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 June 30, 1995
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 August 1, 1995.
Number of
Shares
Title of Class Outstanding
Common Stock, $1 Par Value 43,674,748
<PAGE>
VALERO ENERGY CORPORATION AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets - June 30, 1995 and
December 31, 1994. . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income - For the Three
Months Ended and Six Months Ended June 30, 1995
and 1994 . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows - For the
Six Months Ended June 30, 1995 and 1994. . . . . . . . . .
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>
June 30,
1995 December 31,
(Unaudited) 1994
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and temporary cash investments. . . . . . . . . . . . . . $ 21,262 $ 26,210
Cash held in debt service escrow . . . . . . . . . . . . . . . 20,198 35,441
Receivables, less allowance for doubtful accounts of
$2,448 (1995) and $2,770 (1994). . . . . . . . . . . . . . . 197,861 232,273
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . 145,763 182,089
Current deferred income tax assets . . . . . . . . . . . . . . 60,170 31,842
Prepaid expenses and other . . . . . . . . . . . . . . . . . . 14,897 25,017
460,151 532,872
PROPERTY, PLANT AND EQUIPMENT - including
construction in progress of $100,611 (1995)
and $115,785 (1994), at cost . . . . . . . . . . . . . . . . . 2,697,655 2,672,715
Less: Accumulated depreciation. . . . . . . . . . . . . . . 579,696 531,501
2,117,959 2,141,214
INVESTMENT IN AND ADVANCES TO JOINT
VENTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,413 41,162
DEFERRED CHARGES AND OTHER ASSETS. . . . . . . . . . . . . . . . 131,973 116,110
$2,752,496 $2,831,358
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
VALERO ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
<CAPTION>
June 30,
1995 December 31,
(Unaudited) 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Short-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,000 $ -
Current maturities of long-term debt . . . . . . . . . . . . . . . 46,803 62,230
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . 244,474 341,694
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . 19,747 19,693
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . 30,163 37,150
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . 5,763 -
362,950 460,767
LONG-TERM DEBT, less current maturities. . . . . . . . . . . . . . . 1,001,614 1,021,820
DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . . . . . . . . . 297,764 264,236
DEFERRED CREDITS AND OTHER LIABILITIES . . . . . . . . . . . . . . . 55,060 59,405
REDEEMABLE PREFERRED STOCK, SERIES A, issued
1,150,000 shares, outstanding 126,500 (1995 and 1994) shares . . . 12,650 12,650
COMMON STOCK AND OTHER STOCKHOLDERS' EQUITY:
Preferred stock, $1 par value - 20,000,000 shares authorized
including redeemable preferred shares:
$3.125 Convertible Preferred Stock, issued and outstanding
3,450,000 (1995 and 1994) shares ($172,500 aggregate
involuntary liquidation value) . . . . . . . . . . . . . . . 3,450 3,450
Common stock, $1 par value - 75,000,000 shares authorized;
issued 43,673,998 (1995) and 43,463,869 (1994) shares. . . . . . 43,674 43,464
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . 538,191 536,613
Unearned Valero Employees' Stock Ownership Plan
Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . (12,530) (13,706)
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . 449,673 442,659
1,022,458 1,012,480
$2,752,496 $2,831,358
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
VALERO ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of Dollars, Except Per Share Amounts)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
OPERATING REVENUES . . . . . . . . . . . . . . . . . $744,607 $416,143 $1,435,142 $697,420
COSTS AND EXPENSES:
Cost of sales and operating expenses . . . . . . . 647,165 351,260 1,266,708 572,255
Selling and administrative expenses. . . . . . . . 17,784 16,265 35,240 35,401
Depreciation expense . . . . . . . . . . . . . . . 24,705 18,542 49,574 34,110
Total. . . . . . . . . . . . . . . . . . . . . . 689,654 386,067 1,351,522 641,766
OPERATING INCOME . . . . . . . . . . . . . . . . . . 54,953 30,076 83,620 55,654
EQUITY IN EARNINGS (LOSSES) OF AND
INCOME FROM:
Valero Natural Gas Partners, L.P.. . . . . . . . - (7,790) - (10,698)
Joint ventures . . . . . . . . . . . . . . . . . 1,530 (41) 3,399 (856)
OTHER INCOME, NET. . . . . . . . . . . . . . . . . . 852 479 1,610 376
INTEREST AND DEBT EXPENSE:
Incurred . . . . . . . . . . . . . . . . . . . . . (26,107) (16,323) (52,183) (28,371)
Capitalized. . . . . . . . . . . . . . . . . . . . 1,494 521 2,435 800
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . 32,722 6,922 38,881 16,905
INCOME TAX EXPENSE . . . . . . . . . . . . . . . . . 12,200 2,700 14,600 6,400
NET INCOME . . . . . . . . . . . . . . . . . . . . . 20,522 4,222 24,281 10,505
Less: Preferred stock dividend requirements . . . 2,964 2,989 5,928 3,521
NET INCOME APPLICABLE
TO COMMON STOCK. . . . . . . . . . . . . . . . . . $ 17,558 $ 1,233 $ 18,353 $ 6,984
EARNINGS PER SHARE OF
COMMON STOCK . . . . . . . . . . . . . . . . . . . $ .40 $ .03 $ .42 $ .16
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (in thousands) . . . . . . . . . . . . 43,644 43,347 43,609 43,334
DIVIDENDS PER SHARE OF
COMMON STOCK . . . . . . . . . . . . . . . . . . . $ .13 $ .13 $ .26 $ .26
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
VALERO ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
<CAPTION>
Six Months Ended
June 30,
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 24,281 $ 10,505
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . 49,574 34,110
Amortization of deferred charges and other, net. . . . . . . . . . . 15,111 6,849
Changes in current assets and current liabilities. . . . . . . . . . 23,070 (50,665)
Deferred income tax expense. . . . . . . . . . . . . . . . . . . . . 5,200 3,900
Equity in (earnings) losses in excess of distributions:
Valero Natural Gas Partners, L.P.. . . . . . . . . . . . . . . . . - 16,179
Joint ventures . . . . . . . . . . . . . . . . . . . . . . . . . . (2,876) 856
Changes in deferred items and other, net . . . . . . . . . . . . . . (2,074) (1,820)
Net cash provided by operating activities. . . . . . . . . . . . . 112,286 19,914
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . (65,366) (31,362)
