Item 1. FINANCIAL STATEMENTS

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Item 1. FINANCIAL STATEMENTS

VALERO ENERGY CORPORATION

CONSOLIDATED BALANCE SHEETS

(millions of dollars, except par value)


	March 31, 2022		December 31, 2021
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	2,638	$	4,122
Receivables, net	13,080		10,378
Inventories	7,174		6,265
Prepaid expenses and other	421		400
Total current assets	23,313		21,165
Property, plant, and equipment, at cost	49,488		49,072
Accumulated depreciation	(18,612)		(18,225)
Property, plant, and equipment, net	30,876		30,847
Deferred charges and other assets, net	6,213		5,876
Total assets	$	60,402	$	57,888
LIABILITIES AND EQUITY
Current liabilities:
Current portion of debt and finance lease obligations	$	1,295	$	1,264
Accounts payable	15,236		12,495
Accrued expenses	1,140		1,253
Taxes other than income taxes payable	1,482		1,461
Income taxes payable	632		378
Total current liabilities	19,785		16,851
Debt and finance lease obligations, less current portion	11,866		12,606
Deferred income tax liabilities	4,971		5,210
Other long-term liabilities	3,370		3,404
Commitments and contingencies
Equity:
Valero Energy Corporation stockholders’ equity:
Common stock, $0.01 par value; 1,200,000,000 shares authorized; 673,501,593 and 673,501,593 shares issued	7		7
Additional paid-in capital	6,832		6,827
Treasury stock, at cost; 265,399,517 and 264,305,955 common shares	(15,794)		(15,677)
Retained earnings	28,785		28,281
Accumulated other comprehensive loss	(1,009)		(1,008)
Total Valero Energy Corporation stockholders’ equity	18,821		18,430
Noncontrolling interests	1,589		1,387
Total equity	20,410		19,817
Total liabilities and equity	$	60,402	$	57,888

See Condensed Notes to Consolidated Financial Statements.

VALERO ENERGY CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(millions of dollars, except per share amounts)

(unaudited)


	Three Months Ended March 31,
		2022		2021
Revenues (a)		$	38,542	$	20,806
Cost of sales:
Cost of materials and other		34,949		18,992

Operating expenses (excluding depreciation and amortization expense reflected below)		1,379		1,656
Depreciation and amortization expense		595		566
Total cost of sales		36,923		21,214
Other operating expenses		19		38
General and administrative expenses (excluding depreciation and amortization expense reflected below)		205		208
Depreciation and amortization expense		11		12

Operating income (loss)		1,384		(666)
Other income (expense), net		(20)		45
Interest and debt expense, net of capitalized interest		(145)		(149)
Income (loss) before income tax expense (benefit)		1,219		(770)
Income tax expense (benefit)		252		(148)


Net income (loss)		967		(622)
Less: Net income attributable to noncontrolling interests		62		82
Net income (loss) attributable to Valero Energy Corporation stockholders		$	905	$	(704)








Earnings (loss) per common share		$	2.21	$	(1.73)
Weighted-average common shares outstanding (in millions)		408		407





Earnings (loss) per common share – assuming dilution		$	2.21	$	(1.73)
Weighted-average common shares outstanding – assuming dilution (in millions)		408		407

__________________________
Supplemental information:
(a) Includes excise taxes on sales by certain of our foreign operations		$	1,423	$	1,120

See Condensed Notes to Consolidated Financial Statements.

VALERO ENERGY CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(millions of dollars)

(unaudited)


	Three Months Ended March 31,
		2022		2021
Net income (loss)		$	967	$	(622)
Other comprehensive income (loss):
Foreign currency translation adjustment		13		76
Net gain on pension and other postretirement benefits		8		15
Net gain (loss) on cash flow hedges		(45)		10
Other comprehensive income (loss) before income tax expense		(24)		101
Income tax expense related to items of other comprehensive income (loss)		—		7
Other comprehensive income (loss)		(24)		94
Comprehensive income (loss)		943		(528)
Less: Comprehensive income attributable to noncontrolling interests		39		87
Comprehensive income (loss) attributable to Valero Energy Corporation stockholders		$	904	$	(615)

See Condensed Notes to Consolidated Financial Statements.

VALERO ENERGY CORPORATION

CONSOLIDATED STATEMENTS OF EQUITY

(millions of dollars)

(unaudited)


	Valero Energy Corporation Stockholders’ Equity
	Common Stock		Additional Paid-in Capital		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Loss		Total		Non- controlling Interests		Total Equity
Balance as of December 31, 2021	$	7	$	6,827	$	(15,677)	$	28,281	$	(1,008)	$	18,430	$	1,387	$	19,817
Net income	—		—		—		905		—		905		62		967
Dividends on common stock ($0.98 per share)	—		—		—		(401)		—		(401)		—		(401)
Stock-based compensation expense	—		32		—		—		—		32		—		32
Transactions in connection with stock-based compensation plans	—		(27)		9		—		—		(18)		—		(18)
Open market stock purchases	—		—		(126)		—		—		(126)		—		(126)
Contributions from noncontrolling interests	—		—		—		—		—		—		165		165
Distributions to noncontrolling interests	—		—		—		—		—		—		(2)		(2)

Other comprehensive loss	—		—		—		—		(1)		(1)		(23)		(24)
Balance as of March 31, 2022	$	7	$	6,832	$	(15,794)	$	28,785	$	(1,009)	$	18,821	$	1,589	$	20,410

