EXCELLENCE
Doing Ordinary Things Extraordinarily Well
VALERO ENERGY CORPORATION 2010 SUMMARY ANNUAL REPORT
Table of Contents
1 Map of opEratioNs
2 fiNaNCiaL suMMary
3 - 5 to our sharEhoLdErs
6 - 7 safEty
8 - 9 opEratioNaL EXCELLENCE
10 - 11 high-gradiNg our systEM
12 - 13 Cost-saviNgs iNitiativEs
14 - 15 rENEwabLEs
16 - 17 rEtaiL
18 - 23 our pEopLE aNd our CoMMuNitiEs
24 board of dirECtors aNd EXECutivE tEaM
25 stoCkhoLdEr iNforMatioN
vaLEro Map of opEratioNs
UNITED
KINGDOM
PEMBROKE
(Acquisition Pending)
WELCOME
ALBERT CITY
FORT DODGE
CHARLES CITY
JEFFERSON
AURORA
ALBION
HARTLEY
JEAN GAULIN
(QUEBEC)
BENICIA
WILMINGTON
BLOOMINGBURG
LINDEN
MEMPHIS
MCKEE
ARDMORE
SAN ANTONIO
THREE RIVERS
BILL GREEHEY
(EAST & WEST)
PORT ARTHUR
HOUSTON
TEXAS CITY
ST. CHARLES
ARUBA
RETAIL AND BRANDED WHOLESALE PRESENCE
WHOLESALE MARKETING PRESENCE
VALERO HEADQUARTERS
VALERO REFINERIES
ULTRAMAR—CANADIAN OPERATIONS
VALERO ETHANOL PLANTS
CREDIT CARD CENTER
valero Energy Corporation is a fortune 500 company based in san antonio with approximately 20,700
dedicated employees. a network of 14 refineries gives valero the capacity to process approximately
2.6 million barrels per day, delivering clean fuels and other petroleum products to consumers efficiently
and reliably. valero is also a leading ethanol producer with 10 ethanol plants in the Midwest and a
combined processing capacity of 1.2 billion gallons per year. Meanwhile, valero’s retail and branded
wholesale network is marketed throughout North america under the brands valero, diamond shamrock,
shamrock, ultramar and beacon. please visit www.valero.com for more information.
Map of opEratioNs
1
fiNaNCiaL suMMary
summary annual report
This summary annual report format provides only a financial summary. The company’s full, audited financial statements
are contained in its Annual Report on Form 10-K for the year ended December 31, 2010, which has been filed with the
SEC and made available to all stockholders. This information is also available at www.valero.com
[Millions of dollars, except per-share amounts]
opEratiNg rEvENuEs
opEratiNg iNCoME
iNCoME (Loss) froM CoNtiNuiNg opEratioNs
EarNiNgs (Loss) pEr CoMMoN sharE froM
CoNtiNuiNg opEratioNs - assuMiNg diLutioN
totaL assEts
stoCkhoLdErs’ EQuity
CapitaL EXpENditurEs aNd dEfErrEd
turNarouNd aNd CataLyst Costs
2010
as reported
2009
as reported
$
$
$
$
$
$
$
82,233
1,876
923
1.62
37,621
15,025
2,265
$
$
$
$
$
$
$
64,599
83
(273)
(0.50)
35,572
14,725
2,721
please visit www.valero.com to learn more about our company.
2
fiNaNCiaL suMMary
LEttEr to sharEhoLdErs
One year ago, we made a pledge to focus on
strategic items that would restore profitability and
help us become a world-class refining industry
competitor. Valero has made great progress by
staying focused, working wisely and rising above
political and economic challenges.
During 2010, the world economy recovered faster
and stronger than expected, contributing to a surge
in global demand for refined products. At the same
time, the U.S. economy has been slowly recovering.
Refining margins and crude oil discounts, measured
against foreign sweet crude oil, improved
substantially over the past year. Our capital projects
and recent transactions have added value and a
competitive edge to our refining portfolio. On top
of all of this, the commitment of our people has
made a real difference in countless ways – from
a return to profitability through execution and
cost-control to improved lives in our communities
through our tireless volunteers.
In 2010, we focused on new workplace safety
programs, cut costs, and relentlessly looked for ways
to be more efficient, more competitive and more
profitable. The results were excellent: improved
safety and reliability, divestiture of underperforming
assets, progress on major capital projects, significant
cost reductions, the acquisition of three more
world-class ethanol plants and our best operational
performance in five years. For 2010, Valero reported
income from continuing operations of $923 million,
or $1.62 per share.
As we look to an even better 2011, here are
additional highlights from 2010:
SAFETY – OUR HIGHEST PRIORITY
The safety of our people always comes first and is
the most important effort we make every day. In
2010 we began tracking a new industry metric on
loss of containment, called API process safety events,
and have increased our efforts to eliminate losses
of containment across all of our facilities. We also
adopted “Life-Saving Rules,” a program that identifies
the most common causes of serious injuries and
raises individual accountability to follow basic
accident-prevention rules. Our refining system’s
average total recordable-incident rate (TRIR) was
the second-lowest in company history, and our
contractors recorded their lowest-ever TRIR. Our
employees and contractors know that safety is
everyone’s priority, and that by working together,
our safety performance will continue to improve.
