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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q/A

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended June 30, 2001

Commission File Number 1-11154

ULTRAMAR DIAMOND SHAMROCK CORPORATION

Incorporated under the laws of the State of Delaware
I.R.S. Employer Identification No. 13-3663331

6000 North Loop 1604 West
San Antonio, Texas 78249-1112
Telephone number: (210) 592-2000

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes X No ____

As of July 31, 2001, 73,286,000 shares of Common Stock, $0.01 par value, were
outstanding and the aggregate market value of such stock was $3,462,742,000.

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ULTRAMAR DIAMOND SHAMROCK CORPORATION
FORM 10-Q/A
JUNE 30, 2001

TABLE OF CONTENTS

Page

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets as of June 30, 2001 and
December 31, 2000........................................... 3

Consolidated Statements of Income
for the Three and Six Months Ended June 30, 2001 and 2000... 4

Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 2001 and 2000............. 5

Consolidated Statements of Comprehensive Income
for the Six Months Ended June 30, 2001 and 2000............. 6

Notes to Consolidated Financial Statements...................... 7

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................... 15

Item 3. Quantitative and Qualitative Disclosures About Market Risk...... 26

PART II - OTHER INFORMATION

Item 1. Legal Proceedings............................................... 30

Item 6. Exhibits and Reports on Form 8-K................................ 30

SIGNATURE....................................................... 31

NOTE: This Form 10-Q/A for the quarter ended June 30, 2001 reflects the
following modifications:
o Correction of typographical error on page 4 in the Consolidated Statements
of Income, line item "Minority interest in net income of consolidated
subsidiary" and
o Additional disclosure included on page 9, Note 5: Minority Interest in
Consolidated Subsidiary, first paragraph.

PART I - FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

ULTRAMAR DIAMOND SHAMROCK CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions, except share data)

June 30, December 31,
2001 2000
---- ----
(unaudited)
Assets

Current assets:
Cash and cash equivalents....................$ 299.6 $ 197.1
Accounts and notes receivable, net........... 496.1 700.5
Inventories.................................. 807.8 808.8
Prepaid expenses and other current assets.... 79.7 29.3
Deferred income taxes........................ 116.9 117.6
-------- --------
Total current assets...................... 1,800.1 1,853.3
------- -------

Property, plant and equipment................... 5,257.7 5,136.0
Less accumulated depreciation and amortization.. (1,608.5) (1,501.7)
------- -------
Property, plant and equipment, net........... 3,649.2 3,634.3
Other assets, net............................... 623.8 500.8
-------- --------
Total assets................................ $ 6,073.1 $ 5,988.4
======= =======

Liabilities and Stockholders' Equity

Current liabilities:
Notes payable and current portion of
long-term debt............................. $ 1.3 $ 1.7
Accounts payable............................. 488.6 649.4
Accrued liabilities.......................... 714.3 542.7
Taxes other than income taxes................ 316.3 289.8
Income taxes payable......................... 51.6 59.3
------- -------
Total current liabilities................. 1,572.1 1,542.9

Long-term debt, less current portion............ 1,686.1 1,659.8
Other long-term liabilities..................... 362.3 366.3
Deferred income taxes........................... 523.2 394.1
Minority interest in consolidated subsidiary.... 114.3 -
Commitments and contingencies

Company obligated preferred stock of subsidiary. 200.0 200.0

Stockholders' equity:
Common Stock, par value $0.01 per share:
250,000,000 shares authorized, 72,686,000
and 86,987,000 shares issued and
outstanding as of June 30, 2001 and
December 31, 2000......................... 0.8 0.9
Additional paid-in capital................... 938.4 1,516.9
Treasury stock............................... (86.2) (1.2)
Grantor trust stock ownership program........ (28.9) (95.8)
Retained earnings............................ 883.7 509.0
Accumulated other comprehensive loss ........ (92.7) (104.5)
------- -------
Total stockholders' equity................. 1,615.1 1,825.3
------- -------
Total liabilities and stockholders'
equity.................................... $ 6,073.1 $ 5,988.4
======= =======

See accompanying notes to consolidated financial statements.

ULTRAMAR DIAMOND SHAMROCK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in millions, except share and per share data)
..................

Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2001 2000 2001 2000
---- ---- ---- ----

Sales and other revenues...................................... $ 5,105.6 $ 4,009.5 $ 9,319.7 $ 7,654.9
------- ------- ------- -------

Operating costs and expenses:
Cost of products sold...................................... 3,426.8 2,712.4 6,211.1 5,179.5
Operating expenses......................................... 321.7 239.8 659.9 471.5
Selling, general and administrative expenses............... 85.8 68.9 162.9 143.5
Taxes other than income taxes.............................. 743.4 690.5 1,445.6 1,362.0
Depreciation and amortization.............................. 65.8 60.4 130.0 122.5
Restructuring and other expenses, net...................... (2.5) 0.8 (8.9) 0.1
------- ------- ------- -------
Total operating costs and expenses...................... 4,641.0 3,772.8 8,600.6 7,279.1
------- ------- ------- -------

Operating income.............................................. 464.6 236.7 719.1 375.8
Interest income............................................. 2.4 3.3 4.5 6.2
Interest expense............................................ (32.1) (32.0) (69.1) (61.5)
Equity income from joint ventures........................... 1.9 6.1 2.7 12.3
Minority interest in net income of consolidated subsidiary.. (2.4) - (2.4) -
------- ------- ------- -------

Income before income taxes and dividends of subsidiary........ 434.4 214.1 654.8 332.8
Provision for income taxes.................................. (165.4) (83.1) (246.5) (130.1)
Dividends on preferred stock of subsidiary.................. (2.6) (2.5) (5.2) (5.1)
-------- ------- ------- -------
Net income.................................................... $ 266.4 $ 128.5 $ 403.1 $ 197.6
======== ======= ======== =======

Net income per share:
Basic...................................................... $ 3.72 $ 1.48 $ 5.41 $ 2.28
Diluted.................................................... $ 3.63 $ 1.47 $ 5.31 $ 2.27

Weighted average number of shares (in thousands):
Basic...................................................... 71,619 86,767 74,514 86,741
Diluted.................................................... 73,410 87,024 75,891 86,894

Dividends per Common Share.................................... $ 0.125 $ 0.275 $ 0.400 $ 0.550

See accompanying notes to consolidated financial statements.

ULTRAMAR DIAMOND SHAMROCK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in millions)
......... .........
Six Months Ended June 30,
2001 2000
---- ----

Cash Flows from Operating Activities:
Net income................................................................... $ 403.1 $ 197.6
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization............................................. 130.0 122.5
Gain on derivative instruments............................................ (5.4) -
Provision for losses on receivables....................................... 6.9 5.6
Gain on sale of property, plant and equipment............................. (3.8) (5.1)
Write-down of property, plant and equipment and goodwill.................. - 5.2
Equity income from joint ventures......................................... (2.7) (12.3)
Minority interest in net income of consolidated subsidiary................ 2.4 -
Deferred income tax provision............................................. 119.7 49.8
Other, net................................................................ 6.8 2.3
Changes in operating assets and liabilities:
Decrease (increase) in accounts and notes receivable.................... 200.2 (180.5)
Decrease (increase) in inventories...................................... 27.2 (91.5)
Increase in prepaid expenses and other current assets................... (11.9) (12.4)
Increase (decrease) in accounts payable and other current liabilities... (105.2) 52.1
Increase in other long-term assets........................................... (6.8) (4.4)
Decrease in other long-term liabilities...................................... (7.0) (10.9)
----- -----
Net cash provided by operating activities............................. 753.5 118.0
----- -----

Cash Flows from Investing Activities:
Capital expenditures........................................................ (142.0) (53.0)
Acquisition of refining operations.......................................... (5.8) -
Deferred refinery maintenance turnaround costs.............................. (9.8) (14.2)
Proceeds from sales of property, plant and equipment........................ 22.5 16.8
----- ------
Net cash used in investing activities..................................... (135.1) (50.4)
----- ------

Cash Flows from Financing Activities:
Net change in commercial paper and working capital borrowings............... 93.0 14.0
Repayment of long-term debt................................................. (75.8) (3.4)
Purchase of common shares................................................... (681.2) -
Payment of cash dividends................................................... (28.5) (47.8)
Proceeds from sale of minority interest in consolidated subsidiary.......... 111.9 -
Proceeds from exercise of stock options..................................... 63.9 1.5
Proceeds from sale of common shares......................................... - 0.2
------ -----
Net cash used in financing activities..................................... (516.7) (35.5)
------ -----

Effect of exchange rate changes on cash...................................... 0.8 (0.7)
----- -----

Net Increase in Cash and Cash Equivalents.................................... 102.5 31.4
Cash and Cash Equivalents at Beginning of Period............................. 197.1 92.8
----- -----
Cash and Cash Equivalents at End of Period................................... $ 299.6 $ 124.2
===== =====

See accompanying notes to consolidated financial statements.

