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EXHIBIT 99.2
PRO FORMA FINANCIAL INFORMATION
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Unaudited Pro Forma Combined Balance Sheet as of June 30, 2003
Unaudited Pro Forma Combined Statement of Income for the Six Months Ended June 30, 2003
Unaudited Pro Forma Combined Statement of Income for the Year Ended December 31, 2002
Notes to Unaudited Pro Forma Combined Financial Statements
VALERO ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements give effect to
the Orion acquisition as described in Valero's Form 8-K filed on July 15, 2003.
The unaudited pro forma combined balance sheet as of June 30, 2003 is presented
as if the Orion acquisition had occurred on that date. The unaudited pro forma
combined statements of income for the six months ended June 30, 2003 and the
year ended December 31, 2002 assume that the acquisition occurred on January 1,
2002. The Orion acquisition is being accounted for using the purchase method of
accounting, with the purchase price allocated to the assets acquired and
liabilities assumed based on estimated fair values, pending the completion of an
independent appraisal and other evaluations.
The unaudited pro forma combined financial statements should be read in
conjunction with (i) the historical consolidated financial statements of Valero
included in its quarterly report on Form 10-Q for the six months ended June 30,
2003 and its annual report on Form 10-K for the year ended December 31, 2002,
and (ii) the historical consolidated financial statements of Orion Refining
Corporation included in this Form 8-K/A for the six months ended June 30, 2003
and in Valero's Form 8-K/A filed on August 12, 2003 for the year ended December
31, 2002. The unaudited pro forma combined financial statements are not
necessarily indicative of the financial position that would have been obtained
or the financial results that would have occurred if the Orion acquisition had
been consummated on the dates indicated, nor are they necessarily indicative of
the financial position or financial results in the future. The pro forma
adjustments, as described in the Notes to Pro Forma Combined Financial
Statements, are based upon available information and upon certain assumptions
that Valero's management believes are reasonable.
VALERO ENERGY CORPORATION
PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 2003
(IN MILLIONS)
(UNAUDITED)
<Table>
<Caption>
Valero Orion Pro Forma Pro Forma
Historical Historical Adjustments Combined
---------- ---------- ------------- ---------
ASSETS
Current assets:
Cash and temporary cash investments ............................. $ 697.5 $ 14.5 $ (14.5) (a) $ 389.8
(307.7) (b)
Restricted cash ................................................. 28.9 4.6 (4.6) (a) 28.9
Receivables, net ................................................ 1,069.3 4.8 (4.8) (a) 1,069.3
Inventories ..................................................... 1,692.2 144.6 (144.6) (a) 1,846.7
154.5 (b)
Prepaid expenses and other current assets ....................... 76.3 68.0 (68.0) (a) 76.3
--------- ---------- -------- ---------
Total current assets ....................................... 3,564.2 236.5 (389.7) 3,411.0
--------- ---------- -------- ---------
Property, plant and equipment, at cost ............................... 8,641.8 795.1 (795.1) (a) 9,058.3
416.5 (b)
Less: accumulated depreciation ....................................... (1,353.4) (194.2) 194.2 (a) (1,353.4)
--------- ---------- -------- ---------
Property, plant and equipment, net .............................. 7,288.4 600.9 (184.4) 7,704.9
--------- ---------- -------- ---------
Intangible assets, net ............................................... 359.3 -- -- 359.3
Goodwill ............................................................. 2,438.0 -- -- 2,438.0
Investment in Valero L.P. ............................................ 263.1 -- -- 263.1
Deferred charges and other assets, net ............................... 554.9 39.5 (39.5) (a) 554.9
--------- ---------- -------- ---------
Total assets ............................................... $14,467.9 $ 876.9 $ (613.6) $14,731.2
========= ========== ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Liabilities not subject to compromise:
Current liabilities:
Short-term debt and current portion of long-term debt ........... $ 41.0 $ 44.9 $ (44.9) (a) $ 41.0
Accounts payable ................................................ 1,826.1 180.4 (180.4) (a) 1,826.1
Accrued expenses ................................................ 322.2 71.9 (71.9) (a) 328.2
6.0 (b)
Taxes other than income taxes ................................... 318.9 8.8 (8.8) (a) 318.9
Income taxes payable ............................................ 60.3 -- -- 60.3
Current deferred income tax liabilities ......................... 29.7 -- -- 29.7
--------- ---------- -------- ---------
Total current liabilities .................................. 2,598.2 306.0 (300.0) 2,604.2
--------- ---------- -------- ---------
Liabilities subject to compromise .................................... -- 1,247.4 (1,247.4) (a) --
--------- ---------- -------- ---------
Long-term debt, less current portion ................................. 4,433.9 -- -- 4,433.9
--------- ---------- -------- ---------
Deferred income tax liabilities ...................................... 1,362.2 -- -- 1,362.2
--------- ---------- -------- ---------
Other long-term liabilities .......................................... 904.3 -- 28.4 (b) 932.7
--------- ---------- -------- ---------
Company-obligated preferred securities
of subsidiary trusts ............................................ 172.5 -- -- 172.5
--------- ---------- -------- ---------
Stockholders' equity (deficit):
Mandatory convertible preferred stock ........................... -- -- 228.9 (b) 228.9
Common stock .................................................... 1.1 -- -- 1.1
Additional paid-in capital ...................................... 3,678.3 1,709.0 (1,709.0) (a) 3,678.3
Retained earnings (accumulated deficit) ......................... 1,190.2 (2,385.5) 2,385.5 (a) 1,190.2
Treasury stock, at cost ......................................... (9.6) -- -- (9.6)
Accumulated other comprehensive income .......................... 136.8 -- -- 136.8
--------- ---------- -------- ---------
Total stockholders' equity (deficit) ....................... 4,996.8 (676.5) 905.4 5,225.7
--------- ---------- -------- ---------
Total liabilities and stockholders' equity (deficit) ....... $14,467.9 $ 876.9 $ (613.6) $14,731.2
========= ========== ======== =========
</Table>
See notes to pro forma combined financial statements.
