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3
letter฀to฀the฀shareholders
Rening฀—฀it฀really฀is฀an฀old฀world฀industry฀in฀a฀whole฀new฀world!฀That฀is฀one฀
of฀the฀primary฀reasons฀for฀Valero’s฀record฀year฀in฀2003฀and฀the฀very฀bright฀future฀
we฀see฀for฀2004฀and฀beyond.
2003฀was฀the฀year฀when฀the฀bullish฀fundamentals฀and฀positive฀long-term฀trends฀that฀we฀have฀been฀
predicting฀for฀the฀last฀several฀years฀came฀together฀in฀a฀big฀way.฀
As฀the฀chart฀at฀the฀bottom฀of฀this฀page฀dramatically฀depicts,฀U.S.฀Gulf฀Coast฀rening฀margins฀were฀
only฀above฀$5฀per฀barrel฀about฀2%฀of฀the฀time฀between฀1992฀and฀1999.฀However,฀since฀2000,฀that฀
margin฀has฀been฀over฀$5฀per฀barrel฀nearly฀30%฀of฀the฀time.฀And,฀as฀you฀can฀see,฀the฀highs฀have฀
been฀much฀higher฀while฀the฀lows฀have฀not฀been฀as฀low฀and฀have฀been฀shorter฀in฀duration.฀
We฀have฀truly฀entered฀a฀new฀era฀in฀rening.฀And,฀as฀a฀result,฀2003฀was฀a฀record฀year฀for฀Valero฀in฀
every฀way!
We฀generated฀a฀record฀$38฀billion฀in฀revenues฀and฀ended฀2003฀with฀per฀share฀earnings฀of฀$5.09฀on฀
record฀net฀income฀of฀$622฀million฀—฀the฀most฀protable฀year฀in฀the฀company’s฀history!
Not฀surprisingly,฀we฀had฀a฀total฀shareholder฀return฀of฀27%฀in฀2003฀alone.฀But฀what฀is฀even฀more฀
impressive฀is฀the฀fact฀that฀our฀shareholders฀have฀received฀a฀131%฀total฀cumulative฀return฀over฀the฀
last฀ve฀years฀compared฀to฀our฀peer฀group’s฀31%฀return฀and฀the฀S&P฀500฀Index’s฀3%฀loss฀over฀that฀
same฀period!
A฀Record฀Year
In฀2003,฀we฀set฀records฀in฀virtually฀every฀area฀of฀our฀business.฀Our฀Canadian฀operations฀had฀the฀
best฀year฀in฀their฀history.฀With฀$390฀million฀in฀operating฀income฀—฀$155฀million฀better฀than฀their฀
previous฀record฀—฀these฀operations฀accounted฀for฀32%฀of฀our฀operating฀income฀for฀the฀year฀and฀
clearly฀demonstrate฀the฀benet฀of฀Valero’s฀geographic฀diversity.
Our฀retail฀division฀also฀had฀a฀record฀year,฀contributing฀approximately฀$115฀million฀in฀operating฀
income.฀What’s฀more,฀we฀achieved฀these฀record฀earnings฀with฀280฀fewer฀sites,฀which฀is฀a฀testament฀
to฀the฀success฀of฀our฀strategy฀of฀investing฀in฀
the฀ sites฀ with฀ potential฀ and฀ divesting฀ the฀
under-performing฀stores.
Our฀wholesale฀business฀had฀a฀record฀year฀as฀
well,฀contributing฀$125฀million฀to฀operating฀
income฀while฀adding฀600฀new฀branded฀sites฀
and฀ re-imaging฀ more฀ than฀ 800฀ locations.฀
With฀ 2,400฀ branded฀ wholesale฀ sites฀ today,฀
we฀ are฀ on฀ track฀ to฀ double฀ our฀ network฀ to฀
5,000฀locations฀by฀the฀end฀of฀2007.
Chairman and CEO
Bill Greehey at the
Newly Acquired Valero
Aruba Renery
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
13
11
9
7
5
3
1
-1
Over $5.00/bbl
2% of time
Over $5.00/bbl
29% of time
GULF COAST 3-2-1 CRACK SPREAD [1992-2003]
Source: Simmons & Company