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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)

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

For the quarterly period ended September 30, 2023
OR

☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________

Commission File Number 001-13175
VALERO ENERGY CORPORATION
(Exact name of registrant as specified in its charter)

Delaware | 74-1828067
(State or other jurisdiction of | (I.R.S. Employer
incorporation or organization) | Identification No.)

One Valero Way
San Antonio, Texas
(Address of principal executive offices)
78249
(Zip Code)
(210) 345-2000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:

Title of each class |  | Trading symbol(s) |  | Name of each exchange on which registered
Common Stock, par value $0.01 per share |  | VLO |  | New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

| Large accelerated filer | ☑ |  | Accelerated filer | ☐ |  | Non-accelerated filer | ☐ |
|  | Smaller reporting company | ☐ |  | Emerging growth company | ☐ |  |  |

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
The number of shares of the registrant’s only class of common stock, $0.01 par value, outstanding as of October 20, 2023 was 340,452,942.

VALERO ENERGY CORPORATION
TABLE OF CONTENTS

| Page
PART I – FINANCIAL INFORMATION |
ITEM 1. FINANCIAL STATEMENTS |
Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022 | 1
Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2023 and 2022 | 2
Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2023 and 2022 | 3
Consolidated Statements of Equity for the Three and Nine Months Ended September 30, 2023 and 2022 | 4
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022 | 6
Condensed Notes to Consolidated Financial Statements | 7
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 32
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 62
ITEM 4. CONTROLS AND PROCEDURES | 63
PART II – OTHER INFORMATION |
ITEM 1. LEGAL PROCEEDINGS | 63
ITEM 1A. RISK FACTORS | 64
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES | 64
ITEM 5. OTHER INFORMATION | 65
ITEM 6. EXHIBITS | 65
SIGNATURE | 66

i

Table of Contents
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VALERO ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(millions of dollars, except par value)

| September 30, 2023 |  | December 31, 2022
| (unaudited) |  |
ASSETS |  |  |
Current assets: |  |  |
Cash and cash equivalents | $ | 5,831 |  |  | $ | 4,862 |
Receivables, net | 12,566 |  |  | 11,919 |
Inventories | 7,513 |  |  | 6,752 |
Prepaid expenses and other | 667 |  |  | 600 |
Total current assets | 26,577 |  |  | 24,133 |
Property, plant, and equipment, at cost | 51,208 |  |  | 50,576 |
Accumulated depreciation | (20,955) |  |  | (19,598) |
Property, plant, and equipment, net | 30,253 |  |  | 30,978 |
Deferred charges and other assets, net | 6,345 |  |  | 5,871 |
Total assets | $ | 63,175 |  |  | $ | 60,982 |
LIABILITIES AND EQUITY |  |  |
Current liabilities: |  |  |
Current portion of debt and finance lease obligations | $ | 1,334 |  |  | $ | 1,109 |
Accounts payable | 13,342 |  |  | 12,728 |
Accrued expenses | 1,219 |  |  | 1,215 |
Taxes other than income taxes payable | 1,419 |  |  | 1,568 |
Income taxes payable | 278 |  |  | 841 |
Total current liabilities | 17,592 |  |  | 17,461 |
Debt and finance lease obligations, less current portion | 10,107 |  |  | 10,526 |
Deferred income tax liabilities | 5,231 |  |  | 5,217 |
Other long-term liabilities | 2,188 |  |  | 2,310 |
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 | 6,900 |  |  | 6,863 |
Treasury stock, at cost; 333,047,642 and 301,372,958 common shares | (24,381) |  |  | (20,197) |
Retained earnings | 44,774 |  |  | 38,247 |
Accumulated other comprehensive loss | (1,325) |  |  | (1,359) |
Total Valero Energy Corporation stockholders’ equity | 25,975 |  |  | 23,561 |
Noncontrolling interests | 2,082 |  |  | 1,907 |
Total equity | 28,057 |  |  | 25,468 |
Total liabilities and equity | $ | 63,175 |  |  | $ | 60,982 |

See Condensed Notes to Consolidated Financial Statements.
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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,
| 2023 |  | 2022 |  | 2023 |  | 2022
Revenues (a) | $ | 38,404 |  |  | $ | 44,454 |  |  | $ | 109,352 |  |  | $ | 134,637 |
Cost of sales: |  |  |  |  |  |  |
Cost of materials and other | 32,385 |  |  | 38,064 |  |  | 91,820 |  |  | 115,959 |
Operating expenses (excluding depreciation and amortization expense reflected below) | 1,578 |  |  | 1,746 |  |  | 4,495 |  |  | 4,751 |
Depreciation and amortization expense | 671 |  |  | 621 |  |  | 1,979 |  |  | 1,806 |
Total cost of sales | 34,634 |  |  | 40,431 |  |  | 98,294 |  |  | 122,516 |
Other operating expenses | 6 |  |  | 6 |  |  | 18 |  |  | 40 |
General and administrative expenses (excluding depreciation and amortization expense reflected below) | 250 |  |  | 214 |  |  | 703 |  |  | 652 |
Depreciation and amortization expense | 11 |  |  | 11 |  |  | 32 |  |  | 34 |
Operating income | 3,503 |  |  | 3,792 |  |  | 10,305 |  |  | 11,395 |
Other income, net | 122 |  |  | 74 |  |  | 357 |  |  | 87 |
Interest and debt expense, net of capitalized interest | (149) |  |  | (138) |  |  | (443) |  |  | (425) |
Income before income tax expense | 3,476 |  |  | 3,728 |  |  | 10,219 |  |  | 11,057 |
Income tax expense | 813 |  |  | 816 |  |  | 2,288 |  |  | 2,410 |
Net income | 2,663 |  |  | 2,912 |  |  | 7,931 |  |  | 8,647 |
Less: Net income attributable to noncontrolling interests | 41 |  |  | 95 |  |  | 298 |  |  | 232 |
Net income attributable to Valero Energy Corporation stockholders | $ | 2,622 |  |  | $ | 2,817 |  |  | $ | 7,633 |  |  | $ | 8,415 |
Earnings per common share | $ | 7.49 |  |  | $ | 7.20 |  |  | $ | 21.22 |  |  | $ | 20.94 |
Weighted-average common shares outstanding (in millions) | 349 |  |  | 390 |  |  | 359 |  |  | 400 |
Earnings per common share – assuming dilution | $ | 7.49 |  |  | $ | 7.19 |  |  | $ | 21.21 |  |  | $ | 20.93 |
Weighted-average common shares outstanding – assuming dilution (in millions) | 349 |  |  | 390 |  |  | 359 |  |  | 401 |
__________________________ |  |  |  |  |  |  |
Supplemental information: |  |  |  |  |  |  |
(a) Includes excise taxes on sales by certain of our foreign operations | $ | 1,468 |  |  | $ | 1,213 |  |  | $ | 4,339 |  |  | $ | 3,890 |

See Condensed Notes to Consolidated Financial Statements.
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VALERO ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(millions of dollars)
(unaudited)

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Net income | $ | 2,663 |  |  | $ | 2,912 |  |  | $ | 7,931 |  |  | $ | 8,647 |
Other comprehensive income (loss): |  |  |  |  |  |  |
Foreign currency translation adjustment | (314) |  |  | (606) |  |  | 77 |  |  | (1,035) |
Net gain (loss) on pension and other postretirement benefits | (12) |  |  | 8 |  |  | (25) |  |  | 25 |
Net gain (loss) on cash flow hedges | (78) |  |  | 69 |  |  | (68) |  |  | 74 |
Other comprehensive loss before income tax expense (benefit) | (404) |  |  | (529) |  |  | (16) |  |  | (936) |
Income tax expense (benefit) related to items of other comprehensive income (loss) | (11) |  |  | 9 |  |  | (16) |  |  | 16 |
Other comprehensive loss | (393) |  |  | (538) |  |  | — |  |  | (952) |
Comprehensive income | 2,270 |  |  | 2,374 |  |  | 7,931 |  |  | 7,695 |
Less: Comprehensive income attributable to noncontrolling interests | 2 |  |  | 129 |  |  | 264 |  |  | 269 |
Comprehensive income attributable to Valero Energy Corporation stockholders | $ | 2,268 |  |  | $ | 2,245 |  |  | $ | 7,667 |  |  | $ | 7,426 |

See Condensed Notes to Consolidated Financial Statements.
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VALERO ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY
(millions of dollars, except per share amounts)
(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, 2023 | $ | 7 |  |  | $ | 6,889 |  |  | $ | (22,586) |  |  | $ | 42,512 |  |  | $ | (971) |  |  | $ | 25,851 |  |  | $ | 2,143 |  |  | $ | 27,994 |
Net income | — |  |  | — |  |  | — |  |  | 2,622 |  |  | — |  |  | 2,622 |  |  | 41 |  |  | 2,663 |
Dividends on common stock ($1.02 per share) | — |  |  | — |  |  | — |  |  | (360) |  |  | — |  |  | (360) |  |  | — |  |  | (360) |
Stock-based compensation expense | — |  |  | 15 |  |  | — |  |  | — |  |  | — |  |  | 15 |  |  | — |  |  | 15 |
Transactions in connection with stock-based compensation plans | — |  |  | (4) |  |  | 10 |  |  | — |  |  | — |  |  | 6 |  |  | — |  |  | 6 |
Purchases of common stock for treasury | — |  |  | — |  |  | (1,805) |  |  | — |  |  | — |  |  | (1,805) |  |  | — |  |  | (1,805) |
Distributions to noncontrolling interests | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (63) |  |  | (63) |
Other comprehensive loss | — |  |  | — |  |  | — |  |  | — |  |  | (354) |  |  | (354) |  |  | (39) |  |  | (393) |
Balance as of September 30, 2023 | $ | 7 |  |  | $ | 6,900 |  |  | $ | (24,381) |  |  | $ | 44,774 |  |  | $ | (1,325) |  |  | $ | 25,975 |  |  | $ | 2,082 |  |  | $ | 28,057 |
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 |

See Condensed Notes to Consolidated Financial Statements.
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VALERO ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY (Continued)
(millions of dollars, except per share amounts)
(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, 2022 | $ | 7 |  |  | $ | 6,863 |  |  | $ | (20,197) |  |  | $ | 38,247 |  |  | $ | (1,359) |  |  | $ | 23,561 |  |  | $ | 1,907 |  |  | $ | 25,468 |
Net income | — |  |  | — |  |  | — |  |  | 7,633 |  |  | — |  |  | 7,633 |  |  | 298 |  |  | 7,931 |
Dividends on common stock ($3.06 per share) | — |  |  | — |  |  | — |  |  | (1,106) |  |  | — |  |  | (1,106) |  |  | — |  |  | (1,106) |
Stock-based compensation expense | — |  |  | 68 |  |  | — |  |  | — |  |  | — |  |  | 68 |  |  | — |  |  | 68 |
Transactions in connection with stock-based compensation plans | — |  |  | (31) |  |  | 38 |  |  | — |  |  | — |  |  | 7 |  |  | — |  |  | 7 |
Purchases of common stock for treasury | — |  |  | — |  |  | (4,222) |  |  | — |  |  | — |  |  | (4,222) |  |  | — |  |  | (4,222) |
Contributions from noncontrolling interests | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 75 |  |  | 75 |
Distributions to noncontrolling interests | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (164) |  |  | (164) |
Other comprehensive income (loss) | — |  |  | — |  |  | — |  |  | — |  |  | 34 |  |  | 34 |  |  | (34) |  |  | — |
Balance as of September 30, 2023 | $ | 7 |  |  | $ | 6,900 |  |  | $ | (24,381) |  |  | $ | 44,774 |  |  | $ | (1,325) |  |  | $ | 25,975 |  |  | $ | 2,082 |  |  | $ | 28,057 |
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 |

See Condensed Notes to Consolidated Financial Statements.
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VALERO ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions of dollars)
(unaudited)

| Nine Months Ended September 30,
| 2023 |  | 2022
Cash flows from operating activities: |  |  |
Net income | $ | 7,931 |  |  | $ | 8,647 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |
Depreciation and amortization expense | 2,011 |  |  | 1,840 |
Loss (gain) on early retirement of debt, net | (11) |  |  | 24 |
Deferred income tax expense (benefit) | 32 |  |  | (161) |
Changes in current assets and current liabilities | (1,695) |  |  | (1,617) |
Changes in deferred charges and credits and other operating activities, net | (278) |  |  | (255) |
Net cash provided by operating activities | 7,990 |  |  | 8,478 |
Cash flows from investing activities: |  |  |
Capital expenditures (excluding variable interest entities (VIEs)) | (468) |  |  | (552) |
Capital expenditures of VIEs: |  |  |
Diamond Green Diesel Holdings LLC (DGD) | (183) |  |  | (682) |
Other VIEs | (4) |  |  | (30) |
Deferred turnaround and catalyst cost expenditures (excluding VIEs) | (665) |  |  | (820) |
Deferred turnaround and catalyst cost expenditures of DGD | (56) |  |  | (13) |
Purchases of available-for-sale (AFS) debt securities | (237) |  |  | — |
Proceeds from sales and maturities of AFS debt securities | 220 |  |  | — |
Proceeds from sale of assets | — |  |  | 32 |
Investments in nonconsolidated joint ventures | — |  |  | (1) |
Other investing activities, net | 11 |  |  | (4) |
Net cash used in investing activities | (1,382) |  |  | (2,070) |
Cash flows from financing activities: |  |  |
Proceeds from debt issuances and borrowings (excluding VIEs) | 1,750 |  |  | 1,839 |
Proceeds from borrowings of VIEs: |  |  |
DGD | 500 |  |  | 684 |
Other VIEs | 86 |  |  | 73 |
Repayments of debt and finance lease obligations (excluding VIEs) | (2,071) |  |  | (4,234) |
Repayments of debt and finance lease obligations of VIEs: |  |  |
DGD | (474) |  |  | (718) |
Other VIEs | (59) |  |  | (51) |
Premiums paid on early retirement of debt | (5) |  |  | (48) |
Purchases of common stock for treasury | (4,180) |  |  | (2,769) |
Common stock dividend payments | (1,106) |  |  | (1,186) |
Contributions from noncontrolling interests | 75 |  |  | 240 |
Distributions to noncontrolling interests | (164) |  |  | (93) |
Other financing activities, net | 3 |  |  | (6) |
Net cash used in financing activities | (5,645) |  |  | (6,269) |
Effect of foreign exchange rate changes on cash | 6 |  |  | (292) |
Net increase (decrease) in cash and cash equivalents | 969 |  |  | (153) |
Cash and cash equivalents at beginning of period | 4,862 |  |  | 4,122 |
Cash and cash equivalents at end of period | $ | 5,831 |  |  | $ | 3,969 |