VALERO ENERGY CORPORATION
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2003
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<Table>
<Caption>
Valero Orion Pro Forma Pro Forma
Historical Historical Adjustments Combined
---------- ---------- ----------- ----------
Operating revenues ....................................... $ 18,536.9 $ 1,066.7 $ -- $ 19,603.6
---------- ---------- ---------- ----------
Costs and expenses:
Cost of sales and refining operating expenses ....... 17,178.5 1,118.6 -- 18,297.1
Retail selling expenses ............................. 342.9 -- -- 342.9
Administrative expenses ............................. 146.2 17.9 -- 164.1
Depreciation and amortization expense ............... 236.8 18.7 (18.7) (c) 244.3
7.5 (c)
Reorganization expenses .............................. -- 3.3 -- 3.3
---------- ---------- ---------- ----------
Total costs and expenses ......................... 17,904.4 1,158.5 (11.2) 19,051.7
---------- ---------- ---------- ----------
Operating income (loss) .................................. 632.5 (91.8) 11.2 551.9
Equity in earnings of Valero L.P. ........................ 10.7 -- -- 10.7
Other income (expense), net .............................. (5.6) 0.2 (0.2) (d) (5.6)
Interest and debt expense:
Incurred ............................................ (147.5) (74.6) 74.6 (d) (147.5)
Capitalized ......................................... 9.2 0.5 (0.5) (d) 9.2
Minority interest in net income of Valero L.P. ........... (2.4) -- -- (2.4)
Distributions on preferred securities of subsidiary trusts (15.0) -- -- (15.0)
---------- ---------- ---------- ----------
Income (loss) before income tax expense (benefit) ........ 481.9 (165.7) 85.1 401.3
Income tax expense (benefit) ............................. 183.1 -- (30.6) (e) 152.5
---------- ---------- ---------- ----------
Net income (loss) ........................................ $ 298.8 $ (165.7) $ 115.7 $ 248.8
========== ========== ========== ==========
Net income (loss) available to common stockholders:
Net income (loss) ................................... $ 298.8 $ (165.7) $ 115.7 $ 248.8
Dividends on mandatory convertible preferred stock .. -- -- (2.3) (f) (2.3)
---------- ---------- ---------- ----------
Net income (loss) available to common stockholders .. $ 298.8 $ (165.7) $ 113.4 $ 246.5
========== ========== ========== ==========
Earnings per common share ................................ $ 2.69 $ 2.22
Weighted average common shares outstanding .......... 111.0 -- -- 111.0
Earnings per common share
-assuming dilution ...................................... $ 2.59 $ 2.04
Weighted average common equivalent shares
outstanding ........................................ 115.5 -- 6.7 (g) 122.2
Dividends per common share ............................... $ 0.20 $ 0.20
</Table>
See notes to pro forma combined financial statements.