ULTRAMAR DIAMOND SHAMROCK CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in millions)

.........
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
---- ---- ---- ----

Net income....................................................... $ 266.4 $ 128.5 $ 403.1 $ 197.6

Other comprehensive income (loss):
Foreign currency translation adjustment........................ 24.0 (11.1) (5.1) (13.0)

Derivative instruments adjustments, net of income tax expense:
Cumulative effect of accounting change...................... - - 13.3 -
Change in fair value of derivative instruments.............. 3.4 - 9.8 -
Reclassification adjustment for gains
included in net income.................................... - - (6.2) -
----- ----- ----- ----
Net derivative instruments adjustments.................. 3.4 - 16.9 -
----- ----- ----- ----

Comprehensive income............................................. $ 293.8 $ 117.4 $ 414.9 $ 184.6
===== ===== ===== =====

See accompanying notes to consolidated financial statements.

ULTRAMAR DIAMOND SHAMROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
(unaudited)

NOTE 1: Basis of Presentation

We prepared these unaudited consolidated financial statements in accordance with
United States' generally accepted accounting principles for interim financial
reporting and with Securities and Exchange Commission rules and regulations for
Form 10-Q. We have included all normal and recurring adjustments considered
necessary for a fair presentation. You should read these unaudited consolidated
financial statements with the audited consolidated financial statements included
in our annual report on Form 10-K for the year ended December 31, 2000.

Operating results for the six months ended June 30, 2001 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2001. Our results of operations may be affected by seasonal factors, such as the
demand for gasoline during the summer driving season and heating oil during the
winter season; or industry factors, such as movements in and the general level
of crude oil prices, the demand for and prices of refined products, industry
supply capacity and refinery maintenance turnarounds.

Certain previously reported amounts have been reclassified to conform to the
2001 presentation.

NOTE 2: Accounting Change - Derivative Instruments and Hedging Activities

Effective January 1, 2001, we adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended. This Statement established accounting and reporting
standards for derivative instruments and for hedging activities. It requires
that all derivative instruments be recognized as either assets or liabilities in
the balance sheet and be measured at their fair value. The Statement requires
that changes in the derivative instrument's fair value be recognized currently
in earnings unless specific hedge accounting criteria are met.

The adoption of Statement No. 133, as amended, could increase volatility in our
net income and other comprehensive income based on the level of derivative
instruments utilized and the extent of our hedging activities which are subject
to change from time to time based on our decision as to the appropriate
strategies and our overall risk exposure levels.

Interest rate swap agreements are used to manage our exposure to interest rate
risk on fixed-rate debt obligations. Under Statement No. 133, as amended, these
interest rate swap agreements are designated and documented as fair value hedges
of the related fixed-rate debt obligations.

Our operations utilize contracts that provide for the purchase of crude oil and
other feedstocks and for the sale of refined products. Certain of these
contracts meet the definition of a derivative instrument in accordance with
Statement No. 133, as amended. We believe these contracts qualify for the normal
purchases and normal sales exception under Statement No. 133, as amended,
because they will be delivered in quantities expected to be used or sold over a
reasonable period of time in the normal course of business. Accordingly, these
contracts are designated as normal purchases and normal sales contracts and are
not required to be recorded as derivative instruments under Statement No. 133,
as amended.

ULTRAMAR DIAMOND SHAMROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Commodity futures contracts are used to procure a large portion of our crude oil
requirements and to hedge our exposure to crude oil, refined product, and
natural gas price volatility. Under Statement No. 133, as amended, these
commodity futures contracts are not designated as hedging instruments.

Commodity price swaps are used to manage our exposure to price volatility
related to forecasted purchases of crude oil, refined products and natural gas.
Under Statement No. 133, as amended, certain commodity price swaps are
designated and documented as cash flow hedges of forecasted purchases. Other
commodity price swaps are not designated as hedging instruments.

The impact of adopting Statement No. 133, as amended, on January 1, 2001 was to
record derivative assets of $25.6 million, derivative liabilities of $16.1
million and a cumulative effect adjustment to other comprehensive income of
$13.3 million, net of income taxes.

As of June 30, 2001, we had fair value hedge derivative assets and liabilities
of $11.8 million and $3.2 million with an offsetting change in carrying value of
$8.6 million to the related hedged items and cash flow hedge derivative assets
of $27.3 million. We also had derivative assets of $11.1 million and derivative
liabilities of $6.0 million for derivative instruments that are not designated
as hedging instruments. Included in other comprehensive income at June 30, 2001
are $16.9 million of gains, which will be reclassified into income during June
2002 when the forecasted transactions impact income.

The above transactions are non-cash items which were excluded from the statement
of cash flows for the six months ended June 30, 2001.

NOTE 3: Inventories

Inventories consisted of the following:

June 30, December 31,
2001 2000
---- ----
(in millions)

Crude oil and other feedstocks................. $ 317.1 $ 279.1
Refined and other finished products and
convenience store items...................... 420.8 463.9
Materials and supplies......................... 69.9 65.8
------ ------

Total inventories......................... $ 807.8 $ 808.8
===== =====

NOTE 4: Accounts Receivable Securitization

In March 1999, we arranged a $250.0 million revolving accounts receivable
securitization facility. On March 1, 2001, the facility was increased $110.0
million to $360.0 million. On an ongoing basis, we sell eligible accounts
receivable to Coyote Funding, L.L.C. (Coyote), a non-consolidated, wholly-owned
subsidiary. Coyote sells a percentage ownership in these receivables, without
recourse, to a third party cooperative corporation. Our retained interest in
receivables sold to Coyote is included in notes receivable and is recorded at
fair value. The fair value of our retained interest in these receivables
approximates the eligible accounts receivable sold to Coyote less the
outstanding balance of receivables sold to the third party cooperative
corporation.

The following table summarizes the cash flows related to this securitization
facility:

Six Months Ended June 30,
2001 2000
---- ----
(in millions)

Proceeds from the sales of receivables.......... $ 60.0 $ 50.0
Proceeds from collections under the facility.... 4,878.2 3,305.1

NOTE 5: Minority Interest in Consolidated Subsidiary

On April 16, 2001, Shamrock Logistics, L.P., a previously wholly-owned
subsidiary, issued 5.2 million limited partnership units in an initial public
offering at a price of $24.50 per unit. Proceeds from the offering totaled
$111.9 million, net of offering expenses of $14.9 million and were used to pay
down debt. As a result of the initial public offering, we now own approximately
74% of Shamrock Logistics' ownership equity. Issuances of our subsidiary's
partnership units are accounted for as capital transactions in the consolidated
financial statements. No gain or loss was recognized as a result of the issuance
of these limited partnership units.

Shamrock Logistics is included as a subsidiary in our consolidated financial
statements. The minority interest in consolidated subsidiary on the consolidated
balance sheet represents the minority shareholders' investment in Shamrock
Logistics plus their share of the net income of Shamrock Logistics since the
initial public offering on April 16, 2001. Minority interest in net income of
consolidated subsidiary in the consolidated statement of income represents the
minority shareholders' share of the net income of Shamrock Logistics.

On July 19, 2001, Shamrock Logistics declared a quarterly partnership cash
distribution of $0.5011 per unit payable August 14, 2001 to unitholders of
record on August 1, 2001.

NOTE 6: Share Buyback Program

On February 7, 2001, our Board of Directors approved a share buyback program to
repurchase $750.0 million of our common stock. As of June 30, 2001, we had
purchased 17,050,109 shares of our common stock at a total cost of $681.2
million, including 7,050,109 shares at a price of $32.85 per share which were
held by TotalFinaElf since our acquisition of Total Petroleum (North America)
Ltd. in September 1997. In conjunction with the share buyback program, we
entered into an agreement to repurchase 10,000,000 shares under an accelerated
program with a financial institution at an initial cost of $323.3 million. In
May 2001, we settled the accelerated stock buyback program with an additional
payment of $126.3 million as a result of the increase in our common stock price.

In order to fund the share buyback program, we entered into a short-term bridge
loan agreement on February 7, 2001 with two banks that committed to lend us up
to $750.0 million. Borrowings under the short-term bridge loan totaled $554.9
million. In May 2001, we paid off the outstanding balance of the bridge loan
with proceeds received from commercial paper borrowings and available cash.

