UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
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 1-4718
VALERO ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 74-1244795
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
530 McCullough Avenue
San Antonio, Texas
(Address of principal executive offices)
78215
(Zip Code)
(210) 246-2000
(Registrant's 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
Indicated below is the number of shares outstanding of the
registrant's only class of common stock, as of October 31, 1994.
Number of
Shares
Title of Class Outstanding
Common Stock, $1 Par Value 43,413,035
<PAGE>
VALERO ENERGY CORPORATION AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets - September 30, 1994 and
December 31, 1993. . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income - For the Three Months
Ended and Nine Months Ended September 30, 1994 and 1993.
Consolidated Statements of Cash Flows - For the Nine
Months Ended September 30, 1994 and 1993 . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . .
Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . .
PART II. OTHER INFORMATION. . . . . . . . . . . . . . . . .
SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . .
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
VALERO ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
<CAPTION>
September 30,
1994 December 31,
(Unaudited) 1993
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and temporary cash investments. . . . . . . . . . . . . . $ 9,730 $ 7,252
Cash held in debt service escrow . . . . . . . . . . . . . . . 15,178 -
Receivables, less allowance for doubtful accounts of
$2,684 (1994) and $359 (1993). . . . . . . . . . . . . . . . 202,023 64,521
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . 170,880 113,384
Current deferred income tax assets . . . . . . . . . . . . . . 13,494 12,304
Prepaid expenses and other . . . . . . . . . . . . . . . . . . 23,924 38,025
435,229 235,486
PROPERTY, PLANT AND EQUIPMENT - including
construction in progress of $45,797 (1994)
and $10,158 (1993), at cost. . . . . . . . . . . . . . . . . . 2,575,508 1,640,136
Less: Accumulated depreciation. . . . . . . . . . . . . . . 507,330 346,570
2,068,178 1,293,566
INVESTMENT IN AND LEASES RECEIVABLE FROM
VALERO NATURAL GAS PARTNERS, L.P.. . . . . . . . . . . . . . . - 130,557
INVESTMENT IN AND ADVANCES TO JOINT
VENTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,362 28,343
DEFERRED CHARGES AND OTHER ASSETS. . . . . . . . . . . . . . . . 114,229 76,485
$2,647,998 $1,764,437
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
VALERO ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
<CAPTION>
September 30,
1994 December 31,
(Unaudited) 1993
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt . . . . . . . . . . . . . $ 62,230 $ 28,737
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . 255,760 90,994
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . 12,053 5,063
Other accrued expenses . . . . . . . . . . . . . . . . . . . . 34,314 28,233
364,357 153,027
LONG-TERM DEBT, less current maturities. . . . . . . . . . . . . 954,705 485,621
DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . . . . . . . 240,806 232,564
DEFERRED CREDITS AND OTHER LIABILITIES . . . . . . . . . . . . . 58,731 37,128
REDEEMABLE PREFERRED STOCK, SERIES A . . . . . . . . . . . . . . 13,800 13,800
COMMON STOCK AND OTHER STOCKHOLDERS' EQUITY:
Preferred stock, $1 par value - 20,000,000 shares authorized:
Redeemable Preferred Stock, Series A, issued 1,150,000
shares, outstanding 138,000 (1994 and 1993) shares . . . - -
$3.125 Convertible Preferred Stock, issued and outstanding
3,450,000 (1994) and -0- (1993) shares ($172,500
aggregate involuntary liquidation value) . . . . . . . . 3,450 -
Common stock, $1 par value - 75,000,000 shares authorized;
issued 43,400,460 (1994) and 43,391,685 (1993) shares . . . 43,400 43,392
Additional paid-in capital . . . . . . . . . . . . . . . . . . 535,207 371,303
Unearned Valero Employees' Stock Ownership Plan
Compensation. . . . . . . . . . . . . . . . . . . . . . . . (13,906) (15,958)
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . 447,448 446,931
Treasury stock, -0- (1994) and 145,119 (1993)
common shares, at cost. . . . . . . . . . . . . . . . . . . - (3,371)
1,015,599 842,297
$2,647,998 $1,764,437
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
VALERO ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of Dollars, Except Per Share Amounts)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
OPERATING REVENUES . . . . . . . . . . . . . . . $577,429 $323,389 $1,274,849 $940,223
COSTS AND EXPENSES:
Cost of sales. . . . . . . . . . . . . . . . . 471,346 245,346 1,019,726 712,481
Operating expenses . . . . . . . . . . . . . . 37,686 31,260 96,962 92,649
Depreciation expense . . . . . . . . . . . . . 25,242 16,320 59,352 41,859
Total. . . . . . . . . . . . . . . . . . . . 534,274 292,926 1,176,040 846,989
OPERATING INCOME . . . . . . . . . . . . . . . . 43,155 30,463 98,809 93,234
EQUITY IN EARNINGS (LOSSES) OF AND
INCOME FROM VALERO NATURAL GAS
PARTNERS, L.P. . . . . . . . . . . . . . . . . - 5,953 (10,698) 20,528
GAIN ON DISPOSITION OF ASSETS AND
OTHER INCOME, NET. . . . . . . . . . . . . . . 1,274 7,294 794 7,245
INTEREST AND DEBT EXPENSE:
Incurred . . . . . . . . . . . . . . . . . . . (25,443) (12,257) (53,814) (37,640)
Capitalized. . . . . . . . . . . . . . . . . . 748 635 1,548 11,915
INCOME BEFORE INCOME TAXES . . . . . . . . . . . 19,734 32,088 36,639 95,282
INCOME TAX EXPENSE . . . . . . . . . . . . . . . 7,200 20,800 13,600 43,700
NET INCOME . . . . . . . . . . . . . . . . . . . 12,534 11,288 23,039 51,582
Less: Preferred stock dividend requirements . 2,989 318 6,510 953
NET INCOME APPLICABLE
TO COMMON STOCK. . . . . . . . . . . . . . . . $ 9,545 $ 10,970 $ 16,529 $ 50,629
EARNINGS PER SHARE OF
COMMON STOCK . . . . . . . . . . . . . . . . . $ .22 $ .26 $ .38 $ 1.18
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (in thousands) . . . . . . . . . . 43,387 43,110 43,352 43,074
DIVIDENDS PER SHARE OF
COMMON STOCK . . . . . . . . . . . . . . . . . $ .13 $ .11 $ .39 $ .33
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
VALERO ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
1994 1993
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 23,039 $ 51,582
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation expense . . . . . . . . . . . . . . . . . . . . . . 59,352 41,859
Amortization of deferred charges and other, net. . . . . . . . . 14,092 16,735
Gain on disposition of assets, net of other
nonoperating charges . . . . . . . . . . . . . . . . . . . . . - (7,842)
Changes in current assets and current liabilities. . . . . . . . (78,142) (14,993)
Deferred income tax expense. . . . . . . . . . . . . . . . . . . 8,900 26,600
Equity in (earnings) losses of Valero Natural Gas
Partners, L.P. in excess of distributions. . . . . . . . . . . 16,179 (6,478)
Changes in deferred items and other, net . . . . . . . . . . . . (616) (6,273)
Net cash provided by operating activities. . . . . . . . . . . 42,804 101,190
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital additions. . . . . . . . . . . . . . . . . . . . . . . . . . (46,469) (86,125)
Deferred turnaround and catalyst costs . . . . . . . . . . . . . . . (3,930) (7,734)
Investment in and advances to joint ventures, net. . . . . . . . . . (3,632) (5,098)
Investment in Valero Natural Gas Partners, L.P.. . . . . . . . . . . (124,264) -
Distributions from Valero Natural Gas Partners, L.P. . . . . . . . . 2,789 -
Dispositions of property, plant and equipment. . . . . . . . . . . . 4,290 31,493
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,068 524
Net cash used in investing activities. . . . . . . . . . . . . . . (170,148) (66,940)
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings, net. . . . . . . . . . . . . . . . . . . . . . 12,600 22,500
Long-term debt reduction . . . . . . . . . . . . . . . . . . . . . . (15,000) (15,000)
Increase in short-term bank lines. . . . . . . . . . . . . . . . . . - 3,300
Increase in cash held in debt service escrow for principal . . . . . (15,178) -
Common stock dividends . . . . . . . . . . . . . . . . . . . . . . . (16,910) (14,214)
Preferred stock dividends. . . . . . . . . . . . . . . . . . . . . . (5,612) (953)
Issuance of Convertible Preferred Stock, net . . . . . . . . . . . . 167,878 -
Issuance of common stock, net. . . . . . . . . . . . . . . . . . . . 2,044 1,726
Net cash provided by (used in) financing activities. . . . . . . . 129,822 (2,641)
NET INCREASE IN CASH AND
TEMPORARY CASH INVESTMENTS . . . . . . . . . . . . . . . . . . . . . 2,478 31,609
CASH AND TEMPORARY CASH INVESTMENTS AT
BEGINNING OF PERIOD. . . . . . . . . . . . . . . . . . . . . . . . . 7,252 8,174
CASH AND TEMPORARY CASH INVESTMENTS AT
END OF PERIOD. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,730 $ 39,783
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
VALERO ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1
Basis of Presentation
The consolidated financial statements included herein have
been prepared by Valero Energy Corporation ("Energy") and
subsidiaries (collectively referred to as the "Company"), without
audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. However, all adjustments have been made
to the accompanying financial statements which are, in the
opinion of the Company's management, necessary for a fair
presentation of the Company's results of operations for the
periods covered. Certain information and footnote disclosures
normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the
information presented herein not misleading. These consolidated
financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto included
in the Company's latest Annual Report on Form 10-K. Certain
prior period amounts have been reclassified for comparative
purposes.
Note 2
Acquisition of Valero Natural Gas Partners, L.P.
In March 1994, Energy issued 3,450,000 shares of $3.125
convertible preferred stock ("Convertible Preferred Stock") with
a stated value of $50 per share and received cash proceeds, net
of underwriting discounts and certain issuance costs, of
approximately $168 million. The Convertible Preferred Stock was
primarily issued to fund the merger (the "Merger") of Valero
Natural Gas Partners, L.P. ("VNGP, L.P.") with a wholly owned
subsidiary of Energy. On May 31, 1994, the holders of common
units of limited partner interests ("Common Units") of VNGP, L.P.
approved the Merger. Upon consummation of the Merger, VNGP, L.P.
became a wholly owned subsidiary of Energy and the publicly
traded Common Units (the "Public Units") were converted into the
right to receive cash in the amount of $12.10 per Common Unit.
The Company utilized $117.5 million of the net proceeds from the
Convertible Preferred Stock issuance to fund the acquisition of
the Public Units. The remaining net proceeds of $50.4 million
were used to reduce outstanding indebtedness under bank credit
lines and to pay expenses of the acquisition. As a result of the
Merger, all of the outstanding Common Units are held by the
Company.
As a result of the Merger, the Company changed its method
of accounting for its investment in VNGP, L.P. and its
consolidated subsidiaries, collectively referred to herein as the
"Partnership," from the equity method to the full consolidation
method of accounting as of May 31, 1994. The acquisition has
been accounted for as a purchase. The consolidated statements of
income of the Company for the three months and nine months ended
September 30, 1994 and 1993, reflect the Company's effective
equity interest of approximately 49% in the Partnership's
operations for periods prior to and including May 31, 1994, and
reflect 100% of the Partnership's operations thereafter.
The following unaudited pro forma financial information of
Valero Energy Corporation and subsidiaries assumes that the above
described transactions occurred at the beginning of each period
presented. Such pro forma information is not necessarily
indicative of the results of future operations.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1994 1993
(Thousands of dollars, except
per share amounts)
<S> <C> <C>
Operating revenues. . . . . . . . . . . . . . . . . . . . $1,771,391 $1,710,766
Operating income. . . . . . . . . . . . . . . . . . . . . 98,827 160,997
Net income. . . . . . . . . . . . . . . . . . . . . . . . 15,546 58,074
Net income applicable to common stock . . . . . . . . . . 6,579 49,035
Earnings per share of common stock. . . . . . . . . . . . .15 1.13
</TABLE>
Note 3
Statements of Cash Flows
In order to determine net cash provided by operating
activities, net income has been adjusted by, among other things,
changes in current assets and current liabilities, excluding
changes in cash and temporary cash investments, cash held in debt
service escrow for principal, current maturities of long-term
debt and short-term bank lines. Also excluded are the
Partnership's current assets and current liabilities as of the
acquisition date (see Note 2). Changes in the Company's current
assets and current liabilities are shown in the following table
as an (increase) decrease in current assets and an increase
(decrease) in current liabilities. The Company's temporary cash
investments are highly liquid, low-risk debt instruments which
have a maturity of three months or less when acquired and whose
carrying amounts approximate fair value. (Dollars in thousands.)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1994 1993
<S> <C> <C>
Receivables, net. . . . . . . . . . . . . . . . . . . . . . . . . $(34,070) $ 13,786
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . (25,761) (11,565)
Current deferred income tax assets. . . . . . . . . . . . . . . . (1,190) (4,941)
Prepaid expenses and other. . . . . . . . . . . . . . . . . . . . 16,420 (205)
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . (30,229) (17,320)
Accrued interest. . . . . . . . . . . . . . . . . . . . . . . . . (3,739) 4,619
Other accrued expenses. . . . . . . . . . . . . . . . . . . . . . 427 633
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(78,142) $(14,993)
</TABLE>
The following table provides information related to cash
interest and income taxes paid by the Company for the periods
indicated (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1994 1993
<S> <C> <C>
Interest (net of amount capitalized of $1,548 (1994)
and $11,915 (1993)). . . . . . . . . . . . . . . . . . . . . . $55,108 $20,167
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 4,957 15,555
</TABLE>
Note 4
Inventories
Refinery feedstocks and refined products and blendstocks
are carried at the lower of cost or market with cost determined
primarily under the last-in, first-out ("LIFO") method of
inventory pricing. The excess of the replacement cost of such
inventories over their LIFO values was approximately $23 million
at September 30, 1994. Natural gas in underground storage and
natural gas liquids ("NGLs") are carried principally at weighted
average cost not in excess of market. Inventories as of
September 30, 1994 and December 31, 1993 were as follows (in
thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
<S> <C> <C>
Refinery feedstocks . . . . . . . . . . . . . . . . . . . . $ 90,330 $ 81,117
Refined products and blendstocks. . . . . . . . . . . . . . 40,275 32,267
Natural gas in underground storage. . . . . . . . . . . . . 33,509 -
Natural gas liquids . . . . . . . . . . . . . . . . . . . . 6,766 -
$170,880 $113,384
</TABLE>
Refinery feedstock and refined product and blendstock
inventory volumes totalled 9.1 million barrels ("MMbbls") and
8.1 MMbbls at September 30, 1994 and December 31, 1993,
respectively. Natural gas volumes in underground storage and in
third-party storage facilities totalled approximately 10.4
trillion British thermal units ("TBtus") at September 30, 1994.