See Condensed Notes to Consolidated Financial Statements.
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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 interim unaudited financial statements have been prepared in conformity 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 unaudited 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, 2023. These interim unaudited financial statements should be read in conjunction with our audited financial statements and notes thereto included in our annual report on Form 10-K for the year ended December 31, 2022.
The balance sheet as of December 31, 2022 has been derived from our audited financial statements as of that date. For further information, refer to our audited financial statements and notes thereto included in our annual report on Form 10-K for the year ended December 31, 2022.
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 these interim unaudited 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. UNCERTAINTY
In September 2022, California adopted Senate Bill No. 1322 (SB 1322), which requires refineries in California to report monthly on the volume and cost of the crude oil they buy, the quantity and price of the wholesale gasoline they sell, and the gross gasoline margin per barrel, among other information. The provisions of SB 1322 were effective January 2023.
In March 2023, California adopted Senate Bill No. 2 (such statute, together with any regulations contemplated or issued thereunder, SBx 1-2), which, among other things, (i) authorized the establishment of a maximum gross gasoline refining margin (max margin) and the imposition of a financial penalty for profits above a max margin, (ii) significantly expanded the reporting obligations under SB 1322 and the Petroleum Industry Information Reporting Act of 1980, which include reporting requirements to the
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VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
California Energy Commission (CEC) for all participants in the petroleum industry supply chain in California (e.g., refiners, marketers, importers, transporters, terminals, producers, renewables producers, pipelines, and ports), (iii) created the Division of Petroleum Market Oversight within the CEC to analyze the data provided under SBx 1-2, and (iv) authorized the CEC to regulate the timing and other aspects of refinery turnaround and maintenance activities in certain instances. SBx 1-2 imposes increased and substantial reporting requirements, which include daily, weekly, monthly, and annual reporting of detailed operational and financial data on all aspects of our operations in California, much of it at the transaction level. The operational data includes our plans for turnaround and maintenance activities at our two California refineries and the manner in which we expect to address the potential impacts on feedstock and product inventories in California as a result of such turnaround and maintenance activities. The provisions of SBx 1-2 became effective June 26, 2023.
In September 2023, Governor Newsom directed the CEC to immediately begin the regulatory processes concerning the potential imposition of a penalty for exceeding a max margin and the timing of refinery turnarounds and maintenance. Consequently, the CEC adopted an order instituting an informational proceeding on a max margin and penalty under SBx 1-2, as well as an order initiating rulemaking activity under SBx 1-2. The CEC indicated the latter rulemaking process will be focused on refinery maintenance and turnarounds; however, it remains uncertain as to whether, when, and to what extent any regulations will address the remaining reporting requirements under SBx 1-2.
We continue to review and analyze the provisions of SBx 1-2 and the possible impacts to our refining and marketing operations in California. While the CEC has not yet established a max margin, imposed a financial penalty for profits above a max margin, or imposed restrictions on turnaround and maintenance activities, Governor Newsom’s direction to the CEC to begin the regulatory processes related to each of those matters, as described above, and the potential implementation of a financial penalty or any restrictions or delays on our ability to undertake turnaround or maintenance activities creates uncertainty due to the potential adverse effects on us. Any adverse effects on our operations or financial performance in California could indicate that the carrying value of our assets in California is not recoverable, which would result in an impairment loss that could be material. In addition, if the circumstances that trigger an impairment loss result in a reduction in the estimated useful lives of the assets, we may be required to recognize an asset retirement obligation that could be material. Other jurisdictions are contemplating similarly focused legislation or actions.
The ultimate timing and impacts of SBx 1-2 and any other similarly focused legislation or actions are subject to considerable uncertainty due to a number of factors, including technological and economic feasibility, legal challenges, and potential changes in law, regulation, or policy, and it is not currently possible to predict the ultimate effects of these matters and developments on us.
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VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. INVENTORIES
Inventories consisted of the following (in millions):

| September 30, 2023 |  | December 31, 2022
Refinery feedstocks | $ | 1,878 |  |  | $ | 1,949 |
Refined petroleum products and blendstocks | 4,232 |  |  | 3,579 |
Renewable diesel feedstocks and products | 797 |  |  | 583 |
Ethanol feedstocks and products | 270 |  |  | 328 |
Materials and supplies | 336 |  |  | 313 |
Inventories | $ | 7,513 |  |  | $ | 6,752 |

As of September 30, 2023 and December 31, 2022, the replacement cost (market value) of last-in, first-out (LIFO) inventories exceeded their LIFO carrying amounts by $6.1 billion and $6.3 billion, respectively. Our non-LIFO inventories accounted for $1.3 billion and $1.6 billion of our total inventories as of September 30, 2023 and December 31, 2022, respectively.
4. DEBT
Public Debt
In February 2023, we used cash on hand to purchase and retire a portion of the following notes (in millions):

Debt Purchased and Retired |  | Principal Amount
6.625% Senior Notes due 2037 |  | $ | 62 |
3.650% Senior Notes due 2051 |  | 26 |
4.000% Senior Notes due 2052 |  | 45 |
Various other Valero and Valero Energy Partners (VLP) Senior Notes |  | 66 |
Total |  | $ | 199 |

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VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During the nine months ended September 30, 2022, the following activity occurred:
•In September 2022, we used cash on hand to purchase and retire a portion of 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 June 2022, we reduced our debt through the acquisition of the $300 million of 4.00 percent Gulf Opportunity Zone Revenue Bonds Series 2010 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 a portion of 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 |

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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, 2023
| Facility Amount |  | Maturity Date |  | Outstanding Borrowings |  | Letters of Credit Issued (a) |  | Availability
Committed facilities: |  |  |  |  |  |  |  |  |
Valero Revolver | $ | 4,000 |  |  | November 2027 |  | $ | — |  |  | $ | 4 |  |  | $ | 3,996 |
Canadian Revolver (b) | C$ | 150 |  |  | November 2023 |  | C$ | — |  |  | C$ | 5 |  |  | C$ | 145 |
Accounts receivable sales facility | $ | 1,300 |  |  | July 2024 |  | $ | — |  |  | n/a |  | $ | 1,300 |
Committed facilities of VIEs (c): |  |  |  |  |  |  |  |  |
DGD Revolver (d) | $ | 400 |  |  | June 2026 |  | $ | 200 |  |  | $ | 106 |  |  | $ | 94 |
DGD Loan Agreement (e) | $ | 100 |  |  | June 2026 |  | $ | — |  |  | n/a |  | $ | 100 |
IEnova Revolver (f) | $ | 830 |  |  | February 2028 |  | $ | 748 |  |  | n/a |  | $ | 82 |
Uncommitted facilities: |  |  |  |  |  |  |  |  |
Letter of credit facilities | n/a |  | n/a |  | n/a |  | $ | 177 |  |  | n/a

________________________
(a)Letters of credit issued as of September 30, 2023 expire at various times in 2023 through 2026.
(b)On October 24, 2023, we amended this facility to (i) extend the maturity date to February 2024 and (ii) reduce the facility amount so that, effective October 31, 2023, the facility amount will equal the amount of the outstanding letters of credit thereunder, and will not permit further borrowings other than certain deemed borrowings to satisfy the reimbursement obligations under such letters of credit.
(c)Creditors of the VIEs do not have recourse against us.
(d)In June 2023, DGD amended this facility to (i) extend the maturity date to June 2026 and (ii) transition the benchmark reference interest rate previously based on the London Interbank Offered Rate (LIBOR) to a secured overnight financing rate (SOFR). The variable interest rate on the DGD Revolver was 7.173 percent and 5.880 percent as of September 30, 2023 and December 31, 2022, respectively.
(e)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. In April 2023, DGD extended the maturity date of this agreement to June 2023. In June 2023, DGD entered into a new unsecured revolving loan agreement that replaced and superseded the previous agreement. The new agreement includes the following modifications from the previous agreement: (i) extends the maturity date to June 2026, (ii) increases each member’s commitment from $25 million to $100 million, resulting in an increase in aggregate commitments from $50 million to $200 million, and (iii) transitions the benchmark reference interest rate previously based on the LIBOR to Term SOFR. The variable interest rate on the DGD Loan Agreement was 6.672 percent as of December 31, 2022.
(f)Both parties to this facility have agreed to use a SOFR as the interest rate applied to outstanding borrowings. The variable interest rate on the IEnova Revolver was 9.097 percent and 7.393 percent as of September 30, 2023 and December 31, 2022, respectively.
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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,
| 2023 |  | 2022
Borrowings: |  |  |
Accounts receivable sales facility | $ | 1,750 |  |  | $ | 1,200 |
DGD Revolver | 500 |  |  | 659 |
DGD Loan Agreement | — |  |  | 25 |
IEnova Revolver | 86 |  |  | 73 |
Repayments: |  |  |
Accounts receivable sales facility | (1,750) |  |  | (1,200) |
DGD Revolver | (400) |  |  | (659) |
DGD Loan Agreement | (25) |  |  | (50) |
IEnova Revolver | (55) |  |  | (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,
| 2023 |  | 2022 |  | 2023 |  | 2022
Interest and debt expense | $ | 153 |  |  | $ | 154 |  |  | $ | 456 |  |  | $ | 467 |
Less: Capitalized interest | 4 |  |  | 16 |  |  | 13 |  |  | 42 |
Interest and debt expense, net of capitalized interest | $ | 149 |  |  | $ | 138 |  |  | $ | 443 |  |  | $ | 425 |

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 (described below) and with respect to our employee stock-based compensation plans.
During the three and nine months ended September 30, 2023, we purchased for treasury 12,805,162 shares and 32,219,955 shares, respectively. During the three and nine months ended September 30, 2022, we purchased for treasury 8,444,754 shares and 24,202,035 shares, respectively. On October 26, 2022, we announced that our Board authorized us to purchase shares of our outstanding common stock for a total cost of up to $2.5 billion with no expiration date, and we completed all authorized share purchases under that program during the second quarter of 2023. On February 23, 2023, we announced that our Board authorized us to purchase shares of our outstanding common stock for a total cost of up to $2.5 billion with no expiration date (the February 2023 Program). As of September 30, 2023, we had $649 million remaining available for purchase under the February 2023 Program. On September 15, 2023, we announced that our Board authorized us to purchase shares of our outstanding
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VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
common stock for a total cost of up to $2.5 billion with no expiration date, which is in addition to the amount remaining under the February 2023 Program.
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,
| 2023 |  | 2022
| 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 | $ | (774) |  |  | $ | (193) |  |  | $ | (4) |  |  |  |  | $ | (971) |  |  | $ | (991) |  |  | $ | (430) |  |  | $ | (4) |  |  | $ | (1,425) |
Other comprehensive income (loss) before reclassifications | (315) |  |  | — |  |  | (77) |  |  |  |  | (392) |  |  | (606) |  |  | — |  |  | 30 |  |  | (576) |
Amounts reclassified from accumulated other comprehensive loss | — |  |  | (7) |  |  | 47 |  |  |  |  | 40 |  |  | — |  |  | 7 |  |  | (3) |  |  | 4 |
Effect of exchange rates | — |  |  | (2) |  |  | — |  |  |  |  | (2) |  |  | — |  |  | — |  |  | — |  |  | — |
Other comprehensive income (loss) | (315) |  |  | (9) |  |  | (30) |  |  |  |  | (354) |  |  | (606) |  |  | 7 |  |  | 27 |  |  | (572) |
Balance as of end of period | $ | (1,089) |  |  | $ | (202) |  |  | $ | (34) |  |  |  |  | $ | (1,325) |  |  | $ | (1,597) |  |  | $ | (423) |  |  | $ | 23 |  |  | $ | (1,997) |

| Nine Months Ended September 30,
| 2023 |  | 2022
| 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 | $ | (1,168) |  |  | $ | (183) |  |  | $ | (8) |  |  | $ | (1,359) |  |  | $ | (562) |  |  | $ | (441) |  |  | $ | (5) |  |  | $ | (1,008) |
Other comprehensive income (loss) before reclassifications | 79 |  |  | — |  |  | (28) |  |  | 51 |  |  | (1,035) |  |  | (2) |  |  | (84) |  |  | (1,121) |
Amounts reclassified from accumulated other comprehensive loss | — |  |  | (20) |  |  | 2 |  |  | (18) |  |  | — |  |  | 18 |  |  | 112 |  |  | 130 |
Effect of exchange rates | — |  |  | 1 |  |  | — |  |  | 1 |  |  | — |  |  | 2 |  |  | — |  |  | 2 |
Other comprehensive income (loss) | 79 |  |  | (19) |  |  | (26) |  |  | 34 |  |  | (1,035) |  |  | 18 |  |  | 28 |  |  | (989) |
Balance as of end of period | $ | (1,089) |  |  | $ | (202) |  |  | $ | (34) |  |  | $ | (1,325) |  |  | $ | (1,597) |  |  | $ | (423) |  |  | $ | 23 |  |  | $ | (1,997) |

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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, 2023, the significant consolidated VIEs included:
•DGD, a joint venture with a subsidiary of Darling Ingredients Inc. that owns and operates two plants that process waste and renewable feedstocks (predominately animal fats, used cooking oils, and inedible distillers corn oils) into renewable diesel and renewable naphtha; 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, 2023 |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |
Cash and cash equivalents | $ | 198 |  |  | $ | — |  |  | $ | 25 |  |  | $ | 223 |
Other current assets | 1,387 |  |  | 8 |  |  | 30 |  |  | 1,425 |
Property, plant, and equipment, net | 3,764 |  |  | 668 |  |  | 71 |  |  | 4,503 |
Liabilities |  |  |  |  |  |  |
Current liabilities, including current portion of debt and finance lease obligations | $ | 549 |  |  | $ | 799 |  |  | $ | 18 |  |  | $ | 1,366 |
Debt and finance lease obligations, less current portion | 676 |  |  | — |  |  | — |  |  | 676 |

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VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

| DGD |  | Central Mexico Terminals |  | Other |  | Total
December 31, 2022 |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |
Cash and cash equivalents | $ | 133 |  |  | $ | — |  |  | $ | 16 |  |  | $ | 149 |
Other current assets | 1,106 |  |  | 7 |  |  | 32 |  |  | 1,145 |
Property, plant, and equipment, net | 3,785 |  |  | 681 |  |  | 79 |  |  | 4,545 |
Liabilities |  |  |  |  |  |  |
Current liabilities, including current portion of debt and finance lease obligations | $ | 626 |  |  | $ | 737 |  |  | $ | 21 |  |  | $ | 1,384 |
Debt and finance lease obligations, less current portion | 693 |  |  | — |  |  | — |  |  | 693 |

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.
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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
| 2023 |  | 2022 |  | 2023 |  | 2022
Three months ended September 30 |  |  |  |  |  |  |
Service cost | $ | 28 |  |  | $ | 37 |  |  | $ | 1 |  |  | $ | 1 |
Interest cost | 30 |  |  | 22 |  |  | 3 |  |  | 2 |
Expected return on plan assets | (50) |  |  | (48) |  |  | — |  |  | — |
Amortization of: |  |  |  |  |  |  |
Net actuarial (gain) loss | (2) |  |  | 14 |  |  | (1) |  |  | — |
Prior service credit | (5) |  |  | (5) |  |  | (1) |  |  | (1) |
Settlement loss | — |  |  | 12 |  |  | — |  |  | — |
Net periodic benefit cost | $ | 1 |  |  | $ | 32 |  |  | $ | 2 |  |  | $ | 2 |
Nine months ended September 30 |  |  |  |  |  |  |
Service cost | $ | 84 |  |  | $ | 114 |  |  | $ | 3 |  |  | $ | 4 |
Interest cost | 90 |  |  | 64 |  |  | 9 |  |  | 6 |
Expected return on plan assets | (151) |  |  | (144) |  |  | — |  |  | — |
Amortization of: |  |  |  |  |  |  |
Net actuarial (gain) loss | (5) |  |  | 40 |  |  | (4) |  |  | — |
Prior service credit | (14) |  |  | (14) |  |  | (3) |  |  | (3) |
Settlement loss | — |  |  | 12 |  |  | — |  |  | — |
Net periodic benefit cost | $ | 4 |  |  | $ | 72 |  |  | $ | 5 |  |  | $ | 7 |

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.”
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VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. EARNINGS PER COMMON SHARE
Earnings 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,
| 2023 |  | 2022 |  | 2023 |  | 2022
Earnings per common share: |  |  |  |  |  |  |
Net income attributable to Valero stockholders | $ | 2,622 |  |  | $ | 2,817 |  |  | $ | 7,633 |  |  | $ | 8,415 |
Less: Income allocated to participating securities | 8 |  |  | 11 |  |  | 24 |  |  | 31 |
Net income available to common stockholders | $ | 2,614 |  |  | $ | 2,806 |  |  | $ | 7,609 |  |  | $ | 8,384 |
Weighted-average common shares outstanding | 349 |  |  | 390 |  |  | 359 |  |  | 400 |
Earnings per common share | $ | 7.49 |  |  | $ | 7.20 |  |  | $ | 21.22 |  |  | $ | 20.94 |
Earnings per common share – assuming dilution: |  |  |  |  |  |  |
Net income attributable to Valero stockholders | $ | 2,622 |  |  | $ | 2,817 |  |  | $ | 7,633 |  |  | $ | 8,415 |
Less: Income allocated to participating securities | 8 |  |  | 11 |  |  | 24 |  |  | 31 |
Net income available to common stockholders | $ | 2,614 |  |  | $ | 2,806 |  |  | $ | 7,609 |  |  | $ | 8,384 |
Weighted-average common shares outstanding | 349 |  |  | 390 |  |  | 359 |  |  | 400 |
Effect of dilutive securities | — |  |  | — |  |  | — |  |  | 1 |
Weighted-average common shares outstanding – assuming dilution | 349 |  |  | 390 |  |  | 359 |  |  | 401 |
Earnings per common share – assuming dilution | $ | 7.49 |  |  | $ | 7.19 |  |  | $ | 21.21 |  |  | $ | 20.93 |

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.
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VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
Contract Balances
Contract balances were as follows (in millions):

| September 30, 2023 |  | December 31, 2022 |  |
Receivables from contracts with customers, included in receivables, net | $ | 7,451 |  |  | $ | 7,189 |  |  |
Contract liabilities, included in accrued expenses | 38 |  |  | 129 |  |  |