NOTE 7: Computation of Net Income Per Share

Basic net income per share is calculated as net income divided by the weighted
average number of common shares outstanding. Diluted net income per share
assumes, when dilutive, issuance of the net incremental shares from stock
options and restricted shares. The following table reconciles the net income
amounts and share numbers used in the computation of net income per share.

Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2001 2000 2001 2000
---- ---- ---- ----
(in millions, except share and per share data)
Basic Net Income Per Share:

Weighted average common shares outstanding
(in thousands)............................................... 71,619 86,767 74,514 86,741
====== ====== ====== ======

Net income applicable to Common Stock............................ $ 266.4 $ 128.5 $ 403.1 $ 197.6
===== ===== ===== =====

Basic net income per share....................................... $ 3.72 $ 1.48 $ 5.41 $ 2.28
==== ==== ==== ====

Diluted Net Income Per Share:
Weighted average common shares outstanding
(in thousands)............................................... 71,619 86,767 74,514 86,741

Net effect of dilutive stock options based on the treasury
stock method using the average market price................... 1,791 257 1,377 153
----- ------ ------ ------

Weighted average common equivalent shares........................ 73,410 87,024 75,891 86,894
====== ====== ====== ======

Net income....................................................... $ 266.4 $ 128.5 $ 403.1 $ 197.6
===== ===== ===== =====

Diluted net income per share..................................... $ 3.63 $ 1.47 $ 5.31 $ 2.27
==== ==== ==== ====

NOTE 8: Restructuring and Other Expenses

Restructuring and other expenses consisted of the following:

Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
---- ---- ---- ----
(in millions)

Loss (gain) on sale of property, plant and equipment........ $ 2.6 $ (4.4) $ (3.8) $ (5.1)
Write-down of property, plant and equipment and goodwill.... - 5.2 - 5.2
Restructuring reserve reductions............................ (5.1) - (5.1) -
---- ---- ---- ----
Restructuring and other expenses, net.................. $ (2.5) $ 0.8 $ (8.9) $ 0.1
==== ==== ==== ====

In June 1998, we adopted a three-year restructuring plan to reduce our retail
cost structure by eliminating employee positions to improve operating
efficiencies and to close and sell 316 under-performing convenience stores. In
addition, we restructured certain pipeline and terminal operations and support
infrastructure resulting in the elimination of 62 positions. During the six
months ended June 30, 2001, 6 convenience stores were sold or closed and 10
employees were terminated under the retail and pipeline and terminal
restructuring plans. From June 1998 through December 2000, 280 convenience
stores were sold or closed and 260 retail employees and 66 pipeline and terminal
employees were terminated.

Effective June 30, 2001, the three-year restructuring program was completed and
the balance of the various restructuring reserves was credited into income. The
remaining 18 under-performing convenience stores, which have not been sold, are
in the process of being disposed of and management does not anticipate incurring
additional expenses related to the disposal of these stores.

Changes in accrued restructuring costs for the six months ended June 30, 2001
were as follows:

Balance at Reserve Balance at
December 31, 2000 Payments Reductions June 30, 2001
----------------- -------- ---------- -------------
(in millions)

Severance and related costs....... $ 2.7 $ (0.1) $ (2.6) $ -
Lease buyout costs................ 3.9 (2.0) (1.9) -
Fuel system removal costs......... 1.0 (0.4) (0.6) -
--- --- ---- -----
$ 7.6 $ (2.5) $ (5.1) $ -
=== === ==== =====

NOTE 9: Commitments and Contingencies

Our operations are subject to environmental laws and regulations adopted by
various federal, state, and local governmental authorities in the jurisdictions
in which we operate. Site restoration and environmental remediation and clean-up
obligations are accrued either when known or when considered probable and
reasonably estimable. Environmental exposures are difficult to assess and
estimate due to unknown factors such as the magnitude of possible contamination,
the timing and extent of remediation, the determination of our liability in
proportion to other parties, improvements in cleanup technologies and the extent
to which environmental laws and regulations may change in the future. Although
environmental costs may have a significant impact on results of operations for
any single year, we believe that such costs will not have a material adverse
effect on our financial position.

There are various legal proceedings and claims pending against us which arise in
the ordinary course of business. It is our management's opinion, based upon
advice of legal counsel, that these matters, individually or in the aggregate,
will not have a material adverse effect on our financial position or results of
operations.

NOTE 10: Business Segments

We have three reportable segments: Refining, Retail and Petrochemical/NGL. The
Refining segment includes refinery, wholesale, product supply and distribution,
and transportation operations. The Retail segment includes Company-operated
convenience stores, dealers/jobbers and truckstop facilities, cardlock and home
heating oil operations. The Petrochemical/NGL segment includes earnings from
Nitromite fertilizer, NGL marketing and certain NGL pipeline operations. Equity
income from Diamond-Koch and Skelly-Belvieu is not included in operating income.
Operations that are not included in any of the three reportable segments are
included in the Corporate category and consist primarily of corporate office
expenditures.

Our reportable segments are strategic business units that offer different
products and services. They are managed separately as each business requires
unique technology and marketing strategies. We evaluate performance based on
operating income and EBITDA which is defined as operating income plus
depreciation and amortization and equity income from joint ventures less gain on
sale of property, plant and equipment. EBITDA is a measure used for internal
analysis and in presentations to analysts, investors and lenders. The
calculation of EBITDA is not based on United States' generally accepted
accounting principles and should not be considered as an alternative to net
income or cash flows from operating activities (which are determined in
accordance with US GAAP). This measure may not be comparable to similarly titled
measures used by other entities as other entities may not calculate EBITDA in
the same manner as we do. Intersegment sales are generally derived from
transactions made at prevailing market rates.

Petrochemical/
Refining Retail NGL Corporate Total
-------- ------ --- --------- -----
(in millions)

Three months ended June 30, 2001:
Sales and other revenues from
external customers............... $ 3,292.7 $ 1,778.5 $ 34.4 $ - $ 5,105.6
Intersegment sales.................. 873.1 - - - 873.1
EBITDA.............................. 511.9 60.5 2.3 (39.8) 534.9
Depreciation and amortization....... 44.3 18.5 - 3.0 65.8
Operating income (loss)............. 467.3 39.7 0.4 (42.8) 464.6
Total capital expenditures.......... 77.8 16.5 - 3.9 98.2

Three months ended June 30, 2000:
Sales and other revenues from
external customers............... 2,316.0 1,653.8 39.7 - 4,009.5
Intersegment sales.................. 830.9 - - - 830.9
EBITDA.............................. 276.0 46.7 5.4 (24.1) 304.0
Depreciation and amortization....... 40.3 17.1 0.2 2.8 60.4
Operating income (loss)............. 230.0 34.7 (1.0) (27.0) 236.7
Total capital expenditures.......... 19.7 11.0 - 1.2 31.9

Six months ended June 30, 2001:
Sales and other revenues from
external customers............... 5,822.3 3,424.1 73.3 - 9,319.7
Intersegment sales.................. 1,673.1 - - - 1,673.1
EBITDA.............................. 817.6 96.4 3.8 (69.8) 848.0
Depreciation and amortization....... 87.1 36.8 - 6.1 130.0
Operating income (loss)............. 736.3 57.6 1.1 (75.9) 719.1
Total assets........................ 4,419.2 1,230.8 111.4 311.7 6,073.1
Total capital expenditures.......... 119.7 32.3 - 5.6 157.6

Six months ended June 30, 2000:
Sales and other revenues from
external customers............... 4,377.9 3,197.2 79.8 - 7,654.9
Intersegment sales.................. 1,622.2 - 1.4 - 1,623.6
EBITDA.............................. 469.3 77.9 14.2 (50.7) 510.7
Depreciation and amortization....... 82.3 34.4 0.3 5.5 122.5
Operating income (loss)............. 381.2 49.4 1.5 (56.3) 375.8
Total assets........................ 3,492.9 1,216.7 115.4 337.8 5,162.8
Total capital expenditures.......... 41.3 16.9 - 9.0 67.2

The following summarizes the reconciliation of reportable segment operating
income to consolidated operating income:

Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2001 2000 2001 2000
---- ---- ---- ----
(in millions)

Operating income:

Total operating income for reportable segments... $ 507.4 $ 263.7 $ 795.0 $ 432.1
Corporate........................................ (42.8) (27.0) (75.9) (56.3)
------ ------ ------ ------
Consolidated operating income................. $ 464.6 $ 236.7 $ 719.1 $ 375.8
===== ===== ===== =====