IMPROVED RELIAbILITY WITH CONTINUED FOCUS
ON OPERATIONAL ExCELLENCE INITIATIVES
In 2010, we made significant progress in key
reliability measures. Our Commitment to Excellence
Management System (CTEMS) is now in its third
year, delivering a standardized framework for
safety, operational excellence and reliability. We
also are improving reliability through aggressive
preventive maintenance programs, standardized
incident tracking tools, retrospective positive
material identification, and electrical and mechanical
inspections. Since 2007, the cost of high-impact
outages in our refinery system has dropped more
than 70 percent.
IMPROVED OPTIMIzATION AND PRODUCT YIELDS
High-value refined products and liquid volume
yield are increasingly important. Through catalyst
optimization, attention to detail and better
to our sharEhoLdErs
3
St. Charles and our hydrogen plants at McKee and
Memphis. Our competitive Gulf Coast refineries are
well-positioned for today’s higher-margin export
opportunities – a significant change in our business
that we anticipated and benefited from last year
and so far this year. Another major change in our
business has been the discounted price of inland
domestic sweet crude versus water-borne sweet
crudes like brent or Louisiana Light Sweet.
However, some challenges remain. Current
government regulations and proposals affecting
greenhouse gases (GHGs) will hurt our industry.
These regulations being discussed are bad for our
industry, bad for consumers, bad for jobs, and bad
for the country – and still would have no impact at
all on global warming or climate change. Having
been unsuccessful in passing cap-and-trade
legislation in Congress, the Obama Administration
is attempting to regulate GHGs under the Clean Air
Act. This debate is continuing in Congress.
While we are proud to be the world’s largest
independent refiner and one of the nation’s largest
fuel retailers and ethanol producers, we take
even more pride in being an excellent operator
and corporate citizen. by doing ordinary things
extraordinarily well, our employees ensure that
our company stays the course on safety, reliability,
profitability and corporate responsibility. We
continue to add value to society, making people’s
lives better and more productive, and we make our
communities a better place to live and work.
I want to thank our employees for a very dedicated
effort to make our company successful and you for
your support, interest, and investment in Valero.
bill Klesse
Chairman of the board, Chief Executive Officer
and President
utilization of our conversion capacity, from 2009 to
2010 we improved our average liquid volume yield
from 98.6 percent to 99 percent. This 0.4 percent
gain added $242 million to revenues.
FINANCIALLY STRONGER AND MORE COMPETITIVE
We maintained our investment-grade credit rating
in 2010. In mid-December, we exited a challenging
East Coast refining market with the sale of our
refinery in Paulsboro, New Jersey, for $707 million
including working capital. We also divested our
50 percent interest in the Cameron Highway Oil
Pipeline System for $330 million. Early in the year,
we sold our shut-down Delaware City refinery site
and equipment for $220 million.
Our general and administrative expenses have
consistently trended downward since 2008, and in
2010, we achieved an additional $225 million in
pre-tax cost savings. Since 2007, our employees
have saved the company nearly $620 million, before
taxes, through the execution of numerous cost
reduction efforts.
Our U.S. and Canadian retail businesses earned
$346 million for the year, nearly matching their
record results in 2008. After adding three
world-class ethanol plants to our system, for a total
of 10, our ethanol business set a record high of
$209 million in operating income for the year.
Moving forward, our financial strength and
significant liquidity allow us to complete major
value-added capital projects at our refineries. Valero
is able to take advantage of attractive acquisition
opportunities that will improve our competitiveness
and broaden our geographic footprint. Our pending
acquisition of Chevron’s Pembroke Refinery and
marketing assets in the United Kingdom and Ireland
with cash on hand is just one example of this
financial strength.
2011 WILL bE A MUCH bETTER YEAR
This year, we expect to expand into Europe,
complete our FCC revamp projects at Memphis
and St. Charles, and benefit from upgrading
the coke drums at Port Arthur. The bulk of our
active turnaround schedule will be completed by
summer. We expect significant progress on our
high-return hydrocracker projects at Port Arthur and
4 to our sharEhoLdErs
to our sharEhoLdErs 5
path to EXCELLENCE
Safety
our commitment to safety means a reliable, more stable work force that
goes home to their families at the end of the day.
Safety First isn’t just an adage or catch phrase at
Valero. It is our way of doing business. Profits may
rise and fall, but our most important measure of
success has always been the health and safety of our
employees, contractors, customers and neighbors.
Our safety programs are successful because they
are developed, supported and carried out by all
employees – from executive management to the
newest hire.
This is not a recent focus. Valero has enjoyed a
legacy of safety. In fact, as Valero has acquired
refineries since 1997, it has steadily driven down
employee-incident frequency rates. This effort
continued in 2010, when our refining system’s
average total recordable-incident rate (TRIR) of
0.79 incidents per 200,000 working hours was
second-lowest in company history. In all, Valero has
reduced injury rates by 46 percent since 2001.
6 safEty
We also work closely with our contractors to ensure
they adopt high safety standards. In 2010, Valero
refinery contractors recorded the company’s
lowest-ever contractor TRIR at 0.59 – down from the
previous record-low in 2009.
The U.S. Occupational Safety and Health
Administration (OSHA) is a partner in helping us
make our plants safer. Under OSHA’s Voluntary
Protection Program (VPP), in which we voluntarily
submit to rigorous safety audits, we have made
it our goal to have each of our U.S. refineries
designated as “Star Sites,” OSHA’s highest facility
safety certification. The company currently has
10 VPP Star Sites in its refining system – representing
more than one-third of all refinery Star Sites
nationally. because safety is a team effort, 25 of our
contractors also were Star Site-certified at the end
of 2010.
