Item 1. FINANCIAL STATEMENTS

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Item 1. FINANCIAL STATEMENTS

VALERO ENERGY CORPORATION

CONSOLIDATED BALANCE SHEETS

(millions of dollars, except par value)


	September 30, 2022		December 31, 2021
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	3,969	$	4,122
Receivables, net	11,581		10,378
Inventories	6,628		6,265
Prepaid expenses and other	518		400
Total current assets	22,696		21,165
Property, plant, and equipment, at cost	49,638		49,072
Accumulated depreciation	(19,130)		(18,225)
Property, plant, and equipment, net	30,508		30,847
Deferred charges and other assets, net	6,125		5,876
Total assets	$	59,329	$	57,888
LIABILITIES AND EQUITY
Current liabilities:
Current portion of debt and finance lease obligations	$	1,006	$	1,264
Accounts payable	13,003		12,495
Accrued expenses	1,265		1,253
Taxes other than income taxes payable	1,311		1,461
Income taxes payable	652		378
Total current liabilities	17,237		16,851
Debt and finance lease obligations, less current portion	10,570		12,606
Deferred income tax liabilities	4,938		5,210
Other long-term liabilities	2,869		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	6,858		6,827
Treasury stock, at cost; 287,978,793 and 264,305,955 common shares	(18,466)		(15,677)
Retained earnings	35,510		28,281
Accumulated other comprehensive loss	(1,997)		(1,008)
Total Valero Energy Corporation stockholders’ equity	21,912		18,430
Noncontrolling interests	1,803		1,387
Total equity	23,715		19,817
Total liabilities and equity	$	59,329	$	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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenues (a)	$	44,454	$	29,520	$	134,637	$	78,074
Cost of sales:
Cost of materials and other	38,064		26,624		115,959		70,865

Operating expenses (excluding depreciation and amortization expense reflected below)	1,746		1,348		4,751		4,218
Depreciation and amortization expense	621		630		1,806		1,772
Total cost of sales	40,431		28,602		122,516		76,855
Other operating expenses	6		19		40		69
General and administrative expenses (excluding depreciation and amortization expense reflected below)	214		195		652		579
Depreciation and amortization expense	11		11		34		35

Operating income	3,792		693		11,395		536
Other income, net	74		32		87		179
Interest and debt expense, net of capitalized interest	(138)		(152)		(425)		(451)
Income before income tax expense	3,728		573		11,057		264
Income tax expense	816		65		2,410		86


Net income	2,912		508		8,647		178
Less: Net income attributable to noncontrolling interests	95		45		232		257
Net income (loss) attributable to Valero Energy Corporation stockholders	$	2,817	$	463	$	8,415	$	(79)








Earnings (loss) per common share	$	7.20	$	1.13	$	20.94	$	(0.20)
Weighted-average common shares outstanding (in millions)	390		407		400		407





Earnings (loss) per common share – assuming dilution	$	7.19	$	1.13	$	20.93	$	(0.20)
Weighted-average common shares outstanding – assuming dilution (in millions)	390		408		401		407

__________________________
Supplemental information:
(a) Includes excise taxes on sales by certain of our foreign operations	$	1,213	$	1,610	$	3,890	$	4,152

See Condensed Notes to Consolidated Financial Statements.

VALERO ENERGY CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(millions of dollars)

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net income	$	2,912	$	508	$	8,647	$	178
Other comprehensive loss:
Foreign currency translation adjustment	(606)		(259)		(1,035)		(114)
Net gain on pension and other postretirement benefits	8		16		25		44
Net gain (loss) on cash flow hedges	69		(17)		74		(14)
Other comprehensive loss before income tax expense (benefit)	(529)		(260)		(936)		(84)
Income tax expense (benefit) related to items of other comprehensive loss	9		(1)		16		8
Other comprehensive loss	(538)		(259)		(952)		(92)
Comprehensive income	2,374		249		7,695		86
Less: Comprehensive income attributable to noncontrolling interests	129		35		269		249
Comprehensive income (loss) attributable to Valero Energy Corporation stockholders	$	2,245	$	214	$	7,426	$	(163)

