VALERO ENERGY CORP/TX0001035002FALSE2021Q2--12-31Includes excise taxes on sales by certain of our international operations of $1,422 million and $784 million for the three months ended June 30, 2021 and 2020, respectively, and $2,542 million and $2,152 million for the six months ended June 30, 2021 and 2020, 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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 June 30, 2021
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 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 July 23, 2021 was 408,823,430.


VALERO ENERGY CORPORATION
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i

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

VALERO ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(millions of dollars, except par value)
June 30,
2021 		December 31,
2020
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 3,572  $ 3,313 
Receivables, net 9,132  6,109 
Inventories 6,103  6,038 
Prepaid expenses and other 565  384 
Total current assets 19,372  15,844 
Property, plant, and equipment, at cost 47,852  46,967 
Accumulated depreciation (17,391) (16,578)
Property, plant, and equipment, net 30,461  30,389 
Deferred charges and other assets, net 5,623  5,541 
Total assets $ 55,456  $ 51,774 
LIABILITIES AND EQUITY
Current liabilities:
Current portion of debt and finance lease obligations $ 1,044  $ 723 
Accounts payable 10,168  6,082 
Accrued expenses 1,286  994 
Taxes other than income taxes payable 1,537  1,372 
Income taxes payable 179  112 
Total current liabilities 14,214  9,283 
Debt and finance lease obligations, less current portion 13,636  13,954 
Deferred income tax liabilities 5,142  5,275 
Other long-term liabilities 3,760  3,620 
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 6,819  6,814 
Treasury stock, at cost;
264,676,548 and 265,096,171 common shares
(15,696) (15,719)
Retained earnings 27,610  28,953 
Accumulated other comprehensive loss (1,089) (1,254)
Total Valero Energy Corporation stockholders’ equity 17,651  18,801 
Noncontrolling interests 1,053  841 
Total equity 18,704  19,642 
Total liabilities and equity $ 55,456  $ 51,774 
See Condensed Notes to Consolidated Financial Statements.

1

VALERO ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(millions of dollars, except per share amounts)
(unaudited)
Three Months Ended
June 30, 		Six Months Ended
June 30,
2021 2020 2021 2020
Revenues (a) $ 27,748  $ 10,397  $ 48,554  $ 32,499 
Cost of sales:
Cost of materials and other 25,249  9,079  44,241  29,031 
Lower of cost or market (LCM) inventory valuation adjustment —  (2,248) —  294 
Operating expenses (excluding depreciation and amortization
expense reflected below)
1,214  1,027  2,870  2,151 
Depreciation and amortization expense 576  566  1,142  1,135 
Total cost of sales 27,039  8,424  48,253  32,611 
Other operating expenses 12  3  50  5 
General and administrative expenses (excluding depreciation and
amortization expense reflected below)
176  169  384  346 
Depreciation and amortization expense 12  12  24  25 
Operating income (loss) 509  1,789  (157) (488)
Other income, net 102  27  147  59 
Interest and debt expense, net of capitalized interest (150) (142) (299) (267)
Income (loss) before income tax expense (benefit) 461  1,674  (309) (696)
Income tax expense (benefit) 169  339  21  (277)
Net income (loss) 292  1,335  (330) (419)
Less: Net income attributable to noncontrolling interests 130  82  212  179 
Net income (loss) attributable to Valero Energy Corporation
stockholders
$ 162  $ 1,253  $ (542) $ (598)
Earnings (loss) per common share $ 0.39  $ 3.07  $ (1.34) $ (1.48)
Weighted-average common shares outstanding (in millions) 407  406  407  407 
Earnings (loss) per common share – assuming dilution $ 0.39  $ 3.07  $ (1.34) $ (1.48)
Weighted-average common shares outstanding –
assuming dilution (in millions)
407  407  407  407 
__________________________
Supplemental information:
(a) Includes excise taxes on sales by certain of our international
operations
$ 1,422  $ 784  $ 2,542  $ 2,152 

See Condensed Notes to Consolidated Financial Statements.

2

VALERO ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(millions of dollars)
(unaudited)
Three Months Ended
June 30, 		Six Months Ended
June 30,
2021 2020 2021 2020
Net income (loss) $ 292  $ 1,335  $ (330) $ (419)
Other comprehensive income (loss):
Foreign currency translation adjustment 69  138  145  (469)
Net gain on pension and other postretirement
benefits
13  12  28  24 
Net gain (loss) on cash flow hedges
(7) (25) 3  4 
Other comprehensive income (loss) before
income tax expense (benefit)
75  125  176  (441)
Income tax expense (benefit) related to items of
other comprehensive income (loss)
2  (1) 9  5 
Other comprehensive income (loss) 73  126  167  (446)
Comprehensive income (loss) 365  1,461  (163) (865)
Less: Comprehensive income attributable
to noncontrolling interests
127  70  214  181 
Comprehensive income (loss) attributable to
Valero Energy Corporation stockholders
$ 238  $ 1,391  $ (377) $ (1,046)

See Condensed Notes to Consolidated Financial Statements.

3

VALERO ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY
(millions of dollars)
(unaudited)
Valero Energy Corporation Stockholders’ Equity
Common
Stock 		Additional
Paid-in
Capital 		Treasury
Stock 		Retained
Earnings 		Accumulated
Other
Comprehensive
Loss 		Total Non-
controlling
Interests 		Total
Equity
Balance as of March 31, 2021 $ 7  $ 6,810  $ (15,700) $ 27,849  $ (1,165) $ 17,801  $ 926  $ 18,727 
Net income —  —  —  162  —  162  130  292 
Dividends on common stock
($0.98 per share)
—  —  —  (401) —  (401) —  (401)
Stock-based compensation
expense
—  13  —  —  —  13  —  13 
Transactions in connection
with stock-based
compensation plans
—  (4) 4  —  —  —  —  — 
Other comprehensive
income (loss)
—  —  —  —  76  76  (3) 73 
Balance as of June 30, 2021 $ 7  $ 6,819  $ (15,696) $ 27,610  $ (1,089) $ 17,651  $ 1,053  $ 18,704 
Balance as of March 31, 2020 $ 7  $ 6,814  $ (15,764) $ 29,722  $ (1,937) $ 18,842  $ 843  $ 19,685 
Net income —  —  —  1,253  —  1,253  82  1,335 
Dividends on common stock
($0.98 per share)
—  —  —  (400) —  (400) —  (400)
Stock-based compensation
expense
—  12  —  —  —  12  —  12 
Transactions in connection
with stock-based
compensation plans
—  (2) 4  —  —  2  —  2 
Distributions to noncontrolling
interests
—  —  —  —  —  —  (126) (126)
Other comprehensive
income (loss)
—  —  —  —  138  138  (12) 126 
Balance as of June 30, 2020 $ 7  $ 6,824  $ (15,760) $ 30,575  $ (1,799) $ 19,847  $ 787  $ 20,634 

See Condensed Notes to Consolidated Financial Statements.

4

VALERO ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY (Continued)
(millions of dollars)
(unaudited)
Valero Energy Corporation Stockholders’ Equity
Common
Stock 		Additional
Paid-in
Capital 		Treasury
Stock 		Retained
Earnings 		Accumulated
Other
Comprehensive
Loss 		Total Non-
controlling
Interests 		Total
Equity
Balance as of December 31, 2020 $ 7  $ 6,814  $ (15,719) $ 28,953  $ (1,254) $ 18,801  $ 841  $ 19,642 
Net income (loss) —  —  —  (542) —  (542) 212  (330)
Dividends on common stock
($1.96 per share)
—  —  —  (801) —  (801) —  (801)
Stock-based compensation
expense
—  41  —  —  —  41  —  41 
Transactions in connection
with stock-based
compensation plans
—  (36) 23  —  —  (13) —  (13)
Distributions to noncontrolling
interests
—  —  —  —  —  —  (2) (2)
Other comprehensive income —  —  —  —  165  165  2  167 
Balance as of June 30, 2021 $ 7  $ 6,819  $ (15,696) $ 27,610  $ (1,089) $ 17,651  $ 1,053  $ 18,704 
Balance as of December 31, 2019 $ 7  $ 6,821  $ (15,648) $ 31,974  $ (1,351) $ 21,803  $ 733  $ 22,536 
Net income (loss) —  —  —  (598) —  (598) 179  (419)
Dividends on common stock
($1.96 per share)
—  —  —  (801) —  (801) —  (801)
Stock-based compensation
expense
—  36  —  —  —  36  —  36 
Transactions in connection
with stock-based
compensation plans
—  (33) 18  —  —  (15) —  (15)
Open market stock purchases
—  —  (130) —  —  (130) —  (130)
Distributions to noncontrolling
interests
—  —  —  —  —  —  (127) (127)
Other comprehensive
income (loss)
—  —  —  —  (448) (448) 2  (446)
Balance as of June 30, 2020 $ 7  $ 6,824  $ (15,760) $ 30,575  $ (1,799) $ 19,847  $ 787  $ 20,634 

See Condensed Notes to Consolidated Financial Statements.

5

VALERO ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions of dollars)
(unaudited)
Six Months Ended
June 30,
2021 2020
Cash flows from operating activities:
Net loss $ (330) $ (419)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization expense 1,166  1,160 
LCM inventory valuation adjustment —  294 
Gain on sale of partial interest in MVP Terminalling, LLC (MVP) (62) — 
Deferred income tax expense (benefit) (136) 223 
Changes in current assets and current liabilities 1,251  (478)
Changes in deferred charges and credits and
other operating activities, net
67  (93)
Net cash provided by operating activities 1,956  687 
Cash flows from investing activities:
Capital expenditures (excluding variable interest entities (VIEs)) (261) (555)
Capital expenditures of VIEs:
Diamond Green Diesel Holdings LLC (DGD)
(398) (177)
Other VIEs
(35) (143)
Deferred turnaround and catalyst cost expenditures (excluding VIEs) (426) (437)
Deferred turnaround and catalyst cost expenditures of DGD (1) (10)
Proceeds from sale of partial interest in MVP 270  — 
Investments in unconsolidated joint ventures (9) (29)
Other investing activities, net 24  12 
Net cash used in investing activities (836) (1,339)
Cash flows from financing activities:
Proceeds from debt issuances and borrowings (excluding VIEs) —  1,799 
Proceeds from borrowings of VIEs 16  163 
Repayments of debt and finance lease obligations (excluding VIEs) (63) (432)
Repayments of debt of VIEs (3) (3)
Purchases of common stock for treasury (15) (147)
Common stock dividend payments (801) (801)
Distributions to noncontrolling interests (2) (127)
Other financing activities, net 2  (17)
Net cash provided by (used in) financing activities (866) 435 
Effect of foreign exchange rate changes on cash 5  (47)
Net increase (decrease) in cash and cash equivalents 259  (264)
Cash and cash equivalents at beginning of period 3,313  2,583 
Cash and cash equivalents at end of period $ 3,572  $ 2,319 

See Condensed Notes to Consolidated Financial Statements.

6




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.

These unaudited financial statements have been prepared in accordance with United States (U.S.) generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of our results for the six months ended June 30, 2021 have been included. All such adjustments are of a normal recurring nature unless disclosed otherwise. Operating results for the six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. The financial statements presented herein should be read in conjunction with the financial statements included in our annual report on Form 10-K for the year ended December 31, 2020.

The balance sheet as of December 31, 2020 has been derived from our audited financial statements as of that date. For further information, refer to our financial statements and notes thereto included in our annual report on Form 10-K for the year ended December 31, 2020.

