UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
ANNUAL REPORT PURSUANT TO SECTION 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
Commission File Number 1-13175
VALERO ENERGY CORPORATION THRIFT PLAN
VALERO ENERGY CORPORATION
One Valero Place
San Antonio, Texas 78212
VALERO ENERGY CORPORATION THRIFT PLAN
Index
Page
----
Reports of Independent Auditors............................................. 3
Statements of Net Assets Available for
Benefits as of December 31, 2001 and 2000............................... 5
Statements of Changes in Net Assets Available
for Benefits for the Years Ended December 31, 2001 and 2000............. 6
Notes to Financial Statements............................................... 7
Schedule H, Line 4i - Schedule of Assets (Held at End of Year)
as of December 31, 2001................................................. 17
Signature................................................................... 18
Consent of Independent Auditors............................................. 19
Notice Regarding Consent of Arthur Andersen LLP............................. 20
2
REPORT OF INDEPENDENT AUDITORS
To the Administrative Committee of the
Valero Energy Corporation Thrift Plan
We have audited the accompanying statement of net assets available for benefits
of Valero Energy Corporation Thrift Plan as of December 31, 2001 and the related
statement of changes in net assets available for benefits for the year then
ended. These financial statements are the responsibility of the Plan's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan as of
December 31, 2001 and the changes in its net assets available for benefits for
the year then ended, in conformity with accounting principles generally accepted
in the United States.
Our audit was performed for the purpose of forming an opinion on the 2001
financial statements taken as a whole. The accompanying supplemental schedule of
assets (held at end of year) as of December 31, 2001 is presented for purposes
of additional analysis and is not a required part of the financial statements
but is supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. This supplemental schedule is the responsibility of the
Plan's management. The supplemental schedule has been subjected to the auditing
procedures applied in our audit of the financial statements and, in our opinion,
is fairly stated in all material respects in relation to the financial
statements taken as a whole.
/s/ ERNST & YOUNG LLP
San Antonio, Texas
June 26, 2002
3
THIS IS A COPY OF THE AUDIT REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP IN
CONNECTION WITH THE VALERO ENERGY CORPORATION THRIFT PLAN'S FILING ON FORM 11-K
FOR THE YEAR ENDED DECEMBER 31, 2000. THIS AUDIT REPORT HAS NOT BEEN REISSUED BY
ARTHUR ANDERSEN LLP IN CONNECTION WITH THIS FILING ON FORM 11-K. SEE EXHIBIT
23.2 FOR FURTHER DISCUSSION.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Administrative Committee of the
Valero Energy Corporation Thrift Plan:
We have audited the accompanying statements of net assets available for plan
benefits of the Valero Energy Corporation Thrift Plan as of December 31, 2000
and 1999, and the related statement of changes in net assets available for plan
benefits for the year ended December 31, 2000. These financial statements and
the supplemental schedule referred to below are the responsibility of the Thrift
Plan's administrative committee. Our responsibility is to express an opinion on
these financial statements and supplemental schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for plan benefits of the Valero
Energy Corporation Thrift Plan as of December 31, 2000 and 1999, and the changes
in its net assets available for plan benefits for the year ended December 31,
2000, in conformity with accounting principles generally accepted in the United
States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of assets (held
at end of year) as of December 31, 2000, is presented for purposes of additional
analysis and is not a required part of the basic financial statements but is
supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. The supplemental schedule has been subjected to the
auditing procedures applied in the audits of the basic financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
San Antonio, Texas
June 26, 2001
4
VALERO ENERGY CORPORATION THRIFT PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
December 31,
------------
2001 2000
---- ----
Assets:
Investments...................................... $ 306,397,925 $ 274,368,874
----------- -----------
Receivables:
Interest and dividends....................... 89,936 21,528
Due from brokers for securities sold......... 51,971 870,324
----------- -----------
141,907 891,852
----------- -----------
Cash............................................. 3,247 15,921
----------- -----------
Net assets available for benefits................ $ 306,543,079 $ 275,276,647
=========== ===========
See Notes to Financial Statements.
