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Form 10-Q VALERO ENERGY CORP/TX For: Sep 30

October 26, 2022 5:10 PM EDT

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VALERO ENERGY CORP/TX0001035002FALSE2022Q3--12-31Includes excise taxes on sales by certain of our foreign operations of $1,213 million and $1,610 million for the three months ended September 30, 2022 and 2021, respectively, and $3,890 million and $4,152 million for the nine months ended September 30, 2022 and 2021, 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
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 001-13175
vlo-20220930_g1.jpg
VALERO ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware74-1828067
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification No.)
One Valero Way
San Antonio, Texas
(Address of principal executive offices)
78249
(Zip Code)
(210345-2000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stockVLONew York Stock Exchange
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  No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerNon-accelerated filer
Smaller reporting companyEmerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 
The number of shares of the registrant’s only class of common stock, $0.01 par value, outstanding as of October 21, 2022 was 385,523,278.



VALERO ENERGY CORPORATION
TABLE OF CONTENTS
Page


i


PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

VALERO ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(millions of dollars, except par value)
September 30,
2022
December 31,
2021
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents$3,969 $4,122 
Receivables, net11,581 10,378 
Inventories6,628 6,265 
Prepaid expenses and other518 400 
Total current assets22,696 21,165 
Property, plant, and equipment, at cost49,638 49,072 
Accumulated depreciation(19,130)(18,225)
Property, plant, and equipment, net30,508 30,847 
Deferred charges and other assets, net6,125 5,876 
Total assets$59,329 $57,888 
LIABILITIES AND EQUITY
Current liabilities:
Current portion of debt and finance lease obligations$1,006 $1,264 
Accounts payable13,003 12,495 
Accrued expenses1,265 1,253 
Taxes other than income taxes payable1,311 1,461 
Income taxes payable652 378 
Total current liabilities17,237 16,851 
Debt and finance lease obligations, less current portion10,570 12,606 
Deferred income tax liabilities4,938 5,210 
Other long-term liabilities2,869 3,404 
Commitments and contingencies
Equity:
Valero Energy Corporation stockholders’ equity:
Common stock, $0.01 par value; 1,200,000,000 shares authorized;
673,501,593 and 673,501,593 shares issued
7 7 
Additional paid-in capital6,858 6,827 
Treasury stock, at cost;
287,978,793 and 264,305,955 common shares
(18,466)(15,677)
Retained earnings35,510 28,281 
Accumulated other comprehensive loss(1,997)(1,008)
Total Valero Energy Corporation stockholders’ equity21,912 18,430 
Noncontrolling interests1,803 1,387 
Total equity23,715 19,817 
Total liabilities and equity$59,329 $57,888 
See Condensed Notes to Consolidated Financial Statements.

1


VALERO ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(millions of dollars, except per share amounts)
(unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
Revenues (a)$44,454 $29,520 $134,637 $78,074 
Cost of sales:
Cost of materials and other38,064 26,624 115,959 70,865 
Operating expenses (excluding depreciation and amortization
expense reflected below)
1,746 1,348 4,751 4,218 
Depreciation and amortization expense621 630 1,806 1,772 
Total cost of sales40,431 28,602 122,516 76,855 
Other operating expenses6 19 40 69 
General and administrative expenses (excluding depreciation and
amortization expense reflected below)
214 195 652 579 
Depreciation and amortization expense11 11 34 35 
Operating income3,792 693 11,395 536 
Other income, net74 32 87 179 
Interest and debt expense, net of capitalized interest(138)(152)(425)(451)
Income before income tax expense3,728 573 11,057 264 
Income tax expense816 65 2,410 86 
Net income2,912 508 8,647 178 
Less: Net income attributable to noncontrolling interests95 45 232 257 
Net income (loss) attributable to Valero Energy Corporation
stockholders
$2,817 $463 $8,415 $(79)
Earnings (loss) per common share$7.20 $1.13 $20.94 $(0.20)
Weighted-average common shares outstanding (in millions)390 407 400 407 
Earnings (loss) per common share – assuming dilution$7.19 $1.13 $20.93 $(0.20)
Weighted-average common shares outstanding –
assuming dilution (in millions)
390 408 401 407 
__________________________
Supplemental information:
(a) Includes excise taxes on sales by certain of our foreign
operations
$1,213 $1,610 $3,890 $4,152 

See Condensed Notes to Consolidated Financial Statements.