Sales and other revenues from external customers for our principal products were
as follows:

Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2001 2000 2001 2000
---- ---- ---- ----
(in millions)

Refining:
Gasoline and blendstocks......................... $ 2,074.2 $ 1,155.1 $ 3,301.6 $ 2,094.3
Distillates (diesel, jet fuel, heating oil, etc.) 871.9 883.5 1,880.8 1,738.2
Petrochemicals................................... 112.7 116.9 246.3 277.3
Asphalt and lubes................................ 194.1 127.8 322.6 193.4
Other............................................ 39.8 32.7 71.0 74.7
Retail:
Fuel sales (gasoline and diesel)................. 1,349.8 1,255.9 2,551.1 2,392.3
Merchandise sales................................ 384.7 324.9 740.0 625.9
Home heating oil................................. 44.0 73.0 133.0 179.0
Petrochemical...................................... 34.4 39.7 73.3 79.8
--------- --------- --------- ---------
Total sales and other revenues from
external customers......................... $ 5,105.6 $ 4,009.5 $ 9,319.7 $ 7,654.9
======= ======= ======= =======

NOTE 11: Agreement and Plan of Merger

On May 7, 2001, we announced that we had agreed to be acquired by Valero Energy
Corporation for total consideration of approximately $4.0 billion plus the
assumption of all outstanding debt of approximately $2.0 billion. Under the
terms of the agreement and plan of merger, UDS shareholders will receive, for
each share of UDS common stock they hold, at their election, cash, Valero common
stock or a combination of cash and Valero common stock, having a value equal to
the sum of $27.50 plus 0.614 shares of Valero common stock (based on the average
Valero common stock price over a ten trading-day period ending three days prior
to closing). The merger has been approved by the board of directors of both
companies; however, closing of the transaction is subject to regulatory reviews
and the approval of the shareholders of both companies. The merger is expected
to close in the fourth quarter of 2001.

Valero Energy Corporation owns and operates seven refineries in Texas,
Louisiana, New Jersey and California with a combined throughput capacity of more
than 1.1 million barrels per day. Valero markets its gasoline, diesel and other
refined products in 34 states through a bulk and rack marketing network and, in
California, through approximately 350 retail locations.

NOTE 12: Subsequent Events

On July 9, 2001, the Three Rivers Refinery sustained a fire in the plant's
alkylation unit. The refinery, which normally operates at 95,000 barrels per
day, had been shut down since the fire occurred and resumed operations during
the first week of August 2001. The alkylation unit should resume production by
mid-September 2001. Contingency plans have been implemented to insure that our
customers' needs are supplied during the shutdown. Damage to the alkylation unit
is not expected to exceed $10.0 million after consideration of property and
liability insurance coverage.

On August 1, 2001, our Board of Directors declared a quarterly dividend of
$0.125 per Common Share payable on September 5, 2001 to holders of record on
August 17, 2001.

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations

The Company

Ultramar Diamond Shamrock Corporation (UDS) is a leading independent refiner and
retailer of high-quality refined products and convenience store merchandise in
the central, southwest, and northeast regions of the United States and eastern
Canada. We own and operate seven refineries and we market our products through
over 4,500 convenience stores. In the northeast region of the United States and
in eastern Canada, we sell home heating oil to approximately 250,000 households.
Our refineries are geographically aggregated as follows:
o the Mid-Continent Refineries include the operations of the McKee, Three
Rivers, Ardmore and Denver Refineries; o the West Coast Refineries include the
operations of the Wilmington and Golden Eagle Refineries; and o the Quebec
Refinery includes the operations of our refinery in Quebec, Canada.

Our operating results are affected by:
o company-specific factors, primarily our refinery utilization rates and
refinery maintenance turnarounds;
o seasonal factors, such as the demand for gasoline during the summer driving
season and heating oil during the winter season; and
o industry factors, such as movements in and the level of crude oil prices,
the demand for and prices of refined products, industry supply capacity,
refinery maintenance turnarounds and availability of refined product
pipeline capacity.

The effect of crude oil price changes on our operating results is determined,
in part, by the rate at which refined product prices adjust to reflect such
changes. As a result, our earnings have been volatile in the past and may be
volatile in the future.

Results of Operations

Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000

Summarized financial and operating data for the three months ended June 30, 2001
and 2000 are as follows:

Summarized Financial Data:

Three Months Ended June 30,
2001 2000
---- ----
(in millions, except per share data)

Statement of Operations Data:
Sales and other revenues:
Refining........................................................... $ 3,292.7 $ 2,316.0
Retail............................................................. 1,778.5 1,653.8
Petrochemical/NGL.................................................. 34.4 39.7
--------- ---------
Total sales and other revenues.................................. $ 5,105.6 $ 4,009.5
======= =======

Operating income (loss):
Refining........................................................... $ 467.3 $ 230.0
Retail............................................................. 39.7 34.7
Petrochemical/NGL.................................................. 0.4 (1.0)
Corporate.......................................................... (42.8) (27.0)
------ -------
Total operating income.......................................... 464.6 236.7
Interest income...................................................... 2.4 3.3
Interest expense..................................................... (32.1) (32.0)
Equity income from joint ventures.................................... 1.9 6.1
Minority interest in net income of consolidated subsidiary........... (2.4) -
-------- ---------
Income before income taxes and dividends of subsidiary............. 434.4 214.1
Provision for income taxes........................................... (165.4) (83.1)
Dividends on preferred stock of subsidiary........................... (2.6) (2.5)
-------- -------
Net income......................................................... $ 266.4 $ 128.5
======= ======

Net income per share:
Basic.............................................................. $ 3.72 $ 1.48
Diluted............................................................ $ 3.63 $ 1.47

June 30, December 31,
2001 2000
---- ----
(in millions)

Balance Sheet Data:
Cash and cash equivalents............................................ $ 299.6 $ 197.1
Working capital...................................................... 228.0 310.4
Property, plant and equipment, net................................... 3,649.2 3,634.3
Total assets......................................................... 6,073.1 5,988.4
Long-term debt, less current portion................................. 1,686.1 1,659.8
Total stockholders' equity........................................... 1,615.1 1,825.3

Summarized Operating Data:
- --------------------------

Three Months Ended June 30,
2001 2000
---- ----

Refining:
Mid-Continent Refineries:
Throughput (barrels per day)............. 372,800 375,200
Refinery gross profit margin ($/barrel).. $ 10.01 $ 8.51
Operating cost ($/barrel)................ $ 2.37 $ 1.87

West Coast Refineries:
Throughput (barrels per day)............. 294,000 143,300
Refinery gross profit margin ($/barrel).. $ 11.04 $ 2.49
Operating cost ($/barrel)................ $ 3.29 $ 1.64

Quebec Refinery:
Throughput (barrels per day)............. 160,400 161,400
Refinery gross profit margin ($/barrel).. $ 2.88 $ 4.73
Operating cost ($/barrel)................ $ 0.82 $ 0.81

Retail:
US:
Fuel volume (barrels per day)............ 160,000 162,800
Fuel margin (cents per gallon)........... 11.3 11.6
Merchandise sales ($1,000/day)........... $ 3,136 $ 3,130
Merchandise margin....................... 27.0% 27.3%

Northeast:
Fuel volume (barrels per day)............ 69,600 67,900
Fuel margin (cents per gallon)........... 25.4 20.0
Merchandise sales ($1,000/day)........... $ 232 $ 200
Merchandise margin....................... 22.7% 21.2%

Overview

Net income for the quarter ended June 30, 2001 was $266.4 million as compared to
$128.5 million for the quarter ended June 30, 2000. Net income per basic share
for the second quarter of 2001 and 2000 was $3.72 per share and $1.48 per share,
respectively. Net income per diluted share was $3.63 per share and $1.47 per
share for 2001 and 2000, respectively. Net income per share increased from the
second quarter of 2000 to the second quarter of 2001 due to higher refining
margins and the addition of the Golden Eagle Refinery combined with a decrease
in the outstanding shares of our common stock as a result of shares we purchased
under our share buyback program which was approved in February 2001.

Despite the higher average outstanding debt balance during 2001, interest
expense for the second quarter of 2001 remained comparable to the second quarter
of 2000 due to:
o an increase in capitalized interest expense as a result of higher levels of
construction in progress at various refineries during 2001; and
o higher differentials received on our interest rate swap agreements and
lower interest expense on our floating rate debt due to lower interest
rates during 2001.

Equity income from joint ventures continued to be lower in the second quarter of
2001 compared to 2000 due to higher natural gas costs and the resulting lower
petrochemical margins experienced industry wide.

