Valero Records Loss Contingency Accrual for Aruba Tax Dispute and Updates Earnings Release Tables
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SAN ANTONIO--(BUSINESS WIRE)-- Valero Energy Corporation (NYSE: VLO) announced today that, on Nov. 3, an arbitration panel in the Netherlands handed down an interim decision on certain issues in dispute between Valero and the Government of Aruba. The panel ruled favorably on Valero's existing exemption from income tax liability for refining operations through 2010. Two other items in the arbitration - the applicable dividend tax rate and the turnover tax - were not fully resolved in the panel's decision and remain subject to further review. Valero continues to believe that its remaining claims against these taxes have significant merit, and intends to vigorously pursue these claims through the arbitration proceedings and in proceedings in Aruba.
Valero had not recognized any expense or liability with respect to these matters in its consolidated financial statements or in the company's third quarter earnings release issued Oct. 27, 2009. Due to the uncertain timing of the panel's final ruling, the company has recorded a loss contingency accrual of approximately $140 million, or $(0.25) per share, in its financial results for the quarter ended Sept. 30, 2009. The accrual includes all material liabilities through Sept. 30, 2009 associated with the arbitration.
The company has filed its Form 10-Q for the quarter ended Sept. 30, 2009 and has reflected these amounts in the company's financial statements. A more detailed discussion of these matters is included in Note 14 of the company's financial statements on Form 10-Q. The company's third quarter 2009 earnings release tables have been updated to reflect this accrual. The updated tables are attached to this press release.
About Valero:
Valero Energy Corporation is a Fortune 500 company based in San Antonio with approximately 22,000 employees and 2008 revenues of $119 billion. The company owns and operates 16 refineries throughout the United States, Canada and the Caribbean with a combined throughput capacity of approximately three million barrels per day, making it the largest refiner in North America. Valero is also a leading ethanol producer with seven ethanol plants in the Midwest with a combined capacity of 780 million gallons per year, and is one of the nation's largest retail operators with approximately 5,800 retail and branded wholesale outlets in the United States, Canada and the Caribbean under the Valero, Diamond Shamrock, Shamrock, Ultramar, and Beacon brands. Please visit www.valero.com for more information.
VALERO ENERGY CORPORATION AND SUBSIDIARIES
EARNINGS RELEASE
(Millions of Dollars, Except per Share, per Barrel, and per Gallon Amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2009 (1) 2008 (2) 2009 (1) 2008 (2)
STATEMENT OF INCOME DATA:
Operating Revenues (3) $ 19,489 $ 35,960 $ 51,238 $ 100,545
Costs and Expenses:
Cost of Sales 18,104 32,506 46,275 91,848
Operating Expenses 923 1,136 2,778 3,383
Retail Selling Expenses 182 201 522 579
General and 167 169 435 421
Administrative Expenses
Depreciation and 389 370 1,156 1,106
Amortization Expense
Asset Impairment Loss 417 43 575 43
(4)
Gain on Sale of Krotz - (305 ) - (305 )
Springs Refinery (2)
Total Costs and 20,182 34,120 51,741 97,075
Expenses
Operating Income (Loss) (693 ) 1,840 (503 ) 3,470
Other Income (Expense), 9 36 (16 ) 71
Net
Interest and Debt
Expense:
Incurred (149 ) (112 ) (386 ) (335 )
Capitalized 19 31 95 74
Income (Loss) Before
Income Tax Expense (814 ) 1,795 (810 ) 3,280
(Benefit)
Income Tax Expense (185 ) 643 (236 ) 1,133
