and WE’RE ON TOP
of that WORLD
our financial highlights
(Millions of Dollars, Except Per Share Amounts)
Year Ended December 31,
2003
2002
Operating Revenues
Operating Income
Net Income
Earnings Per Common Share-
Assuming Dilution
Total Assets
Stockholders’ Equity
$ 37,969
$ 1,222
$ 622
$ 5.09
$ 15,664
$ 5,735
$ 29,048
$ 471
$ 92
$ 0.83
$ 14,465
$ 4,308
Capital Expenditures and Deferred
Turnaround and Catalyst Costs
$ 1,112
$ 780
VALERO ENERGY CORPORATION • SUMMARY ANNUAL REPORT
In an effort to provide shareholders with more effective communications, Valero Energy
Corporation has adopted a summary annual report format, which provides condensed
financial disclosure. The company’s full financial statements are contained in its Annual
Report on Form 10-K for the year ended December 31, 2003, which is provided to
all shareholders.
letter to the shareholders
Refining — 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 refining 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 refining. 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 profitable 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 five 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 benefit 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.
13
GULF COAST 3-2-1 CRACK SPREAD [1992-2003]
Over $5.00/bbl
29% of time
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.
11
9
7
5
3
1
-1
Over $5.00/bbl
2% of time
Chairman and CEO
Bill Greehey at the
Newly Acquired Valero
Aruba Refinery
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Source: Simmons & Company
3
And, of course, we continued to invest in both the internal and external
expansion of our refining system, which has grown from a single refinery with
170,000 barrels per day (BPD) of capacity in 1997 to a 15-refinery system
with more than 2.4 million BPD of capacity today.
In Texas City, we completed construction of a 45,000-BPD delayed coker
and our timing couldn’t have been better! Coker margins have been well over
$9 per barrel since it went into full service on December 1. Obviously, with
margins like these, we expect the coker will have a significant impact on 2004
earnings as well.
$250
$200
$150
$100
$50
0
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
12/98
12/99
12/00
12/01
12/02
12/03
Valero Energy Corporation
Peer Group
S&P 500
In terms of external expansion, I believe the St. Charles refinery in Louisiana may very well turn out to be one of the
greatest acquisitions in Valero’s history. When you consider the fact that we purchased the St. Charles refinery for
$400 million and the fact that more than $2 billion had been invested in the plant since 1985, we got this highly
complex refinery for only 20 cents-on-the-dollar of its replacement cost.
As part of Valero’s larger system, the plant has benefited from reduced overhead costs, enhanced purchasing leverage
and synergies with Valero’s other Gulf Coast facilities. The plant also has a highly motivated workforce and a bright,
energetic leadership team. As a result, this plant, which we purchased out of bankruptcy, generated approximately
$40 million in operating income in the six months it was part of Valero in 2003. We are currently expanding the
plant, including the crude and coker units, which will increase the plant’s throughput by 30,000 BPD to 245,000
BPD. We expect this refinery will be a big contributor to operating income in 2004 and will pay for itself in less
than three years.
And, while the acquisition of our new 315,000-BPD Aruba refinery actually took place in March of 2004, it was the
result of significant effort in 2003 that we expect will boost our company’s earnings in 2004 and beyond. It is a great
acquisition for Valero because we acquired the refinery for about 15% of its $2.4 billion replacement cost and we
immediately benefited from more than $640 million which has been invested in this refinery over the last five years.
The refinery benefits from processing Maya sour crude oil as one of its main feedstocks, which is currently selling
at a discount of more than $9 per barrel. The refinery is a great fit for our system because it produces a high yield
of intermediate feedstocks, which can be used to back out more costly third party purchases at our other refineries.
And, the acquisition also included highly profitable marine, bunkering and marketing operations.
As you can see, 2003 was a record year with record accomplishments. And, I am proud to say that despite the
tremendous workload that comes with a year of so many accomplishments, we maintained the unique culture of
caring and sharing that is the cornerstone of Valero’s ongoing success.
4
Valero and its employees donated a record $7.5 million to United Way and contributed more than 160,000 hours of
volunteer time to improve the communities where we live and work. And, we were proud to once again be selected
as one of the “100 Best Companies to Work for in America” by Fortune Magazine — moving up from number 70
to number 32 on the most recent ranking.
2004 to Top 2003
But as great as the year was, 2004 is shaping up to be even better! Gasoline demand is up 1.7% year-to-date —
fueled by a strong economy and the ever-increasing number of SUV’s on the road. Meanwhile gasoline supplies have
tightened due to increasingly stringent fuel specifications, which reduce the amount of gasoline that can be made
from a barrel of oil and make it more difficult to import gasoline into
the U.S. It is not surprising then, that gasoline margins are at historic
highs. In fact, if you look at the futures market, refined product
margins are currently expected to be 20% better than 2003. And every
$1 improvement in refining margins improves Valero’s earnings by
almost $4 per share.
