VLO » Topics » Corporate Expenses and Other

This excerpt taken from the VLO 10-K filed Feb 26, 2007.

Corporate Expenses and Other

General and administrative expenses, including corporate depreciation and amortization expense, increased $123 million for the year ended December 31, 2005 compared to the year ended December 31, 2004, primarily due to increases in employee compensation and benefits, the recognition of increased variable compensation expense, resulting in large part from a significant increase in our common stock price during 2005, and expenses attributable to Premcor headquarters personnel. These increases were partially offset by the successful resolution in the first quarter of 2005 of a California excise tax dispute.

“Other income (expense), net” improved $101 million for the year ended December 31, 2005 compared to the year ended December 31, 2004 primarily due to the combined effect of a $55 million gain realized on the sale of our equity interests in Javelina Company and Javelina Pipeline Company in November 2005 and a 2004 impairment charge of $57 million to write off the carrying amount of our equity investment in Clear Lake Methanol Partners, L.P. This combined effect, as well as an increase in bank interest income due to higher cash balances, was partially offset by our 50% interest in certain debt refinancing costs incurred in 2005 by the Cameron Highway Oil Pipeline joint venture and increased costs related to our accounts receivable sales program.

 

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Interest and debt expense incurred increased from 2004 to 2005 due to interest incurred in 2005 on the debt resulting from the Premcor Acquisition. Capitalized interest increased due to an increase in capital projects, including projects at the four former Premcor refineries.

Income tax expense increased $791 million from 2004 to 2005 mainly as a result of a 95% increase in income before income tax expense. Our effective tax rate for the year ended December 31, 2005, however, decreased from the year ended December 31, 2004 primarily as a result of a change in permanent book-to-tax differences, which included a deduction from income in 2005 for qualified domestic manufacturing activities, as allowed under the American Jobs Creation Act of 2004.

This excerpt taken from the VLO 10-Q filed Nov 9, 2006.

Corporate Expenses and Other

General and administrative expenses, including corporate depreciation and amortization expense, increased $87 million from the first nine months of 2005 to the first nine months of 2006. The increase was primarily due to increases in employee compensation and benefits, stock-based compensation expense, legal and regulatory costs, charitable contributions and environmental expenses, as well as 2006 expenses attributable to the Premcor Acquisition and the favorable resolution of a California excise tax dispute in the first quarter of 2005.

“Other income (expense), net” for the first nine months of 2006 includes a pre-tax gain of $132 million related to the sale of 40.6% of our ownership interest in Valero GP Holdings, LLC in July 2006.

Interest and debt expense incurred increased from the first nine months of 2005 to the first nine months of 2006 primarily as a result of interest expense incurred on the debt assumed in the Premcor Acquisition. However, the increased interest incurred was more than offset by increased capitalized interest due to an increase in capital projects, including those at the four former Premcor refineries.

Income tax expense increased $1.1 billion from the first nine months of 2005 to the first nine months of 2006 mainly as a result of higher operating income. Our effective tax rate for the nine months ended September 30, 2006 increased from the nine months ended September 30, 2005 as a lower percentage of our pre-tax income was contributed by the Aruba Refinery, the profits of which are non-taxable in Aruba through December 31, 2010. This increase in the effective tax rate was partially offset by the effect of new tax legislation in both Texas and Canada in 2006.

This excerpt taken from the VLO 10-Q filed Aug 9, 2006.

Corporate Expenses and Other

General and administrative expenses, including corporate depreciation and amortization expense, increased $109 million from the first six months of 2005 to the first six months of 2006. The increase was primarily due to increases in employee compensation and benefits, stock-based compensation expense, charitable contributions and legal and regulatory costs, as well as 2006 expenses attributable to the Premcor Acquisition and the favorable resolution of a California excise tax dispute in the first quarter of 2005.

Interest and debt expense incurred increased from the first six months of 2005 to the first six months of 2006 primarily as a result of interest expense incurred on the debt assumed in the Premcor Acquisition. However, the increased interest incurred was more than offset by increased capitalized interest due to an increase in capital projects, including those at the four former Premcor refineries.

Income tax expense increased $713 million from the first six months of 2005 to the first six months of 2006 mainly as a result of higher operating income. Our effective tax rate for the six months ended June 30, 2006 increased from the six months ended June 30, 2005 as a lower percentage of our pre-tax income was contributed by the Aruba Refinery, the operations of which are non-taxable in Aruba through December 31, 2010. This increase in the effective tax rate was partially offset by the effect of new tax legislation in both Texas and Canada in 2006.

This excerpt taken from the VLO 10-Q filed May 9, 2006.

Corporate Expenses and Other

General and administrative expenses, including corporate depreciation and amortization expense, increased $48 million from the first quarter of 2005 to the first quarter of 2006. The increase was primarily due to increases in employee compensation and benefits, expenses in 2006 attributable to Premcor headquarters personnel, and the favorable resolution of a California excise tax dispute in the first quarter of 2005.

Interest and debt expense incurred increased from the first quarter of 2005 to the first quarter of 2006 primarily as a result of interest expense incurred on the debt assumed in the Premcor Acquisition. However, the increased interest incurred was more than offset by increased capitalized interest due to an increase in capital projects, including those at the four former Premcor refineries.

