NO 1
Refiner in North America
1 historic Year Topping Off
25 Years of Achievement
VA L E R O
E N E R G Y C O R P O R A T I O N
2 0 0 5 S u m m a r y A n n u a l R e p o r t
C O N T E N T s
Financial HigHligHts
letter to sHareHolders
tHumbs up For anotHer record Year
Valero Has grown Hand oVer Fist
a Hands-on approacH to operations
Hands down tHe best strategY
Valero’s brand roll-out grabs
national attention
saFetY, reliabilitY & proFitabilitY
go Hand in Hand
emploYees single-HandedlY made Valero
america’s tHird best emploYer
lending a Helping Hand to our
communities
condensed Financial statements
You’Ve got to Hand it to our emploYees
For tHe manY Honors tHeY’Ve earned
board oF directors
tHe nYse Handed out compliments For
marking 25 Years oF success
sHareHolder inFormation
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25 yearS of achieVemenT
Made uS nOrth aM e rica’S nu Mbe r One re fi n er
2 0 0 5 T o T a l S h a r e h o l d e r r e T u r n
VLO 128% S&P 500 5%
f i n a n c i a l h i g h l i g h T S
(Millions of Dollars, Except per Share Amounts)
operating revenues
2005
2004
$ 82,162
$54,619
operating income
$ 5,459
$ 2,979
net income
$ 3,590
$ 1,804
earnings per common share –
assuming dilution
total assets
$ 6.10
$ 3.27
$ 32,728
$19,392
stockholders’ equity
$ 15,050
$ 7,798
capital expenditures and deferred
turnaround and catalyst costs $ 2,574
$ 1,596
S u m m a r y a n n u a l r e p o r T
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, 2005, which is provided to all shareholders.
Bill greehey
c h a i r M a n O f t h e b O a r d
Bill KleSSe
c h i e f e x e c u t i V e O f f i c e r &
V i c e c h a i r M a n O f t h e b O a r d
p ictur e d at the Valero Memphis refinery, one of th e assets purch ase d a s p art o f t he pre mcor acqu isit ion,
which catapulted Valero to be co me the no. 1 refiner in north ame rica.
V a l e r o e n e r g y C o r p o r a t i o n
The BuSineSS aT hand
a Letter t O Our S ha re hOL de rS
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
5-Year tOtaL cuMuLatiVe
SharehOLder return
$600
$500
$400
$300
$200
$100
$0
12/00
12/01
12/02
12/03
12/04
12/05
VALERO ENERGY CORPORATION – 480%
PEER GROUP – 66%
S&P 500 – 3%
V a l e r o e n e r g y C o r p o r a t i o n
[above] Valero’s Port
arthur refinery, part of
the Premcor acquisition,
has a throughput capac-
ity of 295,000 bPd.
will process an additional 250,000 BPD of
medium and heavy sour crude as a result of
the acquisition of the Premcor refineries alone.
This is important when you consider that the
sour crude oil discount reached record levels
in 2005, averaging $15.58 per barrel for Maya
and $6.88 for Arab Light/Medium.
It is not surprising then that the former
Premcor refineries alone contributed $810
million to operating income in the last four
months of 2005, or about 24 percent of our
total operating income for refining during that
time. We now believe the Premcor acquisi-
tion will be 20 percent accretive to earnings in
2006, far surpassing the 14 percent accretion
we estimated at the time we announced the
acquisition.
Even with all of the acquisitions we’ve complet-
ed, Valero has never been in stronger financial
shape. We have a debt-to-capitalization ratio of
only 25 percent, which is even more impressive
when you consider we started 2005 at about
31 percent and took on additional debt with
the Premcor acquisition. That’s a strong testa-
ment to our great financial success in 2005!
Another key factor to our success has been
our ability to upgrade and expand our refin-
ing assets. In addition to the refineries we
have acquired, we have added 533,000 BPD of
refining capacity since we entered the refining
business in 1981, which is the equivalent of
building three grassroots world-scale refiner-
ies! And we don’t just grow our refineries, we
also make them safer, more reliable and more
profitable.
This year alone, capital improvement projects
are expected to add nearly $200 million in
operating income. It is also true that safety and
reliability go hand-in-hand, and I am proud
that out of 149 refineries in the U.S., Valero
V a l e r o e n e r g y C o r p o r a t i o n
has 10 of only 20 OSHA-certified VPP Star
Sites, a designation reserved for the nation’s
premier examples of industrial safety.
At Valero, environmental safety has also been
one of the company’s highest priorities. We
are proud to be the only refiner to ever win
the Governor’s Award for Environmental
Excellence in Texas, and we are proud that we
remain on track to reduce greenhouse gas emis-
sions by nearly two million tons per year by
2008.
So, as we reflect on the last 25 years, we can
see that Valero’s success has been fueled by a
number of factors. Certainly, we have had the
right strategy. Valero’s aggressive acquisition and
capital investment strategy fueled the company’s
record growth as we added much-needed
refining capacity to meet growing consumer
demand. Valero not only acquired refineries
for pennies-on-the-dollar of replacement costs,
but we also invested to make them significantly
more profitable.
And of course, one of
Valero’s biggest advan-
tages has been our
strategy of configuring
our refineries to process
less-expensive heavier,
sour crude oil. That has
enabled us to turn deep
discounts for sour crude
oil into record profits.
But the biggest reason
for our success has been
our unique culture.
At Valero, we really do
treat our employees as
our No. 1 asset. As a
result, our employees do
more for the company,
1998-2002
$1
$5
$3
$4
$2
$6
0
higher highS • higher LOwS
1999-2003
2000-2004
2001-2005
USGC 5-3-2 ProdUCt MarGin
(U.S. Gulf Coast margin calculated with the ratio of five barrels of crude oil vs.
three barrels of gasoline and two barrels of heating oil)
50/50 arab liGht/MediUM SoUr CrUde diSCoUnt
63
61
18
2
more for the communities in which they live
and more for the shareholders. Never was this
more evident than during the back-to-back
hurricanes that we experienced in 2005.
These two storms damaged our refineries in
St. Charles, Louisiana and Port Arthur, Texas,
and threatened five of our other plants along
the Gulf Coast. We vowed to do whatever was
necessary to help our employees and communi-
ties recover.
In response to the company’s outpouring
of support, our St. Charles and Port Arthur
employees worked around the clock and
restarted our refineries in record time during
a time of record refining margins. They
proved yet again that our unique caring and
sharing culture has tangible benefits for our
shareholders.
I served as CEO of Valero and its predeces-
sor for almost 32 years, but I have to say the
response of Valero and our employees during
hurricanes Katrina and Rita this past year was
one of my proudest moments. The wife of
one of our St. Charles employees may have
summed it up best when she wrote to the local
newspaper and said she was proud to be associ-
ated with Valero because we did what FEMA
could not do to assist our employees and the
community in post-hurricane relief efforts.
As you may know, 2005 was also the year I
stepped down as CEO of Valero. It was a very
[left] Valero signs
started popping up
across the U.S. as
part of the roll-out of
the Valero brand.
[below] after
hurricane Katrina,
Valero executives
traveled to the
company’s St.
Charles refinery
to offer support to
employees.
difficult decision for me because I really do love
the Valero employees like family.