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 June 30, 2022	$	7	$	6,845	$	(17,537)	$	33,079	$	(1,425)	$	20,969	$	1,764	$	22,733
Net income	—		—		—		2,817		—		2,817		95		2,912
Dividends on common stock ($0.98 per share)	—		—		—		(386)		—		(386)		—		(386)
Stock-based compensation expense	—		13		—		—		—		13		—		13
Transactions in connection with stock-based compensation plans	—		—		(1)		—		—		(1)		—		(1)
Purchases of common stock for treasury	—		—		(928)		—		—		(928)		—		(928)

Distributions to noncontrolling interests	—		—		—		—		—		—		(90)		(90)

Other comprehensive income (loss)	—		—		—		—		(572)		(572)		34		(538)
Balance as of September 30, 2022	$	7	$	6,858	$	(18,466)	$	35,510	$	(1,997)	$	21,912	$	1,803	$	23,715

Balance as of June 30, 2021	$	7	$	6,819	$	(15,696)	$	27,610	$	(1,089)	$	17,651	$	1,053	$	18,704
Net income	—		—		—		463		—		463		45		508
Dividends on common stock ($0.98 per share)	—		—		—		(400)		—		(400)		—		(400)
Stock-based compensation expense	—		11		—		—		—		11		—		11


Contributions from noncontrolling interests	—		—		—		—		—		—		25		25


Other comprehensive loss	—		—		—		—		(249)		(249)		(10)		(259)
Balance as of September 30, 2021	$	7	$	6,830	$	(15,696)	$	27,673	$	(1,338)	$	17,476	$	1,113	$	18,589

See Condensed Notes to Consolidated Financial Statements.

VALERO ENERGY CORPORATION

CONSOLIDATED STATEMENTS OF EQUITY (Continued)

(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	—		—		—		8,415		—		8,415		232		8,647
Dividends on common stock ($2.94 per share)	—		—		—		(1,186)		—		(1,186)		—		(1,186)
Stock-based compensation expense	—		60		—		—		—		60		—		60
Transactions in connection with stock-based compensation plans	—		(29)		31		—		—		2		—		2
Purchases of common stock for treasury	—		—		(2,820)		—		—		(2,820)		—		(2,820)
Contributions from noncontrolling interests	—		—		—		—		—		—		240		240
Distributions to noncontrolling interests	—		—		—		—		—		—		(93)		(93)

Other comprehensive income (loss)	—		—		—		—		(989)		(989)		37		(952)
Balance as of September 30, 2022	$	7	$	6,858	$	(18,466)	$	35,510	$	(1,997)	$	21,912	$	1,803	$	23,715

Balance as of December 31, 2020	$	7	$	6,814	$	(15,719)	$	28,953	$	(1,254)	$	18,801	$	841	$	19,642
Net income (loss)	—		—		—		(79)		—		(79)		257		178
Dividends on common stock ($2.94 per share)	—		—		—		(1,201)		—		(1,201)		—		(1,201)
Stock-based compensation expense	—		52		—		—		—		52		—		52
Transactions in connection with stock-based compensation plans	—		(36)		38		—		—		2		—		2
Purchases of common stock for treasury	—		—		(15)		—		—		(15)		—		(15)
Contributions from noncontrolling interests	—		—		—		—		—		—		25		25
Distributions to noncontrolling interests	—		—		—		—		—		—		(2)		(2)

Other comprehensive loss	—		—		—		—		(84)		(84)		(8)		(92)
Balance as of September 30, 2021	$	7	$	6,830	$	(15,696)	$	27,673	$	(1,338)	$	17,476	$	1,113	$	18,589

See Condensed Notes to Consolidated Financial Statements.

VALERO ENERGY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(millions of dollars)

(unaudited)


	Nine Months Ended September 30,
	2022		2021
Cash flows from operating activities:
Net income	$	8,647	$	178
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense	1,840		1,807
Loss on early retirement of debt	24		—