Reclassifications
Certain prior year amounts presented in Note 11 have been reclassified to conform to the 2021 presentation. The change was due to the reclassification of amounts for income taxes receivable from prepaid expenses and other to “receivables, net.”
Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. On an ongoing basis, we review our estimates based on currently available information. Changes in facts and circumstances may result in revised estimates.
Adoption of Accounting Pronouncement
The following Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) was issued and adopted by us on January 7, 2021. Our adoption of this ASU did not have a material impact on our financial statements or related disclosures.
ASU Basis of
Adoption
2021-01 Reference Rate Reform (Topic 848): Scope Prospectively


7




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

At the onset of the COVID-19 pandemic in March 2020, governmental authorities around the world imposed restrictions, such as stay-at-home orders and other social distancing measures, to slow the spread of COVID-19. These measures resulted in significant economic disruption globally as reduced economic activity negatively impacted many businesses, including our business. We experienced a decline in the demand for most of the transportation fuels that we produce and sell, and thus also a decline in the market prices of those products, due to a decrease in the level of individual movement and travel resulting from the restrictions and general public health concerns. Some governmental authorities began lifting restrictions in the latter part of 2020 and this has continued throughout the first six months of 2021. These actions have contributed to increasing levels of individual movement and travel and a resulting increase in the demand for and market prices of our products. However, some governmental authorities continue to impose, or have recently reimposed, some level of restrictions due in part to new outbreaks, including those related to new variants of the COVID-19 virus. The distribution of vaccines beginning in late 2020 has helped decrease rates of infection and contributed to the lifting of many restrictions. The ongoing distribution of vaccines may result in the continued lifting of restrictions globally and may be seen as a key factor contributing to the ongoing restoration of public confidence, and thus also to stimulating and increasing global economic activity. However, the risk remains that vaccines may not be distributed widely on a timely basis, they may not be as effective against new variants of the virus, the distribution of some or all of the vaccines may be paused or withdrawn due to concerns with potential side effects, and/or the level of individuals’ willingness to receive a vaccine may not be as strong or as timely as needed. Based on these and other circumstances that cannot be predicted, the broader implications of the pandemic on our results of operations and financial position remain uncertain and may continue to be significant. We believe we have proactively responded to many of the known impacts of the pandemic on our business to the extent practicable and we strive to continue to do so, but there can be no assurance that these or other measures will be fully effective.

3.    INVENTORIES

Inventories consisted of the following (in millions):
June 30,
2021 		December 31,
2020
Refinery feedstocks $ 2,272  $ 1,979 
Refined petroleum products and blendstocks
3,173  3,425 
Renewable diesel feedstocks and products
28  50 
Ethanol feedstocks and products 338  297 
Materials and supplies 292  287 
Inventories $ 6,103  $ 6,038 
We compare the market value of inventories to their cost on an aggregate basis, excluding materials and supplies. In determining the market value of our inventories, we assume that feedstocks are converted into refined products, which requires us to make estimates regarding the refined products expected to be produced from those feedstocks and the conversion costs required to convert those feedstocks into refined products. We also estimate the usual and customary transportation costs required to move the inventory

8




VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
from our plants to the appropriate points of sale. We then apply an estimated selling price to our inventories. If the aggregate market value is less than the aggregate cost, we recognize a loss for the difference in our statements of income. To the extent the aggregate market value of our last-in, first-out (LIFO) inventories subsequently increases, we recognize an increase to the value of our inventories (not to exceed cost) and a gain in our statements of income.

The market value of our LIFO inventories fell below their LIFO inventory carrying amounts as of March 31, 2020, and as a result, we recorded an LCM inventory valuation reserve of $2.5 billion in order to state our inventories at market. As of June 30, 2020, our LCM inventory valuation reserve was $294 million. The change in our LCM inventory valuation reserve resulted in a net benefit of $2.2 billion and a net charge of $294 million to our results of operations during the three and six months ended June 30, 2020, respectively. As of June 30, 2021 and December 31, 2020, the replacement cost (market value) of LIFO inventories exceeded their LIFO carrying amounts by $4.1 billion and $1.3 billion, respectively.

Our non-LIFO inventories accounted for $1.0 billion and $918 million of our total inventories as of June 30, 2021 and December 31, 2020, respectively.

4.    DEBT

Public Debt
During the six months ended June 30, 2021, there was no issuance or redemption activity related to our public debt.

During the six months ended June 30, 2020, we issued $850 million of 2.700 percent Senior Notes due April 15, 2023 and $650 million of 2.850 percent Senior Notes due April 15, 2025. Proceeds from these debt issuances totaled $1.499 billion before deducting the underwriting discount and other debt issuance costs.


9




VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Credit Facilities
Summary of 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):
June 30, 2021
Facility
Amount 		Maturity Date Outstanding
Borrowings 		Letters of Credit
Issued (a) 		Availability
Committed facilities:
Valero Revolver $ 4,000  March 2024 $ —  $ 154  $ 3,846 
Canadian Revolver C$ 150  November 2021 C$ —  C$ 5  C$ 145 
Accounts receivable
sales facility (b)
$ 1,000  July 2021 $ —  n/a $ 1,000 
Letter of credit
facility
$ 50  November 2021 n/a $ —  $ 50 
Committed facilities of
VIEs (c):
DGD Revolver $ 400  March 2024 $ —  $ —  $ 400 
IEnova Revolver $ 743  February 2028 $ 614  n/a $ 129 
Uncommitted facilities:
Letter of credit
facilities
n/a n/a n/a $ 140  n/a
________________________
(a)Letters of credit issued as of June 30, 2021 expire at various times in 2021 through 2023.
(b)In July 2021, we extended the maturity date of this facility to July 2022 and increased the facility amount from $1.0 billion to $1.3 billion.
(c)Creditors of our VIEs do not have recourse against us.

We had an $875 million 364-day Revolving Credit Facility that matured on April 12, 2021 and was not renewed.

Activities under our credit facilities were as follows (in millions):
Six Months Ended
June 30,
2021 2020
Borrowings:
Accounts receivable sales facility $ — $ 300
IEnova Revolver 16 163
Repayments:
Accounts receivable sales facility — 400

DGD Revolver
In March 2021, DGD (as described in Note 6) entered into a $400 million unsecured revolving credit facility (the DGD Revolver) that matures in March 2024. DGD has the option to increase the aggregate commitments under the DGD Revolver to $550 million, subject to certain restrictions. The DGD

10




VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Revolver also provides for the issuance of letters of credit of up to $10 million. The DGD Revolver is available only to the operations of DGD, and the creditors of DGD do not have recourse against us.

Outstanding borrowings under the DGD Revolver generally bear interest, at DGD’s option, at either (i) an alternate base rate plus the applicable margin or (ii) an adjusted LIBOR rate for the applicable interest period in effect from time to time plus the applicable margin. The DGD Revolver also requires payments for customary fees, including unused commitment fees, letter of credit fees, and administrative agent fees.

During the six months ended June 30, 2021, there were no borrowings or repayments under the DGD Revolver.

IEnova Revolver
In May 2021, the borrowing capacity under the IEnova Revolver was increased from $660 million to $743 million. As of June 30, 2021 and December 31, 2020, the variable weighted-average interest rate on the IEnova Revolver was 3.546 percent and 3.870 percent, respectively. The IEnova Revolver is available only to the operations of Central Mexico Terminals (as described in Note 6), and the creditors of Central Mexico Terminals do not have recourse against us.

Other Disclosures
“Interest and debt expense, net of capitalized interest” is comprised as follows (in millions):
Three Months Ended
June 30, 		Six Months Ended
June 30,
2021 2020 2021 2020
Interest and debt expense $ 162  $ 161  $ 326  $ 306 
Less: Capitalized interest 12  19  27  39 
Interest and debt expense, net of
capitalized interest
$ 150  $ 142  $ 299  $ 267 

5.    EQUITY

Share Activity
There was no significant share activity during the six months ended June 30, 2021 and 2020.

Common Stock Dividends
On July 15, 2021, our board of directors declared a quarterly cash dividend of $0.98 per common share payable on September 2, 2021 to holders of record at the close of business on August 5, 2021.


11




VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive loss by component, net of tax, were as follows (in millions):
Three Months Ended June 30,
2021 2020
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
$ (439) $ (728) $ 2  $ (1,165) $ (1,282) $ (663) $ 8  $ (1,937)
Other comprehensive
income (loss) before
reclassifications
66  —  (7) 59  138  —  (2) 136 
Amounts reclassified
from accumulated
other comprehensive
loss
—  14  4  18  —  10  (8) 2 
Effect of exchange rates —  (1) —  (1) —  —  —  — 
Other comprehensive
income (loss)
66  13  (3) 76  138  10  (10) 138 
Balance as of end of
period
$ (373) $ (715) $ (1) $ (1,089) $ (1,144) $ (653) $ (2) $ (1,799)
Six Months Ended June 30,
2021 2020
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
$ (515) $ (737) $ (2) $ (1,254) $ (676) $ (672) $ (3) $ (1,351)
Other comprehensive
income (loss) before
reclassifications
142  1  (12) 131  (468) —  19  (449)
Amounts reclassified
from accumulated
other comprehensive
loss
—  22  13  35  —  19  (18) 1 
Effect of exchange rates —  (1) —  (1) —  —  —  — 
Other comprehensive
income (loss)
142  22  1  165  (468) 19  1  (448)
Balance as of end of
period
$ (373) $ (715) $ (1) $ (1,089) $ (1,144) $ (653) $ (2) $ (1,799)


12




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 June 30, 2021, our significant consolidated VIEs included:

•DGD, a joint venture with a subsidiary of Darling Ingredients Inc., which owns and operates a plant that processes rendered and recycled materials, including animal fats, used cooking oils, and other vegetable oils, into renewable diesel; and

•Central Mexico Terminals, which is a collective group of three subsidiaries of Infraestructura Energetica Nova, S.A.B. de C.V. (IEnova), a Mexican company and 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 our VIEs can only be used to settle their own obligations and the creditors of our VIEs have no recourse to our other assets. We do not provide financial guarantees to our VIEs. Although we have provided credit facilities to some of our 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 our 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 our consolidated VIEs, which are included in our balance sheets (in millions):
June 30, 2021
DGD Central
Mexico
Terminals 		Other Total
Assets
Cash and cash equivalents $ 196  $ —  $ 16  $ 212 
Other current assets 256  7  15  278 
Property, plant, and equipment, net 1,721  656  93  2,470 
Liabilities
Current liabilities, including current portion
of debt and finance lease obligations
$ 193  $ 672  $ 8  $ 873 
Debt and finance lease obligations,
less current portion
1  —  23  24 

13




VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2020
DGD Central
Mexico
Terminals 		Other Total
Assets
Cash and cash equivalents $ 144  $ 1  $ 16  $ 161 
Other current assets 219  24  8  251 
Property, plant, and equipment, net 1,232  590  96  1,918 
Liabilities
Current liabilities, including current portion
of debt and finance lease obligations
$ 90  $ 620  $ 8  $ 718 
Debt and finance lease obligations,
less current portion
1  —  25  26 

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

On April 19, 2021, we sold a 24.99 percent membership interest in MVP, an unconsolidated joint venture with a subsidiary of Magellan Midstream Partners, L.P. (Magellan), for $270 million. MVP owns and operates a marine terminal located adjacent to the Houston Ship Channel in Pasadena, Texas. We retained a 25.01 percent membership interest in MVP.


14




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
2021 2020 2021 2020
Three months ended June 30
Service cost $ 41  $ 35  $ 1  $ 2 
Interest cost 18  22  1  2 
Expected return on plan assets (48) (46) —  — 
Amortization of:
Net actuarial loss 20  19  —  — 
Prior service credit (5) (5) (1) (2)
Special charges 4  1  —  — 
Net periodic benefit cost $ 30  $ 26  $ 1  $ 2 
Six months ended June 30
Service cost $ 81  $ 70  $ 3  $ 3 
Interest cost 36  43  3  4 
Expected return on plan assets (96) (90) —  — 
Amortization of:
Net actuarial loss 40  37  —  — 
Prior service credit (9) (10) (3) (3)
Special charges 4  1  —  — 
Net periodic benefit cost
$ 56  $ 51  $ 3  $ 4 

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

As previously disclosed in our annual report on Form 10-K for the year ended December 31, 2020, we plan to contribute approximately $128 million to our pension plans and $22 million to our other postretirement benefit plans during 2021. During the six months ended June 30, 2021 and 2020, we contributed $31 million and $19 million, respectively, to our pension plans and $8 million and $7 million, respectively, to our other postretirement benefit plans.

8.    INCOME TAXES

During the three months ended June 30, 2021, certain statutory income tax rate changes were enacted (primarily an increase in the United Kingdom (U.K.) rate from 19 percent to 25 percent effective in 2023) that resulted in the remeasurement of our deferred tax liabilities. We recognized income tax expense of $64 million during the three and six months ended June 30, 2021, which represents the net increase in our deferred tax liabilities resulting from the change in the income tax rates.

