Valero(US:VLO)2023-02-22 16:00PART I BUSINESS AND PROPERTIES Valero manufactures and markets petroleum-based and low-carbon liquid transportation fuels through Refining, Renewable Diesel, and Ethanol segments, prioritizing environmental management and carbon intensity reduction - Valero is a multinational manufacturer and marketer of petroleum-based and low-carbon liquid transportation fuels and petrochemical products, primarily selling in the U.S., Canada, the U.K., Ireland, and Latin America10 Operational Capacities (as of December 31, 2022) | Segment | Asset Type | Location | Capacity | | :---------------- | :------------------ | :------------------------------------- | :------------------------------------- | | Refining | Petroleum Refineries| U.S., Canada, U.K. | ~3.2 million barrels per day (BPD) | | Renewable Diesel | Renewable Diesel Plants| U.S. Gulf Coast | ~1.2 billion gallons per year | | Ethanol | Ethanol Plants | U.S. Mid-Continent | ~1.6 billion gallons per year | - The company has invested $5.1 billion in low-carbon fuels businesses, including $3.4 billion in renewable diesel and $1.7 billion in ethanol, with plans for additional growth25 - Valero's environmental management is supported by three programs: Commitment to Excellence Management System (CTEMS), Environmental Excellence and Risk Assessment (EERA), and an expanding Fuels Regulatory Assurance Program to include a Low-Carbon Assurance Program282930 Our Business Our Comprehensive Liquid Fuels Strategy Environmental Management Systems Our Operations Government Regulations Human Capital Properties Available Information Risk Factors Valero faces various risks including volatile margins influenced by feedstock and product prices, economic uncertainty, and geopolitical events, alongside evolving sentiment towards fossil fuels and increasing low-carbon fuel competition. Operational risks include dependency on natural gas and electricity, supply chain disruptions, and potential interruptions at refineries, while legal and regulatory risks stem from climate change policies, complex low-carbon fuel programs, and increasing scrutiny on ESG matters. Cybersecurity and data privacy risks also pose significant threats to business operations and financial stability. - Financial results are affected by volatile margins, dependent on feedstock prices (crude oil, corn, waste/renewable feedstocks) and product market prices, influenced by global and regional supply/demand, economic conditions, and geopolitical events like the Russia-Ukraine conflict8889 - Evolving sentiment and regulations regarding fossil fuels and GHG emissions, including the rise of alternative fuel vehicles (EVs) and increased competition in low-carbon fuels, may decrease demand for Valero's products and adversely affect performance9394 - Operations are vulnerable to disruptions in natural gas and electricity supply, logistical interruptions, and reliance on third-party transportation for feedstocks and products, potentially disadvantaging Valero against integrated competitors103104113115 - Legal, political, and regulatory developments related to climate change, GHG emissions, and low-carbon fuel programs (RFS, LCFS, CFR) could increase compliance costs, reduce demand for liquid fuels, and lead to litigation or regulatory actions123124134138 - Significant breaches of information technology systems and increasing legal/regulatory focus on data privacy and security issues pose risks of data loss, system interruption, reputational damage, increased costs, and potential litigation148150151 Risks Related to Our Business, Industry, and Operations Legal, Government, and Regulatory Risks Cyber Security and Privacy Related Risks General Risk Factors Unresolved Staff Comments There are no unresolved staff comments to report - No unresolved staff comments160 Legal Proceedings Valero is involved in various legal proceedings and environmental enforcement matters, including those with the EPA, Texas Attorney General, Bay Area Air Quality Management District, and Texas Commission on Environmental Quality, which are not expected to materially affect its financial condition, results of operations, or liquidity. - Valero is subject to legal proceedings, claims, and liabilities arising in the ordinary course of business, with losses accrued when probable and reasonably estimable161365 - The company is involved in environmental enforcement matters with the EPA (Benicia Refinery), Texas AG (Port Arthur Refinery), BAAQMD (Benicia Refinery), and TCEQ (Corpus Christi East Refinery)163164 - Despite ongoing environmental proceedings, Valero believes that if any were decided against them, there would be no material effect on its financial condition, results of operations, and liquidity162 Litigation Environmental Enforcement Matters Mine Safety Disclosures There are no mine safety disclosures to report - No mine safety disclosures164 PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Valero's common stock trades on the NYSE under 'VLO', with 4,562 holders of record as of January 31, 2023, and the Board considers quarterly dividends subject to financial performance. The company actively repurchased shares in Q4 2022, completing a $2.5 billion program and authorizing another $2.5 billion in October 2022, with $2.3 billion remaining, and an additional $2.5 billion program authorized in February 2023. - Valero's common stock trades on the NYSE under the symbol 'VLO', with 4,562 holders of record as of January 31, 2023166 - Dividends are considered quarterly by the Board and depend on financial condition, results of operations, cash