While our Jean Gaulin Refinery in Quebec is not
subject to OSHA regulation, it holds an internal “VPP
Star” after passing a first-of-its-kind, VPP-style audit
by an independent team of professionals trained by
OSHA. Valero’s Corpus Christi Asphalt Terminal and San
Antonio Aviation Department also have received OSHA
Star designations.
In addition, nine U.S. Valero refineries in 2010 were
recognized for safety performance during the previous
year with a total of 19 awards from the National
Petrochemical and Refiners Association (NPRA), which
recognizes refineries for operating the longest without
employee-lost-workday injuries, reducing recordable
injuries and maintaining low injury incidence rates.
For 2010, the Valero Houston Refinery won our
company’s Chairman’s Safety Award after recording
an employee and contractor recordable-injury rate of
0.0 – a remarkable performance that has happened
very few times, anywhere. because of its stellar safety
achievement, Houston also earned honorable mention
for NPRA’s “Distinguished Safety Award.”
Safety is also a major priority at our Valero Renewables
ethanol plants. At the end of 2010, our plant in Aurora,
South Dakota marked seven years without an OSHA
lost-time injury, and the plant in Fort Dodge, Iowa, had
operated more than 12 months without an
OSHA-recordable injury.
In rail safety, five major rail companies – CSx
Transportation, Union Pacific, burlington Northern
Santa Fe, Norfolk Southern and Canadian National
– have recognized Valero refineries with prestigious
safety awards for three consecutive years. Canadian
Pacific Railway awarded a Chemical Shipper Safety
Award in 2010 to our Valero Renewables plant in
Welcome, Minn., recognizing the efforts of the plant’s
Shipping and Receiving Department for excellence in
transportation safety in 2009.
Valero knows that despite its achievements and
improvements, safety remains the most urgent issue
facing the energy industry. That is why, in addition to
maintaining robust occupational and process safety
programs, we implemented a program called
“Life-Saving Rules” in fall 2010 at our refineries, and
have since expanded it to include ethanol plants,
pipelines and terminals. We realize that not following
established practices and executing them correctly
would put ourselves and our co-workers at risk. Life-
Saving Rules raises accountability if certain critical
safety rules are not followed.
The seven rules are not new. They have been with
the industry for a long time, and have been part of
our ongoing VPP efforts. but based on our belief that
violations of these particular rules could result in more
serious and devastating injuries, these rules deserve
the most serious attention. Our employees have
become familiar with these rules and how they apply
to their own roles and responsibilities.
Our safety programs will continue to evolve and
improve as best safety practices are shared among all
of our facilities, with the constant goal to achieve safe,
reliable operations throughout our system.
safEty 7
path to EXCELLENCE
Operational Excellence
our goal is to be a first-quartile refiner in industry benchmark surveys.
At Valero, our goal always is to be the best of the
best, and that especially is true with operational
excellence. We strive to be in the first-quartile of
refiners in industry benchmark surveys across all
areas of operations, from energy efficiency to cash
operating expense to process safety and reliability
metrics such as outages and mechanical availability.
Foremost, Valero recognizes that a reliable operation
is a safe operation. Valero refineries have made
significant progress in key process safety and
reliability measures, positioning the company to take
full advantage of economic recovery and emerge as
a stronger industry competitor.
Our company has sharply reduced major unplanned
refinery shutdowns in recent years. For particularly
high-impact outages bearing a cost of more than
$1 million, Valero’s continuing U.S. refinery
operations cut unscheduled shutdowns by nearly
8 opEratioNaL EXCELLENCE
70 percent from 2007 through 2010.
The progress is the result of intense process safety
and reliability assessments to identify areas and
issues that could keep a unit, process or plant out
of service. The effort first was piloted in November
2008, and expanded in 2009, under Valero’s
Commitment to Excellence Management System
(CTEMS), a comprehensive program that provides a
standardized framework for our refineries to achieve
operational excellence. The assessments have given
the company a solid strategy to eliminate risks and
compete in tough market environments.
In 2010, Valero marked the second anniversary of
CTEMS and saw improvement in areas ranging from
change management to process hazard analysis
and preventive maintenance. Efforts at the refineries
continue to assess existing programs against
expectations defined in CTEMS, and establish plans
to close any identified gaps.
While notable progress has been made, Valero aims
to reduce incidents even further – and maintain
first-quartile performance across the board –
by focusing first on the main causes of costly
unplanned shutdowns that can also lead to injury:
piping and equipment leaks, rotating equipment
and electrical failures. Together, those events
account for more than 75 percent of unscheduled
shutdowns.
As leaks tend to dominate outages, a “war on leaks”
was declared systemwide. Refineries have been
asked to sharpen their focus on even the seemingly
routine tasks – such as unit monitoring rounds and
basic inspection programs – in order to identify and
prevent potential leaks before they trigger an event.
These measures included a comprehensive program
of “Retro PMI,” or retrospective positive material
identification, which helps ensure that all pipes
and valves are the correct material for the service.
Under the Retro PMI program, piping and other
fixed equipment are tested to identify their metal
composition. The primary focus is on crude, vacuum,
coker and hydroprocessing units most susceptible
to corrosion. Early detection has played a critical role
in reducing unplanned shutdowns.
Pumps and other rotating equipment that are not
properly lubricated or aligned can fail, leading to
process-unit outages and possible safety incidents.
