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

FORM 10-Q

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

For the quarter ended September 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 October 31, 2001, 74,294,000 shares of Common Stock, $0.01 par value, were
outstanding and the aggregate market value of such stock was $3,718,437,000.

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ULTRAMAR DIAMOND SHAMROCK CORPORATION
FORM 10-Q
SEPTEMBER 30, 2001

TABLE OF CONTENTS

Page

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

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

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

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

Consolidated Statements of Comprehensive Income
for the Three and Nine Months Ended September 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 4. Submission of Matters to a Vote of Security Holders................. 30

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

SIGNATURE........................................................... 30

PART I - FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

ULTRAMAR DIAMOND SHAMROCK CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
September 30, December 31,
2001 2000
---- ----
(unaudited)
Assets

Current assets:
Cash and cash equivalents............................ $ 121.5 $ 197.1
Accounts and notes receivable, net................... 474.7 700.5
Inventories.......................................... 850.9 808.8
Prepaid expenses and other current assets............ 80.0 29.3
Deferred income taxes................................ 114.5 117.6
------- -------
Total current assets.............................. 1,641.6 1,853.3
------- -------

Property, plant and equipment........................... 5,301.8 5,136.0
Less accumulated depreciation and amortization.......... (1,651.7) (1,501.7)
------- -------
Property, plant and equipment, net................... 3,650.1 3,634.3
Other assets, net....................................... 691.6 500.8
------- -------
Total assets........................................$ 5,983.3 $ 5,988.4
======= =======

Liabilities and Stockholders' Equity

Current liabilities:
Notes payable and current portion of
long-term debt..................................... $ 449.3 $ 1.7
Accounts payable..................................... 729.3 825.5
Accrued liabilities.................................. 453.2 366.6
Taxes other than income taxes........................ 282.8 289.8
Income taxes payable................................. 36.4 59.3
------- -------
Total current liabilities......................... 1,951.0 1,542.9

Long-term debt, less current portion.................... 977.1 1,659.8
Other long-term liabilities............................. 397.3 366.3
Deferred income taxes................................... 568.7 394.1
Minority interest in consolidated subsidiary............ 115.4 -
Commitments and contingencies

Company obligated preferred stock of subsidiary......... 200.0 200.0

Stockholders' equity:
Common Stock, par value $0.01 per share:
250,000,000 shares authorized, 74,172,000
and 86,987,000 shares issued and outstanding
as of September 30, 2001 and December 31, 2000..... 0.7 0.9
Additional paid-in capital........................... 944.1 1,516.9
Treasury stock....................................... (69.9) (1.2)
Grantor trust stock ownership program................ - (95.8)
Retained earnings.................................... 1,023.5 509.0
Accumulated other comprehensive loss ................ (124.6) (104.5)
------- -------
Total stockholders' equity......................... 1,773.8 1,825.3
------- -------
Total liabilities and stockholders' equity.........$ 5,983.3 $ 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 Nine Months Ended
September 30, September 30,
------------- -------------
2001 2000 2001 2000
---- ---- ---- ----

Sales and other revenues...................................... $ 4,019.9 $ 4,527.9 $ 13,339.6 $ 12,182.8
------- ------- -------- --------

Operating costs and expenses:
Cost of products sold...................................... 2,517.0 3,141.3 8,728.1 8,320.8
Operating expenses......................................... 306.4 276.3 966.3 747.8
Selling, general and administrative expenses............... 93.4 83.0 256.3 226.5
Taxes other than income taxes.............................. 777.8 724.1 2,223.4 2,086.1
Depreciation and amortization.............................. 72.2 63.3 202.2 185.8
Restructuring and other expenses, net....................... 1.0 (0.1) (7.9) -
------- ------- -------- --------
Total operating costs and expenses...................... 3,767.8 4,287.9 12,368.4 11,567.0
------- ------- -------- --------

Operating income.............................................. 252.1 240.0 971.2 615.8
Interest income............................................. 2.5 5.0 7.0 11.2
Interest expense............................................ (26.6) (34.3) (95.7) (95.8)
Equity income from joint ventures........................... 3.7 3.5 6.4 15.8
Minority interest in net income of consolidated subsidiary.. (3.7) - (6.1) -
------- ------- -------- --------

Income before income taxes and dividends of subsidiary........ 228.0 214.2 882.8 547.0
Provision for income taxes.................................. (76.5) (84.0) (323.0) (214.1)
Dividends on preferred stock of subsidiary.................. (2.5) (2.6) (7.7) (7.7)
------- ------- --------- --------
Net income.................................................... $ 149.0 $ 127.6 $ 552.1 $ 325.2
======= ======= ========= ========

Net income per share:
Basic...................................................... $ 2.04 $ 1.47 $ 7.46 $ 3.75
Diluted.................................................... $ 2.00 $ 1.47 $ 7.31 $ 3.74

Weighted average number of shares (in thousands):
Basic...................................................... 73,129 86,794 74,047 86,759
Diluted.................................................... 74,616 87,003 75,520 86,922

Dividends per Common Share.................................... $ 0.125 $ 0.275 $ 0.525 $ 0.825

See accompanying notes to consolidated financial statements.