On April 16, 2001, Shamrock Logistics, L.P. successfully completed its initial
public offering. As a result of the offering, we now own approximately 74% of
Shamrock Logistics' ownership equity. Minority interest in net income of
consolidated subsidiary of $2.4 million represents the minority shareholders'
share of Shamrock Logistics' net income for the period from April 16, 2001 to
June 30, 2001.

The consolidated income tax provisions for the second quarter of 2001 and 2000
were based upon our estimated effective income tax rates for the years ending
December 31, 2001 and 2000 of 38% and 39%, respectively. The consolidated
effective income tax rate exceeds the U.S. Federal statutory income tax rate
primarily due to state income taxes, the effects of foreign operations and the
amortization of nondeductible goodwill.

Refining

Throughput for the refining segment increased 22% from the second quarter of
2000 to the second quarter of 2001 mainly due to the addition of the Golden
Eagle Refinery operations, which were acquired in August 2000. In early March
2001, the No. 3 crude oil unit at the Golden Eagle Refinery was restarted which
increased the refinery's capability to process more crude oil and increased the
production of California Air Resource Board (CARB) gasoline and diesel.
Throughput at the Golden Eagle Refinery increased from 131,100 barrels per day
during the first quarter of 2001 to 153,700 barrels per day during the second
quarter of 2001. The Golden Eagle Refinery's refinery gross profit margin for
the quarter ended June 30, 2001 was $11.25 per barrel and operating costs were
$4.81 per barrel.

Higher than average refinery gross profit margins continued at our Mid-Continent
and West Coast Refineries for the second quarter of 2001 compared to the same
period in 2000 which contributed to increased operating income for the refining
segment. In particular, our West Coast Refineries continued to benefit from
improved crack spreads where the refining gross profit margin was $11.04 per
barrel in 2001 compared to $2.49 per barrel in 2000. In 2000, the West Coast
Refineries' low refinery gross profit margin was the result of processing lower
margin blendstocks and feedstocks at the Wilmington Refinery. The refinery gross
profit margin at our Quebec Refinery in the second quarter of 2001 was
negatively impacted by declining crack spreads and low wholesale gasoline prices
as a result of imports to the East Coast of the United States and Canada.

Refining operating costs per barrel increased for our Mid-Continent and West
Coast Refineries due to higher fuel, gas and electricity costs which increased
as a result of higher crude oil and natural gas prices.

Retail

Sales for the retail segment increased 8% from 2000 to 2001 due to the 23 stores
purchased from Valley Shamrock in September 2000 and higher retail pump prices.
Operating income for the retail segment increased 14% from 2000 to 2001 mainly
from retail operations in the Northeast where declining transfer prices
continued to result in higher retail fuel margins for our motorist and home
heating oil businesses.

US Retail operations continue to be impacted by higher wholesale gasoline prices
in 2001, while retail pump prices have increased only marginally. Late in the
second quarter of 2001, wholesale gasoline prices fell along with refining crack
spreads resulting in improved retail fuel margins in the month of June 2001. In
addition, the merchandise margin was negatively impacted by increases in
wholesale cigarette prices which were not fully passed on to customers.

Corporate

Higher incentive compensation accruals as a result of improved profitability
combined with increased legal fees and IT maintenance expenses resulted in
higher selling, general and administrative expenses and negatively impacted the
corporate segment for the second quarter of 2001. The corporate segment for the
second quarter of 2000 included an $18.7 million recovery for environmental
insurance claims which was partially offset by $14.0 million of one-time expense
accruals for litigation, SAP system training, and other charges.

Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000

Summarized financial and operating data for the six months ended June 30, 2001
and 2000 are as follows:

Summarized Financial Data:

Six Months Ended June 30,
2001 2000
---- ----
(in millions, except per share data)

Statement of Operations Data:
Sales and other revenues:
Refining........................................................... $ 5,822.3 $ 4,377.9
Retail............................................................. 3,424.1 3,197.2
Petrochemical/NGL.................................................. 73.3 79.8
--------- ---------
Total sales and other revenues.................................. $ 9,319.7 $ 7,654.9
======= =======

Operating income (loss):
Refining........................................................... $ 736.3 $ 381.2
Retail............................................................. 57.6 49.4
Petrochemical/NGL.................................................. 1.1 1.5
Corporate.......................................................... (75.9) (56.3)
------- -------
Total operating income.......................................... 719.1 375.8
Interest income...................................................... 4.5 6.2
Interest expense..................................................... (69.1) (61.5)
Equity income from joint ventures.................................... 2.7 12.3
Minority interest in net income of consolidated subsidiary........... (2.4) -
-------- ---------
Income before income taxes and dividends of subsidiary............. 654.8 332.8
Provision for income taxes........................................... (246.5) (130.1)
Dividends on preferred stock of subsidiary........................... (5.2) (5.1)
-------- --------
Net income......................................................... $ 403.1 $ 197.6
====== ======

Net income per share:
Basic.............................................................. $ 5.41 $ 2.28
Diluted............................................................ $ 5.31 $ 2.27

Summarized Operating Data:
- --------------------------

Six Months Ended June 30,
2001 2000
---- ----

Refining:
Mid-Continent Refineries:
Throughput (barrels per day)................372,200 364,100
Refinery gross profit margin ($/barrel)..... $ 7.64 $ 6.68
Operating cost ($/barrel)................... $ 2.55 $ 1.89

West Coast Refineries:
Throughput (barrels per day)................280,600 142,700
Refinery gross profit margin ($/barrel).....$ 10.65 $ 4.17
Operating cost ($/barrel)................... $ 3.66 $ 1.64

Quebec Refinery:
Throughput (barrels per day)................164,300 162,000
Refinery gross profit margin ($/barrel)..... $ 3.95 $ 4.86
Operating cost ($/barrel)................... $ 0.81 $ 0.84

Retail:
US:
Fuel volume (barrels per day)...............159,000 157,900
Fuel margin (cents per gallon).............. 9.3 10.1
Merchandise sales ($1,000/day)..............$ 2,915 $ 2,949
Merchandise margin.......................... 27.2% 27.7%

Northeast:
Fuel volume (barrels per day)............... 74,300 72,900
Fuel margin (cents per gallon).............. 26.1 21.2
Merchandise sales ($1,000/day).............. $ 214 $ 187
Merchandise margin.......................... 22.7% 20.7%

Overview

Net income for the six months ended June 30, 2001 was $403.1 million as compared
to $197.6 million for the six months ended June 30, 2000. Net income per diluted
share was $5.31 per share and $2.27 per share for 2001 and 2000, respectively.
Net income per share increased from 2000 to 2001 due to our higher operating
income in the refining segment for the six months ended June 30, 2001 coupled
with a decrease in our outstanding shares of common stock as a result of shares
we purchased under our share buyback program which was approved in February
2001.

Interest expense of $69.1 million in the first six months of 2001 was $7.6
million higher than in the first six months of 2000 due to higher average
outstanding borrowings during 2001. Additional debt was incurred in August 2000
to fund the acquisition of the Golden Eagle Refinery and in February 2001 to
fund the $750.0 million share buyback program approved by the Board of
Directors.

Equity income from joint ventures continues to remain lower for the six months
ended June 30, 2001 as compared to the same period in 2000 due to high natural
gas costs and the resulting lower petrochemical margins experienced industry
wide.

The consolidated income tax provisions for the six months ended June 30, 2001
and 2000 were based upon our estimated effective income tax rates for the years
ending December 31, 2001 and 2000 of 38% and 39%. The consolidated effective
income tax rate exceeds the U.S. Federal statutory income tax rate primarily due
to state income taxes, the effects of foreign operations and the amortization of
nondeductible goodwill.

Refining

Throughput for the first six months of 2001 for the refining segment increased
22% from the same period in 2000 mainly due to the addition of the Golden Eagle
Refinery operations, which were acquired in August 2000. In early March 2001,
the No. 3 crude oil unit at the Golden Eagle Refinery was restarted which
increased the refinery's capability to process more crude oil and increase the
production of California Air Resource Board (CARB) gasoline and diesel. The
Golden Eagle Refinery's operations for the six months ended June 30, 2001
included throughput of 142,500 barrels per day, refinery gross profit margin of
$12.19 per barrel and operating costs of $5.21 per barrel.