Balance as of December 31, 2020	$	7	$	6,814	$	(15,719)	$	28,953	$	(1,254)	$	18,801	$	841	$	19,642
Net income (loss)	—		—		—		(704)		—		(704)		82		(622)
Dividends on common stock ($0.98 per share)	—		—		—		(400)		—		(400)		—		(400)
Stock-based compensation expense	—		28		—		—		—		28		—		28
Transactions in connection with stock-based compensation plans	—		(32)		19		—		—		(13)		—		(13)


Distributions to noncontrolling interests	—		—		—		—		—		—		(2)		(2)

Other comprehensive income	—		—		—		—		89		89		5		94
Balance as of March 31, 2021	$	7	$	6,810	$	(15,700)	$	27,849	$	(1,165)	$	17,801	$	926	$	18,727

See Condensed Notes to Consolidated Financial Statements.

VALERO ENERGY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(millions of dollars)

(unaudited)


	Three Months Ended March 31,
	2022		2021
Cash flows from operating activities:
Net income (loss)	$	967	$	(622)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization expense	606		578
Loss on early retirement of debt	50		—



Deferred income tax benefit	(234)		(239)
Changes in current assets and current liabilities	(722)		184
Changes in deferred charges and credits and other operating activities, net	(79)		47
Net cash provided by (used in) operating activities	588		(52)
Cash flows from investing activities:
Capital expenditures (excluding variable interest entities (VIEs))	(152)		(160)
Capital expenditures of VIEs:
Diamond Green Diesel Holdings LLC (DGD)	(219)		(153)
Other VIEs	(13)		(26)
Deferred turnaround and catalyst cost expenditures (excluding VIEs)	(453)		(230)
Deferred turnaround and catalyst cost expenditures of DGD	(6)		(1)

Investments in nonconsolidated joint ventures	—		(12)


Other investing activities, net	2		2
Net cash used in investing activities	(841)		(580)
Cash flows from financing activities:
Proceeds from debt issuances and borrowings (excluding VIEs)	939		—
Proceeds from borrowings of VIEs:
DGD	99		—
Other VIEs	28		8
Repayments of debt and finance lease obligations (excluding VIEs)	(1,738)		(31)
Repayments of debt and finance lease obligations of VIEs:
DGD	(102)		—
Other VIEs	(16)		(1)
Premiums on early retirement of debt	(48)		—
Purchases of common stock for treasury	(144)		(14)
Common stock dividend payments	(401)		(400)
Contributions from noncontrolling interests	165		—

Other financing activities, net	(10)		(1)
Net cash used in financing activities	(1,228)		(439)
Effect of foreign exchange rate changes on cash	(3)		12
Net decrease in cash and cash equivalents	(1,484)		(1,059)
Cash and cash equivalents at beginning of period	4,122		3,313
Cash and cash equivalents at end of period	$	2,638	$	2,254

See Condensed Notes to Consolidated Financial Statements.

VALERO ENERGY CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

General

The terms “Valero,” “we,” “our,” and “us,” as used in this report, may refer to Valero Energy Corporation, one or more of its consolidated subsidiaries, or all of them taken as a whole. The term “DGD,” as used in this report, may refer to Diamond Green Diesel Holdings LLC, its wholly owned consolidated subsidiary, or both of them taken as a whole.

These unaudited financial statements have been prepared in accordance with United States (U.S.) generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of our results for the three months ended March 31, 2022 have been included. All such adjustments are of a normal recurring nature unless disclosed otherwise. Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. The financial statements presented herein should be read in conjunction with the financial statements included in our annual report on Form 10-K for the year ended December 31, 2021.

The balance sheet as of December 31, 2021 has been derived from our audited financial statements as of that date. For further information, refer to our financial statements and notes thereto included in our annual report on Form 10-K for the year ended December 31, 2021.

Significant Accounting Policy

Use of Estimates

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. On an ongoing basis, we review our estimates based on currently available information. Changes in facts and circumstances may result in revised estimates.

VALERO ENERGY CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. UNCERTAINTIES

Developments with respect to the uncertainties described below are occurring at a rapid pace and cannot be predicted. Their overall economic impact and resulting impact on us also cannot be predicted with certainty at this time. However, we are proactively responding to and actively monitoring the known impacts of the Russia-Ukraine conflict and the COVID-19 pandemic on our business, to the extent practicable, and we will strive to continue to do so, but there can be no assurance that our response or other measures we may take will be fully effective.

Russia-Ukraine Conflict

In late February 2022, Russia began an invasion and military attack on Ukraine. This has resulted in many countries, including the U.S., imposing economic and financial sanctions on Russia and providing humanitarian and military aid to Ukraine. In addition, on March 8, 2022, the U.S. presidential administration issued an Executive Order that, among other matters, banned the import of Russian crude oil and other petroleum and energy products to the U.S. The ban on Russian energy imports took effect immediately, but companies were granted (through issuance of a General License published by the U.S. Office of Foreign Assets Control (OFAC)) 45 days to import petroleum products secured under pre-existing contracts.

As allowed by OFAC’s General License, we took delivery of certain feedstocks (procured under contracts entered into prior to the invasion) before the General License’s expiration on April 22, 2022. We currently do not anticipate any significant future feedstock sourcing disruptions resulting from the U.S. ban on Russian crude oil and other petroleum and energy product imports, as we obtain crude oil and other feedstocks from many other sources.

