Valero 2002 Annual Report Download - page 13

11
OPERATIONS
$320 MILLION IN SYNERGIES IN 2002 & $180 MILLION MORE EXPECTED IN 2003
In 2002, Valero became a bigger and better refiner, marketer, neighbor, employer and corporate citizen as a
result of its acquisition of Ultramar Diamond Shamrock Corporation (UDS). To sum it up, Valero became
a bigger and better company.
One of the major reasons for the
success of the UDS acquisition
was the tremendous opportunity
to capture synergies by combining
the two organizations. In fact,
there were so many opportunities
and so much enthusiasm that
Valero employees came up with
2,000 potential synergies and
more than half of those ideas
were implemented.
As a result, Valero realized $235 million in recurring synergies and $85 million in non-recurring synergies.
And that’s not all. In 2003, Valero expects to capture an additional $100 million in recurring and another
$80 million in non-recurring synergies.
Valero was able to achieve these synergies by focusing on everything from best practices, operations and
crude sourcing to product supply, energy savings and procurement. For example:
■With a larger refining system, Valero does not need to maintain as much inventory at each refinery
so the company now manages its inventories on a regional basis versus a single refinery basis. As a
result, Valero was able to reduce inventories from 69 million barrels to 54 million barrels by year-end,
which reduced its cash requirements by $450 million.
■Valero also has leveraged its increased size to negotiate more favorable contracts with suppliers.
The company saved more than $11 million by re-negotiating the power contract for its Texas City,
Houston, Three Rivers and Corpus Christi refineries, as well as its pipeline system and retail
operations in East Texas.
Synergies, like these examples, helped bolster Valero’s 2002 earnings, however if refining margins
had been better, the synergies would have been even higher. Going forward, these synergies are
expected to have a much more dramatic impact as refining margins have returned to more normal
levels.
Because of the UDS acquisition, Valero is capturing bigger synergies and
realizing better cost savings and profit improvements than ever before.
GROSS MARGIN SYNERGIES
RECURRING NON-
RECURRING TOTAL
$100 $20 $120
$80 $60 $140
$55 $5 $60
$235
TYPE OF SYNERGY
EXPENSE SYNERGIES
G&A SYNERGIES
OVERALL TOTAL
$85 $320
2002 SYNERGY OVERVIEW
(DOLLARS IN MILLIONS)
Dock at Valero’s
Corpus Christi Refinery
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