Higher refinery gross profit margins at our Mid-Continent and West Coast
Refineries for the first six months of 2001 compared to the same period in 2000
contributed to the increased operating income for the refining segment. In
particular, our West Coast Refineries continued to benefit from improved crack
spreads where the refining gross profit margin was $10.65 per barrel in 2001
compared to $4.17 per barrel in 2000. The refinery gross profit margin at our
Quebec Refinery finished the first quarter of 2001 on a comparable basis with
2000; however, throughout the second quarter of 2001, crack spreads in the
Northeast declined steadily as imports of refined products to the East Coast
grew faster than demand.

Retail

Sales for the retail segment increased 7% for the first six months of 2001 as
compared to the first six months of 2000 due to the addition of 23 stores
purchased from Valley Shamrock in September 2000 and higher retail pump prices.
Operating income year to date for the retail segment increased 17% from 2000 to
2001 mainly from retail operations in the Northeast where declining transfer
prices resulted in improved retail fuel margins for the home heating oil,
motorist and cardlock businesses.

US Retail operations continue to be pressured by volatile wholesale gasoline
prices in 2001, which continue to squeeze the retail fuel margins. In addition,
the merchandise margin was negatively impacted by increases in wholesale
cigarette prices which were not fully passed on to customers.

Corporate

Higher incentive compensation accruals as a result of improved profitability
combined with increased legal fees and IT maintenance expenses resulted in
higher selling, general and administrative expenses and negatively impacted the
corporate segment for the six months ended June 30, 2001. The corporate segment
for the six months ended June 30, 2000 included an $18.7 million recovery for
environmental insurance claims which was partially offset by $14.0 million of
one-time expense accruals for litigation, SAP system training, and other
charges.

Outlook

Our earnings depend largely on refining margins and retail fuel and merchandise
margins. The petroleum refining and marketing industry has been and continues to
be volatile and highly competitive. The cost of crude oil that we purchase and
the price of refined products that we sell have fluctuated widely in the past.
As a result of the historic volatility of refining and retail margins and the
fact that they are affected by numerous diverse factors, it is impossible to
predict future margin levels.

The second quarter of 2001 was the strongest quarter ever as industry refining
margins were at or near all time highs in most of our refining regions.
Seasonally higher demand for gasoline combined with very low refined product
inventories pushed gasoline margins to higher levels than seen in the first
quarter of 2001. The increase in margins resulted in refiners, both domestic and
foreign, increasing production as refinery utilization rates were over 95%
through most of the second quarter. Imports of refined products were nearly 20%
above average as foreign refiners shipped more gasoline to the United States to
take advantage of the higher margins. In June, the effect of increased domestic
production and foreign imports coupled with flat consumer demand for refined
products resulted in a sharp decline in refining crack spreads. The second
quarter ended with gasoline margins at their lowest levels of the year as
refined product inventories built rapidly. Distillate margins remained above
average throughout the second quarter as lower than average inventory and
slightly higher demand kept the distillate market stable. Retail margins were
under pressure at the beginning of the second quarter but benefited from the
dramatic drop in spot gasoline prices during June 2001. The second quarter of
2001 ended with retail margins at their highest levels of the year and demand
improving at our retail stations in response to the lower year-over-year prices.

Looking ahead to the third quarter of 2001, declining inventory levels and
improved consumer demand have caused gasoline margins to improve from their
previous lows but they remain below average for this time of year. Distillate
margins are stable, as demand remains higher than the seasonal average. Natural
gas prices have fallen dramatically from the levels seen during the second
quarter of 2001, which has reduced operating costs at our Mid-Continent and West
Coast Refineries. We believe our retail margins in the second half of 2001 will
outpace our results for the first six months of 2001.

Capital Expenditures

The refining and retail marketing industry is a capital-intensive business.
Significant capital requirements include expenditures to upgrade or enhance
refinery operations to meet environmental regulations and maintain our
competitive position, as well as to acquire, build and maintain broad-based
retail networks. The capital requirements of our operations consist primarily
of:
o maintenance expenditures, such as those required to maintain equipment
reliability and safety and to address environmental regulations; and
o growth opportunity expenditures, such as those planned to expand and
upgrade our retail business and to increase the capacity of certain
refinery processing units and pipelines.

During the six months ended June 30, 2001, capital expenditures totaled $147.8
million of which $44.4 million related to maintenance expenditures and $103.4
million related to growth opportunity expenditures. Approximately $26.0 million
and $14.9 million of costs were incurred at the refineries and at the retail
level, respectively, for various maintenance expenditures. During the six months
ended June 30, 2001, $9.8 million was also incurred for refinery maintenance
turnarounds.

Growth opportunity expenditures during the six months ended June 30, 2001
included:
o $15.0 million to reestablish the delivery of crude oil shipments at the
Amorco Wharf at the Golden Eagle Refinery;
o $13.4 million for improvements on our CARB diesel unibon unit at the
Wilmington Refinery to produce cleaner diesel fuel;
o $12.5 million to expand our Quebec Refinery from 167,000 barrels per day to
200,000 barrels per day;
o $8.3 million to re-image various convenience stores;
o $7.3 million to restart the No. 2 reformer at the Golden Eagle Refinery in
order to increase throughput;
o $5.8 million to acquire pipeline gathering systems; and,
o $5.2 million to restart the No. 3 crude oil unit at the Golden Eagle
Refinery.

We continue to investigate strategic acquisitions and other business
opportunities that will complement our current business activities.

We expect to fund our capital expenditures from cash provided by operations and,
to the extent necessary, from the proceeds of borrowings under our bank credit
facilities and our commercial paper program discussed below. In addition,
depending upon our future needs and the cost and availability of various
financing alternatives, we may seek additional debt or equity financing in the
public or private markets.

Liquidity and Capital Resources

Financing
As of June 30, 2001, our cash and cash equivalents totaled $299.6 million. We
currently have two committed, unsecured bank facilities which provide a maximum
of $700.0 million U.S. and $200.0 million Cdn. of available credit, and a $700.0
million commercial paper program supported by the committed, unsecured U.S. bank
facility.

As of June 30, 2001, we had borrowing capacity of approximately $391.0 million
under our committed bank facilities and commercial paper program and
approximately $161.0 million under uncommitted, unsecured short-term lines of
credit with various financial institutions.

In addition to our bank credit facilities, we have $1.0 billion available under
universal shelf registrations previously filed with the Securities and Exchange
Commission. The net proceeds from any debt or equity offering under the
universal shelf registrations would add to our working capital and would be
available for general corporate purposes.

The bank facilities and other debt agreements require that we maintain certain
financial ratios and other restrictive covenants. We are in compliance with
those covenants and believe that those covenants will not have a significant
impact on our liquidity or our ability to pay dividends. We believe our current
sources of funds will be sufficient to satisfy our capital expenditure, working
capital, debt service and dividend requirements for at least the next twelve
months.

In December 2000, Shamrock Logistics Operations, L.P., a subsidiary of Shamrock
Logistics, entered into a $120.0 million revolving credit facility with a
financial institution. The revolving credit facility expires on January 15, 2006
and borrowings under the facility bear interest at either the alternative base
rate or the LIBOR rate at the option of Shamrock Logistics Operations. In
conjunction with the initial public offering of common units by Shamrock
Logistics on April 16, 2001, Shamrock Logistics Operations borrowed $20,505,900
under the revolving credit facility.

In March 1999, we established a revolving accounts receivable securitization
facility which provides us with the ability to sell up to $250.0 million of
accounts receivable on an ongoing basis. In connection with the securitization
facility, we sell, on a revolving basis, an undivided interest in certain of our
trade and credit card receivables. On March 1, 2001, the facility was increased
$110.0 million to $360.0 million. At June 30, 2001 and December 31, 2000, the
balance of receivables sold was $310.0 million and $250.0 million, respectively.

Equity
On February 7, 2001, our Board of Directors approved a share buyback program to
repurchase $750.0 million of our common stock. As of June 30, 2001, we had
purchased 17,050,109 shares of our common stock at a total cost of $681.2
million, including 7,050,109 shares at a price of $32.85 per share which were
held by TotalFinaElf since our acquisition of Total Petroleum (North America)
Ltd. in September 1997. In conjunction with the share buyback program, we
entered into an agreement to repurchase 10,000,000 shares under an accelerated
program with a financial institution at an initial cost of $323.3 million. In
May 2001, we settled the accelerated stock buyback program with an additional
payment of $126.3 million as a result of the increase in our common stock price.

On August 1, 2001, our Board of Directors declared a quarterly dividend of
$0.125 per Common Share payable on September 5, 2001 to holders of record on
August 17, 2001.