During the nine months ended September 30, 2023 and 2022, we recognized as revenue $125 million and $74 million that was included in contract liabilities as of December 31, 2022 and 2021, respectively. Revenue recognized related to contract liabilities during the three months ended September 30, 2023 and 2022 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, 2023, 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.
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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 and renewable naphtha. The principal products manufactured by DGD and sold by this segment are renewable diesel and renewable naphtha. 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.
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VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following tables reflect information about our operating income by reportable segment (in millions):

| Refining |  | Renewable Diesel |  | Ethanol |  | Corporate and Eliminations |  | Total
Three months ended September 30, 2023 |  |  |  |  |  |  |  |  |
Revenues: |  |  |  |  |  |  |  |  |
Revenues from external customers | $ | 36,521 |  |  | $ | 759 |  |  | $ | 1,124 |  |  | $ | — |  |  | $ | 38,404 |
Intersegment revenues | 8 |  |  | 672 |  |  | 310 |  |  | (990) |  |  | — |
Total revenues | 36,529 |  |  | 1,431 |  |  | 1,434 |  |  | (990) |  |  | 38,404 |
Cost of sales: |  |  |  |  |  |  |  |  |
Cost of materials and other (a) | 31,115 |  |  | 1,169 |  |  | 1,092 |  |  | (991) |  |  | 32,385 |
Operating expenses (excluding depreciation and amortization expense reflected below) | 1,366 |  |  | 84 |  |  | 125 |  |  | 3 |  |  | 1,578 |
Depreciation and amortization expense | 597 |  |  | 55 |  |  | 20 |  |  | (1) |  |  | 671 |
Total cost of sales | 33,078 |  |  | 1,308 |  |  | 1,237 |  |  | (989) |  |  | 34,634 |
Other operating expenses | 6 |  |  | — |  |  | — |  |  | — |  |  | 6 |
General and administrative expenses (excluding depreciation and amortization expense reflected below) | — |  |  | — |  |  | — |  |  | 250 |  |  | 250 |
Depreciation and amortization expense | — |  |  | — |  |  | — |  |  | 11 |  |  | 11 |
Operating income by segment | $ | 3,445 |  |  | $ | 123 |  |  | $ | 197 |  |  | $ | (262) |  |  | $ | 3,503 |
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 |

________________________
See note (a) on page 21.
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VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

| Refining |  | Renewable Diesel |  | Ethanol |  | Corporate and Eliminations |  | Total
Nine months ended September 30, 2023 |  |  |  |  |  |  |  |  |
Revenues: |  |  |  |  |  |  |  |  |
Revenues from external customers | $ | 102,924 |  |  | $ | 2,990 |  |  | $ | 3,438 |  |  | $ | — |  |  | $ | 109,352 |
Intersegment revenues | 8 |  |  | 2,367 |  |  | 790 |  |  | (3,165) |  |  | — |
Total revenues | 102,932 |  |  | 5,357 |  |  | 4,228 |  |  | (3,165) |  |  | 109,352 |
Cost of sales: |  |  |  |  |  |  |  |  |
Cost of materials and other (a) | 87,398 |  |  | 4,143 |  |  | 3,422 |  |  | (3,143) |  |  | 91,820 |
Operating expenses (excluding depreciation and amortization expense reflected below) | 3,832 |  |  | 274 |  |  | 383 |  |  | 6 |  |  | 4,495 |
Depreciation and amortization expense | 1,751 |  |  | 172 |  |  | 59 |  |  | (3) |  |  | 1,979 |
Total cost of sales | 92,981 |  |  | 4,589 |  |  | 3,864 |  |  | (3,140) |  |  | 98,294 |
Other operating expenses | 17 |  |  | — |  |  | 1 |  |  | — |  |  | 18 |
General and administrative expenses (excluding depreciation and amortization expense reflected below) | — |  |  | — |  |  | — |  |  | 703 |  |  | 703 |
Depreciation and amortization expense | — |  |  | — |  |  | — |  |  | 32 |  |  | 32 |
Operating income by segment | $ | 9,934 |  |  | $ | 768 |  |  | $ | 363 |  |  | $ | (760) |  |  | $ | 10,305 |
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 |

________________________
(a)Cost of materials and other for our Renewable Diesel segment is net of the blender’s tax credit on qualified fuel mixtures of $266 million and $191 million for the three months ended September 30, 2023 and 2022, respectively, and $900 million and $545 million for the nine months ended September 30, 2023 and 2022, respectively.
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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,
| 2023 |  | 2022 |  | 2023 |  | 2022
Refining: |  |  |  |  |  |  |
Gasolines and blendstocks | $ | 17,025 |  |  | $ | 17,862 |  |  | $ | 47,302 |  |  | $ | 54,026 |
Distillates | 16,392 |  |  | 20,481 |  |  | 47,222 |  |  | 62,352 |
Other product revenues | 3,104 |  |  | 3,937 |  |  | 8,400 |  |  | 12,210 |
Total Refining revenues | 36,521 |  |  | 42,280 |  |  | 102,924 |  |  | 128,588 |
Renewable Diesel: |  |  |  |  |  |  |
Renewable diesel | 739 |  |  | 899 |  |  | 2,864 |  |  | 2,311 |
Renewable naphtha | 20 |  |  | 68 |  |  | 126 |  |  | 106 |
Total Renewable Diesel revenues | 759 |  |  | 967 |  |  | 2,990 |  |  | 2,417 |
Ethanol: |  |  |  |  |  |  |
Ethanol | 861 |  |  | 966 |  |  | 2,522 |  |  | 2,820 |
Distillers grains | 263 |  |  | 241 |  |  | 916 |  |  | 812 |
Total Ethanol revenues | 1,124 |  |  | 1,207 |  |  | 3,438 |  |  | 3,632 |
Revenues | $ | 38,404 |  |  | $ | 44,454 |  |  | $ | 109,352 |  |  | $ | 134,637 |

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

| September 30, 2023 |  | December 31, 2022
Refining | $ | 49,171 |  |  | $ | 48,484 |
Renewable Diesel | 5,552 |  |  | 5,217 |
Ethanol | 1,501 |  |  | 1,551 |
Corporate and eliminations | 6,951 |  |  | 5,730 |
Total assets | $ | 63,175 |  |  | $ | 60,982 |

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VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. 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,
| 2023 |  | 2022
Increase in current assets: |  |  |
Receivables, net | $ | (709) |  |  | $ | (1,435) |
Inventories | (720) |  |  | (703) |
Prepaid expenses and other | (40) |  |  | (201) |
Increase (decrease) in current liabilities: |  |  |
Accounts payable | 656 |  |  | 746 |
Accrued expenses | (31) |  |  | 38 |
Taxes other than income taxes payable | (222) |  |  | (103) |
Income taxes payable | (629) |  |  | 41 |
Changes in current assets and current liabilities | $ | (1,695) |  |  | $ | (1,617) |

Changes in current assets and current liabilities for the nine months ended September 30, 2023 were primarily due to the following:
•The increase in receivables was due to an increase in refined petroleum product prices in September 2023 compared to December 2022;
•The increase in inventories was due to an increase in inventory volumes in September 2023 compared to December 2022;
•The increase in accounts payable was due to an increase in crude oil and other feedstock prices in September 2023 compared to December 2022; and
•The decrease in income taxes payable was primarily due to income tax payments made during the nine months ended September 30, 2023.
Changes in current assets and cu rrent 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 valued at higher unit prices in September 2022 compared to December 2021; and
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VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
•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 related volumes purchased.
Cash flows related to interest and income taxes were as follows (in millions):

| Nine Months Ended September 30,
| 2023 |  | 2022
Interest paid in excess of amount capitalized, including interest on finance leases | $ | 372 |  |  | $ | 383 |
Income taxes paid, net | 3,098 |  |  | 2,630 |

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

| Nine Months Ended September 30,
| 2023 |  | 2022
| Operating Leases |  | Finance Leases |  | Operating Leases |  | Finance Leases
Cash paid for amounts included in the measurement of lease liabilities: |  |  |  |  |  |  |
Operating cash flows | $ | 316 |  |  | $ | 81 |  |  | $ | 296 |  |  | $ | 59 |
Financing cash flows | — |  |  | 190 |  |  | — |  |  | 129 |
Changes in lease balances resulting from new and modified leases | 343 |  |  | 84 |  |  | 132 |  |  | 156 |

There were no significant noncash investing and financing activities during the nine months ended September 30, 2023 or 2022, except as noted in the table above.
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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 September 30, 2023 and December 31, 2022.
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, 2023
|  |  | 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 | $ | 909 |  |  | $ | — |  |  | $ | — |  |  | $ | 909 |  |  | $ | (907) |  |  | $ | — |  |  | $ | 2 |  |  | $ | — |
Foreign currency contracts | 4 |  |  | — |  |  | — |  |  | 4 |  |  | n/a |  | n/a |  | 4 |  |  | n/a
Investments of certain benefit plans | 77 |  |  | — |  |  | 4 |  |  | 81 |  |  | n/a |  | n/a |  | 81 |  |  | n/a
Investments in AFS debt securities | 85 |  |  | 66 |  |  | — |  |  | 151 |  |  | n/a |  | n/a |  | 151 |  |  | n/a
Total | $ | 1,075 |  |  | $ | 66 |  |  | $ | 4 |  |  | $ | 1,145 |  |  | $ | (907) |  |  | $ | — |  |  | $ | 238 |  |  |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity derivative contracts | $ | 1,148 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,148 |  |  | $ | (907) |  |  | $ | (241) |  |  | $ | — |  |  | $ | (141) |
Blending program obligations | — |  |  | 129 |  |  | — |  |  | 129 |  |  | n/a |  | n/a |  | 129 |  |  | n/a
Physical purchase contracts | — |  |  | 14 |  |  | — |  |  | 14 |  |  | n/a |  | n/a |  | 14 |  |  | n/a
Total | $ | 1,148 |  |  | $ | 143 |  |  | $ | — |  |  | $ | 1,291 |  |  | $ | (907) |  |  | $ | (241) |  |  | $ | 143 |  |  |

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VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

| December 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 | $ | 830 |  |  | $ | — |  |  | $ | — |  |  | $ | 830 |  |  | $ | (705) |  |  | $ | (8) |  |  | $ | 117 |  |  | $ | — |
Physical purchase contracts | — |  |  | 4 |  |  | — |  |  | 4 |  |  | n/a |  | n/a |  | 4 |  |  | n/a
Investments of certain benefit plans | 72 |  |  | — |  |  | 6 |  |  | 78 |  |  | n/a |  | n/a |  | 78 |  |  | n/a
Investments in AFS debt securities | 56 |  |  | 165 |  |  | — |  |  | 221 |  |  | n/a |  | n/a |  | 221 |  |  | n/a
Total | $ | 958 |  |  | $ | 169 |  |  | $ | 6 |  |  | $ | 1,133 |  |  | $ | (705) |  |  | $ | (8) |  |  | $ | 420 |  |  |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity derivative contracts | $ | 705 |  |  | $ | — |  |  | $ | — |  |  | $ | 705 |  |  | $ | (705) |  |  | $ | — |  |  | $ | — |  |  | $ | (149) |
Blending program obligations | — |  |  | 55 |  |  | — |  |  | 55 |  |  | n/a |  | n/a |  | 55 |  |  | n/a
Physical purchase contracts | — |  |  | 4 |  |  | — |  |  | 4 |  |  | n/a |  | n/a |  | 4 |  |  | n/a
Foreign currency contracts | 2 |  |  | — |  |  | — |  |  | 2 |  |  | n/a |  | n/a |  | 2 |  |  | n/a
Total | $ | 707 |  |  | $ | 59 |  |  | $ | — |  |  | $ | 766 |  |  | $ | (705) |  |  | $ | — |  |  | $ | 61 |  |  |

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.
•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.
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VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
•Investments in AFS debt securities consist primarily of commercial paper and U.S. government treasury bills and have maturities within one year. The securities were reflected in the following balance sheet line items, depending on their original maturities when acquired (in millions):

| September 30, 2023 |  | December 31, 2022
| Level 1 |  | Level 2 |  | Total |  | Level 1 |  | Level 2 |  | Total
Cash and cash equivalents | $ | — |  |  | $ | 33 |  |  | $ | 33 |  |  | $ | — |  |  | $ | 125 |  |  | $ | 125 |
Prepaid expenses and other | 85 |  |  | 33 |  |  | 118 |  |  | 56 |  |  | 40 |  |  | 96 |
Investments in AFS debt securities | $ | 85 |  |  | $ | 66 |  |  | $ | 151 |  |  | $ | 56 |  |  | $ | 165 |  |  | $ | 221 |

The securities categorized in Level 1 are measured at fair value using a market approach based on quoted prices from national securities exchanges, and the securities categorized in Level 2 are measured at fair value using a market approach based on quoted prices from independent pricing services. The amortized cost basis of the securities approximates fair value. Realized and unrealized gains and losses were de minimis for the three and nine months ended September 30, 2023. There were no AFS debt securities held as of and for the nine months ended September 30, 2022.
•Blending program obligations represent our liability for the purchase of compliance credits needed to satisfy our blending obligations under various government and regulatory blending programs, such as the U.S. Environmental Protection Agency’s (EPA) Renewable Fuel Standard (RFS), the California Low Carbon Fuel Standard (LCFS), the Canada Clean Fuel Regulations, and similar programs in other jurisdictions in which we operate (collectively, the Renewable and Low-Carbon Fuel 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.
•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.
Nonrecurring Fair Value Measurements
As previously disclosed in our annual report on Form 10-K for the year ended December 31, 2022, we concluded that our ethanol plant located in Lakota, Iowa (Lakota ethanol plant) was impaired as of December 31, 2022, which resulted in an asset impairment loss of $61 million. The fair value of the Lakota ethanol plant was determined using a combination of the income and market approaches and was classified in Level 3. We employed a probability-weighted approach to possible future cash flow scenarios, including the use of peer company metrics and comparison to a recent sales transaction.
There were no assets or liabilities that were measured at fair value on a nonrecurring basis as of September 30, 2023 and December 31, 2022, except as noted above.
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VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Financial Instruments
Our financial instruments include cash and cash equivalents, investments in AFS debt securities, receivables, payables, debt obligations, operating and finance lease obligations, commodity derivative contracts, and foreign currency contracts. The estimated fair values of cash and cash equivalents, receivables, payables, and operating and finance lease obligations approximate their carrying amounts; the carrying value and fair value of debt is shown in the table below (in millions).

|  |  | September 30, 2023 |  | December 31, 2022
| Fair Value Hierarchy |  | Carrying Amount |  | Fair Value |  | Carrying Amount |  | Fair Value
Financial liabilities: |  |  |  |  |  |  |  |  |
Debt (excluding finance lease obligations) | Level 2 |  | $ | 9,150 |  |  | $ | 8,549 |  |  | $ | 9,241 |  |  | $ | 8,902 |

Investments in AFS debt securities, commodity derivative contracts, and foreign currency contracts are recognized at their fair values as shown in “Recurring Fair Value Measurements” above.
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 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 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.
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VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
•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.
As of September 30, 2023, 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
|  | 2023 |  | 2024 |  |
Derivatives designated as cash flow hedges: |  |  |  |  |  |
Refined petroleum products: |  |  |  |  |  |
Futures – long |  | 915 |  |  | 200 |  |  |
Futures – short |  | 6,765 |  |  | 2,362 |  |  |
Derivatives designated as economic hedges: |  |  |  |  |  |
Crude oil and refined petroleum products: |  |  |  |  |  |
Futures – long |  | 81,133 |  |  | 4,214 |  |  |
Futures – short |  | 87,324 |  |  | 5,260 |  |  |
Corn: |  |  |  |  |  |
Futures – long |  | 66,695 |  |  | 90 |  |  |
Futures – short |  | 82,415 |  |  | 3,290 |  |  |
Physical contracts – long |  | 14,533 |  |  | 3,193 |  |  |

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, 2023, we had foreign currency contracts to purchase $630 million of U.S. dollars. All of these commitments matured on or before October 25, 2023.
Renewable and Low-Carbon Fuel 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 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 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)). The cost of meeting
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VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
our credit obligations under the Renewable and Low-Carbon Fuel Programs was $438 million and $461 million for the three months ended September 30, 2023 and 2022, respectively, and $1.2 billion and $984 million for the nine months ended September 30, 2023 and 2022, 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, 2023 and December 31, 2022 (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 |  | September 30, 2023 |  | December 31, 2022
|  | Asset Derivatives |  | Liability Derivatives |  | Asset Derivatives |  | Liability Derivatives
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |
Commodity contracts | Receivables, net |  | $ | 10 |  |  | $ | 19 |  |  | $ | 61 |  |  | $ | 44 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |
Commodity contracts | Receivables, net |  | $ | 899 |  |  | $ | 1,129 |  |  | $ | 769 |  |  | $ | 661 |
Physical purchase contracts | Inventories |  | — |  |  | 14 |  |  | 4 |  |  | 4 |
Foreign currency contracts | Receivables, net |  | 4 |  |  | — |  |  | — |  |  | — |
Foreign currency contracts | Accrued expenses |  | — |  |  | — |  |  | — |  |  | 2 |
Total |  |  | $ | 903 |  |  | $ | 1,143 |  |  | $ | 773 |  |  | $ | 667 |

