01—Abstract
Summary
Summary of the 10-K filed February 26, 2010. Cited figures are marked; the original filing is the authoritative source.
Valero Energy (VLO) reported a 2009 net loss of $1.98 billiona, or $3.67 per share, driven largely by a $1.9 billion pre-tax loss from the permanent shutdown of its Delaware City Refinery, which is presented as discontinued operations.
Loss from continuing operations was $352 millionb ($0.65 per share), compared with a $1.0 billion loss in 2008 that was dominated by a $4.0 billion goodwill impairment. Revenue fell 40% to $68.1 billion on lower refined product prices, and operating loss was $58 million, weighed down by a $230 million asset impairment on cancelled capital projects and a $140 million loss contingency tied to an Aruban tax dispute. Refining margins were weak: throughput margin per barrel fell to $5.85 from $11.10, and sour crude differentials narrowed sharply, though gasoline margins improved.
The company is repositioning its portfolio. It temporarily idled its Aruba refinery in July 2009, is evaluating strategic alternatives for the Paulsboro refinery (net book value about $1.3 billionc), and has expanded into ethanol by acquiring seven VeraSun plants in 2009 plus additional plants in early 2010, creating a third reportable segment that generated $165 million of operating income in 2009. Management expects further refinery shutdowns across the industry through 2010 until margins recover, and it has signed a settlement with the Government of Aruba that would end the tax holiday and cost roughly $118 million.
Financially, Valero remains investment grade (BBB negative outlook at S&P and Fitch, Baa2 negative at Moody's), with liquidity supported by a $2.4 billiond revolver and a $1 billion receivables facility. It raised equity and debt in 2009 and issued $1.24 billion of new notes in February 2010 to refinance debt. Operating cash flow fell to $1.8 billion from $3.1 billion, capital spending was $2.3 billion, and the dividend was held at $0.15 per quarter (declared as $0.05 for Q1 2010, a significant cut).
02—Key points
Key Highlights
- Net loss of $1.98 billion ($3.67/share) in 2009, versus a $1.13 billion net loss in 2008; the Delaware City shutdown accounted for a $1.9 billion pre-tax charge.
- Operating revenues fell 40% to $68.1 billion, while operating loss was $58 million compared with operating income of $761 million in 2008.
- Refining throughput margin per barrel dropped to $5.85 from $11.10, and throughput volumes fell 205,000 BPD, partly reflecting the Aruba idling.
- Ethanol became a third segment after the VeraSun acquisition, contributing $165 million of operating income and adding about 1.1 billion gallons of annual capacity once all plants are running.
- Dividend declared for Q1 2010 is $0.05 per share, down from $0.15 per quarter in 2009, signaling a significant cut in shareholder payouts.
- Credit ratings remain investment grade but all three agencies carry negative outlooks; $1.24 billion of new notes were issued in February 2010 to refinance debt.
- Management expects continued refinery shutdowns and capacity rationalization across the industry through 2010 until margins and sour crude differentials recover.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2009filed February 26, 2010Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Operating Expenses | $64.52B$112.38B | −42.6% |
| Operating Income | $83.00M$761.00M | −89.1% |
| Interest Expense | $520.00M$451.00M | +15.3% |
| Net Income | -$1.98B-$1.13B | −75.2% |
| EPS (Basic) | $-3.67$-2.16 | −69.9% |
| EPS (Diluted) | $-3.67$-2.16 | −69.9% |
| Shares Outstanding (Basic) | 541.00M524.00M | +3.2% |
| Shares Outstanding (Diluted) | 541.00M524.00M | +3.2% |
05—Questions
Frequently Asked Questions
Why did Valero report such a large net loss in 2009?
The net loss of $1.98 billion was driven mainly by a $1.9 billion pre-tax loss from permanently shutting the Delaware City Refinery, reported in discontinued operations. Continuing operations also absorbed a $230 million impairment on cancelled capital projects and a $140 million loss contingency related to an Aruban tax dispute, while weak refining margins pushed operating income to a small loss.
How did the 2009 results compare with 2008?
Loss from continuing operations improved to $352 million from $1.0 billion, mainly because 2008 included a $4.0 billion non-deductible goodwill impairment. However, operating income fell from $761 million to a $58 million loss, and total net loss widened to $1.98 billion from $1.13 billion because of the Delaware City charges.
What is driving Valero's strategy going forward?
Valero is shrinking its least competitive refining capacity (Delaware City closed; Aruba idled; Paulsboro under review) while expanding its ethanol business with the VeraSun plants and early-2010 acquisitions. Management expects better margins and sour crude differentials as demand recovers in 2010, but expects new global refining capacity to constrain the improvement.
Is Valero's balance sheet and liquidity under pressure?
Liquidity remains adequate: the company had $825 million of cash, a $2.4 billion revolver undrawn at year-end, and a $1 billion receivables sale facility. Total debt rose to about $7.4 billion, and operating cash flow of $1.8 billion covered only part of $2.7 billion of capital spending and deferred turnaround costs, so it relied on 2009 equity and debt issuance. Ratings are investment grade, but all three agencies have negative outlooks, and a downgrade would raise borrowing costs.
What are the main risks flagged in the filing?
Key risks include volatile refining margins, narrow sour crude differentials, possible further impairments on the Aruba and Paulsboro refineries if prices stay weak, unresolved litigation (MTBE, retail fuel temperature, and the Rosolowski case), mounting environmental and climate-related compliance costs (about $795 million in 2010 capex for environmental projects), and possible cap-and-trade legislation that could add material emissions-credit costs.
06—Continue