Deferred turnaround and catalyst costs . . . . . . . . . . . . . . . . . (30,982) (869)
Investment in and advances to joint ventures, net. . . . . . . . . . . . (651) (3,864)
Investment in Valero Natural Gas Partners, L.P.. . . . . . . . . . . . . - (124,264)
Distributions from Valero Natural Gas Partners, L.P. . . . . . . . . . . - 2,789
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 365 1,278
Net cash used in investing activities. . . . . . . . . . . . . . . . . (96,634) (156,292)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term debt. . . . . . . . . . . . . . . . . . . . . . . 16,000 -
Long-term borrowings, net. . . . . . . . . . . . . . . . . . . . . . . . 96,500 29,700
Long-term debt reduction, net. . . . . . . . . . . . . . . . . . . . . . (131,357) -
(Increase) decrease in cash held in debt service escrow
for principal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,554 (7,589)
Common stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . (11,339) (11,268)
Preferred stock dividends. . . . . . . . . . . . . . . . . . . . . . . . (5,928) (2,623)
Issuance of Convertible Preferred Stock, net . . . . . . . . . . . . . . - 167,878
Issuance of common stock, net. . . . . . . . . . . . . . . . . . . . . . 970 1,022
Net cash provided by (used in) financing activities. . . . . . . . . . (20,600) 177,120
NET INCREASE (DECREASE) IN CASH AND
TEMPORARY CASH INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . . (4,948) 40,742
CASH AND TEMPORARY CASH INVESTMENTS AT
BEGINNING OF PERIOD. . . . . . . . . . . . . . . . . . . . . . . . . . . 26,210 7,252
CASH AND TEMPORARY CASH INVESTMENTS AT
END OF PERIOD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,262 $ 47,994
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</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.
Effective May 31, 1994, the Company acquired through a
merger (the "Merger") the remaining effective equity interest of
approximately 51% in Valero Natural Gas Partners, L.P. ("VNGP,
L.P.") and its consolidated subsidiaries (collectively referred
to herein as the "Partnership"). The consolidated statements of
income of the Company for the three months ended and six months
ended June 30, 1995 and 1994, reflect the Company's 100% interest
in the Partnership's operations after May 31, 1994 and its
effective equity interest of approximately 49% for periods prior
to and including May 31, 1994. The following unaudited pro forma
financial information of the Company assumes that the Merger
occurred for the period presented. Such pro forma information is
not necessarily indicative of the results of future operations.
(Dollars in thousands, except per share amounts.)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1994
<S> <C>
Operating revenues . . . . . . . . . . . . . $1,193,962
Operating income . . . . . . . . . . . . . . 55,672
Net income . . . . . . . . . . . . . . . . . 3,012
Net loss applicable to common stock. . . . . (2,966)
Loss per share of common stock . . . . . . . (.07)
</TABLE>
Prior to the Merger, the Company entered into transactions
with the Partnership commensurate with its status as the General
Partner. The Company charged the Partnership a management fee
equal to the direct and indirect costs incurred by it on behalf
of the Partnership. In addition, the Company purchased natural
gas and natural gas liquids ("NGLs") from the Partnership, sold
NGLs to the Partnership and paid the Partnership a fee for
operating certain of the Company's assets. Also, the Company and
the Partnership entered into other transactions, including
certain leasing transactions. The following table summarizes
transactions between the Company and the Partnership (in
thousands):
<TABLE>
<CAPTION>
Five Months Ended
May 31, 1994
<S> <C>
Purchases of NGLs and natural gas, and services
from the Partnership. . . . . . . . . . . . . . . . . . $46,208
Sales of NGLs and natural gas, and transportation
and other charges to the Partnership. . . . . . . . . . 11,385
Management fees billed to the Partnership for
direct and indirect costs . . . . . . . . . . . . . . . 34,299
Interest income from capital lease transactions. . . . . . 5,481
</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 deferred income tax assets,
short-term debt and current maturities of long-term debt. The
changes in the Company's current assets and current liabilities,
excluding the items noted above, 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>
Six Months Ended
June 30,
1995 1994
<S> <C> <C>
Cash held in debt service escrow for interest . . . . $ 689 $(12,673)
Receivables, net. . . . . . . . . . . . . . . . . . . 34,412 (58,628)
Inventories . . . . . . . . . . . . . . . . . . . . . 36,326 2,430
Prepaid expenses and other. . . . . . . . . . . . . . 10,120 9,854
Accounts payable. . . . . . . . . . . . . . . . . . . (59,583) 4,743
Accrued interest. . . . . . . . . . . . . . . . . . . 54 3,961
Other accrued expenses. . . . . . . . . . . . . . . . (6,987) (456)
Income taxes payable. . . . . . . . . . . . . . . . . 8,039 104
Total. . . . . . . . . . . . . . . . . . . . . . . $ 23,070 $(50,665)
</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>
Six Months Ended
June 30,
1995 1994
<S> <C> <C>
Interest (net of amount capitalized of $2,435 (1995)
and $800 (1994)) . . . . . . . . . . . . . . . . . . . . $48,549 $22,968
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . 457 4,962
</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 $16 million
at June 30, 1995. Natural gas in underground storage, NGLs and
materials and supplies are carried principally at weighted
average cost not in excess of market. Inventories as of June 30,
1995 and December 31, 1994 were as follows (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
<S> <C> <C>
Refinery feedstocks . . . . . . . . . . . . . . . $ 50,827 $ 82,099
Refined products and blendstocks. . . . . . . . . 40,579 50,499
Natural gas in underground storage. . . . . . . . 31,202 29,678
NGLs . . . . . . . . . . . . . . . . . . . . . . 7,907 4,664
Materials and supplies. . . . . . . . . . . . . . 15,248 15,149
$145,763 $182,089
</TABLE>
Refinery feedstock and refined product and blendstock
inventory volumes totalled 6.5 million barrels ("MMbbls") and
8.9 MMbbls at June 30, 1995 and December 31, 1994, respectively.
Natural gas inventory volumes totalled approximately 11.2
trillion British thermal units ("TBtus") and 9.8 TBtus at
June 30, 1995 and December 31, 1994, respectively.