Gain on sale of assets	—		(62)
Deferred income tax benefit	(161)		(150)
Changes in current assets and current liabilities	(1,617)		1,630
Changes in deferred charges and credits and other operating activities, net	(255)		2
Net cash provided by operating activities	8,478		3,405
Cash flows from investing activities:
Capital expenditures (excluding variable interest entities (VIEs))	(552)		(368)
Capital expenditures of VIEs:
Diamond Green Diesel Holdings LLC (DGD)	(682)		(730)
Other VIEs	(30)		(59)
Deferred turnaround and catalyst cost expenditures (excluding VIEs)	(820)		(544)
Deferred turnaround and catalyst cost expenditures of DGD	(13)		(6)
Proceeds from sale of assets	32		270
Investments in nonconsolidated joint ventures	(1)		(8)


Other investing activities, net	(4)		33
Net cash used in investing activities	(2,070)		(1,412)
Cash flows from financing activities:
Proceeds from debt issuances and borrowings (excluding VIEs)	1,839		—
Proceeds from borrowings of VIEs:
DGD	684		100
Other VIEs	73		29
Repayments of debt and finance lease obligations (excluding VIEs)	(4,234)		(672)
Repayments of debt and finance lease obligations of VIEs:
DGD	(718)		—
Other VIEs	(51)		(4)
Premiums paid on early retirement of debt	(48)		—
Purchases of common stock for treasury	(2,769)		(15)
Common stock dividend payments	(1,186)		(1,201)
Contributions from noncontrolling interests	240		25
Distributions to noncontrolling interests	(93)		(2)
Other financing activities, net	(6)		1
Net cash used in financing activities	(6,269)		(1,739)
Effect of foreign exchange rate changes on cash	(292)		(69)
Net increase (decrease) in cash and cash equivalents	(153)		185
Cash and cash equivalents at beginning of period	4,122		3,313
Cash and cash equivalents at end of period	$	3,969	$	3,498

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, these interim financial statements reflect all adjustments considered necessary for a fair statement of our results for the interim periods presented. All such adjustments are of a normal recurring nature unless disclosed otherwise. Operating results for the interim periods 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.

2. INVENTORIES

Inventories consisted of the following (in millions):


	September 30, 2022		December 31, 2021
Refinery feedstocks	$	1,781	$	1,995
Refined petroleum products and blendstocks	4,008		3,567
Renewable diesel feedstocks and products	310		135
Ethanol feedstocks and products	228		273
Materials and supplies	301		295


Inventories	$	6,628	$	6,265

VALERO ENERGY CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of September 30, 2022 and December 31, 2021, the replacement cost (market value) of last-in, first-out (LIFO) inventories exceeded their LIFO carrying amounts by $8.6 billion and $5.2 billion, respectively. Our non-LIFO inventories accounted for $1.3 billion and $1.4 billion of our total inventories as of September 30, 2022 and December 31, 2021, respectively.

3. PROPERTY, PLANT, AND EQUIPMENT

In June 2022, we sold our ethanol plant in Jefferson, Wisconsin for $32 million, which resulted in a gain of $23 million that is included in depreciation and amortization expense for the nine months ended September 30, 2022.

The Jefferson plant was temporarily idled in 2020 at the onset of the COVID-19 pandemic in response to the decreased demand for ethanol resulting from the effects of the pandemic on our business, and we had previously evaluated this plant for potential impairment assuming that operations would resume. However, we completed an evaluation of the plant during the third quarter of 2021 and concluded that it was no longer a strategic asset for our ethanol business. The plant’s operations permanently ceased at that time and we reduced its estimated useful life, which reduced its net book value to estimated salvage value. The additional depreciation expense of $48 million for the three and nine months ended September 30, 2021 resulting from this change did not have a material impact on our results of operations nor was there a material impact to our financial position.

4. DEBT

Public Debt

During the nine months ended September 30, 2022, the following activity occurred:

In September 2022, we used cash on hand to purchase and retire the following notes in connection with cash tender offers that we publicly announced in August 2022 and completed in September 2022 (in millions):


Debt Purchased and Retired	Principal Amount
3.65% Senior Notes due 2025	$	48
2.850% Senior Notes due 2025	291
4.375% VLP Senior Notes due 2026	62
3.400% Senior Notes due 2026	166
4.350% Senior Notes due 2028	131
4.000% Senior Notes due 2029	552
Total	$	1,250

In connection with the early debt retirement activity described above, we recognized a net gain of $26 million in “other income, net” primarily comprised of $36 million of discounts.