But, because the Valero spirit has never been
stronger and the company has never been more
successful, I feel it’s a good time for me to transi-
tion out of my role as CEO and focus on my
position as Chairman. This will give me the
opportunity to continue to be involved in the
strategic direction of Valero as well as employee,
civic and governmental initiatives. And, it will
also give me a little more free time to spend with
my family and to work on some important phil-
anthropic initiatives.
During my tenure as CEO, the company has
achieved record growth and success, but my
proudest achievement has been Valero’s unique
caring and sharing culture. As I always tell our
employees, we won’t be remembered for how
many refineries we acquired or how much share-
holder value we created, however we will be
remembered for the difference we’ve made in the
lives of those who are less fortunate.
As a result of our unique culture, we reached No. 3
– our highest ranking yet – on FORTUNE’s
2006 list of the “100 Best Companies to Work
For”; we earned the Spirit of America award,
United Way’s top national honor, twice; and we
were ranked the third best-performing stock in
2005 by Forbes. It really says a lot about Valero
that we would receive top honors for being a
great employer, a generous corporate citizen and
a top-performing stock. And, it shows that you
really can take care of all stakeholders!
As Chairman, my highest priority will be to pre-
serve our unique culture because it has been the
cornerstone of all our success during the past 25
years and will be the key to our success in the
future.
We are fortunate to have one of the best leader-
ship teams around, and I am happy that Bill
Klesse has assumed the position of CEO and
Vice Chairman of the Board.
As Executive Vice President and COO, Bill did a
great job of overseeing our refining and commer-
cial operations. With 37 years of industry expe-
rience, he has held leadership positions in many
different areas in the refining and marketing
business. I worked closely with Bill for several
years and became confident in his business judg-
ment as well as his commitment to Valero.
I look forward to working with Bill in his new
role as we continue Valero’s tremendous growth
and success in the coming years.
With such a great company and such great
employees, I have no doubt that the best is yet
to come!
Chairman of the Board
V a l e r o e n e r g y C o r p o r a t i o n
ThumBS up
fOr anO t he r re cOrd Y e ar
V a l e r o e n e r g y C o r p o r a t i o n
After 25 years of achievement, 2005
was the best year in Valero history!
Everyone, from the board members and
employees to the company’s business partners,
had a hand in Valero’s success. Thanks to
their hard work and dedication, Valero broke
records in virtually every area of its business:
• Achieving its best stock performance in a
single year, Valero’s total shareholder return
climbed to 128 percent versus the S&P 500
Index’s 5 percent return.
• Net income hit $3.6 billion, or $6.10 per
common share, the highest earnings in
Valero’s 25-year history.
• Revenues jumped to a record $82 billion
and assets reached a new high of $33 billion.
• As a result of the Premcor Inc. acquisition,
throughput capacity reached an unprec-
edented 3.3 million barrels per day (BPD).
• With coast-to-coast operations, the com-
pany’s refining system grew to become the
most geographically diverse of any U.S.
refiner.
• Valero became the nation’s leader in conver-
sion capacity as it can upgrade more low-
quality, less-costly feedstocks into premium
products than its peers.
• Valero also assembled the largest retail/
branded wholesale network in its history
with approximately 5,000 locations in the
U.S., Canada and the Caribbean.
• Valero maintained its dominance as:
o one of the nation’s largest wholesale mar-
keters, selling products through a bulk
and rack marketing network in 40 U.S.
states, Canada and Latin America;
o the largest U.S. producer of petroleum
coke, supplying power generation cus-
tomers and cement manufacturers;
o the second largest U.S. producer of
asphalt, selling to customers in the pav-
ing and roofing industries; and
o one of the nation’s largest producers of
sulfur with sales primarily to agricul-
tural customers.
• Valero earned more Star Sites in OSHA’s
Voluntary Protection Program, which rec-
ognizes the best industrial safety programs,
than any other U.S. refiner. Out of the
nation’s 149 refineries, there are only 20
Star Sites and Valero owns half of them.
• Valero’s commitment to community service
reached new heights, with the company
and its employees contributing approxi-
mately $45 million and 220,000 volunteer
hours to worthy causes.
• Additionally, the company reached No. 3 –
its highest ranking ever – on FORTUNE’s
“100 Best Companies to Work For” list.
With a strong commitment to maintaining
safe, reliable and environmentally sound oper-
ations, building shareholder value and taking
care of its employees and communities, Valero
should continue to hand in great results in the
coming years!
“Valero Energy was the top-performing
stock on the blue-chip list of Standard
& Poor’s 500. Thanks to refinery acqui-
sitions in 2005, Valero became the
largest North American refining com-
pany and is quickly becoming a national
household trade name...”
-- Columnist David Hendricks, San Antonio
Express-News, January 4, 2006
V a l e r o e n e r g y C o r p o r a t i o n
Valero haS groWn
ha nd O V e r f iSt
V a l e r o e n e r g y C o r p o r a t i o n
as part of Valero’s senior
management team, Mike
Ciskowski, executive Vice
President & Chief Financial
officer [left], and Gene
edwards, executive Vice
President - Corporate
development & Strategic
Planning, have helped make
Valero the no. 1 refiner in
north america through
strategic acquisitions and
capital improvements.
“He kind of built a jigsaw puzzle and all of
a sudden it became so clear, I said, ‘My
God, this actually looks a lot better than
many people think.’ ... He was right. He
was absolutely right.”
-- Fadel Gheit, Wall Street analyst quoted
by the Associated Press about the logic of
Bill Greehey’s huge bet on refining,
January 2006
2005 was a capstone to the past eight years
of unprecedented growth and success, as the
Premcor acquisition catapulted Valero to
become the No. 1 refiner in North America.
VaLerO’S riSe tO nO. 1
fr OM 170, 000 bPd tO 3. 3 M iLLi On b P d
Premcor
Inc.
3.3 Million BPD
UDS
Basis
Petroleum
Inc.
170,000 BPD
1996
1997
Houston
Krotz Springs
Texas City
1998
Paulsboro
1999
2000
Benicia
2001
Corpus
Christi
East
&
Huntway
2002
Ardmore
Denver*
McKee
Quebec
Three Rivers
Wilmington
2003
St. Charles
2004
Aruba
2005
Delaware City
Lima
Memphis
Port Arthur
*denver refinery was divested in 2005.
V a l e r o e n e r g y C o r p o r a t i o n
Valero employees have had their
hands full literally and figuratively during the
past eight years.
The company began aggressively acquiring
refining assets in 1997 because Valero leaders
foresaw that the worldwide movement toward
cleaner fuels would tighten refined prod-
uct supplies – making refineries and refined
products significantly more profitable. They
also predicted that the future would belong
to those refiners that could process cheaper,
heavier and more sour feedstocks into pre-
mium products.
As they noted in the company’s 1996 annual
report, “The ability to visualize a changing
future is what separates tomorrow’s success
story from today’s competition.”
That certainly has proven true for Valero!
The company has experienced unprecedented
success because its leaders not only saw this
unique opportunity, they seized it!
Valero has implemented a winning strategy of
acquiring assets for a fraction of their replace-
ment cost and investing in them to improve
operations and enable them to process less
costly feedstocks.
The company’s steadfast pursuit of refineries
that meet its acquisition criteria – capacity in
excess of 100,000 BPD, upgrade potential,
good supply logistics and synergies with its
system – has led to record success.