Note 5
Price Risk Management Activities
The Company enters into various exchange-traded and other
financial instrument contracts with third parties to hedge the
purchase costs and sales prices of inventories, operating margins
and certain anticipated purchases of natural gas to be consumed
in operations. Recognition of changes in the market value of
such contracts is deferred until the gain or loss is recognized
on the hedged transaction. The Company also enters into a
limited amount of contracts that are not specific hedges, and
gains or losses resulting from changes in the market value of
these contracts are recognized in income currently. As of
September 30, 1994, the Company had outstanding contracts for
natural gas with notional or contract volumes totalling
approximately 18.3 TBtus for which the Company is the fixed price
payor and 36.4 TBtus for which the Company is the fixed price
receiver. These contracts run for a period of one to eighteen
months. As of September 30, 1994, the Company also had
outstanding contracts for refinery feedstocks and refined
products with notional or contract volumes totalling 3.2 MMbbls
for which the Company is the fixed price payor and 10.4 MMbbls
for which the Company is the fixed price receiver. These
contracts run for a period of one to twelve months. As of
December 31, 1993, such amounts were 2.7 MMbbls and 2.6 MMbbls,
respectively.
Note 6
Bank Credit Agreement
Effective September 30, 1994, Energy amended its unsecured
$250 million revolving bank credit and letter of credit facility
which is available for working capital and general corporate
purposes. The bank credit facility originally became effective
upon the consummation of the Merger on May 31, 1994 and replaced
Valero Refining Company's ("VRC") $160 million secured revolving
credit facility, Energy's $30 million unsecured revolving credit
facility, and all of the Partnership's committed unsecured
revolving credit facilities. Among other things, the amendment
to the bank credit facility reduced the interest rate on LIBOR
advances, reduced commitment and utilization fees, eliminated
sublimits for direct advances and letters of credit, eliminated
scheduled commitment reductions and extended the facility's
expiration date to September 30, 1997. Borrowings under the
amended facility bear interest, at the Company's option, at LIBOR
plus .75% or at the agent bank's prime rate. The Company is
charged various fees, including commitment fees on the unutilized
portion, and various letter of credit and facility fees. The
bank credit facility contains covenants limiting Energy's ability
to make certain "restricted payments," including dividend
payments on and purchases, redemptions or exchanges of its
capital stock, to make certain "restricted disbursements,"
including the restricted payments described above plus capital
expenditures and certain capital investments, and to make
advances and capital contributions to the Partnership. The
facility also contains covenants which require Energy to maintain
a minimum consolidated working capital and net worth and also
contains various financial tests including debt-to-
capitalization, fixed charge and earnings coverage ratios. The
Company was in compliance with all such restrictive covenants as
of September 30, 1994.
Note 7
Litigation and Contingencies
Energy and certain of its subsidiaries are defendants in a
lawsuit originally filed in January 1993. The lawsuit is based
upon construction work performed by the plaintiff at certain of
the Partnership's gas processing plants in 1991 and 1992. The
plaintiff alleges that it performed work for the defendants for
which it was not compensated. The plaintiff's second amended
petition, filed April 30, 1994, asserts claims for breach of
contract and numerous other contract and tort claims. The
plaintiff alleges actual damages of approximately $9.7 million
and punitive damages of $45.5 million. The defendants' motion to
transfer venue from Duval County, Texas to Bexar County, Texas
was denied.
In 1987, Valero Transmission, L.P. ("VT, L.P.") and a
producer from whom VT, L.P. has purchased natural gas entered
into an agreement resolving certain take-or-pay issues between
the parties in which VT, L.P. agreed to pay one-half of certain
excess royalty claims arising after the date of the agreement.
The royalty owners of the producer completed an audit of the
producer and have presented to the producer a claim for
additional royalty payments in the amount of approximately $17.3
million, and accrued interest thereon of approximately $19.8
million. Approximately $8 million of the royalty owners' claim,
excluding interest, accrued after the effective date of the
agreement between the producer and VT, L.P. The producer and VT,
L.P. are reviewing the royalty owners' claims. VT, L.P. has
received no indication that any lawsuit has been filed by the
royalty owners. The Company believes that various defenses may
reduce or eliminate any liability of VT, L.P. to the producer in
this matter.
Valero Transmission Company ("VTC") and one of its gas
suppliers are parties to various gas purchase contracts assigned
to and assumed by VT, L.P. upon formation of the Partnership in
1987. The supplier is also a party to a series of gas purchase
contracts between the supplier, as buyer, and certain trusts, as
seller. In 1989, the trusts brought suit against the supplier,
alleging breach of various minimum take, take-or-pay and other
contractual provisions, and asserting a statutory nonratability
claim. In the trusts' claims against the supplier, the trusts
seek alleged actual damages, including interest, of approximately
$30 million. Neither VTC nor VT, L.P. was originally a party to
the lawsuit. However, because of the relationship between VTC's
contracts with the supplier and the supplier's contracts with the
trusts, and in order to resolve existing and potential disputes,
the supplier, VTC and VT, L.P. agreed in March 1991 to cooperate
in the conduct of the litigation, and agreed that VTC and VT,
L.P. will bear a substantial portion of the costs of any appeal
and any nonappealable final judgment rendered against the
supplier. In January 1993, the District Court ruled on the
trusts' motion for summary judgment, finding that as a matter of
law the three gas purchase contracts at issue were fully binding
and enforceable, the supplier breached the minimum take
obligations under one of the contracts, the supplier is not
entitled to claimed offsets for gas purchased by third parties
and the "availability" of gas for take-or-pay purposes is
established solely by the delivery capacity testing procedures in
the contracts. Damages, if any, were not determined. On
April 15, 1994, the trusts named VTC and VT, L.P. as additional
defendants (the "Valero Defendants") to the lawsuit, alleging
that the Valero Defendants maliciously interfered with the
trusts' contracts with the supplier. In the trusts' claim
against the Valero Defendants, the trusts seek unspecified actual
and punitive damages. The Company believes that the claims
brought by the trusts have been significantly overstated, and
that the supplier and the Valero Defendants have a number of
meritorious defenses to the claims. The case has been
tentatively set for trial on May 8, 1995.
In June 1994, VRC was added as a defendant in a lawsuit
filed by several hundred plaintiffs who are residents of San
Patricio County, Texas. The suit was brought against numerous
defendants whom the plaintiffs allege are either owners or
operators of a landfill site in San Patricio County, or
generators of hazardous wastes accepted into the landfill. VRC
is named as a "generator" of hazardous wastes accepted into the
landfill. The plaintiffs claim that hazardous wastes escaped
from the landfill and were released into the surrounding ground,
water and air, allegedly causing damages including bodily injury,
emotional distress, costs for medical monitoring and devaluation
of property. The plaintiffs seek an unspecified amount of actual
and punitive damages.
A lawsuit was filed against VRC in June 1994 by certain
residents of the Mobile Estate subdivision located near VRC's
specialized petroleum refinery (the "Refinery") in Corpus
Christi, Texas, alleging that air, soil and water in the
subdivision have been contaminated by emissions of allegedly
hazardous chemicals and toxic hydrocarbons produced by VRC. The
plaintiffs' claims include negligence, gross negligence, strict
liability, nuisance and trespass. The plaintiffs seek
certification as a class and an unspecified amount of damages,
based on an alleged diminution in the value of their property,
loss of use and enjoyment of property, emotional distress and
other costs.
Valero Javelina Company, a wholly owned subsidiary of
Energy, owns a 20% general partner interest in Javelina Company,
a general partnership. Javelina Company has been named as a
defendant in six lawsuits filed since 1992 in state district
courts in Nueces County, Texas. Four of the suits include as
defendants other companies that own refineries or other
industrial facilities in Nueces County. These suits were brought
by a number of plaintiffs who reside in neighborhoods near the
facilities. The plaintiffs claim injuries relating to an alleged
exposure to toxic chemicals, and generally claim that the
defendants were negligent, grossly negligent and committed
trespass. The plaintiffs claim personal injury and property
damages resulting from soil and ground water contamination and
air pollution allegedly caused by the operations of the
defendants. One of the suits seeks certification of the
litigation as a class action. The plaintiffs seek unspecified
actual and punitive damages. The other two suits were brought by
plaintiffs who either live or have businesses near the Javelina
Plant. The suits allege claims similar to those described above.
These plaintiffs do not specify an amount of damages claimed.
The Company is also a party to additional claims and legal
proceedings arising in the ordinary course of business. The
Company believes it is unlikely that the final outcome of any of
the claims or proceedings to which the Company is a party,
including those described above, would have a material adverse
effect on the Company's financial position or results of
operations; however, due to the inherent uncertainty of
litigation, the range of possible loss, if any, cannot be
estimated with a reasonable degree of precision and there can be
no assurance that the resolution of any particular claim or
proceeding would not have an adverse effect on the Company's
results of operations for the fiscal period in which such
resolution occurred.
<PAGE>
VALERO ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ACQUISITION OF VNGP, L.P.
As described in Note 2 of Notes to Consolidated Financial
Statements, the Merger of VNGP, L.P. with a wholly owned
subsidiary of Energy was consummated on May 31, 1994. As a
result of the Merger, all of the outstanding Common Units of
VNGP, L.P. are held by the Company and VNGP, L.P. has become a
wholly owned subsidiary of Energy. The accompanying consolidated
statements of income of the Company for the three months and nine
months ended September 30, 1994 and 1993, include the Company's
approximate 49% effective equity interest in the Partnership's
operations for all periods prior to and including May 31, 1994
and include 100% of the Partnership's operations thereafter.
However, the discussion of the Company's natural gas and natural
gas liquids operations which follows includes 100% of the
Partnership's operations rather than only the Company's effective
interest in the Partnership's operating results. Such discussion
is based on pro forma operating results assuming that the Merger
of VNGP, L.P. with a subsidiary of Energy occurred at the
beginning of 1994 and 1993, respectively.
<PAGE>
RESULTS OF OPERATIONS
The following are the Company's financial and operating
highlights for the three months ended and nine months ended
September 30, 1994 and 1993. The 1993 amounts of operating
revenues and operating income (loss) by segment have been
restated to conform to the 1994 segment presentation. The
amounts in the following table are in thousands of dollars,
unless otherwise noted:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Refining and marketing . . . . . . . . . . . . . . . $288,738 $274,298 $ 820,425 $798,869
Natural gas<F1>:
Sales. . . . . . . . . . . . . . . . . . . . . . . 197,842 15,594 265,060 37,841
Transportation . . . . . . . . . . . . . . . . . . 16,450 916 22,011 3,130
Natural gas liquids<F1>. . . . . . . . . . . . . . . 115,080 13,001 176,778 42,354
Other operations . . . . . . . . . . . . . . . . . . 102 21,311 42,608 63,416
Intersegment eliminations. . . . . . . . . . . . . . (40,783) (1,731) (52,033) (5,387)
Total. . . . . . . . . . . . . . . . . . . . . . . $577,429 $323,389 $1,274,849 $940,223
OPERATING INCOME (LOSS):
Refining and marketing . . . . . . . . . . . . . . . $ 28,337 $ 31,605 $ 73,512 $ 92,465
Natural gas<F1>. . . . . . . . . . . . . . . . . . . 9,688 274 15,055 2,831
Natural gas liquids<F1>. . . . . . . . . . . . . . . 13,550 2,317 20,351 8,611
Corporate expenses, net. . . . . . . . . . . . . . . (8,420) (3,733) (10,109) (10,673)
Total. . . . . . . . . . . . . . . . . . . . . . $ 43,155 $ 30,463 $ 98,809 $ 93,234
Equity in earnings (losses) of Valero Natural Gas
Partners, L.P.<F2> . . . . . . . . . . . . . . . . . $ - $ 2,637 $ (16,179) $ 10,635
Gain on disposition of assets and other income, net. . $ 1,274 $ 7,294 $ 794 $ 7,245
Interest and debt expense, net . . . . . . . . . . . . $ 24,695 $ 11,622 $ 52,266 $ 25,725
Net income . . . . . . . . . . . . . . . . . . . . . . $ 12,534 $ 11,288 $ 23,039 $ 51,582
Net income applicable to common stock. . . . . . . . . $ 9,545 $ 10,970 $ 16,529 $ 50,629
Earnings per share of common stock . . . . . . . . . . $ .22 $ .26 $ .38 $ 1.18
PRO FORMA OPERATING INCOME (LOSS)<F3>:
Refining and marketing . . . . . . . . . . . . . . . $ 28,337 $ 31,605 $ 73,512 $ 92,465
Natural gas. . . . . . . . . . . . . . . . . . . . . 9,688 20,422 19,153 53,152
Natural gas liquids. . . . . . . . . . . . . . . . . 13,550 7,699 24,078 39,249
Corporate expenses, net. . . . . . . . . . . . . . . (8,420) (8,190) (17,916) (23,869)
Total. . . . . . . . . . . . . . . . . . . . . . $ 43,155 $ 51,536 $ 98,827 $160,997
OPERATING STATISTICS:
Refining and marketing:
Throughput volumes (Mbbls per day) . . . . . . . . 150 140 148 133
Average throughput margin per barrel . . . . . . . $ 5.79 $ 6.52 $ 5.60 $ 6.49
Sales volumes (Mbbls per day). . . . . . . . . . . 133 140 141 130
Natural gas<F3>:
Gas volumes (BBtu per day):
Sales. . . . . . . . . . . . . . . . . . . . . . 1,112 1,179 1,160 1,141
Transportation . . . . . . . . . . . . . . . . . 1,731 1,792 1,659 1,754
Total gas volumes. . . . . . . . . . . . . . . 2,843 2,971 2,819 2,895
Average gas sales price per MMBtu. . . . . . . . . $ 1.93 $ 2.35 $ 2.14 $ 2.31
Average gas transportation fee per MMBtu . . . . . $ .103 $ .108 $ .109 $ .100
Natural gas liquids<F3>:
Plant production (Mbbls per day) . . . . . . . . . 81.3 77.9 79.2 77.6
Average market price per gallon. . . . . . . . . . $ .276 $ .279 $ .265 $ .302
Average gas cost per MMBtu . . . . . . . . . . . . $ 1.61 $ 2.02 $ 1.82 $ 1.95
<FN>
<F1>
Includes the operations of the Partnership commencing
June 1, 1994.
