
|
|
|
|
|
|
Wtd Avg |
|
Wtd Avg |
|
|
|
|
|
|
|
|
|
Pre-tax |
|
|
Contract |
|
Pay |
|
Receive |
|
Contract |
|
Market |
|
Fair |
|
|
Volumes |
|
Price |
|
Price |
|
Value |
|
Value |
|
Value |
Fair Value Hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Futures long: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 (crude oil and refined products) |
|
|
45,946 |
|
|
$ |
62.85 |
|
|
|
N/A |
|
|
$ |
2,887 |
|
|
$ |
3,114 |
|
|
$ |
227 |
|
Futures short: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 (crude oil and refined products) |
|
|
60,242 |
|
|
|
N/A |
|
|
$ |
62.70 |
|
|
|
3,777 |
|
|
|
4,062 |
|
|
|
(285 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps long: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 (crude oil and refined products) |
|
|
16,290 |
|
|
|
64.06 |
|
|
|
68.77 |
|
|
|
N/A |
|
|
|
77 |
|
|
|
77 |
|
Swaps short: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 (crude oil and refined products) |
|
|
16,290 |
|
|
|
82.00 |
|
|
|
75.91 |
|
|
|
N/A |
|
|
|
(99 |
) |
|
|
(99 |
) |
Futures long: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 (crude oil and refined products) |
|
|
17,719 |
|
|
|
67.65 |
|
|
|
N/A |
|
|
|
1,198 |
|
|
|
1,267 |
|
|
|
69 |
|
Futures short: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 (crude oil and refined products) |
|
|
14,583 |
|
|
|
N/A |
|
|
|
67.07 |
|
|
|
978 |
|
|
|
1,035 |
|
|
|
(57 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic Hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps long: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 (crude oil and refined products) |
|
|
20,859 |
|
|
|
3.75 |
|
|
|
5.67 |
|
|
|
N/A |
|
|
|
40 |
|
|
|
40 |
|
Swaps short: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 (crude oil and refined products) |
|
|
4,325 |
|
|
|
34.48 |
|
|
|
29.42 |
|
|
|
N/A |
|
|
|
(22 |
) |
|
|
(22 |
) |
Futures long: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 (crude oil and refined products) |
|
|
43,300 |
|
|
|
69.85 |
|
|
|
N/A |
|
|
|
3,025 |
|
|
|
3,191 |
|
|
|
166 |
|
2008 (crude oil and refined products) |
|
|
30 |
|
|
|
76.43 |
|
|
|
N/A |
|
|
|
2 |
|
|
|
2 |
|
|
|
- |
|
Futures short: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 (crude oil and refined products) |
|
|
40,214 |
|
|
|
N/A |
|
|
|
69.07 |
|
|
|
2,778 |
|
|
|
2,939 |
|
|
|
(161 |
) |
Options long: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 (crude oil and refined products) |
|
|
5 |
|
|
|
83.48 |
|
|
|
N/A |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Options short: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 (crude oil and refined products) |
|
|
1,259 |
|
|
|
N/A |
|
|
|
41.39 |
|
|
|
3 |
|
|
|
- |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps long: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 (crude oil and refined products) |
|
|
335 |
|
|
|
11.66 |
|
|
|
9.58 |
|
|
|
N/A |
|
|
|
(1 |
) |
|
|
(1 |
) |
2008 (crude oil and refined products) |
|
|
112 |
|
|
|
12.18 |
|
|
|
10.90 |
|
|
|
N/A |
|
|
|
- |
|
|
|
- |
|
Swaps short: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 (crude oil and refined products) |
|
|
435 |
|
|
|
7.03 |
|
|
|
8.62 |
|
|
|
N/A |
|
|
|
1 |
|
|
|
1 |
|
2008 (crude oil and refined products) |
|
|
112 |
|
|
|
10.90 |
|
|
|
12.05 |
|
|
|
N/A |
|
|
|
- |
|
|
|
- |
|
Futures long: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 (crude oil and refined products) |
|
|
3,905 |
|
|
|
64.63 |
|
|
|
N/A |
|
|
|
252 |
|
|
|
268 |
|
|
|
16 |
|
Futures short: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 (crude oil and refined products) |
|
|
3,905 |
|
|
|
N/A |
|
|
|
63.60 |
|
|
|
248 |
|
|
|
265 |
|
|
|