Valero has gone from one refinery with
170,000 BPD of capacity to 18 plants with
3.3 million BPD of capacity. But the real tes-
tament to its success has been the 10 consecu-
tive quarters that Valero has achieved record
earnings.
refinerY thrOughPut caPacitY
mbpd
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mbpd = barrels per day in thousands
throughput Capacity: Crude and other feedstocks imported into the refinery and processed
in one of the processing units. imported blendstocks are not included.
* Corpus Christi is comprised of two plants.
The former Premcor plants pumped out $810
million in operating income in the last four
months of 2005 alone – about 24 percent of
Valero’s refining segment income during that
period. That was despite the fact that the Port
Arthur refinery was shuttered for nearly three
weeks and ran at reduced rates for another two
weeks as a result of Hurricane Rita.
Similarly, the Aruba and St. Charles refineries,
acquired in 2004 and 2003 respectively, have
been among the best acquisitions in Valero his-
tory. The company implemented smooth tran-
sitions, invested in operational improvements,
captured synergies with other Valero plants,
benefited from higher margins, and improved
profitability. The result: both of these acquisi-
tions paid out within about a year of being
purchased.
Success stories like these have been repeated
time and again at Valero.
“Valero’s fourth fiscal quarter [results]
underscored that the renaissance in
refining--particularly for processors who can
run heavy sour crude or re-refine
residual fuel--is in full bloom.”
-- Tom Kloza, Oil Price Information Service,
February 2005
With its operations well in hand, the company
is in a great position to continue achieving
great success in the coming years.
10 V a l e r o e n e r g y C o r p o r a t i o n
a firST-hand looK
at VaLerO ’S cOaSt-t O-cO aS t
OPerati OnS
Valero 1997
Valero Today
san antonio
corpus christi
quebec
(Jean gaulin)
benicia
mckee
san antonio
Wilmington
ardmore
three rivers
st. charles
krotz springs
port arthur
corpus christi
(east & West)
houston
texas city
paulsboro
delaWare city
lima
memphis
a ru b a
caribbean sea
aruba
In 1997, Valero owned one refinery in Corpus
Christi, Texas. Today, the company is the most
geographically diverse refiner in the U.S. with
operations all over the map!
d
n
e
g
e
l
Retail & Branded
Wholesale Presence
Wholesale
Marketing Presence
Valero Refineries
Cameron Highway
Oil Pipeline Project
(Joint Venture)
Third-Party
Off Shore Platforms
Valero Headquarters
V a l e r o e n e r g y C o r p o r a t i o n 11
a handS-on approach
tO OP e rat iO nS
1 V a l e r o e n e r g y C o r p o r a t i o n
At Valero, employees’ hands-on
approach to operations was borne out of
necessity in the early years, but has proven to
be the key to profitability.
In the early 1980s, Valero employees trans-
formed two small refining units in Corpus
Christi, Texas, into one of the world’s most
technologically advanced and profitable refin-
eries. In their pursuit to build the refinery
of the future, these employees developed an
expertise in configuring units to run residual
fuel oil – the bottom of the barrel after being
processed by less complex refineries – and
produce premium products. They turned what
some called “garbage” into gold.
Since 1997, Valero has pursued this success-
ful strategy on a much larger scale, earning a
reputation for acquiring distressed refineries
at deep discounts and making strategic invest-
ments to improve their profitability.
As Valero has added 17 refineries to its net-
work, it has attracted some of the world’s
leading refining experts in everything from cat
crackers to coke gasification. Not only have
they spread the Valero spirit at newly acquired
refineries – prioritizing safety, mentoring
employees and sharing best practices – but
they have consistently optimized key units to
maximize profitability.
Their charge has been to ensure that Valero’s
immense 3.3 million-BPD refining system
hums along safely, reliably and efficiently day
in and day out. And their passion has been
to improve yields, increase capacity, capture
synergies, reduce operating costs and configure
plants to process deeply discounted feedstocks.
Of course, the ultimate goal of all of these
strategies is to make the company’s refining
system more profitable.
And they’ve succeeded in a big way!
“The company is the ultimate fixer-
upper, transforming ailing refineries
hemorrhaging money into well-run,
highly profitable operations.”
-- CSP Magazine, January 2006
The nation’s leader in conversion capacity,
Valero is able to upgrade more low-quality
feedstocks into higher-value fuels than its
peers. And as a result of capital investments,
the company has added 533,000 BPD of
throughput capacity – the equivalent of build-
ing three world-scale refineries.
Valero employees’ expertise in expanding,
upgrading and improving operations has con-
tributed to the company’s record success in
rich Marcogliese, executive
Vice President – operations
[left], visits with employee
Steve brewer about
improvements being made at
the newly acquired Memphis
refinery. Valero’s strategy of
investing to improve yields,
increase capacity, capture
synergies, reduce operating
costs and process less costly
sour feedstocks is key to its
success.
recent years. In fact, capital projects in 2005
and 2006 are expected to add nearly $200 mil-
lion in operating income this year alone!
Valero has achieved this success by turning
around struggling facilities, like the St. Charles
refinery, which was purchased out of bankrupt-
cy in 2003. After investing time and money
to improve the refinery’s performance in every
area, St. Charles claimed the title of Valero’s
third most profitable refinery in 2005.
There is a similar story at virtually every Valero
refinery. That’s because of the company’s suc-
cessful acquisition strategy, expertise in improv-
ing and upgrading refineries, superior opera-
tional flexibility, synergistic refining system
and focus on safe, reliable and environmentally
sound operations.
But the No. 1 reason for Valero’s success: its
dedicated and hard-working employees know
the refining business like the back of their hands!
a Leader in uPgrading caPacitY
CAT CRACKING
HYDROCRACKING
COKING
MBPD
1600
1400
1200
1000
800
600
400
200
0
VLO XOM
COP
RDS
BP
CVX
MRO
SUN
TSO
Valero’s upgrading capacity, which is the highest in its peer group, provides
superior operational flexibility. note: includes US, Canada & Caribbean
Source: oil & Gas Journal, Company Web Sites
V a l e r o e n e r g y C o r p o r a t i o n 1
handS doWn
the be St St rat e g Y
1 V a l e r o e n e r g y C o r p o r a t i o n
Wade Upton, Senior Vice
President – transportation
Services [left], and bob
beadle, Senior Vice President
– Crude & Feedstock Supply
& trading [center], work
together to secure and
ship the most economical
crude oils and feedstocks
to Valero’s 18 refineries.
Processing deeply discounted
feedstocks was a big advan-
tage in 2005 as discounts
reached record levels.
The discounts for the heavier, sour feedstocks
– which make up over 60 percent of Valero’s
feedstock slate – widened to record levels in
2005 and early 2006.
Recent acquisitions and internal projects have
given Valero even more leverage to these dis-
counts. For example, the company estimates
that it will process an additional 250,000 BPD
of medium and heavy crude in 2006 as a result
of its acquisition of the Port Arthur refinery
alone.
Internal projects like the 2003 construction of
the 45,000-BPD coker at the Valero Texas City
Refinery have strengthened this advantage. The
coker’s original economics were based upon
an historic $6-7 Maya discount (compared to
the benchmark West Texas Intermediate), but
in 2005 that discount actually averaged nearly
$16!