Such issues traditionally have been the
second-leading cause of unscheduled refinery
shutdowns, behind leaks. Still, stepped-up
inspections and other efforts at Valero refineries
have significantly expanded the time between
needed pump repairs. Companywide, from 2008
through 2010, average mean time between repairs,
or MTbR, increased by more than 25 percent. Fixing
fewer pumps drives cost out of our business and
ensures our units are running reliably when market
conditions are favorable.
There has also been steady improvement in
electrical reliability at Valero refineries since 2007
under stringent Electrical Safety and Reliability
Network (ESARN) standards, ramping up preventive
maintenance of electrical equipment. The ESARN
assessment tool requires refineries to undertake
painstaking self-evaluations of all aspects of
electrical safety and reliability. ESARN has helped
reduce the number of unplanned shutdowns
caused by electrical events.
All programs are intended to improve Valero’s
refinery operations and ensure first-quartile
performance in all disciplines.
opEratioNaL EXCELLENCE
9
path to EXCELLENCE
High-Grading Our System
our economic growth projects and strategic acquisitions have potential
for significant earnings power and returns.
Valero demonstrates its commitment to all
stakeholders by pursuing economic growth projects
and high-value, strategic acquisitions that improve
our opportunities for profitable, long-term growth.
depreciation and amortization (“D&A”), assuming
recent market prices hold steady. With all of them,
favorable economics should be driven by better
reliability and gains on margin and volume.
Our capital spending budget is expected to grow to
$3.1-$3.2 billion in 2011 from $2.26 billion in 2010,
with a substantial amount of the total expected
to fund projects with a potential for significant
earnings power and returns. This includes Fluid
Catalytic Cracking (FCC) unit revamps at our
St. Charles and Memphis refineries, new
hydrocrackers at Port Arthur and St. Charles, new
hydrogen plants at McKee and Memphis, and a new
Lévis to Montreal products pipeline.
These projects alone, with expected completion in
2011 and 2012, are projected to generate annual
operating income of more than $1.8 billion, before
10 high-gradiNg our systEM
The FCC revamp projects at Memphis and
St. Charles, both set for completion in 2011 at
estimated total investment of $565 million, are
expected to improve reliability and increase time
between turnarounds to four years from
one-and-a-half years previously. In the case of
Memphis, the increase in run length should
drive higher throughput and estimated annual
maintenance savings of $0.17 per barrel. The
Memphis project also is expected to improve
flexibility to run additional discounted feedstocks,
resulting in estimated annual operating income of
$104 million, before D&A.
The St. Charles project is expected to provide more
than 5 percent higher yield through the FCC, and
improve energy efficiency with a new power recovery
turbine. It should double the flexibility to process
lower-priced residual feedstocks, backing out
higher-priced vacuum gas oil. In all, the project is
estimated to produce $130 million in annual operating
income before D&A.
The large hydrocracker projects at Port Arthur and
St. Charles, due for completion during the second half
of 2012, should create high-value products from
low-cost feedstocks plus hydrogen sourced from
relatively inexpensive natural gas. both will be
50,000 barrel-per-day hydrocrackers, and the Port
Arthur project additionally will include facilities that
are projected to process more than 150,000 barrels per
day of high-acid, heavy sour Canadian crude. The units
should generate liquid volume expansions of
25 percent to 30 percent.
The main products will be high-quality diesel and
jet fuel to meet growing global demand for middle
distillates. The projects together are projected to yield
a total estimated annual operating income before D&A
of nearly $1.4 billion.
The hydrogen plant projects at Memphis and McKee
should reduce the cost of hydrogen by about
one-third, by using cheaper natural gas instead
of more expensive crude oil, when completed in
early 2012. The Memphis project also includes the
conversion of a distillate hydrotreater to a mild
hydrocracker. The two projects represent a total
investment of about $180 million, and estimated
annual operating income before D&A of $160 million.
The new Lévis to Montreal products pipeline will
have an initial throughput capacity of 100,000 barrels
per day, and will allow Valero to place more products
into the Montreal and Ontario markets. This total
investment of about $370 million is expected to bring
an estimated $55 million in annual operating income
before D&A, with completion expected in late 2012.
Valero pursues acquisitions that enhance its portfolio
and promise long-term profit growth. We recently
announced an agreement to acquire Chevron’s
Pembroke refinery in Wales, as well as marketing and
logistics assets through the United Kingdom and
Ireland, for $730 million, excluding working capital.
We expect to close during third quarter 2011.
The addition of the Pembroke refinery – which Valero
will purchase for about 14 percent of its estimated
replacement cost – will mark an important entry into
the European markets. The Pembroke plant is one of
Western Europe’s largest and most complex refineries,
with a total throughput capacity of 270,000 barrels
per day. The refinery has a low cash operating
cost-per-barrel, making it a competitive addition to our
portfolio.
In addition to the refinery, we also will acquire
ownership interests in four major pipelines and 11 fuel
terminals, a 14,000 barrel-per-day fuels business and a
network of more than 1,000 Texaco-branded wholesale
sites.
Valero will continue to invest in operations and
consider acquisitions that boost profitability for
sustained, long-term growth.
high-gradiNg our systEM
11
path to EXCELLENCE
Cost-Savings Initiatives
since 2007, our dedicated employees have saved the company $620 million
_ $225 million in 2010 alone.
Cost-saving was a critical part of Valero’s
improvement in 2010. In fact, the company achieved
pre-tax cost savings of nearly a quarter of a billion
dollars, or $225 million – more than double our
initial goal of $100 million in savings.