15




VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was enacted, which resulted in significant changes to the U.S. Internal Revenue Code of 1986, as amended. Our income tax expense (benefit) for the three and six months ended June 30, 2020, therefore, included a tax benefit of $7 million and $117 million, respectively, attributable to the carryback of our 2020 tax net operating loss (NOL) to our 2015 income tax year in which we paid federal income tax at a 35 percent tax rate.

9.    EARNINGS (LOSS) PER COMMON SHARE

Earnings (loss) per common share was computed as follows (dollars and shares in millions, except per share amounts):
Three Months Ended
June 30, 		Six Months Ended
June 30,
2021 2020 2021 2020
Earnings (loss) per common share:
Net income (loss) attributable to Valero stockholders $ 162  $ 1,253  $ (542) $ (598)
Less: Income allocated to participating securities 2  4  3  3 
Net income (loss) available to common stockholders $ 160  $ 1,249  $ (545) $ (601)
Weighted-average common shares outstanding 407  406  407  407 
Earnings (loss) per common share $ 0.39  $ 3.07  $ (1.34) $ (1.48)
Earnings (loss) per common share – assuming dilution:
Net income (loss) attributable to Valero stockholders $ 162  $ 1,253  $ (542) $ (598)
Less: Income allocated to participating securities 2  4  3  3 
Net income (loss) available to common stockholders $ 160  $ 1,249  $ (545) $ (601)
Weighted-average common shares outstanding 407  406  407  407 
Effect of dilutive securities —  1  —  — 
Weighted-average common shares outstanding –
assuming dilution
407  407  407  407 
Earnings (loss) per common share – assuming dilution $ 0.39  $ 3.07  $ (1.34) $ (1.48)

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 granted under our 2011 OSIP.


16




VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10.    REVENUES AND SEGMENT INFORMATION

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

Contract Balances
Contract balances were as follows (in millions):
June 30,
2021 		December 31,
2020 		Increase
(Decrease)
Receivables from contracts with customers,
included in receivables, net
$ 5,665  $ 3,642  $ 2,023 
Contract liabilities, included in accrued expenses 40  55  (15)

During the six months ended June 30, 2021 and 2020, we recognized as revenue $40 million and $52 million that was included in contract liabilities as of December 31, 2020 and 2019, respectively. Revenue recognized related to contract liabilities during the three months ended June 30, 2021 and 2020 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 June 30, 2021, 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 marketing activities, and 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.


17




VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
•The renewable diesel segment represents the operations of DGD, our consolidated joint venture as discussed in Note 6. The principal product manufactured by DGD and sold by this segment is renewable diesel. This segment sells some renewable diesel to the refining segment, which is then sold to that segment’s customers.

•The ethanol segment includes the operations of our ethanol plants, the associated marketing activities, and logistics assets that support our ethanol operations. 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.


18




VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following tables reflect information about our operating income (loss) by reportable segment (in millions):
Refining Renewable
Diesel 		Ethanol Corporate
and
Eliminations 		Total
Three months ended June 30, 2021
Revenues:
Revenues from external customers
$ 25,968  $ 496  $ 1,284  $ —  $ 27,748 
Intersegment revenues
1  76  84  (161) — 
Total revenues
25,969  572  1,368  (161) 27,748 
Cost of sales:
Cost of materials and other
24,000  281  1,130  (162) 25,249 
Operating expenses (excluding depreciation
and amortization expense reflected below)
1,064  31  119  —  1,214 
Depreciation and amortization expense
544  12  20  —  576 
Total cost of sales
25,608  324  1,269  (162) 27,039 
Other operating expenses 12  —  —  —  12 
General and administrative expenses (excluding
depreciation and amortization expense
reflected below)
—  —  —  176  176 
Depreciation and amortization expense
—  —  —  12  12 
Operating income by segment
$ 349  $ 248  $ 99  $ (187) $ 509 
Three months ended June 30, 2020
Revenues:
Revenues from external customers
$ 9,615  $ 239  $ 543  $ —  $ 10,397 
Intersegment revenues
2  57  38  (97) — 
Total revenues
9,617  296  581  (97) 10,397 
Cost of sales:
Cost of materials and other
8,539  135  501  (96) 9,079 
LCM inventory valuation adjustment (2,137) —  (111) —  (2,248)
Operating expenses (excluding depreciation
and amortization expense reflected below)
928  20  79  —  1,027 
Depreciation and amortization expense
533  12  21  —  566 
Total cost of sales
7,863  167  490  (96) 8,424 
Other operating expenses 3  —  —  —  3 
General and administrative expenses (excluding
depreciation and amortization expense
reflected below)
—  —  —  169  169 
Depreciation and amortization expense
—  —  —  12  12 
Operating income by segment $ 1,751  $ 129  $ 91  $ (182) $ 1,789 


19




VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Refining Renewable
Diesel 		Ethanol Corporate
and
Eliminations 		Total
Six months ended June 30, 2021
Revenues:
Revenues from external customers
$ 45,437  $ 848  $ 2,269  $ —  $ 48,554 
Intersegment revenues
4  155  144  (303) — 
Total revenues
45,441  1,003  2,413  (303) 48,554 
Cost of sales:
Cost of materials and other
42,022  468  2,054  (303) 44,241 
Operating expenses (excluding depreciation
and amortization expense reflected below)
2,535  60  275  —  2,870 
Depreciation and amortization expense
1,077  24  41  —  1,142 
Total cost of sales
45,634  552  2,370  (303) 48,253 
Other operating expenses 50  —  —  —  50 
General and administrative expenses (excluding
depreciation and amortization expense
reflected below)
—  —  —  384  384 
Depreciation and amortization expense
—  —  —  24  24 
Operating income (loss) by segment $ (243) $ 451  $ 43  $ (408) $ (157)
Six months ended June 30, 2020
Revenues:
Revenues from external customers
$ 30,600  $ 545  $ 1,354  $ —  $ 32,499 
Intersegment revenues
4  110  102  (216) — 
Total revenues
30,604  655  1,456  (216) 32,499 
Cost of sales:
Cost of materials and other
27,666  265  1,314  (214) 29,031 
LCM inventory valuation adjustment 277  —  17  —  294 
Operating expenses (excluding depreciation
and amortization expense reflected below)
1,923  40  188  —  2,151 
Depreciation and amortization expense
1,069  23  43  —  1,135 
Total cost of sales
30,935  328  1,562  (214) 32,611 
Other operating expenses 5  —  —  —  5 
General and administrative expenses (excluding
depreciation and amortization expense
reflected below)
—  —  —  346  346 
Depreciation and amortization expense
—  —  —  25  25 
Operating income (loss) by segment $ (336) $ 327  $ (106) $ (373) $ (488)


20




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
June 30, 		Six Months Ended
June 30,
2021 2020 2021 2020
Refining:
Gasolines and blendstocks
$ 12,432  $ 3,993  $ 21,161  $ 12,237 
Distillates
10,875  4,379  19,456  15,042 
Other product revenues
2,661  1,243  4,820  3,321 
Total refining revenues
25,968  9,615  45,437  30,600 
Renewable diesel:
Renewable diesel
496  239  848  545 
Ethanol:
Ethanol
983  432  1,735  1,061 
Distillers grains
301  111  534  293 
Total ethanol revenues
1,284  543  2,269  1,354 
Revenues
$ 27,748  $ 10,397  $ 48,554  $ 32,499 

Total assets by reportable segment were as follows (in millions):
June 30,
2021 		December 31,
2020
Refining $ 46,843  $ 42,939 
Renewable diesel 2,215  1,659 
Ethanol 1,745  1,728 
Corporate and eliminations 4,653  5,448 
Total assets $ 55,456  $ 51,774 


21




VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11.    SUPPLEMENTAL CASH FLOW INFORMATION

In order to determine net cash provided by operating activities, net loss is adjusted by, among other things, changes in current assets and current liabilities as follows (in millions):
Six Months Ended
June 30,
2021 2020
Decrease (increase) in current assets:
Receivables, net $ (3,069) $ 4,177 
Inventories (47) 1,136 
Prepaid expenses and other (103) 56 
Increase (decrease) in current liabilities:
Accounts payable 3,979  (5,446)
Accrued expenses 284  (73)
Taxes other than income taxes payable 162  (180)
Income taxes payable 45  (148)
Changes in current assets and current liabilities $ 1,251  $ (478)

Changes in current assets and current liabilities for the six months ended June 30, 2021 were primarily due to the following:

•the increase in receivables was primarily due to an increase in commodity prices in June 2021 compared to December 2020 combined with an increase in sales volumes, partially offset by a decrease in income taxes receivable associated with the receipt of a $962 million refund related to our U.S federal income tax return for 2020; and

•the increase in accounts payable was due to an increase in commodity prices in June 2021 compared to December 2020 combined with an increase in crude oil and other feedstock volumes purchased.

Changes in current assets and current liabilities for the six months ended June 30, 2020 were primarily due to the following:

•the decrease in receivables was due to (i) a decrease of $4.1 billion as a result of a decrease in commodity prices in June 2020 compared to December 2019 combined with a decrease in sales volumes and (ii) the collection of $449 million for a blender’s tax credit receivable attributable to volumes blended during 2019 and 2018, partially offset by the recognition of an income tax receivable of approximately $440 million;

•the decrease in inventories was due to lower inventory levels combined with a decrease in commodity prices in June 2020 compared to December 2019; and

22




VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
•the decrease in accounts payable was due to a decrease in commodity prices in June 2020 compared to December 2019 combined with a decrease in crude oil and other feedstock volumes purchased.

Cash flows related to interest and income taxes were as follows (in millions):
Six Months Ended
June 30,
2021 2020
Interest paid in excess of amount capitalized,
including interest on finance leases
$ 290  $ 250 
Income taxes paid (refunded), net (882) 76 

Supplemental cash flow information related to our operating and finance leases was as follows (in millions):
Six Months Ended June 30,
2021 2020
Operating
Leases 		Finance
Leases 		Operating
Leases 		Finance
Leases
Cash paid for amounts included in the
measurement of lease liabilities:
Operating cash flows
$ 199  $ 35  $ 216  $ 48 
Financing cash flows
—  63  —  32 
Changes in lease balances resulting from new
and modified leases (a)
315  46  163  1,495 
________________________
(a)Noncash activity for the six months ended June 30, 2020 primarily included $1.4 billion for a finance lease right-of-use asset and related liability recognized in connection with the terminaling agreement with MVP.

There were no significant noncash investing and financing activities during the six months ended June 30, 2021 and 2020, except as noted in the table above.

23




VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12.    FAIR VALUE MEASUREMENTS

Recurring Fair Value Measurements
The following tables present information (in millions) about our assets and liabilities recognized at their fair values in our balance sheets categorized according to the fair value hierarchy of the inputs utilized by us to determine the fair values as of June 30, 2021 and December 31, 2020.

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.
June 30, 2021
Total
Gross
Fair
Value 		Effect of
Counter-
party
Netting 		Effect of
Cash
Collateral
Netting 		Net
Carrying
Value on
Balance
Sheet 		Cash
Collateral
Paid or
Received
Not Offset
Fair Value Hierarchy
Level 1 Level 2 Level 3
Assets
Commodity derivative
contracts
$ 564  $ —  $ —  $ 564  $ (539) $ (11) $ 14  $ — 
Physical purchase
contracts
—  37  —  37  n/a n/a 37  n/a
Foreign currency
contracts
8  —  —  8  n/a n/a 8  n/a
Investments of certain
benefit plans
78  —  9  87  n/a n/a 87  n/a
Total $ 650  $ 37  $ 9  $ 696  $ (539) $ (11) $ 146 
Liabilities
Commodity derivative
contracts
$ 603  $ —  $ —  $ 603  $ (539) $ (64) $ —  $ (124)
Environmental credit
obligations
—  37  —  37  n/a n/a 37  n/a
Physical purchase
contracts
—  1  —  1  n/a n/a 1  n/a
Foreign currency
contracts
9  —  —  9  n/a n/a 9  n/a
Total $ 612  $ 38  $ —  $ 650  $ (539) $ (64) $ 47 

24




VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2020
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
$ 403  $ —  $ —  $ 403  $ (373) $ (18) $ 12  $ — 
Physical purchase
contracts
—  13  —  13  n/a n/a 13  n/a
Investments of certain
benefit plans
74  —  8  82  n/a n/a 82  n/a
Total $ 477  $ 13  $ 8  $ 498  $ (373) $ (18) $ 107 
Liabilities
Commodity derivative
contracts
$ 405  $ —  $ —  $ 405  $ (373) $ (32) $ —  $ (44)
Environmental credit
obligations
—  96  —  96  n/a n/a 96  n/a
Foreign currency
contracts
4  —  —  4  n/a n/a 4  n/a
Total
$ 409  $ 96  $ —  $ 505  $ (373) $ (32) $ 100 

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

•Commodity derivative contracts consist primarily of exchange-traded futures, which are used to reduce the impact of price volatility on our results of operations and cash flows as discussed in Note 13. These contracts are measured at fair value using a market approach based on quoted prices from the commodity exchange and are categorized in Level 1 of the fair value hierarchy.