(Benefit)
Net Income (Loss) $ (629 ) $ 1,152 $ (574 ) $ 2,147
Earnings (Loss) per $ (1.12 ) $ 2.20 $ (1.08 ) $ 4.07
Common Share (5)
Weighted Average Common
Shares
Outstanding (in 561 522 534 526
millions)
Earnings (Loss) per
Common Share - Assuming $ (1.12 ) $ 2.18 $ (1.08 ) $ 4.02
Dilution
Weighted Average Common
Shares Outstanding-
Assuming Dilution (in 561 529 534 535
millions) (6)
September 30, December 31,
2009 2008
BALANCE SHEET DATA:
Cash and Temporary Cash $ 1,605 $ 940
Investments
Total Debt $ 7,375 $ 6,576
VALERO ENERGY CORPORATION AND SUBSIDIARIES
EARNINGS RELEASE
(Millions of Dollars, Except per Share, per Barrel, and per Gallon Amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 (2) 2009 2008 (2)
Operating Income (Loss) by Business
Segment:
Refining $ (674 ) $ 1,913 $ (335 ) $ 3,716
Retail:
U.S. 79 81 140 120
Canada 32 26 92 86
Total Retail 111 107 232 206
Ethanol (1) 49 - 71 -
Total Before Corporate (514 ) 2,020 (32 ) 3,922
Corporate (179 ) (180 ) (471 ) (452 )
Total $ (693 ) $ 1,840 $ (503 ) $ 3,470
Depreciation and Amortization by
Business Segment:
Refining $ 345 $ 331 $ 1,035 $ 998
Retail:
U.S. 17 18 52 51
Canada 8 10 22 26
Total Retail 25 28 74 77
Ethanol (1) 7 - 12 -
Total Before Corporate 377 359 1,121 1,075
Corporate 12 11 35 31
Total $ 389 $ 370 $ 1,156 $ 1,106
Operating Highlights:
Refining:
Throughput Margin per Barrel $ 4.86 $ 13.11 $ 6.09 $ 10.80
Operating Costs per Barrel (4):
Refining Operating Expenses $ 3.94 $ 4.78 $ 4.01 $ 4.66
Depreciation and Amortization 1.58 1.39 1.55 1.38
Total Operating Costs per Barrel $ 5.52 $ 6.17 $ 5.56 $ 6.04
Throughput Volumes (Mbbls per
Day):
Feedstocks:
Heavy Sour Crude 443 565 489 580
Medium/Light Sour Crude 544 670 582 680
Acidic Sweet Crude 24 75 80 76
Sweet Crude 676 578 619 622
Residuals 211 282 193 242
Other Feedstocks 179 136 177 141
Total Feedstocks 2,077 2,306 2,140 2,341
Blendstocks and Other 302 281 305 306
Total Throughput Volumes 2,379 2,587 2,445 2,647
Yields (Mbbls per Day):
Gasolines and Blendstocks 1,207 1,136 1,176 1,197
Distillates 744 906 789 920
Petrochemicals 72 66 67 74
Other Products (7) 360 464 409 449
Total Yields 2,383 2,572 2,441 2,640
VALERO ENERGY CORPORATION AND SUBSIDIARIES
EARNINGS RELEASE
(Millions of Dollars, Except per Share, per Barrel, and per Gallon Amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Refining Operating Highlights by
Region (8):
Gulf Coast (2):
Operating Income (Loss) $ (81 ) $ 1,159 $ 28 $ 2,639
Throughput Volumes (Mbbls per 1,238 1,324 1,316 1,399
Day)
Throughput Margin per Barrel $ 4.66 $ 13.21 $ 5.22 $ 12.01
Operating Costs per Barrel (4):
Refining Operating Expenses $ 3.81 $ 4.83 $ 3.65 $ 4.62
Depreciation and Amortization 1.57 1.37 1.49 1.30
Total Operating Costs per $ 5.38 $ 6.20 $ 5.14 $ 5.92
Barrel
Mid-Continent:
Operating Income $ 5 $ 296 $ 197 $ 514
Throughput Volumes (Mbbls per 374 426 381 426
Day)
Throughput Margin per Barrel $ 5.38 $ 13.23 $ 7.18 $ 9.94
Operating Costs per Barrel (4):
Refining Operating Expenses $ 3.69 $ 4.41 $ 3.72 $ 4.25
Depreciation and Amortization 1.53 1.28 1.57 1.29
Total Operating Costs per $ 5.22 $ 5.69 $ 5.29 $ 5.54
Barrel
Northeast:
Operating Income (Loss) $ (134 ) $ 387 $ (203 ) $ 357
Throughput Volumes (Mbbls per 485 552 467 545
Day)
Throughput Margin per Barrel $ 2.86 $ 13.53 $ 4.94 $ 8.50
Operating Costs per Barrel (4):
Refining Operating Expenses $ 4.26 $ 4.54 $ 4.90 $ 4.69
Depreciation and Amortization 1.59 1.36 1.62 1.42
Total Operating Costs per $ 5.85 $ 5.90 $ 6.52 $ 6.11
Barrel
West Coast:
Operating Income $ 67 $ 114 $ 331 $ 249
Throughput Volumes (Mbbls per 282 285 281 277
Day)
Throughput Margin per Barrel $ 8.51 $ 11.60 $ 10.59 $ 10.55