Valero’s bet should continue to pay off as dis-
counts for heavy, sour feedstocks are expected
to stay wide. Because Valero has the most con-
version capacity of any U.S. refiner, this advan-
tage should continue to give the company a
real hand up on the competition!
recOrd diScOuntS
reSiduaL fueL and SOur crude OiL diScOuntS
tO weSt texaS interMediate crude
$20
$18
$16
$14
$12
$10
$8
$6
$4
$2
RESID
MAYA
ARAB LIGHT/MEDIUM
2002
2003
2004
2005
V a l e r o e n e r g y C o r p o r a t i o n 1
Never afraid to take a calculated risk,
Valero executives made a fortuitous bet when
the company entered the refining business
more than 20 years ago.
They predicted that as global oil consump-
tion rose, it would be met with more plentiful
heavy, sour feedstocks. Seeing an opportunity
to gain a competitive advantage, Valero config-
ured its refining system to process these harder-
to-refine feedstocks that sell at a discount to
sweet crude oil.
Over the years, this bet has paid off hand-
somely!
As oil demand has continued to grow, the
incremental demand has been increasingly
met by medium and heavier sour crude oils.
Because of the limited refining capacity capable
of upgrading these crudes, demand hasn’t been
as strong for sour crude oils and as a result,
supplies have been increasingly more plentiful,
resulting in big discounts for complex refiners
like Valero.
At the same time, demand for sweet crude oils
– fueled by the ongoing domestic and global
movement toward cleaner fuels – has been on
the rise. To meet the new low-sulfur specifica-
tions for fuel, many refiners are relying on
sweet crudes, which has further widened the
sweet/sour price differential.
And, of course, these bullish fundamentals
have played right into Valero’s hands!
1998
“With a focus on the harder-to-refine sour
types of crude oil, Valero’s profits are being
boosted by a glut in supplies of sour crude,
which means its feedstock is relatively
cheap…If I had to pick one (to invest in out
of all refiners), given its scale, ambition, and
lower valuation, it would be Valero.”
RESID
MAYA
1999
2003
2004
2005
2000
2001
2002
ARAB LIGHT/MEDIUM
-- BusinessWeek, October 24, 2005
$20
$18
$16
$14
$12
$10
$8
$6
$4
$2
Valero’S Brand roll-ouT
grabS nat iOna L at t e nt iOn
1 V a l e r o e n e r g y C o r p o r a t i o n
When Valero set out to acquire the
Benicia refinery and related retail sites in
northern California in 2000, company leaders
handed down a challenge: create a retail brand
that would look like a major but price like an
independent. In a matter of weeks, the com-
pany’s bold teal-and-yellow design and stylized
“V” insignia were born.
Fast forward to 2005: Valero’s retail and
branded wholesale network had grown to
nearly 5,000 sites sporting a variety of brands.
But the fastest-growing one was Valero, as
teal-and-yellow signs were popping up from
California to the Carolinas. And the Valero
name was taking on national prominence as
the company was poised to become North
America’s largest refiner.
With its heightened brand awareness, its coast-
to-coast operations, and the synergies that
could be realized by moving to one brand, the
timing couldn’t have been better to put the
company name on its premier sites.
Valero signs soon began sprouting up on
highways and byways across America. Positive
reviews followed. Customers loved the bright
colors and distinctive look. One distributor
said, “It seemed like it was a little outside the
norm. But when you actually physically get it
up on the site, it’s beautiful.”
But the most important measure of success:
fuel volumes remained steady at existing
sites converted to Valero and jumped at
new-to-industry and newly remodeled Valero
locations.
“We’ll get phone calls from independent
operators almost begging for the Valero
brand. The Valero name and new color
scheme draw attention.”
-- Brad Smith, Double S Petroleum,
February 2006
With distributors clamoring for the brand, the
wholesale division has kept up a breakneck
pace of expansion. In 2005 alone, it added
over 560 branded wholesale sites, bringing the
network to nearly 3,000 locations.
And wholesale has just gotten started! In
2006, it plans to chart new territory, moving
into the Pacific Northwest and Great Lakes
regions. At the rate it’s growing, wholesale
should handily reach its goal to have 5,000
branded sites by 2008.
a sign of the times: Gary
arthur, Senior Vice President
- retail & Specialty Products
Marketing [left], and Joe
Gorder, executive Vice
President - Marketing &
Supply, watch as a Valero
sign goes up at a diamond
Shamrock store in the midst
of a conversion.
There’s also great potential in Valero’s retail divi-
sion. It has continued to optimize its network
– closing or selling about 440 underperforming
stores to date, pushing ahead with its remodel-
ing program and building ten new-to-industry
stores in 2005 alone.
At the same time, the retail group has worked
to enhance the customer experience and posi-
tion the network for long-term competitiveness.
Just as new signs, lighting and landscaping have
spruced up the stores’ exteriors, the interiors
have received more food selections, exciting soda
fountains and expanded coffee bars.
Retail also has extended its Fresh Choices brand
to bottled water, snacks and soda; introduced a
full line of gift cards; and rolled out new prod-
ucts like DVDs and prepaid mobile phones.
To better supply its locations with the right
products at the right time, Valero has opened
a 132,000-square-foot distribution center to
serve 600 of its
Texas stores. All of
this innovation has
paid off. Retail store
merchandise gross
profits jumped more
than 14 percent in
2005.
And with plans to
complete the Valero
brand roll-out by
mid-2007, Valero is
now poised to ben-
efit handsomely from
its national brand
presence and grow-
ing network!
V a l e r o e n e r g y C o r p o r a t i o n 1
SafeTy, reliaBiliTy & profiTaBiliTy
gO h an d i n han d
1 V a l e r o e n e r g y C o r p o r a t i o n
At Valero, all employees, from top
management to the newest hire, have a hand
in the safety of the company’s operations. Not
only are they committed to safety, they take
ownership of it.
In fact, a group of Texas City employees took
so much ownership that a few years ago they
took the initiative to research and recom-
mend that their refinery participate in OSHA’s
Voluntary Protection Program (VPP). They set
their sights on achieving certification as a VPP
Star Site, a designation reserved only for the
best industrial safety and health programs in
the nation.
Upon hearing about the program, Valero’s top
management not only threw their support
behind the Texas City employees, they chal-
lenged every refinery to pursue Star Site certi-
fication.
And, each one has accepted the challenge.
In the past year alone, Valero has added its
two Corpus Christi plants and its Ardmore
and St. Charles refineries to its stable of certi-
fied facilities, bringing its total to 10 VPP Star
Sites. Earning this designation is so rigorous
that only 20 of the nation’s 149 refineries have
achieved it, and Valero now owns half of them.
“Valero has set a new standard for
safety and health excellence in the
refining industry.”
-- John Miles, OSHA Regional
Administrator, Corpus Christi
VPP Celebration, November 2005
VPP is so effective that it has ushered in a new
era in safety at Valero. It has been a major fac-
tor in the company’s continually improving
safety record, especially in 2005.
Valero’s U.S. refining system had a total
recordable incident rate (TRIR) that improved
to a record low of just .76, which is a 23 per-
cent improvement over its 2004 TRIR, and
53 percent better than the three-year industry
average of 1.6.
Also, eight Valero refineries completed the year
without any employee lost-time injuries, and
six had no contractor lost-time injuries.
Environmental safety is as high a priority at
Valero as the safety of its workers and neigh-
bors. In fact, the company has invested $2.4
billion in environmental projects since 1997.