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.
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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,
2023 |  | 2022 | 2023 |  | 2022
Commodity contracts: |  |  |  |  |  |  |  |  |  |
Gain (loss) recognized in other comprehensive loss |  | n/a |  | $ | (197) |  |  | $ | 79 |  |  | $ | (71) |  |  | $ | (215) |
Gain (loss) reclassified from accumulated other comprehensive loss into income |  | Revenues |  | (119) |  |  | 10 |  |  | (3) |  |  | (289) |

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, 2023 and 2022. For the three and nine months ended September 30, 2023 and 2022, cash flow hedges primarily related to forecasted sales of renewable diesel. As of September 30, 2023, the estimated deferred after-tax loss that is expected to be reclassified into revenues within the next 12 months was not material. The changes in accumulated other comprehensive loss by component, net of tax, for the three and nine months ended September 30, 2023 and 2022 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,
2023 |  | 2022 | 2023 |  | 2022
Commodity contracts |  | Revenues |  | $ | (2) |  |  | $ | (6) |  |  | $ | (19) |  |  | $ | (12) |
Commodity contracts |  | Cost of materials and other |  | (48) |  |  | (109) |  |  | 126 |  |  | (976) |
Commodity contracts |  | Operating expenses (excluding depreciation and amortization expense) |  | — |  |  | (18) |  |  | 1 |  |  | (9) |
Foreign currency contracts |  | Cost of materials and other |  | 19 |  |  | 57 |  |  | (1) |  |  | 104 |
Foreign currency contracts |  | Other income, net |  | — |  |  | (38) |  |  | — |  |  | (119) |

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY STATEMENT FOR THE PURPOSE OF SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Form 10-Q, including without limitation our disclosures below under “OVERVIEW AND OUTLOOK,” includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify our forward-looking statements by the words “anticipate,” “believe,” “expect,” “plan,” “intend,” “scheduled,” “estimate,” “project,” “projection,” “predict,” “budget,” “forecast,” “goal,” “guidance,” “target,” “could,” “would,” “should,” “may,” “strive,” “seek,” “potential,” “opportunity,” “aimed,” “considering,” “continue,” and similar expressions.
These forward-looking statements include, among other things, statements regarding:
•the effect, impact, potential duration or timing, or other implications of global geopolitical and other conflicts and tensions;
•future Refining segment margins, including gasoline and distillate margins, and discounts;
•future Renewable Diesel segment margins;
•future Ethanol segment margins;
•expectations regarding feedstock costs, including crude oil differentials, product prices for each of our segments, and operating expenses;
•anticipated levels of crude oil and liquid transportation fuel inventories and storage capacity;
•expectations regarding the levels of, costs and timing with respect to, the production and operations at our existing refineries and plants, projects under evaluation, construction or under development, and former projects;
•our anticipated level of capital investments, including deferred turnaround and catalyst cost expenditures, our expected allocation between, and/or within, growth capital expenditures and sustaining capital expenditures, capital expenditures for environmental and other purposes, and joint venture investments, the expected costs and timing applicable to such capital investments and any related projects, and the effect of those capital investments on our business, financial condition, results of operations, and liquidity;
•our anticipated level of cash distributions or contributions, such as our dividend payment rate and contributions to our qualified pension plans and other postretirement benefit plans;
•our ability to meet future cash requirements, whether from funds generated from our operations or our ability to access financial markets effectively, and expectations regarding our liquidity;
•our evaluation of, and expectations regarding, any future activity under our share purchase program or transactions involving our debt securities;
•anticipated trends in the supply of, and demand for, crude oil and other feedstocks and refined petroleum products, renewable diesel, and ethanol and corn related co-products in the regions where we operate, as well as globally;
•expectations regarding environmental, tax, and other regulatory matters, including SBx 1-2 and the matters discussed under “PART II, ITEM 1. LEGAL PROCEEDINGS” below, the anticipated amounts and timing of payment with respect to our deferred tax liabilities, matters impacting our ability to repatriate cash held by our foreign subsidiaries, and the anticipated effect thereof on our business, financial condition, results of operations, and liquidity;
•the effect of general economic and other conditions, including inflation and economic activity levels, on refining, renewable diesel, and ethanol industry fundamentals;
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•expectations regarding our risk management activities, including the anticipated effects of our hedge transactions;
•expectations regarding our counterparties, including our ability to pass on increased compliance costs and timely collect receivables, and the credit risk within our accounts receivable or accounts payable;
•expectations regarding adoptions of new, or changes to existing, low-carbon fuel standards or policies, blending and tax credits, or efficiency standards that impact demand for renewable fuels; and
•expectations regarding our low-carbon fuels strategy, publicly announced greenhouse gas (GHG) emissions reduction/displacement targets, and our current, former, and any future low-carbon projects.
We based our forward-looking statements on our current expectations, estimates, and projections about ourselves, our industry, and the global economy and financial markets generally. We caution that these statements are not guarantees of future performance or results and involve known and unknown risks and uncertainties, the ultimate outcomes of which we cannot predict with certainty. In addition, we based many of these forward-looking statements on assumptions about future events, the ultimate outcomes of which we cannot predict with certainty and which may prove to be inaccurate. Accordingly, actual performance or results may differ materially from the future performance or results that we have expressed, suggested, or forecast in the forward-looking statements. Differences between actual performance or results and any future performance or results expressed, suggested, or forecast in these forward-looking statements could result from a variety of factors, including the following:
•the effects arising out of global geopolitical and other conflicts and tensions, including with respect to changes in trade flows and impacts to crude oil and other markets;
•demand for, and supplies of, refined petroleum products (such as gasoline, diesel, jet fuel, and petrochemicals), renewable diesel, and ethanol and corn related co-products;
•demand for, and supplies of, crude oil and other feedstocks;
•the effects of public health threats, pandemics, and epidemics, such as the COVID-19 pandemic and variants of the virus, governmental and societal responses thereto, and the adverse impacts of the foregoing on our business, financial condition, results of operations, and liquidity, and the global economy and financial markets generally;
•acts of terrorism aimed at either our refineries and plants or third-party facilities that could impair our ability to produce or transport refined petroleum products, renewable diesel, ethanol, or corn related co-products, to receive feedstocks, or otherwise operate efficiently;
•the effects of war or hostilities, and political and economic conditions, in countries that produce crude oil or other feedstocks or consume refined petroleum products, renewable diesel, ethanol or corn related co-products;
•the ability of the members of the Organization of Petroleum Exporting Countries (OPEC), and other petroleum-producing nations that collectively make up OPEC+, to agree on and to maintain crude oil price and production controls;
•the level of consumer demand, consumption, and overall economic activity, including the effects from seasonal fluctuations and market prices;
•refinery, renewable diesel plant, or ethanol plant overcapacity or undercapacity;
•the risk that any transactions may not provide the anticipated benefits or may result in unforeseen detriments;
•the actions taken by competitors, including both pricing and adjustments to refining capacity or renewable fuels production in response to market conditions;
•the level of competitors’ imports into markets that we supply;
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•accidents, unscheduled shutdowns, weather events, civil unrest, expropriation of assets, and other economic, diplomatic, legislative, societal, or political events or developments, terrorism, cyberattacks, or other catastrophes or disruptions affecting our operations, production facilities, machinery, pipelines and other logistics assets, equipment, or information systems, or any of the foregoing of our suppliers, customers, or third-party service providers;
•changes in the cost or availability of transportation or storage capacity for feedstocks and our products;
•political pressure and influence of environmental groups and other stakeholders upon policies and decisions related to the production, transportation, storage, refining, processing, marketing, and sales of crude oil or other feedstocks, refined petroleum products, renewable diesel, ethanol, or corn related co-products;
•the price, availability, technology related to, and acceptance of alternative fuels and alternative-fuel vehicles, as well as sentiment and perceptions with respect to low-carbon projects and GHG emissions more generally;
•the levels of government subsidies for, and executive orders, mandates, or other policies with respect to, alternative fuels, alternative-fuel vehicles, and other low-carbon technologies or initiatives, including those related to carbon capture, carbon sequestration, and low-carbon fuels, or affecting the price of natural gas and/or electricity;
•the volatility in the market price of compliance credits (primarily RINs needed to comply with the RFS) under the Renewable and Low-Carbon Fuel Programs and emission credits needed under other environmental emissions programs;
•delay of, cancellation of, or failure to implement planned capital or other projects and realize the various assumptions and benefits projected for such projects or cost overruns in constructing such planned capital projects;
•earthquakes, hurricanes, tornadoes, winter storms, droughts, floods, wildfires, and other weather events, which can unforeseeably affect the price or availability of electricity, natural gas, crude oil, waste and renewable feedstocks, corn, and other feedstocks, critical supplies, refined petroleum products, renewable diesel, and ethanol;
•rulings, judgments, or settlements in litigation or other legal or regulatory matters, including unexpected environmental remediation or enforcement costs, in excess of any reserves or insurance coverage;
•legislative or regulatory action, including the introduction or enactment of legislation or rulemakings by government authorities, environmental regulations, changes to income tax rates, introduction of a global minimum tax, windfall taxes or penalties, tax changes or restrictions impacting the foreign repatriation of cash, actions implemented under SBx 1-2, actions implemented under the Renewable and Low-Carbon Fuel Programs and other environmental emissions programs, including changes to volume requirements or other obligations or exemptions under the RFS, and actions arising from the EPA’s or other government agencies’ regulations, policies, or initiatives concerning GHGs, including mandates for or bans of specific technology, which may adversely affect our business or operations;
•changing economic, regulatory, and political environments and related events in the various countries in which we operate or otherwise do business, including trade restrictions, expropriation or impoundment of assets, failure of foreign governments and state-owned entities to honor their contracts, property disputes, economic instability, restrictions on the transfer of funds, duties and tariffs, transportation delays, import and export controls, labor unrest, security issues involving key personnel, and decisions, investigations, regulations, issuances or revocations of permits and other authorizations, and other actions, policies, and initiatives by the states, counties, cities, and other jurisdictions in the countries in which we operate or otherwise do business;
•changes in the credit ratings assigned to our debt securities and trade credit;
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•the operating, financing, and distribution decisions of our joint ventures or other joint venture members that we do not control;
•changes in currency exchange rates, including the value of the Canadian dollar, the pound sterling, the euro, the Mexican peso, and the Peruvian sol relative to the U.S. dollar;
•the adequacy of capital resources and liquidity, including availability, timing, and amounts of cash flow or our ability to borrow or access financial markets;
•the costs, disruption, and diversion of resources associated with lawsuits, demands, or investigations, or campaigns and negative publicity commenced by government authorities, investors, stakeholders, or other interested parties;
•overall economic conditions, including the stability and liquidity of financial markets, and the effect thereof on consumer demand; and
•other factors generally described in the “RISK FACTORS” section included in our annual report on Form 10-K for the year ended December 31, 2022.
Any one of these factors, or a combination of these factors, could materially affect our future results of operations and whether any forward-looking statements ultimately prove to be accurate. Our forward-looking statements are not guarantees of future performance, and actual results and future performance may differ materially from those expressed, suggested, or forecast in any forward-looking statements. Such forward-looking statements speak only as of the date of this quarterly report on Form 10-Q and we do not intend to update these statements unless we are required by applicable securities laws to do so.
All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing, as it may be updated or modified by our future filings with the U.S. Securities and Exchange Commission (SEC). We undertake no obligation to publicly release any revisions to any such forward-looking statements that may be made to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events unless we are required by applicable securities laws to do so.
NON-GAAP FINANCIAL MEASURES
The discussions in “OVERVIEW AND OUTLOOK,” “RESULTS OF OPERATIONS,” and “LIQUIDITY AND CAPITAL RESOURCES” below include references to financial measures that are not defined under GAAP. These non-GAAP financial measures include adjusted operating income (including adjusted operating income for each of our reportable segments, as applicable); Refining, Renewable Diesel, and Ethanol segment margin; and capital investments attributable to Valero. We have included these non-GAAP financial measures to help facilitate the comparison of operating results between periods, to help assess our cash flows, and because we believe they provide useful information as discussed further below. See the tables in note (f) beginning on page 54 for reconciliations of adjusted operating income (including adjusted operating income for each of our reportable segments, as applicable) and Refining, Renewable Diesel, and Ethanol segment margin to their most directly comparable GAAP financial measures. Also in note (f), we disclose the reasons why we believe our use of such non-GAAP financial measures provides useful information. See the table on page 60 for a reconciliation of capital investments attributable to Valero to its most directly comparable GAAP financial measure. Beginning on page 59, we disclose the reasons why we believe our use of this non-GAAP financial measure provides useful information.
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OVERVIEW AND OUTLOOK
Overview
Business Operations Update
Our results for the third quarter and first nine months of 2023 were favorably impacted by the continued strong worldwide demand for petroleum-based transportation fuels, while the worldwide supply of those products remained constrained. This global supply and demand imbalance has continued to contribute to strong refining margins for 2023.
The strong demand for our products and continued strength in refining margins were the primary contributors to us reporting $2.6 billion and $7.6 billion of net income attributable to Valero stockholders for the third quarter of 2023 and the first nine months of 2023, respectively. Our operating results, including operating results by segment, are described in the following summary under “Third Quarter Results” and “First Nine Months Results,” with more detailed descriptions found under “RESULTS OF OPERATIONS” beginning on page 39.
Our operations generated $8.0 billion of cash during the first nine months of 2023. This cash was used to make $1.4 billion of capital investments in our business and return $5.3 billion to our stockholders through purchases of common stock for treasury and dividend payments. In addition, we reduced our outstanding debt through the purchase of $199 million of our public debt during the first nine months of 2023. As a result of this and other activity, our cash and cash equivalents increased by $969 million, from $4.9 billion as of December 31, 2022 to $5.8 billion as of September 30, 2023. We had $11.0 billion in liquidity as of September 30, 2023. The components of our liquidity and descriptions of our cash flows, capital investments, and other matters impacting our liquidity and capital resources can be found under “LIQUIDITY AND CAPITAL RESOURCES” beginning on page 57.
Third Quarter Results
For the third quarter of 2023, we reported net income attributable to Valero stockholders of $2.6 billion compared to $2.8 billion for the third quarter of 2022. The decrease of $195 million was primarily due to a decrease in operating income of $289 million, partially offset by an increase in “other income, net” of $48 million and a decrease in income attributable to noncontrolling interests of $54 million. The details of our operating income and adjusted operating income by segment and in total are reflected below (in millions). Adjusted operating income excludes the adjustment reflected in the table in note (f) beginning on page 54.

| Three Months Ended September 30,
| 2023 |  | 2022 |  | Change
Refining segment: |  |  |  |  |
Operating income | $ | 3,445 |  |  | $ | 3,810 |  |  | $ | (365) |
Adjusted operating income | 3,451 |  |  | 3,816 |  |  | (365) |
Renewable Diesel segment: |  |  |  |  |
Operating income | 123 |  |  | 212 |  |  | (89) |
Ethanol segment: |  |  |  |  |
Operating income | 197 |  |  | 1 |  |  | 196 |
Total company: |  |  |  |  |
Operating income | 3,503 |  |  | 3,792 |  |  | (289) |
Adjusted operating income | 3,509 |  |  | 3,798 |  |  | (289) |

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While our operating income decreased by $289 million in the third quarter of 2023 compared to the third quarter of 2022, adjusted operating income also decreased by $289 million primarily due to the following:
•Refining segment. Refining segment adjusted operating income decreased by $365 million primarily due to lower distillate (primarily diesel) margins, partially offset by higher gasoline margins, higher discounts on crude oils and other feedstocks, and lower operating expenses (excluding depreciation and amortization expense).
•Renewable Diesel segment. Renewable Diesel segment operating income decreased by $89 million primarily due to lower product prices (primarily renewable diesel), higher operating expenses (excluding depreciation and amortization expense), and higher depreciation and amortization expense, partially offset by lower feedstock costs and higher sales volumes.
•Ethanol segment. Ethanol segment operating income increased by $196 million primarily due to lower corn prices, higher production volumes, and lower operating expenses (excluding depreciation and amortization expense), partially offset by lower ethanol and corn related co-product prices.
First Nine Months Results
For the first nine months of 2023, we reported net income attributable to Valero stockholders of $7.6 billion compared to $8.4 billion for the first nine months of 2022. The decrease of $782 million was primarily due to a decrease in operating income of $1.1 billion, partially offset by an increase in “other income, net” of $270 million and a decrease in income tax expense of $122 million. The details of our operating income and adjusted operating income by segment and in total are reflected below (in millions). Adjusted operating income excludes the adjustments reflected in the table in note (f) beginning on page 54.