MARGINS KEEP IMPROVING
$ 4.50
$ 4.00
USGC 3-2-1 Rolling 5-year Average
as of mid-February, 2004 [per barrel]
$4.49
$ 3.50
$3.67
But that’s only the beginning, on top of that, sour crude discounts are
also currently forecast to be at least 20% better than 2003 and every
$1 improvement in the sour crude discount improves our per share
earnings by $2.25. The discounts have widened as many refiners have
turned to sweeter crude oils to meet lower sulfur fuel specifications
— making sour crude oils more surplus. Also, strong world-wide crude oil demand, spurred by a strong global
economy, has increased sour crude oil production, which continues to widen the discount on the sour crude oils
that make up 73% of Valero’s slate.
$2.96
$2.59
$ 2.50
$ 2.00
$ 3.00
’95 - ’99 ’96 - ’00 ’97 - ’01 ’98 - ’02 ’99 - ’03 ’00 - ’04
$3.26
$3.25
In addition, our throughput volumes should be 20% higher than last year. We will have a full year of contributions
from the St. Charles refinery and almost 10 months of contributions from our new Aruba operations. And, we will
have a full year’s benefit from the new coker in Texas City. Given all of these improvements over 2003, we expect
2004 to top 2003 in every way!
The new era for refining is here to stay. And no refiner is better positioned to benefit from it than Valero. We have
grown to be one of the top refining companies in the U.S. and have the most geographically diverse and complex
refining system in North America, complemented by a highly profitable and growing wholesale and retail network
and a major stake in 4,500 miles of crude oil and refined product pipelines as well as product terminals and
crude tanks.
We are in the right business with the right assets, the right products and the right strategy at the right time. And, we
have the best employees in the industry, who really are our number one asset.
We are fortunate to see our old world industry entering a whole new world — and even more fortunate that Valero
is on top of that world. And, that’s why I still say, the best is yet to come!
Chairman of the Board
and Chief Executive Officer
5
world-class refiner & marketer
Valero has good reason to be on top of the world! With the size, scope and quality
of its system, Valero is uniquely positioned to benefit from the new margin
environment that industry experts have been predicting. Over the last seven years,
Valero has grown into a world-class refining and marketing company that’s ranked
#34 among the Fortune 500 and earning annual revenues of $38 billion.
With 15 refineries throughout the U.S. and in Canada and the Caribbean, Valero
has the most geographically diverse refining system among its peers. The company’s
system has a combined throughput capacity of approximately 2.4 million barrels
per day (BPD), and Valero’s U.S. production represents approximately 12% of the
total U.S. refining capacity, making it the nation’s largest independent refiner. As
a result of its size, Valero has the most leverage to refining margins with every $1
improvement in its refining margin improving earnings by almost $4 per share.
Valero’s system is also the most complex among the independent refiners because
the company has stayed true to its strategy of processing the most economical
feedstocks into premium products.
Another reason that Valero is in such a great position is its ownership stake in Valero
L.P., the master limited partnership that owns approximately 4,500 miles of crude
oil and refined product pipelines, as well as refined product terminals and feedstock
storage facilities. In addition to its refining and logistics businesses, Valero is also
one of the nation’s largest retailers with over 4,500 retail and wholesale outlets in
the U.S., Canada and the Caribbean under various brand names.
For all of these reasons and the many advantages featured on the following pages,
Valero expects to top its previous earnings and achievements in the years ahead!
7
top acquisition strategy
Since Valero spun off its natural gas assets and focused on refining and marketing in 1997, the
company has completed a string of very successful acquisitions transforming Valero into the
company that it is today.
Valero has developed a reputation for acquiring quality assets for a fraction of their replacement
value, successfully integrating operations in record time, delivering improved profits, and
working to ensure these acquisitions are accretive to earnings. Valero’s success is due to the
company’s steadfast pursuit of assets that meet its acquisition criteria, including refineries with
capacity in excess of 100,000 BPD, upgrade potential, good supply logistics and synergies with
its existing refining system.
Over the years, Valero has acquired a number of refineries at distressed prices that have proven
to be accretive to earnings. In its largest transaction to date, Valero more than doubled in size
by acquiring Ultramar Diamond Shamrock in record time without any layoffs.
In 2003, Valero had its busiest year in terms of the number of transactions completed. The
company acquired its St. Charles refinery for less than 20 cents-on-the-dollar replacement cost,
and purchased a natural gas liquids storage facility and an idled MTBE plant from Link Energy
– paying only $20 million for $400 million worth of assets. Additionally, the company entered
into a 50/50 joint venture with GulfTerra Energy Partners L.P. to develop a crude oil pipeline
from the Gulf of Mexico to the Gulf Coast, along with other smaller transactions. Then earlier
this year, Valero acquired its Aruba refinery for 15 cents-on-the-dollar replacement cost.
Valero isn’t stopping there either! The company will continue to look for acquisition
opportunities that will fit its criteria and be accretive to earnings.
Joe Gorder, Senior Vice President of Corporate Development, and Mike Ciskowski,
Executive Vice President & Chief Financial Officer, (left to right) helped oversee the
successful acquisition and integration of the St. Charles and Aruba refineries. Valero has
been successful in targeting refineries that can be purchased for a small percentage of
replacement cost, then improving operations and upgrading them to improve profitability.
8
TOTAL ASSETS as of December 31
2003
$15.7
2002
$14.5
2001
$14.4
2000
$4.3
1999
$3.0
in billions of dollars
top refiner
Valero’s expertise in expanding and upgrading its refineries, capturing synergies and improving
operations has made it a world-class refiner.