An additional $1.3 billion in projects to
President Greg King [right]
gets a first-hand look at the
safety programs in place at a
construction site at the Valero
houston refinery. this plant
is one of 10 VPP Star Sites in
the Valero system and one of
only 20 in the nation.
produce cleaner fuels and further reduce emis-
sions at its refineries are planned for this year
alone.
These projects include major investments to
produce clean gasoline and diesel that meet the
EPA’s new fuels standards, which dramatically
lowered the sulfur content in motor fuels. The
company also continues to install the latest
control technology to protect the environ-
ment, such as state-of-the-art scrubber units
that even further reduce emissions to keep the
air clean.
As a result of its efforts to improve efficiency
and operational reliability and invest in the
latest environmental control technology, Valero
estimates it will reduce its greenhouse gas emis-
sions by nearly 2 million tons per year by 2008.
At Valero, environmental excellence, safety and
reliability work hand in hand to make Valero
a better refiner. And that helps make the com-
pany a better investment!
VaLerO’S tOtaL recOrdabLe
incident rate (trir)
.99
.76
VLO U.S.
Refineries
2004
VLO U.S.
Refineries
2005
Valero’s current trir of its u.S. refineries is 53% better than
the 3-year industry average recorded by the national bureau
of Labor Statistics.
Numbers do not include former Premcor refineries since they were not part of Valero in 2004 or for
the full year in 2005.
V a l e r o e n e r g y C o r p o r a t i o n 1
employeeS Single-handedly
Made VaL erO aMe ric a’S t h ird be St e MP L OYe r
0 V a l e r o e n e r g y C o r p o r a t i o n
Gaining an upper hand in business
often requires grace under pressure. And in
2005, the pressure was on as Valero rebound-
ed from two of the nation’s most powerful
storms. In every way imaginable, employees
handily passed the test!
On August 29, 2005, Hurricane Katrina
slammed ashore in Louisiana and passed just
to the east of Valero’s St. Charles refinery.
It caused minor damage at the refinery, but
wreaked havoc on the community.
Valero pledged to do whatever was necessary
to help its employees and the community
recover. It delivered truckloads of supplies;
sent cooks to prepare three meals a day, every
day; and established a town of 47 residential
trailers – dubbed “Valeroville” – to house
workers who returned to help restart the
plant.
Less than 24 hours after Katrina struck, crews
from Valero’s other refineries hit the road
to help restore power and function in St.
Charles.
Bolstered by the outpouring of support, the
St. Charles employees worked night and day
to restart their refinery in record time. While
other refiners were still making repairs, the
Valero St. Charles refinery was already pro-
ducing much-needed fuels. Mission accom-
plished, in just nine days.
Less than a month later, Hurricane Rita
churned over the city of Port Arthur, hob-
bling one of the company’s newest refineries.
Valero Port Arthur suffered flooding across
much of its 5,000 acres, a toppled flare stack
and wind-damaged cooling towers.
But as they had with Katrina, workers
responded immediately. Supplies, food, water
and 69 residential trailers made their way to
Port Arthur even before the rain stopped fall-
ing. Fuel and hot meals were offered to anyone
in need.
“Valero personnel worked around-the-clock
to get much-needed fuel to stranded motor-
ists, Houston hospitals and emergency
response crews. Valero’s efforts were truly
extraordinary during Texas’ time of need.”
-- Victoria Ford, Texas Gov. Rick Perry’s
Deputy Legislative Director,
March 2006
Valero’s newest employees got a crash course in
the company’s unique culture. As a result, they
worked around the clock to restore electricity
to the plant before many areas of the city even
had power. Then, they repaired and restarted
their plant safely and quickly in true Valero
fashion.
Months later, Valero was still providing relief.
Nearly $1.2 million in grants from its Support
Aid for Family Emergencies Fund, which does
not require repayment, was handed out to
employees who suffered damage.
Inspired by Valero’s $1 million donation to the
American Red Cross, employees donated nearly
$300,000 and 9,000 volunteer hours to hur-
ricane relief efforts. The unprecedented hur-
ricane response is the embodiment of Valero’s
caring and sharing culture.
It’s a culture that earned Valero the No. 3
spot – its best ranking yet – on FORTUNE’s
“100 Best Companies to Work For” list. And
one that brought two refineries back to life in
record time – during a time of record refin-
ing margins, which is another example of how
Valero shareholders benefit from the company’s
unique caring and sharing culture.
[above left to right] Mary
rose brown, Senior Vice
President – Corporate
Communications, helps
spread the Valero corporate
culture to its employees.
after the hurricanes, exec-
utives hosted barbecues at
the impacted refineries and
pledged to do whatever was
necessary to help.
bill Greehey, Chairman of the
board, visits with St. Charles
Security lieutenant Melvin
edgar about his harrowing
story of trying to ride out
hurricane Katrina at home. “i
can guarantee Valero eased
the pain,” edgar said.
“When disaster strikes, this
team pulls together. After
hurricanes Katrina and Rita
hit, Valero dispatched semis
filled with supplies, set
up temporary housing for
employees, fed volunteers
-- and donated $1 million to
the Red Cross.”
-- FORTUNE, “100 Best
Companies to Work For”
list, February 27, 2006
V a l e r o e n e r g y C o r p o r a t i o n 1
lending a helping hand
tO Our cOM M un it i eS
V a l e r o e n e r g y C o r p o r a t i o n
An abandoned baby. A youngster
on dialysis. A lonely elder. A park in disrepair.
Whatever the need, whenever the call, Valero
and its employees stand ready to serve. With
outstretched hands and open wallets, they
invest thousands of hours and millions of dol-
lars each year to improve their communities.
It’s not a philosophy or frame of mind that
began in 2005, only perfected. It’s a culture
that actually came to life when the company
was born 25 years ago, and one that remains
vital to Valero’s mission today.
From volunteering to donating money,
employees vow annually to make a positive dif-
ference in people’s lives. In fact, that pledge in
2005 led to 220,000 hours of community ser-
vice companywide, and more than $45 million
contributed to charitable causes.
Thanks to the generosity of Valero employ-
ees, United Way agencies received nearly $12
million – up from $100,000 in 1980 when
the company was first listed on the New York
Stock Exchange. A 97 percent employee partic-
ipation rate, which is among the very highest
in the nation, meant that communities from
Canada to the Caribbean found funds to keep
vital service programs alive.
“Valero’s genuine spirit of sharing and
caring has created a brighter future
for countless individuals and families
across the nation.”
-- Howard Nolan, President and CEO,
United Way of San Antonio & Bexar County,
August 2005
The company’s caring culture has also spread
to its retail employees, who raised more
than $1.2 million for the Muscular Dystrophy
Association and over $884,000 for 38
Children’s Miracle Network hospitals.
Valero employees have taken to heart
Chairman Bill Greehey’s favorite philosophy:
You are never truly a success until you share your
success with others.
Nowhere has that statement been truer than
with the success of Valero’s largest grassroots
fundraiser – the Valero Benefit for Children
Golf Classic. Held in conjunction with the
Valero Texas Open, this event encourages par-
ticipants to focus on more than just golf. They
focus on raising money for children in each of
the communities where Valero has operations,
and they help fund educational programs,
medicine, child care and more – grants that
Chief executive officer
bill Klesse led Valero’s
record $12 million United Way
campaign in 2005. agency
tours, like this one to the
daughters of Charity Services
of San antonio, helped
employees see how their
contributions meet the needs
of the community.
build up the community by starting with its
littlest citizens.