| Nine Months Ended September 30,
| 2023 |  | 2022 |  | Change
Refining segment: |  |  |  |  |
Operating income | $ | 9,934 |  |  | $ | 11,473 |  |  | $ | (1,539) |
Adjusted operating income | 9,951 |  |  | 11,407 |  |  | (1,456) |
Renewable Diesel segment: |  |  |  |  |
Operating income | 768 |  |  | 513 |  |  | 255 |
Ethanol segment: |  |  |  |  |
Operating income | 363 |  |  | 103 |  |  | 260 |
Adjusted operating income | 364 |  |  | 82 |  |  | 282 |
Total company: |  |  |  |  |
Operating income | 10,305 |  |  | 11,395 |  |  | (1,090) |
Adjusted operating income | 10,323 |  |  | 11,328 |  |  | (1,005) |

While our operating income decreased by $1.1 billion in the first nine months of 2023 compared to the first nine months of 2022, adjusted operating income decreased by $1.0 billion primarily due to the following:
•Refining segment. Refining segment adjusted operating income decreased by $1.5 billion primarily due to lower gasoline and distillate (primarily diesel) margins, partially offset by higher
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discounts on crude oils and other feedstocks, an increase in throughput volumes, and lower operating expenses (excluding depreciation and amortization expense).
•Renewable Diesel segment. Renewable Diesel segment operating income increased by $255 million primarily due to lower feedstock costs and higher sales volumes, partially offset by lower product prices (primarily renewable diesel), higher operating expenses (excluding depreciation and amortization expense), and higher depreciation and amortization expense.
•Ethanol segment. Ethanol segment adjusted operating income increased by $282 million primarily due to lower corn prices, higher production volumes, and lower operating expenses (excluding depreciation and amortization expense), partially offset by lower ethanol and corn related co-product prices.
Outlook
Many uncertainties remain with respect to the supply and demand imbalance in the petroleum-based products market worldwide. While it is difficult to predict future worldwide economic activity and its impact on product supply and demand, as well as any effect that the uncertainty described in Note 2 of Condensed Notes to Consolidated Financial Statements or other political or regulatory developments may have on us, we have noted several factors below that have impacted or may impact our results of operations during the fourth quarter of 2023.
•Gasoline and diesel demand have returned to pre-pandemic levels and are expected to follow typical seasonal patterns. Jet fuel demand continues to improve and is approaching pre-pandemic levels in the U.S.
•Combined light product (primarily diesel) inventories in the U.S. and Europe are below historical levels reflecting tight global petroleum product balances, which should support continued high utilization of refining capacity.
•After narrowing early this year on reduced sour crude oil production from OPEC+ suppliers, crude oil discounts have recently begun to widen; however, the renewed conflict in the Middle East will likely cause increased volatility in the crude oil market and potentially impact crude oil discounts.
•Renewable diesel margins are expected to remain consistent with current levels.
•Ethanol demand is expected to follow typical seasonal patterns.
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RESULTS OF OPERATIONS
The following tables, including the reconciliations of non-GAAP financial measures to their most directly comparable GAAP financial measures in note (f) beginning on page 54, highlight our results of operations, our operating performance, and market reference prices that directly impact our operations. Note references in this section can be found on pages 53 through 56.
Third Quarter Results -
Financial Highlights By Segment and Total Company
(millions of dollars)

| Three Months Ended September 30, 2023
| Refining |  | Renewable Diesel |  | Ethanol |  | Corporate and Eliminations |  | Total
Revenues: |  |  |  |  |  |  |  |  |
Revenues from external customers | $ | 36,521 |  |  | $ | 759 |  |  | $ | 1,124 |  |  | $ | — |  |  | $ | 38,404 |
Intersegment revenues | 8 |  |  | 672 |  |  | 310 |  |  | (990) |  |  | — |
Total revenues | 36,529 |  |  | 1,431 |  |  | 1,434 |  |  | (990) |  |  | 38,404 |
Cost of sales: |  |  |  |  |  |  |  |  |
Cost of materials and other | 31,115 |  |  | 1,169 |  |  | 1,092 |  |  | (991) |  |  | 32,385 |
Operating expenses (excluding depreciation and amortization expense reflected below) | 1,366 |  |  | 84 |  |  | 125 |  |  | 3 |  |  | 1,578 |
Depreciation and amortization expense | 597 |  |  | 55 |  |  | 20 |  |  | (1) |  |  | 671 |
Total cost of sales | 33,078 |  |  | 1,308 |  |  | 1,237 |  |  | (989) |  |  | 34,634 |
Other operating expenses | 6 |  |  | — |  |  | — |  |  | — |  |  | 6 |
General and administrative expenses (excluding depreciation and amortization expense reflected below) | — |  |  | — |  |  | — |  |  | 250 |  |  | 250 |
Depreciation and amortization expense | — |  |  | — |  |  | — |  |  | 11 |  |  | 11 |
Operating income by segment | $ | 3,445 |  |  | $ | 123 |  |  | $ | 197 |  |  | $ | (262) |  |  | 3,503 |
Other income, net |  |  |  |  |  |  |  |  | 122 |
Interest and debt expense, net of capitalized interest |  |  |  |  |  |  |  |  | (149) |
Income before income tax expense |  |  |  |  |  |  |  |  | 3,476 |
Income tax expense |  |  |  |  |  |  |  |  | 813 |
Net income |  |  |  |  |  |  |  |  | 2,663 |
Less: Net income attributable to noncontrolling interests |  |  |  |  |  |  |  |  | 41 |
Net income attributable to Valero Energy Corporation stockholders |  |  |  |  |  |  |  |  | $ | 2,622 |

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Third Quarter Results -
Financial Highlights By Segment and Total Company (continued)
(millions of dollars)

| Three Months Ended September 30, 2022
| Refining |  | Renewable Diesel |  | Ethanol |  | Corporate and Eliminations |  | Total
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 | 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 |
Other income, net (d) |  |  |  |  |  |  |  |  | 74 |
Interest and debt expense, net of capitalized interest |  |  |  |  |  |  |  |  | (138) |
Income before income tax expense |  |  |  |  |  |  |  |  | 3,728 |
Income tax expense |  |  |  |  |  |  |  |  | 816 |
Net income |  |  |  |  |  |  |  |  | 2,912 |
Less: Net income attributable to noncontrolling interests |  |  |  |  |  |  |  |  | 95 |
Net income attributable to Valero Energy Corporation stockholders |  |  |  |  |  |  |  |  | $ | 2,817 |

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Third Quarter Results -
Average Market Reference Prices and Differentials

| Three Months Ended September 30,
| 2023 |  | 2022
Refining |  |  |
Feedstocks (dollars per barrel) |  |  |
Brent crude oil | $ | 86.18 |  |  | $ | 97.59 |
Brent less West Texas Intermediate (WTI) crude oil | 3.72 |  |  | 5.83 |
Brent less WTI Houston crude oil | 2.21 |  |  | 3.69 |
Brent less Dated Brent crude oil | (0.78) |  |  | (2.97) |
Brent less Argus Sour Crude Index (ASCI) crude oil | 3.43 |  |  | 8.23 |
Brent less Maya crude oil | 8.77 |  |  | 13.11 |
Brent less Western Canadian Select (WCS) Houston crude oil | 9.98 |  |  | 17.68 |
WTI crude oil | 82.46 |  |  | 91.76 |
Natural gas (dollars per million British Thermal Units (MMBTu)) | 2.38 |  |  | 7.31 |
Renewable volume obligation (RVO) (dollars per barrel) (e) | 7.42 |  |  | 8.11 |
Product margins (RVO adjusted unless otherwise noted) (dollars per barrel) |  |  |
U.S. Gulf Coast: |  |  |
Conventional Blendstock of Oxygenate Blending (CBOB) gasoline less Brent | 14.70 |  |  | 5.70 |
Ultra-low-sulfur (ULS) diesel less Brent | 30.87 |  |  | 41.01 |
Propylene less Brent (not RVO adjusted) | (57.98) |  |  | (46.73) |
U.S. Mid-Continent: |  |  |
CBOB gasoline less WTI | 25.46 |  |  | 19.27 |
ULS diesel less WTI | 37.10 |  |  | 52.25 |
North Atlantic: |  |  |
CBOB gasoline less Brent | 22.93 |  |  | 20.17 |
ULS diesel less Brent | 33.91 |  |  | 44.19 |
U.S. West Coast: |  |  |
California Reformulated Gasoline Blendstock of Oxygenate Blending (CARBOB) 87 gasoline less Brent | 43.33 |  |  | 41.48 |
California Air Resources Board (CARB) diesel less Brent | 47.66 |  |  | 43.68 |

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Third Quarter Results -
Average Market Reference Prices and Differentials (continued)

| Three Months Ended September 30,
| 2023 |  | 2022 |  |
Renewable Diesel |  |  |  |  |
New York Mercantile Exchange ULS diesel (dollars per gallon) | $ | 3.03 |  |  | $ | 3.55 |  |  |
Biodiesel RIN (dollars per RIN) | 1.40 |  |  | 1.71 |  |  |
California LCFS carbon credit (dollars per metric ton) | 74.46 |  |  | 86.21 |  |  |
U.S. Gulf Coast (USGC) used cooking oil (UCO) (dollars per pound) | 0.64 |  |  | 0.73 |  |  |
USGC distillers corn oil (DCO) (dollars per pound) | 0.72 |  |  | 0.73 |  |  |
USGC fancy bleachable tallow (Tallow) (dollars per pound) | 0.68 |  |  | 0.78 |  |  |
Ethanol |  |  |  |  |
Chicago Board of Trade corn (dollars per bushel) | 4.99 |  |  | 6.60 |  |  |
New York Harbor ethanol (dollars per gallon) | 2.39 |  |  | 2.58 |  |  |

Total Company, Corporate, and Other
The following table includes selected financial data for the total company, corporate, and other for the third quarter of 2023 and 2022. The selected financial data is derived from the Financial Highlights by Segment and Total Company tables, unless otherwise noted.

| Three Months Ended September 30,
| 2023 |  | 2022 |  | Change
Revenues | $ | 38,404 |  |  | $ | 44,454 |  |  | $ | (6,050) |
Cost of sales | 34,634 |  |  | 40,431 |  |  | (5,797) |
Operating income | 3,503 |  |  | 3,792 |  |  | (289) |
Adjusted operating income (see note (f)) | 3,509 |  |  | 3,798 |  |  | (289) |
Other income, net (see note (d)) | 122 |  |  | 74 |  |  | 48 |
Net income attributable to noncontrolling interests | 41 |  |  | 95 |  |  | (54) |

Revenues decreased by $6.1 billion in the third quarter of 2023 compared to the third quarter of 2022 primarily due to decreases in product prices for the petroleum-based transportation fuels associated with sales made by our Refining segment. This decrease in revenues was partially offset by a decrease in cost of sales of $5.8 billion primarily due to decreases in crude oil and other feedstock costs. These changes resulted in a $289 million decrease in operating income, from $3.8 billion in the third quarter of 2022 to $3.5 billion in the third quarter of 2023.
Adjusted operating income also decreased by $289 million, from $3.8 billion in the third quarter of 2022 to $3.5 billion in the third quarter of 2023. The components of this $289 million decrease in adjusted operating income are discussed by segment in the segment analyses that follow.
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“Other income, net” increased by $48 million in the third quarter of 2023 compared to the third quarter of 2022 due to the items noted in the following table (in millions):

| Three Months Ended September 30,
| 2023 |  | 2022 |  | Change
Interest income on cash | $ | 74 |  |  | $ | 36 |  |  | $ | 38 |
Gain from early retirement of debt (see note (d)) | — |  |  | 26 |  |  | (26) |
Equity income on joint ventures and other | 48 |  |  | 12 |  |  | 36 |
Other income, net | $ | 122 |  |  | $ | 74 |  |  | $ | 48 |

Net income attributable to noncontrolling interests decreased by $54 million in the third quarter of 2023 compared to the third quarter of 2022 primarily due to lower earnings associated with DGD, whose operations compose our Renewable Diesel segment. See Note 6 of Condensed Notes to Consolidated Financial Statements regarding our accounting for DGD and the Renewable Diesel segment analysis beginning on page 44.
Refining Segment Results
The following table includes selected financial and operating data of our Refining segment for the third quarter of 2023 and 2022. The selected financial data is derived from the Financial Highlights by Segment and Total Company tables, unless otherwise noted.

| Three Months Ended September 30,
| 2023 |  | 2022 |  | Change
Operating income | $ | 3,445 |  |  | $ | 3,810 |  |  | $ | (365) |
Adjusted operating income (see note (f)) | 3,451 |  |  | 3,816 |  |  | (365) |
Refining margin (see note (f)) | 5,414 |  |  | 5,900 |  |  | (486) |
Operating expenses (excluding depreciation and amortization expense reflected below) | 1,366 |  |  | 1,516 |  |  | (150) |
Depreciation and amortization expense | 597 |  |  | 568 |  |  | 29 |
Throughput volumes (thousand barrels per day) (see note (g)) | 3,022 |  |  | 3,005 |  |  | 17 |

Refining segment operating income decreased by $365 million in the third quarter of 2023 compared to the third quarter of 2022. Refining segment adjusted operating income, which excludes the adjustment in the table in note (f), also decreased by $365 million in the third quarter of 2023 compared to the third quarter of 2022. The components of this decrease in the adjusted results, along with the reasons for the changes in those components, are outlined below.
•Refining segment margin decreased by $486 million in the third quarter of 2023 compared to the third quarter of 2022.
Refining segment margin is primarily affected by the prices for the petroleum-based transportation fuels that we sell and the cost of crude oil and other feedstocks that we process. The table on page 41 reflects market reference prices and differentials that we believe impacted our Refining segment margin in the third quarter of 2023 compared to the third quarter of 2022.
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The decrease in Refining segment margin was primarily due to the following:
◦A decrease in distillate (primarily diesel) margins had an unfavorable impact of approximately $1.3 billion.
◦An increase in gasoline margins had a favorable impact of approximately $534 million.
◦Higher discounts on crude oils had a favorable impact of approximately $180 million.
◦Higher discounts on other feedstocks had a favorable impact of approximately $150 million.
•Refining segment operating expenses (excluding depreciation and amortization expense) decreased by $150 million primarily due to a decrease in energy costs (primarily natural gas) of $208 million, partially offset by increases in certain employee compensation expenses of $15 million and chemicals and catalyst costs of $14 million.
Renewable Diesel Segment Results
The following table includes selected financial and operating data of our Renewable Diesel segment for the third quarter of 2023 and 2022. The selected financial data is derived from the Financial Highlights by Segment and Total Company tables, unless otherwise noted.

| Three Months Ended September 30,
| 2023 |  | 2022 |  | Change
Operating income | $ | 123 |  |  | $ | 212 |  |  | $ | (89) |
Renewable Diesel margin (see note (f)) | 262 |  |  | 314 |  |  | (52) |
Operating expenses (excluding depreciation and amortization expense reflected below) | 84 |  |  | 69 |  |  | 15 |
Depreciation and amortization expense | 55 |  |  | 33 |  |  | 22 |
Sales volumes (thousand gallons per day) (see note (g)) | 2,992 |  |  | 2,231 |  |  | 761 |