<F2>
Represents the Company's approximate 49% effective equity
interest in the operations of the Partnership for the
periods prior to June 1, 1994.
<F3>
Pro forma operating income (loss) and operating statistics
for the natural gas and natural gas liquids segments as
presented herein assume that the Merger of VNGP, L.P. with a
subsidiary of Energy occurred at the beginning of each
respective year.
</FN>
</TABLE>
<PAGE>
Consolidated Results
The Company reported net income of $12.5 million or $.22
per share for the third quarter of 1994 compared to $11.3 million
or $.26 per share for the same period in 1993. For the first
nine months of 1994, net income was $23 million or $.38 per share
compared to $51.6 million or $1.18 per share for the same period
in 1993. The increase in net income for the third quarter was
due to a decrease in income tax expense and an increase in
operating income, mostly offset by an increase in net interest
expense, the gain on disposition of the Company's natural gas
distribution operations during the third quarter of 1993 and a
decrease in equity in earnings of the Partnership. The decrease
in net income for the year-to-date period was primarily due to
the decrease in equity in earnings of the Partnership, increase
in net interest expense and the 1993 gain on disposition
mentioned above, partially offset by a decrease in income tax
expense and an increase in operating income. Although net income
increased $1.2 million during the third quarter of 1994 compared
to the same period in 1993, earnings per share decreased due to
increased preferred stock dividend requirements attributable to
the issuance in the first quarter of 1994 of 3.45 million shares
of Energy's $3.125 Convertible Preferred Stock. Earnings per
share for the year-to-date period was also affected by the
issuance of Convertible Preferred Stock. See Note 2 of Notes to
Consolidated Financial Statements.
Operating revenues increased $254 million or 79% and $334.6
million or 36% during the third quarter and first nine months of
1994, respectively, compared to the same periods in 1993
primarily due to the inclusion in the 1994 periods of operating
revenues attributable to the Partnership which was merged with
the Company effective May 31, 1994, and to a lesser extent to
increases in operating revenues from refining and marketing
operations which are explained below under "Segment Results."
The increases attributable to these factors were partially offset
by decreases in natural gas sales and transportation revenues
resulting from the disposition of the Company's natural gas
distribution operations mentioned above.
Operating income increased $12.7 million or 42% and $5.6
million or 6% during the third quarter and first nine months of
1994, respectively, compared to the same periods in 1993
primarily due to the inclusion of Partnership operating income
commencing June 1, 1994 due to the Merger. The increases in
operating income were partially offset by decreases in operating
income from refining and marketing operations which are explained
below. Operating income for the 1994 year-to-date period also
benefitted from a decrease in corporate expenses, net, primarily
due to the recognition in income in the 1994 period of the $6.7
million remaining balance of deferred management fees resulting
from the Merger. Such fees were recorded upon the formation of
the Partnership in March 1987 and were being amortized to income
over the ten-year period during which Valero Natural Gas Company
agreed not to withdraw as general partner of VNGP, L.P.
As a result of the Merger and the Company's resulting
change from the equity method to the full consolidation method of
accounting, the Company did not report equity in earnings of the
Partnership for the third quarter of 1994. Equity in earnings of
the Partnership was $2.6 million for the third quarter of 1993.
The Company's equity in losses of the Partnership for the first
nine months of 1994 was $16.2 million compared to equity in
earnings of $10.6 million for the same period in 1993. See
"Segment Results" below for a discussion of the Company's natural
gas and natural gas liquids operations. Included in the 1994
year-to-date equity in losses amount was the Company's
approximate 49% equity interest in the $14 million cost of a
settlement among the Company, the Partnership and the City of
Houston regarding a franchise fee dispute. This settlement is
payable in three approximately equal payments, with the first
payment made in June 1994 and the remaining payments to be made
in January 1995 and January 1996.
Net interest and debt expense increased $13.1 million and
$26.5 million during the third quarter and first nine months of
1994, respectively, compared to the same periods in 1993
primarily due to the inclusion of interest expense of the
Partnership subsequent to the Merger. The year-to-date period
was also affected by a decrease in capitalized interest resulting
from the placing in service in the second quarter of 1993 of the
Refinery's butane upgrade facility. Income tax expense decreased
in the 1994 third quarter and year-to-date periods compared to
the same periods in 1993 primarily due to lower pre-tax income
and the third quarter 1993 charge to earnings of $8.2 million
which resulted from the effect of a one percent increase in the
corporate income tax rate on the Company's December 31, 1992
balance of deferred income taxes.
Segment Results
Refining and Marketing
Operating revenues from the Company's refining and
marketing operations increased $14.4 million, or 5%, during the
third quarter of 1994 compared to the same period in 1993
primarily due to a 10% increase in the average sales price per
barrel, partially offset by a 5% decrease in average daily sales
volumes. Operating income from the Company's refining and
marketing operations decreased $3.3 million, or 10%, during the
third quarter of 1994 compared to the same period in 1993
primarily due to a decrease in throughput margins resulting from
narrower discounts for the Company's residual oil ("resid")
feedstock, more than offsetting increased refined product prices
as mentioned above. The discount at which resid sells to crude
oil diminished mainly as a result of a worldwide decrease in the
supply of resid. Although there can be no assurances, the
Company believes that resid supply should return to more normal
conditions beginning next year. As a result of the above
factors, the Refinery's average throughput margin per barrel
decreased from $6.52 during the third quarter of 1993 to $5.79
for the same period in 1994. The Company's refining and
marketing operations for the third quarter of 1994 were also
affected by a turnaround of the Refinery's heavy oil cracker unit
which began on September 15. Lower throughput and sales volumes
resulting from the turnaround, which was completed on October 26,
1994, and lower margins significantly reduced operating income in
October 1994 as compared to the same period in 1993. Although
there can be no assurance in this regard, operating income is
expected to improve during the remainder of the quarter.
Operating revenues from the Company's refining and
marketing operations increased $21.6 million, or 3%, during the
first nine months of 1994 compared to the same period in 1993 as
an 8% increase in average daily sales volumes was partially
offset by a 5% decrease in the average sales price per barrel.
Operating income decreased $19 million, or 20%, during the first
nine months of 1994 compared to the same period in 1993 primarily
due to a decrease in throughput margins and an increase in
depreciation expense and other operating costs resulting from the
placing in service of the Refinery's butane upgrade facility and
other Refinery units during the second and fourth quarters of
1993. The Refinery's average throughput margin per barrel
decreased from $6.49 during the first nine months of 1993 to
$5.60 for the same period in 1994, resulting from decreased
refined product prices partially offset by decreased feedstock
costs. Operating costs per barrel decreased due to an 11%
increase in average daily throughput volumes.
The Company's existing feedstock supply agreement with
Saudi Aramco for an average of 55,000 barrels per day of resid at
market-related prices will expire in December 1994. Accordingly,
the Company is negotiating a new supply agreement with Saudi
Aramco to provide for deliveries of resid to the Company for a
period of two years ending December 31, 1996. Based upon
negotiations for the new agreement to date, the Company expects
that Saudi Aramco will agree to provide an average of at least
36,000 barrels per day of resid to the Company at market-related
prices with an effective resid-to-crude oil discount slightly
lower than under the existing feedstock agreement.
The Oil Pollution Act of 1990 ("OPA 90") and regulations
thereunder impose a variety of regulations on "responsible
parties" related to the prevention of oil spills and the
assessment of liability for damages resulting from oil spills in
U.S. territorial waters. Shipments of crude oil and resid within
U.S. territorial waters are subject to the regulations
promulgated under OPA 90. These regulations require tankers to
comply with certain Certificate of Financial Responsibility
("COFR") requirements in order to ship within U.S. territorial
waters. Implementation of tanker certification regulations
becomes effective December 28, 1994. The Company's shippers have
expressed to the Company that they expect to meet the COFR
requirements and to ship the Company's feedstock supplies. Many
shippers, refiners and others in the insurance and finance
industries have been collectively working toward several
solutions to assist shippers with COFR compliance. The concerted
efforts of these industries may serve to ameliorate or eliminate
any adverse effect on refining feedstock supplies caused by
OPA 90. Should the Company's shippers ultimately be
unable to meet the COFR requirements and if implementation of the
regulations is not delayed, then OPA 90 could adversely affect
the Company's refining operations beginning in the fourth quarter
of 1994. However, the impact of the regulations should not be
any more adverse to the Company than it would be to other similar
U.S. refiners.
Natural Gas
Pro forma operating income from the Company's natural gas
operations decreased $10.7 million, or 53%, during the third
quarter of 1994 compared to the same period in 1993 due to
certain measurement, fuel usage, and customer billing adjustments
which benefitted the 1993 period, lower gas sales margins during
the 1994 period and a decrease in transportation revenues. Gas
sales margins were lower for the special marketing programs
primarily due to a $3.6 million decrease in income generated by
the Market Center Services Program and the return to service of
the South Texas Project nuclear plant during the 1994 second
quarter. The decreases in operating income resulting from these
factors were partially offset by an increase in income from new
term sales business generated during the latter part of 1993 in
connection with the implementation of FERC Order 636.
Transportation revenues decreased in the third quarter of 1994
compared to the same period in 1993 primarily due to a 5%
decrease in average transportation fees and a 3% decrease in
average daily transportation volumes.
Pro forma operating income from the Company's natural gas
operations decreased $34 million, or 64%, during the first nine
months of 1994 compared to the same period in 1993 due to a $14
million decrease in income generated by the Market Center
Services Program, the adjustments mentioned above, an increase in
operating and general expenses and reduced fixed cost recoveries.
Operating and general expenses increased primarily due to the
City of Houston settlement described above. VT, L.P.'s fixed
cost recoveries, principally related to gas gathering costs,
decreased as the result of a customer audit settlement effective
July 1, 1993. The decreases in operating income resulting from
these factors were partially offset by an increase in
transportation revenues. Average transportation fees for the
first nine months of 1994 increased 9% compared to the same
period in 1993, more than offsetting a 5% decrease in
transportation volumes.
Natural Gas Liquids
Pro forma operating income from the Company's NGL
operations increased $5.9 million, or 76%, during the third
quarter of 1994 compared to the same period in 1993 due to a
decrease in fuel and shrinkage costs resulting from a 20%
decrease in the average cost of natural gas and an increase in
daily production volumes, partially offset by a slight decrease
in the average NGL market price and an increase in transportation
and fractionation expense.
Pro forma NGL operating income decreased $15.2 million, or
39%, during the first nine months of 1994 compared to the same
period in 1993 due to a 12% decrease in the average NGL market
price, an increase in transportation and fractionation expense
and a decrease in transportation and fractionation of third party
plant production, partially offset by a decrease in fuel and
shrinkage costs resulting from a 7% decrease in the average cost
of natural gas, an increase in NGL production volumes and lower
operating and general expenses.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by the Company's operating activities
totalled $42.8 million during the first nine months of 1994
compared to $101.2 million during the same period in 1993. The
decrease in 1994 from 1993 was primarily due to an increase in
working capital requirements primarily attributable to
Partnership operations, which were acquired on May 31, 1994, and
increased refining and marketing working capital requirements.
During the 1994 period, the Company utilized the cash provided by
its operating activities and bank borrowings to fund capital
expenditures, deferred turnaround and catalyst costs and
investments in joint ventures, to pay common and preferred stock
dividends, to make principal escrow payments under the
Partnership's First Mortgage Notes and to repay principal on
outstanding debt.
As described in Note 2 of Notes to Consolidated Financial
Statements, the Company used a portion of the approximate $168
million proceeds from its March 1994 Convertible Preferred Stock
issuance to fund the acquisition of the publicly traded Common
Units of VNGP, L.P. and to pay expenses of the acquisition. The
remaining proceeds were used to reduce bank borrowings.