The conflict and responsive actions taken by the U.S. and other countries have created uncertainty for both domestic and international financial and commodity markets. Crude oil and consumer fuel prices significantly increased in March 2022 and remain volatile, as change in trade flows in Russian crude oil, other feedstocks, and energy products have impacted the global supply markets. Also, the continued increases in fuel prices have the potential to negatively impact the demand for our products. Thus, the implications of the Russia-Ukraine conflict on our financial position and results of operations remain uncertain.

Impact of the COVID-19 Pandemic

At the onset of the COVID-19 pandemic in March 2020, governmental authorities around the world imposed restrictions, such as stay-at-home orders and other social distancing measures, to slow the spread of COVID-19. These measures resulted in significant economic disruption globally as reduced economic activity negatively impacted many businesses, including our business. Although we have continued to experience improvements in our business, compared to the significant negative effects from the pandemic in 2020, the implications of the pandemic on our financial position and results of operations remain uncertain.

VALERO ENERGY CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. INVENTORIES

Inventories consisted of the following (in millions):


	March 31, 2022		December 31, 2021
Refinery feedstocks	$	2,068	$	1,995
Refined petroleum products and blendstocks	4,199		3,567
Renewable diesel feedstocks and products	245		135
Ethanol feedstocks and products	364		273
Materials and supplies	298		295


Inventories	$	7,174	$	6,265

As of March 31, 2022 and December 31, 2021, the replacement cost (market value) of last-in, first-out (LIFO) inventories exceeded their LIFO carrying amounts by $9.3 billion and $5.2 billion, respectively. Our non-LIFO inventories accounted for $1.6 billion and $1.4 billion of our total inventories as of March 31, 2022 and December 31, 2021, respectively.

4. DEBT

Public Debt

In February 2022, we issued $650 million of 4.000 percent Senior Notes due June 1, 2052. Proceeds from this debt issuance totaled $639 million before deducting the underwriting discount and other debt issuance costs. The proceeds and cash on hand were used to repurchase and retire the following notes in connection with cash tender offers that we publicly announced and completed in February 2022 (in millions):


Debt Repurchased and Retired	Principal Amount
3.65% Senior Notes due 2025	$	72
2.850% Senior Notes due 2025	507
4.375% VLP Senior Notes due 2026	168
3.400% Senior Notes due 2026	653
Total	$	1,400

In connection with the early debt retirement activity described above, we recognized a charge of $50 million in “other income (expense), net” primarily comprised of $48 million of premiums paid.

During the three months ended March 31, 2021, there was no issuance or redemption activity related to our public debt.

VALERO ENERGY CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Credit Facilities

We had outstanding borrowings, letters of credit issued, and availability under our credit facilities as follows (amounts in millions and currency in U.S. dollars, except as noted):


				March 31, 2022
	Facility Amount		Maturity Date	Outstanding Borrowings		Letters of Credit Issued (a)		Availability
Committed facilities:
Valero Revolver	$	4,000	March 2024	$	—	$	615	$	3,385
Canadian Revolver	C$	150	November 2022	C$	—	C$	5	C$	145
Accounts receivable sales facility	$	1,300	July 2022	$	—	n/a		$	1,300
Letter of credit facility	$	50	November 2022	n/a		$	—	$	50
Committed facilities of VIEs (b):
DGD Revolver (c)	$	400	March 2024	$	100	$	15	$	285
DGD Loan Agreement (d)	$	25	April 2023	$	25	n/a		$	—
IEnova Revolver (e)	$	830	February 2028	$	692	n/a		$	138
Uncommitted facilities:
Letter of credit facilities	n/a		n/a	n/a		$	834	n/a

(a)Letters of credit issued as of March 31, 2022 expire at various times in 2022 through 2023.

(b)Creditors of the VIEs do not have recourse against us.

(c)The variable interest rate on the DGD Revolver was 2.140 percent and 1.860 percent as of March 31, 2022 and December 31, 2021, respectively.

(d)In March 2022, the maturity date of this facility was extended to April 2023. The amounts shown for this facility represent the facility amount available from, and borrowings outstanding to, the noncontrolling member as any transactions between DGD and us under this facility are eliminated in consolidation. The variable interest rate on the DGD Loan Agreement was 2.735 percent and 2.603 percent as of March 31, 2022 and December 31, 2021, respectively.

(e)The variable interest rate on the IEnova Revolver was 3.864 percent and 3.781 percent as of March 31, 2022 and December 31, 2021, respectively.

Activity under our credit facilities was as follows (in millions):


	Three Months Ended March 31,
	2022		2021
Borrowings:
Accounts receivable sales facility	$	300	$	—
DGD Revolver	99		—

IEnova Revolver	28		8
Repayments:
Accounts receivable sales facility	(300)		—
DGD Revolver	(99)		—

IEnova Revolver	(15)		—

VALERO ENERGY CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Other Disclosures

“Interest and debt expense, net of capitalized interest” is comprised as follows (in millions):


	Three Months Ended March 31,
		2022		2021
Interest and debt expense		$	157	$	164
Less: Capitalized interest		12		15
Interest and debt expense, net of capitalized interest		$	145	$	149

5. EQUITY

Treasury Stock

We purchase shares of our outstanding common stock as authorized under our stock purchase program and with respect to our employee stock-based compensation plans. During the three months ended March 31, 2022, we made open market purchases of 1,334,550 shares for $126 million in connection with our stock purchase program. No open market purchases were made during the three months ended March 31, 2021. As of March 31, 2022, we had $1.2 billion remaining available for purchase under our stock purchase program, which has no expiration date.