VALERO ENERGY CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In June 2022, we reduced our debt through the acquisition of the $300 million of 4.00 percent Gulf Opportunity Zone Revenue Bonds Series 2010 (GO Zone Bonds) that are due December 1, 2040, but were subject to mandatory tender on June 1, 2022. We have the option to effectuate a remarketing of these bonds.
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 purchase and retire the following notes in connection with cash tender offers that we publicly announced and completed in February 2022 (in millions):


Debt Purchased 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, net” primarily comprised of $48 million of premiums paid.

In September 2021, we redeemed our Floating Rate Senior Notes due September 15, 2023 for $575 million.

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):


				September 30, 2022
	Facility Amount		Maturity Date	Outstanding Borrowings		Letters of Credit Issued (a)		Availability
Committed facilities:
Valero Revolver	$	4,000	March 2024	$	—	$	538	$	3,462
Canadian Revolver	C$	150	November 2022	C$	—	C$	5	C$	145
Accounts receivable sales facility	$	1,300	July 2023	$	—	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	$	8	$	292
DGD Loan Agreement (d)	$	25	April 2023	$	—	n/a		$	25
IEnova Revolver (e)	$	830	February 2028	$	705	n/a		$	125
Uncommitted facilities:
Letter of credit facilities	n/a		n/a	n/a		$	1,613	n/a

(a)Letters of credit issued as of September 30, 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 4.320 percent and 1.860 percent as of September 30, 2022 and December 31, 2021, respectively.

(d)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 5.133 percent and 2.603 percent as of September 30, 2022 and December 31, 2021, respectively.

(e)The variable interest rate on the IEnova Revolver was 5.927 percent and 3.781 percent as of September 30, 2022 and December 31, 2021, respectively.

VALERO ENERGY CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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


	Nine Months Ended September 30,
	2022		2021
Borrowings:
Accounts receivable sales facility	$	1,200	$	—
DGD Revolver	659		100
DGD Loan Agreement	25		—
IEnova Revolver	73		29
Repayments:
Accounts receivable sales facility	(1,200)		—
DGD Revolver	(659)		—
DGD Loan Agreement	(50)		—
IEnova Revolver	(47)		—

Other Disclosures

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Interest and debt expense	$	154	$	162	$	467	$	488
Less: Capitalized interest	16		10		42		37
Interest and debt expense, net of capitalized interest	$	138	$	152	$	425	$	451

5. EQUITY

Treasury Stock

We purchase shares of our outstanding common stock as authorized by our board of directors (Board), including under share purchase programs and with respect to our employee stock-based compensation plans. During the three and nine months ended September 30, 2022, we purchased for treasury 8,444,754 shares for $928 million and 24,202,035 shares for $2.8 billion, respectively. Purchases of common stock for treasury for the three and nine months ended September 30, 2021 were not material. On January 23, 2018, the Board authorized our purchase of up to $2.5 billion of our outstanding common stock with no expiration date (the 2018 Program), and we completed all authorized share purchases under that program during the three months ended June 30, 2022. On July 7, 2022, we announced that our Board authorized our purchase of up to an additional $2.5 billion of our outstanding common stock with no expiration date (the July 2022 Program). As of September 30, 2022, we had $1.6 billion remaining available for purchase under the July 2022 Program. On October 26, 2022, our Board authorized our purchase of up to an additional $2.5 billion with no expiration date, which is in addition to the amount remaining under the July 2022 Program.

VALERO ENERGY CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Common Stock Dividends

On October 26, 2022, our Board declared a quarterly cash dividend of $0.98 per common share payable on December 8, 2022 to holders of record at the close of business on November 17, 2022.

Accumulated Other Comprehensive Loss

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


	Three Months Ended September 30,
	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	$	(991)	$	(430)	$	(4)	$	(1,425)	$	(373)	$	(715)	$	(1)	$	(1,089)
Other comprehensive income (loss) before reclassifications	(606)		—		30		(576)		(255)		—		(8)		(263)
Amounts reclassified from accumulated other comprehensive loss	—		7		(3)		4		—		10		2		12
Effect of exchange rates	—		—		—		—		—		2		—		2
Other comprehensive income (loss)	(606)		7		27		(572)		(255)		12		(6)		(249)
Balance as of end of period	$	(1,597)	$	(423)	$	23	$	(1,997)	$	(628)	$	(703)	$	(7)	$	(1,338)