As a result of capital improvements made since 1996, the company has added approximately 250,000
BPD of throughput capacity – the size of a world-scale refinery. Valero invested $400 million in these
improvements, which is a small price to pay considering that it would cost more than $3 billion to
build a refinery of the same size and complexity today.
Valero also has continued to make investments to increase its refining system’s complexity and
improve gross margin by upgrading heavier, lower-cost feedstocks that are also lower in quality (e.g.
sour crude oil). One example is the delayed coker recently constructed at the Texas City refinery. Not
only did this project increase the throughput capacity and yield of light products, it enabled the plant
to process a heavier, sour crude oil, which is expected to lower the refinery’s feedstock costs by as much
as $1 per barrel.
In addition, Valero has captured significant synergies after every major acquisition by incorporating
these refineries into the company’s multi-refinery system. Over the last two years, Valero has realized
more than $400 million in one-time and recurring synergies from the Ultramar Diamond Shamrock
acquisition. This was a result of focusing on everything from best practices, operating synergies and
crude sourcing to energy savings and procurement. In addition, the recently acquired St. Charles and
Aruba refineries present Valero with an opportunity to capture significant synergies going forward.
Valero clearly has a very profitable refining system because of its focus on refining, the size of its
system, the caliber of its refineries, and the expertise of its employees.
John Hohnholt, Senior Vice President of Technology, Planning & Development, and Rich
Marcogliese, Senior Vice President of Refinery Operations, (left to right) work together to
make strategic investments and operational improvements to Valero’s refineries. Valero has
developed one of the largest and most complex refining systems by upgrading the company’s
plants to process sour crude oil, increasing throughput capacities and improving yields.
10
REFINERY CAPACITIES
Corpus Christi (East & West) 340,000 BPD
Benicia
Aruba
Texas City
St. Charles
315,000 BPD
Wilmington
243,000 BPD
215,000 BPD
Houston
Three Rivers
Krotz Springs
Quebec (Jean Gaulin)
215,000 BPD
Paulsboro
McKee
195,000 BPD
170,000 BPD
Ardmore
Denver
TOTAL: 2,441,000 BPD
175,000 BPD
140,000 BPD
135,000 BPD
98,000 BPD
85,000 BPD
85,000 BPD
30,000 BPD
top geographic diversity
With refineries stretching from Canada to California, Valero has the most geographically diverse
system among the independent refiners. What’s more, the company recently expanded its system to
the Caribbean with its acquisition of the Aruba refinery.
Valero’s tremendous growth over the last few years has enabled the company to reach new markets and
increase its exposure to some of the best refining markets in North America. With a sizeable presence
in four of the five U.S. refining regions, Valero is able to capitalize on the upswings in regional margins
since refining margins don’t always move together. If one region is outperforming another, Valero is
in a position to take advantage of it.
As Valero’s refining footprint has grown, so has its wholesale network, which now has locations from
the East Coast to the West Coast. In addition, Valero’s retail business is a market leader throughout
the Southwest with stores in 11 states. And in Canada, Ultramar is the largest independent gasoline
retailer in Quebec and the Canadian Atlantic provinces.
Without a doubt, Valero’s recent growth has really put the company on the map!
Bill Klesse, Executive Vice President & Chief Operating Officer, oversees a geographically
diverse network of operations stretching from the Jean Gaulin refinery in Quebec to the
U.S. Gulf Coast and West Coast. Valero’s geographic diversity strengthens the company’s
competitive position, while adding stability to its earnings.
12
����������
����������
��������
���������
�������
��������
�����������
��������
���������
����������
�������
�
�������������
������
�����
��������
�������
�����
�����
����������������
������
�����
������
�����������������
�������������������������
���������������������������������������������
��
�������������������
���������������������������
�����������������
�������������������������
������������������������������������������
�����������������������
���������������������������������
Valero L.P.
Valero Energy has a 46% ownership interest in Valero L.P.,
which owns and operates crude oil and refined product
pipelines, refined product terminals and refinery crude oil
tank assets predominantly in Texas, New Mexico, Colorado,
Oklahoma, California and New Jersey. Its pipelines and stor-
age facilities primarily supply eight of Valero Energy’s key
refineries with domestic and foreign crude oil and other feed-
stocks, and these assets deliver refined products to estab-
lished and growing markets in the Mid-Continent, Southwest
and the Texas-Mexico border region of the United States.
��������������������� as of March, 2004
������
����������������
������
�������
������
������������������������������������������������������������
Million Bbls/day (Crude)
����������
����������
���������
�������������
���������
13
top feedstock & product slates
Valero’s feedstock and product slates have helped the company gain a competitive edge over
other refiners.
In fact, Valero has the most complex refining system among the independent refiners with
a complexity rating of 11.6 versus its peer group’s average of 9.2 as ranked by the Nelson
Complexity Scale. That means that Valero’s refineries are able to produce a high percentage
of clean-burning and low-sulfur products from lower-quality crude oils, which sell at a
discount to sweet crude oil.