•Physical purchase contracts represent the fair value of fixed-price corn purchase contracts. The fair values of these purchase contracts are measured using a market approach based on quoted prices from the commodity exchange or an independent pricing service and are categorized in Level 2 of the fair value hierarchy.

•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.

•Foreign currency contracts consist of foreign currency exchange and purchase contracts and foreign currency swap agreements related to our international operations to manage our exposure to exchange rate fluctuations on transactions denominated in currencies other than the local

25




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

•Environmental credit obligations represent our liability for the purchase of (i) biofuel credits (primarily Renewable Identification Numbers (RINs) in the U.S.) needed to satisfy our obligation to blend biofuels into the products we produce and (ii) emission credits under the California Global Warming Solutions Act (the California cap-and-trade system, also known as AB 32), the U.K. Emissions Trading Scheme, and similar programs (collectively, the cap-and-trade systems). To the degree we are unable to blend biofuels (such as ethanol and biodiesel) at percentages required under the biofuel programs, we must purchase biofuel credits to comply with these programs. Under the cap-and-trade systems, we must purchase emission credits to comply with these systems. These programs are described in Note 13 under “Risk Management Activities by Type of Risk—Environmental Compliance Program Price Risk.” The liability for environmental credits is based on our deficit for such credits as of the balance sheet date, if any, after considering any credits acquired or under contract, and is equal to the product of the credits deficit and the market price of these credits as of the balance sheet date. The environmental credit obligations are categorized in Level 2 of the fair value hierarchy and are measured at fair value using a market approach based on quoted prices from an independent pricing service.

Nonrecurring Fair Value Measurements
There were no assets or liabilities that were measured at fair value on a nonrecurring basis as of June 30, 2021 and December 31, 2020.

Other Financial Instruments
Financial instruments that we recognize in our balance sheets at their carrying amounts are shown in the following table along with their associated fair values (in millions):
June 30, 2021 December 31, 2020
Fair Value
Hierarchy 		Carrying
Amount 		Fair
Value 		Carrying
Amount 		Fair
Value
Financial assets:
Cash and cash equivalents Level 1 $ 3,572  $ 3,572  $ 3,313  $ 3,313 
Financial liabilities:
Debt (excluding finance leases) Level 2 13,033  15,224  13,013  15,103 


26




VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13.    PRICE RISK MANAGEMENT ACTIVITIES

General
We are exposed to market risks primarily related to the volatility in the price of commodities, foreign currency exchange rates, and the price of credits needed to comply with various government and regulatory programs. We enter into derivative instruments to manage some of these risks, including derivative instruments related to the various commodities we purchase or produce, and foreign currency exchange and purchase contracts, as described below under “Risk Management Activities by Type of Risk.” These derivative instruments are recorded as either assets or liabilities measured at their fair values (see Note 12), as summarized below under “Fair Values of Derivative Instruments.” The effect of these derivative instruments on our income and other comprehensive income (loss) is summarized below under “Effect of Derivative Instruments on Income and Other Comprehensive Income (Loss).”

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

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

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

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


27




VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of June 30, 2021, 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
2021 2022
Derivatives designated as cash flow hedges:
Refined petroleum products:
Futures – long 456  — 
Futures – short 1,339  — 
Derivatives designated as economic hedges:
Crude oil and refined petroleum products:
Futures – long 59,485  163 
Futures – short 58,970  55 
Corn:
Futures – long 155,300  880 
Futures – short 208,715  3,680 
Physical contracts – long 52,574  2,829 

Foreign Currency Risk
We are exposed to exchange rate fluctuations on transactions related to our international 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 use foreign currency contracts. These contracts are not designated as hedging instruments for accounting purposes and therefore are classified as economic hedges. As of June 30, 2021, we had foreign currency contracts to purchase $645 million of U.S. dollars and $1.8 billion of U.S. dollar equivalent Canadian dollars. Of these commitments, $1.4 billion matured on or before July 28, 2021 and the remaining $1.0 billion will mature by September 15, 2021.

Environmental Compliance Program Price Risk
We are exposed to market risk related to the volatility in the price of credits needed to comply with various governmental and regulatory environmental compliance programs. To manage this risk, we enter into contracts to purchase these credits as needed. Some of these contracts are derivative instruments; however, we elect the normal purchase exception and do not record these contracts at their fair values. Certain of these programs require us to blend biofuels into the products we produce, and we are subject to such programs in most of the countries in which we operate. These countries set annual quotas for the percentage of biofuels that must be blended into the motor fuels consumed in these countries. As a producer of motor fuels from petroleum, we are obligated to blend biofuels into the products we produce at a rate that is at least equal to the applicable quota. To the degree we are unable to blend at the applicable rate, we must purchase biofuel credits (primarily RINs in the U.S.). We are exposed to the volatility in the market price of these credits, and we manage that risk by purchasing biofuel credits as needed. The cost of meeting our obligations under these compliance programs was

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VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
$635 million and $136 million for the three months ended June 30, 2021 and 2020, respectively, and $995 million and $248 million for the six months ended June 30, 2021 and 2020, respectively. These amounts are reflected in cost of materials and other.

We are subject to additional requirements under greenhouse gas (GHG) emission programs, including the cap-and-trade systems, as discussed in Note 12. Under these cap-and-trade systems, we purchase various GHG emission credits available on the open market. Therefore, we are exposed to the volatility in the market price of these credits. The cost to implement certain provisions of the cap-and-trade systems are significant; however, we recovered substantially all of these costs from our customers for the three and six months ended June 30, 2021 and 2020 and expect to continue to recover the majority of these costs in the future. For the three and six months ended June 30, 2021 and 2020, the net cost of meeting our obligations under these compliance programs was immaterial.

Fair Values of Derivative Instruments
The following tables provide information about the fair values of our derivative instruments as of June 30, 2021 and December 31, 2020 (in millions) and the line items in the balance sheets in which the fair values are reflected. See Note 12 for additional information related to the fair values of our derivative instruments.

As indicated in Note 12, we net fair value amounts recognized for multiple similar derivative contracts executed with the same counterparty under master netting arrangements, including cash collateral assets and obligations. The following table, however, is presented on a gross asset and gross liability basis, which results in the reflection of certain assets in liability accounts and certain liabilities in asset accounts:
Balance Sheet
Location 		June 30, 2021 December 31, 2020
Asset
Derivatives 		Liability
Derivatives 		Asset
Derivatives 		Liability
Derivatives
Derivatives designated
as hedging instruments:
Commodity contracts
Receivables, net $ 6  $ 16  $ 4  $ 17 
Derivatives not designated
as hedging instruments:
Commodity contracts
Receivables, net $ 558  $ 587  $ 399  $ 388 
Physical purchase contracts
Inventories 37  1  13  — 
Foreign currency contracts
Receivables, net 8  —  —  — 
Foreign currency contracts
Accrued expenses —  9  —  4 
Total
$ 603  $ 597  $ 412  $ 392 

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VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 of directors. 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.
Effect of Derivative Instruments on Income and Other Comprehensive Income (Loss)
The following table provides information about the gain (loss) recognized in income and other comprehensive income (loss) due to fair value adjustments of our cash flow hedges (in millions):
Derivatives in
Cash Flow Hedging
Relationships 		Location of Gain (Loss)
Recognized in Income
on Derivatives 		Three Months Ended
June 30, 		Six Months Ended
June 30,
2021 2020 2021 2020
Commodity contracts:
Gain (loss) recognized in
other comprehensive
income (loss) on
derivatives
n/a $ (18) $ (5) $ (31) $ 50 
Gain (loss) reclassified
from accumulated
other comprehensive
loss into income
Revenues (11) 19  (34) 45 

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 six months ended June 30, 2021 and 2020. For the three and six months ended June 30, 2021 and 2020, cash flow hedges primarily related to forward sales of renewable diesel. The estimated deferred after-tax loss that is expected to be reclassified into revenues over the next 12 months as a result of the hedged transactions that are forecasted to occur as of June 30, 2021 was immaterial. For the three and six months ended June 30, 2021 and 2020, there were no amounts reclassified from accumulated other comprehensive loss into income as a result of the discontinuance of cash flow hedge accounting. The changes in accumulated other comprehensive loss by component, net of tax, for the three and six months ended June 30, 2021 and 2020 are described in Note 5.


30




VALERO ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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
June 30, 		Six Months Ended
June 30,
2021 2020 2021 2020
Commodity contracts Revenues $ 13  $ 9  $ 20  $ 1 
Commodity contracts Cost of materials
and other 		21  140  (57) (12)
Commodity contracts Operating expenses
(excluding depreciation
and amortization expense) 		2  4  3  2 
Foreign currency contracts Cost of materials
and other 		6  —  (2) 49 
Foreign currency contracts Other income, net 53  60  83  (105)

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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 the heading “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,” “will,” “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 the COVID-19 pandemic, government restrictions in response thereto, variants of the COVID-19 virus, vaccine distribution and administration levels, economic activity, and global crude oil production levels, and any expectations we may have with respect thereto, including with respect to our responses thereto, our operations and the production levels of our assets;
•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 refined petroleum product inventories and storage capacity;
•expectations regarding the levels of, and timing with respect to, the production and operations at our existing refineries and plants and projects under construction;
•our anticipated level of capital investments, including deferred turnaround and catalyst cost expenditures, our expected allocation between, and/or within, growth capital expenditures and maintenance capital expenditures, capital expenditures for environmental and other purposes, and joint venture investments, the expected timing applicable to such capital investments and any related projects, and the effect of those capital investments on our results of operations and financial position;
•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 our ability to maintain sufficient liquidity;
•our evaluation of, and expectations regarding, any future activity under our share repurchase 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 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 results of operations and financial position;

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•the effect of general economic and other conditions on refining, renewable diesel, and ethanol industry fundamentals;
•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 publicly announced GHG emissions reduction/offset targets and our current and any future carbon transition 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:

•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, vaccine distribution and administration levels, and the adverse impacts of the foregoing on our business, financial condition, results of operations, and liquidity, including, but not limited to, our growth, operating costs, supply chain, labor availability, logistical capabilities, customer demand for our products, and industry demand generally, margins, production and throughput capacity, utilization, inventory value, cash position, taxes, the price of our securities and trading markets with respect thereto, our ability to access capital markets, 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;
•political and economic conditions in nations 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) to agree on and to maintain crude oil price and production controls;
•the level of consumer demand, consumption and overall economic activity, including seasonal fluctuations;
•refinery, renewable diesel plant, or ethanol plant overcapacity or undercapacity;
•our ability to successfully integrate any acquired businesses into our operations;
•the risk that any divestitures may not provide the anticipated benefits or may result in unforeseen detriments;

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•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;
•accidents, unscheduled shutdowns, weather events, civil unrest, expropriation of assets, and other economic, diplomatic, legislative, 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 GHG emissions more generally;
•the levels of government subsidies for, and 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;
•the volatility in the market price of biofuel credits (primarily RINs needed to comply with the U.S. federal Renewable Fuel Standard (RFS)) and GHG emission credits needed to comply with the requirements of various GHG emission programs;
•delay of, cancellation of, or failure to implement planned capital projects and realize the various assumptions and benefits projected for such projects or cost overruns in constructing such planned capital projects;
•earthquakes, hurricanes, tornadoes, and other weather events, which can unforeseeably affect the price or availability of electricity, natural gas, crude oil, rendered and recycled materials, 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 costs, in excess of any reserves or insurance coverage;
•legislative or regulatory action, including the introduction or enactment of legislation or rulemakings by governmental authorities, such as tariffs, environmental regulations, changes to income tax rates, introduction of a global minimum tax, tax changes or restrictions impacting the foreign repatriation of cash, actions implemented under the California cap-and-trade system and similar programs, changes to volume requirements or other obligations or exemptions under the RFS, and actions arising from the U.S. Environmental Protection Agency’s (EPA’s) or other governmental 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 expropriation of assets, failure of foreign governments and state-owned entities to honor their contracts, property disputes, 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;
•the operating, financing, and distribution decisions of our joint ventures or joint venture partners that we do not control;

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•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 campaigns and negative publicity commenced by investors, stakeholders, or other interested parties;
•overall economic conditions, including the stability and liquidity of financial markets; 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, 2020.