	Nine Months Ended September 30,
	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	(1,035)		(2)		(84)		(1,121)		(113)		1		(20)		(132)
Amounts reclassified from accumulated other comprehensive loss	—		18		112		130		—		32		15		47
Effect of exchange rates	—		2		—		2		—		1		—		1
Other comprehensive income (loss)	(1,035)		18		28		(989)		(113)		34		(5)		(84)
Balance as of end of period	$	(1,597)	$	(423)	$	23	$	(1,997)	$	(628)	$	(703)	$	(7)	$	(1,338)

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 September 30, 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
September 30, 2022
Assets
Cash and cash equivalents	$	224	$	—	$	16	$	240
Other current assets	665		7		27		699
Property, plant, and equipment, net	3,214		663		83		3,960
Liabilities
Current liabilities, including current portion of debt and finance lease obligations	$	385	$	726	$	21	$	1,132
Debt and finance lease obligations, less current portion	255		—		—		255

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.

On April 19, 2021, we sold a 24.99 percent membership interest in MVP Terminalling, LLC (MVP), a nonconsolidated joint venture with a subsidiary of Magellan Midstream Partners, L. P., for $270 million that resulted in a gain of $62 million, which is included in “other income, net” for the nine months ended September 30, 2021. MVP owns and operates a marine terminal located on the Houston Ship Channel in Pasadena, Texas. We retained a 25.01 percent membership interest in MVP.

VALERO ENERGY CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 September 30
Service cost	$	37	$	40	$	1	$	1
Interest cost	22		19		2		2
Expected return on plan assets	(48)		(48)		—		—
Amortization of:
Net actuarial loss	14		21		—		—
Prior service credit	(5)		(5)		(1)		(2)
Special charges	12		3		—		—
Net periodic benefit cost	$	32	$	30	$	2	$	1

Nine months ended September 30
Service cost	$	114	$	121	$	4	$	4
Interest cost	64		55		6		5
Expected return on plan assets	(144)		(144)		—		—
Amortization of:
Net actuarial loss	40		61		—		—
Prior service credit	(14)		(14)		(3)		(5)
Special charges	12		7		—		—
Net periodic benefit cost	$	72	$	86	$	7	$	4

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, net.”

8. INCOME TAXES

Income Tax Expense

There was no significant variation in the customary relationship between income tax expense and income before income tax expense for the three and nine months ended September 30, 2022.

Our income tax expense for the three and nine months ended September 30, 2021 included a permanent income tax benefit to our estimated annual effective tax rate from DGD’s share of pre-tax income that is not taxable to us and a benefit for the settlement of the audits of certain state tax returns for 2004 through 2006. In addition, during the nine months ended September 30, 2021, certain statutory income tax rate changes (primarily an increase in the United Kingdom (U.K.) rate from 19 percent to 25 percent effective in 2023) were enacted that resulted in the remeasurement of our deferred tax liabilities. We recognized deferred income tax expense of $64 million during the nine months ended September 30, 2021, which

VALERO ENERGY CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

represented the net increase in our deferred tax liabilities resulting from the changes in the income tax rates.

Tax Returns Under Audit

We expect to complete the appeals process for certain U.S. federal income tax audits within the next 12 months. We do not expect to have a significant change to our liability for unrecognized tax benefits upon the settlement of our ongoing audits, and we believe that the ultimate settlement of our audits will not be material to our financial condition, results of operations, and liquidity.

9. 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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Earnings (loss) per common share:
Net income (loss) attributable to Valero stockholders	$	2,817	$	463	$	8,415	$	(79)
Less: Income allocated to participating securities	11		1		31		4
Net income (loss) available to common stockholders	$	2,806	$	462	$	8,384	$	(83)

Weighted-average common shares outstanding	390		407		400		407

Earnings (loss) per common share	$	7.20	$	1.13	$	20.94	$	(0.20)

Earnings (loss) per common share – assuming dilution:
Net income (loss) attributable to Valero stockholders	$	2,817	$	463	$	8,415	$	(79)
Less: Income allocated to participating securities	11		1		31		4
Net income (loss) available to common stockholders	$	2,806	$	462	$	8,384	$	(83)

Weighted-average common shares outstanding	390		407		400		407
Effect of dilutive securities	—		1		1		—
Weighted-average common shares outstanding – assuming dilution	390		408		401		407

Earnings (loss) per common share – assuming dilution	$	7.19	$	1.13	$	20.93	$	(0.20)

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.