What’s more, Valero is investing in its refining system to increase its sour crude oil capacity
from about 73% to 78% of total crude capacity. This is important because every $1
improvement in the sour crude discount generally improves Valero’s earnings by about
$2.25 per share!
In addition, Valero has one of the most extensive slates of high-value, clean-burning
products in the industry. Nearly 40% of Valero’s gasoline slate is clean-burning, including
reformulated gasoline, California’s CARB gasoline, boutique fuels and blendstocks. And,
75% of the company’s distillates are low-sulfur diesel and jet fuel. In fact, Valero was one of
the first refiners in the U.S. Southwest and California to introduce ultra low-sulfur diesel
well ahead of the Environmental Protection Agency’s 2006 deadline.
Since Valero entered the refining business in the early ‘80s, the company’s strategy has been
to process the most economical crude oils into premium products. It was the right strategy
then, and as Valero’s earnings show, it’s still the right one!
Bob Beadle, Senior Vice President of Crude & Feedstock Supply & Trading, works
to ensure that Valero’s refineries are running the most economical crude oils and
feedstocks. The company’s strategy of investing in its refineries to enable them
to process sour crude, which sells at a discount to sweet crude, gives Valero an
advantage over its peers.
14
PRODUCT LISTING
Reformulated Gasoline (RFG)
Reformulated Blendstock for Oxygenated Blending (RBOB)
Low-Sulfur Gasoline (less than 30 parts per million) – Atlanta grade
Conventional Gasoline
Premium Grades of Reformulated & Conventional Gasoline
California Air Resources Board (CARB) Phase III Gasoline
CARB Diesel
Customized Clean-Burning Gasoline Blends for Export Markets
Clean-Burning Oxygenates
Gasoline Blendstocks (Alkylate, Raffinate, Naphtha, Reformate)
Low-Sulfur Diesel & Ultra Low-Sulfur Diesel (less than 15 parts per million)
Jet Fuel (Commercial & Military)
Aviation Gasoline
Kerosene
Home Heating Oil & Stove Oil
Petrochemicals (Mixed Xylenes, Benzene, Toluene, Chemical–
and Refinery-Grade Propylene and Pseudocumene)
Asphalt
Lube Oils (Industrial & Automotive)
Sulfur
Crude Mineral Spirits
Bunker Oils, No. 6 Fuel Oil
Petroleum Coke
Anhydrous Ammonia
Propane
Octene
Low-Sulfur Vacuum Gas Oil
High-Sulfur Vacuum Gas Oil
Iso-Butane
VALERO
MARATHON-ASHLAND
PREMCOR
SUNOCO
TESORO
REFINERY COMPLEXITY COMPARISON
as of December 31, 2003
11.6
10.6
9.4
8.7
8.1
1
3
5
7
9
11
Nelson Complexity Scale
top wholesale & retail strategy
Because of its successful marketing strategy, Valero’s retail and wholesale divisions topped their past
performance by reporting record earnings in 2003.
In retail marketing, Valero has successfully executed its strategy of investing in top-performing stores
and selling or closing marginal sites. To date, about one-third of the network has been re-imaged and
the vast majority of the remaining stores should be completed by 2006. As a result of gains in fuel
and merchandise sales, Valero expects a 15% return on capital employed for these newly re-imaged
locations.
While retail has been working to rationalize its network, wholesale has been aggressively growing its
branded distributor network across the country. In 2003, Valero added more than 600 new branded
sites and re-imaged over 800 new and existing locations. A big part of that expansion included
introducing the Valero brand on the East Coast – giving the company a presence from Bangor,
Maine, to Miami, Florida! With 2,400 branded distributor sites in the network today, Valero is well
on the way to reaching its goal of 5,000 sites by the end of 2007. Because capital costs are relatively
low, Valero can achieve significant growth with minimal capital and expected returns in the range
of 20%.
Also reporting significant growth last year, asphalt marketing sold a record-breaking 22.6 million
barrels. And, the company continued to grow its lubes and petrochemicals business through favorable
partnerships and agreements.
As these results illustrate, the company’s marketing strategy is helping to put Valero’s brands on top!
Gene Edwards, Senior Vice President of Product Supply & Trading and Wholesale
Marketing, and Gary Arthur, Senior Vice President of Retail & Specialty Products
Marketing, (left to right) helped lead wholesale and retail marketing to achieve record
earnings. Valero’s wholesale network grew to 2,400 branded distributor sites, and the retail
division invested in re-imaging stores which resulted in greater profits with fewer stores.
17
����������������������������
���
��������������
���
����������������
.5 1 1.5 2 2.5
��������������������������������������������������������������
�������������������������������������������������������������
������������������������������������������������������������
��������������������������������������������������������������
�
�
top safety & environmental record
With an unwavering commitment to safety and environmental excellence, Valero is a step ahead of
other refiners.
In 2003, Valero achieved the best safety record in the company’s history. Its refining system reduced
the total recordable injury rate from 1.48 to .95, which is twice as good as the three-year industry
average of 2.3. Valero also recorded a lost-time incident rate of .22, which is more than three times
better than the three-year industry average of .7.
Valero has five refineries that have earned Star Site status in OSHA’s Voluntary Protection Program
(VPP). The VPP safety requirements are so demanding and the certification process so complex, that
of the 149 refineries in the U.S., only 16 have achieved this prestigious designation.