flows, and other factors166 Common Stock Purchases (Q4 2022) | Period | Total Shares Purchased | Average Price Paid per Share ($) | | :------------ | :--------------------- | :------------------------------- | | October 2022 | 94,879 | 127.85 | | November 2022 | 5,718,669 | 134.80 | | December 2022 | 7,983,898 | 122.03 | | Total | 13,797,446 | 127.36 | - Valero completed a $2.5 billion share purchase program in Q4 2022 and authorized an additional $2.5 billion program in October 2022, with $2.3 billion remaining as of December 31, 2022, and another $2.5 billion program authorized on February 23, 2023167 Reserved This item is reserved and contains no information Management's Discussion and Analysis of Financial Condition and Results of Operations Valero's financial performance in 2022 was significantly boosted by strong worldwide demand for petroleum-based transportation fuels and constrained supply, leading to a substantial increase in refining margins and net income. The company generated $12.6 billion in cash from operations, used for capital investments, debt reduction, and stockholder returns, with key operational highlights including increased adjusted operating income in Refining and Renewable Diesel, while Ethanol saw a decrease due to higher corn prices. The outlook anticipates continued strong demand and high refining capacity utilization, with renewable diesel margins remaining consistent. - Valero reported $11.5 billion in net income attributable to stockholders for the year ended December 31, 2022, a significant increase from $930 million in 2021, primarily due to a $13.6 billion increase in operating income190 Adjusted Operating Income by Segment (Millions of Dollars) | Segment | 2022 ($M) | 2021 ($M) | Change ($M) | | :--------------- | :-------- | :-------- | :---------- | | Refining | 15,762 | 1,944 | 13,818 |\n| Renewable Diesel | 774 | 712 | 62 |\n| Ethanol | 151 | 522 | (371) |\n| Total Company | 15,710 | 2,264 | 13,446 | - Refining segment adjusted operating income increased by $13.8 billion, driven by higher gasoline and distillate margins and increased throughput volumes, partially offset by lower margins on other products and higher operating expenses191215 - Renewable Diesel segment adjusted operating income increased by $62 million, primarily due to higher sales volumes (up 1.2 million gallons per day) and higher renewable diesel prices, partially offset by increased feedstock costs and unfavorable commodity derivative impacts192217220 - Ethanol segment adjusted operating income decreased by $371 million, mainly due to higher corn prices and operating expenses, despite higher ethanol and co-product prices192225 - The company generated $12.6 billion in cash from operations in 2022, which was used for $2.7 billion in capital investments, $2.7 billion in debt reduction, and $6.1 billion returned to stockholders through share repurchases and dividends188 CAUTIONARY STATEMENT FOR THE PURPOSE OF SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 NON-GAAP FINANCIAL MEASURES OVERVIEW AND OUTLOOK RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES CRITICAL ACCOUNTING ESTIMATES Quantitative and Qualitative Disclosures About Market Risk Valero is exposed to market risks from commodity price volatility (feedstocks, products, natural gas), compliance program credit prices (RINs, LCFS), and foreign currency exchange rates, which are managed using derivative instruments and contracts. A 10% change in underlying prices for commodity derivatives or compliance credits was not material as of December 31, 2022, and interest rate risk on debt instruments is also managed, with a 10% change in floating rates not having a material effect. - Valero is exposed to market risks from volatility in feedstock prices (crude oil, waste/renewable feedstocks, corn), product prices, and natural gas prices, managed using commodity derivative instruments (futures and options)294 - The company faces market risk from the volatility in prices of compliance credits for Renewable and Low-Carbon Fuel Programs (e.g., RINs, LCFS credits), managed through purchasing contracts296 Debt Instruments by Expected Maturity (Millions of Dollars, December 31, 2022) | Type | 2023 ($M) | 2024 ($M) | 2025 ($M) | 2026 ($M) | 2027 ($M) | Thereafter ($M) | Total ($M) | Average Interest Rate (%) | | :------------ | :-------- | :-------- | :-------- | :-------- | :-------- | :-------------- | :--------- | :------------------------ | | Fixed rate | — | 167 | 441 | 672 | 578 | 6,606 | 8,464 | 4.8 |\n| Floating rate | 861 | — | — | — | — | — | 861 | 7.1 | - Foreign currency risk from operations denominated in non-local currencies is managed using foreign currency contracts, with fair values not material as of December 31, 2022 and 2021301 Commodity Price Risk Compliance Program Price Risk Interest Rate Risk Foreign Currency Risk Financial Statements and Supplementary Data This section presents Valero's audited consolidated financial statements for the years ended December 31, 2022, 2021, and 2020, including balance sheets, statements of income, comprehensive income, equity, and cash flows, with management affirming the effectiveness of internal control over financial reporting, attested by KPMG LLP. Detailed notes provide further insights into business operations, significant accounting policies, segment information, debt, equity, and fair value measurements. - Management evaluated and concluded that Valero's internal control over financial reporting was effective as of December 31, 2022, based on COSO criteria303 - KPMG LLP issued an unqualified opinion on the