Agreement and Plan of Merger
On May 7, 2001, we announced that we had agreed to be acquired by Valero Energy
Corporation for total consideration of approximately $4.0 billion plus the
assumption of all outstanding debt of approximately $2.0 billion. Under the
terms of the agreement and plan of merger, UDS shareholders will receive, for
each share of UDS common stock they hold, at their election, cash, Valero common
stock or a combination of cash and Valero common stock, having a value equal to
the sum of $27.50 plus 0.614 shares of Valero common stock (based on the average
Valero common stock price over a ten trading-day period ending three days prior
to closing). The merger has been approved by the board of directors of both
companies; however, closing of the transaction is subject to regulatory reviews
and the approval of the shareholders of both companies. The merger is expected
to close in the fourth quarter of 2001.

Cash Flows for the Six Months Ended June 30, 2001

During the six months ended June 30, 2001, our cash position increased $102.5
million to $299.6 million. Net cash provided by operating activities was $753.5
million due to increased profitability and increased collection of receivables.

Net cash used in investing activities during the six months ended June 30, 2001,
totaled $135.1 million comprised of $142.0 million for capital expenditures,
$5.8 million for the acquisition of pipeline gathering systems, $9.8 million for
refinery maintenance turnaround costs, and $22.5 million of proceeds primarily
from the sale of our Oklahoma crude oil gathering operations.

Net cash used in financing activities during the six months ended June 30, 2001,
was $516.7 million which included increased short-term borrowings of $93.0
million, repayment of long-term debt of $75.8 million, cash dividends totaling
$28.5 million, and common shares purchased of $681.2 million.

Cash Flows for the Six Months Ended June 30, 2000

During the six months ended June 30, 2000, our cash position increased $31.4
million to $124.2 million. Net cash provided by operating activities was $118.0
million due to improved profitability despite an increase in accounts and notes
receivable of $180.5 million resulting primarily from higher refined product
prices in the first six months of 2000.

Net cash used in investing activities during the six months ended June 30, 2000
totaled $50.4 million which included $53.0 million for capital expenditures and
$14.2 million for refinery maintenance turnaround costs. We received $16.8
million of proceeds from mainly retail asset sales.

Net cash used in financing activities during the six months ended June 30, 2000
totaled $35.5 million. During the six months ended June 30, 2000, our commercial
paper and short-term borrowings increased $14.0 million to fund the higher
investment in accounts and notes receivable explained above. We also paid cash
dividends totaling $47.8 million during the six months ended June 30, 2000.

Exchange Rates

The value of the Canadian dollar relative to the U.S. dollar has weakened
substantially since the acquisition of the Canadian operations in 1992. As our
Canadian operations are in a net asset position, the weaker Canadian dollar has
reduced, in U.S. dollars, our net equity at June 30, 2001, by $107.8 million.
Although the Company expects the exchange rate to fluctuate during 2001, it
cannot reasonably predict its future movement.

With the exception of our crude oil costs, which are U.S. dollar denominated,
fluctuations in the Canadian dollar exchange rate will affect the U.S. dollar
amount of revenues and related costs and expenses reported by the Canadian
operations. The potential impact on the refining margin of fluctuating exchange
rates together with U.S. dollar denominated crude oil costs is mitigated by our
pricing policies, which generally pass on any change in the cost of crude oil.
Retail margins, on the other hand, have been adversely affected by exchange rate
fluctuations as competitive pressures have, from time to time, limited our
ability to promptly pass on the increased costs to the ultimate consumer. We
have considered various strategies to manage currency risk, and we hedge the
Canadian currency risk when such hedging is considered economically appropriate.

See "Certain Forward-Looking Statements."

New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 141, " Business Combinations." Statement
No. 141 addresses financial accounting and reporting for business combinations
and supersedes APB Opinion No. 16, "Business Combinations," and Statement No.
38, "Accounting for Preacquisition Contingencies of Purchased Enterprises." All
business combinations in the scope of Statement No. 141 are to be accounted for
using the purchase method. The provisions of Statement No. 141 apply to all
business combinations initiated after June 30, 2001 and applies to all business
combinations accounted for using the purchase method for which the date of
acquisition is July 1, 2001 or later. We have reviewed the requirements of
Statement No. 141 and will implement the Statement effective July 1, 2001.

Also in June 2001, the FASB issued Statement No. 142, "Goodwill and Other
Intangible Assets." Statement No. 142 addresses financial accounting and
reporting for acquired goodwill and other intangible assets and supersedes APB
Opinion No. 17, "Intangible Assets." Statement No. 142 addresses how intangible
assets that are acquired individually or with a group of other assets (but not
those acquired in a business combination) should be accounted for in financial
statements upon their acquisition. This Statement also addresses how goodwill
and other intangible assets should be accounted for after they have been
initially recognized in the financial statements. The provisions of Statement
No. 142 are required to be applied starting with fiscal years beginning after
December 15, 2001. This Statement is required to be applied at the beginning of
an entity's fiscal year and to be applied to all goodwill and other intangible
assets recognized in its financial statements at that date. Impairment losses
for goodwill and indefinite-lived intangible assets that arise due to the
initial application of Statement No. 142 are to be reported as resulting from a
change in accounting principle. We have reviewed the requirements of Statement
No. 142 and the impact of adoption effective January 1, 2002 will result in the
cessation of goodwill amortization beginning January 1, 2002, which amortization
approximates $15.0 million annually. In addition, we believe that future
reported net income will be more volatile because impairment losses related to
goodwill are likely to occur irregularly and in varying amounts.

In June 2001, the FASB also issued Statement No. 143, "Accounting for Asset
Retirement Obligations." This Statement establishes standards for accounting for
an obligation associated with the retirement of a tangible long-lived asset. An
asset retirement obligation liability should be recognized in the financial
statements in the period in which it meets the definition of a liability as
defined in FASB Concepts Statement No. 6, "Elements of Financial Statements."
The amount of the liability would initially be measured at fair value.
Subsequent to initial measurement, an entity would recognize changes in the
amount of the liability resulting from (a) the passage of time and (b) revisions
to either the timing or amount of estimated cash flows. Statement No. 143 also
establishes standards for accounting for the cost associated with an asset
retirement obligation. It requires that, upon initial recognition of a liability
for an asset retirement obligation, an entity capitalize that cost by
recognizing an increase in the carrying amount of the related long-lived asset.
The capitalized asset retirement cost would then be allocated to expense using a
systematic and rational method. Statement No. 143 will be effective for
financial statements issued for fiscal years beginning after June 15, 2002, with
earlier application encouraged. We are currently evaluating the impact of
adopting this new Statement.

Certain Forward-Looking Statements

This quarterly report on Form 10-Q contains certain "forward-looking" statements
as that term is defined in Section 27A of the Securities Act of 1933 and Section
21E of the Securities Act of 1934, and information relating to us and our
subsidiaries that are based on the beliefs of management as well as assumptions
made by and information currently available to management. When used in this
report, the words "anticipate," "believe," "estimate," "expect," and "intend"
and words or phrases of similar expressions, as they relate to us or our
subsidiaries or management, identify forward-looking statements. Such statements
reflect the current views of management with respect to future events and are
subject to certain risks, uncertainties and assumptions relating to the
operations and results of operations, including as a result of competitive
factors and pricing pressures, shifts in market demand and general economic
conditions and other factors.

Should one or more of these risks or uncertainties materialize, or should any
underlying assumptions prove incorrect, actual results or outcomes may vary
materially from those described herein as anticipated, believed, estimated,
expected or intended.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to various market risks, including changes in interest rates,
foreign currency rates and commodity prices related to crude oil, refined
products and natural gas. To manage or reduce these market risks, we use
interest rate swaps, foreign exchange and purchase contracts, and commodity
futures and price swap contracts. A discussion of our primary market risk
exposures in derivative financial instruments is presented below.

Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended, established accounting and
reporting standards for derivative instruments and for hedging activities. It
requires that all derivative instruments be recognized as either assets or
liabilities in the balance sheet and be measured at their fair value. The
Statement requires that changes in the derivative instrument's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met.

Effective January 1, 2001, we adopted Statement No. 133, as amended; the impact
of adoption was not material to our consolidated financial position or results
of operations. The adoption of Statement No. 133, as amended, could increase
volatility in our net income and other comprehensive income as derivative
instruments and the degree of hedge accounting is subject to change from time to
time based on our decisions as to the appropriate strategies and our overall
risk exposure levels.