ULTRAMAR DIAMOND SHAMROCK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in millions)

Nine Months Ended
September 30,
-------------
2001 2000
---- ----

Cash Flows from Operating Activities:
Net income..................................................... $ 552.1 $ 325.2
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization............................... 202.2 185.8
Gain on derivative instruments.............................. (14.2) -
Provision for losses on receivables......................... 9.8 16.6
Gain on sale of property, plant and equipment............... (2.8) (3.4)
Write-down of property, plant and equipment and goodwill.... - 5.2
Equity income from joint ventures........................... (6.4) (15.8)
Minority interest in net income of consolidated subsidiary.. 6.1 -
Deferred income tax provision............................... 172.2 98.4
Other, net.................................................. 9.0 3.7
Changes in operating assets and liabilities:
Decrease (increase) in accounts and notes receivable...... 199.7 (23.5)
Increase in inventories................................... (20.9) (146.7)
Increase in prepaid expenses and other current assets..... (10.0) (11.9)
Increase (decrease) in accounts payable and other current
liabilities.............................................. (194.0) 192.9
Decrease in other long-term assets............................. 9.5 23.1
Increase (decrease) in other long-term liabilities............. 32.2 (21.8)
------ ------
Net cash provided by operating activities............... 944.5 627.8
----- -----

Cash Flows from Investing Activities:
Capital expenditures.......................................... (241.0) (89.3)
Acquisition of refining operations............................ (5.8) (806.8)
Acquisition of retail operations.............................. (0.4) (14.5)
Deferred refinery maintenance turnaround costs................ (29.4) (15.4)
Proceeds from sales of property, plant and equipment.......... 25.3 21.0
----- -----
Net cash used in investing activities....................... (251.3) (905.0)
----- -----

Cash Flows from Financing Activities:
Net change in commercial paper and working capital
borrowings.................................................. (175.9) 119.4
Proceeds from debt borrowings................................. - 350.0
Repayment of long-term debt................................... (81.6) (35.3)
Purchase of common shares..................................... (682.7) -
Payment of cash dividends..................................... (37.7) (71.7)
Proceeds from sale of minority interest in consolidated
subsidiary.................................................. 111.9 -
Payment of cash distributions to minority interest in
consolidated subsidiary..................................... (2.6) -
Proceeds from exercise of stock options....................... 101.8 1.8
----- -----
Net cash provided by (used in) financing activities......... (766.8) 364.2
----- -----

Effect of exchange rate changes on cash........................ (2.0) (2.4)
----- -----

Net Increase (Decrease) in Cash and Cash Equivalents........... (75.6) 84.6
Cash and Cash Equivalents at Beginning of Period............... 197.1 92.8
----- -----
Cash and Cash Equivalents at End of Period..................... $ 121.5 $ 177.4
===== =====

See accompanying notes to consolidated financial statements.

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

Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2001 2000 2001 2000
---- ---- ---- ----

Net income...................................................... $ 149.0 $ 127.6 $ 552.1 $ 325.2

Other comprehensive income (loss):
Foreign currency translation adjustment........................ (26.6) (8.9) (31.7) (21.9)

Derivative instruments adjustments, net of income tax expense:
Cumulative effect of accounting change....................... - - 13.3 -
Change in fair value of derivative instruments............... (5.3) - 4.5 -
Reclassification adjustment for gains
included in net income..................................... - - (6.2) -
---- ---- ---- ----
Derivative instruments adjustments, net.................. (5.3) - 11.6 -
---- ---- ---- ----

Comprehensive income............................................ $ 117.1 $ 118.7 $ 532.0 $ 303.3
===== ===== ===== =====

See accompanying notes to consolidated financial statements.

ULTRAMAR DIAMOND SHAMROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 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 nine months ended September 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, refinery maintenance turnarounds and
availability of refined product pipeline capacity.

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 September 30, 2001, we had fair value hedge derivative assets of $22.4
million with an offsetting change in carrying value of $22.4 million to the
related hedged items and cash flow hedge derivative assets of $18.4 million. We
also had derivative assets of $15.4 million and derivative liabilities of $3.1
million for derivative instruments that are not designated as hedging
instruments. Included in other comprehensive income as of September 30, 2001 are
$11.6 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 nine months ended September 30, 2001.

NOTE 3: Inventories

Inventories consisted of the following:

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

Crude oil and other feedstocks............................................ $ 331.5 $ 279.1
Refined and other finished products and convenience store items........... 449.1 463.9
Materials and supplies.................................................... 70.3 65.8
------ ------

Total inventories.................................................... $ 850.9 $ 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. As of September 30, 2001 and December 31, 2000, the balance of
receivables sold was $273.0 million and $250.0 million, respectively.