Renewable Diesel segment operating income decreased by $89 million in the third quarter of 2023 compared to the third quarter of 2022. The components of this decrease, along with the reasons for the changes in those components, are outlined below.
•Renewable Diesel segment margin decreased by $52 million in the third quarter of 2023 compared to the third quarter of 2022.
Renewable Diesel segment margin is primarily affected by the price for the renewable diesel that we sell and the cost of the feedstocks that we process. The table on page 42 reflects market reference prices that we believe impacted our Renewable Diesel segment margin in the third quarter of 2023 compared to the third quarter of 2022.
The decrease in Renewable Diesel segment margin was primarily due to the following:
◦A decrease in product prices, primarily renewable diesel, had an unfavorable impact of approximately $393 million.
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◦A decrease in the cost of feedstocks we process had a favorable impact of approximately $234 million.
◦An increase in sales volumes of 761,000 gallons per day had a favorable impact of approximately $118 million. The increase in sales volumes was primarily due to the additional production resulting from the completion of the new DGD Port Arthur Plant that commenced operations in the fourth quarter of 2022, partially offset by the effect of unplanned downtime resulting from a fire at the DGD St. Charles Plant in the third quarter of 2023.
•Renewable Diesel segment operating expenses (excluding depreciation and amortization expense) increased by $15 million primarily due to increased costs resulting from the new DGD Port Arthur Plant that commenced operations in the fourth quarter of 2022.
•Renewable Diesel segment depreciation and amortization expense increased by $22 million primarily due to depreciation expense associated with the new DGD Port Arthur Plant that commenced operations in the fourth quarter of 2022.
Ethanol Segment Results
The following table includes selected financial and operating data of our Ethanol segment for the third quarter of 2023 and 2022. The selected financial data is derived from the Financial Highlights by Segment and Total Company tables, unless otherwise noted.

| Three Months Ended September 30,
| 2023 |  | 2022 |  | Change
Operating income | $ | 197 |  |  | $ | 1 |  |  | $ | 196 |
Ethanol margin (see note (f)) | 342 |  |  | 183 |  |  | 159 |
Operating expenses (excluding depreciation and amortization expense reflected below) | 125 |  |  | 162 |  |  | (37) |
Depreciation and amortization expense | 20 |  |  | 20 |  |  | — |
Production volumes (thousand gallons per day) (see note (g)) | 4,329 |  |  | 3,498 |  |  | 831 |

Ethanol segment operating income increased by $196 million in the third quarter of 2023 compared to the third quarter of 2022. The components of this increase, along with the reasons for the changes in those components, are outlined below.
•Ethanol segment margin increased by $159 million in the third quarter of 2023 compared to the third quarter of 2022. Ethanol segment margin is primarily affected by prices for the ethanol and corn related co-products that we sell and the cost of corn that we process. The table on page 42 reflects market reference prices that we believe impacted our Ethanol segment margin in the third quarter of 2023 compared to the third quarter of 2022.
The increase in Ethanol segment margin was primarily due to the following:
◦Lower corn prices had a favorable impact of approximately $184 million.
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◦An increase in production volumes of 831,000 gallons per day had a favorable impact of approximately $71 million.
◦Lower ethanol prices had an unfavorable impact of approximately $69 million.
◦Lower prices for the co-products that we produce, primarily dry distillers grains (DDGs), h ad an unfavorable impact of approximately $29 million.
•Ethanol segment operating expenses (excluding depreciation and amortization expense) decreased by $37 million primarily due to a decrease in energy costs (primarily natural gas).
First Nine Months Results -
Financial Highlights By Segment and Total Company
(millions of dollars)

| Nine Months Ended September 30, 2023
| Refining |  | Renewable Diesel |  | Ethanol |  | Corporate and Eliminations |  | Total
Revenues: |  |  |  |  |  |  |  |  |
Revenues from external customers | $ | 102,924 |  |  | $ | 2,990 |  |  | $ | 3,438 |  |  | $ | — |  |  | $ | 109,352 |
Intersegment revenues | 8 |  |  | 2,367 |  |  | 790 |  |  | (3,165) |  |  | — |
Total revenues | 102,932 |  |  | 5,357 |  |  | 4,228 |  |  | (3,165) |  |  | 109,352 |
Cost of sales: |  |  |  |  |  |  |  |  |
Cost of materials and other | 87,398 |  |  | 4,143 |  |  | 3,422 |  |  | (3,143) |  |  | 91,820 |
Operating expenses (excluding depreciation and amortization expense reflected below) | 3,832 |  |  | 274 |  |  | 383 |  |  | 6 |  |  | 4,495 |
Depreciation and amortization expense | 1,751 |  |  | 172 |  |  | 59 |  |  | (3) |  |  | 1,979 |
Total cost of sales | 92,981 |  |  | 4,589 |  |  | 3,864 |  |  | (3,140) |  |  | 98,294 |
Other operating expenses | 17 |  |  | — |  |  | 1 |  |  | — |  |  | 18 |
General and administrative expenses (excluding depreciation and amortization expense reflected below) | — |  |  | — |  |  | — |  |  | 703 |  |  | 703 |
Depreciation and amortization expense | — |  |  | — |  |  | — |  |  | 32 |  |  | 32 |
Operating income by segment | $ | 9,934 |  |  | $ | 768 |  |  | $ | 363 |  |  | $ | (760) |  |  | 10,305 |
Other income, net (d) |  |  |  |  |  |  |  |  | 357 |
Interest and debt expense, net of capitalized interest |  |  |  |  |  |  |  |  | (443) |
Income before income tax expense |  |  |  |  |  |  |  |  | 10,219 |
Income tax expense |  |  |  |  |  |  |  |  | 2,288 |
Net income |  |  |  |  |  |  |  |  | 7,931 |
Less: Net income attributable to noncontrolling interests |  |  |  |  |  |  |  |  | 298 |
Net income attributable to Valero Energy Corporation stockholders |  |  |  |  |  |  |  |  | $ | 7,633 |

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First Nine Months Results -
Financial Highlights By Segment and Total Company (continued)
(millions of dollars)

| Nine Months Ended September 30, 2022
| Refining |  | Renewable Diesel |  | Ethanol |  | Corporate and Eliminations |  | Total
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 (b) | 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) (c) | — |  |  | — |  |  | — |  |  | 652 |  |  | 652 |
Depreciation and amortization expense | — |  |  | — |  |  | — |  |  | 34 |  |  | 34 |
Operating income by segment | $ | 11,473 |  |  | $ | 513 |  |  | $ | 103 |  |  | $ | (694) |  |  | 11,395 |
Other income, net (d) |  |  |  |  |  |  |  |  | 87 |
Interest and debt expense, net of capitalized interest |  |  |  |  |  |  |  |  | (425) |
Income before income tax expense |  |  |  |  |  |  |  |  | 11,057 |
Income tax expense |  |  |  |  |  |  |  |  | 2,410 |
Net income |  |  |  |  |  |  |  |  | 8,647 |
Less: Net income attributable to noncontrolling interests |  |  |  |  |  |  |  |  | 232 |
Net income attributable to Valero Energy Corporation stockholders |  |  |  |  |  |  |  |  | $ | 8,415 |

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First Nine Months Results -
Average Market Reference Prices and Differentials

| Nine Months Ended September 30,
| 2023 |  | 2022 |  |
Refining |  |  |  |  |
Feedstocks (dollars per barrel) |  |  |  |  |
Brent crude oil | $ | 82.12 |  |  | $ | 102.21 |  |  |
Brent less WTI crude oil | 4.68 |  |  | 3.91 |  |  |
Brent less WTI Houston crude oil | 3.19 |  |  | 2.28 |  |  |
Brent less Dated Brent crude oil | (0.10) |  |  | (2.92) |  |  |
Brent less ASCI crude oil | 5.53 |  |  | 6.58 |  |  |
Brent less Maya crude oil | 14.16 |  |  | 9.84 |  |  |
Brent less WCS Houston crude oil | 12.19 |  |  | 13.22 |  |  |
WTI crude oil | 77.44 |  |  | 98.29 |  |  |
Natural gas (dollars per MMBtu) | 2.21 |  |  | 6.29 |  |  |
RVO (dollars per barrel) (e) | 7.77 |  |  | 7.45 |  |  |
Product margins (RVO adjusted unless otherwise noted) (dollars per barrel) |  |  |  |  |
U.S. Gulf Coast: |  |  |  |  |
CBOB gasoline less Brent | 12.57 |  |  | 12.82 |  |  |
ULS diesel less Brent | 25.26 |  |  | 36.89 |  |  |
Propylene less Brent (not RVO adjusted) | (46.32) |  |  | (38.04) |  |  |
U.S. Mid-Continent: |  |  |  |  |
CBOB gasoline less WTI | 22.25 |  |  | 19.04 |  |  |
ULS diesel less WTI | 32.12 |  |  | 41.81 |  |  |
North Atlantic: |  |  |  |  |
CBOB gasoline less Brent | 18.96 |  |  | 21.73 |  |  |
ULS diesel less Brent | 28.19 |  |  | 44.22 |  |  |
U.S. West Coast: |  |  |  |  |
CARBOB 87 gasoline less Brent | 32.89 |  |  | 36.59 |  |  |
CARB diesel less Brent | 31.43 |  |  | 39.70 |  |  |

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First Nine Months Results -
Average Market Reference Prices and Differentials (continued)

| Nine Months Ended September 30,
| 2023 |  | 2022 |  |
Renewable Diesel |  |  |  |  |
New York Mercantile Exchange ULS diesel (dollars per gallon) | $ | 2.80 |  |  | $ | 3.54 |  |  |
Biodiesel RIN (dollars per RIN) | 1.51 |  |  | 1.61 |  |  |
California LCFS carbon credit (dollars per metric ton) | 73.65 |  |  | 109.71 |  |  |
USGC UCO (dollars per pound) | 0.61 |  |  | 0.77 |  |  |
USGC DCO (dollars per pound) | 0.65 |  |  | 0.77 |  |  |
USGC Tallow (dollars per pound) | 0.62 |  |  | 0.76 |  |  |
Ethanol |  |  |  |  |
CBOT corn (dollars per bushel) | 5.95 |  |  | 7.02 |  |  |
New York Harbor ethanol (dollars per gallon) | 2.42 |  |  | 2.60 |  |  |

Total Company, Corporate, and Other
The following table includes selected financial data for the total company, corporate, and other for the first nine months of 2023 and 2022. The selected financial data is derived from the Financial Highlights by Segment and Total Company tables, unless otherwise noted.

| Nine Months Ended September 30,
| 2023 |  | 2022 |  | Change
Revenues | $ | 109,352 |  |  | $ | 134,637 |  |  | $ | (25,285) |
Cost of sales (see notes (a) and (b)) | 98,294 |  |  | 122,516 |  |  | (24,222) |
Operating income | 10,305 |  |  | 11,395 |  |  | (1,090) |
Adjusted operating income (see note (f)) | 10,323 |  |  | 11,328 |  |  | (1,005) |
Other income, net (see note (d)) | 357 |  |  | 87 |  |  | 270 |
Income tax expense | 2,288 |  |  | 2,410 |  |  | (122) |
Net income attributable to noncontrolling interests | 298 |  |  | 232 |  |  | 66 |

Revenues decreased by $25.3 billion in the first nine months of 2023 compared to the first nine months of 2022 primarily due to decreases in product prices for the petroleum-based transportation fuels associated with sales made by our Refining segment. This decrease in revenues was partially offset by a decrease in cost of sales of $24.2 billion primarily due to decreases in crude oil and other feedstock costs. These changes resulted in a $1.1 billion decrease in operating income, from $11.4 billion in the first nine months of 2022 to $10.3 billion in the first nine months of 2023.
Adjusted operating income decreased by $1.0 billion, from $11.3 billion in the first nine months of 2022 to $10.3 billion in the first nine months of 2023. The components of this $1.0 billion decrease in adjusted operating income are discussed by segment in the segment analyses that follow.
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“Other income, net” increased by $270 million in the first nine months of 2023 compared to the first nine months of 2022 primarily due to the items noted in the following table (in millions):

| Nine Months Ended September 30,
| 2023 |  | 2022 |  | Change
Interest income on cash | $ | 197 |  |  | $ | 49 |  |  | $ | 148 |
Net gain (loss) from early retirement of debt (see note (d)) | 11 |  |  | (24) |  |  | 35 |
Equity income on joint ventures and other | 149 |  |  | 62 |  |  | 87 |
Other income, net | $ | 357 |  |  | $ | 87 |  |  | $ | 270 |

Income tax expense decreased by $122 million in the first nine months of 2023 compared to the first nine months of 2022 primarily as a result of lower income before income tax expense.
Net income attributable to noncontrolling interests increased by $66 million in the first nine months of 2023 compared to the first nine months of 2022 primarily due to higher earnings associated with DGD, whose operations compose our Renewable Diesel segment. See Note 6 of Condensed Notes to Consolidated Financial Statements regarding our accounting for DGD and the Renewable Diesel segment analysis beginning on page 51.
Refining Segment Results
The following table includes selected financial and operating data of our Refining segment for the first nine months of 2023 and 2022. The selected financial data is derived from the Financial Highlights by Segment and Total Company tables, unless otherwise noted.

| Nine Months Ended September 30,
| 2023 |  | 2022 |  | Change
Operating income | $ | 9,934 |  |  | $ | 11,473 |  |  | $ | (1,539) |
Adjusted operating income (see note (f)) | 9,951 |  |  | 11,407 |  |  | (1,456) |
Refining margin (see note (f)) | 15,534 |  |  | 17,200 |  |  | (1,666) |
Operating expenses (excluding depreciation and amortization expense reflected below) | 3,832 |  |  | 4,111 |  |  | (279) |
Depreciation and amortization expense | 1,751 |  |  | 1,682 |  |  | 69 |
Throughput volumes (thousand barrels per day) (see note (g)) | 2,974 |  |  | 2,923 |  |  | 51 |

Refining segment operating income decreased by $1.5 billion in the first nine months of 2023 compared to the first nine months of 2022. Refining segment adjusted operating income, which excludes the adjustments in the table in note (f), also decreased by $1.5 billion in the first nine months of 2023 compared to the first nine months of 2022. The components of this decrease, along with the reasons for the changes in those components, are outlined below.
•Refining segment margin decreased by $1.7 billion in the first nine months of 2023 compared to the first nine months of 2022.
Refining segment margin is primarily affected by the prices for the petroleum-based transportation fuels that we sell and the cost of crude oil and other feedstocks that we process.
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The table on page 48 reflects market reference prices and differentials that we believe impacted our Refining segment margin in the first nine months of 2023 compared to the first nine months of 2022.
The decrease in Refining segment margin was primarily due to the following:
◦A decrease in distillate (primarily diesel) margins had an unfavorable impact of approximately $3.6 billion.
◦A decrease in gasoline margins had an unfavorable impact of approximately $237 million.
◦Higher discounts on crude oils had a favorable impact of approximately $1.6 billion.
◦An increase in throughput volumes of 51,000 barrels per day had a favorable impact of approximately $266 million.
◦Higher discounts on other feedstocks had a favorable impact of approximately $364 million.
•Refining segment operating expenses (excluding depreciation and amortization expense) decreased by $279 million primarily due to a decrease in energy costs of $473 million (primarily natural gas), partially offset by increases in chemicals and catalyst costs of $81 million, maintenance expense of $32 million, and certain employee compensation expenses of $22 million.
Renewable Diesel Segment Results
The following table includes selected financial and operating data of our Renewable Diesel segment for the first nine months of 2023 and 2022. The selected financial data is derived from the Financial Highlights by Segment and Total Company tables, unless otherwise noted.

| Nine Months Ended September 30,
| 2023 |  | 2022 |  | Change
Operating income | $ | 768 |  |  | $ | 513 |  |  | $ | 255 |
Renewable Diesel margin (see note (f)) | 1,214 |  |  | 778 |  |  | 436 |
Operating expenses (excluding depreciation and amortization expense reflected below) | 274 |  |  | 178 |  |  | 96 |
Depreciation and amortization expense | 172 |  |  | 87 |  |  | 85 |
Sales volumes (thousand gallons per day) (see note (g)) | 3,460 |  |  | 2,084 |  |  | 1,376 |

Renewable Diesel segment operating income increased by $255 million in the first nine months of 2023 compared to the first nine months of 2022. The components of this increase, along with the reasons for the changes in those components, are outlined below.
•Renewable Diesel segment margin increased by $436 million in the first nine months of 2023 compared to the first nine months of 2022.
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Renewable Diesel segment margin is primarily affected by the price for the renewable diesel that we sell and the cost of the feedstocks that we process. The table on page 49 reflects market reference prices that we believe impacted our Renewable Diesel segment margin in the first nine months of 2023 compared to the first nine months of 2022.
The increase in Renewable Diesel segment margin was primarily due to the following:
◦A decrease in the cost of the feedstocks that we process had a favorable impact of approximately $1.2 billion.
◦An increase in sales volumes of 1.4 million gallons per day had a favorable impact of approximately $515 million. The increase in sales volumes was primarily due to the additional production resulting from the completion of the new DGD Port Arthur Plant that commenced operations in the fourth quarter of 2022, partially offset by the effect of unplanned downtime resulting from a fire at the DGD St. Charles Plant in the third quarter of 2023.
◦A decrease in product prices, primarily renewable diesel, had an unfavorable impact of approximately $1.3 billion.
•Renewable Diesel segment operating expenses (excluding depreciation and amortization expense) increased by $96 million primarily due to increased costs resulting from the new DGD Port Arthur Plant that commenced operations in the fourth quarter of 2022.
•Renewable Diesel segment depreciation and amortization expense increased by $85 million primarily due to depreciation expense associated with the new DGD Port Arthur Plant that commenced operations in the fourth quarter of 2022.
Ethanol Segment Results
The following table includes selected financial and operating data of our Ethanol segment for the first nine months of 2023 and 2022. The selected financial data is derived from the Financial Highlights by Segment and Total Company tables, unless otherwise noted.