5
VALERO ENERGY CORPORATION THRIFT PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
Years Ended December 31,
------------------------
2001 2000
---- ----
Additions to net assets:
Investment income:
Interest income...................... $ 3,078,480 $ 2,595,567
Dividend income...................... 3,199,261 9,536,475
----------- -----------
6,277,741 12,132,042
----------- -----------
Contributions:
Employee ............................ 24,912,366 21,364,745
Employer ............................ 13,364,333 8,119,871
----------- -----------
38,276,699 29,484,616
----------- -----------
Asset transfers in from other plans:
El Paso employee savings plan......... 6,557,174 -
Huntway 401(k) plan................... 5,704,024 -
ExxonMobil employee savings plan...... 37,709 13,651,000
----------- -----------
12,298,907 13,651,000
----------- -----------
Total additions...................... 56,853,347 55,267,658
----------- -----------
Deductions from net assets:
Withdrawals by participants.............. 13,392,586 19,545,149
Administrative expenses.................. 106,931 162,245
----------- -----------
Total deductions..................... 13,499,517 19,707,394
----------- -----------
Net appreciation (depreciation) in fair
value of investments................. (12,087,398) 11,208,332
----------- -----------
Net increase in net assets available
for benefits......................... 31,266,432 46,768,596
Net assets available for benefits:
Beginning of year.................... 275,276,647 228,508,051
----------- -----------
End of year.......................... $ 306,543,079 $ 275,276,647
=========== ===========
See Notes to Financial Statements.
6
VALERO ENERGY CORPORATION THRIFT PLAN
NOTES TO FINANCIAL STATEMENTS
1. Description of the Plan
As used in this report, the term "Valero" may refer, depending upon the context,
to Valero Energy Corporation, one or more of its consolidated subsidiaries, or
all of them taken as a whole.
Valero Energy Corporation is a publicly held refining and marketing company with
over 22,000 employees. Valero owns and operates 12 refineries in the United
States and Canada with a combined throughput capacity of approximately 1.9
million barrels per day. Valero markets its refined products through a network
of approximately 4,600 retail outlets in the United States and eastern Canada
under various brand names including Diamond Shamrock (R), Ultramar (R), Valero
(R), Beacon (R) and Total (R). In addition, Valero owns a pipeline and terminal
operation that complements its refining and marketing operations in the Texas
Gulf Coast and Mid-Continent regions of the United States. Valero owns 73.6% of
Valero L.P., a master limited partnership that owns and operates crude oil
pipelines, refined product pipelines and refined product terminals in Texas,
Oklahoma, New Mexico and Colorado.
Valero's common stock trades on the New York Stock Exchange under the symbol
"VLO" and Valero L.P.'s common units also trade on the New York Stock Exchange
under the symbol "VLI."
The following description of the Valero Energy Corporation Thrift Plan (the
Thrift Plan) provides only general information. Participants should refer to the
Thrift Plan document for a complete description of the Thrift Plan's provisions.
General:
The Thrift Plan is a qualified profit-sharing plan covering eligible employees
of Valero in which participants' interests in Valero common stock are registered
under the Securities Act of 1933. The Thrift Plan is subject to the provisions
of the Employee Retirement Income Security Act of 1974 (ERISA).
An administrative committee, consisting of persons selected by Valero,
administers the Thrift Plan. The members of the administrative committee serve
without compensation for services in that capacity. Merrill Lynch Trust Company
of Texas is the trustee under the Thrift Plan and has custody of the securities
and investments of the Thrift Plan through a trust (the Thrift Plan Trust).
Merrill Lynch, Pierce, Fenner & Smith Incorporated is the record keeper for the
Thrift Plan.
Plan Mergers and Acquisitions:
During the second quarter of 2000, Valero completed the acquisition of Exxon
Mobil Corporation's Benicia, California refinery and Exxon-branded California
retail assets (the Benicia Acquisition). Former ExxonMobil refinery and certain
retail employees who became employees of Valero in connection with the Benicia
Acquisition became eligible to participate in the Thrift Plan on May 16, 2000
and June 16, 2000, respectively, under the same service requirements as required
for other Valero employees, with service including prior employment with
ExxonMobil. These employees could elect to transfer their balances from the
ExxonMobil employee savings plan into the Thrift Plan or maintain their balances
in the ExxonMobil plan. Amounts transferred from the ExxonMobil plan into the
Thrift Plan are included in asset transfers in from other plans in the
statements of changes in net assets available for benefits.
