This excerpt taken from the VLO 8-K filed Oct 31, 2005.
Ninth Consecutive Quarter of Record Results
SAN ANTONIO, October 31, 2005 Valero Energy Corporation (NYSE: VLO) today reported net income for the third quarter of 2005 of $1.3 billion, or $4.37 per share, compared to $434 million, or $1.57 per share, for the same period last year. The third quarter 2005 results exclude a $621 million pre-tax LIFO charge to cost of goods sold related to the difference between the fair market value of the inventories acquired from Premcor Inc. on September 1, 2005 and Valeros recorded amounts under LIFO accounting attributable to those inventories. Including this special non-cash item, net income for the third quarter of 2005 was $862 million, or $2.94 per share.
For the nine months ended September 30, 2005, Valeros net income was $2.7 billion, or $9.42 per share, versus $1.3 billion, or $4.78 per share, for the nine months ended September 30, 2004. Including the LIFO charge discussed above, the companys net income for the nine months ended September 30, 2005 was $2.2 billion, or $7.92 per share. The companys debt-to-capitalization ratio, net of cash, was 29.1 percent as of September 30, 2005, compared to 30.7 percent as of December 31, 2004.
Excluding the LIFO charge, third quarter operating income for the companys refining segment was $2.1 billion, compared to $760 million for the same period last year. The significant increase in operating income was primarily due to the sharp rise in refined product margins as well as widening sour crude oil discounts. The company also benefited from the addition of the four former Premcor Inc. refineries, which contributed approximately $330 million to operating income in September.
This was a challenging quarter for Valero in so many ways given the hurricanes on the Gulf Coast and the addition of four new refineries to our system, but our employees did an outstanding job meeting these challenges, said Bill Greehey, Valeros Chairman of the Board and Chief Executive Officer. In particular, the efforts of our employees at the St. Charles and Port Arthur refineries were nothing short of heroic in restoring our operations in record time and helping their communities recover from these devastating storms.
The impact of these hurricanes reflects what weve been saying for years - that refining capacity has gotten tighter, not just in the U.S., but globally. Anytime there is a major disruption, margins are likely to spike. Just as they did shortly after Hurricanes Katrina and Rita, pump prices spiked up, but then came down. We believe that the impact of these hurricanes on pump prices will soon be behind us. As more refineries come back on-line, pump prices should continue to fall and that is good for both refined product demand and the economy, said Greehey.
Looking at the remainder of the fourth quarter, the outlook is outstanding. Gulf Coast gasoline margins based on the forward curve for November and December are trading around $4.00 per barrel and heating oil margins are around $17.00 per barrel. As for sour crude discounts, they have continued to widen from what were already impressive levels. For example, Maya crude oil discounts are currently at around $15.00 per barrel and are expected to widen further, just as they did at the end of last year. And, the fourth quarter will be our first full quarter with the contribution of the Premcor assets. As we have begun to integrate these refineries into our system, we have been very impressed by the quality of the workforce as well as the assets. Despite the 3 week outage at the Port Arthur refinery during October, we expect that the fourth quarter will demonstrate how strongly accretive to our earnings the acquisition will be going forward. Given all these positive factors, its clear that the current First Call consensus estimate of $3.67 per share for the fourth quarter is significantly too low. In fact, we estimate that in October alone we will earn around $2.30 per share.
With respect to next year, the industry is facing the implementation of the Tier II low-sulfur fuels standards, the removal of MTBE from the gasoline pool and the likelihood of low inventories headed into the year. The futures market is already reflecting these challenges and if you look at the forward curve, refined product margins for next year are currently trading at higher levels than they are for this year. So, when you consider the strong market fundamentals, a full-year contribution of the Premcor assets, and the additional 100,000 barrels per day of capacity coming on-line in our refining system next year from our strategic projects, you can see why we believe that 2006 will be another record-setting year for Valero, he said.
Valeros senior management will hold a conference call at 10:00 a.m. ET (9:00 a.m. CT) today, to discuss this earnings release and provide an update on company operations. A live broadcast of the conference call will be available on the companys website at www.valero.com.
Valero Energy Corporation is a Fortune 500 company based in San Antonio, with approximately 22,000 employees and expected annual revenue of more than $75 billion. The company owns and operates 18 refineries throughout the United States, Canada and the Caribbean with a combined throughput capacity of approximately 3.3 million barrels per day, making it the largest refiner in North America. Valero is also one of the nations largest retail operators with more than 4,700 retail and branded wholesale outlets in the United States, Canada and the Caribbean under various brand names including Valero, Diamond Shamrock, Shamrock, Ultramar, and Beacon. Please visit www.valero.com for more information.
Statements contained in this press release that state the companys or managements expectations or predictions of the future are forward-looking statements intended to be covered by the safe harbor provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. The words believe, expect, should, estimates, and other similar expressions identify forward-looking statements. It is important to note that actual results could differ materially from those projected in such forward-looking statements. For more information concerning factors that could cause actual results to differ from those expressed or forecast, see the proxy statement/prospectus dated July 13, 2005 regarding the merger of Valero and Premcor, and the amended Form S-4 Registration Statement filed with the Securities and Exchange Commission (as the same may be supplemented or amended). Also see both companies reports, including annual reports on Form 10-K and quarterly reports on Form 10-Q, filed with the Securities and Exchange Commission and available on the Valero web site at www.valero.com.