Accumulated Other Comprehensive Loss

Changes in accumulated other comprehensive loss by component, net of tax, were as follows (in millions):


	Three Months Ended March 31,
	2022								2021
	Foreign Currency Translation Adjustment		Defined Benefit Plans Items		Gains (Losses) on Cash Flow Hedges		Total		Foreign Currency Translation Adjustment		Defined Benefit Plans Items		Gains (Losses) on Cash Flow Hedges		Total
Balance as of beginning of period	$	(562)	$	(441)	$	(5)	$	(1,008)	$	(515)	$	(737)	$	(2)	$	(1,254)
Other comprehensive income (loss) before reclassifications	13		(3)		(64)		(54)		76		1		(5)		72
Amounts reclassified from accumulated other comprehensive loss	—		7		46		53		—		8		9		17

Other comprehensive income (loss)	13		4		(18)		(1)		76		9		4		89
Balance as of end of period	$	(549)	$	(437)	$	(23)	$	(1,009)	$	(439)	$	(728)	$	2	$	(1,165)

VALERO ENERGY CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. VARIABLE INTEREST ENTITIES

Consolidated VIEs

We consolidate a VIE when we have a variable interest in an entity for which we are the primary beneficiary. As of March 31, 2022, the significant consolidated VIEs included:

DGD, a joint venture with a subsidiary of Darling Ingredients Inc. that owns and operates a plant that processes waste and renewable feedstocks (predominately animal fats, used cooking oils, and inedible distillers corn oils) into renewable diesel; and
Central Mexico Terminals, a collective group of three subsidiaries of Infraestructura Energetica Nova, S.A.P.I. de C.V. (IEnova), which is a Mexican company and indirect subsidiary of Sempra Energy, a U.S. public company. We have terminaling agreements with Central Mexico Terminals that represent variable interests. We do not have an ownership interest in Central Mexico Terminals.

The assets of the consolidated VIEs can only be used to settle their own obligations and the creditors of the consolidated VIEs have no recourse to our other assets. We generally do not provide financial guarantees to the VIEs. Although we have provided credit facilities to some of the VIEs in support of their construction or acquisition activities, these transactions are eliminated in consolidation. Our financial position, results of operations, and cash flows are impacted by the performance of the consolidated VIEs, net of intercompany eliminations, to the extent of our ownership interest in each VIE.

The following tables present summarized balance sheet information for the significant assets and liabilities of the consolidated VIEs, which are included in our balance sheets (in millions):


	DGD		Central Mexico Terminals		Other		Total
March 31, 2022
Assets
Cash and cash equivalents	$	142	$	—	$	15	$	157
Other current assets	702		11		17		730
Property, plant, and equipment, net	2,854		659		92		3,605
Liabilities
Current liabilities, including current portion of debt and finance lease obligations	$	470	$	716	$	8	$	1,194
Debt and finance lease obligations, less current portion	261		—		19		280

VALERO ENERGY CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


	DGD		Central Mexico Terminals		Other		Total
December 31, 2021
Assets
Cash and cash equivalents	$	21	$	—	$	15	$	36
Other current assets	558		10		13		581
Property, plant, and equipment, net	2,629		676		91		3,396
Liabilities
Current liabilities, including current portion of debt and finance lease obligations	$	398	$	729	$	9	$	1,136
Debt and finance lease obligations, less current portion	264		—		20		284

Nonconsolidated VIEs

We hold variable interests in VIEs that have not been consolidated because we are not considered the primary beneficiary. These nonconsolidated VIEs are not material to our financial position or results of operations and are accounted for as equity investments.

7. EMPLOYEE BENEFIT PLANS

The components of net periodic benefit cost related to our defined benefit plans were as follows (in millions):


	Pension Plans				Other Postretirement Benefit Plans
	2022		2021		2022		2021










Three months ended March 31
Service cost	$	38	$	40	$	2	$	2
Interest cost	21		18		2		2
Expected return on plan assets	(48)		(48)		—		—
Amortization of:
Net actuarial loss	13		20		—		—
Prior service credit	(4)		(4)		(1)		(2)

Net periodic benefit cost	$	20	$	26	$	3	$	2

The components of net periodic benefit cost other than the service cost component (i.e., the non-service cost components) are included in “other income (expense), net.”

VALERO ENERGY CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. EARNINGS (LOSS) PER COMMON SHARE

Earnings (loss) per common share was computed as follows (dollars and shares in millions, except per share amounts):


	Three Months Ended March 31,
		2022		2021
Earnings (loss) per common share:
Net income (loss) attributable to Valero stockholders		$	905	$	(704)
Less: Income allocated to participating securities		3		1
Net income (loss) available to common stockholders		$	902	$	(705)

Weighted-average common shares outstanding		408		407

Earnings (loss) per common share		$	2.21	$	(1.73)

Earnings (loss) per common share – assuming dilution:
Net income (loss) attributable to Valero stockholders		$	905	$	(704)
Less: Income allocated to participating securities		3		1
Net income (loss) available to common stockholders		$	902	$	(705)

Weighted-average common shares outstanding		408		407
Effect of dilutive securities		—		—
Weighted-average common shares outstanding – assuming dilution		408		407

Earnings (loss) per common share – assuming dilution		$	2.21	$	(1.73)

Participating securities include restricted stock and performance awards granted under our 2020 Omnibus Stock Incentive Plan (OSIP) or our 2011 OSIP. Dilutive securities include participating securities as well as outstanding stock options.