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 the 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 the 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 U.S. GAAP. These non-GAAP financial measures include adjusted operating income (loss) (including adjusted operating income (loss) 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 (e) beginning on page 55 for reconciliations of adjusted operating income (loss) (including adjusted operating income (loss) for each of our reportable segments, as applicable) and refining, renewable diesel, and ethanol segment margin to their most directly comparable U.S. GAAP financial measures. Also in note (e), we disclose the reasons why we believe our use of such non-GAAP financial measures provides useful information. See the table on page 62 for a reconciliation of capital investments attributable to Valero to its most directly comparable U.S. GAAP financial measure. Beginning on page 61, we disclose the reasons why we believe our use of this non-GAAP financial measure provides useful information.

IMPACT OF THE COVID-19 PANDEMIC TO OUR BUSINESS

The COVID-19 pandemic has negatively impacted our business. Although we have experienced improvements in 2021, the broader implications of the pandemic on our results of operations and financial position remain uncertain. Information about the uncertainties of the COVID-19 pandemic on our business is discussed in Note 2 of Condensed Notes to Consolidated Financial Statements.


35

OVERVIEW AND OUTLOOK

Overview
Business Operations Update
Our business continued to recover throughout the second quarter of 2021 as a result of ongoing improvements in the demand for and market prices of gasoline and diesel, with both factors near pre-pandemic levels since March 2021. In fact, we recently experienced demand for gasoline and diesel in excess of pre-pandemic levels, primarily in our U.S. Gulf Coast and U.S. Mid-Continent regions. Jet fuel demand also continued to improve throughout the second quarter of 2021, although at a slower pace than other products we produce relative to pre-pandemic levels. These ongoing improvements in demand and an associated increase in refining margins contributed to us reporting net income attributable to Valero stockholders of $162 million for the second quarter of 2021. This is the first quarterly period we have reported positive earnings since the early days of the pandemic.

Despite improved demand, refining margins have improved more slowly. The improvement in refining margins during the first six months of 2021 in the U.S., which is our largest market, has been slower primarily due to the effects of ample supply from international markets where demand recovery has been slower than in the U.S. The U.S. market for transportation fuels has attracted higher levels of this ample international supply due in part to supply disruptions in the U.S. that occurred during the first six months of 2021. In February 2021, the operations of many refineries in the U.S., including certain of our refineries, were temporarily disrupted due to the negative effects arising out of Winter Storm Uri. This contributed to a significant depletion of transportation fuel inventories throughout much of the country. Additionally, in May 2021, the Colonial Pipeline cybersecurity incident interrupted supply to much of the eastern U.S. for six days. As a result of both of these events, the U.S. market attracted higher levels of supply from international markets, which moderated price increases and associated refining margins in the U.S.

While we reported positive earnings for the second quarter of 2021, we generated a net loss attributable to Valero stockholders of $542 million for the first six months of 2021. The factor primarily impacting these results was a significant increase in the cost of electricity and natural gas at certain of our refineries and ethanol plants arising out of Winter Storm Uri. We incurred excess energy costs estimated at $579 million, or $467 million after taxes, in February 2021. Our results for the second quarter of 2021 and the first six months of 2021 are more fully discussed in “Second Quarter Results” and “First Six Months Results” below and in “RESULTS OF OPERATIONS” beginning on page 39.

Despite the lingering, but improving, impacts of the pandemic on our operations and the negative effects arising out of Winter Storm Uri on the energy costs at certain of our refineries and ethanol plants, our operations generated $2.0 billion of cash during the first six months of 2021. Almost half of that amount, however, was due to the receipt of our 2020 U.S. federal income tax refund of $962 million. In addition, we received proceeds of $270 million from the sale of a partial interest in MVP, made $1.1 billion in capital investments, and paid $801 million in dividends during the six-month period. As a result, our cash and cash equivalents increased by $259 million, from $3.3 billion as of December 31, 2020 to $3.6 billion as of June 30, 2021. We did not issue any debt or make any borrowings under our credit facilities (excluding the committed facilities of our VIEs) during the first six months of 2021, and we had $8.4 billion in liquidity as of June 30, 2021. The components of our liquidity, summary and description of our cash flows, and description of other matters impacting our liquidity and capital resources can be found under “LIQUIDITY AND CAPITAL RESOURCES” beginning on page 59.


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Second Quarter Results
For the second quarter of 2021, we reported net income attributable to Valero stockholders of $162 million compared to $1.3 billion for the second quarter of 2020. The decrease of $1.1 billion was primarily due to lower operating income of $1.3 billion, partially offset by lower income tax expense of $170 million. The decrease in operating income between the periods was largely due to the favorable impact from a $2.2 billion LCM inventory valuation adjustment in the second quarter of 2020, as described in Note 3 of Condensed Notes to Consolidated Financial Statements and in note (b) on page 55.

While our operating income decreased by $1.3 billion in the second quarter of 2021 compared to the second quarter of 2020, adjusted operating income increased by $977 million. Adjusted operating income excludes the adjustments reflected in the table in note (e) on page 58.

The $977 million increase in adjusted operating income was primarily due to the following:

•Refining segment. Refining segment adjusted operating income increased by $744 million primarily due to higher gasoline and distillate margins and higher throughput volumes, partially offset by the higher costs of biofuel credits, lower discounts on crude oils, and higher operating expenses (excluding depreciation and amortization expense). This is more fully described on pages 43 and 44.

•Renewable diesel segment. Renewable diesel segment operating income increased by $119 million primarily due to higher renewable diesel prices, partially offset by higher feedstock costs and an unfavorable impact from commodity derivative instruments associated with our price risk management activities. This is more fully described on pages 44 and 45.

•Ethanol segment. Ethanol segment adjusted operating income also increased by $119 million primarily due to higher ethanol and corn related co-product prices and higher production volumes, partially offset by higher corn prices. This is more fully described on pages 45 and 46.

First Six Months Results
For the first six months of 2021, we reported a net loss attributable to Valero stockholders of $542 million compared to $598 million for the first six months of 2020. The improvement of $56 million was primarily due to a lower operating loss of $331 million, partially offset by higher income tax expense of $298 million. The decrease in the operating loss between the periods was largely due to a $294 million LCM inventory valuation adjustment in the first six months of 2020, which is described in Note 3 of Condensed Notes to Consolidated Financial Statements and in note (b) on page 55.

While our operating loss decreased by $331 million in the first six months of 2021 compared to the first six months of 2020, the adjusted operating loss decreased by $82 million. The adjusted operating loss excludes the adjustments reflected in the table in note (e) on page 58.

The $82 million decrease in the adjusted operating loss was primarily due to the following:

•Refining segment. Refining segment adjusted operating loss increased by $139 million primarily due to the higher costs of biofuel credits, estimated excess energy costs arising out of Winter Storm Uri, and lower discounts on crude oils and other feedstocks, partially offset by higher gasoline and distillate margins. This is more fully described on pages 51 and 52.

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•Renewable diesel segment. Renewable diesel segment operating income increased by $124 million primarily due to higher renewable diesel prices, partially offset by higher feedstock costs and an unfavorable impact from commodity derivative instruments associated with our price risk management activities. This is more fully described on page 53.

•Ethanol segment. Ethanol segment adjusted operating income increased by $132 million primarily due to higher ethanol and corn related co-product prices and higher production volumes, partially offset by higher corn prices and estimated excess energy costs arising out of Winter Storm Uri. This is more fully described on pages 54 and 55.

Outlook
As previously discussed, many uncertainties remain with respect to the COVID-19 pandemic, and while it is difficult to predict the ultimate economic impacts that the pandemic may have on us and how quickly we will continue to recover as the pandemic subsides, we have noted several factors below that have impacted or may impact our results of operations during the third quarter of 2021.

•Gasoline, jet fuel, and diesel prices are expected to continue to improve with industry-wide inventory levels returning to historical levels and continued recovery in product demand.

•Sour crude oil discounts are expected to continue to improve as OPEC production increases in response to any further growth in global oil demand.

•Renewable diesel margins are expected to moderate somewhat from the record high levels achieved in the second quarter of 2021.

•Ethanol margins are expected to decline from the levels achieved in the second quarter of 2021 as domestic inventory levels rise.


38

RESULTS OF OPERATIONS

The following tables, including the reconciliations of non-GAAP financial measures to their most directly comparable U.S. GAAP financial measures in note (e) beginning on page 55, highlight our results of operations, our operating performance, and market reference prices and margins that directly impact our operations.

Second Quarter Results -
Financial Highlights By Segment and Total Company
(millions of dollars)
Three Months Ended June 30, 2021
Refining Renewable
Diesel 		Ethanol Corporate
and
Eliminations 		Total
Revenues:
Revenues from external customers
$ 25,968  $ 496  $ 1,284  $ —  $ 27,748 
Intersegment revenues
1  76  84  (161) — 
Total revenues
25,969  572  1,368  (161) 27,748 
Cost of sales:
Cost of materials and other 24,000  281  1,130  (162) 25,249 
Operating expenses (excluding depreciation and
amortization expense reflected below)
1,064  31  119  —  1,214 
Depreciation and amortization expense 544  12  20  —  576 
Total cost of sales
25,608  324  1,269  (162) 27,039 
Other operating expenses 12  —  —  —  12 
General and administrative expenses (excluding
depreciation and amortization expense reflected
below)
—  —  —  176  176 
Depreciation and amortization expense —  —  —  12  12 
Operating income by segment $ 349  $ 248  $ 99  $ (187) 509 
Other income, net (c) 102 
Interest and debt expense, net of capitalized
interest
(150)
Income before income tax expense 461 
Income tax expense (d) 169 
Net income 292 
Less: Net income attributable to noncontrolling
interests
130 
Net income attributable to
Valero Energy Corporation stockholders
$ 162 
___________________
See note references on pages 55 through 58.

39

Second Quarter Results -
Financial Highlights By Segment and Total Company (continued)
(millions of dollars)
Three Months Ended June 30, 2020
Refining Renewable
Diesel 		Ethanol Corporate
and
Eliminations 		Total
Revenues:
Revenues from external customers
$ 9,615  $ 239  $ 543  $ —  $ 10,397 
Intersegment revenues
2  57  38  (97) — 
Total revenues
9,617  296  581  (97) 10,397 
Cost of sales:
Cost of materials and other 8,539  135  501  (96) 9,079 
LCM inventory valuation adjustment (b) (2,137) —  (111) —  (2,248)
Operating expenses (excluding depreciation and
amortization expense reflected below)
928  20  79  —  1,027 
Depreciation and amortization expense
533  12  21  —  566 
Total cost of sales
7,863  167  490  (96) 8,424 
Other operating expenses 3  —  —  —  3 
General and administrative expenses (excluding
depreciation and amortization expense reflected
below)
—  —  —  169  169 
Depreciation and amortization expense —  —  —  12  12 
Operating income by segment $ 1,751  $ 129  $ 91  $ (182) 1,789 
Other income, net 27 
Interest and debt expense, net of capitalized
interest
(142)
Income before income tax expense 1,674 
Income tax expense 339 
Net income 1,335 
Less: Net income attributable to noncontrolling
interests
82 
Net income attributable to
Valero Energy Corporation stockholders
$ 1,253 
___________________
See note references on pages 55 through 58.