A leader in environmental excellence, Valero has spent approximately $700 million on environmental
capital projects during the past two years alone and plans to spend approximately $1.75 billion more
over the next five years. Valero has installed new, state-of-the-art scrubbers at three of its refineries,
with work underway at four others, which will reduce sulfur dioxide emissions by over 93%. The
company has also committed to make environmental upgrades in Aruba, including a new sulfur plant
that will reduce sulfur emissions by 80%.
In addition, the company is currently implementing the latest control technology to improve
combustion efficiency at several refineries, a process that reduces carbon dioxide emissions. By
improving operational reliability and making other improvements, Valero expects to reduce
greenhouse gases by approximately 1.8 million tons per year during the next five years.
Not only do these programs make Valero a better neighbor, they make it a better company!
Under the leadership of President Greg King, Valero’s commitment to the environment and
safety continued to set even higher industry standards. Outpacing many refiners in the
production of clean products, Valero also has more OSHA-certified VPP Star Sites than
any other refiner.
19
top culture
More than ever before, Valero’s commitment to giving back to others made a difference
in communities all across North America last year. Whether donating time to build a
playground, hosting Christmas dinners for low-income citizens or contributing to United
Way, Valero employees went above and beyond to help others.
In fact, Valero employees donated a record amount of time and money to good causes in
all of the company’s communities. Valero and its employees supported the United Way like
never before, donating $7.5 million -- $1 million more than last year’s record campaign!
Employees also donated an impressive 160,000 volunteer hours to help worthy causes. And,
the Valero Texas Open and Benefit for Children Golf Classic raised an unprecedented $2.8
million for charity, placing the tournament among the top five on the PGA TOUR in terms
of charitable contributions.
In addition, Valero’s retail stores raised more than $915,000 -- a 29 percent increase over
the previous year -- for Children’s Miracle Network and approximately $914,000 for
the Muscular Dystrophy Association. Valero’s caring and sharing spirit is also one of the
key reasons the company is consistently ranked among Fortune Magazine’s “100 Best
Companies to Work For in America.”
Valero’s record of community service has helped make it a good neighbor, which is an
essential part of being a good business. Making a difference in the lives of others has been
the cornerstone of Valero’s past success and is the key to its future success.
Keith Booke, Executive Vice President & Chief Administrative Officer, and Mary Rose Brown,
Senior Vice President of Corporate Communications, help oversee Valero’s award-winning
employee and community relations programs. These initiatives help countless individuals
throughout North America, including young people like Amanda who lives in the “Valero
House” as she transitions from a youth center to independent living.
20
condensed financial information
The financial information presented on pages 23-27 of this summary annual report should
be read in conjunction with Valero Energy Corporation’s complete Consolidated Financial
Statements (including the notes) and Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
This and other information about the Company is contained in Valero’s Proxy Statement
for the 2004 Annual Meeting of Stockholders and Valero’s Form 10-K for the year ended
December 31, 2003. These documents are provided to all shareholders of record as of
March 1, 2004. In addition, anyone may request, without charge, a Form 10-K by writing or
calling Valero’s Investor Relations Department. Address and contact information can be found
on the inside back cover of this report. Valero’s 2003 Annual Report on Form 10-K and the
Proxy Statement also may be accessed via the Company’s website at: www.valero.com.
report of independent auditors
To the Board of Directors and Stockholders
of Valero Energy Corporation and Subsidiaries:
We have audited, in accordance with auditing standards generally accepted in the United
States, the consolidated balance sheets of Valero Energy Corporation and subsidiaries (the
Company) as of December 31, 2003 and 2002, and the related consolidated statements of
income, stockholders’ equity, cash flows and comprehensive income for the years then ended,
appearing in the Company’s 2003 Annual Report on Form 10-K (not presented herein). In
our report dated March 11, 2004, also appearing in that Annual Report, we expressed an
unqualified opinion on those consolidated financial statements.
The consolidated financial statements of Valero Energy Corporation and subsidiaries for the
year ended December 31, 2001, also appearing in that Annual Report, were audited by other
auditors who have ceased operations and whose report dated March 5, 2002 expressed an
unqualified opinion on those statements before the revisions described in Notes 21 and 28.
Also, in our report dated March 11, 2004, we expressed an opinion that such reclassification
adjustments made to revise the 2001 financial statements are appropriate and have been
properly applied.
In our opinion, the information set forth in the accompanying condensed consolidated balance
sheets as of December 31, 2003 and 2002, and the related condensed consolidated statements
of income and cash flows for the years then ended are fairly stated, in all material respects, in
relation to the consolidated financial statements from which it has been derived.
Ernst & Young LLP
San Antonio, Texas
March 11, 2004
22
condensed consolidated balance sheets
DECEMBER 31,
ASSETS
Current Assets
Property, Plant and Equipment, Net
Goodwill
Intangible Assets, Deferred Charges
and Other Assets, Net
(millions of dollars)
2003
2002
$
3,817
$
3,536
8,195
2,402
1,250
7,412
2,580
937
TOTAL ASSETS
$
15,664
$
14,465
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
$
3,064
$
3,006
Long-Term Debt and Capital Lease Obligations,
Less Current Portion
Deferred Income Tax Liabilities
Other Long-Term Liabilities
Company-Obligated Preferred
Securities of Subsidiary Trusts
Minority Interest in Valero L.P.