Since the beginning of 2007, various cost-savings
initiatives have resulted in $620 million in
pre-tax savings. We believe that cost-savings and
optimization of assets are critical to positioning the
company with more earnings power for the future,
and reaching the ultimate objective of becoming
a world-class competitor in the global energy
business.
Valero employees are engaged in a coordinated
effort to help the company reduce costs through
targeted programs, from effective energy
stewardship to more strategic procurement of
12 Cost-saviNgs iNitiativEs
refinery equipment and focused retail initiatives.
Through the fourth quarter of 2010, Valero’s refining
cash operating expenses per barrel from continuing
operations was reduced to $3.64 per barrel from
$4.41 per barrel in 2008. Industry benchmarking
surveys showed that Valero continued to improve its
competitive, low-cost operations. 2010 was Valero’s
best companywide performance in this area in five
years, and the bill Greehey Refinery complex in
Corpus Christi, Texas, ranked as one of the lowest-
cost operating facilities on the Gulf Coast.
Meanwhile, Valero refinery energy efficiency
continued to improve, with a goal of achieving
first-quartile status. Valero refineries have realized
substantial annualized energy savings under an
Energy Stewardship Program which has focused
on improvements in operations, such as distillation
and other production processes, which have reduced
our energy consumption. The facilities cut energy use
by more than 30 million british thermal units (btu), or
approximately 8 percent, from 2008 through 2010.
While the company in 2011 will continue to focus on
safety, reliability, executing on growth projects and
other income-producing strategies, we have also set a
goal of achieving another $100 million in pre-tax cost
savings, on top of 2010’s impressive results.
Employees are encouraged to look for ways to cut
costs, both in their everyday work and as participants
in the various initiatives. Savings run the gamut
companywide, but most come from very identifiable
areas that are tracked on a regular basis. In order to be
counted toward the $100 million goal, items must be
proven to be true cost savings compared with 2010,
and the result of action taken by a person or group
to reduce cost. Cost savings must also be considered
permanent in order to be included.
For example, retail operations have realized savings
by switching from paper to foam cups. Other savings
have resulted from a new contract for managing
retail’s Regional Distribution Center, as well other
administrative actions.
Commercial operations savings have come in shipping
activities, including permanent barge rate reductions,
third-party inspection-fee reductions, demurrage
recoveries and certain tank/barge cancellations.
Initiatives in supply-chain management have resulted
in savings from negotiation of reduced mark-up rates
with vendors, as well as reduced trading commissions.
Third-party and internal audits of select vendors for
proper contract compliance have resulted in cost
recoveries. The company has also benefited from
volume discounts with contractors, and overall
contractor headcount at refineries has been reduced,
resulting in additional savings.
At the refineries, restructuring of personnel has
produced cost savings, as well as outsourcing of
several functions such as security and dock operations.
Organizational restructuring in various departments
at the corporate level have cut costs, along with
reductions in corporate administrative expenses, from
changes in insurance coverage to more beneficial
tax-planning programs.
In all of these efforts, large and small, Valero intends
to accomplish its cost-saving goals, and keep the
momentum going from our effective results in 2010,
helping the company move closer to first-quartile
performance in every way.
Cost-saviNgs iNitiativEs
13
path to EXCELLENCE
Renewables
through strategic acquisition, valero is now one of the largest ethanol
producers in the united states.
With the addition of three ethanol plants in 2010,
Valero now has a total of 10 plants and produces
1.2 billion gallons of ethanol per year.
Under Valero Renewable Fuels Inc. LLC, or Valero
Renewables, the company became the first
traditional petroleum refiner to invest in large-scale
ethanol production. We initially acquired seven
state-of-the-art plants in second-quarter 2009,
located in Albert City, Charles City, Fort Dodge
and Hartley, Iowa; Albion, Nebraska; Aurora, South
Dakota and Welcome, Minnesota. We closed
on the three additional high-quality plants in
bloomingburg, Ohio; Jefferson, Wisconsin; and
Linden, Indiana, in first-quarter 2010.
The plants have been profitable, posting operating
income of $209 million in 2010, up from $165 million
the year prior. Since the initial acquisition through
14 rENEwabLEs
the end of 2010, Valero Renewables generated
a total of $373 million in operating income and
$427 million of earnings before interest, taxes,
depreciation and amortization – about 56 percent
of the plants’ total purchase price.
The ethanol business attracted Valero for several
reasons. Valero is in the fuels manufacturing and
distribution business, and is one of the nation’s
largest blenders of ethanol fuel. We were able to
acquire modern, high-performing facilities for less
than half of their replacement cost, and ideally
located in the Midwestern Corn belt with plentiful
supplies. We retained quality employees, and
have applied our corporate resources and refining
expertise to ethanol operations.
Valero entered ethanol production at the right time,
near the end of a difficult period of overcapacity,
Our plants are located on up to 420 acres, and employ
as many as 70 full-time personnel each. Using local
economy multipliers, each location supports an
estimated 300 to 400 area jobs, benefiting farmers,
truck drivers, railroads, agricultural equipment
and chemical dealers and others. Plant employees
additionally support their local communities, pledging
more than $175,000 to United Way for 2011 and
logging thousands of volunteer hours.
Valero is also active in wind electrical power, under
its Sunray Wind subsidiary, and investments in new
bio-fuels processes. We operate a 50-megawatt wind
farm with 33 turbines in the Texas Panhandle that
produces electricity for our adjacent McKee Refinery
and a local utility. Valero has investments in emerging
technologies that would produce fuel from animal-fat,
grease and used cooking oil; plant materials and wood;
algae; and municipal-landfill solid waste.