9. REVENUES AND SEGMENT INFORMATION

Revenue from Contracts with Customers

Disaggregation of Revenue

Revenue is presented in the table below under “Segment Information” disaggregated by product because this is the level of disaggregation that management has determined to be beneficial to users of our financial statements.

VALERO ENERGY CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Contract Balances

Contract balances were as follows (in millions):


	March 31, 2022		December 31, 2021
Receivables from contracts with customers, included in receivables, net	$	8,395	$	6,228
Contract liabilities, included in accrued expenses	164		78

During the three months ended March 31, 2022 and 2021, we recognized as revenue $69 million and $37 million that was included in contract liabilities as of December 31, 2021 and 2020, respectively.

Remaining Performance Obligations

We have spot and term contracts with customers, the majority of which are spot contracts with no remaining performance obligations. We do not disclose remaining performance obligations for contracts that have terms of one year or less. The transaction price for our remaining term contracts includes a fixed component and variable consideration (i.e., a commodity price), both of which are allocated entirely to a wholly unsatisfied promise to transfer a distinct good that forms part of a single performance obligation. The fixed component is not material and the variable consideration is highly uncertain. Therefore, as of March 31, 2022, we have not disclosed the aggregate amount of the transaction price allocated to our remaining performance obligations.

Segment Information

We have three reportable segments — Refining, Renewable Diesel, and Ethanol. Each segment is a strategic business unit that offers different products and services by employing unique technologies and marketing strategies and whose operations and operating performance are managed and evaluated separately. Operating performance is measured based on the operating income generated by the segment, which includes revenues and expenses that are directly attributable to the management of the respective segment. Intersegment sales are generally derived from transactions made at prevailing market rates. The following is a description of each segment’s business operations.

The Refining segment includes the operations of our petroleum refineries, the associated activities to market our refined petroleum products, and the logistics assets that support our refining operations. The principal products manufactured by our refineries and sold by this segment include gasolines and blendstocks, distillates, and other products.
The Renewable Diesel segment represents the operations of DGD, a consolidated joint venture as discussed in Note 6, and the associated activities to market renewable diesel. The principal product manufactured by DGD and sold by this segment is renewable diesel. This segment sells some renewable diesel to the Refining segment, which is then sold to that segment’s customers.
The Ethanol segment includes the operations of our ethanol plants and the associated activities to market our ethanol and co-products. The principal products manufactured by our ethanol plants are ethanol and distillers grains. This segment sells some ethanol to the Refining segment for blending into gasoline, which is sold to that segment’s customers as a finished gasoline product.

VALERO ENERGY CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Operations that are not included in any of the reportable segments are included in the corporate category.

The following tables reflect information about our operating income (loss) by reportable segment (in millions):


	Refining		Renewable Diesel		Ethanol		Corporate and Eliminations		Total
Three months ended March 31, 2022
Revenues:
Revenues from external customers	$	36,813	$	595	$	1,134	$	—	$	38,542
Intersegment revenues	4		386		127		(517)		—
Total revenues	36,817		981		1,261		(517)		38,542
Cost of sales:
Cost of materials and other (a)	33,606		755		1,104		(516)		34,949

Operating expenses (excluding depreciation and amortization expense reflected below)	1,193		51		135		—		1,379
Depreciation and amortization expense	549		26		20		—		595
Total cost of sales	35,348		832		1,259		(516)		36,923
Other operating expenses	18		—		1		—		19
General and administrative expenses (excluding depreciation and amortization expense reflected below)	—		—		—		205		205
Depreciation and amortization expense	—		—		—		11		11


Operating income by segment	$	1,451	$	149	$	1	$	(217)	$	1,384




Three months ended March 31, 2021
Revenues:
Revenues from external customers	$	19,469	$	352	$	985	$	—	$	20,806
Intersegment revenues	3		79		60		(142)		—
Total revenues	19,472		431		1,045		(142)		20,806
Cost of sales:
Cost of materials and other (a)	18,022		187		924		(141)		18,992

Operating expenses (excluding depreciation and amortization expense reflected below)	1,471		29		156		—		1,656
Depreciation and amortization expense	533		12		21		—		566
Total cost of sales	20,026		228		1,101		(141)		21,214
Other operating expenses	38		—		—		—		38
General and administrative expenses (excluding depreciation and amortization expense reflected below)	—		—		—		208		208
Depreciation and amortization expense	—		—		—		12		12

Operating income (loss) by segment	$	(592)	$	203	$	(56)	$	(221)	$	(666)

(a)Cost of materials and other for our Renewable Diesel segment is net of the blender’s tax credit on qualified fuel mixtures of $156 million and $79 million for the three months ended March 31, 2022 and 2021, respectively.