Stockholders’ Equity
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY
4,245
1,605
1,015
—
—
5,735
4,494
1,241
927
373
116
4,308
$
15,664
$
14,465
23
condensed consolidated statements of income
(millions of dollars, except per share amounts)
YEAR ENDED DECEMBER 31,
2003
2002
2001
OPERATING REVENUES
$
37,969
$
29,048
$
14,988
COSTS AND EXPENSES:
Cost of Sales
Refining Operating Expenses
Retail Selling Expenses
Administrative Expenses
Depreciation and Amortization Expense
TOTAL COSTS AND EXPENSES
OPERATING INCOME
EQUITY IN EARNINGS OF VALERO L.P.
OTHER INCOME (EXPENSE), NET
INTEREST AND DEBT EXPENSE, NET
MINORITY INTEREST IN NET INCOME OF
VALERO L.P.
DISTRIBUTIONS ON PREFERRED SECURITIES
OF SUBSIDIARY TRUSTS
INCOME BEFORE INCOME TAX EXPENSE
INCOME TAX EXPENSE
NET INCOME
PREFERRED STOCK DIVIDENDS
NET INCOME APPLICABLE TO
COMMON STOCK
EARNINGS PER COMMON SHARE
Weighted Average Common Shares Outstanding
(in millions)
EARNINGS PER COMMON SHARE —
ASSUMING DILUTION
Weighted Average Common Equivalent Shares
Outstanding (in millions)
DIVIDENDS PER COMMON SHARE
33,587
1,656
694
299
511
36,747
1,222
30
15
( 261 )
( 2 )
( 17 )
987
365
622
5
617
5.37
114.9
5.09
122.0
0.42
$
$
$
$
25,863
1,332
675
258
449
28,577
471
—
9
(286 )
(14 )
(30 )
150
58
92
—
92
0.86
105.8
0.83
110.1
0.40
$
$
$
$
12,745
845
6
153
238
13,987
1,001
—
(5 )
(88 )
—
(13 )
895
331
564
—
564
9.28
60.7
8.83
63.8
0.34
$
$
$
$
24
condensed consolidated statements of cash flows
YEAR ENDED DECEMBER 31,
2003
2002
2001
(millions of dollars)
$
622
$
92
$
564
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities:
Depreciation and Amortization Expense
Deferred Income Tax Expense
Changes in Current Assets,
Current Liabilities & Other, Net
Net Cash Provided by Operating Activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures and Deferred Turnaround
and Catalyst Costs
Exercise of Purchase Options Under Leases
Proceeds from Sale of Assets to Valero L.P.
Proceeds from Disposition of Assets Held for Sale
Payments Related to the Golden Eagle Business
UDS Acquisition, Including Related Advance
Other Acquisitions and Investments
Earn-out Payments in Connection with Acquisitions
Proceeds from Sale of Tesoro Notes
Other, Net
Net Cash Provided by (Used in) Investing Activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Payment to UDS Shareholders
Financing Required to Fund UDS Acquisition, Net
Debt and Capital Lease Borrowings (Repayments), Net
Redemption of Preferred Securities of Subsidiary Trust
Proceeds from Common Stock Offering, Net
Proceeds from Common Unit Issuance by Valero L.P., Net
Cash Distributions to Minority Interest in Valero L.P.
Preferred and Common Stock Dividends
Issuance (Repurchase) of Stock, Net
Net Cash Provided by (Used in) Financing Activities
VALERO L.P.’S CASH BALANCE AS OF THE
DATE THAT VALERO CEASED CONSOLIDATION
EFFECT OF FOREIGN EXCHANGE RATE CHANGES
ON CASH
NET INCREASE (DECREASE) IN CASH AND
TEMPORARY CASH INVESTMENTS
CASH AND TEMPORARY CASH INVESTMENTS
AT BEGINNING OF YEAR
CASH AND TEMPORARY CASH INVESTMENTS
AT END OF YEAR
$
511
287
333
1,753
(1,112 )
( 275 )
380
—
—
—
( 451 )
( 51 )
90
88
(1,331 )
—
—
( 357 )
( 200 )
250
200
( 4 )
( 51 )
26
(136 )
( 336 )
40
( 10 )
379
369
449
2
( 271 )
272
( 780 )
—
—
1,226
(183 )
—
—
(24 )
—
10
249
(2,055 )
—
1,642
—
—
—
(14 )
(42 )
57
(412 )
—
1
110
269
379
$
238
270
(167 )
905
( 536 )
—
—
—
—
( 2,533 )
(184 )
(55 )
—
6
( 3,302 )
—
2,053
697
—
—
—
—
(21 )
(78 )
2,651
—
—
254
15
$
269
25
condensed consolidated five-year financial & statistical review
YEAR ENDED DECEMBER 31,
2003(a)
2002(b)
2001(c)
2000(d)
1999
(millions of dollars, except per share amounts)
OPERATING RESULTS:
Operating Revenues
Operating Income
Net Income
Earnings per Common Share
Earnings per Common Share—
Assuming Dilution
$ 37,969
$ 29,048
$ 14,988
$ 14,671
$ 7,961
$
$
$
$
1,222
622
5.37
5.09
$
$
$
$
471
92
0.86
0.83
$
$
$
$
1,001
564
9.28
8.83
$
$
$
$
611
339
5.79
5.60
$
$
$
$
72
14
0.25
0.25
FINANCIAL POSITION AS OF DECEMBER 31:
Current Assets
$
3,817
$
3,536
$
4,136
$
1,285
$
823
Property, Plant and Equipment, Net
Goodwill
Intangible Assets, Deferred Charges
and Other Assets, Net
Total Assets
Current Liabilities
Long-Term Debt and Capital Lease Obligations,
Less Current Portion
Deferred Income Tax Liabilities
Other Long-Term Liabilities
Company-Obligated Preferred
Securities of Subsidiary Trusts
Minority Interest in Valero L.P.