7
VALERO ENERGY CORPORATION THRIFT PLAN
NOTES TO FINANCIAL STATEMENTS - (Continued)
Effective June 1, 2001, Valero completed the acquisition of El Paso
Corporation's Corpus Christi, Texas refinery and related product logistics
business. Former El Paso refinery employees who became employees of Valero in
connection with the acquisition began participation in the Thrift Plan on June
1, 2001, while participation dates of former El Paso logistics employees varied
depending on when they became employees of Valero. On the beginning date of
their participation in the Thrift Plan, all former El Paso employees received
credit for eligibility and vesting purposes for all prior service with El Paso.
These employees became eligible to make contributions to the Thrift Plan after
August 1, 2001 and could elect to transfer their balances from the El Paso
employee savings plan or maintain their balances in the El Paso plan. Amounts
transferred from the El Paso plan into the Thrift Plan are included in asset
transfers in from other plans in the statement of changes in net assets
available for benefits for the year ended December 31, 2001.
Also effective June 1, 2001, Valero completed the acquisition of Huntway
Refining Company, a leading supplier of asphalt in California. Former Huntway
employees who became employees of Valero in connection with the acquisition
began participation in the Thrift Plan and were eligible to make contributions
on June 1, 2001, and received credit for eligibility and vesting purposes for
all prior service with Huntway. Effective September 1, 2001, the Huntway 401(k)
plan was merged into the Thrift Plan. The net assets of the Huntway 401(k) plan
are included in asset transfers in from other plans in the statement of changes
in net assets available for benefits for the year ended December 31, 2001.
On December 31, 2001, Valero completed its acquisition of Ultramar Diamond
Shamrock Corporation (UDS). Under the terms of the acquisition agreement, UDS
shareholders (excluding certain UDS benefit plan participants) received, for
each share of UDS common stock they held, at their election, cash, Valero common
stock or a combination of cash and Valero common stock. Based on the exchange
election results, UDS' shareholders electing Valero shares received, for each
share of UDS common stock, 0.9265 shares of Valero common stock and $16.32 in
cash. Shareholders electing cash and non-electing shareholders received $49.47
in cash for each share of UDS common stock. Based on the above, the total
consideration paid by Valero to UDS shareholders included approximately $2.1
billion in cash and approximately 45.9 million shares of Valero common stock.
Valero accounted for the UDS acquisition using the purchase method. See note 9,
"Subsequent Events".
Participation:
Participation in the Thrift Plan is voluntary and is open to Valero employees
who become eligible to participate upon the completion of 30 days of continuous
service. However, retail store employees and former UDS employees are not
eligible to participate in the Thrift Plan as they are eligible to participate
in other plans sponsored by Valero. Employees are eligible to participate in
Valero's employer matching contributions after completion of one year of
continuous service.
Continuous service begins the first day for which an employee is paid and
terminates on the date of the employee's retirement, death or other termination
from service. If an employee's employment is terminated and the employee is
subsequently reemployed within 12 months, the period between the severance from
service and the date of reemployment is generally included in continuous
service. If the employee is not reemployed within 12 months, the employee is
deemed to have incurred a break in service. Former participants who are
reemployed after a break in service are generally eligible to become
participants immediately following reemployment.
8
VALERO ENERGY CORPORATION THRIFT PLAN
NOTES TO FINANCIAL STATEMENTS - (Continued)
Contributions:
Through December 31, 2001, participants could make basic contributions of not
less than 2% or more than 8% of their annual total salary immediately upon
commencement of participation. In addition, participants making a basic
contribution of 8% could also make a supplemental contribution of up to 14% of
their annual total salary. Annual total salary represents a participant's
current base salary including commissions, overtime, job upgrade pay and shift
differential pay, and is not reduced for pretax contributions for the purchase
of benefits and to reimbursement accounts for medical and child care expenses
under Valero's FlexPlan benefits program and pretax contributions under the
Thrift Plan itself. Effective November 1, 2000, the Thrift Plan was amended to
provide that bonuses, which previously had been included in annual total salary,
are now not included in annual total salary unless the participant elects to do
so. Participants may change their basic or supplemental contribution percentages
at any time. In addition, any employee may make rollover contributions.