VALERO ENERGY CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table provides a disaggregation of revenues from external customers for our principal products by reportable segment (in millions):


	Three Months Ended March 31,
		2022		2021
Refining:
Gasolines and blendstocks		$	15,560	$	8,729
Distillates		17,444		8,581
Other product revenues		3,809		2,159
Total refining revenues		36,813		19,469
Renewable Diesel:
Renewable diesel		595		352
Ethanol:
Ethanol		875		752
Distillers grains		259		233
Total ethanol revenues		1,134		985

Revenues		$	38,542	$	20,806

Total assets by reportable segment were as follows (in millions):


	March 31, 2022		December 31, 2021
Refining	$	51,071	$	47,365
Renewable Diesel	3,933		3,437
Ethanol	1,780		1,812
Corporate and eliminations	3,618		5,274
Total assets	$	60,402	$	57,888

VALERO ENERGY CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. SUPPLEMENTAL CASH FLOW INFORMATION

In order to determine net cash provided by (used in) operating activities, net income (loss) is adjusted by, among other things, changes in current assets and current liabilities as follows (in millions):


	Three Months Ended March 31,
	2022		2021
Decrease (increase) in current assets:
Receivables, net	$	(2,653)	$	(2,946)
Inventories	(940)		175

Prepaid expenses and other	(77)		(24)
Increase (decrease) in current liabilities:
Accounts payable	2,744		2,992
Accrued expenses	(120)		105
Taxes other than income taxes payable	36		(144)
Income taxes payable	288		26
Changes in current assets and current liabilities	$	(722)	$	184

Changes in current assets and current liabilities for the three months ended March 31, 2022 were primarily due to the following:

The increase in receivables was primarily due to an increase in refined petroleum product prices in March 2022 compared to December 2021;
The increase in inventories was primarily due to an increase in inventory unit prices and higher inventory levels in March 2022 compared to December 2021; and
The increase in accounts payable was due to an increase in crude oil and other feedstock prices in March 2022 compared to December 2021, partially offset by a decrease in crude oil and other feedstock volumes purchased.

Changes in current assets and current liabilities for the three months ended March 31, 2021 were primarily due to the following:

The increase in receivables was primarily due to an increase in refined petroleum product prices in March 2021 compared to December 2020 combined with an increase in sales volumes;
The decrease in inventories was primarily due to lower inventory levels in March 2021 compared to December 2020; and
The increase in accounts payable was due to an increase in crude oil and other feedstock prices in March 2021 compared to December 2020 combined with an increase in crude oil and other feedstock volumes purchased.

VALERO ENERGY CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Cash flows related to interest and income taxes were as follows (in millions):


	Three Months Ended March 31,
	2022		2021
Interest paid in excess of amount capitalized, including interest on finance leases	$	93	$	103
Income taxes paid, net	204		36

Supplemental cash flow information related to our operating and finance leases was as follows (in millions):


	Three Months Ended March 31,
	2022				2021
	Operating Leases		Finance Leases		Operating Leases		Finance Leases
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows	$	97	$	20	$	100	$	18

Financing cash flows	—		41		—		31
Changes in lease balances resulting from new and modified leases	79		100		72		7

There were no significant noncash investing and financing activities during the three months ended March 31, 2022 and 2021, except as noted in the table above.

VALERO ENERGY CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. FAIR VALUE MEASUREMENTS

Recurring Fair Value Measurements

The following tables present information (in millions) about our assets and liabilities recognized at their fair values in our balance sheets categorized according to the fair value hierarchy of the inputs utilized by us to determine the fair values as of March 31, 2022 and December 31, 2021.

We have elected to offset the fair value amounts recognized for multiple similar derivative contracts executed with the same counterparty, including any related cash collateral assets or obligations as shown below; however, fair value amounts by hierarchy level are presented in the following tables on a gross basis. We have no derivative contracts that are subject to master netting arrangements that are reflected gross on the balance sheet.


	March 31, 2022
							Total Gross Fair Value		Effect of Counter- party Netting		Effect of Cash Collateral Netting		Net Carrying Value on Balance Sheet		Cash Collateral Paid or Received Not Offset
	Fair Value Hierarchy
	Level 1		Level 2		Level 3
Assets
Commodity derivative contracts	$	1,815	$	—	$	—	$	1,815	$	(1,811)	$	—	$	4	$	—
Physical purchase contracts	—		24		—		24		n/a		n/a		24		n/a


Foreign currency contracts	48		—		—		48		n/a		n/a		48		n/a
Investments of certain benefit plans	79		—		6		85		n/a		n/a		85		n/a

Total	$	1,942	$	24	$	6	$	1,972	$	(1,811)	$	—	$	161

Liabilities
Commodity derivative contracts	$	2,423	$	—	$	—	$	2,423	$	(1,811)	$	(612)	$	—	$	(194)
Blending program obligations	—		18		—		18		n/a		n/a		18		n/a
Physical purchase contracts	—		2		—		2		n/a		n/a		2		n/a


Foreign currency contracts	7		—		—		7		n/a		n/a		7		n/a
Total	$	2,430	$	20	$	—	$	2,450	$	(1,811)	$	(612)	$	27

VALERO ENERGY CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


	December 31, 2021
							Total Gross Fair Value		Effect of Counter- party Netting		Effect of Cash Collateral Netting		Net Carrying Value on Balance Sheet		Cash Collateral Paid or Received Not Offset
	Fair Value Hierarchy
	Level 1		Level 2		Level 3
Assets
Commodity derivative contracts	$	522	$	—	$	—	$	522	$	(444)	$	(15)	$	63	$	—
Physical purchase contracts	—		4		—		4		n/a		n/a		4		n/a
Foreign currency contracts	1		—		—		1		n/a		n/a		1		n/a
Investments of certain benefit plans	83		—		6		89		n/a		n/a		89		n/a