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

Nine Months Ended September 30,
2001 2000
---- ----
(in millions)

Proceeds from the sales of receivables......... $ 60.0 $ 300.0
Proceeds from collections under the facility... 7,023.8 5,414.4

NOTE 5: Acquisition of Golden Eagle Refinery

On August 31, 2000, we acquired Tosco Corporation's 168,000 barrel per day Avon
Refinery (renamed the Golden Eagle Refinery) located in the San Francisco bay
area of California. The original purchase price of $806.8 million included the
crude oil, feedstock and refined product inventories and the assumption of
certain liabilities. In addition, the terms of the Purchase and Sale Agreement
provided for additional consideration of up to $150.0 million over an eight-year
period if average annual West Coast refinery margins exceeded historical
averages. The acquisition was accounted for using the purchase method. The
purchase price was allocated based on the estimated fair values of the
individual assets and liabilities at the date of acquisition.

During the subsequent year since the acquisition, it was determined that the
estimated fair values of inventories, accrued liabilities and lease obligations
were understated. In addition, West Coast refinery margins have exceeded
historical averages resulting in the full $150.0 million of contingent
consideration becoming due and payable to Tosco Corporation. Accordingly,
revisions to the initial allocation of purchase price have been made as of
August 31, 2001 as follows:

Final Initial
Allocation Allocation
---------- ----------
(in millions)
Working capital............................... $ 168.5 $ 150.3
Property, plant and equipment................. 642.0 650.0
Excess of cost over fair value of net assets
of purchased business...................... 205.3 28.6
Other long-term liabilities assumed........... (59.9) (22.1)
----- -----
Total purchase price................. $ 955.9 $ 806.8
===== =====

The excess of purchase price over the fair value of the net assets acquired is
being amortized as goodwill on a straight-line basis over 20 years.

NOTE 6: 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. As a result of the initial public offering, we now own approximately
74% of Shamrock Logistics' ownership equity.

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 unitholders' investment in Shamrock
Logistics plus their share of the net income of Shamrock Logistics since the
initial public offering on April 16, 2001 less distributions paid. Minority
interest in net income of consolidated subsidiary in the consolidated statement
of income represents the minority unitholders' share of the net income of
Shamrock Logistics.

On July 19, 2001, Shamrock Logistics declared a quarterly partnership
distribution of $0.5011 per unit (a pro rata distribution for the period April
16, 2001 to June 30, 2001) which was paid on August 14, 2001 to unitholders of
record on August 1, 2001. The total distribution was $9.8 million of which $2.6
million was paid to the minority unitholders.

On October 19, 2001, Shamrock Logistics declared a quarterly partnership
distribution of $0.60 per unit payable on November 14, 2001 to unitholders of
record on November 1, 2001. The total distribution is expected to be
approximately $11.7 million of which $3.1 million is payable to minority
unitholders.

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 Nine Months Ended
September 30, September 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)............................................... 73,129 86,794 74,047 86,759
====== ====== ====== ======

Net income applicable to Common Stock............................ $ 149.0 $ 127.6 $ 552.1 $ 325.2
===== ===== ===== =====

Basic net income per share....................................... $ 2.04 $ 1.47 $ 7.46 $ 3.75
==== ==== ==== ====

Diluted Net Income Per Share:
Weighted average common shares outstanding
(in thousands)............................................... 73,129 86,794 74,047 86,759

Net effect of dilutive stock options based on the treasury
stock method using the average market price................... 1,487 209 1,473 163
------ ----- ------ ------

Weighted average common equivalent shares........................ 74,616 87,003 75,520 86,922
====== ====== ====== ======

Net income....................................................... $ 149.0 $ 127.6 $ 552.1 $ 325.2
===== ===== ===== =====

Diluted net income per share..................................... $ 2.00 $ 1.47 $ 7.31 $ 3.74
==== ==== ==== ====

NOTE 8: Restructuring and Other Expenses

Restructuring and other expenses consisted of the following:

Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2001 2000 2001 2000
---- ---- ---- ----
(in millions)

Loss (gain) on sale of property, plant and equipment........ $ 1.0 $ 1.7 $ (2.8) $ (3.4)
Write-down of property, plant and equipment
and goodwill.............................................. - - - 5.2
Restructuring reserve reductions............................ - (1.8) (5.1) (1.8)
---- --- --- ---

Restructuring and other expenses, net.................. $ 1.0 $ (0.1) $ (7.9) $ -
=== === === ===

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. From June 1998
through June 2001, 286 convenience stores were sold or closed and 270 retail
employees and 66 pipeline and terminal employees were terminated.

Effective June 30, 2001, we completed our three-year restructuring program of
our retail and pipeline and terminal operations; the balance of the various
restructuring reserves was credited into income.