Participants elect to make contributions to the Thrift Plan on a before-tax
and/or after-tax basis. Federal income taxes on before-tax contributions are
deferred until the time a distribution is made to the participant. The Internal
Revenue Code (the Code) establishes an annual limitation on the amount of
individual pre-tax salary deferral contributions. The limit was $10,500 for the
years ended December 31, 2001 and 2000.
Valero makes an employer contribution to the Thrift Plan equal to 75% of
participants' basic contributions up to 8% of their annual base salary. If
Valero's return on equity for the prior year is equal to or greater than 10%,
then Valero's employer contribution shall equal 100% of the participant's basic
contributions relating to the participant's annual base salary for the 12-month
period beginning February 1 of the calendar year following the year in which the
10% return is achieved. Valero's return on equity for the year ended December
31, 2000 was greater than 10%; therefore, Valero's matching percentage was
increased from 75% to 100% for the 12-month period beginning February 1, 2001.
Forfeitures:
Valero's employer contributions are reduced by any forfeited non-vested accounts
of terminated participants and increased by the value of prior forfeited
non-vested accounts for participants who are rehired within five years from date
of termination. Valero's employer contributions are made in shares of Valero
common stock. For the year ended December 31, 2001 and 2000, employer
contributions were reduced by $130,552 and $33,672, respectively, from forfeited
non-vested accounts. As of December 31, 2001, forfeited non-vested accounts
available to reduce future employer contributions were $63.
Participant Accounts:
Employer contributions are credited to an Employer Account and employee
contributions are credited to an Employee Account maintained under the Thrift
Plan for each participant. The Employer and Employee Accounts are adjusted to
reflect all contributions, withdrawals, income, expenses, gains and losses
attributable to these accounts. Employer contributions are allocated to each
participant's Employer Account in the proportion that a participant's basic
contribution attributable to their annual base salary bears to the total of
comparable basic contributions for all participants.
9
VALERO ENERGY CORPORATION THRIFT PLAN
NOTES TO FINANCIAL STATEMENTS - (Continued)
Vesting:
Participants are vested 100% in their Employee Account at all times.
Participants vest in their Employer Account at the rate of 20% per year with
100% vesting after the fifth year of continuous service.
The Thrift Plan provides that if an employee incurs a break in service prior to
becoming vested in any part of their Employer Account, the employee's prior
continuous service will not be disregarded for purposes of the Thrift Plan until
the break in service equals or exceeds the greater of five years or the period
of prior continuous service. Upon a participant's termination of employment for
other than death, total and permanent disability or retirement, the non-vested
portion of the participant's Employer Account is forfeited. In the event the
participant is reemployed prior to incurring a break in service of five
successive years, any amounts forfeited under this provision will be reinstated.
Investment Options:
Participants direct the investment of 100% of their employee contributions and
may transfer existing account balances into any of the funds offered. The funds
offered include the Valero Common Stock Fund, mutual funds, pooled separate
accounts, a common/collective trust and other self-directed investments.
Employer contributions are invested in Valero common stock. For contributions
made after June 1, 2000 and through December 31, 2001, participants could
transfer up to 50% of Valero's employer contribution to any other fund offered.
The remaining 50% could only be invested in the Valero Common Stock Fund and was
non-transferable until the participant reached early retirement age (age 55 and
five years of credited service) or age 59 1/2. Effective January 1, 2002,
employer contributions can be immediately diversified into other funds,
including existing employer contributions.