Note 5
Litigation and Contingencies
Two lawsuits have been filed against various pipeline
owners and other parties, including the Company, arising from the
rupture of several pipelines and fire as a result of severe
flooding of the San Jacinto River in Harris County, Texas on
October 20, 1994. The plaintiffs are property owners in areas
surrounding the damaged pipelines. The plaintiffs allege that
the defendant pipeline owners were negligent and grossly
negligent in failing to bury the pipelines at a proper depth to
avoid rupture or explosion and in allowing the pipelines to leak
chemicals and hydrocarbons into the flooded area. The plaintiffs
assert claims for property damage, contamination, costs for
medical monitoring, personal injury and nuisance, and seek an
unspecified amount of actual and punitive damages.
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 asserts claims for
breach of contract, quantum meruit, and numerous other contract
and tort claims. The plaintiff's third amended petition alleges
actual damages of approximately $3.7 million and punitive damages
of $20.5 million. The defendants' motion for summary judgment
regarding certain of the plaintiff's tort claims was argued on
June 23, 1995, but the court has not issued a ruling.
In 1987, Valero Transmission, L.P. ("VT, L.P.") and a
producer from whom VT, L.P. had purchased natural gas, entered
into an agreement settling a take-or-pay dispute between the
parties. Under this agreement, VT, L.P. agreed to pay one-half
of certain excess royalty claims relating to production of
natural gas after the date of the agreement. In May 1995,
certain mineral interest owners in tracts of land located in
Hidalgo County, Texas, brought a lawsuit against the producer and
several other defendants, including the Company. The plaintiffs
allege that the numerous "operator defendants" (excluding the
Company) breached certain express and implied covenants and
breached specific duties owed to the plaintiffs thus depriving
them of the full value of their royalty interests. The Company
is named as a "purchaser defendant." The plaintiffs allege that
the Company conspired with the producer to deprive plaintiffs of
royalties that they would have earned but for the settlement of
the gas contract dispute. The plaintiffs seek unspecified actual
and punitive damages.
On April 15, 1994, certain trusts named Valero Transmission
Company ("VTC") and VT, L.P. as additional defendants (the
"Valero Defendants") to a lawsuit filed in 1989 against a
supplier with whom VT, L.P., as successor to VTC, has contractual
relationships under gas purchase contracts. VT, L.P. agreed to
cooperate with the supplier in the conduct of the trusts'
litigation and to bear a substantial portion of the costs of any
appeal and of any nonappealable final judgment against the
supplier in order to resolve certain disputes with respect to the
gas purchase contracts. In January 1993, the District Court
ruled in favor of the trusts' motion for summary judgment against
the supplier. Damages, if any, were not determined. In the
trusts' sixth amended petition, the trusts seek $50 million in
damages as a result of the Valero Defendants' alleged
interference between the trusts and the supplier, and seek $36
million in take-or-pay damages against the supplier. The trusts
also seek punitive damages in an amount equal to treble the
amount of actual damages proven at trial. 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.
A lawsuit was brought by approximately 1,400 plaintiffs in
the second quarter of 1995 against almost 200 defendants,
including the Company, based on alleged personal injuries and
damages caused by the plaintiffs' exposure to asbestos. The
plaintiffs purportedly have worked at the refineries, chemical
plants, and other industrial facilities of the defendants. The
plaintiffs claim that the premises where they worked were unsafe
because of the presence of asbestos insulation and other
allegedly defective asbestos products in the facilities. The
plaintiffs claim to have suffered personal injuries and death as
a result of their exposure to asbestos at the defendants'
facilities. The plaintiffs seek unspecified actual and punitive
damages based on claims of negligence, gross negligence, wrongful
death and numerous other tort claims.
A federal securities fraud class action lawsuit was filed
against Energy and certain of its subsidiaries by a former owner
of approximately 19,500 units of limited partnership interests of
VNGP, L.P. The plaintiff alleges that the proxy statement used
in connection with the solicitation of votes for approval of the
Merger contained fraudulent misrepresentations. The plaintiff
also alleges breach of fiduciary duty in connection with the
merger transaction. The subject matter of this lawsuit was
previously the subject matter of a prior Delaware class action
lawsuit which was settled prior to consummation of the Merger.
The Company believes that the plaintiff's claims have been
settled and released by the prior class action settlement.
A lawsuit was filed against a subsidiary of Energy in June
1994 by certain residents of the Mobile Estate subdivision
located near the Company'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
the subsidiary. 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 subsidiary of Energy, owns a 20%
general partner interest in Javelina Company ("Javelina"), a
general partnership that owns a refinery off-gas processing plant
in Corpus Christi. Javelina has been named as a defendant in
eight lawsuits filed since 1992 in state district courts in
Nueces County and Duval County, Texas. Five 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. The plaintiffs seek unspecified actual and punitive
damages. The remaining three suits include two suits brought by
plaintiffs who either live or have businesses near the Javelina
plant. These two suits allege claims similar to those described
above. Another suit was brought by an individual for personal
injuries sustained as a result of allegedly defective equipment
while on the defendant's premises. The plaintiffs in these three
suits 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 statements; 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 interim 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 Energy was consummated
on May 31, 1994. As a result of the Merger, VNGP, L.P. has
become a subsidiary of Energy. The accompanying consolidated
statements of income of the Company for the three months ended
and six months ended June 30, 1995 and 1994 reflect the Company's
100% interest in the Partnership's operations after May 31, 1994
and its effective equity interest of approximately 49% for
periods prior to and including May 31, 1994. Because 1994
second quarter and second quarter year-to-date results of
operations for the Company's natural gas and natural gas liquids
segments are not comparable to the same periods in 1995 due to
the Merger, the discussion of these segments which follows under
"Results of Operations - Segment Results" is based on pro forma
operating results for the 1994 periods that reflect the
consolidation of the Partnership with Energy for all of such
periods.