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 joint ventures 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
(plus loss) 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 September 30, 2001:
Sales and other revenues from
external customers............... $ 2,481.2 $ 1,510.6 $ 28.1 $ - $ 4,019.9
Intersegment sales.................. 764.8 - - - 764.8
EBITDA.............................. 330.7 41.6 3.5 (46.8) 329.0
Depreciation and amortization....... 50.1 18.7 0.1 3.3 72.2
Operating income (loss)............. 281.1 21.4 (0.3) (50.1) 252.1
Total capital expenditures.......... 96.4 20.6 - 2.0 119.0

Three months ended September 30, 2000:
Sales and other revenues from
external customers............... 2,739.0 1,747.4 41.5 - 4,527.9
Intersegment sales.................. 890.3 - - - 890.3
EBITDA.............................. 306.2 32.5 3.6 (33.8) 308.5
Depreciation and amortization....... 42.5 17.2 0.5 3.1 63.3
Operating income (loss)............. 263.3 14.5 (0.4) (37.4) 240.0
Total capital expenditures.......... 821.6 29.6 - 7.6 858.8

Nine months ended September 30, 2001:
Sales and other revenues from
external customers............... 8,303.5 4,934.7 101.4 - 13,339.6
Intersegment sales.................. 2,437.9 - - - 2,437.9
EBITDA.............................. 1,148.3 138.0 7.3 (116.6) 1,177.0
Depreciation and amortization....... 137.2 55.5 0.1 9.4 202.2
Operating income (loss)............. 1,017.4 79.0 0.8 (126.0) 971.2
Total assets........................ 4,386.6 1,202.4 155.4 238.9 5,983.3
Total capital expenditures.......... 216.1 52.9 - 7.6 276.6

Nine months ended September 30, 2000:
Sales and other revenues from
external customers............... 7,116.9 4,944.6 121.3 - 12,182.8
Intersegment sales.................. 2,512.5 - 1.4 - 2,513.9
EBITDA.............................. 775.5 110.4 17.8 (84.5) 819.2
Depreciation and amortization....... 124.8 51.6 0.8 8.6 185.8
Operating income (loss)............. 644.5 63.9 1.1 (93.7) 615.8
Total assets........................ 4,246.8 1,208.7 118.2 317.6 5,891.3
Total capital expenditures.......... 862.9 46.5 - 16.6 926.0

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

Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2001 2000 2001 2000
---- ---- ---- ----
(in millions)

Operating income:
Total operating income for reportable segments... $ 302.2 $ 277.4 $ 1,097.2 $ 709.5
Corporate........................................ (50.1) (37.4) (126.0) (93.7)
----- ----- ------ -----
Consolidated operating income................. $ 252.1 $ 240.0 $ 971.2 $ 615.8
===== ===== ===== =====

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

Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2001 2000 2001 2000
---- ---- ---- ----
(in millions)

Refining:
Gasoline and blendstocks......................... $ 1,446.1 $ 1,472.4 $ 4,747.7 $ 3,566.7
Distillates (diesel, jet fuel, heating oil, etc.) 785.1 949.4 2,665.9 2,687.6
Petrochemicals................................... 108.2 100.6 354.5 377.9
Asphalt and lubes................................ 33.1 123.9 355.7 317.3
Other............................................ 108.7 92.7 179.7 167.4
Retail:
Fuel sales (gasoline and diesel)................. 1,216.2 1,389.0 3,767.3 3,781.3
Merchandise sales................................ 213.1 329.5 953.1 955.4
Home heating oil................................. 81.3 28.9 214.3 207.9
Petrochemical...................................... 28.1 41.5 101.4 121.3
--------- --------- -------- ---------
Total sales and other revenues from
external customers......................... $ 4,019.9 $ 4,527.9 $ 13,339.6 $ 12,182.8
======= ======= ======== ========

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 and
shareholders of both companies; however, closing of the transaction is subject
to the completion of regulatory reviews. 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 October 2, 2001, our Board of Directors declared a quarterly dividend of
$0.125 per Common Share payable on December 5, 2001 to holders of record on
November 21, 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. On November 9, 2001, the Quebec Refinery was renamed the Jean
Gaulin Refinery in honor of our retiring president, chief executive officer
and chairman of our board of directors, Jean R. Gaulin.

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.

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 and
shareholders of both companies; however, closing of the transaction is subject
to the completion of regulatory reviews. The merger is expected to close in the
fourth quarter of 2001.

Results of Operations

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

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

Summarized Financial Data:

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

Statement of Operations Data:
Sales and other revenues:
Refining.................................$ 2,481.2 $ 2,739.0
Retail................................... 1,510.6 1,747.4
Petrochemical/NGL........................ 28.1 41.5
------- -------
Total sales and other revenues........$ 4,019.9 $ 4,527.9
======= =======

Operating income (loss):
Refining.................................$ 281.1 $ 263.3
Retail................................... 21.4 14.5
Petrochemical/NGL........................ (0.3) (0.4)
Corporate................................ (50.1) (37.4)
------- -------
Total operating income................ 252.1 240.0
Interest income............................ 2.5 5.0
Interest expense........................... (26.6) (34.3)
Equity income from joint ventures.......... 3.7 3.5
Minority interest in net income
of consolidated subsidiary............... (3.7) -
------- -------
Income before income taxes and dividends
of subsidiary........................... 228.0 214.2
Provision for income taxes................. (76.5) (84.0)
Dividends on preferred stock of subsidiary. (2.5) (2.6)
------ ------
Net income...............................$ 149.0 $ 127.6
====== ======