Total	$	606	$	4	$	6	$	616	$	(444)	$	(15)	$	157

Liabilities
Commodity derivative contracts	$	472	$	—	$	—	$	472	$	(444)	$	(28)	$	—	$	(41)
Blending program obligations	—		57		—		57		n/a		n/a		57		n/a
Physical purchase contracts	—		5		—		5		n/a		n/a		5		n/a
Foreign currency contracts	10		—		—		10		n/a		n/a		10		n/a
Total	$	482	$	62	$	—	$	544	$	(444)	$	(28)	$	72

A description of our assets and liabilities recognized at fair value along with the valuation methods and inputs we used to develop their fair value measurements are as follows:

Commodity derivative contracts consist primarily of exchange-traded futures, which are used to reduce the impact of price volatility on our results of operations and cash flows as discussed in Note 12. These contracts are measured at fair value using a market approach based on quoted prices from the commodity exchange and are categorized in Level 1 of the fair value hierarchy.
Physical purchase contracts represent the fair value of fixed-price corn purchase contracts. The fair values of these purchase contracts are measured using a market approach based on quoted prices from the commodity exchange or an independent pricing service and are categorized in Level 2 of the fair value hierarchy.
Foreign currency contracts consist of foreign currency exchange and purchase contracts and foreign currency swap agreements related to our foreign operations to manage our exposure to exchange rate fluctuations on transactions denominated in currencies other than the local (functional) currencies of our operations. These contracts are valued based on quoted foreign currency exchange rates and are categorized in Level 1 of the fair value hierarchy.

VALERO ENERGY CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Investments of certain benefit plans consist of investment securities held by trusts for the purpose of satisfying a portion of our obligations under certain U.S. nonqualified benefit plans. The plan assets categorized in Level 1 of the fair value hierarchy are measured at fair value using a market approach based on quoted prices from national securities exchanges. The plan assets categorized in Level 3 of the fair value hierarchy represent insurance contracts, the fair value of which is provided by the insurer.
Blending program obligations represent our liability for the purchase of compliance credits needed to satisfy our blending obligations under various governmental and regulatory blending programs, such as the U.S. Environmental Protection Agency’s (EPA) Renewable Fuel Standard (RFS), the California Low Carbon Fuel Standard, and similar programs in other jurisdictions in which we operate (collectively, the Renewable and Low-Carbon Fuel Blending Programs). The blending program obligations are categorized in Level 2 of the fair value hierarchy and are measured at fair value using a market approach based on quoted prices from an independent pricing service.

Nonrecurring Fair Value Measurements

There were no assets or liabilities that were measured at fair value on a nonrecurring basis as of March 31, 2022 and December 31, 2021.

Other Financial Instruments

Financial instruments that we recognize in our balance sheets at their carrying amounts are shown in the following table along with their associated fair values (in millions):


		March 31, 2022				December 31, 2021
	Fair Value Hierarchy	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
Cash and cash equivalents	Level 1	$	2,638	$	2,638	$	4,122	$	4,122
Financial liabilities:
Debt (excluding finance lease obligations)	Level 2	11,195		11,952		11,950		13,668

VALERO ENERGY CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. PRICE RISK MANAGEMENT ACTIVITIES

General

We are exposed to market risks primarily related to the volatility in the price of commodities, foreign currency exchange rates, and the price of credits needed to comply with the Renewable and Low-Carbon Fuel Blending Programs. We enter into derivative instruments to manage some of these risks, including derivative instruments related to the various commodities we purchase or produce, and foreign currency exchange and purchase contracts, as described below under “Risk Management Activities by Type of Risk.” These derivative instruments are recorded as either assets or liabilities measured at their fair values (see Note 11), as summarized below under “Fair Values of Derivative Instruments.” The effect of these derivative instruments on our income and other comprehensive income (loss) is summarized below under “Effect of Derivative Instruments on Income and Other Comprehensive Income (Loss).”

Risk Management Activities by Type of Risk

Commodity Price Risk

We are exposed to market risks related to the volatility in the price of feedstocks (primarily crude oil, waste and renewable feedstocks, and corn), the products we produce, and natural gas used in our operations. To reduce the impact of price volatility on our results of operations and cash flows, we use commodity derivative instruments, such as futures and options. Our positions in commodity derivative instruments are monitored and managed on a daily basis by our risk control group to ensure compliance with our stated risk management policy that has been approved by our board of directors (Board).

We primarily use commodity derivative instruments as cash flow hedges and economic hedges. Our objectives for entering into each type of hedge is described below.

*•*Cash flow hedges – The objective of our cash flow hedges is to lock in the price of forecasted purchases and/or product sales at existing market prices that we deem favorable.

*•*Economic hedges – Our objectives for holding economic hedges are to (i) manage price volatility in certain feedstock and product inventories and (ii) lock in the price of forecasted purchases and/or product sales at existing market prices that we deem favorable.

VALERO ENERGY CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of March 31, 2022, we had the following outstanding commodity derivative instruments that were used as cash flow hedges and economic hedges, as well as commodity derivative instruments related to the physical purchase of corn at a fixed price. The information presents the notional volume of outstanding contracts by type of instrument and year of maturity (volumes in thousands of barrels, except corn contracts that are presented in thousands of bushels).