8,195
2,402
7,412
2,580
7,217
2,211
1,250
937
836
2,677
1,914
—
346
—
242
$ 15,664
$ 14,465
$ 14,400
$
3,064
$
3,006
$
4,753
$
$
4,308
$ 2,979
1,039
$
719
4,245
1,605
1,015
—
—
4,494
1,241
927
373
116
2,805
1,388
763
373
115
1,042
407
120
173
—
786
275
114
—
—
Stockholders’ Equity
5,735
4,308
4,203
1,527
1,085
Total Liabilities and Stockholders’ Equity
$ 15,664
$ 14,465
$ 14,400
$
4,308
$ 2,979
26
YEAR ENDED DECEMBER 31,
2003(a)
2002(b)
2001(c)
2000(d)
1999
COMMON STOCK DATA:
Dividends per Common Share
$
0.42
$
0.40
$
0.34
$
0.32
$
0.32
Number of Shares Outstanding,
End of Year (in thousands)
Number of Registered Shareholders
Total Estimated Beneficial Shareholders
Market Price:
High
Low
CAPITALIZATION RATIOS (NET OF CASH): (e)
Long-Term Debt and Capital Lease Obligations,
including Current Portion, and Short-Term Debt
Stockholders’ Equity and Other
OTHER DATA:
120,266
107,137
104,197
6,564
54,000
7,174
52,000
7,265
50,500
60,838
5,207
14,000
56,067
5,479
11,000
$
$
47.08
32.20
$
$
49.97
23.15
$
$
52.60
31.50
$
$
38.63
18.50
$ 25.31
$ 16.69
40 %
60 %
50 %
50 %
53 %
47 %
40 %
60 %
40 %
60 %
Capital Additions (in millions)
$
976
$
628
$
394
$
195
$
101
Number of Employees (end of year)
19,741
19,878
22,355
3,129
2,511
OPERATING STATISTICS:
Throughput Volumes (mbbls per day)
Throughput Margin per Barrel
Operating Costs per Barrel:
Refining Operating Expenses
Depreciation and Amortization
Total Operating Costs per Barrel
1,835
5.13
2.47
0.63
3.10
$
$
$
1,595
4.02
2.29
0.66
2.95
$
$
$
1,001
6.12
2.31
0.63
2.94
$
$
$
857
5.08
2.18
0.53
2.71
$
$
$
712
2.90
1.83
0.52
2.35
$
$
$
(a)
Includes the operations of the St. Charles Refinery beginning July 1, 2003.
(b)
(c)
(d)
(e)
Includes the operations of UDS beginning January 1, 2002.
Includes the operations of Huntway and the operations related to the El Paso Corpus Christi Refinery and related refined product
logistics business beginning June 1, 2001. The results of operations, operating statistics and cash flow information exclude the
operations of UDS, while the financial position, common stock data, capitalization ratios and employees include the effect of
UDS, which was acquired by Valero on December 31, 2001.
Includes the operations related to the Benicia Refinery and the California distribution assets beginning May 16, 2000 and the
operations related to the California service stations beginning June 16, 2000.
In determining the 2002, 2001 and 2000 ratios, 20% of the outstanding balance of Valero’s company-obligated preferred securities
of subsidiary trust (PEPS Units) issued in 2000 was deemed to be debt. In addition, for the 2002 and 2001 ratios, 50% of the
$200 million company-obligated preferred securities of subsidiary trust assumed in the UDS Acquisition was deemed to be debt,
and in 2001 the payable to UDS shareholders was included as debt.
27
board of directors
pictured left to right
DR. RON CALGAARD serves as Chairman of the Board and Chief
Executive Officer of Austin, Calvert & Flavin, Inc. in San Antonio
and as a director of The Trust Company. Previously, he held the
position of President of Trinity University in San Antonio from
1979 until his retirement in 1999, at which time he was appointed
President Emeritus of the University.
RUBEN ESCOBEDO has had his own certified public accounting
firm, Ruben Escobedo & Company, CPAs, in San Antonio since
its formation in 1977. He also serves as a director of Cullen/Frost
Bankers, Inc.