Before Valero became the title sponsor in
2002, the Texas Open raised less than $5 mil-
lion during the previous 79 years combined.
But with Valero’s backing, the tournament has
raised nearly $14 million in just four years! In
2005 alone, a record-breaking $5.35 million
was donated to nearly 500 worthy community
groups. As a result of the meteoric rise in char-
ity dollars, the tournament has gone from the
bottom of the PGA TOUR’s charity rankings
to the top at No. 3.
The result of this success: children were cared
for, the homeless were housed, the hungry
were fed and communities were built.
Valero’s family of 21,923 employees will
always be there to help those who need it
most. And by extending a helping hand and
embracing a caring and sharing spirit, Valero
and all of its stakeholders – communities,
employees and shareholders – will continue to
grow and succeed in the coming years.
V a l e r o e n e r g y C o r p o r a t i o n
financial informaTion
cOnden Sed & cOn SOL id at e d
The financial information presented on pages 25-29 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 2006 Annual Meeting of Stockholders and Valero’s Form 10-K for the
year ended December 31, 2005. These documents are provided to all shareholders of record as
of March 1, 2006. 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 2005 Annual Report on Form 10-K and the
Proxy Statement also may be accessed via the Company’s web site at: www.valero.com.
tO the bO ard Of directO rS
and StO ckhOL derS O f
VaLerO energY cOrPOratiO n
We have audited, in accordance with the
standards of the Public Company Accounting
Oversight Board (United States), the
consolidated statements of income,
stockholders’ equity, cash flows and
comprehensive income of Valero Energy
Corporation and subsidiaries (the Company)
for the year ended December 31, 2003,
appearing in the Company’s 2005 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.
In our opinion, the information set forth in
the accompanying condensed consolidated
statements of income and cash flows for the
year ended December 31, 2003, 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
the bOard Of direct OrS
and StOckhOLderS Of
Va LerO energ Y cO rPOrati On
and SubS idiarieS :
We have audited, in accordance with the
standards of the Public Company Accounting
Oversight Board (United States), the
consolidated balance sheets of Valero Energy
Corporation and subsidiaries (the Company)
as of December 31, 2005 and 2004, and the
related consolidated statements of income,
stockholders’ equity, cash flows and
comprehensive income for the years then
ended appearing in the Company’s 2005
Annual Report on Form 10-K (not presented
herein). In our report dated March 1,
2006, also appearing in that Annual Report,
we expressed an unqualified opinion on those
consolidated financial statements.
In our opinion, the information set forth in
the accompanying condensed consolidated
balance sheets as of December 31, 2005 and
2004, 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.
KPMG LLP
San Antonio, Texas
March 1, 2006
V a l e r o e n e r g y C o r p o r a t i o n
condenSed conSolidaTed Balance SheeTS
December 31,
2005
2004
(millions of dollars)
ASSeTS
Current Assets
$
8,276
$
5,264
Property, Plant and Equipment, Net
17,856
10,317
Goodwill
Intangible Assets, Deferred Charges
and Other Assets, Net
4,926
1,670
2,401
1,410
ToTAl ASSeTS
$ 32,728
$
19,392
liAbiliTieS AND STockholDerS’ equiTy
Current Liabilities
$
7,305
$
4,534
Long-Term Debt and Capital Lease Obligations,
Less Current Portions
Deferred Income Taxes
Other Long-Term Liabilities
5,156
3,615
1,602
Stockholders’ Equity
15,050
3,901
2,011
1,148
7,798
ToTAl liAbiliTieS AND
STockholDerS’ equiTy
$ 32,728
$
19,392
V a l e r o e n e r g y C o r p o r a t i o n
condenSed conSolidaTed STaTemenTS of income
yeAr eNDeD December 31,
2005
2004
2003
(millions of dollars, except per share amounts)
operATiNg reveNueS
coSTS AND expeNSeS:
Cost of Sales
Refining Operating Expenses
Retail Selling Expenses
General and 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 (a)
Weighted Average Common Shares Outstanding
(in millions) (a)
eArNiNgS per commoN ShAre —
ASSumiNg DiluTioN (a)
Weighted Average Common Equivalent Shares
Outstanding (in millions) (a)
$ 82,162
$
54,619
$
37,969
71,673
2,926
771
458
875
76,703
5,459
41
53
( 266 )
––
––
5,287
1,697
3,590
13
47,797
2,141
705
379
618
51,640
2,979
39
( 48 )
( 260 )
—
—
2,710
906
1,804
13
$
$
3,577
6.51
$
$
1,791
3.51
$
$
549
510
33,587
1,656
694
299
511
36,747
1,222
30
15
( 261 )
( 2 )
( 17 )
987
365
622
5
617
1.34
459
$
6.10
$
3.27
$
1.27
588
552
488
DiviDeNDS per commoN ShAre (a)
$
0.19
$
0.145
$
0.105
(a)
Share and per share amounts for 2004 and 2003 have been adjusted to reflect the effect of two separate two-for-one stock
splits, which were effected in the form of common stock dividends distributed on December 15, 2005 and October 7, 2004.
V a l e r o e n e r g y C o r p o r a t i o n
condenSed conSolidaTed STaTemenTS of caSh floWS
yeAr eNDeD December 31,
2005
2004
2003
(millions of dollars)
$
3,590
$
1,804
$
622
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 and Other, Net
Net Cash Provided by Operating Activities
cASh FlowS From iNveSTiNg AcTiviTieS:
Capital Expenditures and Deferred Turnaround
and Catalyst Costs
Buyout of Assets Under Structured Lease Arrangements
Proceeds from Sales of Assets
Major Acquisitions
Contingent Payments in Connection with Acquisitions
Other, Net
Net Cash Used in Investing Activities
cASh FlowS From FiNANciNg AcTiviTieS:
Debt and Capital Lease Borrowings (Repayments), Net
Redemption of Preferred Securities of Subsidiary Trust
Proceeds from Common Stock Offerings, Net
Proceeds from Common Unit Issuance by Valero L.P., Net
Preferred and Common Stock Dividends
Issuance (Repurchase) of Common Stock, Net
Other
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
875
255
1,079
5,799
(2,574 )
––
153
(2,343 )
(85 )
(51 )
(4,900 )
(879 )
––
––
––
(106 )
(344 )
(2 )
––
4
(428 )
864
Net Cash Provided by (Used in) Financing Activities
(1,331 )
618
345
191
2,958
(1,596 )
( 567 )
108
(541 )
( 53 )
(36 )
(2,685 )
63
—
406
—
(79 )
(183 )
—
207
—
15
495
369
511
287
333
1,753
(1,112 )
( 275 )
564
(309 )
( 51 )
(148 )
(1,331 )
(357 )
(200 )
250
200
(51 )
26
(4 )
(136 )
( 336 )
40
(10 )
379
$
436
$
864
$
369
V a l e r o e n e r g y C o r p o r a t i o n
condenSed conSolidaTed 5-yr financial & STaTiSTical reVieW
operATiNg reSulTS For yeAr
eNDeD December 31:
Operating Revenues
Operating Income
Net Income
(millions of dollars, except per share and per barrel amounts)
2005(a)
2004(b)
2003(c)
2002(d)
2001(e)
$ 82,162
$ 54,619
$ 37,969
$ 29,048
$ 14,988
$ 5,459
$ 2,979
$ 3,590
$ 1,804
$
$
$
1,222
622
1.34
$
$
$
471
$ 1,001
92
0.22
$
$
564
2.32
Earnings per Common Share (f )
$
6.51
$
3.51
Earnings per Common Share—
Assuming Dilution (f )
FiNANciAl poSiTioN AS oF December 31:
$
6.10
$
3.27
$
1.27
$
0.21
$
2.21
Current Assets
$ 8,276
$ 5,264
$
3,817
$
3,536
$ 4,136
Property, Plant and Equipment, Net
17,856
10,317
Goodwill
4,926
2,401
8,195
2,402
7,412
2,580
7,217
2,211
Intangible Assets, Deferred Charges
and Other Assets, Net
Total Assets
Current Liabilities
Long-Term Debt and Capital Lease Obligations,
Less Current Portions
Deferred Income Taxes
Other Long-Term Liabilities
Company-Obligated Preferred
Securities of Subsidiary Trusts
Minority Interest in Valero L.P.