<PAGE>
RESULTS OF OPERATIONS
The following are the Company's financial and operating
highlights for the three months ended and six months ended June
30, 1995 and 1994. Certain 1994 amounts have been reclassified
for comparative purposes. The amounts in the following
table are in thousands of dollars, unless otherwise noted:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Refining and marketing . . . . . . . . . . . . . . . . . $452,214 $284,161 $ 856,395 $531,687
Natural gas <F1>:
Sales. . . . . . . . . . . . . . . . . . . . . . . . . 212,929 67,195 432,334 67,218
Transportation . . . . . . . . . . . . . . . . . . . . 14,540 5,486 28,768 5,561
Natural gas liquids <F1> . . . . . . . . . . . . . . . . 105,758 49,518 202,261 61,698
Other <F1> . . . . . . . . . . . . . . . . . . . . . . . 31 21,033 63 42,506
Intersegment eliminations <F1> . . . . . . . . . . . . . (40,865) (11,250) (84,679) (11,250)
Total. . . . . . . . . . . . . . . . . . . . . . . . . $744,607 $416,143 $1,435,142 $697,420
OPERATING INCOME (LOSS):
Refining and marketing . . . . . . . . . . . . . . . . . $ 45,792 $ 16,735 $ 60,903 $ 45,175
Natural gas <F1> . . . . . . . . . . . . . . . . . . . . 7,329 5,377 17,123 5,367
Natural gas liquids <F1> . . . . . . . . . . . . . . . . 10,857 5,612 22,807 6,801
Corporate general and administrative expenses and
other, net <F1>. . . . . . . . . . . . . . . . . . . . (9,025) 2,352 (17,213) (1,689)
Total. . . . . . . . . . . . . . . . . . . . . . . . $ 54,953 $ 30,076 $ 83,620 $ 55,654
Equity in earnings (losses) of and income from:
Valero Natural Gas Partners, L.P. <F2> . . . . . . . . . $ - $ (7,790) $ - $(10,698)
Joint ventures . . . . . . . . . . . . . . . . . . . . . $ 1,530 $ (41) $ 3,399 $ (856)
Interest and debt expense, net . . . . . . . . . . . . . . $ 24,613 $ 15,802 $ 49,748 $ 27,571
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 20,522 $ 4,222 $ 24,281 $ 10,505
Net income applicable to common stock. . . . . . . . . . . $ 17,558 $ 1,233 $ 18,353 $ 6,984
Earnings per share of common stock . . . . . . . . . . . . $ .40 $ .03 $ .42 $ .16
PRO FORMA OPERATING INCOME (LOSS) <F3>:
Refining and marketing . . . . . . . . . . . . . . . . . $ 45,792 $ 16,735 $ 60,903 $ 45,175
Natural gas. . . . . . . . . . . . . . . . . . . . . . . 7,329 1,301 17,123 9,465
Natural gas liquids. . . . . . . . . . . . . . . . . . . 10,857 9,444 22,807 10,528
Corporate general and administrative expenses and
other, net . . . . . . . . . . . . . . . . . . . . . . (9,025) (723) (17,213) (9,496)
Total. . . . . . . . . . . . . . . . . . . . . . . . $ 54,953 $ 26,757 $ 83,620 $ 55,672
OPERATING STATISTICS:
Refining and marketing:
Throughput volumes (Mbbls per day) . . . . . . . . . . 154 149 152 147
Average throughput margin per barrel . . . . . . . . . $ 7.25 $ 4.95 $ 6.08 $ 5.50
Natural gas <F3>:
Gas volumes (BBtu per day):
Sales. . . . . . . . . . . . . . . . . . . . . . . . 1,339 1,080 1,402 1,184
Transportation . . . . . . . . . . . . . . . . . . . 1,687 1,665 1,685 1,654
Total gas volumes. . . . . . . . . . . . . . . . . 3,026 2,745 3,087 2,838
Average gas sales price per MMBtu. . . . . . . . . . . $ 1.74 $ 2.08 $ 1.70 $ 2.24
Average gas transportation fee per MMBtu . . . . . . . $ .095 $ .107 $ .094 $ .110
Natural gas liquids <F3>:
Plant production (Mbbls per day) . . . . . . . . . . . 82.8 78.0 84.1 78.1
Average market price per gallon. . . . . . . . . . . . $ .269 $ .266 $ .268 $ .259
Average gas cost per MMBtu . . . . . . . . . . . . . . $ 1.36 $ 1.79 $ 1.39 $ 1.92
<FN>
<F1>
Reflects the consolidation of the Partnership commencing
June 1, 1994.
<F2>
Represents the Company's approximate 49% effective equity
interest in the operations of the Partnership and interest
income on certain capital lease transactions with the
Partnership for the 1994 periods prior to June 1, 1994.
<F3>
Operating income (loss) presented herein for the 1994
periods represents pro forma amounts that reflect the
consolidation of the Partnership with Energy for such
periods. Operating statistics for the natural gas and
natural gas liquids segments for the 1994 periods represent
pro forma statistics that reflect such consolidation.
</FN>
</TABLE>
<PAGE>
Consolidated Results
The Company reported net income of $20.5 million, or
$.40 per share, for the second quarter of 1995 compared to
$4.2 million, or $.03 per share, for the same period in 1994.
For the first six months of 1995, net income was $24.3 million,
or $.42 per share, compared to $10.5 million, or $.16 per share
for the first six months of 1994. Net income and earnings per
share increased for both the quarter and year-to-date periods due
primarily to a significant increase in operating income from the
Company's refining and marketing operations in the 1995 second
quarter and improved operating results from the Company's natural
gas and natural gas liquids operations, including the effect of
the Merger. The increases in net income and earnings per share
resulting from these factors were partially offset by increases
in income tax expense and net interest expense, and the
nonrecurring recognition in income in 1994 of the $6.7 million
remaining balance of deferred management fees resulting from the
Merger. The increase in earnings per share for the year-to-date
period was also partially offset by an increase in preferred
stock dividend requirements resulting from the issuance in March
1994 of 3.45 million shares of Energy's $3.125 Convertible
Preferred Stock.
