Valero Energy Corporation — 2009 Form 10-K
Reporting period: Fiscal year ended December 31, 2009. This is an annual filing, not a standalone fourth-quarter report; selected fourth-quarter results are noted below. Valero operated refining, retail, and—following acquisitions—ethanol businesses.
Business context and key financial metrics
Valero owned 15 refineries with approximately 2.78 million barrels per day of throughput capacity at year-end; the Aruba refinery was idle from July 2009. It also operated seven ethanol plants acquired during 2009, with about 780 million gallons of annual capacity at December 31.
| Metric | 2009 | 2008 |
|---|---|---|
| Operating revenues | $68.144 billion | $113.136 billion |
| Operating income (loss), continuing operations | $(58) million | $761 million |
| Income (loss) from continuing operations | $(352) million | $(1.012) billion |
| Net income (loss), including discontinued operations | $(1.982) billion | $(1.131) billion |
| Diluted loss per share | $(3.67) | $(2.16) |
| Cash provided by operating activities | $1.823 billion | $3.095 billion |
| Capital expenditures and turnaround/catalyst costs | $2.721 billion | $3.301 billion |
Refining throughput margin fell to $5.85 per barrel from $11.10, while throughput declined to 2.272 million barrels per day from 2.477 million. Refining operating income was $105 million, versus $995 million; retail operating income was $293 million, versus $369 million. The newly reported ethanol segment contributed $165 million of operating income from acquired plants.
At December 31, 2009, total assets were $35.629 billion, stockholders’ equity was $14.725 billion, and debt and capital lease obligations totaled $7.400 billion, including $237 million current. Cash and temporary cash investments were $825 million; restricted cash was $122 million. Current assets of $10.923 billion exceeded current liabilities of $7.798 billion. The company reported $2.4 billion of available revolving-credit capacity and no revolver borrowings at year-end.
Material changes versus the prior comparable period
- Revenue declined 40%, primarily because average refined-product prices were lower.
- Refining margins and throughput weakened substantially amid recession-driven demand softness, excess global capacity, lower distillate margins, and narrower sour-crude differentials. Gasoline and some secondary-product margins improved year over year.
- Operating cash flow decreased by $1.272 billion. Year-end cash fell by $115 million.
- Continuing-operations loss improved from 2008, largely because 2008 included a $4.0 billion goodwill impairment that was mostly nondeductible for tax purposes. This did not prevent the larger 2009 total net loss, which included the Delaware City shutdown.
- Valero issued $1.0 billion of long-term notes and 46 million shares for net proceeds of $799 million; year-end debt rose from $6.576 billion to $7.400 billion.
Outlook, commentary, risks, contingencies, and unusual items
- Shutdowns and impairments: Valero permanently shut Delaware City in November 2009 and recorded a $1.9 billion pretax shutdown loss, reported in discontinued operations. Aruba remained temporarily shut pending improved economics. The filing reports a $230 million impairment loss for continuing operations, primarily canceled capital projects; additional projects were suspended.
- Quarterly results: Fourth-quarter 2009 operating revenue was $18.867 billion and operating loss was $221 million; net loss was $1.408 billion, or $2.51 per share. The quarter’s net loss included the Delaware City shutdown loss. Fourth-quarter 2008 net loss was $3.278 billion, including the goodwill impairment.
- Management outlook: Management expected economic recovery and improving product demand and sour-crude differentials in 2010, but said new worldwide refining capacity could constrain margin improvement. It anticipated continued industry production cuts and refinery shutdowns until conditions improved, and was monitoring other facilities. No numerical earnings or margin guidance was provided.
- Investment plans: Expected 2010 capital investments were approximately $2.0 billion, including $795 million for environmental projects. Environmental compliance capital spending was $390 million in 2009; estimates were $795 million in 2010 and $225 million in 2011.
- Aruba tax dispute: Valero recorded a $140 million contingency in 2009. A February 2010 proposed settlement called for a $118 million payment and a new tax regime, but required Aruban legislative approval and related legal changes; the agreement was not yet effective when described.
- Other material risks: Results depend on volatile refining margins, crude differentials, demand, utilization, and feedstock availability. Further risks include environmental and potential greenhouse-gas regulation, refinery interruptions, litigation, uncertain access to credit, and the possibility of additional impairments—particularly at Aruba and Paulsboro. Credit ratings were investment grade but had negative outlooks.
- Contingencies: Environmental remediation accruals were $279 million. The filing also describes MTBE, fuel-temperature, and other litigation; some potential losses cannot be reasonably estimated. The company said identified environmental enforcement matters were not expected to materially affect consolidated results or financial position.
Important facts for investors to verify
- Whether the Aruba settlement received approval, the $118 million payment was made, and the refinery’s restart or strategic disposition plans changed.
- Whether refining margins, sour-crude differentials, throughput, and utilization recovered as management expected in 2010.
- How much of the $2.0 billion 2010 capital plan, including environmental spending and suspended projects, was ultimately spent or deferred.
- Whether Delaware City shutdown, asset-retirement, environmental, and other closure costs exceeded recorded amounts.
- Debt maturities, refinancing activity, revolver availability, and any effects of credit-rating changes; the filing also disclosed a February 2010 debt issuance and planned note redemption.
- Progress and potential exposure in the tax disputes, environmental proceedings, and litigation, including matters for which a loss range was not estimable.