Valero(VLO) - 2023 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements This section presents Valero Energy Corporation's unaudited consolidated financial statements as of and for the periods ended June 30, 2023, along with condensed notes on accounting policies and specific financial items Consolidated Balance Sheets Total assets were $60.67 billion as of June 30, 2023, a slight decrease from $60.98 billion at year-end 2022, while total equity increased to $27.99 billion from $25.47 billion, and total liabilities decreased from $35.51 billion to $32.67 billion Consolidated Balance Sheet Highlights (in millions) | Balance Sheet Item | June 30, 2023 (unaudited) | December 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $23,695 | $24,133 | | Total Assets | $60,667 | $60,982 | | Total Current Liabilities | $14,948 | $17,461 | | Total Liabilities | $32,673 | $35,514 | | Total Equity | $27,994 | $25,468 | | Total Liabilities and Equity | $60,667 | $60,982 | Consolidated Statements of Income For the second quarter of 2023, Valero reported net income attributable to stockholders of $1.94 billion, or $5.40 per diluted share, a decrease from $4.69 billion, or $11.57 per diluted share, in the same period of 2022, primarily driven by lower revenues Statement of Income Highlights (in millions, except per share amounts) | Metric | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $34,509 | $51,641 | $70,948 | $90,183 | | Operating Income | $2,759 | $6,219 | $6,802 | $7,603 | | Net Income Attributable to Valero | $1,944 | $4,693 | $5,011 | $5,598 | | Diluted EPS | $5.40 | $11.57 | $13.74 | $13.74 | Consolidated Statements of Cash Flows For the six months ended June 30, 2023, net cash provided by operating activities was $4.68 billion, down from $6.43 billion in the prior-year period, with significant cash used in investing and financing activities, including share repurchases and dividend payments Cash Flow Summary for Six Months Ended June 30 (in millions) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $4,682 | $6,433 | | Net Cash Used in Investing Activities | $(1,078) | $(1,460) | | Net Cash Used in Financing Activities | $(3,520) | $(3,642) | | Net Increase in Cash and Cash Equivalents | $213 | $1,270 | | Cash and Cash Equivalents at End of Period | $5,075 | $5,392 | Condensed Notes to Consolidated Financial Statements These notes provide detailed disclosures on accounting policies, regulatory uncertainties, financial instruments, and segment performance, including the potential impact of California's SBx 1-2 legislation and details on debt and equity activities - California's Senate Bill No. 2 (SBx 1-2) creates uncertainty for California operations by authorizing a potential maximum gross gasoline refining margin, financial penalties, and expanded reporting, with the ultimate impact unknown but potentially leading to material impairment losses or asset retirement obligations[26][27] - In February 2023, the company used cash on hand to purchase and retire $199 million in principal amount of various senior notes[31][32] - During the six months ended June 30, 2023, Valero purchased 19.4 million shares for treasury, with $2.5 billion remaining available for purchase under the 2023 share purchase program as of June 30, 2023[44] - The company's three reportable segments are Refining, Renewable Diesel, and Ethanol, with the Refining segment being the largest contributor to revenue and operating income[71][72][73] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the financial performance for Q2 and H1 2023, highlighting strong demand and constrained supply, segment results, liquidity, capital resources, and a positive outlook driven by low product inventories and improving demand Overview and Outlook Valero's Q2 and H1 2023 results were driven by strong global demand and constrained supply for petroleum products, leading to strong refining margins, with a positive outlook for Q3 2023 supported by improving demand and low product inventories - Q2 2023 net income attributable to Valero stockholders was $1.9 billion, down from $4.7 billion in Q2 2022, primarily due to lower operating income[137][139] - For the first six months of 2023, operations generated $4.7 billion in cash, which was used for $982 million in capital investments, $3.1 billion in shareholder returns (buybacks and dividends), and $199 million in debt reduction[138] - The outlook for Q3 2023 anticipates that gasoline and diesel demand will follow typical seasonal patterns near pre-pandemic levels, jet fuel demand will continue to improve, and low product inventories in the U.S. and Europe will support high refinery utilization[147] Results of Operations This section provides a detailed breakdown of financial performance by segment for Q2 and H1 2023 compared to 2022, showing a decrease in Refining segment income but increases in Renewable Diesel and Ethanol segments due to favorable cost and volume factors Operating Income by Segment (in millions) | Segment | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Refining | $2,432 | $6,212 | $6,489 | $7,663 | | Renewable Diesel | $440 | $152 | $645 | $301 | | Ethanol | $127 | $101 | $166 | $102 | | Total Company | $2,759 | $6,219 | $6,802 | $7,603 | - The Refining segment's Q2 adjusted operating income fell by $3.7 billion YoY, mainly due to lower gasoline and distillate margins[141] - The Renewable Diesel segment's Q2 operating income grew by $288 million YoY, driven by lower feedstock costs and higher sales volumes from the new DGD Port Arthur Plant[141][174] - The Ethanol segment's Q2 adjusted operating income increased by $49 million YoY, primarily due to lower corn prices and higher production volumes[142][176] Liquidity and Capital Resources As of June 30, 2023, Valero maintained strong liquidity of $10.1 billion, generated $4.7 billion in cash from operations in H1 2023, and returned significant cash to shareholders while allocating over 40% of growth capital to low-carbon projects - Total liquidity as of June 30, 2023, was $10.1 billion, consisting of $5.4 billion in available credit facilities and $4.7 billion in cash and cash equivalents (excluding VIEs)[225] - For 2023, the company expects capital investments attributable to Valero to be approximately $2.0 billion, with over 40% of growth capital allocated to expanding low-carbon businesses[239] - In the first six months of 2023, Valero returned $3.1 billion to stockholders through $2.4 billion in share repurchases and $746 million in dividend payments[229][242] - As of June 30, 2023, $3.9 billion of the company's cash and cash equivalents was held by foreign subsidiaries, which can be repatriated but may be subject to withholding and state taxes[244] Item 3. Quantitative and Qualitative Disclosures About Market Risk Valero is exposed to market risks from interest rates, commodity prices, renewable fuel credit prices, and foreign currency exchange rates, with no material changes to these risks reported since the 2022 annual report Debt by Rate Type as of June 30, 2023 (in millions) | Debt Type | Total Principal | Fair Value | | :--- | :--- | :--- | | Fixed Rate | $8,265 | $7,864 | | Floating Rate | $800 | $800 | - A 10 percent increase or decrease in floating interest rates would not have a material effect on the company's results of operations[249] - There have been no material changes to market risks related to commodity prices, Renewable and Low-Carbon Fuel Programs credits, and foreign currency exchange rates since the year-ended December 31, 2022 Form 10-K filing[252] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal control over financial reporting during the second quarter of 2023 - Management concluded that disclosure controls and procedures were effective as of June 30, 2023[253] - No changes in internal control over financial reporting occurred during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, internal controls[254] PART II – OTHER INFORMATION Item 1. Legal Proceedings There were no material developments in previously reported legal proceedings, but the company disclosed a new environmental enforcement matter involving a Notice of Violation issued to the Benicia Refinery on May 1, 2023 - No material developments occurred in previously reported legal proceedings[255] - On May 1, 2023, the Bay Area Air Quality Management District (BAAQMD) issued a Notice of Violation (NOV) to the Benicia Refinery, which the company is working to resolve[256] Item 1A. Risk Factors There have been no material changes to the risk factors disclosed in the company's 2022 annual report, though the potential impacts of California's SBx 1-2 legislation could heighten many of the previously described risks - No material changes to risk factors from the 2022 Form 10-K were reported[257] - The potential adverse effects of California's SBx 1-2 legislation may heighten many of the other risks previously described[257] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the second quarter of 2023, Valero purchased 8.42 million shares of its common stock as part of publicly announced programs, with $2.5 billion remaining available for repurchase under its current authorization as of June 30, 2023 Issuer Purchases of Equity Securities (Q2 2023) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2023 | 21,404 | $120.66 | | May 2023 | 3,091,392 | $111.30 | | June 2023 | 5,308,656 | $112.00 | | Total | 8,421,452 | $111.76 | - As of June 30, 2023, $2.5 billion remained available for purchase under the company's share repurchase program authorized in February 2023[260] Item 5. Other Information On July 21, 2023, the company amended its Supplemental Executive Retirement Plan to modify the interest rate calculation for lump-sum benefits, and no directors or officers adopted or terminated a Rule 10b5-1 trading arrangement during Q2 2023 - The company amended its Supplemental Executive Retirement Plan, effective July 1, 2023, to modify the interest rate used for calculating lump-sum benefits to reduce volatility[261] - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the second quarter of 2023[262] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including the amended Supplemental Executive Retirement Plan, officer certifications, and Inline XBRL data files