Withdrawals and Distributions:
Participants may make the following types of withdrawals of all or part of their
respective accounts:
o one withdrawal during any 12-month period from a participant's after-tax
Employee Account and rollover contribution account with no suspension of
future contributions;
o upon completion of five years of participation in the Thrift Plan, one
withdrawal from the participant's after-tax Employee Account and Employer
Account, with a similar withdrawal allowed 36 months after the date of a
previous withdrawal under this provision, with no suspension of future
contributions;
o upon reaching age 59 1/2, one withdrawal during any 12-month period from a
participant's Employee Account and Employer Account;
o upon furnishing proof of financial necessity, one withdrawal during any
12-month period from the participant's Employee Account and the vested
portion of the Employer Account, but, for withdrawals of before-tax
amounts, not to exceed the aggregate amount of the participant's before-tax
contributions.
Upon a participant's death, total and permanent disability or retirement, the
participant, or beneficiary of a deceased participant, is entitled to a
distribution of the entire value of the participant's Employee Account and
Employer Account regardless of whether or not the accounts are fully vested.
Upon a participant's termination for any other reason, the participant is
entitled to a distribution of only the value of their Employee Accounts and the
vested portion of their Employer Account. Distributions resulting from any of
these occurrences may be received in a single sum in whole shares of Valero
common stock and cash, or entirely in cash. Alternatively, a participant or
beneficiary may elect to receive this distribution in the form of equal monthly
installments over a period not exceeding the participant's life expectancy or
the joint life expectancy of the participant and their designated beneficiary.
The amount of this distribution is dependent upon the participant's age at
commencement of the distribution and certain other factors. In addition, when
the value of a distribution to a participant exceeds $5,000, the distribution
may be made prior to the participant attaining age 65 only with the
participant's consent.
10
VALERO ENERGY CORPORATION THRIFT PLAN
NOTES TO FINANCIAL STATEMENTS - (Continued)
Terminated participants may elect to have the Thrift Plan trustee hold their
accounts for distribution to them at a date not later than April 1 of the
calendar year after which they attain age 70 1/2. In this event, terminated
participants continue to share in the earnings and losses of the Thrift Plan
until their accounts are distributed.
Participant Loans:
Participants may borrow, subject to certain limitations, amounts credited to
their Employee Account and the vested portion of their Employer Account. The
minimum loan amount is $500. The maximum loan amount a participant may have
outstanding is restricted to the lesser of:
(a) $50,000, reduced by the excess of (i) the highest outstanding balance of
the participant's loans during a one-year period over (ii) the
participant's then currently outstanding loan balance on the day any new
loan is made, or
(b) one-half of the current value of the participant's vested interest in their
Thrift Plan account.
The term of any loan may not exceed five years unless the loan is for the
purchase of a participant's principal residence, in which case, the term of the
loan may not exceed 15 years. The balance of the participant's Employee Account
and vested portion of his Employer Account serve as security for the loan. Loans
bear interest at a reasonable rate as established by the Administrative
Committee, presently at prime plus 1%. Loan repayments of principal and interest
are made through payroll deductions or as otherwise determined. Participants may
have up to two loans outstanding under the Thrift Plan at any time.
Plan Expenses:
Administrative expenses of the Thrift Plan, including trustee fees and expenses
and other costs, are paid by Valero, or at Valero's option, by the Thrift Plan
Trust. During the years ended December 31, 2001 and 2000, Valero paid $57,044
and $0 of administrative expenses.
2. Summary of Significant Accounting Policies
Basis of Accounting:
The financial statements of the Thrift Plan are prepared on the accrual basis of
accounting in accordance with United States generally accepted accounting
principles.
Use of Estimates:
The preparation of financial statements in conformity with United States
generally accepted accounting principles requires management to make estimates
that affect the amounts reported in the financial statements of assets and
changes therein, and disclosure of contingent assets and liabilities. Actual
results could differ from those estimates.
11
VALERO ENERGY CORPORATION THRIFT PLAN
NOTES TO FINANCIAL STATEMENTS - (Continued)
Valuation of Investments:
The Thrift Plan's investments are stated at fair value except for the investment
contract, which is valued at contract value. Quoted market prices are used to
value investments. Shares of mutual funds are valued at the net asset value of
shares held by the Thrift Plan as of the balance sheet date. The investments in
common/collective trusts are stated at fair value as determined by the issuer of
the fund based on the fair value of the underlying assets. Investments in the
Stable Value Fund are comprised of an investment in an investment contract and a
common/collective trust. Money market funds and employee loans are valued at
cost, which approximates fair value.