Net income per share:
Basic.................................... $ 2.04 $ 1.47
Diluted.................................. $ 2.00 $ 1.47

September 30, September 30,
2001 2000
---- ----
(in millions)
Balance Sheet Data:
Cash and cash equivalents.................. $ 121.5 $ 177.4
Working capital, excluding current debt.... 139.9 355.3
Property, plant and equipment, net......... 3,650.1 3,596.5
Total assets............................... 5,983.3 5,891.3
Long-term debt, including current portion.. 1,426.4 1,781.1
Total stockholders' equity................. 1,773.8 1,727.3

Summarized Operating Data:
- --------------------------
Three Months Ended September 30,
2001 2000
---- ----
Refining:
Mid-Continent Refineries:
Throughput (barrels per day)............ 345,800 373,200
Refinery gross profit margin ($/barrel). $ 6.99 $ 5.74
Operating cost ($/barrel)............... $ 2.05 $ 2.27

West Coast Refineries:
Throughput (barrels per day)............ 291,800 181,300
Refinery gross profit margin ($/barrel). $ 8.78 $ 8.90
Operating cost ($/barrel)............... $ 3.25 $ 2.41

Quebec Refinery:
Throughput (barrels per day)............ 134,800 158,300
Refinery gross profit margin ($/barrel). $ 3.81 $ 4.13
Operating cost ($/barrel)............... $ 0.99 $ 0.93

Retail:
US:
Fuel volume (barrels per day)........... 166,200 165,300
Fuel margin (cents per gallon).......... 10.2 9.6
Merchandise sales ($1,000/day).......... $ 3,159 $ 3,157
Merchandise margin...................... 27.5% 26.9%

Northeast:
Fuel volume (barrels per day)........... 68,600 66,400
Fuel margin (cents per gallon).......... 19.7 20.1
Merchandise sales ($1,000/day).......... $ 256 $ 214
Merchandise margin...................... 22.0% 21.3%

Overview

Net income for the quarter ended September 30, 2001 was $149.0 million as
compared to $127.6 million for the quarter ended September 30, 2000. Net income
per diluted share was $2.00 per share and $1.47 per share for the quarter ended
September 30, 2001 and 2000, respectively. Net income per share increased from
the third quarter of 2000 to the third 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 began in February 2001.

Interest expense for the third quarter of 2001 was lower than the third quarter
of 2000 due to:
o lower average outstanding long-term debt during 2001;
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.

The consolidated income tax provisions for the third quarter of 2001 and 2000
were based upon our estimated effective income tax rates for the years ending
December 31, 2001 and 2000 of 37% 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 and operating income for the refining segment increased 8% and 7%,
respectively from the third quarter of 2000 to the third quarter of 2001 despite
planned and unplanned shutdowns at our refineries. These increases were mainly
due to the addition of the Golden Eagle Refinery operations, which were acquired
on August 31, 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
161,800 barrels per day during the third quarter of 2001. The Golden Eagle
Refinery's refinery gross profit margin for the quarter ended September 30, 2001
was $9.63 per barrel and operating costs were $4.44 per barrel.

On July 9, 2001, the Three Rivers Refinery sustained a fire in the plant's
alkylation unit. As a result of the fire, the refinery was shut down for repairs
and turnaround maintenance through August 6, 2001, at which time the refinery
began to ramp up production slowly. The alkylation unit did not resume
production until mid-September 2001 at which time the refinery was back in full
operation. This unplanned downtime at the Three Rivers Refinery resulted in the
lower throughput at our Mid-Continent Refineries. Throughput at the Three Rivers
Refinery for the quarter ended September 30, 2001 was 62,000 barrels per day as
compared to 95,500 barrels per day in the third quarter of 2000 resulting in an
operating loss of $21.3 million for the third quarter of 2001.

In mid-September 2001, our Quebec Refinery was shut down for three weeks to
tie-in the newly expanded fluid catalytic cracking unit (FCCU) and a new crude
oil unit and for turnaround maintenance. This planned shutdown of the Quebec
Refinery resulted in lower throughput and higher operating costs per barrel for
the third quarter of 2001 as compared to the same period in 2000. The expanded
FCCU and the new crude oil unit will increase the refinery capacity of the
Quebec Refinery to 200,000 barrels per day.

Retail

Operating income for the retail segment increased 48% from the third quarter of
2000 to the third quarter of 2001 mainly from higher fuel volumes and
merchandise sales combined with improved fuel margins and merchandise margins.
The US retail re-imaging program is positively impacting per store sales as the
new look is increasing customer activity at each of the 66 convenience stores
remodeled to date.

US Retail operations improved due to higher retail fuel margins, particularly in
July 2001, when the mid-continent region of the United States experienced a
supply imbalance due to refinery shutdowns. Retail operations in the Northeast
continued to benefit from high retail fuel margins especially in the cardlock
and convenience store businesses.

Corporate

Higher incentive compensation accruals as a result of improved profitability
resulted in higher selling, general and administrative expenses and negatively
impacted the corporate segment for the third quarter of 2001.

Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30,
2000

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

Summarized Financial Data:

Nine Months Ended September 30,
2001 2000
---- ----
(in millions, except per share data)

Statement of Operations Data:
Sales and other revenues:
Refining.......................................................... $ 8,303.5 $ 7,116.9
Retail............................................................ 4,934.7 4,944.6
Petrochemical/NGL................................................. 101.4 121.3
-------- --------
Total sales and other revenues................................. $ 13,339.6 $ 12,182.8
======== ========

Operating income (loss):
Refining.......................................................... $ 1,017.4 $ 644.5
Retail............................................................ 79.0 63.9
Petrochemical/NGL................................................. 0.8 1.1
Corporate......................................................... (126.0) (93.7)
-------- -------
Total operating income......................................... 971.2 615.8
Interest income..................................................... 7.0 11.2
Interest expense.................................................... (95.7) (95.8)
Equity income from joint ventures................................... 6.4 15.8
Minority interest in net income of consolidated subsidiary.......... (6.1) -
-------- -------
Income before income taxes and dividends of subsidiary............ 882.8 547.0
Provision for income taxes.......................................... (323.0) (214.1)
Dividends on preferred stock of subsidiary.......................... (7.7) (7.7)
-------- -------
Net income........................................................ $ 552.1 $ 325.2
======== =======

Net income per share:
Basic............................................................. $ 7.46 $ 3.75
Diluted........................................................... $ 7.31 $ 3.74

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

Nine Months Ended September 30,
-------------------------------
2001 2000
---- ----
Refining:
Mid-Continent Refineries:
Throughput (barrels per day)............. 363,300 367,200
Refinery gross profit margin ($/barrel).. $ 7.43 $ 6.36
Operating cost ($/barrel)................ $ 2.39 $ 2.02

West Coast Refineries:
Throughput (barrels per day)............. 284,400 155,700
Refinery gross profit margin ($/barrel).. $ 10.00 $ 6.02
Operating cost ($/barrel)................ $ 3.52 $ 1.94

Quebec Refinery:
Throughput (barrels per day)............. 154,300 160,800
Refinery gross profit margin ($/barrel).. $ 3.91 $ 4.62
Operating cost ($/barrel)................ $ 0.86 $ 0.87

Retail:
US:
Fuel volume (barrels per day)............ 161,400 160,400
Fuel margin (cents per gallon)........... 9.6 9.9
Merchandise sales ($1,000/day)........... $ 2,997 $ 3,019
Merchandise margin....................... 27.3% 27.4%

Northeast:
Fuel volume (barrels per day)............ 72,400 70,700
Fuel margin (cents per gallon)........... 24.1 20.8
Merchandise sales ($1,000/day)........... $ 228 $ 196
Merchandise margin....................... 22.4% 21.0%

Overview

Net income for the nine months ended September 30, 2001 was $552.1 million as
compared to $325.2 million for the nine months ended September 30, 2000. Net
income per diluted share was $7.31 per share and $3.74 per share for the first
nine months of 2001 and 2000, respectively. Net income per share increased from
2000 to 2001 due to higher operating income in the refining segment for the nine
months ended September 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 began in February 2001.

Interest expense for the nine months ended September 30, 2001 was comparable to
the same period in 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;
o higher differentials received on our interest rate swap agreements; and
o lower interest expense on our floating rate debt due to lower interest
rates during 2001 despite higher average borrowings during the first nine
months of 2001.

Equity income from joint ventures continues to remain lower for the nine months
ended September 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.

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 $6.1 million represents the minority unitholders'
share of Shamrock Logistics' net income for the period from April 16, 2001 to
September 30, 2001.

The consolidated income tax provisions for the nine months ended September 30,
2001 and 2000 were based upon our estimated effective income tax rates for the
years ending December 31, 2001 and 2000 of 37% 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 first nine months of 2001 for the refining segment increased
17% from the same period in 2000 mainly due to the addition of the Golden Eagle
Refinery operations, which were acquired on August 31, 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 CARB gasoline and diesel. The Golden Eagle Refinery's operations
for the nine months ended September 30, 2001 included throughput of 149,000
barrels per day and a refinery gross profit margin of $11.25 per barrel.

Higher refinery gross profit margins at our Mid-Continent and West Coast
Refineries for the first nine 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 $10.00 per barrel in 2001
compared to $6.02 per barrel in 2000. The refinery gross profit margin at our
Quebec Refinery has been negatively affected by lower crack spreads and higher
freight costs during the year. Also, in mid-September 2001, the Quebec Refinery
was shut down for three weeks to tie-in the newly expanded FCCU and a new crude
oil unit and for turnaround maintenance.

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 during the first half of
2001.

Retail

Operating income year to date for the retail segment increased 24% from 2000 to
2001 mainly from NE retail operations where lower wholesale prices on the East
Coast have resulted in improved retail fuel margins for the home heating oil,
motorist and cardlock businesses.