As described in Note 6 of Notes to Consolidated Financial
Statements, Energy currently maintains an unsecured $250 million
revolving bank credit and letter of credit facility. As of
September 30, 1994, Energy had approximately $133 million
available under this committed bank credit facility for
additional borrowings and letters of credit. Energy also has $75
million of unsecured short-term credit lines which are
unrestricted as to use, but if used, reduce the availability
under the $250 million credit facility. As of September 30,
1994, no amounts were outstanding under these short-term lines.
Energy's revolving bank credit and letter of credit facility
(which is the most restrictive of the Company's various financing
agreements) contains various restrictive covenants, including
restrictions on its ability to pay dividends and make certain
other "restricted payments." The Company was in compliance with
all of the restrictive covenants under this facility at
September 30, 1994, and under the most restrictive of such
covenants had the ability to pay approximately $44 million in
common and preferred stock dividends and other restricted
payments.
For total year 1994, the Company currently expects to
expend approximately $130 million for capital expenditures,
deferred turnaround and catalyst costs and investments in joint
ventures, $55.9 million of which was expended during the first
nine months of 1994. The Company also has commitments for
capital expenditures totaling approximately $55 million, to be
paid during 1995. The Company has entered into a letter of
intent to acquire from Hoechst Celanese Corporation a 50%
interest in a joint venture company which owns and plans to
restart an existing methanol plant in Clear Lake, Texas.
Expenditures for this project are included in the above amounts.
The Company currently owns a 35% interest in Productos
Ecologicos, S.A. de C.V. ("Proesa"), a Mexican corporation which
plans to construct a plant, estimated to cost approximately $450
million, to produce methyl tertiary butyl ether ("MTBE") for
sale to Petroleos Mexicanos, S.A. ("Pemex"). The Company is
currently negotiating to increase its interest in Proesa to
approximately 45%. Subject to acceptance by Pemex of Proesa's
financing arrangements, Proesa will be obligated under the terms
of its contracts with Pemex to complete the project and to
deliver MTBE to Pemex beginning in the first quarter of 1997
(unless extended by events of force majeure). Valero intends to
fund its portion of project costs through capital contributions
and loans to Proesa. While negotiations for the proposed
purchase of an additional interest in Proesa, funding
commitments, financing for other shareholders' portion of project
costs and other shareholder agreements have not been completed,
the Company believes that satisfactory agreements will be reached
that will permit a timely completion of the project.
The Company believes it has sufficient funds from
operations, and to the extent necessary, from the public and
private capital markets and bank market, to fund its current and
ongoing operating requirements.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Valero Energy Corporation, et al. v. M.W. Kellogg Company,
et al., 117th Judicial District Court, Nueces County, Texas
(filed July 11, 1986). In the Company's suit against the
defendants, the Company asserted breach of contract and warranty
claims, Deceptive Trade Practices Act ("DTPA") claims, and
negligence, fraud and other common law claims. The Company
claimed actual damages in excess of $165 million plus exemplary
damages, statutory penalties, attorney's fees and costs of court.
In 1991, the court entered judgment granting the motions for
summary judgment of defendants Kellogg and Ingersoll-Rand with
respect to the contract and DTPA claims, and entered a take
nothing judgment against the Company. In 1993, the Company
appealed the trial court's decision to the Thirteenth Court of
Appeals, Corpus Christi, Texas, which affirmed the trial court's
decision. The Texas Supreme Court denied the Company's
application for writ of error, and in May 1994 denied the
Company's motion for rehearing. On October 14, 1994, the trial
court granted the Company's motion for summary judgment
precluding Kellogg's collection of attorneys' fees from the
Company. The Company intends to file a similar motion for
summary judgment against defendant Ingersoll-Rand. The court
also granted defendant Kellogg's motion for summary judgment
against the Company extinguishing the Company's other claims with
respect to the lawsuit.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
*10.1 Amended and Restated Employment Agreement between
Valero Energy Corporation and William E. Greehey
dated November 1, 1993.
*10.2 First Amendment to Credit Agreement, dated September
30, 1994, among Valero Energy Corporation, Bankers
Trust Company and Bank of Montreal as Managing
Agents, and the banks and co-agents party thereto.
*11 Computation of Earnings Per Share.
Pursuant to paragraph 601(b)(4)(iii)(A) of Regulation S-K,
the registrant has omitted from the foregoing listing of
exhibits, and hereby agrees to furnish to the Commission upon its
request, copies of certain instruments, each relating to
long-term debt not exceeding 10 percent of the total assets of
the registrant and its subsidiaries on a consolidated basis.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the three-month
period ended September 30, 1994.
* Filed herewith.
<PAGE>
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/ Don M. Heep
Don M. Heep
Senior Vice President and
Chief Financial Officer
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
Date: November 14, 1994
EMPLOYMENT AGREEMENT
(Amended and Restated)
This Employment Agreement ("Agreement") entered into on
May 16, 1990, and amended and restated November 1, 1993,
("Effective Date") is between Valero Energy Corporation, a
Delaware corporation ("Valero"), and William E. Greehey, a
resident of San Antonio, Texas, ("Greehey"). Valero and Greehey
are sometimes referred to herein individually as a "Party", and
collectively as the "Parties". The Parties hereby agree as
follows:
1. Employment. Valero hereby employs Greehey, and Greehey
hereby accepts employment with Valero, subject to the terms and
conditions set forth in this Agreement.
2. Term. Subject to the provisions for termination of
employment as provided in Section 9(a), the Agreement shall be in
effect for a period beginning May 16, 1990 through June 9, 1995.
3. Compensation. Greehey's compensation during his
employment under the terms of this Agreement and prior to his
retirement shall be as follows:
(a) Base Salary. Valero shall pay to Greehey a base salary
(the "Base Salary") of Five Hundred Forty Thousand Dollars
($540,000) per year. In addition, the Board of Directors of
Valero shall in good faith consider granting annual increases to
the Base Salary based upon such factors as Greehey's performance
and the growth and profitability of Valero, but it shall have no
obligation to grant any such increases in compensation. Any such
increase to the Base Salary shall become a part thereof and for
purposes hereof the Base Salary as so increased shall be deemed
thereafter to be the Base Salary; provided, however, that the
Board of Directors of Valero may thereafter reduce the Base
Salary to an amount that is not below the amount first set forth
above in this paragraph 3(a). The Base Salary shall be payable in
equal, semi-monthly installments on the 15th day and last day of
each month or at such other times and in such installments as may
be agreed between Valero and Greehey. All payments shall be
subject to the deduction of payroll taxes, income tax
withholdings, and similar deductions and withholdings as required
by law.
(b) Bonus. In addition to the Base Salary, Greehey shall
be eligible to receive bonus compensation in such amounts and at
such times as the Board of Directors of Valero shall from time to
time determine.
4. Expenses and Benefits. During employment Greehey is
authorized to incur reasonable expenses in connection with the
business of Valero, including expenses for entertainment, travel
and similar matters. Valero will reimburse Greehey for such
expenses upon presentation by Greehey of such accounts and
records as Valero may from time to time reasonably require.
Valero also agrees to provide Greehey with the following benefits
during employment:
(a) Insurance Major medical health insurance and $300,000
of permanent life insurance in addition to any life insurance
provided under Valero's normal benefit plans.
(b) Employee Benefit Plans. Participation in any employee
benefit plans now existing or hereafter adopted by Valero for its
executive or other officers and employees.
(c) Club Memberships. Greehey's present club memberships
shall be maintained by Valero, and Valero shall pay all monthly
dues and fees and shall reimburse Greehey for expenses incurred
by Greehey in connection with such club memberships in
representing Valero's interest.
(d) Vacations. Greehey shall be entitled (in addition to
the usual public holidays) to a paid vacation for a period in
each calendar year not exceeding five weeks, to be taken at such
times as may be mutually agreed to by both Parties.
(e) Working Facilities. Greehey shall be furnished by
Valero with an office, secretarial help and other facilities and
services, including but not limited to full use of Valero's mail
and communication facilities and services, reasonably suitable to
his position and reasonably necessary for the performance of his
duties under this Agreement. As long as Valero's corporate
headquarters remains at its present location, Greehey shall have
the right to continue to use the suite of offices, conference
room and reception area used by him at present, provided that
after Greehey retires and ceases to be the Chief Executive
Officer of Valero, Valero shall have the option to provide
Greehey with substitute office facilities and secretarial and
other office services as long as they are reasonably commensurate
with Greehey's position as retired Chief Executive Officer of
Valero.
(f) Other. Such other items as Valero shall from time to
time consider necessary or appropriate to assist Greehey in the
performance of his duties under this Agreement.
5. Duties. Greehey is employed as Chairman of the Board
and Chief Executive Officer of Valero. In addition, if requested
to do so, Greehey shall serve as the chief executive officer or
as a member of the Board of Directors, or both, of any subsidiary
or affiliate of Valero. Such duties shall be performed at
Valero's principal place of business in San Antonio, Texas.
6. Extent of Service. Greehey shall, during his
employment under the terms of this Agreement, devote
substantially all of his working time, attention, energies and
business efforts to his duties as an employee of Valero and to
the business of Valero generally, and shall not, during the term
of this Agreement, engage in any other business activity
whatsoever, whether or not such business activity is pursued for
gain, profit or other pecuniary advantage; however, this
paragraph 6 shall not be construed to prevent Greehey from
investing his personal, private assets as a passive investor in
such form or manner as will not require any active services on
the part of Greehey in the management or operation of the affairs
of the companies, partnerships, or other business entities in
which any such passive investments are made.
7. Retirement. Greehey may retire under the terms of this
Agreement on or before June 9, 1995 by giving Valero written
notice of his intention to retire at least six months in advance
of the designated retirement date. Greehey may withdraw such
election, with the consent of the Board of Directors of Valero,
at any time prior to the earlier of the date on which Valero
employs, or becomes legally obligated to employ, a person as
Greehey's successor as Chief Executive Officer of Valero. Upon
retirement, and provided that Valero has not terminated Greehey
for cause pursuant to Paragraph 9(a), Greehey shall no longer be
employed by Valero under the terms of this Agreement, and he
shall have the following rights and obligations:
(a) Continuation as Chairman. If so requested by the Board
of Directors of Valero, Greehey agrees to continue as Chairman of
the Board of Valero until the earlier of the date on which he
ceases to be a director of Valero or June 9, 1995;
(b) Duties. If Greehey continues as Chairman of the Board
of Valero, Greehey shall perform such duties as are reasonably
required of a person holding such position. However, it is
agreed and understood that Greehey shall not be obligated to
devote any particular amount of time to the affairs of Valero and
will be free to pursue other business interests provided the
pursuit thereof does not violate any fiduciary duty owed to
Valero in Greehey's capacity as a director and/or Chairman of the
Board or violate the provisions of paragraphs 11 or 12;
(c) Compensation. Greehey shall be paid compensation for
serving or being available to serve as Chairman of the Board of
$50,000 per year. This payment shall continue until June 9, 1995
whether or not Greehey actually serves as Chairman of the Board
at all times on or prior thereto (other than as a result of
Greehey's refusal to serve as Chairman of the Board) and shall be
payable in semi-monthly installments;
(d) Certain Benefits. The provisions of paragraph 4, other
than clauses (a), (b) and (d), shall continue in full force and
effect until June 9, 1995 and thereafter the provisions of
Paragraph 4, clause (e) only shall continue in effect until
Greehey reaches age 69. Greehey's club memberships owned by
Valero shall be transferred to Greehey immediately after June 9,
1995, and Greehey shall, after transfer, be responsible for all
monthly dues and fees. Valero shall pay all membership transfer
costs;
(e) Vesting and Option Exercise Periods. Upon retirement,
Greehey's stock options, stock appreciation rights, restricted
stock grants and any other similar stock benefits previously
granted to Greehey, including such benefits related to the
securities of Valero Natural Gas Partners ("VNGP"), which have
not fully vested shall be deemed to have been fully vested and
Greehey shall have the right to exercise any stock options, stock
appreciation rights or similar stock rights or benefits for the
full remaining term thereof without giving effect to any
provision which would purport to limit the exercise period as a
result of Greehey's retirement;
(f) Retirement Benefits and Supplemental Retirement
Benefits. Greehey shall be entitled to all retirement benefits
provided under the Valero Energy Corporation Pension Plan
("Pension Plan") and Supplemental Executive Retirement Plan
(SERP) with the following supplemental benefits:
(i) comprehensive major medical insurance with an annual
deductible no greater than $275 per dependent and co-insurance
requirements of no more than 20%, and life of policy limits of no
less than $500,000;
(ii) paid up life insurance, in addition to life insurance
included in Valero's normal retirement benefit plans, in the
amount of at least $300,000; and
(iii) Greehey shall be granted a total of eight "points"
under the Pension Plan to be added to his years of credited
service, or his age, or divided between both in such proportion
that totals eight, as he elects at time of retirement. The
amount per month equal to the difference between Greehey's normal
monthly retirement benefit under the Pension Plan and SERP with
the eight added points and Greehey's normal monthly retirement
benefit under the Pension Plan and SERP shall constitute a
supplemental monthly retirement payment, payable at the time each
payment is made under the Pension Plan. Greehey shall not be
entitled to participate in nor receive the benefits of any
special "window" retirement or early retirement program, if any,
that may be offered to other employees of Valero or subsidiaries
at or about the time of Greehey's giving notice of retirement or
actual retirement.
8. Death; Disability.
(a) Death. If during the term of Greehey's employment
under this Agreement and prior to the date of retirement Greehey
dies, in addition to all other employee benefits to which
Greehey's estate, spouse or other beneficiaries may be entitled,
Valero shall pay in equal semi-monthly installments to the
beneficiary designated by Greehey, or his estate if no such
beneficiary has been designated in writing to Valero, the Base
Salary which Greehey would have received if he remained employed
hereunder to June 9, 1995, assuming the Base Salary in effect at
the date of Greehey's death continued in effect for the
remaining term of this Agreement.