Operating Costs per Barrel (4):
Refining Operating Expenses $ 4.35 $ 5.53 $ 4.60 $ 5.50
Depreciation and Amortization 1.58 1.70 1.67 1.76
Total Operating Costs per $ 5.93 $ 7.23 $ 6.27 $ 7.26
Barrel
Operating Income (Loss) for Regions $ (143 ) $ 1,956 $ 353 $ 3,759
Above
Asset Impairment Loss Applicable to (417 ) (43 ) (574 ) (43 )
Refining
Loss Contingency Accrual Related to
Aruban
Tax Matter (9) (114 ) - (114 ) -
Total Refining Operating Income $ (674 ) $ 1,913 $ (335 ) $ 3,716
(Loss)
VALERO ENERGY CORPORATION AND SUBSIDIARIES
EARNINGS RELEASE
(Millions of Dollars, Except per Share, per Barrel, and per Gallon Amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Retail - U.S.:
Company-Operated Fuel Sites 998 984 1,001 961
(Average)
Fuel Volumes (Gallons per Day per 4,963 4,946 5,022 4,997
Site)
Fuel Margin per Gallon $ 0.231 $ 0.273 $ 0.157 $ 0.173
Merchandise Sales $ 315 $ 292 $ 888 $ 819
Merchandise Margin (Percentage of 28.7 % 29.8 % 29.2 % 30.0 %
Sales)
Margin on Miscellaneous Sales $ 22 $ 24 $ 66 $ 74
Selling Expenses $ 120 $ 134 $ 349 $ 375
Retail - Canada:
Fuel Volumes (Thousand Gallons 3,115 3,126 3,155 3,169
per Day)
Fuel Margin per Gallon $ 0.263 $ 0.261 $ 0.255 $ 0.278
Merchandise Sales $ 58 $ 56 $ 146 $ 156
Merchandise Margin (Percentage of 28.6 % 28.6 % 29.1 % 28.5 %
Sales)
Margin on Miscellaneous Sales $ 10 $ 10 $ 25 $ 29
Selling Expenses $ 62 $ 67 $ 173 $ 204
Ethanol (1):
Ethanol Production (Thousand 2,116 N/A 1,229 N/A
Gallons per Day)
Gross Margin per Gallon of $ 0.59 N/A $ 0.55 N/A
Ethanol Production
Operating Costs per Gallon of
Ethanol Production:
Ethanol Operating Expenses $ 0.31 N/A $ 0.31 N/A
Depreciation and Amortization 0.03 N/A 0.03 N/A
Total Operating Costs per $ 0.34 N/A $ 0.34 N/A
Gallon of Ethanol Production
Average Market Reference Prices
and Differentials
(Dollars per Barrel):
Feedstocks (at U.S. Gulf Coast):
West Texas Intermediate (WTI) $ 68.18 $ 117.83 $ 56.90 $ 113.25
Crude Oil
WTI Less Sour Crude Oil (10) $ 1.72 $ 4.05 $ 1.25 $ 5.20
WTI Less Mars Crude Oil $ 1.78 $ 5.26 $ 1.06 $ 6.40
WTI Less Maya Crude Oil $ 5.01 $ 11.36 $ 4.68 $ 16.39
Products:
U.S. Gulf Coast:
Conventional 87 Gasoline Less $ 7.85 $ 12.13 $ 8.85 $ 7.66
WTI
No. 2 Fuel Oil Less WTI $ 4.53 $ 19.27 $ 6.40 $ 19.17
Ultra-Low-Sulfur Diesel Less $ 6.99 $ 23.91 $ 8.59 $ 24.38
WTI
Propylene Less WTI $ 8.22 $ 7.21 $ (3.05 ) $ (0.11 )
U.S. Mid-Continent:
Conventional 87 Gasoline Less $ 8.11 $ 8.62 $ 9.09 $ 6.49
WTI
Low-Sulfur Diesel Less WTI $ 8.01 $ 25.55 $ 8.63 $ 25.10
U.S. Northeast:
Conventional 87 Gasoline Less $ 8.34 $ 5.80 $ 8.78 $ 4.62
WTI
No. 2 Fuel Oil Less WTI $ 4.95 $ 19.86 $ 7.68 $ 20.85
Lube Oils Less WTI $ 28.89 $ 89.33 $ 40.54 $ 51.75
U.S. West Coast:
CARBOB 87 Gasoline Less WTI $ 18.00 $ 11.28 $ 18.40 $ 12.13
CARB Diesel Less WTI $ 9.29 $ 22.94 $ 10.30 $ 24.57
VALERO ENERGY CORPORATION AND SUBSIDIARIES
EARNINGS RELEASE
(Millions of Dollars, Except per Share, per Barrel, and per Gallon Amounts)
(Unaudited)
The information presented for the three and nine months ended September
30, 2009 includes the operations related to the acquisition of certain
ethanol plants from VeraSun Energy Corporation. Ethanol plants located in
Charles City, Fort Dodge and Hartley, Iowa; Aurora, South Dakota; and
(1) Welcome, Minnesota were purchased on April 1, 2009, and ethanol plants in
Albert City, Iowa and Albion, Nebraska were purchased on April 9, 2009 and
May 8, 2009, respectively. The ethanol production volumes reflected in
this earnings release for the nine months ended September 30, 2009 are
based on 273 calendar days rather than the actual daily production, which
varied by facility.