BILL BRADFORD is the retired Chairman of the Board of Halliburton
Company. Prior to the Halliburton-Dresser merger, he was Chairman
of the Board and Chief Executive Officer of Dresser Industries, Inc.,
and he held various positions in production and management during
his tenure there. Mr. Bradford currently serves as a director of Kerr-
McGee Corporation.
BILL GREEHEY is Chairman of the Board and Chief Executive Officer
of Valero Energy Corporation. He also serves as Chairman of the
Board of the managing partner of Valero L.P., a publicly traded
limited partnership in which Valero Energy Corporation has a
substantial ownership interest.
GLENN BIGGS is President of Biggs & Co., which is engaged in
developmental projects and financial planning, and he serves as
Chairman of the Board of Hester Asset Management Corp. and
Southwestern Bancorp. Previously, he served in leadership positions
with First National Bank and Interfirst Bank, both in San Antonio.
DR. SUSAN KAUFMAN PURCELL serves as Vice President of the Americas
Society in New York and as Vice President of the Council of the
Americas. In addition to these positions, she serves as a director of
The Brazil Fund, Inc., Scudder Global High Income Fund, Inc., The
Korea Fund, Inc. and Scudder New Asia Fund, Inc.
JERRY CHOATE is retired from the Allstate Corporation, where he
served as Chairman of the Board and Chief Executive Officer from
1995 through 1998. Additionally, Mr. Choate currently serves as a
director of Amgen, Inc. and Van Kampen Mutual Funds.
BOB MARBUT is Chairman of the Board and Chief Executive Officer of
SecTecGLOBAL, Inc. and Argyle Communications, Inc. Previously,
he held leadership positions with Hearst-Argyle Television, Inc.,
Argyle Television, Inc., Argyle Television Holding, Inc. and Harte-
Hanks Communications, Inc. He is a director of Tupperware
Corporation and Hearst-Argyle Television, Inc.
28
shareholder information
Valero Corporate Headquarters
P.O. Box 500
San Antonio, TX 78292-0500
(210) 345-2000
Website
www.valero.com
Investor Inquiries
For investor inquiries, please contact:
Investor Relations Department
P.O. Box 500
San Antonio, TX 78292-0500
(800) 531-7911 or (210) 345-2139
(210) 345-2103 (fax)
investorrelations@valero.com
Media Inquiries
For media inquiries, please contact:
Corporate Communications Department
P.O. Box 500
San Antonio, TX 78292-0500
(800) 531-7911 or (210) 345-2314
(210) 345-2327 (fax)
corporatecommunications@valero.com
Printed in the U.S.A.
Annual Meeting
Valero’s annual meeting of stockholders will be held
on Thursday, April 29, 2004, at 10:00 a.m. at Valero’s
offi ce located at One Valero Way (near the Southwest
corner of the intersection of I.H. 10 and Loop 1604
West) in San Antonio, Texas.
Valero Energy Corporation Stock
Valero’s common stock is listed for trading on the New
York Stock Exchange under the ticker symbol “VLO.”
Transfer Agent and Registrar
Computershare Investor Services has been appointed
transfer agent, registrar and dividend disbursing agent
for Valero’s common stock. Inquiries with respect to
stock accounts and dividends and all requests to transfer
certifi cates should be addressed to:
Computershare Investor Services
P.O. Box A3504
Chicago, IL 60690-3504
(888) 470-2938
Dividend Withholding
Under federal income tax law, you are subject to
certain penalties, as well as withholding with respect
to your dividend payments, if you have not provided
Valero with your correct social security number or
other taxpayer identifi cation number. For this reason,
any security holder who has not provided a taxpayer
identifi cation number should obtain a Form W-9
(Payer’s Request for Taxpayer Identifi cation Number).
To request a Form W-9, please contact Valero’s transfer
agent and registrar at the address shown above.
forward-looking statements
Much of the information provided in this report includes or is based upon estimates, predictions,
projections and other “forward-looking statements” (as defi ned in Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934) that involve various risks and uncertainties.
While these forward-looking statements, and any assumptions upon which they are based, are made in good
faith and refl ect Valero’s current judgment regarding the direction of its business, actual results will almost
always vary, sometimes materially, from any estimates, predictions, projections, assumptions, or other future
performance suggested herein. Certain risks and uncertainties that may affect Valero are detailed from time
to time in its SEC reports, including Valero’s most recent Annual Report on Form 10-K. The fi nancial
and other information provided in this summary annual report should be read in conjunction with Valero
Energy Corporation’s complete Consolidated Financial Statements (including the notes) and Management’s
Discussion and Analysis of Financial Condition and Results of Operations. This and other information
about Valero is contained in Valero’s Notice of the 2004 Annual Meeting of Stockholders Proxy Statement
and Form 10-K for the year ended December 31, 2003. This document is provided to all stockholders of
record as of March 1, 2004. In addition, persons may request, without charge, a Form 10-K by writing or
calling Valero’s Investor Relations Department. Valero’s 2003 Annual Report on Form 10-K and the Proxy
Statement also may be accessed via our Internet website at: www.valero.com.
table of contents
fi nancial highlights
letter to shareholders
a world-class refi ner & marketer
1
2
6
condensed fi nancial information 22
board of directors
shareholder information
28
29