Interest Rate Risk

We are subject to interest rate risk on our long-term fixed interest rate debt.
Commercial paper borrowings and borrowings under revolving credit facilities do
not give rise to significant interest rate risk because these borrowings have
maturities of less than three months. The carrying amount of our floating
interest rate debt approximates fair value. Generally, the fair market value of
debt with a fixed interest rate will increase as interest rates fall and will
decrease as interest rates rise. This exposure to interest rate risk is managed
by obtaining debt that has a floating interest rate or using interest rate swaps
to change fixed interest rate debt to floating interest rate debt. Generally, we
maintain floating interest rate debt of between 40% and 50% of total debt. The
Federal Reserve has cut interest rates six times during 2001 for a total
decrease of 2.75% in order to keep inflation and recession barometers in-check.
As a result of the Federal Reserve's interest rate cuts, the fair value of our
fixed rate debt has increased.

The following table provides information about our long-term debt and interest
rate swaps, both of which are sensitive to changes in interest rates. For
long-term debt, principal cash flows and related weighted average interest rates
by expected maturity dates, after consideration of refinancing, are presented.
For interest rate swaps, the table presents notional amounts and weighted
average interest rates by expected (contractual) maturity dates. Notional
amounts are used to calculate the contractual payments to be exchanged under the
contract. Weighted average floating rates are based on implied forward rates in
the yield curve at the reporting date.

At June 30, 2001, the carrying value and fair value of our interest rate swaps
was $8.6 million and the carrying amount of our fixed interest rate debt hedged
by those interest rate swaps increased by the same amount in accordance with
Statement No. 133, as amended. At December 31, 2000, the fair value of our
interest rate swaps was $1.8 million and the carrying value of those interest
rate swaps was $0, as we were not required at that time to record the fair value
of the interest rate swaps.

June 30, 2001
----------------------------------------------------------------------------------
Expected Maturity Dates
---------------------------------------------------------------------
There- Fair
2001 2002 2003 2004 2005 after Total Value
---- ---- ---- ---- ---- ----- ----- -----
(in millions, except interest rates)
Long-term Debt:

Fixed rate................... $ 1.0 $ 281.6 $ 28.8 $ 0.5 $ 203.0 $ 711.6 $ 1,226.5 $ 1,212.6
Average interest rate...... 7.5% 8.6% 8.2% 7.7% 7.9% 7.5% 7.8% N/A
Floating rate................ $ - $ 440.4 $ - $ - $ - $ 20.5 $ 460.9 $ 460.9
Average interest rate...... - % 4.2% - % - % - 4.7% 4.2% N/A
%

Interest Rate Swaps:
Notional amount.............. $ - $ 200.0 $ - $ - $ 150.0 $ 100.0 $ 450.0 $ 8.6
Average pay rate........... 3.6% 4.1% 5.4% 6.0% 6.2% 6.8% 5.8%
Average receive rate....... 6.4% 6.4% 6.6% 6.6% 6.6% 6.9% 6.7%

December 31, 2000
----------------------------------------------------------------------------------
Expected Maturity Dates
---------------------------------------------------------------------
There- Fair
2001 2002 2003 2004 2005 after Total Value
---- ---- ---- ---- ---- ----- ----- -----
(in millions, except interest rates)
Long-term Debt:

Fixed rate................... $ 1.7 $ 351.3 $ 28.8 $ 0.6 $ 196.5 $ 714.8 $ 1,293.7 $ 1,306.2
Average interest rate...... 7.4% 8.8% 8.2% 7.7% 7.9% 7.5% 7.9% N/A
Floating rate................ $ - $ 367.8 $ - $ - $ - $ - $ 367.8 $ 367.8
Average interest rate...... - % 7.8% - % - % - - 7.8% N/A
% %

Interest Rate Swaps:
Notional amount.............. $ - $ 200.0 $ - $ - $ 150.0 $ 100.0 $ 450.0 $ 1.8
Average pay rate........... 5.5% 5.1% 5.5% 5.7% 5.9% 6.5% 6.0%
Average receive rate....... 6.4% 6.4% 6.6% 6.6% 6.6% 6.9% 6.7%

Foreign Currency Risk

Periodically, we enter into short-term foreign exchange and purchase contracts
to manage our exposure to exchange rate fluctuations on the trade payables of
our Canadian operations that are denominated in U.S. dollars. These contracts
involve the exchange of Canadian and U.S. currency at future dates. Gains and
losses on these contracts generally offset losses and gains on the U.S. dollar
denominated trade payables. At June 30, 2001, we had no foreign exchange
contracts outstanding.

We generally do not hedge for the effects of foreign exchange rate fluctuations
on the translation of our foreign results of operations or financial position.

Commodity Price Risk

We are subject to the market risk associated with changes in market prices of
our crude oil, refined products and natural gas; however, such changes in values
are generally offset by changes in the sales price of our refined products. Our
risk management policy allows us to use commodity futures contracts to procure a
large portion of our crude oil requirements and to hedge our exposure to crude
oil, refined product and natural gas price volatility. In addition, we use
commodity price swaps to manage our exposure to price volatility related to
forecasted purchases of crude oil, refined products and natural gas.

The information below reflects our commodity futures contracts and price swaps
that are sensitive to changes in crude oil, refined product or natural gas
commodity prices. The tables present the notional amounts in barrels for crude
oil and refined product or MMBTU for natural gas, the weighted average contract
prices and the total contract amount by expected maturity dates. Contract
amounts are used to calculate the contractual payments and quantity of barrels
of crude oil or refined products or MMBTU of natural gas to be exchanged under
the contracts. The fair value of commodity futures contracts is based on quoted
market prices. The fair value of commodity price swap contracts is determined by
comparing the contract price with current broker quotes for futures contracts
corresponding to the period that the anticipated transactions are expected to
occur. At June 30, 2001, the carrying amount is stated at fair value.

June 30, 2001
----------------------------------------------------------
Weighted
Carrying Amount Contract Contract Average
Asset Liability Amount Volumes Price
----- --------- ------ ------- -----
(in millions, except weighted average price)

Procurement:
Futures contracts - long:
2001 (natural gas)......................... $ - $ 0.2 $ 3.2 0.1 $ 3.28
2001 (crude oil and refined products)...... 0.5 1.2 42.4 1.4 29.50
2002 (crude oil and refined products)...... - 0.3 8.5 0.3 31.42

Futures contracts - short:
2001 (natural gas)......................... - - 2.0 0.1 3.06
2001 (crude oil and refined products)...... 0.4 0.3 13.8 0.5 25.25

Price swaps - long:
2001 (natural gas)......................... 2.6 2.3 25.5 6.4 3.99
2002 (natural gas)......................... 1.8 1.7 19.2 4.7 4.11
2002 (crude oil and refined products)...... 27.3 - 140.0 6.4 22.00

Price swaps - short:
2001 (natural gas)......................... 2.6 - 18.2 4.1 4.49
2002 (natural gas)......................... 2.1 - 12.8 2.8 4.57

Options - long:
2001 (refined products).................... 0.6 - - 0.3 2.10
2002 (refined products).................... 0.5 - - 0.4 1.21

December 31, 2000
--------------------------------------------------------------------
Carrying Fair Value Weighted
Amount Amount Contract Contract Average
Gain (Loss) Gain (Loss) Amount Volumes Price
----------- ----------- ------ ------- -----
(in millions, except weighted average price)

Procurement:
Futures contracts - long:
2001 (crude oil and refined products)...... $ (8.3) $ (9.5) $ 321.7 11.6 $ 27.64
2001 (natural gas)......................... - 1.2 13.5 1.5 8.97

Futures contracts - short:
2001 (crude oil and refined products)...... 5.4 16.4 361.5 16.0 22.64

Price swaps - long:
2001 (crude oil and refined products).. - (0.6) 7.5 0.3 24.37
2002 (crude oil and refined products)...... - 11.6 140.0 6.4 22.00

Price swaps - short:
2001 (crude oil and refined products).. - (0.1) 10.9 0.4 23.68

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

We are involved in various claims and lawsuits arising in the normal course of
business. In the opinion of our management, based upon the advice of counsel,
the ultimate resolution of these matters will not have a material adverse effect
on our results of operations or financial position.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

10.1 Agreement and Plan of Merger between Ultramar Diamond Shamrock
Corporation and Valero Energy Corporation (incorporated by reference
to our Current Report on Form 8-K dated May 6, 2001).

(b) Reports on Form 8-K

Current Report on Form 8-K dated May 6, 2001 was filed on May 18, 2001
relating to the planned merger of Ultramar Diamond Shamrock Corporation and
Valero Energy Corporation.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.

ULTRAMAR DIAMOND SHAMROCK CORPORATION

By: /s/ Robert S. Shapard
-------------------------------------------
ROBERT S. SHAPARD
EXECUTIVE VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
August 23, 2001