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 nine months ended September 30, 2001. The corporate
segment for the nine months ended September 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 and retail 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 third quarter of 2001 was our second highest quarterly earnings for the
company; continuing the record pace we have been on since the beginning of 1999.
Our integrated operations and geographic diversity allowed us to achieve
superior results compared to our peer group. Industry refining margins were
below five-year averages due to high inventory levels and increased importation
of refined products from overseas at the beginning of the third quarter. As the
quarter unfolded, seasonally stronger demand coupled with planned and unplanned
downtime at several domestic refineries caused a dramatic decrease in inventory
levels and refining margins moved higher. Wholesale and retail margins, which
are counter-cyclical to refining margins, started the third quarter with
stronger than normal margins but as the quarter moved forward those margins came
under pressure as the increase in spot prices moved faster than the wholesale
and retail prices. Distillate margins held above the five-year average due to
continued strong demand and relatively low inventories. The September 11th
terrorist attacks and the slowdown in the economy roiled both the equity and
commodity markets. Crude oil prices initially moved higher after the terrorist
attacks, then dropped almost $7 per barrel to settle at approximately $21 per
barrel. The decline in crude oil prices along with the marked drop in jet fuel
demand caused the industry refining margin to come under pressure at the end of
the third quarter of 2001.

Looking ahead to the fourth quarter of 2001, we expect slightly higher inventory
levels compared to a year ago, seasonally lower demand and uncertainty as to the
direction of the U.S. economy to continue to affect both the crude oil and
refined product markets. These markets are expected to remain volatile as
suppliers respond to the weakness in the world crude oil demand. Despite the
prospect of lower then average margins for both gasoline and distillate, we
raised our full year 2001 earnings per share estimate to approximately $8.00 per
diluted share up from the previously announced earnings per share estimate of
$7.50 per diluted share.

See "Certain Forward-Looking Statements."

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 nine months ended September 30, 2001, capital expenditures totaled
$247.2 million of which $76.7 million related to maintenance expenditures and
$170.5 million related to growth opportunity expenditures. Approximately $47.9
million and $22.8 million of costs were incurred at the refineries and at the
retail level, respectively, for various maintenance expenditures. During the
nine months ended September 30, 2001, $29.4 million was also incurred for
refinery maintenance turnarounds.

Growth opportunity expenditures during the nine months ended September 30, 2001
included:
o $21.3 million to expand our Quebec Refinery from 167,000 barrels per day to
200,000 barrels per day;
o $20.0 million to reestablish the delivery of crude oil shipments to the
Amorco Wharf at the Golden Eagle Refinery;
o $16.6 million for improvements for our CARB diesel unibon unit at the
Wilmington Refinery to produce cleaner diesel fuel;
o $13.2 million to re-image various convenience stores;
o $11.7 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 $5.5 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 September 30, 2001, our cash and cash equivalents totaled $121.5 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.

The unsecured bank facilities and commercial paper program mature in July 2002
and, as a result of the pending merger with Valero Energy Corporation, which is
expected to close in the fourth quarter of 2001, we do not intend to negotiate
new bank facilities. However, Valero Energy Corporation expects to put in place
new bank facilities at the time of the merger to finance the borrowing needs of
the combined entity. Accordingly, $448.0 million of commercial paper and other
borrowings maturing in the next 12 months have been classified as a current
liability.

As of September 30, 2001, we had borrowing capacity of approximately $648.9
million under our committed bank facilities and commercial paper program and
approximately $156.1 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.

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. We used the proceeds
from the initial public offering to pay down debt.

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 $20.5
million under the revolving credit facility. As of September 30, 2001, $15.0
million was outstanding.

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 September 30, 2001 and December 31, 2000,
the balance of receivables sold was $273.0 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 September 30, 2001, we had
purchased 17,050,109 shares of our common stock at a total cost of $682.7
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.

On October 2, 2001, our Board of Directors declared a quarterly dividend of
$0.125 per Common Share payable on December 5, 2001 to holders of record on
November 21, 2001.

Cash Flows for the Nine Months Ended September 30, 2001

During the nine months ended September 30, 2001, our cash position decreased
$75.6 million to $121.5 million. Net cash provided by operating activities was
$944.5 million due to increased profitability.

Net cash used in investing activities during the nine months ended September 30,
2001, totaled $251.3 million including $241.0 million for capital expenditures,
$5.8 million for the acquisition of pipeline gathering systems, $29.4 million
for refinery maintenance turnaround costs, and $25.3 million of proceeds
primarily from the sale of our Oklahoma crude oil gathering operations.

Net cash used in financing activities during the nine months ended September 30,
2001, was $766.8 million including a reduction of our short-term borrowings of
$175.9 million, repayment of long-term debt of $81.6 million, cash dividends
totaling $37.7 million, and common shares purchased of $682.7 million.

Cash Flows for the Nine Months Ended September 30, 2000

During the nine months ended September 30, 2000, our cash position increased
$84.6 million to $177.4 million. Net cash provided by operating activities was
$627.8 million due to improved profitability which was partially offset by an
increase in inventories of $146.7 million due to the acquisitions of the Golden
Eagle Refinery and Valley Shamrock.