VALERO ENERGY CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. 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.

Contract Balances

Contract balances were as follows (in millions):


	September 30, 2022		December 31, 2021
Receivables from contracts with customers, included in receivables, net	$	7,439	$	6,228
Contract liabilities, included in accrued expenses	102		78

During the nine months ended September 30, 2022 and 2021, we recognized as revenue $74 million and $44 million that was included in contract liabilities as of December 31, 2021 and 2020, respectively. Revenue recognized related to contract liabilities during the three months ended September 30, 2022 and 2021 was not material.

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 September 30, 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.

VALERO ENERGY CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

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

VALERO ENERGY CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 September 30, 2022
Revenues:
Revenues from external customers	$	42,280	$	967	$	1,207	$	—	$	44,454
Intersegment revenues	9		508		179		(696)		—
Total revenues	42,289		1,475		1,386		(696)		44,454
Cost of sales:
Cost of materials and other (a)	36,389		1,161		1,203		(689)		38,064

Operating expenses (excluding depreciation and amortization expense reflected below)	1,516		69		162		(1)		1,746
Depreciation and amortization expense	568		33		20		—		621
Total cost of sales	38,473		1,263		1,385		(690)		40,431
Other operating expenses	6		—		—		—		6
General and administrative expenses (excluding depreciation and amortization expense reflected below)	—		—		—		214		214
Depreciation and amortization expense	—		—		—		11		11

Operating income by segment	$	3,810	$	212	$	1	$	(231)	$	3,792

Three months ended September 30, 2021
Revenues:
Revenues from external customers	$	27,989	$	342	$	1,189	$	—	$	29,520
Intersegment revenues	3		60		115		(178)		—
Total revenues	27,992		402		1,304		(178)		29,520
Cost of sales:
Cost of materials and other (a)	25,395		256		1,150		(177)		26,624

Operating expenses (excluding depreciation and amortization expense reflected below)	1,195		26		128		(1)		1,348
Depreciation and amortization expense	549		11		70		—		630
Total cost of sales	27,139		293		1,348		(178)		28,602
Other operating expenses	18		1		—		—		19
General and administrative expenses (excluding depreciation and amortization expense reflected below)	—		—		—		195		195
Depreciation and amortization expense	—		—		—		11		11

Operating income (loss) by segment	$	835	$	108	$	(44)	$	(206)	$	693

See note (a) on page 20.

VALERO ENERGY CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


	Refining		Renewable Diesel		Ethanol		Corporate and Eliminations		Total
Nine months ended September 30, 2022
Revenues:
Revenues from external customers	$	128,588	$	2,417	$	3,632	$	—	$	134,637
Intersegment revenues	24		1,490		507		(2,021)		—
Total revenues	128,612		3,907		4,139		(2,021)		134,637
Cost of sales:
Cost of materials and other (a)	111,308		3,129		3,533		(2,011)		115,959

Operating expenses (excluding depreciation and amortization expense reflected below)	4,111		178		464		(2)		4,751
Depreciation and amortization expense	1,682		87		37		—		1,806
Total cost of sales	117,101		3,394		4,034		(2,013)		122,516
Other operating expenses	38		—		2		—		40
General and administrative expenses (excluding depreciation and amortization expense reflected below)	—		—		—		652		652
Depreciation and amortization expense	—		—		—		34		34


Operating income by segment	$	11,473	$	513	$	103	$	(694)	$	11,395




Nine months ended September 30, 2021
Revenues:
Revenues from external customers	$	73,426	$	1,190	$	3,458	$	—	$	78,074
Intersegment revenues	7		215		259		(481)		—
Total revenues	73,433		1,405		3,717		(481)		78,074
Cost of sales:
Cost of materials and other (a)	67,417		724		3,204		(480)		70,865