Income Recognition:
Purchases and sales of investments are recorded on a trade-date basis. Interest
income is recorded on the accrual basis. Dividends are recorded on the
ex-dividend date.
The net appreciation (depreciation) in fair value of investments consists of net
realized gains and losses and the net unrealized appreciation (depreciation) of
investments.
Withdrawals by Participants:
Withdrawals by participants are recorded when paid.
Risks and Uncertainties:
The Thrift Plan's investments, in general, are exposed to various risks, such as
interest rate, credit and overall market volatility risks. Due to the level of
risk associated with certain investment securities, it is reasonably possible
that changes in the values of investment securities will occur in the near term
and that such changes could materially affect participants' account balances and
amounts reflected in the statements of net assets available for benefits.
Reclassifications:
Certain previously reported amounts have been reclassified to conform to the
2001 presentation.
12
VALERO ENERGY CORPORATION THRIFT PLAN
NOTES TO FINANCIAL STATEMENTS - (Continued)
3. Investments
Investments that represent 5% or more of the Thrift Plan's net assets are as
follows:
December 31,
------------
2001 2000
---- ----
Valero common stock:
Nonparticipant-directed.................... $ 32,691,074 $ 28,241,597
Participant-directed....................... 69,342,191 53,409,660
Fidelity Magellan Fund......................... 27,757,031 29,696,046
MetLife investment contract.................... 21,509,350 19,526,004
American Century Ultra Fund.................... 17,542,988 19,759,890
Merrill Lynch Retirement Preservation Trust*... 16,339,232 8,906,879
ExxonMobil common stock**...................... 13,871,542 15,530,589
-----------
* As of December 31, 2000, this investment is less than 5% of the Thrift
Plan's net assets but is shown in this schedule for comparative purposes
only.
** As of December 31, 2001, this investment is less than 5% of the Thrift
Plan's net assets but is shown in this schedule for comparative purposes
only.
During the years ended December 31, 2001 and 2000, the Thrift Plan's investments
(including gains and losses on investments bought and sold, as well as held
during the year) appreciated (depreciated) in value as follows:
Years Ended December 31,
------------------------
2001 2000
---- ----
Common stock................................. $ 3,712,899 $ 33,385,792
Mutual funds................................. (14,149,569) (20,887,658)
Common/collective trusts..................... (1,650,728) (1,290,702)
Pooled separate accounts..................... - 900
---------- ----------
Net appreciation (depreciation) in
fair value of investments............... $(12,087,398) $ 11,208,332
========== ==========
4. Nonparticipant-Directed Investments
Nonparticipant-directed investments include the portion of employer
contributions that is required to be invested in the Valero Common Stock Fund as
discussed in note 1 under Investment Options. Nonparticipant-directed
investments also include forfeited non-vested employer accounts that are
available to reduce future employer contributions. Information about the net
assets and the significant components of the changes in net assets relating to
nonparticipant-directed investments is as follows:
13
VALERO ENERGY CORPORATION THRIFT PLAN
NOTES TO FINANCIAL STATEMENTS - (Continued)
December 31,
------------
2001 2000
---- ----
Net assets:
Valero common stock....................... $ 32,691,074 $ 28,241,597
Pooled separate accounts.................. - 11,144
Due from brokers for securities sold...... - 5,546
---------- ----------
$ 32,691,074 $ 28,258,287
========== ==========
Years Ended December 31,
------------------------
2001 2000
---- ----
Changes in net assets:
Interest income........................... $ 1,015 $ 1,302
Dividend income........................... 272,585 274,171
Net appreciation.......................... 400,642 11,719,828
Contributions............................. 5,920,439 5,572,931
Withdrawals by participants............... (1,260,888) (2,179,333)
Participant loan repayments, net of
loan disbursements and other........... (12,022) 118,889
Transfers to participant-directed
investments........................... (888,984) (3,857,948)
---------- ----------
Net increase in net assets............. 4,432,787 11,649,840
Net assets as of beginning of year.......... 28,258,287 16,608,447
---------- ----------
Net assets as of end of year................ $ 32,691,074 $ 28,258,287
========== ==========
5. Party in Interest Transactions
Certain Thrift Plan investments are shares of Valero common stock, and
collective trusts and mutual funds that are managed by Merrill Lynch.