From corn ethanol to wind power to bio-fuels, Valero
is positioned for the next generation of energy
production.
high commodity prices and negative margins. The
company has since benefited from a market recovery
and increases in government mandates for additional
corn ethanol capacity under the federal Renewable
Fuel Standard, requiring up to 15 billion gallons per
year to be blended with gasoline by 2015. Valero’s
annual production represents 8.6 percent of U.S.
ethanol production, fueling more than 20 million cars.
Ethanol blended with gasoline results in a
cleaner-burning product. It is a high-octane renewable
fuel produced by fermenting processed corn starch
with yeast. Each Renewables plant processes as much
as 43 million bushels of corn into 110 million to
120 million gallons of ethanol each year. Valero’s
10 plants produced an average of 3.25 million gallons
of ethanol per day in fourth-quarter 2010. Valero buys
corn directly from hundreds of local farmers and
dozens of commercial elevators, and receives it by
truck or rail. On our Web site, we post daily corn bids
for local farmers and cooperative leaders to use in
conducting transactions.
In addition, the product that is left after the ethanol is
produced is a valuable livestock feed called distillers
grains. Distillers grains are high in protein, fat, vitamins
and minerals, making it an excellent feed supplement
for beef and dairy cattle, swine and poultry. Each plant
annually produces up to 390,000 tons of distillers
grains – enough to feed as many as 250,000 head of
cattle. The distillers grains we sell replace about one
half of the corn we buy from the grains market.
The entire kernel of corn is processed, with one bushel
of corn yielding approximately 2.8 gallons of ethanol
and 17 pounds of distillers grains. There are no waste
products generated from the corn processed.
The ethanol is stored on-site and then shipped mostly
by rail in 75- to 100-car trains to large customers –
primarily refiners and gasoline blenders – in markets
such as New York, Chicago, Dallas, Florida and the West
Coast. Valero also uses ethanol for its own needs, in
blending gasoline. We typically have several miles of
railway track on-site to handle the rail cars we use.
Distillers grains are shipped by truck and rail, and
occasionally by barge, primarily to animal-feed
customers locally and across the U.S., Canada and
Mexico. Valero also sends some distillers grains by
bulk-container ships to Asian markets.
rENEwabLEs
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path to EXCELLENCE
Retail
valero retail posted the best first and second quarter results in
valero history.
Valero’s retail segment earned $346 million in 2010,
nearly matching record results of 2008. First and
second quarter results in 2010 were the best ever.
Of total retail operating income for the year, Valero’s
company-owned stores in the U.S. earned $200
million, and Ultramar in Canada added $146 million.
Valero’s U.S. retail operations continued to maintain
strong cash flow despite a challenging economic
environment. It was profitable in every month of
2010, and in 53 of 56 months dating to April 2006.
In all, retail has generated cash flow of
$836 million since 2005 in the U.S. The stores
continued to support local communities in 2010,
with record-breaking charitable campaigns for the
Muscular Dystrophy Association ($1.97 million) and
the Children’s Miracle Network ($1.88 million).
In 2010, inside-sales per store in the U.S. grew
16 rEtaiL
4 percent, and customer counts rose 2 percent.
Despite having 10 fewer stores in 2010, inside gross
profit dollars actually rose by $13.6 million. Valero’s
company-owned stores in the U.S. served 865,000
customers per day.
Fuel profitability improved over 2009, with sales
of 120,000 barrels per day at 994 stores in the U.S.
Average per-store volume was 155,000 gallons per
month, up 2.1 percent from 2009. Fuel gross profit
was $32 million, 11 percent more than the prior year,
with margins at 17.7 cents per gallon versus
16.1 cents per gallon the previous year.
Expense control at our U.S. stores continues to
make a difference. Employee turnover was a record
low in 2010, reducing hiring and training costs.
Store supplies were 7 percent below budget, and
$5 million in cost savings were realized through
Our Ultramar merchandise sales performance was
better-than-market. Sales of cigarettes were up
15.6 percent; slush, up 27 percent; beverage, up
13 percent; wine, up 14 percent; and coffee, up
5 percent. Ultramar also had a strong year in carwash
sales, at $9.1 million, up $1.5 million from 2009.
Our Ultramar network has 252 company-operated
stores, 87 sites representing our new image, and
70 sites with touchless carwashes. We’re looking at
all options to grow our highly successful network,
through acquisitions, dealers, and new builds and
redevelopments.
Our home heat business in 2010 reflected the warmest
winter on record, with volume down slightly to
96.2 gallons, from 106.4 gallons the year before, and
fuel margin down to 53.9 cents per gallon from
51.8 cents per gallon in 2009. However, expenses were
down, and we continue to focus on acquisitions and
growing the business.
From the U.S. to Canada to the Caribbean, our retail
mission is to win every customer, every day.
aggressive sourcing initiatives. There continues to
be a conscious effort to resist supply cost increases
and emphasize “value engineering” in construction
and remodeling projects. Use of social media is
under evaluation as we seek to find low-cost ways
to effectively engage customers directly and better
manage point-of-sale advertising.
Ethanol blending at U.S. stores grew from 68 percent
to 100 percent of volume. E85, a blend of 85 percent
ethanol with 15 percent gasoline that is approved for
“Flex-Fuel” vehicles, was introduced at five stores, with
plans for more at future new locations. Valero also
is exploring the requirements and opportunity for
electric-vehicle charging stations at its stores.