Income tax expense increased $181 million from the first quarter of 2005 to the first quarter of 2006 mainly as a result of higher operating income. Our effective tax rate for the quarter ended March 31, 2006 increased from the quarter ended March 31, 2005 as a lower percentage of our pre-tax income was contributed by the Aruba Refinery, the operations of which are non-taxable in Aruba through December 31, 2010.

This excerpt taken from the VLO 10-Q filed Aug 9, 2005.

Corporate Expenses and Other

 

General and administrative expenses, including corporate depreciation and amortization expense, increased $7 million for the six months ended June 30, 2005 compared to the six months ended June 30, 2004, primarily due to increases in employee compensation and benefits, mainly related to the recognition of increased variable compensation expense.  This increase in employee compensation and benefits was partially offset by the successful resolution in the first quarter of 2005 of a California excise tax dispute and reduced systems-related costs.

 

Other expenses increased $12 million for the first six months of 2005 compared to the first six months of 2004 due mainly to $11 million pertaining to Valero’s 50% interest in certain debt refinancing costs incurred in June 2005 by the Cameron Highway Oil Pipeline joint venture.

 

Income tax expense increased $176 million from the first six months of 2004 to the first six months of 2005 mainly as a result of higher operating income.  Valero’s effective tax rate for the six months ended June 30, 2005 decreased from the six months ended June 30, 2004 as a higher percentage of Valero’s pre-tax income was contributed by the Aruba Refinery, the operations of which are non-taxable in Aruba through December 31, 2010.

 

OUTLOOK

 

During the third quarter of 2005, refining industry fundamentals have remained favorable.  Distillate margins, which on average were higher than gasoline margins during the second quarter, have continued to be higher than gasoline margins to date in the third quarter and are expected to remain strong for an extended period of time due to increased global demand and the upcoming implementation of ultra-low-sulfur diesel requirements in the United States by June 2006.  As a result of these strong distillate margins, refiners have had the incentive to maximize distillate production relative to gasoline production, which, coupled with continued strong gasoline demand, has resulted in a reduction in gasoline supplies to five-year lows on a days-of-supply basis.  As the end of the summer driving season approaches, Valero expects gasoline margins to follow the normal seasonal trend and decline from current levels.  However, weather-related or operational outages in the U.S. refining system could have a positive impact on product margins.

 

Limited global refining capacity, which has favorably impacted refined product margins, is also resulting in wider sour crude oil discounts.  Incremental refinery production to satisfy increased light product demand has come from low complexity distillation facilities, resulting in higher production of residual fuel oil as a by-product of the refining process.  Because resid can compete with certain heavy sour crude oils as a refinery feedstock, this serves to widen the discounts for heavy sour crude oils.  In addition, as global demand for crude oil has increased, more sour and more heavy crude oils are being produced to meet that demand.  Given limited conversion capacity to process these lower-quality crude oils, sour crude oil discounts have widened.  At the same time, demand for sweet crude oils has increased relative to

 

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sour crude oil demand due to tighter sulfur specifications and growing light product demand, causing a further widening of sour crude oil discounts.  Valero expects wide sour crude oil discounts to continue for an extended period of time.

 

Valero anticipates completing the merger with Premcor by the end of the third quarter of 2005.  The merger will add four refineries with combined crude oil throughput capacity of approximately 800,000 barrels per day, allowing Valero to enhance its broad geographic diversity and to further benefit from the expected strong fundamentals discussed above.  In addition, Valero expects to benefit during the remainder of 2005 from the completion of several turnaround and capital improvement projects, as well as additional strategic projects that will be completed during the remainder of the year.

 

This excerpt taken from the VLO 10-Q filed May 10, 2005.

Corporate Expenses and Other

General and administrative expenses, including corporate depreciation and amortization expense, increased $5 million for the quarter ended March 31, 2005 compared to the quarter ended March 31, 2004, primarily due to increases in employee compensation and benefits of approximately $17 million between the quarters, mainly related to the recognition of increased variable compensation expense. This increase in employee compensation and benefits was partially offset by the successful resolution of a California excise tax dispute and reduced systems-related costs.

Income tax expense increased $119 million from the first quarter of 2004 to the first quarter of 2005 mainly as a result of higher operating income. Valero’s effective tax rate for the quarter ended March 31, 2005 decreased from the quarter ended March 31, 2004 due mainly to the Aruba Acquisition, the refining operations of which are non-taxable in Aruba through December 31, 2010.

This excerpt taken from the VLO 10-Q filed May 10, 2005.

Corporate Expenses and Other

General and administrative expenses, including corporate depreciation and amortization expense, increased $5 million for the quarter ended March 31, 2005 compared to the quarter ended March 31, 2004, primarily due to increases in employee compensation and benefits of approximately $17 million between the quarters, mainly related to the recognition of increased variable compensation expense. This increase in employee compensation and benefits was partially offset by the successful resolution of a California excise tax dispute and reduced systems-related costs.

Income tax expense increased $119 million from the first quarter of 2004 to the first quarter of 2005 mainly as a result of higher operating income. Valero’s effective tax rate for the quarter ended March 31, 2005 decreased from the quarter ended March 31, 2004 due mainly to the Aruba Acquisition, the refining operations of which are non-taxable in Aruba through December 31, 2010.

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