(b) Disability. If during the term of Greehey's employment
under this Agreement Greehey becomes unable to perform his duties
hereunder as a result of illness or physical injury for a period
of at least 120 days Greehey shall be deemed to have retired
under Paragraph 7 on the last day of such period.
9. Termination by Valero. Valero shall have the right to
terminate Greehey's employment as hereinafter provided.
(a) Termination for Cause. Valero shall have the right to
terminate Greehey's employment under this Agreement for cause.
As used herein, "cause" shall mean and be strictly limited to:
(i) Greehey's conviction of a crime constituting a felony
under federal or state law and involving moral turpitude; or
(ii) the continued material impairment of abilities of
Greehey to fulfill responsibilities under this Agreement as a
result of alcoholism or drug dependency after written notice of
such material impairment from Valero and the failure to correct
such impairment within 60 days from the date such notice is
given; or
(iii) the continued willful refusal by Greehey to
fulfill responsibilities under this Agreement after written
notice of such willful refusal from Valero and the failure to
correct such refusal within 30 days from the date such notice is
given.
If Valero terminates this Agreement pursuant to the provisions of
this paragraph 9(a), (1) all compensation or other benefits due
Greehey pursuant to Paragraphs 3 and 4 hereto shall be paid by
Valero to Greehey to the date of such termination and (2) all
supplemental and additional benefits and rights granted to
Greehey at retirement by Paragraph 7 are revoked and become null
and void; and, on any such payment in (1) by Valero, all
obligations of Valero to Greehey hereunder shall be totally and
completely satisfied, and Valero shall have no further
obligations of any type to Greehey pursuant to this Agreement.
(b) Termination other than for Cause. Valero shall have
the right to terminate Greehey's employment under the Agreement
without cause, and Greehey's employment under this Agreement
shall be deemed terminated, upon the giving of written notice to
such effect by Valero to Greehey. A termination of employment
other than as a result of death, retirement, disability under
Paragraph 8(b) or in accordance with paragraph 9(a) shall be
deemed a termination without cause. In the event of termination
without cause:
(i) Valero shall pay Greehey in cash on the date of the
termination without cause an amount equal to the amount of
Employee's Annual Base Salary at the time of such termination.
For purposes of paragraph 9(b), "Annual Base Salary at the time
of such termination" shall be the Base Salary in effect on the
date of such termination plus any amount by which the Base Salary
has been reduced within the 12 months preceding such date;
(ii) Valero shall pay Greehey in cash for and throughout
the period from the date of such termination to June 9, 1995 an
amount per annum equal to Greehey's Annual Base Salary at the
time of such termination plus the higher of the two annual
bonuses most recently paid to Greehey preceding the time of such
termination. Such amount shall be payable in equal, semi-monthly
installments on the 15th day and last day of each month or at
such other times and in such installments as may be agreed
between Greehey and Valero;
(iii) Greehey shall receive all of the payments and
benefits to which he is entitled pursuant to paragraph 7;
(iv) All rights and benefits of Greehey under any executive
and other officer and employee benefit plans in which Employee
participates, including such plans related to the securities of
VNGP, shall be accelerated and become exercisable immediately in
full. Payments for rights exercised pursuant to this paragraph
9(b)(iv) may be made in cash or securities of Valero, subject to
the rights of the Compensation Committee of the Board of
Directors of Valero to disapprove such payment in securities at
any time prior to such payment, provided such disapproval is made
applicable to all directors, officers and employees of Valero for
at least a 12 month period. Greehey shall have the right to
credit any securities of Valero to be received upon the exercise
of any such rights against any federal or state withholding tax
obligation with respect thereto. In addition, any securities
previously granted to Greehey by Valero subject to any
restrictions shall have all such restrictions removed immediately
following such termination. Greehey shall have the right to
exercise any stock options, stock appreciation rights or similar
rights or benefits for the full remaining term thereof without
giving effect to any provision which would purport to limit the
exercise period as a result of any such termination of employment
of Greehey;
(v) To the extent Greehey's $300,000 life insurance policy
referred to in paragraph 4(b) hereof is not fully paid on the
date of such termination, Valero shall pay any amounts remaining
to be paid thereunder as soon as possible after such termination.
(c) Termination upon Certain Events. In the event Valero
(including for purposes of this paragraph 9(c) any successor
corporation which acquires all or substantially all the assets of
Valero or is the surviving corporation in a merger with Valero)
ceases to have any securities issued by it listed on the New York
Stock Exchange or Valero ceases to be a corporation that is
obligated under the Securities Exchange Act of 1934 ("1934 Act")
to file periodic reports pursuant to Section 13 thereunder, or,
except pursuant to paragraph 7 or 9(a) above, either Greehey
ceases to be Chairman of the Board and Chief Executive Officer of
Valero, other than as a result of his voluntary resignation, or
Greehey shall in any way be denied by Valero the right or ability
to perform the duties normally incident to being Chairman of the
Board and Chief Executive Officer of Valero, the occurrence of
any such change in status of Valero or Greehey shall be deemed
to be a termination of Greehey's employment by Valero under this
Agreement without cause and the obligations and rights of Valero
and Greehey set forth in paragraph 9(b) shall apply as of the
date of any such change in status.
(d) Escrow to Secure Obligations. In the event of
termination pursuant to paragraphs 9(b) or 9(c) hereof, Valero,
at the time any notice is delivered pursuant to paragraph 9(b) or
any event referred to paragraph 9(c) occurs, shall deliver in
escrow with a state or national bank located in San Antonio,
Texas and having capital and surplus of at least $20,000,000, an
amount of money equal to the present value, discounted at a rate
of 8%, of all payments required to be made by Valero to Greehey
pursuant to this Agreement and pursuant to the Executive
Severance Agreement referred to in paragraph 10 hereof. Such
escrow shall be pursuant to an escrow agreement in substantially
the form of Exhibit A hereto.
10. Executive Severance Agreement. In the event Greehey
receives any payments under that certain Executive Severance
Agreement dated December 15, 1982 between Valero and Greehey,
Valero shall be entitled to credit any payments that it is
obligated to make under this Agreement against the amount of any
payments made to Greehey under such Executive Severance
Agreement. Valero agrees that if remuneration or benefits of any
form paid to Greehey by Valero or any trust funded by Valero
during or after his employment with Valero are excess parachute
payments as defined in Section 280G of the Internal Revenue Code
of 1986, as amended ("Code"), and are subject to the 20% excise
tax imposed by Section 4999 of the Code, Valero shall pay
Greehey a bonus no later than seven days prior to the due date
for the excise tax return in an amount equal to the excise tax
payable as a result of the excess parachute payment and any
additional federal income taxes (including any additional excise
taxes) payable by him as a result of the bonus, assuming that he
will be subject to federal income taxes at the highest individual
margin rate. It is the intention of the parties that the bonus
be "grossed up" so that the bonus contains sufficient funds to
pay the excise and all additional federal income taxes due as a
result of the bonus payment so that Greehey will suffer no
detriment from the excise tax payable as a result of the excess
golden parachute payments.
11. Disclosure of Confidential Information. Except to the
extent absolutely required in the performance of his duties or
obligations to Valero as expressly authorized herein, or by prior
written consent of a duly authorized officer or director of
Valero, Greehey will not, directly or indirectly, at any time
during his employment with Valero, or at any time subsequent to
the termination thereof, for any reason whatsoever, with or
without cause, breach the confidence reposed in him by Valero by
using, disseminating, disclosing, divulging or in any manner
whatsoever disclosing or permitting to be divulged or disclosed
in any manner to any person, firm, corporation, association or
other business entity, trade secrets, secret methods or
"Confidential Information" of Valero, nor will Greehey lecture
on or publish articles concerning any trade secrets, secret
methods or "Confidential Information" of Valero. As used herein,
the term "Confidential Information" means any and all information
concerning Valero's products, processes, sources of supply, and
services, including information relating to research,
development, inventions, manufacture, purchasing, accounting,
engineering, marketing, merchandising, or the selling of any
product or products to any customers of Valero, disclosed to
Greehey or known by Greehey as a consequence of or through his
employment by Valero (or any parent, subsidiary or affiliated
corporations of Valero) including, but not necessarily limited
to, any person, firm, corporation, association or other business
entity with which Valero has any type of agency agreement, or any
shareholders, directors, or officers of any such person, firm,
corporation, association or other business entity, if such
information is not generally known in any industry in which
Valero is or may become engaged during the term of this
Agreement. On termination of employment with Valero, all
documents, records, notebooks, or similar repositories of or
containing Confidential Information, including all copies of any
documents, records, notebooks or similar repositories of or
containing Confidential Information, then in Greehey's
possession or in the possession of any third party under the
control of Greehey or pursuant to any agreement with Greehey,
whether prepared by Greehey or any other person, firm,
corporation, association or other business entity, will be
delivered to Valero by Greehey.
12. Noncompetition. Greehey recognizes and understands
that in performing the responsibilities of his employment, he
will occupy a position of fiduciary trust and confidence,
pursuant to which he will develop and acquire experience and
knowledge with respect to Valero's business. It is the expressed
intent and agreement of Greehey and Valero that such knowledge
and experience shall be used exclusively in the furtherance of
the interests of Valero and not in any manner which would be
detrimental to Valero's interests. Greehey further understands
and agrees that Valero conducts its business within a specialized
market segment throughout the Unites States, and that it would be
detrimental to the interests of Valero if Greehey used the
knowledge and experience which he currently possesses or which he
acquires pursuant to his employment hereunder for the purpose of
directly or indirectly competing with Valero, or for the purpose
of aiding other persons or entities in so competing with Valero,
anywhere in the United States. In consideration for the benefits
herein, Greehey therefore agrees that so long as he is employed
by Valero and for a period of the greater of two years after
termination of Greehey's employment or as long as he is
receiving any payments hereunder, unless he first secures the
written consent of Valero, Greehey will not directly or
indirectly invest, engage or participate in any entity in direct
or indirect competition with Valero's business anywhere in the
United States or contract to do so, other than investments in
amounts aggregating less than 1% in any securities of any company
that is obligated under the 1934 Act to file periodic reports
pursuant to Section 13 thereunder. In the event that the
provisions of this paragraph 12 should ever be deemed to exceed
the time or geographic limitations permitted by applicable laws,
then such provisions shall be reformed to the maximum time or
geographic limitations permitted by applicable law.
13. Insurance. Valero may, in its sole and absolute
discretion, at any time after the Effective Date, apply for and
procure, as owner and for its own benefit, insurance on the life
of Greehey, in such amounts and in such forms as Valero may
choose. Unless otherwise agreed by Valero, Greehey shall have
no interest whatsoever in any such policy or policies, but
Greehey shall, at Valero's request, submit to such medical
examinations, supply such information, and execute and deliver
such documents as may be required by the insurance company or
companies to which Valero has applied for such insurance.
14. Acknowledgements of Greehey. Greehey hereby
acknowledges that his execution of this Agreement is given in
consideration of the following, any of which Greehey
acknowledges is adequate consideration:
(i) Valero's employment of Greehey under the terms and
conditions contained herein; and
(ii) The termination by Valero of any previous employment
agreement between Valero and Greehey.
15. Notice. Any notice, request, reply, instruction, or
other communication provided or permitted in this Agreement must
be given in writing and may be served by depositing same in the
United States mail in certified or registered form, postage
prepaid, addressed to the Party to be notified with return
receipt requested, or by delivering the notice in person to such
Party. Unless actual receipt is required by any provision of
this Agreement, notice deposited in the United States mail in the
manner herein prescribed shall be effective on dispatch. For
purposes of notice, the address of Greehey, his spouse, any
purported donee or transferee or any administrator, executor or
legal representative of Greehey or his estate, as the case may
be, shall be as follows:
Mr. William E. Greehey
307 Grandview
San Antonio, TX 78209
The address of Valero shall be:
Valero Energy Corporation
Post Office Box 500
San Antonio, Texas 78292
Attention: Corporate Secretary
Valero and Greehey shall have the right from time to time and at
any time to change their respective addresses and shall have the
right to specify as their respective addresses any other address
by giving at least ten days written notice to the other Party as
provided hereby.
16. Termination of other Employment Agreements. On the
Effective Date, all other, prior employment agreements between
the Parties in effect on the Effective Date shall terminate and
forever be from that date null, void and of no further force or
effect whatsoever, and any and all such agreements shall be
superseded in their entirety by this Agreement.
17. Litigation. In the event litigation shall be brought
by either Party to enforce or interpret any provision contained
in this Agreement the following provisions shall apply:
(a) if Greehey brings such an action, and it is not
established by clear and convincing evidence that Greehey has no
meritorious bases for such action, Valero shall pay all of
Greehey's and Valero's legal fees incurred in connection with
such litigation;
(b) in the event Valero brings such an action, and it is
not established by clear and convincing evidence that Greehey
has no meritorious defenses to such action, Valero shall pay all
of Greehey's and Valero's legal fees incurred in connection with
such litigation; and
(c) any claim by Valero of a right to terminate this
Agreement pursuant to paragraph 9(a) which is subjected to
litigation must be established by Valero by clear and convincing
evidence.
18. Controlling Law. The execution validity,
interpretation and performance of this Agreement shall be
determined and governed by the laws of the State of Texas.
19. Additional Instruments. Valero and Greehey shall
execute and deliver any and all additional instruments and
agreements which may be necessary or proper to carry out this
Agreement.
20. Entire Agreement. This Agreement contains the entire
agreement of the Parties. This Agreement may not be changed
orally but only by an agreement in writing signed by the Party
against whom enforcement of any waiver, change, modification,
extension or discharge is sought.