	Notional Contract Volumes by Year of Maturity
	2022	2023
Derivatives designated as cash flow hedges:
Refined petroleum products:
Futures – long	1,634	—
Futures – short	4,617	—



Derivatives designated as economic hedges:
Crude oil and refined petroleum products:


Futures – long	77,765	6
Futures – short	79,740	—







Corn:
Futures – long	70,295	205
Futures – short	119,175	1,580
Physical contracts – long	46,597	1,391

Foreign Currency Risk

We are exposed to exchange rate fluctuations on transactions related to our foreign operations that are denominated in currencies other than the local (functional) currencies of our operations. To manage our exposure to these exchange rate fluctuations, we often use foreign currency contracts. These contracts are not designated as hedging instruments for accounting purposes and therefore are classified as economic hedges. As of March 31, 2022, we had foreign currency contracts to purchase $709 million of U.S. dollars and $3.1 billion of U.S. dollar equivalent Canadian dollars. Of these commitments, $1.8 billion matured on or before April 25, 2022 and the remaining $2.0 billion will mature by June 16, 2022.

Renewable and Low-Carbon Fuel Blending Programs Price Risk

We are exposed to market risk related to the volatility in the price of credits needed to comply with the Renewable and Low-Carbon Fuel Blending Programs. To manage this risk, we enter into contracts to purchase these credits. Some of these contracts are derivative instruments; however, we elect the normal purchase exception and do not record these contracts at their fair values. The Renewable and Low-Carbon Fuel Blending Programs require us to blend a certain volume of renewable and low-carbon fuels into the petroleum-based transportation fuels we produce in, or import into, the respective jurisdiction to be consumed therein based on annual quotas. To the degree we are unable to blend at the required quotas, we must purchase compliance credits (primarily renewable identification numbers (RINs)). For the three months ended March 31, 2022 and 2021, the cost of meeting our credit obligations under the Renewable and Low-Carbon Fuel Blending Programs was $302 million and $395 million, respectively, which are reflected in cost of materials and other.

VALERO ENERGY CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fair Values of Derivative Instruments

The following tables provide information about the fair values of our derivative instruments as of March 31, 2022 and December 31, 2021 (in millions) and the line items in the balance sheets in which the fair values are reflected. See Note 11 for additional information related to the fair values of our derivative instruments.

As indicated in Note 11, we net fair value amounts recognized for multiple similar derivative contracts executed with the same counterparty under master netting arrangements, including cash collateral assets and obligations. The following table, however, is presented on a gross asset and gross liability basis, which results in the reflection of certain assets in liability accounts and certain liabilities in asset accounts:


	Balance Sheet Location		March 31, 2022						December 31, 2021
		Asset Derivatives			Liability Derivatives			Asset Derivatives			Liability Derivatives
Derivatives designated as hedging instruments:
Commodity contracts	Receivables, net		$	94		$	220		$	3		$	26



Derivatives not designated as hedging instruments:
Commodity contracts	Receivables, net		$	1,721		$	2,203		$	519		$	446
Physical purchase contracts	Inventories		24			2			4			5
Foreign currency contracts	Receivables, net		48			—			1			—
Foreign currency contracts	Accrued expenses		—			7			—			10
Total			$	1,793		$	2,212		$	524		$	461

Market Risk

Our price risk management activities involve the receipt or payment of fixed price commitments into the future. These transactions give rise to market risk, which is the risk that future changes in market conditions may make an instrument less valuable. We closely monitor and manage our exposure to market risk on a daily basis in accordance with policies approved by our Board. Market risks are monitored by our risk control group to ensure compliance with our stated risk management policy. We do not require any collateral or other security to support derivative instruments into which we enter. We also do not have any derivative instruments that require us to maintain a minimum investment-grade credit rating.

VALERO ENERGY CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Effect of Derivative Instruments on Income and Other Comprehensive Income (Loss)

The following table provides information about the loss recognized in income and other comprehensive income (loss) due to fair value adjustments of our cash flow hedges (in millions):


Derivatives in Cash Flow Hedging Relationships	Location of Gain (Loss) Recognized in Income on Derivatives			Three Months Ended March 31,
		2022	2021
Commodity contracts:
Loss recognized in other comprehensive income (loss) on derivatives	n/a				$	(164)	$	(13)
Loss reclassified from accumulated other comprehensive loss into income	Revenues				(119)		(23)

For cash flow hedges, no component of any derivative instrument’s gains or losses was excluded from the assessment of hedge effectiveness for the three months ended March 31, 2022 and 2021. For the three months ended March 31, 2022 and 2021, cash flow hedges primarily related to forward sales of renewable diesel. The estimated deferred after-tax loss that is expected to be reclassified into revenues over the next 12 months as a result of the hedged transactions that are forecasted to occur as of March 31, 2022 was immaterial. For the three months ended March 31, 2022 and 2021, there were no amounts reclassified from accumulated other comprehensive loss into income as a result of the discontinuance of cash flow hedge accounting. The changes in accumulated other comprehensive loss by component, net of tax, for the three months ended March 31, 2022 and 2021 are described in Note 5.

The following table provides information about the gain (loss) recognized in income on our derivative instruments with respect to our economic hedges and our foreign currency hedges and the line items in the statements of income in which such gains (losses) are reflected (in millions):


Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized in Income on Derivatives			Three Months Ended March 31,
		2022	2021
Commodity contracts	Revenues				$	(4)	$	7
Commodity contracts	Cost of materials and other				(595)		(78)
Commodity contracts	Operating expenses (excluding depreciation and amortization expense)				3		1
Foreign currency contracts	Cost of materials and other				(2)		(8)
Foreign currency contracts	Other income (expense), net				34		30

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