2


VALERO ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(millions of dollars)
(unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
Net income$2,912 $508 $8,647 $178 
Other comprehensive loss:
Foreign currency translation adjustment(606)(259)(1,035)(114)
Net gain on pension and other postretirement
benefits
8 16 25 44 
Net gain (loss) on cash flow hedges69 (17)74 (14)
Other comprehensive loss before
income tax expense (benefit)
(529)(260)(936)(84)
Income tax expense (benefit) related to items of
other comprehensive loss
9 (1)16 8 
Other comprehensive loss(538)(259)(952)(92)
Comprehensive income2,374 249 7,695 86 
Less: Comprehensive income attributable
to noncontrolling interests
129 35 269 249 
Comprehensive income (loss) attributable to
Valero Energy Corporation stockholders
$2,245 $214 $7,426 $(163)

See Condensed Notes to Consolidated Financial Statements.

3


VALERO ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY
(millions of dollars)
(unaudited)
Valero Energy Corporation Stockholders’ Equity
Common
Stock
Additional
Paid-in
Capital
Treasury
Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
TotalNon-
controlling
Interests
Total
Equity
Balance as of June 30, 2022$7 $6,845 $(17,537)$33,079 $(1,425)$20,969 $1,764 $22,733 
Net income— — — 2,817 — 2,817 95 2,912 
Dividends on common stock
($0.98 per share)
— — — (386)— (386)— (386)
Stock-based compensation
expense
— 13 — — — 13 — 13 
Transactions in connection
with stock-based
compensation plans
— — (1)— — (1)— (1)
Purchases of common stock for
treasury
— — (928)— — (928)— (928)
Distributions to noncontrolling
interests
— — — — — — (90)(90)
Other comprehensive
income (loss)
— — — — (572)(572)34 (538)
Balance as of September 30, 2022$7 $6,858 $(18,466)$35,510 $(1,997)$21,912 $1,803 $23,715 
Balance as of June 30, 2021$7 $6,819 $(15,696)$27,610 $(1,089)$17,651 $1,053 $18,704 
Net income— — — 463 — 463 45 508 
Dividends on common stock
($0.98 per share)
— — — (400)— (400)— (400)
Stock-based compensation
expense
— 11 — — — 11 — 11 
Contributions from
noncontrolling interests
— — — — — — 25 25 
Other comprehensive loss— — — — (249)(249)(10)(259)
Balance as of September 30, 2021$7 $6,830 $(15,696)$27,673 $(1,338)$17,476 $1,113 $18,589 

See Condensed Notes to Consolidated Financial Statements.

4


VALERO ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY (Continued)
(millions of dollars)
(unaudited)
Valero Energy Corporation Stockholders’ Equity
Common
Stock
Additional
Paid-in
Capital
Treasury
Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
TotalNon-
controlling
Interests
Total
Equity
Balance as of December 31, 2021$7 $6,827 $(15,677)$28,281 $(1,008)$18,430 $1,387 $19,817 
Net income— — — 8,415 — 8,415 232 8,647 
Dividends on common stock
($2.94 per share)
— — — (1,186)— (1,186)— (1,186)
Stock-based compensation
expense
— 60 — — — 60 — 60 
Transactions in connection
with stock-based
compensation plans
— (29)31 — — 2 — 2 
Purchases of common stock for
treasury
— — (2,820)— — (2,820)— (2,820)
Contributions from noncontrolling
interests
— — — — — — 240 240 
Distributions to noncontrolling
interests
— — — — — — (93)(93)
Other comprehensive
income (loss)
— — — — (989)(989)37 (952)
Balance as of September 30, 2022$7 $6,858 $(18,466)$35,510 $(1,997)$21,912 $1,803 $23,715 
Balance as of December 31, 2020$7 $6,814 $(15,719)$28,953 $(1,254)$18,801 $841 $19,642 
Net income (loss)— — — (79)— (79)257 178 
Dividends on common stock
($2.94 per share)
— — — (1,201)— (1,201)— (1,201)
Stock-based compensation
expense
— 52 — — — 52 — 52 
Transactions in connection
with stock-based
compensation plans
— (36)38 — — 2 — 2 
Purchases of common stock for
treasury
— — (15)— — (15)— (15)
Contributions from
noncontrolling interests
— — — — — — 25 25 
Distributions to noncontrolling
interests
— — — — — — (2)(2)
Other comprehensive loss— — — — (84)(84)(8)(92)
Balance as of September 30, 2021$7 $6,830 $(15,696)$27,673 $(1,338)$17,476 $1,113 $18,589 

See Condensed Notes to Consolidated Financial Statements.