21. Separability. If any provision of the Agreement is
rendered or declared illegal or unenforceable by reason of any
existing or subsequently enacted legislation or by decree of a
court of last resort, Valero and Greehey shall promptly meet and
negotiate substitute provisions for those rendered and declared
illegal or unenforceable, and all the remaining provisions of
this Agreement shall remain in full force and effect.
22. Effect of Agreement. This Agreement shall be binding
upon Greehey and his heirs, executors, administrators, and legal
representatives, successors and assigns, and Valero and its legal
representatives, successors and assigns.
23. Execution. This Agreement may be executed in multiple
counterparts each of which shall be deemed an original and all of
which shall constitute one instrument.
24. Waiver of Breach. The waiver by Valero of a breach of
any provision of the Agreement by Greehey shall not operate or
be construed as a waiver by Valero of any subsequent breach by
Greehey. The waiver by Greehey of a breach of any provision of
the Agreement by Valero shall not operate or be construed as a
waiver by Greehey of any subsequent breach by Valero.
IN WITNESS WHEREOF, the Parties have executed this
Agreement in amended and restated form as of the date below
written.
Valero:
VALERO ENERGY CORPORATION
By: /s/ STAN L. MCLALLAND
(Signature)
Executive Vice President and General Counsel
Greehey:
/s/ WILLIAM E. GREEHEY
William E. Greehey
Date: March 7, 1994
FIRST AMENDMENT
TO
CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this
"Amendment ) dated as of September 30, 1994 is among VALERO
ENERGY CORPORATION, a Delaware corporation ("Borrower"), the
banks and co-agents listed on the signature pages hereto, BANKERS
TRUST COMPANY and BANK OF MONTREAL, as Managing Agents, and
BANKERS TRUST COMPANY, as Administrative Agent.
PRELIMINARY STATEMENTS
(1) Pursuant to the Credit Agreement dated as of March
31, 1994 (the "Existing Credit Agreement") among the Borrower,
the banks and co-agents referred to therein, the Managing Agents
and the Administrative Agent, the Banks have agreed to make loans
to, and the Administrative Agent has agreed to issue letters of
credit for the account of, the Borrower.
(2) At the request of the Borrower, the parties hereto
have agreed to amend the Existing Credit Agreement in the manner
and upon the terms and conditions set forth herein.
Accordingly, in consideration of the foregoing and
the mutual covenants set forth herein, the parties hereto agree
as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Defined Terms. All capitalized
terms defined in the Existing Credit Agreement, and not otherwise
defined herein shall have the same meanings herein as in the
Existing Credit Agreement. Upon the effectiveness of this
Amendment, each reference (a) in the Existing Credit Agreement to
"this Agreement," "hereunder," "herein" or words of like import
shall mean and be a reference to the Existing Credit Agreement,
as amended hereby, (b) in the Notes and the other Credit
Documents to the Existing Credit Agreement shall mean and be a
reference to the Existing Credit Agreement, as amended hereby,
and (c) in the Credit Documents to any term defined by reference
to the Existing Credit Agreement shall mean and be a reference to
such term as defined in the Existing Credit Agreement, as amended
hereby.
Section 1.02. References, Etc. The words
"hereof," "herein" and "hereunder" and words of similar import
when used in this Amendment shall refer to this Amendment as a
whole and not to any particular provision of this Amendment. In
this Amendment, unless a clear contrary intention appears the
word "including" (and with correlative meaning "include") means
including, without limiting the generality of any description
preceding such term. No provision of this Amendment shall be
interpreted or construed against any Person solely because that
Person or its legal representative drafted such provision.
ARTICLE II
AMENDMENTS TO EXISTING CREDIT AGREEMENT
Section 2.01. Amendment to Section 1.01. (a)
Section 1.01(a) of the Existing Credit Agreement is hereby
amended and restated to read as follows:
"(a) Subject to and upon the terms and conditions
herein set forth, each Bank severally agrees, at any time and
from time to time on and after the Effective Date and prior to
the Termination Date, to make loans ("Loans") to the Borrower in
an aggregate amount requested by the Borrower not to exceed such
Bank's Commitment."
(b) Section 1.01(c) of the Existing Credit Agreement is
hereby amended and restated to read as follows:
"(c) Notwithstanding any provision hereof to the
contrary, no Loan shall be made hereunder if, after giving effect
thereto, the sum of (A) the aggregate outstanding principal
amount of the Loans made by all Banks plus (B) the Letter of
Credit Outstandings would exceed the sum of (1) the Total
Commitment, minus (2) any outstanding Short Term Credit."
Section 2.02. Amendment to Section 1.02. Section
1.02(a) of the Existing Credit Agreement is hereby amended and
restated to read as follows:
"(a) Subject to and upon the terms and conditions
herein set forth, the Borrower in its sole and absolute
discretion may request the Administrative Agent to issue, and the
Administrative Agent agrees to issue, at any time and from time
to time on or after the Effective Date and prior to the
Termination Date, one or more irrevocable letters of credit
("Letters of Credit") for the account of the Borrower, and for
the benefit of any obligee of payment obligations of the Borrower
or any of its Subsidiaries, in an aggregate amount not to exceed
the Total Commitment."
Section 2.03. Amendment to Section 1.06(a).
Section 1.06(a) of the Existing Credit Agreement is hereby
amended and restated to read as follows:
"(a) The Borrower's obligation to pay the principal
of, and interest on, all the Loans made by each Bank shall be
evidenced by a promissory note duly executed and delivered by the
Borrower substantially in the form of Exhibit 1.06 hereto with
blanks appropriately completed in conformity herewith (as the
same may be amended, restated, extended, replaced and or renewed
from time to time, each a "Note" and collectively, the "Notes"),
which Note shall (i) be payable to the order of such Bank, (ii)
be in the stated principal amount equal to the Commitment of such
Bank, (iii) mature, with respect to each Eurodollar Rate Loan
evidenced thereby, on the last day of the Interest Period
applicable thereto, and with respect to each Prime Rate Loan
evidenced thereby, on the Termination Date, (iv) bear interest as
provided herein and (v) be entitled to the benefits of this
Agreement and the other Credit Documents."
Section 2.04. Amendment to Section 2.01.
Subsections (a) and (b) of Section 2.01(a) of the Existing Credit
Agreement are hereby amended and restated to read as follows:
"(a) Commitment Fee. The Borrower agrees to pay the
Administrative Agent for the account of each Bank a commitment
fee for the period from and including the earlier of the
Effective Date or May 20, 1994 to but excluding the date upon
which the Total Commitment shall have been terminated, determined
by multiplying the daily average Unutilized Commitment of such
Bank by the lowest rate per annum determined as follows:
<TABLE>
<CAPTION>
Borrower's Long Term
Senior Unsecured Debt Rating Rate Per Annum
<S> <C>
A3 or better by Moody's and A- or better by S&P 3/16 of 1%
Baa3 or better by Moody's and BBB- or better by S&P 1/4 of 1%
Lower than Baa3 (or not rated) by Moody's or lower 3/8 of 1 %
than BBB- (or not rated) by S&P
</TABLE>
Any commitment fee payable pursuant to this Section 2.01(a) (i)
shall be calculated to the end of each calendar quarter and to
the date upon which the Total Commitment is terminated and (ii)
shall be due and payable in arrears on the third Business Day
following the end of each calendar quarter during the term hereof
and on the date upon which the Total Commitment is terminated.
(b) Usage Fee. For each day that the sum of (i)
the aggregate outstanding principal amount of the Loans, plus
(ii) the Letter of Credit Outstandings exceeds sixty five percent
(65%) of the Total Commitment, the Borrower agrees to pay the
Administrative Agent for the account of each Bank, a fee equal to
such Bank's Commitment multiplied by a rate equal to 1/16 of 1%
per annum. Any fee payable pursuant to this Section 2.01(b)
shall be (A) calculated, to the extent applicable, to the end of
each calendar quarter and to the date upon which the Total
Commitment is terminated and (B) due and payable in arrears on
the third Business Day following the end of each calendar quarter
during the term hereof and on the date upon which the Total
Commitment is terminated."
Section 2.05. Amendment to Section 2.02. (a) The
second sentence of Section 2.02(a) of the Existing Credit
Agreement is hereby amended and restated to read as follows:
"As used herein "Prime Rate Margin" shall mean the lowest rate of
interest per annum determined as follows:
<TABLE>
<CAPTION>
Borrower's Long Term Prime
Senior Unsecured Debt Rating Rate Margin
<S> <C>
Baa3 or better by Moody's and BBB- or better by S&P 0%
Baa3 or better by Moody's and BB+ or better by S&P 0%
Ba1 or better by Moody's and BBB- or better by S&P 0%
Ba1 by Moody's and BB+ by S&P 1/4 of 1%
Lower than Ba1 (or not rated) by Moody's or 1/2 of 1%
lower than BB+(or not rated) by S&P"
</TABLE>
(b) The second sentence of Section 2.02(b) of the
Existing Credit Agreement is hereby amended and restated to read
as follows:
"As used herein "Eurodollar Rate Margin" shall mean the
lowest rate of interest per annum determined as follows:
<TABLE>
<CAPTION>
Borrower's Long Term Eurodollar
Senior Unsecured Debt Rating Rate Margin
<S> <C>
A3 or better by Moody's and A- or better by S&P 1/2 of 1%
Baa3 or better by Moody's and BBB- or better by S&P 3/4 of 1%
Baa3 or better by Moody's and BB+ or better by S&P 1%
Ba1 or better by Moody's and BBB- or better by S&P 1%
Ba1 by Moody's and BB+ by S&P 1 1/4%
Lower than Ba1 (or not rated by Moody's or 1 1/2%
lower than BB+(or not rated) by S&P"
</TABLE>
Section 2.06. Amendment to Section 3.01. Section
3.01 of the Existing Credit Agreement is hereby amended and
restated to read as follows:
"Upon at least five Business Days prior telephonic notice
confirmed in writing or facsimile to the Administrative Agent
(which notice the Administrative Agent shall promptly transmit to
each of the Banks), the Borrower shall have the right, without
premium or penalty, to terminate the Total Unutilized Commitment
in part or in whole; provided, that (i) any such reduction shall
proportionately reduce the respective Commitments of the Banks
and (ii) any such partial reduction shall be in the amount of
$5,000,000 or, if greater, an integral multiple of $1,000,000."
Section 2.07. Amendment to Section 3.03. Section
3.03(a) of the Existing Credit Agreement is hereby amended and
restated to read as follows:
"(a) On any day on which the sum of (A) the
aggregate outstanding principal amount of the Loans made by all
of the Banks, plus (B) the Letter of Credit Outstandings at such
time, exceeds the sum of (1) the Total Commitment, minus (2) any
outstanding Short Term Credit, the Borrower shall prepay the
Loans in an amount equal to such excess, together with any
amounts payable under Section 4.05; if after giving effect to the
repayment of all outstanding Loans, the Letter of Credit
Outstandings exceed the Total Commitment minus any outstanding
Short Term Credit, the Borrower shall pay an amount of cash equal
to such excess Letter of Credit Outstandings to the
Administrative Agent at the Payment Office, such cash to be held
as security for all obligations of the Borrower."
Section 2.08. Amendment to Section 7.01.
Subsections (a), (b), and (c) of Section 7.01 of the Existing
Credit Agreement are hereby amended and restated to read as
follows:
"(a) Annual Financial Statements. Within 105 days
after the end of each fiscal year of the Borrower:
(i) a consolidated balance sheet of each of the
Borrower and its Subsidiaries and VMP and its Subsidiaries as of
the end of such fiscal year and the related consolidated
statements of income, common stock and stockholders' equity or
partners' equity, as the case may be, and cash flows of each of
the Borrower and its Subsidiaries and VMP and its Subsidiaries
for such fiscal year, setting forth in each case in comparative
form the figures for the previous fiscal year, all in reasonable
detail and accompanied by a report thereon of Arthur Andersen &
Co. or other independent public accountants of comparable
recognized national standing, which report shall be unqualified
as to scope of audit and shall state that such consolidated
financial statements present fairly in all material respects the
consolidated financial position as of the end of such fiscal
year, and the consolidated results of operations and cash flows
for such fiscal year, of the Borrower and its Subsidiaries and
VMP and its Subsidiaries, as applicable, in accordance with
generally accepted accounting principles consistently applied
(except for changes in such accounting principles which are set
forth in the notes thereto, permitted by generally accepted
accounting principles and concurred in by such independent
certified public accountants), and
(ii) a consolidating balance sheet of each of the
Borrower and its Subsidiaries and VMP and its Subsidiaries as of
the end of such fiscal year and the related consolidating
statements of income and cash flows of the Borrower, VMP and any
of their respective Subsidiaries whose total assets are in excess
of $10,000,000 as of the end of such fiscal year, in each case
for such fiscal year, all in reasonable detail and accompanied by
a certificate of a Financial Officer of the Borrower to the
effect that such consolidating financial statements are complete
and correct and that they present fairly in all material respects
the consolidating financial position as of the end of such fiscal
year, and the consolidating results of operations and cash flows
for such fiscal year, of the Borrower, VMP and such Subsidiaries
in accordance with generally accepted accounting principles
applied consistently with the audited financial statements
referred to in Section 7.01(a)(i).