(17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pre-tax fair value of open positions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(43 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006 |
|
|
|
|
|
|
Wtd Avg |
|
Wtd Avg |
|
|
|
|
|
|
|
|
|
Pre-tax |
|
|
Contract |
|
Pay |
|
Receive |
|
Contract |
|
Market |
|
Fair |
|
|
Volumes |
|
Price |
|
Price |
|
Value |
|
Value |
|
Value |
Fair Value Hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Futures long: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 (crude oil and refined products) |
|
|
15,261 |
|
|
$ |
63.66 |
|
|
|
N/A |
|
|
$ |
972 |
|
|
$ |
949 |
|
|
$ |
(23 |
) |
Futures short: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 (crude oil and refined products) |
|
|
22,091 |
|
|
|
N/A |
|
|
$ |
64.56 |
|
|
|
1,426 |
|
|
|
1,379 |
|
|
|
47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps long: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 (crude oil and refined products) |
|
|
39,125 |
|
|
|
70.14 |
|
|
|
65.16 |
|
|
|
N/A |
|
|
|
(195 |
) |
|
|
(195 |
) |
Swaps short: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 (crude oil and refined products) |
|
|
39,125 |
|
|
|
69.66 |
|
|
|
76.30 |
|
|
|
N/A |
|
|
|
260 |
|
|
|
260 |
|
Futures long: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 (crude oil and refined products) |
|
|
21,087 |
|
|
|
64.75 |
|
|
|
N/A |
|
|
|
1,365 |
|
|
|
1,336 |
|
|
|
(29 |
) |
Futures short: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 (crude oil and refined products) |
|
|
18,356 |
|
|
|
N/A |
|
|
|
64.82 |
|
|
|
1,190 |
|
|
|
1,161 |
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic Hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps long: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 (crude oil and refined products) |
|
|
13,244 |
|
|
|
12.02 |
|
|
|
11.02 |
|
|
|
N/A |
|
|
|
(13 |
) |
|
|
(13 |
) |
2007 (natural gas) |
|
|
893 |
|
|
|
0.76 |
|
|
|
0.78 |
|
|
|
N/A |
|
|
|
- |
|
|
|
- |
|
Swaps short: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 (crude oil and refined products) |
|
|
7,605 |
|
|
|
26.47 |
|
|
|
27.66 |
|
|
|
N/A |
|
|
|
9 |
|
|
|
9 |
|
2007 (natural gas) |
|
|
833 |
|
|
|
0.85 |
|
|
|
0.89 |
|
|
|
N/A |
|
|
|
- |
|
|
|
- |
|
Futures long: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 (crude oil and refined products) |
|
|
50,442 |
|
|
|
64.28 |
|
|
|
N/A |
|
|
|
3,242 |
|
|
|
3,171 |
|
|
|
(71 |
) |
2007 (natural gas) |
|
|
400 |
|
|
|
7.33 |
|
|
|
N/A |
|
|
|
3 |
|
|
|
3 |
|
|
|
- |
|
Futures short: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 (crude oil and refined products) |
|
|
51,623 |
|
|
|
N/A |
|
|
|
64.15 |
|
|
|
3,312 |
|
|
|
3,252 |
|
|
|
60 |
|
2007 (natural gas) |
|
|
400 |
|
|
|
N/A |
|
|
|
8.21 |
|
|
|
3 |
|
|
|
3 |
|
|
|
- |
|
Options long: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 (crude oil and refined products) |
|
|
31 |
|
|
|
84.29 |
|
|
|
N/A |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Options short: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 (crude oil and refined products) |
|
|
1,478 |
|
|
|
N/A |
|
|
|
61.94 |
|
|
|
- |
|
|
|
(6 |
) |
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Futures long: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 (crude oil and refined products) |
|
|
801 |
|
|
|
77.29 |
|
|
|
N/A |
|
|
|
62 |
|
|
|
59 |
|
|
|
(3 |
) |
Futures short: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 (crude oil and refined products) |
|
|
801 |
|
|
|
N/A |
|
|
|
84.87 |
|
|
|
68 |
|
|
|
58 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pre-tax fair value of open positions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
INTEREST RATE RISK