5


VALERO ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions of dollars)
(unaudited)
Nine Months Ended
September 30,
20222021
Cash flows from operating activities:
Net income$8,647 $178 
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization expense1,840 1,807 
Loss on early retirement of debt24  
Gain on sale of assets (62)
Deferred income tax benefit(161)(150)
Changes in current assets and current liabilities(1,617)1,630 
Changes in deferred charges and credits and other operating activities, net(255)2 
Net cash provided by operating activities8,478 3,405 
Cash flows from investing activities:
Capital expenditures (excluding variable interest entities (VIEs))(552)(368)
Capital expenditures of VIEs:
Diamond Green Diesel Holdings LLC (DGD)(682)(730)
Other VIEs(30)(59)
Deferred turnaround and catalyst cost expenditures (excluding VIEs)(820)(544)
Deferred turnaround and catalyst cost expenditures of DGD(13)(6)
Proceeds from sale of assets32 270 
Investments in nonconsolidated joint ventures(1)(8)
Other investing activities, net(4)33 
Net cash used in investing activities(2,070)(1,412)
Cash flows from financing activities:
Proceeds from debt issuances and borrowings (excluding VIEs)1,839  
Proceeds from borrowings of VIEs:
DGD684 100 
Other VIEs73 29 
Repayments of debt and finance lease obligations (excluding VIEs)(4,234)(672)
Repayments of debt and finance lease obligations of VIEs:
DGD(718) 
Other VIEs(51)(4)
Premiums paid on early retirement of debt(48) 
Purchases of common stock for treasury(2,769)(15)
Common stock dividend payments(1,186)(1,201)
Contributions from noncontrolling interests240 25 
Distributions to noncontrolling interests(93)(2)
Other financing activities, net(6)1 
Net cash used in financing activities(6,269)(1,739)
Effect of foreign exchange rate changes on cash(292)(69)
Net increase (decrease) in cash and cash equivalents(153)185 
Cash and cash equivalents at beginning of period4,122 3,313 
Cash and cash equivalents at end of period$3,969 $3,498 
See Condensed Notes to Consolidated Financial Statements.

6





VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation
General
The terms “Valero,” “we,” “our,” and “us,” as used in this report, may refer to Valero Energy Corporation, one or more of its consolidated subsidiaries, or all of them taken as a whole. The term “DGD,” as used in this report, may refer to Diamond Green Diesel Holdings LLC, its wholly owned consolidated subsidiary, or both of them taken as a whole.

These unaudited financial statements have been prepared in accordance with United States (U.S.) 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 financial statements. In the opinion of management, these interim financial statements reflect all adjustments considered necessary for a fair statement of our results for the interim periods presented. All such adjustments are of a normal recurring nature unless disclosed otherwise. Operating results for the interim periods are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. The financial statements presented herein should be read in conjunction with the financial statements included in our annual report on Form 10-K for the year ended December 31, 2021.

The balance sheet as of December 31, 2021 has been derived from our audited financial statements as of that date. For further information, refer to our financial statements and notes thereto included in our annual report on Form 10-K for the year ended December 31, 2021.

Significant Accounting Policy
Use of Estimates
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. On an ongoing basis, we review our estimates based on currently available information. Changes in facts and circumstances may result in revised estimates.

2.    INVENTORIES

Inventories consisted of the following (in millions):
September 30,
2022
December 31,
2021
Refinery feedstocks$1,781 $1,995 
Refined petroleum products and blendstocks
4,008 3,567 
Renewable diesel feedstocks and products
310 135 
Ethanol feedstocks and products228 273 
Materials and supplies301 295 
Inventories$6,628 $6,265 


7





VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of September 30, 2022 and December 31, 2021, the replacement cost (market value) of last-in, first-out (LIFO) inventories exceeded their LIFO carrying amounts by $8.6 billion and $5.2 billion, respectively. Our non-LIFO inventories accounted for $1.3 billion and $1.4 billion of our total inventories as of September 30, 2022 and December 31, 2021, respectively.

3.    PROPERTY, PLANT, AND EQUIPMENT

In June 2022, we sold our ethanol plant in Jefferson, Wisconsin for $32 million, which resulted in a gain of $23 million that is included in depreciation and amortization expense for the nine months ended September 30, 2022.