Net cash used in investing activities during the nine months ended September 30,
2000 totaled $905.0 million including acquisitions (primarily the Golden Eagle
Refinery and Valley Shamrock) totaling $821.3 million, $89.3 million for capital
expenditures and $15.4 million for refinery maintenance turnaround costs. We
received $21.0 million of proceeds from the sales of various retail assets.

Net cash provided by financing activities during the nine months ended September
30, 2000 totaled $364.2 million. During the nine months ended September 30,
2000, our commercial paper and short-term borrowings increased $119.4 million
and we received proceeds of $350.0 million from a bridge loan to fund the
acquisition of the Golden Eagle Refinery. We also paid cash dividends totaling
$71.7 million during the nine months ended September 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 as of September 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 October 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." Statement No. 144 addresses
financial accounting and reporting for the impairment of long-lived assets and
for long-lived assets to be disposed of. This Statement supersedes Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" but retains Statement No. 121's fundamental provisions
for recognition and measurement of impairment of long-lived assets to be held
and used and measurement of long-lived assets to be disposed of by sale. This
Statement also supersedes APB Opinion No. 30, "Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions" for
the disposal of a segment of a business. Statement No. 144 does not apply to
goodwill or other intangible assets, the accounting and reporting of which is
addressed in newly issued Statement No. 142, "Goodwill and Other Intangible
Assets." The provisions of Statement No. 144 are effective for financial
statements for fiscal years beginning after December 15, 2001, and interim
periods within those fiscal years, with early 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 ten times during 2001 for a total
decrease of 4.50% in order to avert a recession of economic growth. 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 (as of December
31, 2000 only), 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.

As of September 30, 2001, the carrying value and fair value of our interest rate
swaps was $22.4 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. As of 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.

September 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................... $ 0.2 $ 283.4 $ 28.8 $ 0.5 $ 209.2 $ 718.0 $ 1,240.1 $ 1,237.5
Average interest rate...... 7.0% 8.6% 8.2% 7.7% 7.9% 7.5% 7.8% N/A
Floating rate................ $ - $ 171.3 $ - $ - $ - $ 15.0 $ 186.3 $ 186.3
Average interest rate...... -% 3.7% -% -% -% 4.2% 3.8% N/A

Interest Rate Swaps:
Notional amount.............. $ - $ 200.0 $ - $ - $ 150.0 $100.0 $ 450.0 $ 22.4
Average pay rate........... 2.5% 2.4% 4.0% 5.0% 5.3% 6.5% 5.1%
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. As of September 30, 2001, we had outstanding
commitments to purchase $2.5 million of U.S. dollars.

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 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 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. As of
September 30, 2001, the carrying amount is stated at fair value.

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

Procurement:
Futures contracts - long:
2001 (crude oil and refined products)...... $ 0.2 $ (0.8) $ 12.8 0.5 $ 27.29
2002 (crude oil and refined products)...... 0.1 (1.4) 15.8 0.5 30.57

Futures contracts - short:
2001 (crude oil and refined products)...... 12.6 (0.5) 107.8 5.1 21.10

Price swaps - long:
2001 (natural gas)......................... 0.8 - 2.9 0.9 3.23
2002 (natural gas)......................... 0.7 - 2.8 0.9 3.23
2001 (crude oil and refined products)...... 0.0 - 1.8 0.1 17.92
2002 (crude oil and refined products)...... 18.6 - 144.3 6.6 21.86

Price swaps - short:
2001 (natural gas)......................... - - 3.6 0.9 4.04
2002 (natural gas)......................... - - 3.5 0.9 4.04

Spread swaps - long:
2001 (refined products).................... - (0.3) 0.7 0.4 1.95
2002 (refined products).................... - (0.1) 0.8 0.4 1.92

Options - long:
2001 (refined products).................... 0.1 - - 0.1 32.92
2002 (refined products).................... 0.6 - - 0.4 32.03

Options - short:
2001 (crude oil)........................... 0.1 - - 0.2 19.00

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.

Oklahoma Department of Environmental Quality vs. TPI Petroleum (Ardmore
Refinery) We settled in principle prolonged negotiations with the Oklahoma
Department of Environmental Quality concerning alleged Clean Air Act violations
at our Ardmore Refinery. Under the proposed consent decree, we will pay a $1.5
million penalty and install pollution controls on the fluid catalytic cracking
unit and other units at the refinery. The settlement amount was fully accrued as
of September 30, 2001.

Item 4. Submission of Matters to a Vote of Security Holders

On September 27, 2001, we held a special meeting of our stockholders to vote
upon a proposal to approve the Agreement and Plan of Merger, dated May 6, 2001,
between Valero Energy Corporation and us. Our stockholders approved the proposed
acquisition of UDS by Valero. There were 49,800,809 votes cast in favor of the
proposal, 114,741 against, and 133,107 abstained.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

None.

(b) Reports on Form 8-K

None.

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
November 13, 2001