The following table provides information about our long-term debt instruments (dollars in
millions), all of which are sensitive to changes in interest rates. Principal cash flows and
related weighted-average interest rates by expected maturity dates are presented. We had no
interest rate derivative instruments outstanding as of March 31, 2007 and December 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2007 |
|
|
Expected Maturity Dates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There- |
|
|
|
|
|
Fair |
|
|
2007 |
|
2008 |
|
2009 |
|
2010 |
|
2011 |
|
after |
|
Total |
|
Value |
Long-term Debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate |
|
$ |
287 |
|
|
$ |
6 |
|
|
$ |
209 |
|
|
$ |
33 |
|
|
$ |
418 |
|
|
$ |
3,946 |
|
|
$ |
4,899 |
|
|
$ |
5,158 |
|
Average interest rate |
|
|
6.1 |
% |
|
|
6.0 |
% |
|
|
3.6 |
% |
|
|
6.8 |
% |
|
|
6.4 |
% |
|
|
7.1 |
% |
|
|
6.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006 |
|
|
Expected Maturity Dates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There- |
|
|
|
|
|
Fair |
|
|
2007 |
|
2008 |
|
2009 |
|
2010 |
|
2011 |
|
after |
|
Total |
|
Value |
Long-term Debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate |
|
$ |
462 |
|
|
$ |
6 |
|
|
$ |
209 |
|
|
$ |
33 |
|
|
$ |
418 |
|
|
$ |
3,946 |
|
|
$ |
5,074 |
|
|
$ |
5,361 |
|
Average interest rate |
|
|
7.3 |
% |
|
|
6.0 |
% |
|
|
3.6 |
% |
|
|
6.8 |
% |
|
|
6.4 |
% |
|
|
7.1 |
% |
|
|
6.9 |
% |
|
|
|
|
FOREIGN CURRENCY RISK
As of March 31, 2007, we had commitments to purchase $286 million of U.S. dollars. Our market risk
was minimal on these contracts, as they matured on or before April 23, 2007, resulting in a $3
million loss in the second quarter of 2007.
42
Item 4. Controls and Procedures.
(a) Evaluation of disclosure controls and procedures.
Our management has evaluated, with the participation of our principal executive officer and
principal financial officer, the effectiveness of our disclosure controls and procedures (as
defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the
period covered by this report, and has concluded that our disclosure controls and procedures
were operating effectively as of March 31, 2007.
(b) Changes in internal control over financial reporting.
There has been no change in our internal control over financial reporting that occurred
during our last fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
The information below describes new proceedings or material developments in proceedings that we
previously reported in our annual report on Form 10-K for the year ended December 31, 2006.
Environmental Enforcement Matters
While it is not possible to predict the outcome of the following environmental proceedings, if any
one or more of them were decided against Valero, we believe that there would be no material effect
on our consolidated financial position or results of operations. We are reporting these
proceedings to comply with SEC regulations, which require us to disclose proceedings arising under
federal, state, or local provisions regulating the discharge of materials into the environment or
protecting the environment if we reasonably believe that such proceedings will result in monetary
sanctions of $100,000 or more.
New Jersey Department of Environmental Protection (NJDEP) (Paulsboro Refinery). In March 2007, the
NJDEP issued an Administrative Order and Notice of Civil Administrative Penalty Assessments
(Notice) to our Paulsboro Refinery alleging unauthorized air emissions and late reporting regarding
a release and flaring event that occurred in February 2007. The Notice contained a proposed
penalty of $112,500. We have appealed this Notice.