Consumers continue to reward us for investing in
our assets. We spent $68 million in 2010 to build new
stores in the U.S. and remodel others, allowing us
to strengthen our market position and posture for
continued economic recovery. During the year, Valero
completed seven new-to-industry stores, 54 remodels,
nine carwash upgrades and 41 food projects. Our
stores are brighter, cleaner and easier to shop, with
broader offerings especially in our new builds – from
food and refreshments to “super-sized” restrooms.
In Canada, Ultramar retail posted record operating
income, volume, merchandise sales and margins in
2010. Operating income of $146 million represented
an increase of more than 20 percent. Volume rose to
861.5 million gallons, from 849 million the year before.
Merchandise sales increased 8.9 percent to
$239.9 million, and fuel margins grew slightly to
35.5 cents per gallon.
We achieved our lowest ever net operating cost at
company-owned Ultramar locations, of 1.02 cents
per liter at store-level, and 1.76 cents per liter overall.
Return on capital employed reached 44.4 percent,
after tax.
We continued to transform our Ultramar network,
closing 33 sites but opening 21 stores in 2010. We
expect our number of stores to grow in 2011. Ultramar
projects capital expenditures of $35 million in 2011,
with $25 million considered strategic – for four new
stores, eight redevelopments and 11 re-identifications
– and $10 million for sustained operations. We plan to
add 24 dealer sites, mostly in Ontario.
rEtaiL
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path to EXCELLENCE
Our People and Our Communities
investing in our employees and our communities is an investment in
the future.
In 2010, we invested more than $2.2 billion in our
assets – capital projects and improvements that help
us continue to be efficient and reliable. While these
are essential to the success of our company, no
investment is more impactful than those we make in
our employees and the world around us.
Employees at Valero sit at the heart of our
Commitment to Excellence in business. As our most
important asset, employees’ needs are evaluated
at every turn – from competitive pay and benefits
to resources for life and family management.
Continuing education for career development is
encouraged through an in-house, systemwide
learning and education operation, and leadership
opportunities are available to every individual.
Health and wellness are also essential for our
employees, so annual health screenings and
18 our pEopLE aNd our CoMMuNitiEs
access to fitness programs continue to be worthy
investments.
As an industry leader and visible community partner,
Valero embraces the challenge to create measurable
change in the communities where our employees
live and work. Above all, Valero’s goal is to improve lives
through our products and our people. This remains
true regardless of the state of our business – in
strong times or during a weak economy, Valero is
committed to providing consistent, dependable
support to nonprofit organizations and their causes
in our community. Through organized leadership
and strong civic relationships, our volunteer efforts
led to greater stability, educational opportunity and
confidence for the individuals we served in 2010.
Financially, Valero and its employees gave
generously in 2010, pledging $10.6 million to the
United Way and helping nearly 50 United Way
chapters across the United States. In addition, the
Valero Energy Foundation contributed more than
$20 million in 2010 to improve the lives of children,
families and senior citizens living in or near the
communities where Valero has major operations.
supportiNg our CoMMuNitiEs
below is a sampling of agencies and organizations
that received financial support in 2010.
4H Clubs Organizations
American Diabetes Association
American Red Cross
Any baby Can Alliance
benicia Community Action Council
big brothers big Sisters
boy Scouts of America
Child Abuse Prevention Services
Dress for Success
Epilepsy Foundation
Foster a Dream Inc.
Girls Scouts of America
Girls Inc.
Habitat for Humanity
Junior Achievement
Komen Race for the Cure
Leukemia & Lymphoma Society
Memphis Child Advocacy Center
Muscular Dystrophy Association
National Audubon Society
National Kidney Foundation
National MS Society
Pediatric brain Tumor Foundation
Rise School of Corpus Christi Inc.
Santa Rosa Children’s Hospital
Solano County Foster Parents
Special Olympics
Spina bifida Association
Teach for America
Texas City ISD
United Negro College Fund
United Way
Urban Connection
Young Life
YWCA
Valero’s 23 Volunteer Councils, comprised
of employees from every level of operation,
coordinated hundreds of projects in the U.S., Canada
and in Aruba. The efforts generated more than
140,000 volunteer hours, saving the organizations
we served an estimated $3 million in labor and
make-ready costs. This year and every year, the
impact of Valero Volunteers can be felt at every
level of society. Our people enjoy the gift of service,
and we support them every chance we get. We
make hope happen through a flood of financial
support, community leadership and outreach for
efforts such as Habitat for Humanity, the Valero Texas
Open benefit for Children Golf Classic, the National
MS Society fundraising bike rides, local area food
banks and the United Way. In a majority of locations,
child- and education-related efforts are part of our
volunteer activity because we deeply believe in the
investment in our nation’s children. In education,
business, government and community leadership,
children hold the keys to a better future.
At our facilities and in the community, we are a
stronger Valero because of our people. The hard
work and dedication of our 20,000 employees across
North America and the Caribbean allowed us as
a company to be nimble in tough times. We cut
costs. We improved operations. Most importantly,
we improved the lives of our neighbors and
communities.
our pEopLE aNd our CoMMuNitiEs
19
our pEopLE
20
20 our pEopLE aNd our CoMMuNitiEs
our CoMMuNitiEs
our pEopLE aNd our CoMMuNitiEs
21
21
our pEopLE
22 our pEopLE aNd our CoMMuNitiEs
our CoMMuNitiEs
our pEopLE aNd our CoMMuNitiEs
23
EXECutivE tEaM:
Bill Klesse
Chairman of the board, CEO
and President
Jean Bernier
Executive Vice
President, Corporate
Communications,
Information Services
& Supply Chain
Management
Kim Bowers
Executive Vice President
and General Counsel
Mike Ciskowski
Executive Vice President
and Chief Financial Officer
Gene Edwards
Executive Vice President
and Chief Development
Officer
Joe Gorder
Executive Vice President
and Chief Commercial
Officer
Gary Arthur Jr.