| Nine Months Ended September 30,
| 2023 |  | 2022 |  | Change
Operating income | $ | 363 |  |  | $ | 103 |  |  | $ | 260 |
Adjusted operating income (see note (f)) | 364 |  |  | 82 |  |  | 282 |
Ethanol margin (see note (f)) | 806 |  |  | 606 |  |  | 200 |
Operating expenses (excluding depreciation and amortization expense reflected below) | 383 |  |  | 464 |  |  | (81) |
Depreciation and amortization expense (see note (b)) | 59 |  |  | 37 |  |  | 22 |
Production volumes (thousand gallons per day) (see note (g)) | 4,319 |  |  | 3,799 |  |  | 520 |

Ethanol segment operating income increased by $260 million in the first nine months of 2023 compared to the first nine months of 2022; however, Ethanol segment adjusted operating income, which excludes the adjustments in the table in note (f), increased by $282 million in the first nine months of 2023
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compared to the first nine months of 2022. The components of this increase in the adjusted results, along with the reasons for the changes in those components, are outlined below.
•Ethanol segment margin increased by $200 million in the first nine months of 2023 compared to the first nine months of 2022.
Ethanol segment margin is primarily affected by prices for the ethanol and corn related co-products that we sell and the cost of corn that we process. The table on page 49 reflects market reference prices that we believe impacted our Ethanol segment margin in the first nine months of 2023 compared to the first nine months of 2022.
The increase in Ethanol segment margin was primarily due to the following:
◦Lower corn prices had a favorable impact of approximately $326 million.
◦An increase in production volumes of 520,000 gallons per day had a favorable impact of approximately $117 million.
◦Lower ethanol prices had an unfavorable impact of approximately $182 million.
◦Lower prices for the co-products that we produce, primarily inedible DCO and DDGs, had an unfavorable impact of approximately $64 million.
•Ethanol segment operating expenses (excluding depreciation and amortization expense) decreased by $81 million primarily due to a decrease in energy costs (primarily natural gas) of $99 million, partially offset by increases in chemical and catalyst costs of $6 million and certain employee compensation expenses of $6 million.
________________________
The following notes relate to references on pages 39 through 52.
(a)Under the RFS program, the EPA is required to set annual quotas for the volume of renewable fuels that obligated parties, such as us, must blend into petroleum-based transportation fuels consumed in the U.S. The quotas are used to determine an obligated party’s RVO. The EPA released a final rule on June 3, 2022 that, among other things, modified the volume standards for 2020 and, for the first time, established volume standards for 2021 and 2022.
In 2020, we recognized the cost of the RVO using the 2020 quotas set by the EPA at that time, and in 2021 and the three months ended March 31, 2022, we recognized the cost of the RVO using our estimates of the quotas. As a result of the final rule released by the EPA as noted above, we recognized a benefit of $104 million in the nine months ended September 30, 2022 primarily related to the modification of the 2020 quotas.
(b)Depreciation and amortization expense for the nine months ended September 30, 2022 includes a gain of $23 million on the sale of our ethanol plant located in Jefferson, Wisconsin.
(c)General and administrative expenses (excluding depreciation and amortization expense) for the nine months ended September 30, 2022 includes a charge of $20 million for an environmental reserve adjustment associated with a non-operating site.
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(d)“Other income, net” includes the following:
◦a net gain of $11 million in the nine months ended September 30, 2023 related to the early retirement of $199 million aggregate principal amount of various series of our senior notes; and
◦a gain of $26 million in the three months ended September 30, 2022 and a net charge of $24 million in the nine months ended September 30, 2022 related to the early retirement of $1.25 billion and $2.65 billion, respectively, aggregate principal amount of various series of our senior notes.
(e)The RVO cost represents the average market cost on a per barrel basis to comply with the RFS program. The RVO cost is calculated by multiplying (i) the average market price during the applicable period for the RINs associated with each class of renewable fuel (i.e., biomass-based diesel, cellulosic biofuel, advanced biofuel, and total renewable fuel) by (ii) the quotas for the volume of each class of renewable fuel that must be blended into petroleum-based transportation fuels consumed in the U.S., as set or proposed by the EPA, on a percentage basis for each class of renewable fuel and adding together the results of each calculation.
(f)We use certain financial measures (as noted below) that are not defined under GAAP and are considered to be non-GAAP measures.
We have defined these non-GAAP measures and believe they are useful to the external users of our financial statements, including industry analysts, investors, lenders, and rating agencies. We believe these measures are useful to assess our ongoing financial performance because, when reconciled to their most comparable GAAP measures, they provide improved comparability between periods after adjusting for certain items that we believe are not indicative of our core operating performance and that may obscure our underlying business results and trends. These non-GAAP measures should not be considered as alternatives to their most comparable GAAP measures nor should they be considered in isolation or as a substitute for an analysis of our results of operations as reported under GAAP. In addition, these non-GAAP measures may not be comparable to similarly titled measures used by other companies because we may define them differently, which diminishes their utility.
Non-GAAP measures are as follows (in millions):
◦Refining margin is defined as Refining segment operating income excluding the modification of RVO adjustment, operating expenses (excluding depreciation and amortization expense), depreciation and amortization expense, and other operating expenses, as reflected in the table below.

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Reconciliation of Refining operating income to Refining margin |  |  |  |  |  |  |
Refining operating income | $ | 3,445 |  |  | $ | 3,810 |  |  | $ | 9,934 |  |  | $ | 11,473 |
Adjustments: |  |  |  |  |  |  |
Modification of RVO (see note (a)) | — |  |  | — |  |  | — |  |  | (104) |
Operating expenses (excluding depreciation and amortization expense) | 1,366 |  |  | 1,516 |  |  | 3,832 |  |  | 4,111 |
Depreciation and amortization expense | 597 |  |  | 568 |  |  | 1,751 |  |  | 1,682 |
Other operating expenses | 6 |  |  | 6 |  |  | 17 |  |  | 38 |
Refining margin | $ | 5,414 |  |  | $ | 5,900 |  |  | $ | 15,534 |  |  | $ | 17,200 |

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◦Renewable Diesel margin is defined as Renewable Diesel segment operating income excluding operating expenses (excluding depreciation and amortization expense) and depreciation and amortization expense, as reflected in the table below.

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Reconciliation of Renewable Diesel operating income to Renewable Diesel margin |  |  |  |  |  |  |
Renewable Diesel operating income | $ | 123 |  |  | $ | 212 |  |  | $ | 768 |  |  | $ | 513 |
Adjustments: |  |  |  |  |  |  |
Operating expenses (excluding depreciation and amortization expense) | 84 |  |  | 69 |  |  | 274 |  |  | 178 |
Depreciation and amortization expense | 55 |  |  | 33 |  |  | 172 |  |  | 87 |
Renewable Diesel margin | $ | 262 |  |  | $ | 314 |  |  | $ | 1,214 |  |  | $ | 778 |

◦Ethanol margin is defined as Ethanol segment operating income excluding operating expenses (excluding depreciation and amortization expense), depreciation and amortization expense, and other operating expenses, as reflected in the table below.

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Reconciliation of Ethanol operating income to Ethanol margin |  |  |  |  |  |  |
Ethanol operating income | $ | 197 |  |  | $ | 1 |  |  | $ | 363 |  |  | $ | 103 |
Adjustments: |  |  |  |  |  |  |
Operating expenses (excluding depreciation and amortization expense) | 125 |  |  | 162 |  |  | 383 |  |  | 464 |
Depreciation and amortization expense (see note (b)) | 20 |  |  | 20 |  |  | 59 |  |  | 37 |
Other operating expenses | — |  |  | — |  |  | 1 |  |  | 2 |
Ethanol margin | $ | 342 |  |  | $ | 183 |  |  | $ | 806 |  |  | $ | 606 |

◦Adjusted Refining operating income is defined as Refining segment operating income excluding the modification of RVO adjustment and other operating expenses, as reflected in the table below.

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Reconciliation of Refining operating income to adjusted Refining operating income |  |  |  |  |  |  |
Refining operating income | $ | 3,445 |  |  | $ | 3,810 |  |  | $ | 9,934 |  |  | $ | 11,473 |
Adjustments: |  |  |  |  |  |  |
Modification of RVO (see note (a)) | — |  |  | — |  |  | — |  |  | (104) |
Other operating expenses | 6 |  |  | 6 |  |  | 17 |  |  | 38 |
Adjusted Refining operating income | $ | 3,451 |  |  | $ | 3,816 |  |  | $ | 9,951 |  |  | $ | 11,407 |

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◦Adjusted Ethanol operating income is defined as Ethanol segment operating income excluding the gain on sale of ethanol plant and other operating expenses, as reflected in the table below.

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Reconciliation of Ethanol operating income to adjusted Ethanol operating income |  |  |  |  |  |  |
Ethanol operating income | $ | 197 |  |  | $ | 1 |  |  | $ | 363 |  |  | $ | 103 |
Adjustments: |  |  |  |  |  |  |
Gain on sale of ethanol plant (see note (b)) | — |  |  | — |  |  | — |  |  | (23) |
Other operating expenses | — |  |  | — |  |  | 1 |  |  | 2 |
Adjusted Ethanol operating income | $ | 197 |  |  | $ | 1 |  |  | $ | 364 |  |  | $ | 82 |

◦Adjusted operating income is defined as total company operating income excluding the modification of RVO adjustment, the gain on sale of ethanol plant, the environmental reserve adjustment, and other operating expenses, as reflected in the table below.

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Reconciliation of total company operating income to adjusted operating income |  |  |  |  |  |  |
Total company operating income | $ | 3,503 |  |  | $ | 3,792 |  |  | $ | 10,305 |  |  | $ | 11,395 |
Adjustments: |  |  |  |  |  |  |
Modification of RVO (see note (a)) | — |  |  | — |  |  | — |  |  | (104) |
Gain on sale of ethanol plant (see note (b)) | — |  |  | — |  |  | — |  |  | (23) |
Environmental reserve adjustment (see note (c)) | — |  |  | — |  |  | — |  |  | 20 |
Other operating expenses | 6 |  |  | 6 |  |  | 18 |  |  | 40 |
Adjusted operating income | $ | 3,509 |  |  | $ | 3,798 |  |  | $ | 10,323 |  |  | $ | 11,328 |

(g)We use throughput volumes, sales volumes, and production volumes for the Refining segment, Renewable Diesel segment, and Ethanol segment, respectively, due to their general use by others who operate facilities similar to those included in our segments.
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LIQUIDITY AND CAPITAL RESOURCES
Our Liquidity
Our liquidity consisted of the following as of September 30, 2023 (in millions):

Available capacity from our committed facilities (a): |  |  |  |  |  |  |  |
Valero Revolver |  |  |  |  |  |  |  | $ | 3,996 |
Canadian Revolver (b) |  |  |  |  |  |  |  | 107 |
Accounts receivable sales facility |  |  |  |  |  |  |  | 1,300 |
Total available capacity |  |  |  |  |  |  |  | 5,403 |
Cash and cash equivalents (c) |  |  |  |  |  |  |  | 5,608 |
Total liquidity |  |  |  |  |  |  |  | $ | 11,011 |

________________________
(a)Excludes the committed facilities of the consolidated VIEs.
(b)The amount for our Canadian Revolver is shown in U.S. dollars. As set forth in the summary of our credit facilities in Note 4 of Condensed Notes to Consolidated Financial Statements, the availability under our Canadian Revolver as of September 30, 2023 in Canadian dollars was C$145 million.
(c)Excludes $223 million of cash and cash equivalents related to the consolidated VIEs that is for their use only.
Information about our outstanding borrowings, letters of credit issued, and availability under our credit facilities is reflected in Note 4 of Condensed Notes to Consolidated Financial Statements.
We believe we have sufficient funds from operations and from available capacity under our credit facilities to fund our ongoing operating requirements and other commitments over the next 12 months and thereafter for the foreseeable future. We expect that, to the extent necessary, we can raise additional cash through equity or debt financings in the public and private capital markets or the arrangement of additional credit facilities. However, there can be no assurances regarding the availability of any future financings or additional credit facilities or whether such financings or additional credit facilities can be made available on terms that are acceptable to us.
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Cash Flows
Components of our cash flows are set forth below (in millions):

| Nine Months Ended September 30,
| 2023 |  | 2022
Cash flows provided by (used in): |  |  |
Operating activities | $ | 7,990 |  |  | $ | 8,478 |
Investing activities | (1,382) |  |  | (2,070) |
Financing activities: |  |  |
Debt issuances and borrowings | 2,336 |  |  | 2,596 |
Repayments of debt and finance lease obligations (including premiums paid on early retirement of debt) | (2,609) |  |  | (5,051) |
Return to stockholders: |  |  |
Purchases of common stock for treasury | (4,180) |  |  | (2,769) |
Common stock dividend payments | (1,106) |  |  | (1,186) |
Return to stockholders | (5,286) |  |  | (3,955) |
Other financing activities | (86) |  |  | 141 |
Financing activities | (5,645) |  |  | (6,269) |
Effect of foreign exchange rate changes on cash | 6 |  |  | (292) |
Net increase (decrease) in cash and cash equivalents | $ | 969 |  |  | $ | (153) |

Cash Flows for the Nine Months Ended September 30, 2023
In the first nine months of 2023, we used the $8.0 billion of cash generated by our operations and the $2.3 billion in debt borrowings to make $1.4 billion of investments in our business, repay $2.6 billion of debt and finance lease obligations (including premiums paid on the early retirement of debt), return $5.3 billion to our stockholders through purchases of our common stock for treasury and dividend payments, and increase our available cash on hand by $969 million. The debt borrowings and repayments are described in Note 4 of Condensed Notes to Consolidated Financial Statements.
As previously noted, our operations generated $8.0 billion of cash in the first nine months of 2023, driven primarily by net income of $7.9 billion and noncash charges to income of $1.8 billion, partially offset by an unfavorable change in working capital of $1.7 billion. Noncash charges primarily included $2.0 billion of depreciation and amortization expense. Details regarding the components of the change in working capital, along with the reasons for the changes in those components, are described in Note 10 of Condensed Notes to Consolidated Financial Statements. In addition, see “RESULTS OF OPERATIONS” for an analysis of the significant components of our net income.
Our investing activities primarily consisted of $1.4 billion in capital investments, as defined below under “Capital Investments,” of which $239 million related to capital investments made by DGD.
Cash Flows for the Nine Months Ended September 30, 2022
In the first nine months of 2022, we used the $8.5 billion of cash generated by our operations, $2.6 billion in debt issuances and borrowings, and $153 million of cash on hand to make $2.1 billion of investments in our business, repay $5.1 billion of debt and finance lease obligations (including premiums paid on the early retirement of debt), and return $4.0 billion to our stockholders through purchases of our common stock for treasury and dividend payments. The debt issuance, borrowings, and repayments are described in Note 4 of Condensed Notes to Consolidated Financial Statements.
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As previously noted, our operations generated $8.5 billion of cash in the first nine months of 2022, driven primarily by net income of $8.6 billion and noncash charges to income of $1.4 billion, partially offset by an unfavorable change in working capital of $1.6 billion. Noncash charges primarily included $1.8 billion of depreciation and amortization expense, partially offset by a $161 million deferred income tax benefit. Details regarding the components of the change in working capital, along with the reasons for the changes in those components, are described in Note 10 of Condensed Notes to Consolidated Financial Statements. In addition, see “RESULTS OF OPERATIONS” for an analysis of the significant components of our net income.
Our investing activities primarily consisted of $2.1 billion in capital investments, of which $695 million related to capital investments made by DGD and $30 million related to capital expenditures of VIEs other than DGD.
Our Capital Resources
Our material cash requirements as of September 30, 2023 primarily consisted of working capital requirements, capital investments, contractual obligations, and other matters, as described below. Our operations have historically generated positive cash flows to fulfill our working capital requirements and other uses of cash as discussed below.
Capital Investments
Capital investments are comprised of our capital expenditures, deferred turnaround and catalyst cost expenditures, and investments in nonconsolidated joint ventures, as reflected in our consolidated statements of cash flows as shown on page 6. Capital investments exclude acquisitions, if any.
We have publicly announced GHG emissions reduction/displacement targets for 2025 and 2035. We believe that our expected allocation of growth capital into low-carbon projects is consistent with such targets. Certain of these low-carbon projects have been completed or are already in execution and the associated capital investments are included in our expected capital investments for 2023. Our capital investments in future years, consistent with our targets, are expected to include investments associated with certain low-carbon projects currently at various stages of progress, evaluation, or approval.
Capital Investments Attributable to Valero
Capital investments attributable to Valero is a non-GAAP financial measure that reflects our net share of capital investments and is defined as all capital expenditures, deferred turnaround and catalyst cost expenditures, and investments in nonconsolidated joint ventures, excluding the portion of DGD’s capital investments attributable to the other joint venture member and all of the capital expenditures of other consolidated VIEs.
We are a 50 percent joint venture member in DGD and consolidate its financial statements, and DGD’s operations compose our Renewable Diesel segment. As a result, all of DGD’s net cash provided by operating activities (or operating cash flow) is included in our consolidated net cash provided by operating activities. DGD’s members use DGD’s operating cash flow (excluding changes in its current assets and current liabilities) to fund its capital investments rather than distribute all of that cash to themselves. Because DGD’s operating cash flow is effectively attributable to each member, only 50 percent of DGD’s capital investments should be attributed to our net share of capital investments. We also exclude all of the capital expenditures of other VIEs that we consolidate because we do not operate those VIEs. See Note 6 of Condensed Notes to Consolidated Financial Statements for more information about the VIEs that we consolidate. We believe capital investments attributable to Valero is an important measure because it more accurately reflects our capital investments.
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Capital investments attributable to Valero should not be considered as an alternative to capital investments, which is the most comparable GAAP measure, nor should it be considered in isolation or as a substitute for an analysis of our cash flows as reported under GAAP. In addition, this non-GAAP measure may not be comparable to similarly titled measures used by other companies because we may define it differently, which may diminish its utility.