Operating revenues increased $328.5 million to
$744.6 million, and $737.7 million to $1,435.1 million, during
the second quarter and first six months of 1995, respectively,
compared to the same periods in 1994 due primarily to the
inclusion of operating revenues attributable to Partnership
operations in all of 1995 versus only the month of June in 1994
and to an increase in operating revenues from refining and
marketing operations which is explained below under "Segment
Results."
Operating income increased $24.8 million, or 82%, to
$54.9 million, and $27.9 million, or 50%, to $83.6 million during
the second quarter and first six months of 1995, respectively,
compared to the same periods in 1994 due primarily to an increase
in operating income from refining and marketing operations which
is explained below under "Segment Results" and to the inclusion
of Partnership operating income in all of 1995 versus only the
month of June in 1994. Partially offsetting these increases in
operating income was an increase in corporate expenses, net,
resulting from the above noted recognition in 1994 of the
deferred management fees and the allocation of corporate expenses
to the Partnership in 1994 for the periods prior to the Merger.
As a result of the Merger and the Company's change in the
method of accounting for its investment in the Partnership from
the equity method to the consolidation method, the Company did
not report equity in earnings (losses) of and income from the
Partnership for the second quarter and first six months of 1995.
See "Segment Results" below for a discussion of the Company's
natural gas and natural gas liquids operations, including 100% of
the operations of the Partnership on a pro forma basis for the
second quarter and first six months of 1994. Equity in earnings
of joint ventures was $1.5 million and $3.4 million for the
second quarter and first six months of 1995, respectively,
compared to equity in losses of $.1 million and $.9 million for
the same periods in 1994. These increases were due primarily to
an increase in the Company's equity in earnings of Javelina.
Javelina's earnings increased due to higher product prices as a
result of continued strong product demand from the petrochemical
industry.
Net interest and debt expense increased $8.8 million to
$24.6 million, and $22.1 million to $49.7 million, during the
second quarter and first six months of 1995, respectively,
compared to the same periods in 1994 due primarily to the
inclusion of Partnership interest expense in all of 1995 versus
only the month of June in 1994. Income tax expense increased
$9.5 million to $12.2 million, and $8.2 million to $14.6 million,
in the 1995 second quarter and year-to-date periods,
respectively, compared to the same periods in 1994 due primarily
to higher pre-tax income.
Segment Results
Refining and Marketing
Operating revenues from the Company's refining and
marketing operations increased $168 million, or 59%, to $452.2
million during the second quarter of 1995 compared to the same
period in 1994 due primarily to higher purchases for resale of
conventional gasoline to supply rack customers and a 19% increase
in the average sales price per barrel of refined products. The
purchases of conventional gasoline resulted from the Company's
conversion of its Refinery operations to produce virtually all
reformulated gasoline ("RFG") beginning in the fourth quarter of
1994. The average sales price per barrel increased due to higher
prices for refined products, including oxygenates and other
higher-value products, and premiums received on sales of RFG.
These higher refined product prices resulted from increased
demand for refined products, lower gasoline inventories and a
sharp decline in gasoline imports.
Operating income from the Company's refining and marketing
operations increased $29 million to $45.8 million during the
second quarter of 1995 compared to the same period in 1994 due
primarily to an increase in throughput margins, partially offset
by an increase in operating expenses. Throughput margins
increased due to an approximate $15 million contribution from
sales of RFG and oxygenates resulting from a strengthening RFG
market, higher margins for conventional refined products
of approximately $12 million and an approximate $6 million
contribution from sales of products used as petrochemical
feedstocks resulting from a strong petrochemical market.
As a result of the above factors, the Refinery's average
throughput margin per barrel, before operating expenses and
depreciation expense, increased from $4.95 in the second quarter
of 1994 to $7.25 in the second quarter of 1995. Operating
expenses increased approximately $3 million due primarily to
higher costs resulting from increased throughput.
Operating revenues from the Company's refining and
marketing operations increased $324.7 million, or 61%, to
$856.4 million during the first six months of 1995 compared to
the same period in 1994 due to an increase in purchases for
resale as discussed above and an 18% increase in the average
sales price per barrel. Operating income increased
$15.7 million, or 35%, to $60.9 million during the first six
months of 1995 compared to the same period in 1994 due to an
increase in throughput margins, partially offset by an increase
in operating expenses as mentioned above. Throughput margins
increased due to higher margins on sales of RFG and oxygenates of
approximately $23 million and an approximate $14 million
contribution from sales of petrochemical feedstocks, partially
offset by an approximate $15 million decrease in conventional
refined product margins and the impact of various Refinery unit
turnarounds which occurred during the first half of 1995, net of
improvements in unit operations resulting from such turnarounds,
of approximately $5 million. The Refinery's average throughput
margin per barrel, before operating expenses and depreciation
expense, increased from $5.50 in the first six months of 1994 to
$6.08 in the first six months of 1995.
Natural Gas
Operating income from the Company's natural gas operations
was $7.3 million for the second quarter of 1995 compared to pro
forma operating income of $1.3 million for the same period in
1994. The $6 million increase was due to a decrease in
operating expenses resulting primarily from the nonrecurrence of
the $6.8 million settlement with the City of Houston regarding a
franchise fee dispute which adversely affected operating expenses
in the second quarter of 1994 and slightly higher gas sales
margins, partially offset by a decrease in transportation
revenues due primarily to an 11% decrease in average
transportation fees. Total gas sales margins increased slightly
as a 24% increase in gas sales volumes, primarily lower-margin
spot and off-system sales, and the nonrecurrence of certain
adverse settlements in 1994 were mostly offset by lower unit
margins and reduced volumetric gains. Both unit sales margins
and transportation fees were adversely affected by mild weather
and industry-wide higher natural gas storage inventories in the
second quarter of 1995, resulting in intense competition for
market share.
Operating income from the Company's natural gas operations
was $17.1 million for the first six months of 1995 compared to
pro forma operating income of $9.5 million for the same period in
1994. The $7.6 million increase was due to a decrease in
operating, selling and administrative expenses, primarily the
nonrecurrence of the 1994 settlement with the City of Houston
described above, lower transportation expense and legal fees, and
a slight increase in gas sales margins, partially offset by a
$4.2 million decrease in transportation revenues. The increase
in gas sales margins and decrease in transportation revenues were
due to the factors noted above.