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Second Quarter Results -
Average Market Reference Prices and Differentials
Three Months Ended June 30,
2021 2020 Change
Refining
Feedstocks (dollars per barrel)
Brent crude oil
$ 69.00  $ 33.22  $ 35.78 
Brent less West Texas Intermediate (WTI) crude oil 2.91  5.42  (2.51)
Brent less Alaska North Slope (ANS) crude oil
0.56  2.85  (2.29)
Brent less Louisiana Light Sweet (LLS) crude oil
1.05  2.95  (1.90)
Brent less Argus Sour Crude Index (ASCI) crude oil
3.34  4.14  (0.80)
Brent less Maya crude oil
6.13  9.05  (2.92)
LLS crude oil
67.95  30.27  37.68 
LLS less ASCI crude oil
2.29  1.19  1.10 
LLS less Maya crude oil
5.08  6.10  (1.02)
WTI crude oil
66.09  27.80  38.29 
Natural gas (dollars per million British Thermal Units
(MMBtu))
2.93  1.65  1.28 
Product margins (dollars per barrel)
U.S. Gulf Coast:
Conventional Blendstock of Oxygenate Blending
(CBOB) gasoline less Brent
14.43  0.51  13.92 
Ultra-low-sulfur (ULS) diesel less Brent
12.99  4.89  8.10 
Propylene less Brent
(20.41) (12.71) (7.70)
CBOB gasoline less LLS
15.48  3.46  12.02 
ULS diesel less LLS
14.04  7.84  6.20 
Propylene less LLS
(19.36) (9.76) (9.60)
U.S. Mid-Continent:
CBOB gasoline less WTI
19.93  6.19  13.74 
ULS diesel less WTI
18.42  11.38  7.04 
North Atlantic:
CBOB gasoline less Brent
17.37  3.03  14.34 
ULS diesel less Brent
15.07  6.94  8.13 
U.S. West Coast:
California Reformulated Gasoline Blendstock of
Oxygenate Blending (CARBOB) 87 gasoline less ANS
27.18  9.43  17.75 
California Air Resources Board (CARB) diesel less ANS
15.28  10.36  4.92 
CARBOB 87 gasoline less WTI
29.53  12.00  17.53 
CARB diesel less WTI
17.63  12.93  4.70 

41

Second Quarter Results -
Average Market Reference Prices and Differentials, (continued)
Three Months Ended June 30,
2021 2020 Change
Renewable diesel
New York Mercantile Exchange ULS diesel
(dollars per gallon)
$ 2.00  $ 0.97  $ 1.03 
Biodiesel RIN (dollars per RIN) 1.71  0.54  1.17 
California Low-Carbon Fuel Standard (dollars per metric ton) 184.82  201.01  (16.19)
Chicago Board of Trade (CBOT) soybean oil
(dollars per pound)
0.63  0.27  0.36 
Ethanol
CBOT corn (dollars per bushel) 6.58  3.23  3.35 
New York Harbor ethanol (dollars per gallon) 2.38  1.17  1.21 

Total Company, Corporate, and Other
The following table includes selected financial data for the total company, corporate, and other for the second quarter of 2021 and 2020. The selected financial data is derived from the Financial Highlights by Segment and Total Company tables on pages 39 and 40, unless otherwise noted.
Three Months Ended June 30,
2021 2020 Change
Revenues $ 27,748  $ 10,397  $ 17,351 
Cost of sales (see note (b) on page 55) 27,039  8,424  18,615 
LCM inventory valuation adjustment (see note (b) on page 55) —  (2,248) 2,248 
Operating income 509  1,789  (1,280)
Adjusted operating income (loss) (see note (e) on page 58) 521  (456) 977 
Other income, net (see note (c) on page 55) 102  27  75 
Income tax expense (see note (d) on page 55) 169  339  (170)
Net income attributable to noncontrolling interests 130  82  48 

Revenues increased by $17.4 billion in the second quarter of 2021 compared to the second quarter of 2020 primarily due to increases in refined petroleum product prices, as well as an increase in the volume of refined petroleum products sold by our refining segment. This increase in revenues was more than offset by an increase in cost of sales of $18.6 billion, which resulted in a $1.3 billion decrease in operating income, from $1.8 billion in the second quarter of 2020 to $509 million in the second quarter of 2021. The decrease in operating income was primarily due to the favorable effect on cost of sales in the second quarter of 2020 from a $2.2 billion LCM inventory valuation adjustment, which is described in Note 3 of Condensed Notes to Consolidated Financial Statements and in note (b) on page 55.

Adjusted operating income increased by $977 million, from an adjusted operating loss of $456 million in the second quarter of 2020 to adjusted operating income of $521 million in the second quarter of 2021. The components of this increase in adjusted operating income are discussed by segment in the segment analysis that follows.

42

“Other income, net” increased by $75 million in the second quarter of 2021 compared to the second quarter of 2020 primarily due to the gain on the sale of a 24.99 percent membership interest in MVP of $62 million, partially offset by an asset impairment loss of $24 million resulting from the cancellation of a pipeline extension project by our unconsolidated joint venture, Diamond Pipeline LLC. These matters are more fully discussed in note (c) on page 55.

Income tax expense decreased by $170 million in the second quarter of 2021 compared to the second quarter of 2020 primarily as a result of lower income before income tax expense. Our effective tax rate was 37 percent for the second quarter of 2021 compared to 20 percent for the second quarter of 2020. The effective tax rate for the second quarter of 2021 was impacted by a $64 million charge associated with a net increase in our deferred tax liabilities resulting from a change in certain statutory tax rates, as discussed in note (d) on page 55. The effective tax rate for the second quarter of 2020 was impacted by the U.S. federal tax NOL for 2020, which was carried back to 2015 when the U.S. statutory rate was 35 percent. See Note 8 of Condensed Notes to Consolidated Financial Statements for additional information on these tax matters.

Net income attributable to noncontrolling interests increased by $48 million in the second quarter of 2021 compared to the second quarter of 2020 primarily due to higher earnings associated with DGD.

Refining Segment Results
The following table includes selected financial and operating data of our refining segment for the second quarter of 2021 and 2020. The selected financial data is derived from the Financial Highlights by Segment and Total Company tables on pages 39 and 40, respectively, unless otherwise noted.
Three Months Ended June 30,
2021 2020 Change
Operating income $ 349  $ 1,751  $ (1,402)
Adjusted operating income (loss) (see note (e) on page 57) 361  (383) 744 
Refining margin (see note (e) on page 56) $ 1,969  $ 1,078  $ 891 
Operating expenses (excluding depreciation and amortization
expense reflected below)
1,064  928  136 
Depreciation and amortization expense 544  533  11 
Throughput volumes (thousand barrels per day) (see note (f)
on page 58)
2,835  2,321  514 
Refining segment operating income decreased by $1.4 billion in the second quarter of 2021; however refining segment adjusted operating income, which excludes the adjustments in the table in note (e) on page 57, increased by $744 million in the second quarter of 2021 compared to the second quarter of 2020. The components of this increase in the adjusted results, along with the reasons for the changes in those components, are outlined below.

•Refining segment margin increased by $891 million in the second quarter of 2021 compared to the second quarter of 2020.

Refining segment margin is primarily affected by the prices of the refined petroleum products 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 had a material impact on the

43

change in our refining segment margin in the second quarter of 2021 compared to the second quarter of 2020.

The increase in refining segment margin was primarily due to the following:

◦An increase in gasoline margins had a favorable impact of approximately $1.1 billion.

◦An increase in distillate (primarily diesel) margins had a favorable impact of approximately $439 million.

◦An increase in throughput volumes of 514,000 barrels per day had a favorable impact of approximately $239 million. As noted in “OVERVIEW AND OUTLOOK—Overview—Business Operations Update” on page 36, the impacts of the COVID-19 pandemic have continued to subside so far in 2021. As a result, we have increased production of most of our products at our refineries to align with improvements in demand to near pre-pandemic levels.

◦An increase in the cost of biofuel credits (primarily RINs in the U.S.) had an unfavorable impact of $499 million. See Note 13 of Condensed Notes to Consolidated Financial Statements for additional information on our government and regulatory compliance programs.

◦Lower discounts on crude oils had an unfavorable impact of approximately $492 million.

•Refining segment operating expenses (excluding depreciation and amortization expense) increased by $136 million primarily due to higher natural gas and electricity costs of $66 million, higher chemical and catalyst costs of $28 million, and an increase in certain employee compensation expenses of $19 million.

Renewable Diesel Segment Results
The following table includes selected financial and operating data of our renewable diesel segment for the second quarter of 2021 and 2020. The selected financial data is derived from the Financial Highlights by Segment and Total Company tables on pages 39 and 40, respectively, unless otherwise noted.
Three Months Ended June 30,
2021 2020 Change
Operating income
$ 248  $ 129  $ 119 
Renewable diesel margin (see note (e) on page 56) $ 291  $ 161  $ 130 
Operating expenses (excluding depreciation and amortization
expense reflected below)
31  20  11 
Depreciation and amortization expense 12  12  — 
Sales volumes (thousand gallons per day) (see note (f)
on page 58)
923  795  128 


44

Renewable diesel segment operating income increased by $119 million in the second quarter of 2021 compared to the second quarter of 2020. This increase was primarily due to higher renewable diesel segment margin.

Renewable diesel segment margin increased by $130 million in the second quarter of 2021 compared to the second quarter of 2020. Renewable diesel segment margin is primarily affected by the price of 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 had a material impact on the change in our renewable diesel segment margin in the second quarter of 2021 compared to the second quarter of 2020.

The increase in renewable diesel segment margin was primarily due to the following:

•Higher renewable diesel prices had a favorable impact of approximately $258 million.

•An increase in the cost of the feedstocks we process had an unfavorable impact of approximately $107 million.

•Price risk management activities had an unfavorable impact of $30 million. We recognized a hedge loss of $11 million in the second quarter of 2021 compared to a hedge gain of $19 million in the second quarter of 2020.

Ethanol Segment Results
The following table includes selected financial and operating data of our ethanol segment for the second quarter of 2021 and 2020. The selected financial data is derived from the Financial Highlights by Segment and Total Company tables on pages 39 and 40, respectively, unless otherwise noted.
Three Months Ended June 30,
2021 2020 Change
Operating income $ 99  $ 91  $ 8 
Adjusted operating income (loss) (see note (e) on page 57) 99  (20) 119 
Ethanol margin (see note (e) on page 57) $ 238  $ 80  $ 158 
Operating expenses (excluding depreciation and amortization
expense reflected below)
119  79  40 
Depreciation and amortization expenses 20  21  (1)
Production volumes (thousand gallons per day) (see note (f)
on page 58)
4,203  2,316  1,887 

Ethanol segment operating income increased by $8 million in the second quarter of 2021; however, ethanol segment adjusted operating income, which excludes the adjustment in the table in note (e) on page 57, increased by $119 million in the second quarter of 2021 compared to the second quarter of 2020. 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 $158 million in the second quarter of 2021 compared to the second quarter of 2020.


45

Ethanol segment margin is primarily affected by prices of 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 had a material impact on the change in our ethanol segment margin in the second quarter of 2021 compared to the second quarter of 2020.

The increase in ethanol segment margin was primarily due to the following:

◦Higher ethanol prices had a favorable impact of approximately $242 million.

◦An increase in production volumes of 1.9 million gallons per day had a favorable impact of approximately $113 million. As noted in “OVERVIEW AND OUTLOOK—Overview—Business Operations Update” on page 36, the impacts of the COVID-19 pandemic have continued to subside so far in 2021. As a result, we have increased the aggregate production of ethanol across our plants to align with improvements in demand to near pre-pandemic levels.

◦Higher prices on the co-products that we produce, primarily distillers grains, had a favorable impact of approximately $56 million.

◦Higher corn prices had an unfavorable impact of approximately $253 million.

•Ethanol segment operating expenses (excluding depreciation and amortization expense) increased by $40 million primarily due to higher natural gas and electricity costs of $24 million and higher chemical and catalyst costs of $15 million.