Operating expenses (excluding depreciation and amortization expense reflected below)	3,730		86		403		(1)		4,218
Depreciation and amortization expense	1,626		35		111		—		1,772
Total cost of sales	72,773		845		3,718		(481)		76,855
Other operating expenses	68		1		—		—		69
General and administrative expenses (excluding depreciation and amortization expense reflected below)	—		—		—		579		579
Depreciation and amortization expense	—		—		—		35		35

Operating income (loss) by segment	$	592	$	559	$	(1)	$	(614)	$	536

(a)Cost of materials and other for our Renewable Diesel segment is net of the blender’s tax credit on qualified fuel mixtures of $191 million and $62 million for the three months ended September 30, 2022 and 2021, respectively, and $545 million and $225 million for the nine months ended September 30, 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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Refining:
Gasolines and blendstocks	$	17,862	$	13,132	$	54,026	$	34,293
Distillates	20,481		11,588		62,352		31,044
Other product revenues	3,937		3,269		12,210		8,089
Total refining revenues	42,280		27,989		128,588		73,426
Renewable Diesel:
Renewable diesel	967		342		2,417		1,190
Ethanol:
Ethanol	966		948		2,820		2,683
Distillers grains	241		241		812		775
Total ethanol revenues	1,207		1,189		3,632		3,458

Revenues	$	44,454	$	29,520	$	134,637	$	78,074

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


	September 30, 2022		December 31, 2021
Refining	$	48,617	$	47,365
Renewable Diesel	4,257		3,437
Ethanol	1,538		1,812
Corporate and eliminations	4,917		5,274
Total assets	$	59,329	$	57,888

VALERO ENERGY CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. SUPPLEMENTAL CASH FLOW INFORMATION

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


	Nine Months Ended September 30,
	2022		2021
Decrease (increase) in current assets:
Receivables, net	$	(1,435)	$	(2,643)
Inventories	(703)		(232)

Prepaid expenses and other	(201)		28
Increase (decrease) in current liabilities:
Accounts payable	746		3,624
Accrued expenses	38		538
Taxes other than income taxes payable	(103)		200
Income taxes payable	41		115
Changes in current assets and current liabilities	$	(1,617)	$	1,630

Changes in current assets and current liabilities for the nine months ended September 30, 2022 were primarily due to the following:

The increase in receivables was due to an increase in refined petroleum product prices in September 2022 compared to December 2021;
The increase in inventories was due to an increase in inventory volumes with higher inventory unit prices in September 2022 compared to December 2021; and
The increase in accounts payable was due to an increase in crude oil and other feedstock prices in September 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 nine months ended September 30, 2021 were primarily due to the following:

The increase in receivables was primarily due to an increase in refined petroleum product prices in September 2021 compared to December 2020 combined with an increase in refined petroleum product sales volumes, partially offset by a decrease in income taxes receivable associated with the receipt of a $962 million refund related to our U.S. federal income tax return for 2020;
The increase in accounts payable was primarily due to an increase in crude oil and other feedstock prices in September 2021 compared to December 2020 combined with an increase in crude oil and other feedstock volumes purchased; and

VALERO ENERGY CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The increase in accrued expenses was primarily due to an increase in our environmental credit obligations under fixed-price contracts that resulted from higher prices for renewable identification numbers (RINs) in September 2021 compared to December 2020.

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


	Nine Months Ended September 30,
	2022		2021
Interest paid in excess of amount capitalized, including interest on finance leases	$	383	$	397
Income taxes paid (refunded), net	2,630		(876)

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


	Nine Months Ended September 30,
	2022				2021
	Operating Leases		Finance Leases		Operating Leases		Finance Leases
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows	$	296	$	59	$	296	$	53
Investing cash flows	—		—		1		—
Financing cash flows	—		129		—		97
Changes in lease balances resulting from new and modified leases	132		156		366		93

There were no significant noncash investing and financing activities during the nine months ended September 30, 2022 or 2021, except as noted in the table above.

VALERO ENERGY CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. 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 September 30, 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.