1,670
1,410
1,250
937
836
$ 32,728
$ 19,392
$ 15,664
$ 14,465
$ 14,400
$ 7,305
$ 4,534
$
3,064
$
3,006
$ 4,753
5,156
3,615
1,602
––
––
3,901
2,011
1,148
—
—
4,245
1,605
1,015
—
—
4,494
1,241
927
373
116
2,805
1,388
763
373
115
Stockholders’ Equity
15,050
7,798
5,735
4,308
4,203
Total Liabilities and Stockholders’ Equity
$ 32,728
$ 19,392
$ 15,664
$ 14,465
$ 14,400
V a l e r o e n e r g y C o r p o r a t i o n
yeAr eNDeD December 31,
2005(a)
2004(b)
2003(c)
2002(d)
2001(e)
commoN STock DATA:
Dividends per Common Share (f )
Number of Shares Outstanding,
End of Year (in millions) (f )
Number of Registered Shareholders,
End of Year
Market Price (f ):
High
Low
cApiTAlizATioN rATioS (NeT oF cASh): (g)
Long-Term Debt and Capital Lease Obligations,
including Current Portions, and Short-Term Debt
Stockholders’ Equity and Other
oTher DATA:
Capital Expenditures and Deferred Turnaround
and Catalyst Costs
$
0.19
$ 0.145
$
0.105
$
0.10
$ 0.085
617
511
481
429
417
7,233
6,554
6,564
7,174
7,265
$ 58.63
$ 21.01
$ 23.91
$ 11.43
$
$
11.77
8.05
$
$
12.49
5.79
$ 13.15
7.88
$
25 %
75 %
31 %
69 %
40 %
60 %
50 %
50 %
53 %
47 %
$ 2,574
$ 1,596
$
1,112
$
780
$
536
Number of Employees, End of Year
21,923
19,879
19,741
19,878
22,355
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
2,488
$ 11.14
$
$
3.22
0.80
4.02
2,162
7.44
2.70
0.66
3.36
$
$
$
1,835
5.13
2.47
0.63
3.10
$
$
$
1,595
4.02
1,001
$
6.12
2.29
0.66
2.95
$
2.31
0.63
$
2.94
$
$
$
(a)
Includes the operations related to the Premcor Acquisition beginning September 1, 2005.
(b)
Includes the operations related to the Aruba Acquisition beginning March 5, 2004.
(c)
Includes the operations of the St. Charles Refinery beginning July 1, 2003.
(d)
Includes the operations related to the UDS Acquisition beginning January 1, 2002.
(e)
(f )
(g)
Includes the operations related to the acquisitions from Huntway Refining Company and El Paso Corporation 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.
Share and per share amounts for 2004, 2003, 2002 and 2001 have been adjusted to reflect the effect of two separate two-for-one
stock splits, which were effected in the form of common stock dividends distributed on December 15, 2005 and October 7, 2004.
In determining the 2002 and 2001 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.
V a l e r o e n e r g y C o r p o r a t i o n
you’Ve goT To hand iT
tO Our eMPLOYeeS fOr the ManY hOnOrS theY’Ve earned
Valero’s three
rivers refinery is
one of ten plants
in the Valero
system that has
earned Star Site
certification in
oSha’s Voluntary
Protection
Program. this
process is so
tough that only
20 U.S. refineries
have achieved it,
and Valero owns
half of them.
• Ranked No. 3 on Investor’s Business Daily’s
2005 list of the “Big Cap 20” based on
earnings growth.
• Placed No. 4 on Forbes’ list of America’s
Fastest-Growing Big Companies and one of
America’s Best-Managed Companies.
• Ranked No. 4 on the 2005 "BusinessWeek
50" list, which ranks the best-performing
companies on the S&P 500.
• Included in IndustryWeek magazine's 2005
list of the 50 Best U.S. Manufacturers.
• Only the second company to receive United
Way’s “Spirit of America Award” twice.
When awards are handed out, Valero
employees get more than their fair share. But
rightfully so! No one works harder, shows
greater dedication or cares more for others
than Valero employees. Because of their hand-
iwork, Valero earned the following accolades:
• Named No. 1 refiner in the world – 2005
Platts Top 250 Global Energy Company
Awards.
• Ranked No. 3 – highest ranking yet – on
FORTUNE’s 2006 list of the “100 Best
Companies to Work For.”
• Ranked one of the top 10 on Forbes’
2006 list of the Platinum 400 Best Big
Companies in the Oil & Gas Category.
Also recognized by Forbes for having the
third best stock performance in 2005.
• Recognized as one of FORTUNE’s Blue
Ribbon Companies for being named to six
of its lists in 2005:
o No. 6 among oil companies – America’s
Most Admired Companies,
o No. 8 among oil companies – Global
Most Admired Companies,
o “100 Best Companies to Work For,”
o No. 19 among the 100 Fastest-Growing
Companies,
o No. 22 among the Fortune 500, and
o No. 73 among the Global 500.
0 V a l e r o e n e r g y C o r p o r a t i o n
Board of direcTorS
[left t o righ t ]
BoB profuSeK is a partner in the Jones Day law firm and
heads their Mergers and Acquisitions department. Mr. Profusek
also serves as a director of CTS Corporation. Previously, he served
as Executive Vice President of Omnicom Group Inc., and as a
director of the managing partner of Valero L.P., a publicly traded
limited partnership in which Valero Energy Corporation has an
equity ownership interest.
dr. ron calgaard serves as Chairman of the Ray Ellison
Grandchildren Trust, and as a director of The Trust Company,
N.A. He recently retired as Chairman and Chief Executive Officer
of Austin, Calvert & Flavin, Inc. in San Antonio. 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.
Jerry choaTe is retired from Allstate Corporation, where he
served as Chairman of the Board and Chief Executive Officer from
1995 through 1998. Currently, Mr. Choate serves as a director of
Amgen, Inc. and Van Kampen Mutual Funds.
Bill KleSSe was elected Chief Executive Officer and Vice
Chairman of the Board of Valero Energy Corporation upon Bill
Greehey’s retirement as Chief Executive Officer at the end of 2005.
Previously, Mr. Klesse served as Executive Vice President and Chief
Operating Officer, and held other leadership positions with Valero
and Ultramar Diamond Shamrock. He is also a director of the
managing general partner of Valero L.P., a publicly traded limited
partnership in which Valero Energy Corporation has an equity
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 as Chairman of the
Board of City Public Service, San Antonio’s gas and electric utility
company.