Natural Gas Liquids
Operating income from the Company's NGL operations was
$10.8 million for the second quarter of 1995 compared to pro
forma operating income of $9.4 million for the same period in
1994. The $1.4 million increase was due primarily to an increase
in NGL margins. NGL margins increased due primarily to a
decrease in fuel and shrinkage costs resulting from a decrease in
the average cost of natural gas. Average natural gas costs
decreased due to the factors noted above under "Natural Gas."
Operating income from the Company's NGL operations was
$22.8 million for the first six months of 1995 compared to pro
forma operating income of $10.5 million for the same period in
1994. The $12.3 million increase was due primarily to an
increase in NGL margins of $9.4 million, a decrease in
transportation and fractionation costs and an increase in
processing and other fees. NGL margins increased due primarily
to a decrease in the average cost of natural gas and an increase
in average NGL market prices which resulted from strong
petrochemical demand.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by the Company's operating activities
totalled $112.3 million during the first half of 1995 compared to
$19.9 million during the same period in 1994. The increase in
1995 from 1994 was due primarily to the increase in income
described above under "Results of Operations" and a decrease in
working capital requirements primarily attributable to lower
refining inventory requirements and payments in 1994 of amounts
owed in connection with certain capital expenditures incurred in
1993. During the 1995 period, the Company utilized the cash
provided by its operating activities, proceeds from the issuance
of medium-term notes ("Medium-Term Notes"), short-term bank
borrowings, and a portion of its existing cash balances to fund
capital expenditures and deferred turnaround and catalyst costs,
to reduce borrowings under its revolving bank credit and letter
of credit facility, to repay principal on certain outstanding
nonbank debt, and to pay common and preferred stock dividends.
In the first quarter of 1995, the Securities and Exchange
Commission declared effective Energy's shelf registration
statement to offer up to $250 million principal amount of
additional debt securities, including Medium-Term Notes, $96.5
million of which had been issued through July 31, 1995. The net
proceeds received to date from this offering have been used to
reduce bank debt and any future proceeds will be added to the
Company's funds and used for general corporate purposes,
including the repayment of existing indebtedness, financing of
capital projects and additions to working capital.
Energy currently maintains an unsecured $250 million
revolving bank credit and letter of credit facility. During the
second quarter of 1995, Energy entered into a new, uncommitted
bank letter of credit facility which is being used to support the
Company's Refinery feedstock trading activity. Energy also has
$145 million of unsecured short-term bank credit lines which are
uncommitted and unrestricted as to use, $16 million of which was
outstanding at June 30, 1995. Under the terms of Energy's $250
million credit facility, total borrowings under these short-term
credit lines are limited to $100 million and any amounts
outstanding under such short-term lines automatically reduce the
availability under the $250 million credit facility. As of June
30, 1995, Energy had approximately $142 million available under
its $250 million credit facility for additional borrowings and
letters of credit.
Energy's revolving bank credit and letter of credit
facility (which is the most restrictive of the Company's various
financing agreements) contains covenants limiting Energy's
ability to make certain "restricted payments," to make certain
"restricted disbursements," and to make advances and capital
contributions to the Partnership. The facility also contains
covenants that require Energy to maintain a minimum consolidated
net worth and also contains various financial tests including
debt-to-capitalization, working capital, fixed charge and
earnings coverage ratios. Under the most restrictive of such
covenants, Energy had the ability to pay approximately $29
million in common and preferred stock dividends and other
restricted payments at June 30, 1995. The Company's long-term
debt also includes Valero Management Partnership, L.P.'s First
Mortgage Notes (the "First Mortgage Notes"), $476.1 million of
which was outstanding at June 30, 1995. The indenture of
mortgage and deed of trust pursuant to which the First Mortgage
Notes were issued also contains various restrictive covenants.
The Company was in compliance with all covenants contained in its
various debt facilities as of June 30, 1995.
During the first six months of 1995, the Company expended
approximately $99 million for capital investments, including
capital expenditures, deferred turnaround and catalyst costs, and
investments in and advances to joint ventures. Of this amount,
$81 million related to refining and marketing operations
including $31 million for turnarounds of the Refinery's
hydrodesulfurization, hydrocracker and reformer units, while $13
million related to natural gas and NGL operations. Also included
in the refining and marketing amount was $36 million for
renovation of a methanol plant located in Clear Lake, Texas. The
remaining $24 million of the Company's total commitment for the
plant renovation is expected to be paid in the third quarter of
1995. For total year 1995, the Company currently expects to
spend approximately $175 million for capital expenditures,
deferred turnaround and catalyst costs, and investments and
related expenditures, including payments related to the methanol
plant renovation discussed above.
The Company currently owns a 35 percent interest in
Productos Ecologicos, S.A. de C.V., a Mexican corporation
("Proesa"), which is involved in a project (the "Project") to
design, construct and operate a plant in Mexico to produce MTBE.
As is more fully described in the Company's Form 10-K for the
year ended December 31, 1994, the Company has entered into a
letter of understanding with the other owners of Proesa under
which the Company's interest in the Project would be increased to
45 percent; in connection with attempting to arrange financing
for the Project, the Company has also indicated that it would
agree to further increase its interest to 50 percent. However,
any increases in ownership would be subject to arranging
financing for the Project. In January 1995, the Company
suspended further investment in the Project pending resolution of
key issues, including renegotiation of purchase and sales
agreements between Proesa and Petroleos Mexicanos, S.A.
("Pemex"), implementation of certain additional agreements with
Pemex and definitive agreement with Proesa's other owners
regarding their respective interests in and funding commitments
to the Project. Definitive contract terms have not yet been
negotiated; however, discussions with Pemex are continuing.
Proesa and its owners are continuing to pursue funding for the
Project; however, agreement has not been reached and there is no
assurance that financing can be arranged on satisfactory terms.