Senior Vice President-Retail
Marketing
Jay Browning
Senior Vice President-
Corporate Law and
Secretary
Mike Crownover
Senior Vice President-
Human Resources
Jim Gillingham
Senior Vice President-
Alternative Energy and
Project Development
Clay Killinger
Senior Vice President
and Controller
Lane Riggs
Senior Vice President-
Refining Operations
Eric Fisher
Vice President–Investor
and Corporate
Communications
Martin Parrish
Vice President-Crude,
Feedstock Supply
& Trading
Gary Simmons
Vice President-
Optimization, Planning
& Economics
Donna Titzman
Vice President
and Treasurer
board of dirECtors
staNdiNg, LEft to right:
Randall J. Weisenburger
Executive vice president and Chief financial officer of omnicom group, inc.
Dr. Ronald K. Calgaard
Chairman of the ray Ellison grandchildren trust in san antonio, texas; former president of trinity university
in san antonio
Sen. Don Nickles
retired u.s. senator (r-okla.); Chairman and CEo of the Nickles group
Dr. Susan Purcell
director of the Center for hemispheric policy at the university of Miami
Jerry D. Choate
former Chairman of the board and CEo of allstate Corporation
Rayford Wilkins Jr.
CEo-diversified business of at&t
Stephen M. Waters
Managing partner of Compass advisers LLp; Chief Executive of Compass partners European Equity fund
sEatEd, LEft to right:
William R. Klesse
Chairman of the board, CEo and president of valero Energy Corporation
Bob Marbut
former director and Chairman of risCo u.s.
Robert A. Profusek
partner and practice Leader, Mergers and acquisitions, of Jones day
Ruben M. Escobedo
owner of ruben Escobedo & Company
24 board of dirECtors aNd EXECutivE tEaM
stoCkhoLdEr iNforMatioN
annual Meeting
Valero’s annual meeting of stockholders is scheduled to be held at 10 a.m., Thursday, April 28, 2011, at Valero’s corporate
headquarters, located at One Valero Way in San Antonio, Texas. Valero’s 2010 Annual Report on Form10-K and the proxy
statement for the 2011 Annual Meeting of Stockholders can be accessed at www.valero.com (Investor Relations section).
valero Energy Corporation Common stock
Valero’s common stock is listed for trading on the New York Stock Exchange under the ticker symbol “VLO.”
transfer agent and registrar
Computershare Investor Services has been appointed transfer agent, registrar and dividend disbursing agent for Valero’s
common stock. Inquiries with respect to stock accounts and dividends and all requests to transfer certificates should be
addressed to:
Computershare Investor Services
250 Royall Street
Canton, MA 02021
(888) 470-2938
(312) 360-5261
www.computershare.com/contactus
dividend withholding
Under federal income tax law, you are subject to certain penalties, as well as withholding with respect to your dividend
payments, if you have not provided Valero with your correct Social Security number or other taxpayer identification number.
For this reason, any security holder who has not provided a taxpayer identification number should obtain a Form W-9 (Payer’s
Request for Taxpayer Identification Number). To request a Form W-9, please contact Valero’s transfer agent and registrar at the
address shown above.
forward-Looking statements
Certain information provided in this report includes or is based upon estimates, predictions, projections and other “forward-looking statements” (as defined in Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934) that involve various risks and uncertainties. While these forward-looking statements, and any assumptions upon which they are based, are made in good
faith and reflect Valero’s current judgment regarding the direction of its business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions,
or other future performance suggested herein. Certain risks and uncertainties that may affect Valero are detailed from time to time in its SEC reports, including Valero’s most recent Annual Report on Form
10-K. The financial and other information provided in this summary annual report should be read in conjunction with Valero Energy Corporation’s complete Consolidated Financial Statements (including
the notes) and Management’s Discussion and Analysis of Financial Condition and Results of Operations. This and other information about Valero is contained in Valero’s Notice of the 2011 Annual Meeting of
Stockholders Proxy Statement and Form 10-K for the year ended December 31, 2010. This document is provided to all stockholders of record as of March 1, 2011. In addition, persons may request, without
charge, a Form 10-K by writing or calling Valero’s Investor Relations Department. Valero’s 2010 Annual Report on Form 10-K and the Proxy Statement also may be accessed at www.valero.com.
please visit www.valero.com to learn more about our company.
CoNtaCt iNforMatioN
VALERO CORPORATE
HEADQUARTERS
One Valero Way
San Antonio, TX 78249-1616
(210) 345-2000
WEB SITE
www.valero.com
INVESTOR INQUIRIES
Investor Relations Department
P.O. Box 696000
San Antonio, TX 78269-6000
(800) 531-7911 or (210) 345-2198
(210) 345-2103 (fax)
investorrelations@valero.com
MEDIA INQUIRIES
Media Relations Department
P.O. Box 696000
San Antonio, TX 78269-6000
(800) 531-7911 or (210) 345-2928
(210) 345-2103 (fax)
corporatecommunications@valero.com
stoCkhoLdEr iNforMatioN
25
valero Energy Corporation
one valero way
san antonio, texas 78249
www.valero.com