Bill greehey is Chairman of the Board of Valero Energy
Corporation. He served as Chairman of the Board and Chief
Executive Officer of Valero Energy Corporation and its predeces-
sors from 1974 until he retired as Chief Executive Officer at the
end of 2005. Mr. Greehey is also Chairman of the Board of the
managing partner of Valero L.P., a publicly traded limited partner-
ship in which Valero Energy Corporation has an equity ownership
interest.
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 man-
agement during his tenure there. Mr. Bradford is also a director of
Kerr-McGee Corporation.
dr. SuSan Kaufman purcell is the Director of the
Center for Hemispheric Policy at the University of Miami. Previously,
she served as Vice President of the Americas Society and as Vice
President of the Council of the Americas. Dr. Purcell also serves as a
director of The Brazil Fund, Inc. and the Scudder New Asia Fund, Inc.
irl engelhardT is Chairman of the Board of Peabody Energy
Corporation. He served as Peabody’s Chairman and Chief Executive
Officer from 1993 through 2005 when he retired as Chief Executive
Officer. Prior to that, he served as Chief Executive Officer of a pre-
decessor of the company. Mr. Engelhardt is also a director of The
Williams Companies, Inc. and is Deputy Chairman of The Federal
Reserve Bank of St. Louis.
BoB marBuT is Chairman of the Board and Chief Executive
Officer of Argyle Communications, Inc. and SecTecGLOBAL, Inc.
He also serves as Executive Chairman of Electronics Line 3000 Ltd.,
and as Chairman and Co-Chief Executive Officer of Argyle Security
Acquisition Corporation. He is a director of Tupperware Corporation
and Hearst-Argyle Television, Inc. Previously, Mr. Marbut held
top leadership positions with Hearst-Argyle Television, Inc.; Argyle
Television, Inc.; Argyle Television Holding, Inc.; and Harte-Hanks
Communications, Inc.
SenaTor don nicKleS retired in 2005 as U.S. Senator
from Oklahoma after 24 years. As a U.S. Senator, he served as
Assistant Republican Leader, Chairman of the Republican Senatorial
Committee, Chairman of the Republican Policy Committee and
Chairman of the Budget Committee. He also served on the Finance
and Energy and Natural Resources committees. Upon his retirement,
he formed and became Chairman and Chief Executive Officer of The
Nickles Group. He also serves as a director of Chesapeake Energy
Corporation and Fortress America Acquisition Corporation.
ruBen eScoBedo has had his own certified public account-
ing firm, Ruben Escobedo & Company, CPAs, in San Antonio since
its formation in 1977. He also serves as a director of Cullen/Frost
Bankers, Inc.
V a l e r o e n e r g y C o r p o r a t i o n 1
The nySe handed ouT complimenTS
fOr Marking 2 5 Y e arS Of Succ eSS
Valero’s board of directors rang the closing bell at the
new York Stock exchange on July 14, 2005 to mark the
company’s 25th anniversary of listing on the exchange.
it was a milestone anniversary, as less than 15 percent
of the listed companies have survived 25 years.
Pictured left to right are board members Glenn biggs,
bill bradford, ruben escobedo, Susan Kaufman Purcell,
bill Greehey, ron Calgaard, bob Marbut, Jerry Choate
and don nickles. not pictured are irl engelhardt,
bill Klesse and bob Profusek.
Principal Officers
Bill Klesse, Chief Executive Officer
Greg King, President
Mike Ciskowski, Executive Vice President &
Chief Financial Officer
Gene Edwards, Executive Vice President -
Corporate Development & Strategic Planning
Joe Gorder, Executive Vice President - Marketing & Supply
Rich Marcogliese, Executive Vice President - Operations
Gary Arthur, Senior Vice President - Retail &
Specialty Products Marketing
Bob Beadle, Senior Vice President - Crude &
Feedstock Supply & Trading
Mary Rose Brown, Senior Vice President -
Corporate Communications
Wade Upton, Senior Vice President -
Transportation Services
Kim Bowers, Vice President - Legal Services &
Assistant Secretary
Jay Browning, Vice President - Corporate Law & Secretary
Mike Crownover, Vice President - Human Resources
Clay Killinger, Vice President & Controller
Norm Renfro, Vice President - Health, Safety &
Environmental
Hal Zesch, Vice President & Chief Information Officer
Donna Titzman, Treasurer
Steve Gilbert, Assistant Secretary & Disclosure &
Compliance Officer
Audit Committee
FinAnCe Committee
Ron Calgaard, Chairman
Bill Greehey
Bob Marbut
Don Nickles
Susan Kaufman Purcell
nominAting/governAnCe
Committee
Jerry Choate, Chairman
Bill Bradford
Ron Calgaard
Don Nickles
Bob Profusek
Ruben Escobedo, Chairman
Glenn Biggs
Irl Engelhardt
Susan Kaufman Purcell
CompensAtion Committee
Bob Marbut, Chairman
Bill Bradford
Jerry Choate
Bob Profusek
exeCutive Committee
Bill Greehey, Chairman
Glenn Biggs
Irl Engelhardt
Ruben Escobedo
Bill Klesse
V a l e r o e n e r g y C o r p o r a t i o n
shAREhOLdER INfORmATION
VALERO CORPORATE hEAdquARTERs
One Valero Way
San Antonio, TX 78249-1616
(210) 345-2000
wEb sITE
www.valero.com
INVEsTOR INquIRIEs
For investor inquiries, please contact:
Investor Relations Department
P.O. Box 696000
San Antonio, TX 78269-6000
(800) 531-7911 or (210) 345-2198
(210) 345-2103 (fax)
investorrelations@valero.com
mEdIA INquIRIEs
For media inquiries, please contact:
Corporate Communications Department
P.O. Box 696000
San Antonio, TX 78269-6000
(800) 531-7911 or (210) 345-2314
(210) 345-2327 (fax)
corporatecommunications@valero.com
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
defined 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 reflect 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 financial
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 2006 Annual
Meeting of Stockholders Proxy Statement and Form 10-K for the year ended
December 31, 2005. This document is provided to all stockholders of record
as of March 1, 2006. In addition, persons may request, without charge, a Form
10-K by writing or calling Valero’s Investor Relations Department. Valero’s
2005 Annual Report on Form 10-K and the Proxy Statement also may be
accessed via our web site at: www.valero.com.
ANNuAL mEETING
Valero’s annual meeting of stockholders will
be held at 10 a.m., Thursday, April 27, 2006,
at Valero’s corporate headquarters 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
COmmON 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 certificates should be
addressed to:
Computershare Investor Services LLC
2 N. LaSalle Street
Chicago, IL 60602
(888) 470-2938
(312) 360-5261
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 identification number. For
this reason, any security holder who has not
provided a taxpayer identification number
should obtain a Form W-9 (Payer’s Request
for Taxpayer Identification Number). To
request a Form W-9, please contact Valero’s
transfer agent and registrar at the address
shown above.
Printed in the USA.
NO 1
EVERYONE IN ThE VALERO fAmILY dEsERVEs
A hANd fOR mAkING ThE COmPANY NO. 1.
VA L E R O E N E R G Y C O R P O R A T I O N
P.O. Box 696000 San Antonio, Texas 78269-6000 www.valero.com