The Jefferson plant was temporarily idled in 2020 at the onset of the COVID-19 pandemic in response to the decreased demand for ethanol resulting from the effects of the pandemic on our business, and we had previously evaluated this plant for potential impairment assuming that operations would resume. However, we completed an evaluation of the plant during the third quarter of 2021 and concluded that it was no longer a strategic asset for our ethanol business. The plant’s operations permanently ceased at that time and we reduced its estimated useful life, which reduced its net book value to estimated salvage value. The additional depreciation expense of $48 million for the three and nine months ended September 30, 2021 resulting from this change did not have a material impact on our results of operations nor was there a material impact to our financial position.

4.    DEBT

Public Debt
During the nine months ended September 30, 2022, the following activity occurred:

In September 2022, we used cash on hand to purchase and retire the following notes in connection with cash tender offers that we publicly announced in August 2022 and completed in September 2022 (in millions):
Debt Purchased and RetiredPrincipal
Amount
3.65% Senior Notes due 2025
$48 
2.850% Senior Notes due 2025
291 
4.375% VLP Senior Notes due 2026
62 
3.400% Senior Notes due 2026
166 
4.350% Senior Notes due 2028
131 
4.000% Senior Notes due 2029
552 
Total$1,250 

In connection with the early debt retirement activity described above, we recognized a net gain of $26 million in “other income, net” primarily comprised of $36 million of discounts.


8





VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In June 2022, we reduced our debt through the acquisition of the $300 million of 4.00 percent Gulf Opportunity Zone Revenue Bonds Series 2010 (GO Zone Bonds) that are due December 1, 2040, but were subject to mandatory tender on June 1, 2022. We have the option to effectuate a remarketing of these bonds.

In February 2022, we issued $650 million of 4.000 percent Senior Notes due June 1, 2052. Proceeds from this debt issuance totaled $639 million before deducting the underwriting discount and other debt issuance costs. The proceeds and cash on hand were used to purchase and retire the following notes in connection with cash tender offers that we publicly announced and completed in February 2022 (in millions):
Debt Purchased and RetiredPrincipal
Amount
3.65% Senior Notes due 2025
$72 
2.850% Senior Notes due 2025
507 
4.375% VLP Senior Notes due 2026
168 
3.400% Senior Notes due 2026
653 
Total$1,400 

In connection with the early debt retirement activity described above, we recognized a charge of $50 million in “other income, net” primarily comprised of $48 million of premiums paid.

In September 2021, we redeemed our Floating Rate Senior Notes due September 15, 2023 for $575 million.

9





VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Credit Facilities
We had outstanding borrowings, letters of credit issued, and availability under our credit facilities as follows (amounts in millions and currency in U.S. dollars, except as noted):
September 30, 2022
Facility
Amount
Maturity DateOutstanding
Borrowings
Letters of Credit
Issued (a)
Availability
Committed facilities:
Valero Revolver$4,000 March 2024$ $538 $3,462 
Canadian RevolverC$150 November 2022C$ C$5 C$145 
Accounts receivable
sales facility
$1,300 July 2023$ n/a$1,300 
Letter of credit facility$50 November 2022n/a$ $50 
Committed facilities of
VIEs (b):
DGD Revolver (c)$400 March 2024$100 $8 $292 
DGD Loan Agreement (d)$25 April 2023$ n/a$25 
IEnova Revolver (e)$830 February 2028$705 n/a$125 
Uncommitted facilities:
Letter of credit facilitiesn/an/an/a$1,613 n/a
________________________
(a)Letters of credit issued as of September 30, 2022 expire at various times in 2022 through 2023.
(b)Creditors of the VIEs do not have recourse against us.
(c)The variable interest rate on the DGD Revolver was 4.320 percent and 1.860 percent as of September 30, 2022 and December 31, 2021, respectively.
(d)The amounts shown for this facility represent the facility amount available from, and borrowings outstanding to, the noncontrolling member as any transactions between DGD and us under this facility are eliminated in consolidation. The variable interest rate on the DGD Loan Agreement was 5.133 percent and 2.603 percent as of September 30, 2022 and December 31, 2021, respectively.
(e)The variable interest rate on the IEnova Revolver was 5.927 percent and 3.781 percent as of September 30, 2022 and December 31, 2021, respectively.


10





VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Activity under our credit facilities was as follows (in millions):
Nine Months Ended
September 30,
20222021
Borrowings:
Accounts receivable sales facility$1,200 $ 
DGD Revolver659