	September 30, 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	$	1,083	$	—	$	—	$	1,083	$	(922)	$	(12)	$	149	$	—
Physical purchase contracts	—		11		—		11		n/a		n/a		11		n/a


Foreign currency contracts	18		—		—		18		n/a		n/a		18		n/a
Investments of certain benefit plans	70		—		6		76		n/a		n/a		76		n/a

Total	$	1,171	$	11	$	6	$	1,188	$	(922)	$	(12)	$	254

Liabilities
Commodity derivative contracts	$	944	$	—	$	—	$	944	$	(922)	$	(22)	$	—	$	(65)
Blending program obligations	—		42		—		42		n/a		n/a		42		n/a
Physical purchase contracts	—		6		—		6		n/a		n/a		6		n/a



Total	$	944	$	48	$	—	$	992	$	(922)	$	(22)	$	48

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 13. 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 September 30, 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):


		September 30, 2022				December 31, 2021
	Fair Value Hierarchy	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
Cash and cash equivalents	Level 1	$	3,969	$	3,969	$	4,122	$	4,122
Financial liabilities:
Debt (excluding finance lease obligations)	Level 2	9,638		9,000		11,950		13,668

VALERO ENERGY CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. 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 12), as summarized below under “Fair Values of Derivative Instruments.” The effect of these derivative instruments on our income and other comprehensive loss is summarized below under “Effect of Derivative Instruments on Income and Other Comprehensive 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.

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 September 30, 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	712	55
Futures – short	5,448	339



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


Futures – long	80,251	1,756
Futures – short	83,069	1,599







Corn:
Futures – long	48,460	435
Futures – short	73,485	6,945
Physical contracts – long	24,318	6,504

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 September 30, 2022, we had foreign currency contracts to purchase $710 million of U.S. dollars and $150 million of U.S. dollar equivalent Canadian dollars. All of these commitments matured on or before October 25, 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 RINs). The cost of meeting our credit obligations under the Renewable and Low-Carbon Fuel Blending Programs was $461 million and $662 million for the three months ended September 30, 2022 and 2021, respectively, and $984 million and $1.7 billion for the

VALERO ENERGY CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

nine months ended September 30, 2022 and 2021, respectively. These amounts are reflected in cost of materials and other.

Fair Values of Derivative Instruments

The following table provides information about the fair values of our derivative instruments as of September 30, 2022 and December 31, 2021 (in millions) and the line items in the balance sheets in which the fair values are reflected. See Note 12 for additional information related to the fair values of our derivative instruments.

As indicated in Note 12, 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		September 30, 2022						December 31, 2021
		Asset Derivatives			Liability Derivatives			Asset Derivatives			Liability Derivatives
Derivatives designated as hedging instruments:
Commodity contracts	Receivables, net		$	96		$	21		$	3		$	26



Derivatives not designated as hedging instruments:
Commodity contracts	Receivables, net		$	987		$	923		$	519		$	446
Physical purchase contracts	Inventories		11			6			4			5
Foreign currency contracts	Receivables, net		18			—			1			—
Foreign currency contracts	Accrued expenses		—			—			—			10
Total			$	1,016		$	929		$	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 Loss

The following table provides information about the gain (loss) recognized in income and other comprehensive 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 September 30,					Nine Months Ended September 30,
2022	2021	2022			2021
Commodity contracts:
Gain (loss) recognized in other comprehensive loss on derivatives	n/a		$	79		$	(21)	$	(215)	$	(52)
Gain (loss) reclassified from accumulated other comprehensive loss into income	Revenues		10			(3)		(289)		(37)

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 and nine months ended September 30, 2022 and 2021. For the three and nine months ended September 30, 2022 and 2021, cash flow hedges primarily related to forward sales of renewable diesel. The estimated deferred after-tax gain that is expected to be reclassified into revenues within the next 12 months as a result of the hedged transactions that are forecasted to occur as of September 30, 2022 was not material. For the three and nine months ended September 30, 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 and nine months ended September 30, 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 September 30,					Nine Months Ended September 30,
2022	2021	2022			2021
Commodity contracts	Revenues		$	(6)		$	(7)	$	(12)	$	13
Commodity contracts	Cost of materials and other		(109)			6		(976)		(51)
Commodity contracts	Operating expenses (excluding depreciation and amortization expense)		(18)			(1)		(9)		2
Foreign currency contracts	Cost of materials and other		57			19		104		17
Foreign currency contracts	Other income, net		(38)			(28)		(119)		55

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