What were the primary drivers of Valero's increased profitability in the nine months ended September 30, 2006?

The primary drivers were higher refined product margins, wider sour crude oil discounts, and the full-year contribution from the Premcor acquisition, which significantly increased throughput volumes and refining operations.

How did the Premcor acquisition impact Valero's financial performance?

The Premcor acquisition, completed in September 2005, contributed significantly to revenue and operating income in the reported periods. For the nine months ended September 30, 2006, it added substantial throughput volumes and operating income, particularly to the refining segment.

What is Valero's outlook for the remainder of 2006?

Valero anticipates favorable refining industry fundamentals to continue into the fourth quarter of 2006, with recovering gasoline margins and strong distillate margins and sour crude oil discounts. They expect to benefit from reduced refinery maintenance and completed capital projects.

How is Valero managing its capital and shareholder returns?

Valero is actively managing capital through significant investments in capital expenditures, including environmental projects, and substantial share repurchases. The company repurchased $1.8 billion of stock in the first nine months of 2006 and announced a new $2 billion stock purchase program.

VLO 10-Q Quarterly Report Q3 FY2006 — Revenue, Net Income, EPS

Summary

Valero Energy Corporation (VLO) reported strong financial performance for the nine months ended September 30, 2006, driven by robust refining margins and the full-year impact of the Premcor acquisition. Net income more than doubled to $4.35 billion, or $6.83 per diluted share, compared to $2.24 billion, or $3.96 per diluted share, in the same period of 2005. The company benefited from favorable industry fundamentals including refinery maintenance, tighter supply of refined products due to new sulfur regulations, and strong demand. The third quarter of 2006 also showed significant improvement, with net income reaching $1.60 billion ($2.55 per diluted share) compared to $862 million ($1.47 per diluted share) in the prior year's quarter. This growth was bolstered by increased refining operating income and a substantial gain from the sale of a portion of its investment in Valero GP Holdings, LLC. Valero continued to execute its capital allocation strategy, investing heavily in capital expenditures, including environmental projects, and repurchasing significant amounts of its own stock. The company also provided an outlook for continued favorable industry fundamentals.

Key Highlights

1Net income for the nine months ended September 30, 2006, increased significantly to $4.35 billion, up from $2.24 billion in the same period of 2005.
2Diluted earnings per share for the nine months were $6.83, a substantial increase from $3.96 in the prior year.
3The company recognized a pre-tax gain of $132 million in the third quarter of 2006 from the sale of 40.6% of its ownership interest in Valero GP Holdings, LLC.
4Refining operating income saw substantial growth, increasing by $3.1 billion for the nine months and $928 million for the third quarter compared to the respective prior-year periods.
5Total capital expenditures for the nine months ended September 30, 2006, amounted to $2.3 billion, with a significant portion allocated to environmental projects.
6Valero repurchased approximately 30.8 million shares of its common stock for $1.8 billion during the nine months ended September 30, 2006.
7The company announced a new $2 billion common stock purchase program on October 19, 2006.

VALERO ENERGY CORP/TX Quarterly Report for Q3 Ended Sep 30, 2006

Summary

Key Highlights

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