(b) Quarterly Financial Statements. Within 60 days
after the end of each fiscal quarter (other than the fourth
quarter) of the Borrower:
(i) a consolidated balance sheet of the Borrower
and its Subsidiaries as at the end of such fiscal quarter and the
related consolidated statements of income and cash flows of the
Borrower and its Subsidiaries for the portion of the fiscal year
ended at the end of such fiscal quarter, setting forth in the
case of the consolidated statements of income and cash flows, in
comparative form the figures for the corresponding portion of the
previous fiscal year, all in reasonable detail and accompanied by
a certificate of a Financial Officer of the Borrower to the
effect that they are complete and correct and that they fairly
present the consolidated financial position as of the end of such
fiscal quarter, and the consolidated results of operations and
cash flows for such portion of such fiscal year, of the Borrower
and its Subsidiaries in accordance with generally accepted
accounting principles consistently applied (subject to normal,
year-end audit adjustments); and
(ii) a consolidating balance sheet of each of the
Borrower and its Subsidiaries and VMP and its Subsidiaries as of
the end of such fiscal quarter and the related consolidating
statements of income and cash flows of the Borrower, VMP and any
of their respective Subsidiaries whose total assets are in excess
of $10,000,000 as of the end of such fiscal quarter, in each case
for the portion of the fiscal year ended at the end of such
fiscal quarter, all in reasonable detail and accompanied by a
certificate of a Financial Officer of the Borrower to the effect
that such consolidating financial statements are complete and
correct and that they present fairly in all material respects the
consolidating financial position as of the end of such fiscal
quarter, and the consolidating results of operations and cash
flows for such portion of such fiscal year, of the Borrower, VMP
and such Subsidiaries in accordance with generally accepted
accounting principles consistently applied (subject to normal,
year-end audit adjustments).
(c) Monthly Operations Report. Within 90 days after
the last day of December of each year, 60 days after the last day
of January of each year, 45 days after the last day of March,
June and September of each year and 30 days after the last day of
each other calendar month of each year, a report, in form and
substance satisfactory to the Managing Agents, setting forth such
information with respect to the operations of VRMC and its
Subsidiaries and of VMP and its Subsidiaries during such month as
either Managing Agent may reasonably request."
Section 2.09. Amendment to Section 8.01. (a)
Section 8.01(e) of the Existing Credit Agreement is hereby
amended and restated to read as follows:
"(e) (i) purchase money Indebtedness incurred
contemporaneously with the acquisition of an asset (excluding
inventory or accounts or notes receivable) or within ninety days
after the acquisition of such asset to refinance the purchase
price thereof, which in either case is secured by Liens attaching
only to the asset so acquired, (ii) Indebtedness existing prior
to the acquisition of an asset and assumed as part of the
purchase price of such asset, which is secured by Liens existing
prior to such acquisition and attaching only to the asset so
acquired, (iii) Indebtedness existing prior to an entity becoming
a Subsidiary and assumed or incurred as a result of such entity
becoming a Subsidiary, which is secured by Liens existing prior
to such entity becoming a Subsidiary and attaching only to the
assets of such Subsidiary, and (iv) Indebtedness in respect of
leases of the type described in clause (ii) of the definition of
Indebtedness, which may be secured by Liens that are imputed and
not expressly created in connection with any such lease;
provided, that such Indebtedness under this clause (e) does not
in the aggregate exceed (A) 100% of the Fair Market Value of such
asset at the time of the acquisition or leasing thereof, and (B)
five percent (5%) of the Consolidated Net Worth of the Borrower
on the date any such Indebtedness is incurred;"
(b) Section 8.01(g) of the Existing Credit
Agreement is hereby amended and restated to read as follows:
"(g) unsecured Indebtedness of the Borrower not
otherwise permitted by this Section 8.01, so long as (i) such
Indebtedness is not owing to any Subsidiary of the Borrower and
is not Guaranteed by, or secured by any Lien against the assets
of, the Borrower or any of its Subsidiaries, and (ii) either (A)
the terms of such Indebtedness do not require any principal
amortization or sinking fund payments on or prior to the
Termination Date and otherwise are no more restrictive than the
most restrictive terms set forth in any agreement relating to
Indebtedness of the Borrower listed on Schedule 8.01, (B) such
Indebtedness is Short Term Credit and the aggregate principal
amount thereof does not exceed $100,000,000 or (C) such
Indebtedness (1) has been funded through a public offering made
pursuant to an effective registration statement filed pursuant to
the Securities Act of 1933, as amended, (2) does not constitute
Short Term Credit, and (3) the aggregate principal amount of such
Indebtedness does not exceed $50,000,000 and the terms of such
Indebtedness are no more restrictive than the most restrictive
terms set forth in any agreement relating to Indebtedness of the
Borrower listed on Schedule 8.01; and"
Section 2.10. Amendment to Section 8.08. (a)
Section 8.08(f) of the Existing Credit Agreement is hereby
amended and restated to read as follows:
"(f) Transfers of assets between the Borrower and
its Subsidiaries (including the Partnership Group), so long as
(i) the consideration received by such transferee in respect of
such Transfer is at least equal to the Fair Market Value of the
assets so Transferred, and (ii) the warranty, indemnity and other
non-monetary obligations imposed on the parties to such Transfer
are no more burdensome than those that would be imposed at such
time in a comparable arm's-length transaction with a non-
Affiliate;"
(b) Section 8.08(h) of the Existing Credit
Agreement is hereby amended and restated to read as follows:
"(h) the Transfer by the Borrower or a Subsidiary of
the Borrower to (i) the Borrower, (ii) a Person that is not an
Affiliate of the Borrower or (iii) a wholly owned Subsidiary of
the Borrower, of an asset having a Fair Market Value not
exceeding $100,000 as of the date of such Transfer; provided that
the aggregate Fair Market Value of assets Transferred pursuant to
this Section 8.08(h) may not exceed $5,000,000;"
Section 2.11. Amendment to Section 8.11. Section
8.11(a) of the Existing Credit Agreement is hereby amended and
restated to read as follows:
"(a) Consolidated Working Capital. The Borrower
will not permit the sum of: (i) the Consolidated Current Assets
of the Borrower plus the Total Unutilized Commitment, minus (ii)
the Consolidated Current Liabilities of the Borrower (excluding
any portion attributable to this Agreement), to at any time be
less than $100,000,000."
Section 2.12. Amendment to Section 11.10. Section
11.10 of the Existing Credit Agreement is hereby amended and
restated to read as follows:
"SECTION 11.10 Amendment and Waiver. No amendment or
waiver of any provision of this Agreement, any Note or any other
Credit Document, or consent to any departure by the Borrower
herefrom or therefrom, shall in any event be effective unless the
same shall be in writing and signed by the Required Banks and the
Borrower, and then, in any case, such waiver or consent shall be
effective only in the specific instance and for the specific
purpose for which given; provided, that, no such waiver or
consent and no such amendment shall (i) extend the time of
payment of or reduce any principal amount due under any Note (or
of any Unpaid Drawing), or reduce the rate or amount or extend
the time of payment of interest thereof, or reduce the rate or
amount or extend the time of payment of any Fees, or reduce the
principal amount of any Note (or of any Unpaid Drawing), or
change the amount of or extend any Bank's Commitment or extend
the maturity of any Unpaid Drawings or the expiry date of any
Letter of Credit beyond the Termination Date, or amend, modify or
waive any provision of this subsection or reduce the percentage
specified in the definition of Required Banks or dispense with
the requirement for the approval or the assent of the Required
Banks whenever the same is required, without the written consent
of all the Banks or (ii) amend, modify or waive any provision of
Article X without the written consent of the then acting Agents."
Section 2.13. Amendment to Annex A. (a) The
respective definitions of Letter of Credit Sublimit, Loan
Commitment, and Total Loan Commitment set forth in Annex A to the
Existing Credit Agreement are hereby deleted.
(b) The respective definitions of Termination Date
and Total Commitment set forth in Annex A to the Existing Credit
Agreement are hereby amended and restated to read as follows:
" Termination Date shall mean September 30, 1997."
" Total Commitment shall mean, as of any date, the
sum of the Commitments of all the Banks, which equals
$250,000,000 as of the date hereof."
Section 2.14. Amendment of Exhibit 11.04. Exhibit
11.04 of the Existing Credit Agreement is hereby amended and
restated to read as set forth in Exhibit 11.04 to this Amendment.
Section 2.15. No Effect On Existing Interest Rates
or Fees. Any interest rate (including the Eurodollar Rate
Margin) determined pursuant to the provisions of the Existing
Credit Agreement for a Eurodollar Rate Loan outstanding on the
date of this Amendment shall not be changed by virtue of this
Amendment. Commitment fees accruing on or prior to the date of
this Amendment shall be calculated without giving effect to this
Amendment.
ARTICLE III
CONDITIONS TO EFFECTIVENESS
Section 3.01. Conditions to Effectiveness. This
Amendment shall become effective upon receipt by the
Administrative Agent of the following, each in form and substance
reasonably satisfactory to the Managing Agents and in such number
of counterparts as may be reasonably requested by the Managing
Agents:
(a) This Amendment duly executed by each party
hereto.
(b) A Note duly executed by the Borrower and
payable to the order of each Bank in an amount equal to the
Commitment of such Bank.
(c) A certificate dated as of the date of the
effective date of this Amendment of the secretary or an assistant
secretary of the Borrower certifying (i) true and correct copies
of resolutions adopted by the Board of Directors of the Borrower
(A) authorizing the execution, delivery and performance by the
Borrower of this Amendment, and (B) authorizing officers of the
Borrower to execute and deliver this Amendment, and (ii) the
incumbency and specimen signatures of the officers of the
Borrower executing this Amendment or any other document on behalf
of the Borrower.
(d) A certificate dated as of the effective date of
this Amendment of a Financial Officer of the Borrower certifying
that, after giving effect to this Amendment, the representations
and warranties contained in Article IV are true and correct on
and as of such date, as though made on and as of such date.
(e) A favorable, signed opinion addressed to the
Managing Agents and the Banks from the General Counsel of the
Borrower, addressing such matters as the Managing Agents may
reasonably require.
(f) A favorable, signed opinion addressed to the
Managing Agents and the Banks from Andrews & Kurth L.L.P.,
special counsel to the Administrative Agent and the Managing
Agents, addressing the enforceability of this Amendment under the
laws of the State of New York.
(g) Certificates of appropriate public officials as
to the existence and good standing of the Borrower in the States
of Delaware and Texas.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
In order to induce the other parties to enter into
this Amendment, the Borrower hereby represents and warrants to
such other parties as follows:
Section 4.01. Existing Credit Agreement. After
giving effect to the execution and delivery of this Amendment and
the consummation of the transactions contemplated hereby and with
this Amendment constituting one of the Credit Documents, the
representations and warranties set forth in the Existing Credit
Agreement are true and correct on the date hereof as though made
on and as of such date.
Section 4.02. No Default. After giving effect to
the execution and delivery of this Amendment and the consummation
of the transactions contemplated hereby, no Default or Event of
Default has occurred and is continuing as of the date hereof.
ARTICLE V
MISCELLANEOUS
Section 5.01. Affirmation of Credit Documents.
The Borrower hereby acknowledges and agrees that all of its
obligations under the Existing Credit Agreement, as amended
hereby, and the other Credit Documents shall remain in full force
and effect following the execution and delivery of this
Amendment, and such obligations are hereby affirmed, ratified and
confirmed by the Borrower.
Section 5.02. Successors and Assigns. This
Amendment shall be binding upon, and inure to the benefit of, the
parties hereto and their respective successors and assigns.
Section 5.03. Captions. Section and Article
headings in this Amendment have been inserted for convenience of
reference only and shall be given no substantive meaning or
significance whatsoever in construing the terms and provisions of
this Amendment.
Section 5.04. Execution in Counterparts. This
Amendment may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which
when so executed and delivered shall be deemed to be an original
and all of which taken together shall constitute but one and the
same instrument.
SECTION 5.05. GOVERNING LAW. THIS AMENDMENT AND
THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE
CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW
PRINCIPLES THEREOF (OTHER THAN SECTION 5-1401 OF THE GENERAL
OBLIGATIONS LAW OF THE STATE OF NEW YORK).
SECTION 5.06. FINAL AGREEMENT OF THE PARTIES.
THE EXISTING CREDIT AGREEMENT (INCLUDING THE EXHIBITS THERETO),
AS AMENDED BY THIS AMENDMENT, THE NOTES AND THE OTHER CREDIT
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL
AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused
this Amendment to be executed as of the date first stated herein
by their respective officers thereunto duly authorized.
VALERO ENERGY CORPORATION
By: /s/ John D. Gibbons
Name: John D. Gibbons
Title: Treasurer
BANKERS TRUST COMPANY,
Individually, as Administrative
Agent and as Managing Agent
By: /s/ Mary Jo Jolly
Name: Mary Jo Jolly
Title: Assistant Vice President
BANK OF MONTREAL,
Individually and as Managing Agent
By: /s/ Julia B. Buthman
Name: Julia B. Buthman
Title: Director
BANK ONE, TEXAS, N.A.,
Individually and as Co-Agent
By: /s/ Robert S. Glenn
Name: Robert S. Glenn
Title: Vice President
BANQUE NATIONALE de PARIS,
HOUSTON AGENCY, Individually and as
Co-Agent
By: /s/ Michael W. McKee
Name: Michael W. McKee
Title: Vice President
CIBC INC., Individually and as
Co-Agent
By: /s/ M. A. G. Corkum
Name: M. A. G. Corkum
Title: Vice President
THE FIRST NATIONAL BANK OF
BOSTON, Individually and as Co-Agent
By: /s/ Cynthia A. Stableford
Name: Cynthia A. Stableford
Title: Vice President
THE FUJI BANK, LIMITED
HOUSTON AGENCY, Individually and as
Co-Agent
By: /s/ Soichi Yoshida
Name: Soichi Yoshida
Title: Vice President & Senior Manager
TORONTO DOMINION (TEXAS),
INC., Individually and as Co-Agent
By: /s/ Frederic B. Hawley
Name: Frederic B. Hawley
Title: Vice President
THE BANK OF TOKYO, LTD.