|  |  | Nine Months Ended September 30,
(millions of dollars) |  | 2023 |  | 2022
Reconciliation of capital investments to capital investments attributable to Valero |  |  |  |  |
Capital expenditures (excluding VIEs) |  |  | $ | 468 |  |  | $ | 552 |
Capital expenditures of VIEs: |  |  |  |  |
DGD |  |  | 183 |  |  | 682 |
Other VIEs |  |  | 4 |  |  | 30 |
Deferred turnaround and catalyst cost expenditures (excluding VIEs) |  |  | 665 |  |  | 820 |
Deferred turnaround and catalyst cost expenditures of DGD |  |  | 56 |  |  | 13 |
Investments in nonconsolidated joint ventures |  |  | — |  |  | 1 |
Capital investments |  |  | 1,376 |  |  | 2,098 |
Adjustments: |  |  |  |  |
DGD’s capital investments attributable to the other joint venture member |  |  | (120) |  |  | (347) |
Capital expenditures of other VIEs |  |  | (4) |  |  | (30) |
Capital investments attributable to Valero |  |  | $ | 1,252 |  |  | $ | 1,721 |

We have developed an extensive multi-year capital investment program, which we update and revise based on changing internal and external factors. As previously disclosed in our annual report on Form 10-K for the year ended December 31, 2022, we expect to incur approximately $2.0 billion for capital investments attributable to Valero during 2023. Approximately $1.5 billion of the expected capital investments attributable to Valero are for sustaining the business and the balance towards growth strategies, of which approximately 40 percent is allocated to expanding our low-carbon businesses.
Contractual Obligations
As of September 30, 2023, our contractual obligations included debt obligations, interest payments related to debt obligations, operating lease liabilities, finance lease obligations, other long-term liabilities, and purchase obligations. In the ordinary course of business, we had debt-related activities during the nine months ended September 30, 2023, as described in Note 4 of Condensed Notes to Consolidated Financial Statements. There were no material changes outside the ordinary course of business with respect to our contractual obligations during the nine months ended September 30, 2023.
In March 2021, we announced our participation in Navigator’s proposed large-scale carbon capture and sequestration pipeline system in the Mid-Continent region of the U.S. In October 2023, Navigator announced that due to the unpredictable nature of the regulatory and government processes involved, particularly in South Dakota and Iowa, it has decided to cancel this project. Under the terms of agreements associated with the project, we may have some rights from and obligations to Navigator,
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including a portion of the aggregate project costs to date, but we do not expect such obligation will be material.
During the nine months ended September 30, 2023, we used cash on hand to purchase and retire $199 million of our public debt. We will continue to evaluate further deleveraging opportunities.
Other Matters Impacting Liquidity and Capital Resources
Stock Purchase Programs
During the three and nine months ended September 30, 2023, we purchased for treasury 12,805,162 of our shares for a total cost of $1.8 billion and 32,219,955 of our shares for $4.2 billion, respectively. See Note 5 of Condensed Notes to Consolidated Financial Statements for additional information related to our stock purchase programs. As of September 30, 2023, we had $649 million remaining available for purchase under the February 2023 Program. On September 15, 2023, we announced that our Board authorized us to purchase shares of our outstanding common stock for a total cost of up to $2.5 billion with no expiration date, which is in addition to the amount remaining under the February 2023 Program. We will continue to evaluate the timing of purchases when appropriate. We have no obligation to make purchases under these programs.
Pension Plan Funding
As disclosed in our annual report on Form 10-K for the year ended December 31, 2022, we plan to contribute $108 million to our pension plans and $21 million to our other postretirement benefit plans during 2023. For the nine months ended September 30, 2023, we have contributed $94 million to our pension plans and $14 million to our other postretirement benefit plans.
Cash Held by Our Foreign Subsidiaries
As of September 30, 2023, $4.1 billion of our cash and cash equivalents was held by our foreign subsidiaries. Cash held by our foreign subsidiaries can be repatriated to us through dividends without any U.S. federal income tax consequences, but certain other taxes may apply, including, but not limited to, withholding taxes imposed by certain foreign jurisdictions, U.S. state income taxes, and U.S. federal income tax on foreign exchange gains. Therefore, there is a cost to repatriate cash held by certain of our foreign subsidiaries to us.
Environmental Matters
Our operations are subject to extensive environmental regulations by government authorities relating to, among other matters, the discharge of materials into the environment, climate, waste management, pollution prevention measures, GHG and other emissions, our facilities and operations, and characteristics and composition of many of our products. Because environmental laws and regulations are becoming more complex and stringent and new environmental laws and regulations are continuously being enacted or proposed, the level of future costs and expenditures required for environmental matters could increase.
Concentration of Customers
Our operations have a concentration of customers in the refining industry and customers who are refined petroleum product wholesalers and retailers. These concentrations of customers may impact our overall exposure to credit risk, either positively or negatively, in that these customers may be similarly affected by changes in economic or other conditions, including the uncertainties concerning worldwide events causing volatility in the global crude oil markets. However, we believe that our portfolio of accounts receivable is sufficiently diversified to the extent necessary to minimize potential credit risk. Historically, we have not had any significant problems collecting our accounts receivable.
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CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. Actual results could differ from those estimates. There have been no changes to the critical accounting policies that involve critical accounting estimates disclosed in our annual report on Form 10-K for the year ended December 31, 2022.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
The following tables provide information about our debt instruments (dollars in millions), the fair values of which are sensitive to changes in interest rates. A 10 percent increase or decrease in our floating interest rates would not have a material effect on our results of operations. Principal cash flows and related weighted-average interest rates by expected maturity dates are presented. See Note 4 of Condensed Notes to Consolidated Financial Statements for additional information related to our debt.

| September 30, 2023 (a)
| Expected Maturity Dates |  |  |  |
| Remainder of 2023 |  | 2024 |  | 2025 |  | 2026 |  | 2027 |  | There- after |  | Total |  | Fair Value
Fixed rate | $ | — |  |  | $ | 167 |  | $ | 441 |  | $ | 672 |  | $ | 564 |  | $ | 6,421 |  | $ | 8,265 |  | $ | 7,587
Average interest rate | — | % |  | 1.2 | % |  | 3.2 | % |  | 4.2 | % |  | 2.2 | % |  | 5.3 | % |  | 4.8 | % |  |
Floating rate | $ | 949 |  | $ | 13 |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 962 |  | $ | 962
Average interest rate | 8.7 | % |  | 6.7 | % |  | — | % |  | — | % |  | — | % |  | — | % |  | 8.7 | % |  |
| December 31, 2022 (a)
| Expected Maturity Dates |  |  |  |
| 2023 |  | 2024 |  | 2025 |  | 2026 |  | 2027 |  | There- after |  | Total |  | Fair Value
Fixed rate | $ | — |  |  | $ | 167 |  | $ | 441 |  | $ | 672 |  | $ | 578 |  | $ | 6,606 |  | $ | 8,464 |  | $ | 8,041
Average interest rate | — | % |  | 1.2 | % |  | 3.2 | % |  | 4.2 | % |  | 2.2 | % |  | 5.3 | % |  | 4.8 | % |  |
Floating rate | $ | 861 |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 861 |  | $ | 861
Average interest rate | 7.1 | % |  | — | % |  | — | % |  | — | % |  | — | % |  | — | % |  | 7.1 | % |  |

________________________
(a)Excludes unamortized discounts and debt issuance costs.
OTHER MARKET RISKS
We are exposed to market risks primarily related to the volatility in the price of commodities, the price of credits needed to comply with the Renewable and Low-Carbon Fuel Programs, and foreign currency exchange rates. There have been no material changes to these market risks disclosed in our annual report on Form 10-K for the year ended December 31, 2022. See Note 12 of Condensed Notes to Consolidated Financial Statements for a discussion about these market risks as of September 30, 2023.
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ITEM 4. CONTROLS AND PROCEDURES
(a)Evaluation of disclosure controls and procedures.
Our management has evaluated, with the participation of our principal executive officer and principal financial officer, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report, and has concluded that our disclosure controls and procedures were effective as of September 30, 2023.
(b)Changes in internal control over financial reporting.
There has been no change in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information below describes new proceedings or material developments in proceedings that we previously reported in our annual reports on Form 10-K for the years ended December 31, 2022 and December 31, 2021, and that we originally reported in our quarterly report on Form 10-Q for the quarter ended March 31, 2021.
Environmental Enforcement Matters
We are reporting the following proceedings to comply with SEC regulations, which require us to disclose certain information about proceedings arising under federal, state, or local provisions regulating the discharge of materials into the environment or primarily for the purpose of protecting the environment if a governmental authority is a party to such proceeding and we reasonably believe that such proceeding will result in monetary sanctions that exceed a specified threshold. Pursuant to SEC regulations, we use a threshold of $1 million for purposes of determining whether disclosure of any such proceedings is required. We believe proceedings less than this threshold are not material to our business and financial condition.
Bay Area Air Quality Management District (BAAQMD) (Benicia Refinery). We originally reported in our quarterly report on Form 10-Q for the quarter ended March 31, 2021, that we received a Notice of Violation (NOV) from the BAAQMD on March 21, 2019, related to atmospheric emissions of hydrogen commingled with non-methane organic compounds at our Benicia Refinery (the 2019 Atmospheric Emissions NOV), as that was the first quarter in which it became reportable. On December 1, 2020, we received an NOV from the BAAQMD related to pressure relief devices in the Benicia Refinery’s Hydrogen Unit (the 2020 Pressure Relief Device NOV), which we now reasonably believe will result in penalties that are in excess of $1 million. On June 17, 2021, October 11, 2021, and January 26, 2022, we also received certain other compliance related NOVs related to the 2019 Atmospheric Emissions NOV and the 2020 Pressure Relief Device NOV, which we now reasonably believe will result in penalties that are in excess of $1 million. We are in discussion with the BAAQMD with respect to the foregoing, but it is too early to predict the ultimate outcome thereof.
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BAAQMD (Benicia Refinery). We are also currently in the process of working with the BAAQMD to resolve several other NOVs issued by the BAAQMD to our Benicia Refinery in 2020 and 2019, which primarily relate to various emissions and related compliance issues, which we now reasonably believe will result in penalties that are in excess of $1 million.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors disclosed in our annual report on Form 10-K for the year ended December 31, 2022. However, to the extent SBx 1-2 discussed in Note 2 of Condensed Notes to Consolidated Financial Statements adversely affects our business, financial condition, results of operations, and liquidity, it may also have the effect of heightening many of the other risks described in such risk factors.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES
Issuer Purchases of Equity Securities
The following table discloses purchases of shares of our common stock made by us or on our behalf during the third quarter of 2023.

Period |  | Total Number of Shares Purchased (a) |  | Average Price Paid per Share (b) |  |  |  | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |  | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (c)
July 2023 |  | 8,180 |  |  | $ | 118.01 |  |  |  |  | — |  |  | $2.5 billion
August 2023 |  | 4,218,383 |  |  | $ | 131.38 |  |  |  |  | 4,214,764 |  |  | $1.9 billion
September 2023 |  | 8,578,599 |  |  | $ | 143.59 |  |  |  |  | 8,576,013 |  |  | $3.1 billion
Total |  | 12,805,162 |  |  | $ | 139.55 |  |  |  |  | 12,790,777 |  |  | $3.1 billion

________________________
(a)The shares reported in this column include 14,385 shares related to our purchases of shares from our employees and non-employee directors in connection with the exercise of stock options, the vesting of restricted stock, and other stock compensation transactions in accordance with the terms of our stock-based compensation plans.
(b)The average price paid per share reported in this column excludes brokerage commissions and a one percent excise tax on share purchases.
(c)On February 23, 2023, we announced that our Board authorized us to purchase shares of our outstanding common stock for a total cost of up to $2.5 billion with no expiration date. As of September 30, 2023, we had $649 million remaining available for purchase under the February 2023 Program. On September 15, 2023, we announced that our Board authorized us to purchase shares of our outstanding common stock for a total cost of up to $2.5 billion with no expiration date, which is in addition to the amount remaining under the February 2023 Program.
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ITEM 5. OTHER INFORMATION
(a)None.
(b)None.
(c)During the three months ended September 30, 2023, no director or officer (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934) of Valero adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
ITEM 6. EXHIBITS

Exhibit No. |  | Description
+10.01 |  | Valero Energy Corporation Supplemental Executive Retirement Plan, as amended and restated effective July 1, 2023–incorporated by reference to Exhibit 10.01 to Valero’s quarterly report on Form 10-Q for the quarter ended June 30, 2023 (SEC File No. 001-13175).
22.01 |  | Subsidiary Issuer of Guaranteed Securities–incorporated by reference to Exhibit 22.01 to Valero’s annual report on Form 10-K for the year ended December 31, 2020 (SEC File No. 001-13175).
*31.01 |  | Rule 13a-14(a) Certification (under Section 302 of the Sarbanes-Oxley Act of 2002) of principal executive officer.
*31.02 |  | Rule 13a-14(a) Certification (under Section 302 of the Sarbanes-Oxley Act of 2002) of principal financial officer.
**32.01 |  | Section 1350 Certifications (under Section 906 of the Sarbanes-Oxley Act of 2002).
***101.INS |  | Inline XBRL Instance Document–the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
***101.SCH |  | Inline XBRL Taxonomy Extension Schema Document.
***101.CAL |  | Inline XBRL Taxonomy Extension Calculation Linkbase Document.
***101.DEF |  | Inline XBRL Taxonomy Extension Definition Linkbase Document.
***101.LAB |  | Inline XBRL Taxonomy Extension Label Linkbase Document.
***101.PRE |  | Inline XBRL Taxonomy Extension Presentation Linkbase Document.
***104 |  | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

________________________

* | Filed herewith.
** | Furnished herewith.
*** | Submitted electronically herewith.
+ | Identifies management contracts or compensatory plans or arrangements required to be filed as an exhibit hereto.

Certain agreements relating to our long-term debt have not been filed as exhibits as permitted by paragraph (b)(4)(iii)(A) of Item 601 of Regulation S-K since the total amount of securities authorized under any such agreements do not exceed 10 percent of our total consolidated assets. Upon request, we will furnish to the SEC all constituent agreements defining the rights of holders of our long-term debt not filed herewith.
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Table of Contents
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

|  | VALERO ENERGY CORPORATION (Registrant)
| By: | /s/ Jason W. Fraser
|  | Jason W. Fraser
|  | Executive Vice President and
|  | Chief Financial Officer
|  | (Duly Authorized Officer and Principal
|  | Financial and Accounting Officer)

Date: October 26, 2023
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