Transactions in these investments qualify as party in interest transactions.
6. Plan Termination
Although it has not expressed any intent to do so, Valero has the right under
the Thrift Plan to discontinue its contributions at any time and to terminate
the Thrift Plan subject to the provisions of ERISA. In the event of any
termination of the Thrift Plan or complete discontinuance of employer
contributions, participants would become 100% vested in their Employer Account.
7. Tax Status
The Internal Revenue Service has determined and informed Valero by a letter
dated April 21, 2002, that the Thrift Plan is designed in accordance with
applicable sections of the Code. Although the Thrift Plan has been amended since
receiving the determination letter, the Thrift Plan administrator believes that
the Thrift Plan is designed and is currently being operated in compliance with
the applicable requirements of the Code.
14
8. Reconciliation of Financial Statements to Form 5500
The following is a reconciliation of net assets available for benefits per the
financial statements to the Form 5500 Annual Return/Report of Employee Benefit
Plan:
December 31,
------------
2001 2000
---- ----
Net assets available for benefits per the financial statements......... $ 306,543,079 $ 275,276,647
Amounts allocated to withdrawing participants ..................... (2,666) -
----------- -----------
Net assets available for benefits per the Form 5500 ................... $ 306,540,413 $ 275,276,647
=========== ===========
The following is a reconciliation of withdrawals by participants per the
financial statements to the Form 5500 Annual Return/Report of Employee Benefit
Plan:
Years Ended December 31,
------------------------
2001 2000
---- ----
Withdrawals by participants per the financial statements .............. $ 13,392,586 $ 19,545,149
Add: Amounts allocated to withdrawing participants
as of end of year ............................................ 2,666 -
Less: Amounts allocated to withdrawing participants
as of beginning of year ....................................... - (96,169)
---------- ----------
Benefits paid to participants per the Form 5500 ....................... $ 13,395,252 $ 19,448,980
========== ==========
9. Subsequent Events
Effective January 1, 2002, the Thrift Plan was amended as follows:
o employees covered by a collective bargaining agreement (unless such
benefits have been specifically bargained for) and UDS Eligible Group
Employees, as defined in the plan document, are ineligible to participate;
o cash bonuses are included in participants' annual total salary;
o participants can authorize contributions up to 30% of eligible
compensation;
o employer contributions will equal 75% of employee contributions up to 8% of
eligible compensation; however, for employee contributions for payroll
periods beginning on or after January 1, 2002 and beginning before February
1, 2002, the employer contribution will equal 100%; and
o employer contributions can be immediately diversified into other funds,
including existing employer contributions.
Effective March 1, 2002, withdrawals previously available once during a 12-month
period are now available for withdrawal once every six months.
Effective April 1, 2002, UDS non-store employees, as defined in the plan
document, are eligible to participate and to make contributions to the Thrift
Plan and will receive credit for eligibility and vesting purposes for all prior
service with UDS.
15
VALERO ENERGY CORPORATION THRIFT PLAN
NOTES TO FINANCIAL STATEMENTS - (Continued)
Effective May 1, 2002, the portion of the UDS 401(k) Retirement Savings Plan
(now renamed the Valero Savings Plan) related to UDS non-store employees was
merged into the Thrift Plan. The assets transferred from the UDS 401(k)
Retirement Savings Plan to the Thrift Plan totaled approximately $153.0 million.