Effective July 1, 2008, Valero sold its Krotz Springs Refinery to Alon
Refining Krotz Springs, Inc. (Alon), a subsidiary of Alon USA Energy, Inc.
The nature and significance of Valero's post-closing participation in an
offtake agreement with Alon represents a continuation of activities with
the Krotz Springs Refinery for accounting purposes, and as such the
results of operations related to the Krotz Springs Refinery have not been
(2) presented as discontinued operations in the Statement of Income Data for
the three and nine months ended September 30, 2008. The refining operating
highlights, both consolidated and for the Gulf Coast region, presented in
this earnings release include the Krotz Springs Refinery for the nine
months ended September 30, 2008. The pre-tax gain of $305 million on the
sale of the Krotz Springs Refinery is included in the Gulf Coast operating
income for the three and nine months ended September 30, 2008.
Includes excise taxes on sales by Valero's U.S. retail system of $226
(3) million and $207 million for the three months ended September 30, 2009 and
2008, respectively, and $659 million and $605 million for the nine months
ended September 30, 2009 and 2008, respectively.
The asset impairment loss for the three months ended September 30, 2009
relates primarily to charges of approximately $340 million resulting from
the permanent shutdown of the gasification unit at Valero's Delaware City
Refinery. The remaining loss for the three months ended September 30, 2009
relates to the permanent cancellation of certain capital projects
classified as "construction in progress" as a result of the unfavorable
(4) impact of the continuing economic slowdown on refining industry
fundamentals. Losses resulting from the permanent cancellation of certain
capital projects classified as "construction in progress" in prior periods
have been reclassified from Operating Expenses and presented separately
for comparability with the third quarter 2009 presentation. The asset
impairment loss amounts for all periods have been excluded from operating
costs in determining operating costs per barrel, resulting in an
adjustment to the operating costs per barrel previously reported in 2008.
Effective January 1, 2009, Valero adopted certain new accounting rules
that require restricted stock granted under Valero's stock-based
compensation plans to be treated as participating securities under the
two-class method of determining basic earnings per common share. Basic
(5) earnings per common share for prior periods are to be adjusted to conform
to these new rules. The adoption of the new rules did not have any effect
on the calculation of basic earnings per common share for the three and
nine months ended September 30, 2009, but did reduce the $2.21 and $4.08
basic earnings per common share amounts originally reported for the three
and nine months ended September 30, 2008, respectively.
Common equivalent shares have been excluded from the computation of
(6) diluted earnings (loss) per common share for the three and nine months
ended September 30, 2009 as the effect of including such shares would be
antidilutive.
(7) Primarily includes gas oils, No. 6 fuel oil, petroleum coke, and asphalt.
The regions reflected herein contain the following refineries: Gulf Coast-
Corpus Christi East, Corpus Christi West, Texas City, Houston, Three
(8) Rivers, Krotz Springs (prior to its sale effective July 1, 2008), St.
Charles, Aruba, and Port Arthur Refineries; Mid-Continent-McKee, Ardmore,
and Memphis Refineries; Northeast- Quebec City, Paulsboro, and Delaware
City Refineries; and West Coast-Benicia and Wilmington Refineries.
A loss contingency accrual of $140 million ($.25 per share) was recorded
in the third quarter of 2009 related to Valero's dispute with the
Government of Aruba regarding a turnover tax on export sales as well as
(9) other tax matters. The portion of the loss contingency accrual that
relates to the turnover tax was recorded in cost of sales for the three
and nine months ended September 30, 2009, and therefore is included in
refining operating income (loss) but has been excluded in determining
throughput margin per barrel.
(10) The market reference differential for sour crude oil is based on 50% Arab
Medium and 50% Arab Light posted prices.
Source: Valero Energy Corporation
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