43
Item 1A. Risk Factors.
There have been no material changes from the risk factors disclosed in the Risk Factors section
of our annual report on Form 10-K for the year ended December 31, 2006.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(a) Unregistered Sales of Equity Securities. Not applicable.
(b) Use of Proceeds. Not applicable.
(c) Issuer Purchases of Equity Securities. The following table discloses purchases of shares
of Valeros common stock made by us or on our behalf for the periods shown below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
Total Number of |
|
|
Maximum Number (or |
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Not |
|
Shares Purchased |
|
|
Approximate Dollar |
|
|
|
|
|
Total |
|
Average |
|
Purchased as Part |
|
as Part of |
|
|
Value) of Shares that |
|
|
|
| |
Number of |
|
Price |
|
of Publicly |
|
Publicly |
|
|
May Yet Be Purchased |
|
|
|
|
|
Shares |
|
Paid per |
|
Announced Plans |
|
Announced Plans |
|
|
Under the Plans or |
Period |
|
|
Purchased |
|
Share |
|
or Programs (1) |
|
or Programs |
|
|
Programs (2) |
January 2007 |
|
|
|
|
192,587 |
|
|
|
|
$ |
50.95 |
|
|
192,587 |
|
|
|
0 |
|
|
|
$2.0 billion |
|
|
February 2007 |
|
|
|
|
5,902,619 |
|
|
|
|
$ |
56.82 |
|
|
1,226,427 |
|
|
|
4,676,192 |
|
|
|
$1.73 billion |
|
|
March 2007 |
|
|
|
|
9,469,214 |
|
|
|
|
$ |
58.99 |
|
|
91,502 |
|
|
|
9,377,712 |
|
|
|
$1.18 billion |
|
|
Total |
|
|
|
|
15,564,420 |
|
|
|
|
$ |
58.07 |
|
|
1,510,516 |
|
|
|
14,053,904 |
|
|
|
$1.18 billion |
|
|
|
(1) |
|
The shares reported in this column represent purchases settled in the first quarter
of 2007 relating to (a) our purchases of shares in open-market transactions to meet our
obligations under employee benefit plans, and (b) our purchases of shares from our
employees and non-employee directors in connection with the exercise of stock options,
the vesting of restricted stock, and other stock compensation transactions in
accordance with the terms of our incentive compensation plans. |
|
|
(2) |
|
During the first quarter of 2007, we purchased shares under the $2 billion
common stock purchase program approved by our board of directors in October 2006. On
April 26, 2007, we publicly announced an increase in our common stock purchase program
from $2 billion to $6 billion, including a $3 billion accelerated share repurchase
program, as authorized by our board of directors on April 25, 2007. The $6 billion
common stock purchase program has no expiration date. The $6 billion common stock
purchase program is more fully described above in Note 7 of Condensed Notes to
Consolidated Financial Statements, and we hereby incorporate by reference into this
Item our disclosures made in Note
7. |
44
Item 6. Exhibits.
|
|
|
Exhibit No. |
|
Description |
|
|
|
*12.01
|
|
Statements of Computations of Ratios of Earnings to Fixed
Charges and Ratios of Earnings to Fixed Charges and Preferred
Stock Dividends. |
|
|
|
*31.01
|
|
Rule 13a-14(a) Certifications (under Section 302 of the
Sarbanes-Oxley Act of 2002). |
|
|
|
*32.01
|
|
Section 1350 Certifications (as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002). |
45
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
|
VALERO ENERGY CORPORATION
|
|
|
|
|
(Registrant)
|
|
|
|
By: |
/s/ Michael S. Ciskowski
|
|
|
|
|
Michael S. Ciskowski |
|
|
|
|
Executive Vice President and
Chief Financial Officer
(Duly Authorized Officer and Principal
Financial and Accounting Officer) |
|
|
Date: May 9, 2007
46