46

First Six Months Results -
Financial Highlights By Segment and Total Company
(millions of dollars)
Six Months Ended June 30, 2021
Refining Renewable
Diesel 		Ethanol Corporate
and
Eliminations 		Total
Revenues:
Revenues from external customers
$ 45,437  $ 848  $ 2,269  $ —  $ 48,554 
Intersegment revenues
4  155  144  (303) — 
Total revenues
45,441  1,003  2,413  (303) 48,554 
Cost of sales:
Cost of materials and other (a) 42,022  468  2,054  (303) 44,241 
Operating expenses (excluding depreciation and
amortization expense reflected below) (a)
2,535  60  275  —  2,870 
Depreciation and amortization expense 1,077  24  41  —  1,142 
Total cost of sales
45,634  552  2,370  (303) 48,253 
Other operating expenses 50  —  —  —  50 
General and administrative expenses (excluding
depreciation and amortization expense reflected
below)
—  —  —  384  384 
Depreciation and amortization expense —  —  —  24  24 
Operating income (loss) by segment $ (243) $ 451  $ 43  $ (408) (157)
Other income, net (c) 147 
Interest and debt expense, net of capitalized
interest
(299)
Loss before income tax expense (309)
Income tax expense (d) 21 
Net loss (330)
Less: Net income attributable to noncontrolling
interests
212 
Net loss attributable to
Valero Energy Corporation stockholders
$ (542)
________________________
See note references on pages 55 through 58.

47

First Six Months Results -
Financial Highlights By Segment and Total Company (continued)
(millions of dollars)
Six Months Ended June 30, 2020
Refining Renewable
Diesel 		Ethanol Corporate
and
Eliminations 		Total
Revenues:
Revenues from external customers
$ 30,600  $ 545  $ 1,354  $ —  $ 32,499 
Intersegment revenues
4  110  102  (216) — 
Total revenues
30,604  655  1,456  (216) 32,499 
Cost of sales:
Cost of materials and other
27,666  265  1,314  (214) 29,031 
LCM inventory valuation adjustment (b) 277  —  17  —  294 
Operating expenses (excluding depreciation and
amortization expense reflected below)
1,923  40  188  —  2,151 
Depreciation and amortization expense
1,069  23  43  —  1,135 
Total cost of sales
30,935  328  1,562  (214) 32,611 
Other operating expenses 5  —  —  —  5 
General and administrative expenses (excluding
depreciation and amortization expense reflected
below)
—  —  —  346  346 
Depreciation and amortization expense —  —  —  25  25 
Operating income (loss) by segment $ (336) $ 327  $ (106) $ (373) (488)
Other income, net 59 
Interest and debt expense, net of capitalized
interest
(267)
Loss before income tax benefit (696)
Income tax benefit (277)
Net loss (419)
Less: Net income attributable to noncontrolling
interests
179 
Net loss attributable to
Valero Energy Corporation stockholders
$ (598)
________________________
See note references on pages 55 through 58.


48

First Six Months Results -
Average Market Reference Prices and Differentials
Six Months Ended June 30,
2021 2020 Change
Refining
Feedstocks (dollars per barrel)
Brent crude oil
$ 65.05  $ 42.06  $ 22.99 
Brent less WTI crude oil 3.09  5.17  (2.08)
Brent less ANS crude oil 0.45  1.18  (0.73)
Brent less LLS crude oil 1.08  2.85  (1.77)
Brent less ASCI crude oil 3.17  4.58  (1.41)
Brent less Maya crude oil
5.42  9.40  (3.98)
LLS crude oil
63.97  39.21  24.76 
LLS less ASCI crude oil
2.09  1.73  0.36 
LLS less Maya crude oil
4.34  6.55  (2.21)
WTI crude oil
61.96  36.89  25.07 
Natural gas (dollars per MMBtu) 11.30  1.74  9.56 
Product margins (dollars per barrel)
U.S. Gulf Coast:
CBOB gasoline less Brent 12.28  1.44  10.84 
ULS diesel less Brent 11.59  8.08  3.51 
Propylene less Brent
(0.96) (16.88) 15.92 
CBOB gasoline less LLS
13.36  4.29  9.07 
ULS diesel less LLS
12.67  10.93  1.74 
Propylene less LLS
0.12  (14.03) 14.15 
U.S. Mid-Continent:
CBOB gasoline less WTI
17.38  6.94  10.44 
ULS diesel less WTI
17.82  14.35  3.47 
North Atlantic:
CBOB gasoline less Brent
14.47  3.66  10.81 
ULS diesel less Brent
13.48  10.62  2.86 
U.S. West Coast:
CARBOB 87 gasoline less ANS 20.87  8.63  12.24 
CARB diesel less ANS 14.71  13.79  0.92 
CARBOB 87 gasoline less WTI
23.51  12.62  10.89 
CARB diesel less WTI
17.35  17.78  (0.43)


49

First Six Months Results -
Average Market Reference Prices and Differentials, (continued)
Six Months Ended June 30,
2021 2020 Change
Renewable diesel
New York Mercantile Exchange ULS diesel
(dollars per gallon)
$ 1.87  $ 1.26  $ 0.61 
Biodiesel RIN (dollars per RIN) 1.44  0.50  0.94 
California Low-Carbon Fuel Standard (dollars per metric ton) 190.06  203.52  (13.46)
CBOT soybean oil (dollars per pound) 0.56  0.29  0.27 
Ethanol
CBOT corn (dollars per bushel) 5.98  3.49  2.49 
New York Harbor ethanol (dollars per gallon) 2.08  1.25  0.83 

Total Company, Corporate, and Other
The following table includes selected financial data for the total company, corporate, and other for the first six months of 2021 and 2020. The selected financial data is derived from the Financial Highlights by Segment and Total Company tables on pages 47 and 48, unless otherwise noted.
Six Months Ended June 30,
2021 2020 Change
Revenues $ 48,554  $ 32,499  $ 16,055 
Cost of materials and other (see note (a) on page 55) 44,241  29,031  15,210 
LCM inventory valuation adjustment (see note (b) on page 55) —  294  (294)
Operating expenses (excluding depreciation and amortization
expense) (see note (a) on page 55)
2,870  2,151  719 
General and administrative expenses (excluding depreciation
and amortization expense)
384  346  38 
Operating loss (157) (488) 331 
Adjusted operating loss (see note (e) on page 58) (107) (189) 82 
Other income, net (see note (c) on page 55) 147  59  88 
Interest and debt expense, net of capitalized interest (299) (267) (32)
Income tax expense (benefit) (see note (d) on page 55) 21  (277) 298 
Net income attributable to noncontrolling interests 212  179  33 

Revenues increased by $16.1 billion in the first six months of 2021 compared to the first six months of 2020 primarily due to increases in refined petroleum product prices associated with sales made by our refining segment. This increase in revenues, along with the effect of the $294 million LCM inventory valuation adjustment in the first six months of 2020, was partially offset by an increase in cost of materials and other of $15.2 billion primarily due to increases in crude oil and other feedstock costs, higher operating expenses (excluding depreciation and amortization expense) of $719 million primarily due to estimated excess energy costs of $532 million arising out of Winter Storm Uri, and an increase in general and administrative expenses (excluding depreciation and amortization expense) of $38 million due to an increase in certain employee compensation expenses of $23 million and higher advertising expenses of $15 million. These changes resulted in a $331 million decrease in our operating loss, from an

50

operating loss of $488 million in the first six months of 2020 to an operating loss of $157 million in the first six months of 2021.
The adjusted operating loss decreased by $82 million, from an adjusted operating loss of $189 million in the first six months of 2020 to an adjusted operating loss of $107 million in the first six months of 2021. The components of this $82 million decrease in the adjusted operating loss are discussed by segment in the segment analyses that follow.

“Other income, net” increased by $88 million in the first six months of 2021 compared to the first six months of 2020 primarily due to the gain on the sale of a 24.99 percent membership interest in MVP of $62 million, partially offset by an asset impairment loss of $24 million resulting from the cancellation of a pipeline extension project by our unconsolidated joint venture, Diamond Pipeline LLC. These matters are more fully described in note (c) on page 55.

“Interest and debt expense, net of capitalized interest” increased by $32 million in the first six months of 2021 compared to the first six months of 2020 primarily due to interest expense associated with public debt offerings in 2020.

Income tax expense increased by $298 million in the first six months of 2021 compared to the first six months of 2020 primarily as a result of a lower loss before income tax expense (benefit). In addition, the increase in income tax expense was impacted by a $64 million charge in the first six months of 2021 associated with a net increase in our deferred tax liabilities resulting from a change in certain statutory tax rates, as discussed in note (d) on page 55, as well as the effect of a benefit in the first six months of 2020 of $117 million associated with the U.S. federal tax NOL for 2020, which was carried back to 2015 when the U.S. federal statutory rate was 35 percent. See Note 8 of Condensed Notes to Consolidated Financial Statements for additional information on these tax matters.

Net income attributable to noncontrolling interests increased by $33 million in the first six months of 2021 compared to the first six months of 2020 primarily due to higher earnings associated with DGD.

Refining Segment Results
The following table includes selected financial and operating data of our refining segment for the first six months of 2021 and 2020. The selected financial data is derived from the Financial Highlights by Segment and Total Company tables on pages 47 and 48, respectively, unless otherwise noted.
Six Months Ended June 30,
2021 2020 Change
Operating loss $ (243) $ (336) $ 93 
Adjusted operating loss (see note (e) on page 57) (193) (54) (139)
Refining margin (see note (e) on page 56) $ 3,419  $ 2,938  $ 481 
Operating expenses (excluding depreciation and amortization
expense reflected below) (see note (a) on page 55)
2,535  1,923  612 
Depreciation and amortization expense 1,077  1,069  8 
Throughput volumes (thousand barrels per day) (see note (f)
on page 58)
2,624  2,573  51 


51

The refining segment operating loss decreased by $93 million in the first six months of 2021; however, the refining segment adjusted operating loss, which excludes the adjustments in the table in note (e) on page 57, increased by $139 million in the first six months of 2021 compared to the first six months of 2020. The components of this increase in the adjusted results, along with the reasons for the changes in those components, are outlined below.

•Refining segment margin increased by $481 million in the first six months of 2021 compared to the first six months of 2020.

Refining segment margin is primarily affected by the prices of the refined petroleum products that we sell and the cost of crude oil and other feedstocks that we process. The table on page 49 reflects market reference prices and differentials that we believe had a material impact on the change in our refining segment margin in the first six months of 2021 compared to the first six months of 2020.

The increase in refining segment margin was primarily due to the following:

◦An increase in gasoline margins had a favorable impact of approximately $1.7 billion.
◦An increase in distillate (primarily diesel) margins had a favorable impact of approximately $269 million.
◦An increase in the cost of biofuel credits (primarily RINs in the U.S.) had an unfavorable impact of $747 million. See Note 13 of Condensed Notes to Consolidated Financial Statements for additional information on our government and regulatory compliance programs.
◦Lower discounts on crude oils had an unfavorable impact of approximately $460 million.
◦Lower discounts on feedstocks other than crude oils had an unfavorable impact of approximately $227 million.
◦Estimated excess energy costs arising out of Winter Storm Uri had an unfavorable impact of $47 million (see note (a) on page 55).
•Refining segment operating expenses (excluding depreciation and amortization expense) increased by $612 million primarily due to estimated excess energy costs arising out of Winter Storm Uri of $478 million (see note (a) on page 55).


52

Renewable Diesel Segment Results
The following table includes selected financial and operating data of our renewable diesel segment for the first six months of 2021 and 2020. The selected financial data is derived from the Financial Highlights by Segment and Total Company tables on pages 47 and 48, respectively, unless otherwise noted.
Six Months Ended June 30,
2021 2020 Change
Operating income
$ 451  $ 327  $ 124 
Renewable diesel margin (see note (e) on page 56) $ 535  $ 390  $ 145 
Operating expenses (excluding depreciation and amortization
expense reflected below)
60  40  20 
Depreciation and amortization expense 24  23  1 
Sales volumes (thousand gallons per day) (see note (f)
on page 58)
895  831  64 

Renewable diesel segment operating income increased by $124 million in the first six months of 2021. This increase was primarily due to higher renewable diesel segment margin.

Renewable diesel segment margin increased by $145 million in the first six months of 2021 compared to the first six months of 2020. Renewable diesel segment margin is primarily affected by the price of the renewable diesel that we sell and the cost of the feedstocks that we process. The table on page 50 reflects market reference prices that we believe had a material impact on the change in our renewable diesel segment margin in the first six months of 2021 compared to the first six months of 2020.