By: /s/ Michael G. Meiss
Name: Michael G. Meiss
Title: Vice President & Manager
Corporate Finance
BERLINER HANDELS-UND
FRANKFURTER BANK
By: /s/ David. C. Freenkel
Name: David C. Freenkel
Title: Vice President
By: /s/ Paul Travers
Name: Paul Travers
Title: Vice President
CHRISTIANIA BANK
By: /s/ Debra Dickehuth
Name: Debra Dickehuth
Title: Vice President
By: /s/ Peter M.
Name: Peter M.
Title: Vice President
CREDIT LYONNAIS NEW YORK
BRANCH
By: /s/ Xavier Ratouis
Name: Xavier Ratouis
Title: Senior Vice President
CREDIT LYONNAIS CAYMAN
ISLAND BRANCH
By: /s/ Xavier Ratouis
Name: Xavier Ratouis
Title: Senior Vice President
THE DAIWA BANK, LTD.
By: /s/ James T. Wang
Name: James T. Wang
Title: Vice President & Manager
By: /s/ Kirk L. Stites
Name: Kirk L. Stites
Title: Vice President
THE FROST NATIONAL BANK
By: /s/ Phil Dudley
Name: Phil Dudley
Title: Vice President
SOCIETE GENERALE, SOUTHWEST
AGENCY
By: /s/ Mark A. Cox
Name: Mark A. Cox
Title: Vice President
<PAGE>
EXHIBIT 11.04
ASSIGNMENT AND ACCEPTANCE
Dated: ______, 19_
Reference is made to the Credit Agreement dated as of
March 31, 1994 (as amended or modified from time to time, the
"Credit Agreement") among Valero Energy Corporation, a Delaware
corporation (the "Borrower"), the banks named therein, the Co-
Agents named therein, Bankers Trust Company and Bank of
Montreal, as Managing Agents for such banks, and Bankers Trust
Company, as Administrative Agent for such banks. Terms defined
in the Credit Agreement are used herein with the same meaning.
____________, acting as one of the Banks (the
"Assignor"), and ____________ (the "Assignee") agree as follows:
1. The Assignor hereby sells and assigns to the
Assignee, and the Assignee hereby purchases and assumes from the
Assignor, that interest in and to a portion of the Assignor's
rights and obligations as of the date hereof under the Credit
Agreement and the other Credit Documents sufficient to give the
Assignee the fractional interest specified in Section 1 of
Schedule 1 hereto of all outstanding rights and obligations under
the Credit Agreement and the other Credit Documents. After
giving effect to such sale and assignment, the respective
Commitments of, amounts of the Loans owing to, and participations
in the Letter of Credit Outstandings held by the Assignor and the
Assignee will be as set forth in Section 2 of Schedule 1 hereto.
2. The Assignor (i) represents and warrants that (x)
it is the legal and beneficial owner of the interest being
assigned by it hereunder and that such interest is free and clear
of any adverse claim; (y) it has full power and authority, and
has taken all action necessary, to execute and deliver this
Assignment and to fulfill its obligations under, and to
consummate the transactions contemplated by, this Assignment;
(z) this Assignment has been duly executed and delivered by it
and constitutes its legal, valid and binding obligation,
enforceable in accordance with its terms; (ii) makes no
representation or warranty and assumes no responsibility with
respect to any statements, warranties or representations made in
or in connection with the Credit Agreement or the execution,
legality, validity, enforceability, genuineness, sufficiency or
value of the Credit Agreement or any other instrument or document
furnished pursuant thereto; (iii) makes no representation or
warranty and assumes no responsibility either initially or on a
continuing basis with respect to the financial condition of the
Borrower or the performance or observance by the Borrower of any
of its obligations under the Credit Agreement or any other
instrument or document furnished pursuant thereto; and (iv) will
deliver the Note issued to it pursuant to the Credit Agreement to
the Administrative Agent concurrently with the presentation
hereof to the Administrative Agent for acceptance and requests
that, upon receipt of such Note, the Administrative Agent
exchange such Note for [a] new Note[s] payable to the order of
the Assignee in an amount equal to the Commitment assumed by the
Assignee pursuant hereto [and the Assignor in an amount equal to
the Commitment retained by the Assignor under the Credit
Agreement, respectively], as specified in Section 3 of Schedule 1
hereto.
3. The Assignee (i) confirms that it has received a
copy of the Credit Agreement, together with copies of the
financial statements referred to in Section 6.05 of the Credit
Agreement and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision
to enter into this Assignment; (ii) agrees that it will,
independently and without reliance upon the Administrative Agent,
the Managing Agents, any Co Agent, the Assignor or any other Bank
and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit
decisions in taking or not taking action under the Credit
Agreement; (iii) confirms (y) that it has full power and
authority, and has taken all action necessary, to execute and
deliver this Assignment and to fulfill its obligations under,
and to consummate the transactions contemplated by, this
Assignment and (z) that this Assignment has been duly executed
and delivered by it and constitutes its legal, valid and binding
obligation, enforceable in accordance with its terms; (iv)
appoints and authorizes the Administrative Agent and Managing
Agents to take such action as administrative agent and managing
agent, respectively, on its behalf and to exercise such powers
under the Credit Agreement as are delegated to the Administrative
Agent and the Managing Agents by the terms thereof, together with
such powers as are reasonably incidental thereto; (v) agrees that
it will perform in accordance with their terms all of the
obligations which by the terms of the Credit Agreement and the
other Credit Documents are required to be performed by it as a
Bank; and (vi) specifies as its Lending Office (and address for
notices) the office set forth in Section 4 of Schedule 1 hereto;
and (vii) represents that it is either (y) a corporation
organized under the laws of the United States or a state thereof
or (z) entitled to complete exemption from United States
withholding tax imposed on or with respect to any payments,
including fees, to be made to it pursuant to the Credit Agreement
and the other Credit Documents (A) under an applicable provision
of a tax convention to which the United States is a party or (B)
because it is acting through a branch, agency or office in the
United States and any payment to be received by it under the
Credit Agreement is effectively connected with a trade or
business in the United States.
4. Following the execution of this Assignment by the
Assignor and the Assignee, it will be delivered to the
Administrative Agent for the consent of the Borrower and approval
by the Managing Agents, and the effective date of this Assignment
(the "Effective Date") shall be at least two Business Days after
the date on which both such consent of the Borrower has been
obtained and such approval by the Managing Agents has occurred.
If the statement set forth in clause (vii)(z) of Section 3 hereof
is true with respect to the Assignee, the Assignee will execute
and deliver to the Administrative Agent the forms, certificates
and other documents required by Section 4.06(e) of the Credit
Agreement.
5. Upon such consent by the Borrower and approval by
the Managing Agents, as of the Effective Date, (i) the Assignee
shall be a party to the Credit Agreement and, to the extent
provided in this Assignment, have the rights and obligations of a
Bank thereunder and (ii) the Assignor shall, to the extent
provided in this Assignment and Acceptance, relinquish its rights
and be released from its obligations under the Credit Agreement.
6. Upon such consent by the Borrower and approval by
the Managing Agents, from and after the Effective Date, the
Administrative Agent shall make all payments under the Credit
Agreement and the other Credit Documents in respect of the
interest assigned hereby (including, without limitation, all
payments of principal, interest and fees with respect thereto) to
the Assignee. Notwithstanding anything to the contrary contained
in this Assignment, if and when (a) Assignor receives or collects
any payment of interest on any Loan or Letter of Credit
Outstandings attributable to Assignee's share or any payment of
Fees attributable to Assignee's share which, in any such case, is
required to be paid to Assignee, Assignor shall remit such
payment to the Administrative Agent for further distribution to
Assignee, or (b) Assignee receives or collects any payment of
interest on any Loan or Letter of Credit Outstandings or any
payment of Fees which in any such case is required to be paid to
Assignor, Assignee shall remit such payment to the Administrative
Agent for further distribution to Assignor. To the extent
payments of funds payable to Assignee by Assignor, or to Assignor
by Assignee, as the case may be, pursuant to this Section 6 are
not made within two Business Days of receipt, each of the
Assignee or Assignor, as the case may be, shall be entitled to
recover such amount together with interest thereon at the
Effective Federal Funds Rate per annum accruing from the date of
receipt of such funds by the other party. For the purposes
hereof, "Effective Federal Funds Rate" shall mean, for any day,
the weighted average of the rate on overnight Federal funds
transactions, with members of the Federal Reserve System, only,
arranged by Federal funds brokers, as published as of such day by
the Federal Reserve Bank of New York.
7. THIS ASSIGNMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES
THEREOF. This Assignment may be executed in any number of
counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall
be deemed to be an original and all of which taken together shall
constitute but one and the same instrument. This Assignment
shall be binding upon and inure to the benefit of the Assignor
and the Assignee and their respective successors and assigns.
8. No term or provision of this Assignment may be
changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the parties to this Assignment.
Assignor and Assignee agree that each party shall bear its own
expenses in connection with the preparation and execution of this
Assignment.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Assignment and Acceptance to be executed by their respective
officers thereunto duly authorized, as of the date first above
written.
Attachments: ASSIGNOR:
Schedule 1
By:
Name:
Title:
ASSIGNEE:
By:
Name:
Title:
Consented to this __ day VALERO ENERGY CORPORATION
of , 19_.
By:
Name:
Title:
Approved this __ day BANKERS TRUST COMPANY, as
of , 19_. Managing Agent
By:
Name:
Title:
Approved this __ day BANK OF MONTREAL, as
of , 19_. Managing Agent
By:
Name:
Title:
<PAGE>
Schedule 1
to
Assignment and Acceptance
Dated ____, 19_
Section 1.
Fractional interest acquired by Assignee _______________
relative to all Banks
Section 2.
1. Assignee's acquired interest.
Assignee's Commitment: $
Aggregate outstanding principal
amount of Loans owing to the Assignee: $
Amount of participations in Letter of
Credit Outstandings held by the Assignee: $
Assignee's Percentage Participation: %
2. Assignor's retained interest.
Assignor's Commitment: $
Aggregate outstanding principal
amount of Loans owing to the Assignor: $
Amount of participations in Letter of
Credit Outstandings held by the Assignor: $
Assignor s Percentage Participation: %
Section 3.
1. A Note payable to the order of the Assignee in the principal
amount of $ .
2. A Note payable to the order of the Assignor in the principal
amount of $ .
Section 4.
Lending Office:
<TABLE>
EXHIBIT 11
VALERO ENERGY CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Thousands of Dollars, Except Per Share Amounts)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
COMPUTATION OF EARNINGS PER
SHARE ASSUMING NO DILUTION:
Net income. . . . . . . . . . . . . . . . . . $ 12,534 $ 11,288 $ 23,039 $ 51,582
Less: Preferred stock dividend requirements. (2,989) (318) (6,510) (953)
Net income applicable to common stock . . . . $ 9,545 $ 10,970 $ 16,529 $ 50,629
Weighted average number of shares of
common stock outstanding. . . . . . . . . . 43,387,260 43,110,330 43,351,648 43,073,564
Earnings per share assuming no dilution . . . $ .22 $ .26 $ .38 $ 1.18
COMPUTATION OF EARNINGS PER
SHARE ASSUMING FULL DILUTION:
Net income. . . . . . . . . . . . . . . . . . $ 12,534 $ 11,288 $ 23,039 $ 51,582
Less: Preferred stock dividend requirements. (2,989) (318) (6,510) (953)
Add: Reduction of preferred stock
dividends applicable to the assumed
conversion of Convertible Preferred Stock . 2,696 - 5,630 -
Net income applicable to common stock
assuming full dilution . . . . . . . . . . $ 12,241 $ 10,970 $ 22,159 $ 50,629
Weighted average number of shares of
common stock outstanding. . . . . . . . . . 43,387,260 43,110,330 43,351,648 43,073,564
Weighted average common stock
equivalents applicable to stock options . . 73,816 80,882 51,068 79,076
Weighted average shares issuable upon
conversion of Convertible Preferred Stock . 6,381,798 - 4,481,336 -
Weighted average shares used for computation. 49,842,874 43,191,212 47,884,052 43,152,640
Earnings per share assuming full dilution . . $ .25<F1> $ .25<F2> $ .46<F1> $ 1.17<F2>
<FN>
<F1>
This calculation is submitted in accordance with paragraph 601(b)(11) of Regulation S-K although it is contrary
to APB Opinion No. 15 because it produces an antidilutive result.
<F2>
This calculation is submitted in accordance with paragraph 601(b)(11) of Regulation S-K although it is not required
by APB Opinion No. 15 because it results in dilution of less than 3%.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1994 AND THE CONSOLIDATED
STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 24,908
<SECURITIES> 0
<RECEIVABLES> 204,707
<ALLOWANCES> (2,684)
<INVENTORY> 170,880
<CURRENT-ASSETS> 435,229
<PP&E> 2,575,508
<DEPRECIATION> (507,330)
<TOTAL-ASSETS> 2,647,998
<CURRENT-LIABILITIES> 364,357
<BONDS> 954,705
<COMMON> 43,400
13,800
3,450
<OTHER-SE> 968,749
<TOTAL-LIABILITY-AND-EQUITY> 2,647,998
<SALES> 1,274,849
<TOTAL-REVENUES> 1,274,849
<CGS> 1,176,040
<TOTAL-COSTS> 1,176,040
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 52,266
<INCOME-PRETAX> 36,639
<INCOME-TAX> 13,600
<INCOME-CONTINUING> 23,039
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,039
<EPS-PRIMARY> .38
<EPS-DILUTED> .38
</TABLE>