At June 30, 1995, the Company had a total investment in the
Project of approximately $16 million, and Proesa had incurred
additional obligations totalling approximately $10 million which
have not been funded by its owners. Proesa currently has no
independent funding sources, and in the event outside financing
cannot be arranged, Proesa would necessarily request additional
funding from its owners.
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 ongoing
operating requirements. The Company expects that it will raise
additional funds from time to time through equity or debt
financings, including borrowings under bank credit agreements;
however, except for Medium-Term Notes or other debt securities
that may be issued from time to time under the $250 million shelf
registration statement discussed above, the Company has no
specific financing plans as of the date hereof.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Alonso, et al. v. Fina Oil and Chemical Company, Forest Oil
Corporation, Valero Energy Corporation, Valero Natural Gas
Company, Valero Refining and Marketing Company, et al., 370th
State District Court, Hidalgo County, Texas (filed May 17, 1995).
In 1987, VT, L.P. and Forest Oil Corporation ("Forest"), a
producer from whom VT, L.P. had purchased natural gas, entered
into an agreement settling a take-or-pay dispute between the
parties. Under this agreement, VT, L.P. agreed to pay one-half
of certain excess royalty claims relating to production of
natural gas after the date of the agreement. This lawsuit was
filed by certain mineral interest owners in tracts of land
located in Hidalgo County, Texas, against Forest and several
other defendants, including the Company. Plaintiffs allege that
the numerous "operator defendants" (excluding the Company)
breached certain express and implied covenants and breached
specific duties owed to the plaintiffs thus depriving them of the
full value of their royalty interests. The Company is named as a
"purchaser defendant." Plaintiffs allege that the Company
conspired with Forest to deprive plaintiffs of royalties that
they would have earned but for the settlement of the gas contract
dispute. Plaintiffs seek unspecified actual and punitive
damages.
American Plant Food Corporation, et al., v. Colonial
Pipeline Company; Texaco, Inc.; Valero Energy Corporation;
et al., 80th State District Court, Harris County, Texas (filed
June 1, 1995). Plaintiffs in this lawsuit allege that their
property was damaged by fire and contaminated by the product
released from the defendants' pipelines during the October 20,
1994 flood of the San Jacinto River in Harris County, Texas.
This lawsuit is based upon the same occurrence and asserts
generally the same claims as those described in the Cook lawsuit
discussed below. Damages are unspecified.
Cook, et al. v. Shell Oil Company; Texaco, Inc.; Valero
Management Company; Valero Transmission, L.P.; et al., 172nd
State District Court, Jefferson County, Texas (filed November 7,
1994). This lawsuit arises from the rupture of several pipelines
and fire as a result of severe flooding of the San Jacinto River
in Harris County, Texas, on October 20, 1994. The plaintiffs are
property owners in surrounding areas who allege that the
defendant pipeline owners were negligent and grossly negligent in
failing to bury the pipelines at a proper depth to avoid rupture
or explosion and in allowing the pipelines to leak chemicals and
hydrocarbons into the flooded area. The plaintiffs assert claims
for property damage, costs for medical monitoring, personal
injury and nuisance. Plaintiffs seek an unspecified amount of
actual and punitive damages. VT, L.P. was added as a defendant
in this lawsuit on May 11, 1995.
J.M. Davidson, Inc. v. Valero Energy Corporation; Valero
Hydrocarbons, L.P.; et al., 229th State District Court, Duval
County, Texas (filed January 21, 1993). This lawsuit is based
upon construction work performed by plaintiff at certain of the
Partnership's gas processing plants in 1991 and 1992. Plaintiff
alleges that it performed work for the defendants for which it
was not compensated. The plaintiff asserts claims for breach of
contract, quantum meruit, and numerous other contract and tort
claims. Plaintiff has filed a third amended petition dropping
certain causes of action and reducing its claim for damages to
actual damages of $3.7 million and punitive damages of
$20.5 million. The defendants' motion for summary judgment
regarding certain of plaintiff's tort claims was argued on
June 23, 1995, but the court has not issued a ruling.
King, et al. v. E.I. DuPont de Nemours & Co., Valero Energy
Corporation, et al., 60th State District Court, Jefferson County,
Texas (filed April 4, 1995, removed to the United States District
Court for the Eastern District of Texas, Beaumont, Texas
Division). This lawsuit was filed on behalf of approximately
1,400 plaintiffs against almost 200 defendants, including the
Company. The plaintiffs purportedly have worked at the
refineries, chemical plants, and other industrial facilities of
the defendants. Plaintiffs claim that the premises where they
worked were unsafe because of the presence of asbestos insulation
and other allegedly defective asbestos products in the
facilities. The plaintiffs claim to have suffered personal
injuries and death as a result of their exposure to asbestos at
the defendants' facilities. Plaintiffs seek unspecified actual
and punitive damages based on claims of negligence, gross
negligence, wrongful death and numerous other tort claims.
The Long Trusts v. Tejas Gas Corporation; Valero
Transmission, L.P.; et al., 123rd Judicial District Court, Panola
County, Texas (filed March 1, 1989). On April 15, 1994, certain
trusts (the "Long Trusts") named VTC and VT, L.P. as additional
defendants (the "Valero Defendants") to a lawsuit filed in 1989
against Tejas Gas Corporation ("Tejas"), a supplier with whom
VT, L.P., as successor to VTC, has contractual relationships
under gas purchase contracts. VT, L.P. agreed to cooperate with
Tejas in the conduct of the Long Trusts' litigation and to bear a
substantial portion of the costs of any appeal and of any
nonappealable final judgment against Tejas in order to resolve
certain disputes with respect to the gas purchase contracts. In
January 1993, the District Court ruled in favor of the Long
Trusts' motion for summary judgment against Tejas. Damages, if
any, were not determined. In the Long Trusts' sixth amended
petition, the trusts seek $50 million in damages as a result of
the Valero Defendants' alleged interference between the Long
Trusts and Tejas, and seek $36 million in take-or-pay damages
against Tejas. The Long Trusts also seek punitive damages in an
amount equal to treble the amount of actual damages proven at
trial. The Company believes that the claims brought by the Long
Trusts have been significantly overstated, and that Tejas and the
Valero Defendants have a number of meritorious defenses to the
claims.