effectiveness of Valero's internal control over financial reporting and on the consolidated financial statements for the three-year period ended December 31, 2022307317 Consolidated Balance Sheet Highlights (Millions of Dollars) | Item | December 31, 2022 ($M) | December 31, 2021 ($M) | | :------------------------ | :--------------------- | :--------------------- | | Total Assets | 60,982 | 57,888 |\n| Total Current Assets | 24,133 | 21,165 |\n| Property, Plant, & Equip. (net)| 30,978 | 30,847 |\n| Total Liabilities | 35,514 | 38,071 |\n| Total Equity | 25,468 | 19,817 | Consolidated Statements of Income Highlights (Millions of Dollars) | Item | 2022 ($M) | 2021 ($M) | 2020 ($M) | | :--------------------------------------- | :-------- | :-------- | :-------- | | Revenues | 176,383 | 113,977 | 64,912 |\n| Total Cost of Sales | 159,587 | 110,848 | 65,652 |\n| Operating Income (Loss) | 15,690 | 2,130 | (1,579) |\n| Net Income (Loss) attributable to Valero | 11,528 | 930 | (1,421) |\n| Earnings (Loss) per Common Share | 29.05 | 2.27 | (3.50) | Consolidated Statements of Cash Flows Highlights (Millions of Dollars) | Item | 2022 ($M) | 2021 ($M) | 2020 ($M) | | :------------------------------------ | :-------- | :-------- | :-------- | | Net cash provided by operating activities | 12,574 | 5,859 | 948 |\n| Net cash used in investing activities | (2,805) | (2,159) | (2,425) |\n| Net cash provided by (used in) financing activities | (8,849) | (2,846) | 2,077 |\n| Net increase in cash and cash equivalents | 740 | 809 | 730 | MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM CONSOLIDATED BALANCE SHEETS CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME CONSOLIDATED STATEMENTS OF EQUITY CONSOLIDATED STATEMENTS OF CASH FLOWS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There are no changes in or disagreements with accountants on accounting and financial disclosure to report - No changes in or disagreements with accountants on accounting and financial disclosure642 Controls and Procedures Management has assessed the effectiveness of Valero's disclosure controls and procedures as of December 31, 2022, concluding they were effective, and no material changes occurred in internal control during the last fiscal quarter. - Management concluded that Valero's disclosure controls and procedures were effective as of December 31, 2022642 - No material changes occurred in internal control over financial reporting during the last fiscal quarter643 Other Information Valero exceeded its 2025 GHG reduction/displacement target three years ahead of schedule, leading the Human Resources and Compensation Committee to modify the energy transition performance modifier for performance shares to align with the 2035 GHG reduction/displacement target. - Valero's performance exceeded its 2025 GHG reduction/displacement target three years ahead of schedule644 - The Human Resources and Compensation Committee approved a modification to the energy transition performance modifier for performance shares, continuing it to the 2035 GHG reduction/displacement target644 Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This section is reserved and contains no information PART III ITEMS 10-14. Information required by Items 10 through 14 of Form 10-K, covering topics such as Directors, Executive Officers, Corporate Governance, Executive Compensation, Security Ownership, Related Transactions, and Principal Accountant Fees, is incorporated by reference from the definitive Proxy Statement for the 2023 annual meeting of stockholders, expected to be filed by March 31, 2023. - Information for Items 10-14 is incorporated by reference from the definitive Proxy Statement for the 2023 annual meeting of stockholders646 - The Proxy Statement is expected to be filed with the SEC on or before March 31, 2023646 PART IV Exhibits and Financial Statement Schedules This section lists the financial statements included in Item 8, confirms that no financial statement schedules are submitted due to inapplicability or inclusion in notes, and provides an index of exhibits filed as part of this Form 10-K, including corporate documents, indentures, and compensation plans. - Financial statements are included in Item 8 of this Form 10-K647 - No financial statement schedules are submitted as required information is either inapplicable or included in the consolidated financial statements or notes648 - An index of exhibits is provided, including corporate governance documents, debt indentures, and employee compensation plans649650651 Form 10-K Summary This item is reserved and contains no information - No Form 10-K Summary is provided655 SIGNATURE The annual report on Form 10-K is duly signed on behalf of Valero Energy Corporation by Joseph W. Gorder, Chairman of the Board and Chief Executive Officer, on February 23, 2023. - The report is signed by Joseph W. Gorder, Chairman of the Board and Chief Executive Officer, on February 23, 2023656 POWER OF ATTORNEY This section grants power of attorney to Joseph W. Gorder, Jason W. Fraser, and Richard J. Walsh, or any of them, to sign and file amendments and supplements to this annual report on Form 10-K, and lists the signatures of the company's directors and principal officers, confirming their authorization and capacities as of February 23, 2023. - Joseph W. Gorder, Jason W. Fraser, and Richard J. Walsh are appointed as attorneys-in-fact to sign and file amendments and supplements to the Form 10-K658 - The report is signed by the Chairman and CEO, Principal Financial and Accounting Officer, and all Directors, with dates of February 23, 2023659660