Valero 2005 Annual Report Download - page 5

VA L E R O E N E R G Y C O R P O R AT I O N 3
It was 25 years ago this month that
the first Valero Energy Corporation annual
report rolled off the presses. The report’s stark
cover didn’t feature a photo, a graphic or even
a logo.
It simply said: “Valero Energy Corporation had
a record year which exceeded all expectations. The
company moved significantly nearer a major goal:
sustained earnings growth from an expanding
operating base.” – 1980 Annual Report
After six tough years of litigation, which led
to the $1.6 billion settlement of 400 lawsuits
against Coastal subsidiary LoVaca Gathering
Company, Valero spun off as a separate pub-
licly traded company from Coastal on Jan. 1,
1980. At the time, it was the largest spin-off
in the history of Corporate America. While we
had great plans and high hopes for the fledgling
company, none of us could ever have envi-
sioned the tremendous growth and success that
Valero would achieve over the next 25 years!
Since the spin-off, our revenues have climbed
from $1.3 billion to $82 billion. Total assets
have jumped from $649 million to $33 billion.
And, along with the growth in our asset base,
our employee count has swelled from 1,594
employees in 1980 to 21,923 today.
Not surprisingly, the company’s business has
changed just as dramatically. Valero has grown
from a regional energy company in the natural
gas industry to become the largest refiner in
North America. Today, our operations have
expanded to include 18 refineries stretching
from the U.S. West Coast to the East Coast
and from Canada to the Caribbean.
Valero has also added 5,000 retail and branded
wholesale sites in 34 U.S. states. And, this
was a big year because Valero signs began dot-
ting the landscape throughout the U.S. as we
launched our nationwide roll-out of the Valero
retail brand!
With our record growth has come record
earnings. Valero has achieved 10 consecutive
quarters of record earnings. 2005 was the best
year in history with net income of $3.6 billion
versus $64 million 25 years ago. What a differ-
ence a quarter-of-a-century can make!
Of course, I am proud to say that our share-
holders have shared in our success. In fact,
total shareholder return is up 480 percent over
the past five years, which compares to a 3 per-
cent increase for the S&P 500 Index for that
same period! And, in 2005 alone, shareholder
value has increased 128 percent compared to
the S&P’s 5 percent increase.
From these record results, it is obvious that
we have had the right strategy. In 1996, we
believed that we were at the bottom of the
refining cycle and that we could purchase refin-
ing assets for pennies-on-the-dollar of replace-
ment costs. We also believed that historically
low refining margins would improve as global
demand continued to grow and as the world-
wide movement toward cleaner fuels tightened
refined product supplies. And, we further
believed that the future would belong to the
refiners that could process low-cost, heavy sour
crude and residual oils that sell at a big dis-
count to easier-to-refine, sweet crude oil.
And, we were right on all counts! In 1997, we
sold our natural gas liquids and pipelines busi-
ness for a record $1.5 billion to PG&E, and
spun off our single refinery in Corpus Christi,
Texas, to our shareholders as the new Valero.
It was a bold move, but one that has paid big
dividends for all our stakeholders -- employees,
communities and shareholders!
We began a series of refinery acquisitions,
many of which were purchased for just 10 to
20 percent of replacement cost. This string of
successful acquisitions culminated in 2005 with
our purchase of Premcor Inc. for $7 billion.
The four Premcor refineries added approxi-
mately 800,000 barrels per day (BPD) of refin-
ing capacity and brought our total throughput
to 3.3 million BPD - making Valero the largest
refining company in North America!
This acquisition not only made us bigger; it
made us better! In 2006, we estimate that we
THE BUSINESS AT HAND
A LETTER TO OUR SHAREHOLDERS
12/00 12/04 12/05
VALERO ENERGY CORPORATION – 480%
PEER GROUP – 66%
S&P 500 – 3%
$0
$100
$200
$300
$400
$500
$600
12/01 12/02 12/03
5-YEAR TOTAL CUMULATIVE
SHAREHOLDER RETURN