Steven M. Mizel v. Valero Energy Corporation, Valero Natural
Gas Company, and Valero Natural Gas Partners, L.P., United States
District Court for the Southern District of California, (filed
May 1, 1995). This is a federal securities fraud class action
lawsuit filed by a former owner of approximately 19,500 units of
limited partnership interests of VNGP, L.P. Plaintiff alleges
that the proxy statement used in connection with the solicitation
of votes for approval of the merger of VNGP, L.P. with a wholly
owned subsidiary of the Company contained fraudulent
misrepresentations. Plaintiff also alleges breach of fiduciary
duty in connection with the merger transaction. The subject
matter of this lawsuit was previously the subject matter of a
prior Delaware class action lawsuit which was settled prior to
consummation of the merger. The Company believes that
plaintiff's claims have been settled and released by the prior
class action settlement.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting of stockholders was held May 9,
1995. Matters voted on at the meeting and the results thereof
included (i) a proposal to ratify the appointment of Arthur
Andersen LLP as independent public accountants (approved with
38,148,847 affirmative votes, 80,174 negative votes, and 91,016
abstentions); (ii) a proposal to adopt the Company's Executive
Stock Incentive Plan (approved with 34,128,882 affirmative votes,
3,828,029 negative votes, and 363,126 abstentions), and (iii) a
proposal to elect three Class III directors to serve until
1998 - Robert G. Dettmer (approved with 38,124,468 affirmative
votes, and 195,570 abstentions), Ruben M. Escobedo (approved with
38,123,900 affirmative votes, and 196,138 abstentions), Lowell H.
Lebermann (approved with 38,123,050 affirmative votes, and
196,988 abstentions) - and one Class I director to serve until
1996: Susan Kaufman Purcell (approved with 38,116,078
affirmative votes, and 203,960 abstentions).
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
11.1 Computation of Earnings Per Share
27.1* Financial Data Schedule
__________
* The Financial Data Schedule shall not be deemed
"filed" for purposes of Section 11 of the
Securities Act of 1933 or Section 18 of the
Securities Act of 1934, and is included as an
exhibit only to the electronic filing of this
Form 10-Q in accordance with Item 601(c) of
Regulation S-K and Section 401 of Regulation S-T.
Pursuant to subparagraph 601(b)(4)(iii)(A) of
Regulation S-K, the registrant has omitted from the foregoing
list 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.
(i) A Current Report on Form 8-K, dated May 23, 1995,
was filed electronically on May 31, 1995, reporting Item 5. Other
Events, in connection with the execution of an Assumption
Agreement by and between the Company and Wertheim Schroder & Co.,
Inc. ("Wertheim") in connection with Wertheim's solicitation of
offers to purchase $10,000,000 of the Company's Medium-Term
Notes. Pursuant to the Assumption Agreement, Wertheim agreed to
assume the terms and obligations of that certain Distribution
Agreement by and among the Company, Lehman Brothers Inc., Salomon
Brothers Inc, and BT Securities Corporation which provides for
the issuance from time to time of the Company's Medium-Term
Notes.
<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: August 9, 1995
<TABLE>
EXHIBIT 11.1
VALERO ENERGY CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Thousands of Dollars, Except Per Share Amounts)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
COMPUTATION OF EARNINGS PER
SHARE ASSUMING NO DILUTION:
Net income. . . . . . . . . . . . . . . . . . . . $ 20,522 $ 4,222 $ 24,281 $ 10,505
Less: Preferred stock dividend requirements. . . (2,964) (2,989) (5,928) (3,521)
Net income applicable to common stock . . . . . . $ 17,558 $ 1,233 $ 18,353 $ 6,984
Weighted average number of shares of
common stock outstanding. . . . . . . . . . . . 43,644,101 43,347,260 43,608,555 43,333,843
Earnings per share assuming no dilution . . . . . $ .40 $ .03 $ .42 $ .16
COMPUTATION OF EARNINGS PER
SHARE ASSUMING FULL DILUTION:
Net income. . . . . . . . . . . . . . . . . . . . $ 20,522 $ 4,222 $ 24,281 $ 10,505
Less: Preferred stock dividend requirements. . . (2,964) (2,989) (5,928) (3,521)
Add: Reduction of preferred stock
dividends applicable to the assumed
conversion of Convertible Preferred Stock . . . 2,696 2,695 5,391 2,934
Net income applicable to common stock
assuming full dilution . . . . . . . . . . . . $ 20,254 $ 3,928 $ 23,744 $ 9,918
Weighted average number of shares of
common stock outstanding. . . . . . . . . . . . 43,644,101 43,347,260 43,608,555 43,333,843
Weighted average common stock
equivalents applicable to stock options . . . . 176,336 30,374 149,723 39,694
Weighted average shares issuable upon
conversion of Convertible Preferred Stock . . . 6,381,798 6,381,798 6,381,798 3,490,597
Weighted average shares used for computation. . . 50,202,235 49,759,432 50,140,076 46,864,134
Earnings per share assuming full dilution . . . . $ .40 $ .08 <F1> $ .47 <F1> $ .21 <F1>
<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.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1995 AND THE CONSOLIDATED
STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 41,460
<SECURITIES> 0
<RECEIVABLES> 200,309
<ALLOWANCES> 2,448
<INVENTORY> 145,763
<CURRENT-ASSETS> 460,151
<PP&E> 2,697,655
<DEPRECIATION> 579,696
<TOTAL-ASSETS> 2,752,496
<CURRENT-LIABILITIES> 362,950
<BONDS> 1,001,614
<COMMON> 43,674
12,650
3,450
<OTHER-SE> 975,334
<TOTAL-LIABILITY-AND-EQUITY> 2,752,496
<SALES> 1,435,142
<TOTAL-REVENUES> 1,435,142
<CGS> 1,351,522
<TOTAL-COSTS> 1,351,522
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 49,748
<INCOME-PRETAX> 38,881
<INCOME-TAX> 14,600
<INCOME-CONTINUING> 24,281
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,281
<EPS-PRIMARY> .42
<EPS-DILUTED> 0
</TABLE>