VALERO ENERGY CORPORATION
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2002
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<Table>
<Caption>
Valero Orion Pro Forma Pro Forma
Historical Historical Adjustments Combined
---------- ---------- ----------- ----------
Operating revenues ....................................... $ 26,976.2 $ 1,995.4 $ -- $ 28,971.6
---------- ---------- ---------- ----------
Costs and expenses:
Cost of sales and refining operating expenses ....... 25,126.6 2,072.3 -- 27,198.9
Retail selling expenses ............................. 647.3 -- -- 647.3
Administrative expenses ............................. 282.1 41.2 -- 323.3
Depreciation and amortization expense ............... 449.3 33.1 (33.1) (c) 464.3
15.0 (c)
---------- ---------- ---------- ----------
Total costs and expenses ......................... 26,505.3 2,146.6 (18.1) 28,633.8
---------- ---------- ---------- ----------
Operating income (loss) .................................. 470.9 (151.2) 18.1 337.8
Other income (expense), net .............................. 8.6 0.4 (0.2) (d) 8.8
Interest and debt expense:
Incurred ............................................ (301.9) (137.8) 137.8 (d) (301.9)
Capitalized ......................................... 16.2 2.7 (2.7) (d) 16.2
Minority interest in net income of Valero L.P. ........... (14.1) -- -- (14.1)
Distributions on preferred securities of subsidiary trusts (30.0) -- -- (30.0)
---------- ---------- ---------- ----------
Income (loss) before income tax expense (benefit) ........ 149.7 (285.9) 153.0 16.8
Income tax expense (benefit) ............................. 58.2 -- (54.6) (e) 3.6
---------- ---------- ---------- ----------
Net income (loss) ........................................ $ 91.5 $ (285.9) $ 207.6 $ 13.2
========== ========== ========== ==========
Net income (loss) available to common stockholders:
Net income (loss) ................................... $ 91.5 $ (285.9) $ 207.6 $ 13.2
Dividends on mandatory convertible preferred stock .. -- -- (4.6) (f) (4.6)
---------- ---------- ---------- ----------
Net income (loss) available to common stockholders .. $ 91.5 $ (285.9) $ 203.0 $ 8.6
========== ========== ========== ==========
Earnings per common share ................................ $ 0.86 $ 0.08
Weighted average common shares outstanding .......... 105.8 -- -- 105.8
Earnings per common share
- assuming dilution .................................... $ 0.83 $ 0.08
Weighted average common equivalent shares
outstanding ...................................... 110.1 -- -- (h) 110.1
Dividends per common share ............................... $ 0.40 $ 0.40
</Table>
See notes to pro forma combined financial statements.
VALERO ENERGY CORPORATION
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
(a) To reverse the historical cost of the individual assets and liabilities of
Orion, and the offsetting stockholders' deficit.
(b) To reflect the allocation of the purchase price, including $3.7 million of
transaction costs incurred in the acquisition, to the assets acquired and
liabilities assumed. Valero acquired Orion's refinery assets (consisting of
a single refinery complex) and the hydrocarbon and warehouse inventories at
the refinery, and it assumed certain vendor contracts (no liabilities
related to the vendor contracts that existed as of the acquisition date
were assumed) and certain environmental and regulatory liabilities. The
allocation, as reflected below (in millions), is preliminary and is based
on estimated fair values, pending the completion of an independent
appraisal and other evaluations.
<Table>
Inventories $ 154.5
Refinery property, plant and equipment 416.5
Accrued expenses -
Environmental and regulatory liabilities (5.0)
Other (1.0)
Other long-term liabilities -
Environmental and regulatory liabilities (25.0)
Postretirement benefits (3.4)
--------
Total Purchase Price $ 536.6
========
</Table>
The total purchase price consists of (1) the issuance by Valero of $228.9
million stated value of mandatory convertible preferred stock (net of $21.1
million stated value of mandatory convertible preferred stock held in
escrow pending the satisfaction of possible claims under the purchase
agreement), and (2) cash of $307.7 million. The mandatory convertible
preferred stock has been reflected at its stated value of $25 per share
pending an independent appraisal of its value. Management expects that the
appraisal will reflect a value that is approximately 10% to 15% lower than
the stated value, but such amount is not currently known.
Valero assumed certain environmental and regulatory liabilities including
certain remediation obligations, site restoration costs and certain
liabilities relating to soil and groundwater contamination. The amounts
reflected above for assumed environmental and
regulatory liabilities are estimates based on preliminary information and
studies. Management expects that adjustments to the assumed liabilities are
possible, although such adjustments are not expected to be material.
Management does not expect to allocate any of the purchase price to
identifiable intangible assets. Management believes that customer contracts
have limited value since they are generally short-term in nature, while the
licenses, intellectual property, etc. that were acquired in connection with
the Orion refinery generally were either legally restricted from sale or
transfer or had useful lives similar to the associated assets. The results
of the pending appraisal, however, may reflect a value for certain
identifiable intangible assets, but if so, such amounts are not expected to
be material. Management also does not expect that any goodwill or
non-amortizable intangible assets will be recognized.
(c) To reverse historical depreciation expense and record depreciation expense
over an estimated life of 25 years, 10% salvage value, based on the portion
of the acquisition cost allocated to property, plant and equipment.
(d) To reverse historical interest expense incurred and capitalized by Orion,
as well as interest income earned by Orion.
(e) To reflect the tax effect, based on statutory rates, of the pro forma
pre-tax income adjustments related to the Orion acquisition and to adjust
taxes on Orion's earnings to reflect the effect of Orion's losses on
Valero's consolidated operations rather than the operations of Orion on a
stand-alone basis. The statutory rate utilized for the six months ended
June 30, 2003 and the year ended December 31, 2002 includes federal taxes
at 35% and state taxes based on the statutory Louisiana tax rate of 8% plus
additional state income taxes applicable to certain states that assess
taxes based on income of the consolidated entity.
(f) To record dividends on the 2% mandatory convertible preferred stock.
(g) To reflect the issuance of common stock upon the assumed conversion of the
mandatory convertible preferred stock as of the beginning of the period
presented.
(h) Conversion of the mandatory convertible preferred stock is not assumed
because the effect would be antidilutive.