16
SCHEDULE H, Line 4i
VALERO ENERGY CORPORATION THRIFT PLAN
EIN: 74-1828067
Plan No. 002
Schedule of Assets (Held At End of Year)
As of December 31, 2001
Current
Identity of Issue/Description of Investment Cost** Value
------------------------------------------- ------------ -------------
Common stock:
*Valero Energy Corporation:
Nonparticipant-directed..................... $ 22,974,273 $ 32,691,074
Participant-directed........................ 69,342,191
PG&E ......................................... 5,550,533
Citigroup Inc ................................ 5,204,217
-----------
112,788,015
-----------
Stable Value Fund:
MetLife investment contract................. 21,509,350
*Merrill Lynch Retirement
Preservation Trust......................... 16,339,232
-----------
37,848,582
-----------
Common/collective trust:
*Merrill Lynch Equity Index Trust............. 12,886,267
-----------
Mutual funds:
Fidelity Magellan Fund...................... 27,757,031
American Century Ultra Fund................. 17,542,988
American EuroPacific Growth Fund............ 11,916,447
MFS Massachusetts Investors Growth Fund..... 10,624,834
*Merrill Lynch Global Allocation Fund ........ 5,828,681
*Merrill Lynch Basic Value Fund............... 6,029,771
Fidelity Equity-Income Fund................. 2,994,383
Fidelity Blue Chip Growth Fund.............. 1,789,441
AIM Income Fund............................. 1,215,093
Templeton Foreign Fund...................... 1,439,468
*Merrill Lynch Intermediate Corporate Bond
Fund.................... ................. 2,106,004
Fidelity Intermediate Bond Fund............. 134,978
----------
89,379,119
----------
Self-directed account investments............... 40,713,127
*Participant loans (interest rates ranging
from 7% to 11%)............................. 12,782,815
----------
Total Assets (Held at End of Year).......... $ 306,397,925
===========
------------------------------------------------------
* Party in interest to the Thrift Plan.
** Allowed to be omitted for participant-directed investments.
17
SIGNATURE
The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934,
the Administrative Committee has duly caused this annual report to be signed on
its behalf by the undersigned hereunto duly authorized.
VALERO ENERGY CORPORATION THRIFT PLAN
By /s/ John D. Gibbons
-------------------------------------
John D. Gibbons
Chairman, Administrative Committee
and Executive Vice President and
Chief Financial Officer,
Valero Energy Corporation
Date: June 28, 2002
18
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-31727) pertaining to the Thrift Plan of Valero Energy Corporation of
our report dated June 26, 2002, with respect to the financial statements and
schedule of the Valero Energy Corporation Thrift Plan included in this Annual
Report (Form 11-K) for the year ended December 31, 2001.
/s/ ERNST & YOUNG LLP
San Antonio, Texas
June 26, 2002
19
EXHIBIT 23.2
NOTICE REGARDING CONSENT OF ARTHUR ANDERSEN LLP
On June 12, 2002, the Valero Energy Corporation Thrift Plan dismissed Arthur
Andersen LLP as its independent auditors and appointed Ernst & Young LLP to
replace Arthur Andersen LLP as the independent auditor of the Thrift Plan. Prior
to the date of this Form 11-K (which is incorporated by reference into Valero
Energy Corporation's filing on Form S-8 No. 333-31727), the Arthur Andersen
partner responsible for the audit of the most recent audited financial
statements of the Valero Energy Corporation Thrift Plan as of December 31, 2000
and for the year then ended resigned from Arthur Andersen. As a result, after
reasonable efforts, the Plan has been unable to obtain Arthur Andersen's written
consent to the incorporation by reference into Valero Energy Corporation's
filing on Form S-8 No. 333-31727 of its audit report with respect to the Plan's
financial statements as of December 31, 2000 and for the year then ended. Under
these circumstances, Rule 437a under the Securities Act permits the Plan to file
this Form 11-K without a written consent from Arthur Andersen LLP. However, as a
result, Arthur Andersen LLP will not have any liability under Section 11(a) of
the Securities Act for any untrue statements of a material fact contained in the
financial statements audited by Arthur Andersen LLP or any omissions of a
material fact required to be stated therein. Accordingly, you would be unable to
assert a claim against Arthur Andersen LLP under Section 11(a) of the Securities
Act because it has not consented to the incorporation by reference of its
previously issued report into Valero Energy Corporation's filing on Form S-8 No.
333-31727.
20