The increase in renewable diesel segment margin was primarily due to the following:

•Higher renewable diesel prices had a favorable impact of approximately $377 million.

•An increase in the cost of the feedstocks we process had an unfavorable impact of approximately $152 million.

•Price risk management activities had an unfavorable impact of $79 million. We recognized a hedge loss of $34 million in the first six months of 2021 compared to a hedge gain of $45 million in the first six months of 2020.


53

Ethanol Segment Results
The following table includes selected financial and operating data of our ethanol segment for the first six months of 2021 and 2020. The selected financial data is derived from the Financial Highlights by Segment and Total Company tables on pages 47 and 48, respectively, unless otherwise noted.
Six Months Ended June 30,
2021 2020 Change
Operating income (loss) $ 43  $ (106) $ 149 
Adjusted operating income (loss) (see note (e) on page 57) 43  (89) 132 
Ethanol margin (see note (e) on page 57) $ 359  $ 142  $ 217 
Operating expenses (excluding depreciation and amortization
expense reflected below) (see note (a) on page 55)
275  188  87 
Depreciation and amortization expense 41  43  (2)
Production volumes (thousand gallons per day) (see note (f)
on page 58)
3,884  3,210  674 

Ethanol segment operating income increased by $149 million in the first six months of 2021; however, ethanol segment adjusted operating income, which excludes the adjustment in the table in note (e) on page 57, increased by $132 million in the first six months of 2021 compared to the first six months of 2020. 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 $217 million in the first six months of 2021 compared to the first six months of 2020.

Ethanol segment margin is primarily affected by prices of the ethanol and corn related co-products that we sell and the cost of corn that we process. The table on page 50 reflects market reference prices that we believe had a material impact on the change in our ethanol segment margin in the first six months of 2021 compared to the first six months of 2020.

The increase in ethanol segment margin was primarily due to the following:

◦Higher ethanol prices had a favorable impact of approximately $490 million.

◦Higher prices on the co-products that we produce, primarily distillers grains, had a favorable impact of approximately $152 million.

◦An increase in production volumes of 674,000 gallons per day had a favorable impact of approximately $64 million. As noted in “OVERVIEW AND OUTLOOK—Overview—Business Operations Update” on page 36, the impacts of the COVID-19 pandemic have continued to subside so far in 2021. As a result, we have increased the aggregate production of ethanol across our plants to align with improvements in demand to near pre-pandemic levels.
◦Higher corn prices had an unfavorable impact of approximately $489 million.


54

•Ethanol segment operating expenses (excluding depreciation and amortization expense) increased by $87 million primarily due to estimated excess energy costs arising out of Winter Storm Uri of $54 million (see note (a) on page 55) and higher chemical and catalyst costs of $9 million.
________________________
The following notes relate to references on pages 35 through 55.

(a)In mid-February 2021, many of our refineries and plants were impacted to varying extents by the severe cold, utility disruptions, and higher energy costs arising out of Winter Storm Uri. The higher energy costs resulted from an increase in the prices of natural gas and electricity that significantly exceeded rates that we consider normal, such as the average rates we incurred the month preceding the storm. As a result, our operating loss for the six months ended June 30, 2021 includes estimated excess energy costs of $579 million.

The above-mentioned pre-tax estimated excess energy charge is reflected in our statement of income line items and attributable to our reportable segments as follows (in millions):
Refining Renewable
Diesel 		Ethanol Total
Cost of materials and other $ 47  $ —  $ —  $ 47 
Operating expenses (excluding depreciation
and amortization expense)
478  —  54  532 
Total estimated excess energy costs $ 525  $ —  $ 54  $ 579 

(b)The market value of our inventories accounted for under the LIFO method fell below their historical cost on an aggregate basis as of March 31, 2020. As a result, we recorded an LCM inventory valuation adjustment of $2.5 billion in March 2020. The market value of our LIFO inventories improved as of June 30, 2020 due to an increase in market prices, which resulted in a reversal of $2.2 billion of the $2.5 billion LCM adjustment recorded in the three months ended March 31, 2020. Consequently, our results of operations for the six months ended June 30, 2020 reflect a net LCM inventory valuation adjustment of $294 million.

Of the $2.2 billion benefit recognized in the three months ended June 30, 2020, $2.1 billion and $111 million is attributable to our refining and ethanol segments, respectively. Of the $294 million adjustment recognized in the six months ended June 30, 2020, $277 million and $17 million is attributable to our refining and ethanol segments, respectively.

(c)On April 19, 2021, we sold a 24.99 percent membership interest in MVP for $270 million. “Other income, net” for the three and six months ended June 30, 2021 includes a gain on the sale of $62 million.

“Other income, net” for the three and six months ended June 30, 2021 also includes a $24 million charge representing our portion of the asset impairment loss recognized by Diamond Pipeline LLC, an unconsolidated joint venture with a subsidiary of Plains All American Pipeline, L.P., resulting from the joint venture’s cancellation of its pipeline extension project.

(d)During the three months ended June 30, 2021, a change in certain statutory tax rates (primarily an increase in the U.K. rate from 19 percent to 25 percent effective in 2023) resulted in the remeasurement of our deferred tax liabilities. Under U.S. GAAP, we are required to recognize the effect of a change in tax law in the period of enactment. As a result, we recognized income tax expense of $64 million during the three and six months ended June 30, 2021, which represents the net increase in our deferred tax liabilities resulting from the change in the tax rates.

(e)We use certain financial measures (as noted below) that are not defined under U.S. 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 our adjusted

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operating income measures (including for our refining and ethanol segments) are useful to assess our ongoing financial performance because, when reconciled to their most comparable U.S. GAAP measures, they provide improved comparability between periods through the exclusion of certain items that we believe are not indicative of our core operating performance and that may obscure our underlying business results and trends. We believe our refining margin, renewable diesel margin, and ethanol margin, as applicable, are important measures of the relevant segment’s operating and financial performance because, with respect to such segment, it is the most comparable measure to the industry’s market reference product margins, which are used by industry analysts, investors, and others to evaluate our performance. These non-GAAP measures should not be considered as alternatives to their most comparable U.S. GAAP measures nor should they be considered in isolation or as a substitute for an analysis of our results of operations as reported under U.S. 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:

◦Refining margin is defined as refining segment operating income (loss) excluding the LCM inventory valuation 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
June 30, 		Six Months Ended
June 30,
2021 2020 2021 2020
Reconciliation of refining operating income
(loss) to refining margin
Refining operating income (loss) $ 349  $ 1,751  $ (243) $ (336)
Adjustments:
LCM inventory valuation adjustment (see
note (b))
—  (2,137) —  277 
Operating expenses (excluding depreciation
and amortization expense) (see note (a))
1,064  928  2,535  1,923 
Depreciation and amortization expense
544  533  1,077  1,069 
Other operating expenses 12  3  50  5 
Refining margin $ 1,969  $ 1,078  $ 3,419  $ 2,938 

◦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
June 30, 		Six Months Ended
June 30,
2021 2020 2021 2020
Reconciliation of renewable diesel operating
income to renewable diesel margin
Renewable diesel operating income $ 248  $ 129  $ 451  $ 327 
Adjustments:
Operating expenses (excluding depreciation
and amortization expense)
31  20  60  40 
Depreciation and amortization expense 12  12  24  23 
Renewable diesel margin $ 291  $ 161  $ 535  $ 390 


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◦Ethanol margin is defined as ethanol segment operating income (loss) excluding the LCM inventory valuation adjustment, operating expenses (excluding depreciation and amortization expense), and depreciation and amortization expense, as reflected in the table below.
Three Months Ended
June 30, 		Six Months Ended
June 30,
2021 2020 2021 2020
Reconciliation of ethanol operating income
(loss) to ethanol margin
Ethanol operating income (loss) $ 99  $ 91  $ 43  $ (106)
Adjustments:
LCM inventory valuation adjustment (see
note (b))
—  (111) —  17 
Operating expenses (excluding depreciation
and amortization expense) (see note (a))
119  79  275  188 
Depreciation and amortization expense 20  21  41  43 
Ethanol margin $ 238  $ 80  $ 359  $ 142 

◦Adjusted refining operating income (loss) is defined as refining segment operating income (loss) excluding the LCM inventory valuation adjustment and other operating expenses, as reflected in the table below.
Three Months Ended
June 30, 		Six Months Ended
June 30,
2021 2020 2021 2020
Reconciliation of refining operating income
(loss) to adjusted refining operating
income (loss)
Refining operating income (loss) $ 349  $ 1,751  $ (243) $ (336)
Adjustments:
LCM inventory valuation adjustment (see
note (b))
—  (2,137) —  277 
Other operating expenses 12  3  50  5 
Adjusted refining operating income (loss) $ 361  $ (383) $ (193) $ (54)

◦Adjusted ethanol operating income (loss) is defined as ethanol segment operating income (loss) excluding the LCM inventory valuation adjustment, as reflected in the table below.
Three Months Ended
June 30, 		Six Months Ended
June 30,
2021 2020 2021 2020
Reconciliation of ethanol operating income
(loss) to adjusted ethanol operating
income (loss)
Ethanol operating income (loss) $ 99  $ 91  $ 43  $ (106)
Adjustment:
LCM inventory valuation adjustment (see
note (b))
—  (111) —  17 
Adjusted ethanol operating income (loss) $ 99  $ (20) $ 43  $ (89)


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◦Adjusted operating income (loss) is defined as total company operating income (loss) excluding the LCM inventory valuation adjustment and other operating expenses, as reflected in the table below.
Three Months Ended
June 30, 		Six Months Ended
June 30,
2021 2020 2021 2020
Reconciliation of total company operating
income (loss) to adjusted operating
income (loss)
Total company operating income (loss) $ 509  $ 1,789  $ (157) $ (488)
Adjustments:
LCM inventory valuation adjustment (see
note (b))
—  (2,248) —  294 
Other operating expenses 12  3  50  5 
Adjusted operating income (loss) $ 521  $ (456) $ (107) $ (189)

(f)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

Overview
During the six months ended June 30, 2021, our liquidity was positively impacted by the cash generated by our operations despite lingering negative impacts of the COVID-19 pandemic and the negative effects arising out of Winter Storm Uri on energy costs at certain of our refineries and ethanol plants during mid-February 2021, as described in “OVERVIEW AND OUTLOOK—Overview—Business Operations Update.”

We believe that we have sufficient funds from operations and from borrowings under our credit facilities to fund our ongoing operating requirements and other commitments. 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.

Our Liquidity
Our liquidity consisted of the following as of June 30, 2021 (in millions):
Available capacity from committed facilities (a):
Valero Revolver $ 3,846 
Canadian Revolver (b) 117 
Accounts receivable sales facility 1,000 
Letter of credit facility 50 
Total available capacity 5,013 
Cash and cash equivalents (c) 3,360 
Total liquidity
$ 8,373 
________________________
(a)Excludes the committed facilities of our 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 June 30, 2021 in Canadian dollars was C$145 million.
(c)Excludes $212 million of cash and cash equivalents related to our VIEs that is available for use only by our VIEs.

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.

In July 2021, we extended the maturity date of our accounts receivable sales facility to July 2022 and increased the facility amount from $1.0 billion to $1.3 billion. As of July 28, 2021, we had no borrowings on this facility.


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Cash Flows
Components of our cash flows are set forth below (in millions):
Six Months Ended
June 30,
2021 2020
Cash flows provided by (used in):
Operating activities $ 1,956  $ 687 
Investing activities (836) (1,339)
Financing activities:
Borrowings
16  1,962 
Other financing activities
(882) (1,527)
Financing activities
(866) 435 
Effect of foreign exchange rate changes on cash 5  (47)
Net increase (decrease) in cash and cash equivalents $ 259  $ (264)

Cash Flows for the Six Months Ended June 30, 2021
In the first six months of 2021, we used $2.0 billion of cash generated by our operations to make $836 million of investments in our business, fund $882 million of other financing activities, and increase our available cash on hand by $259 million.

As previously noted, our operations generated $2.0 billion of cash in the first six months of 2021, driven primarily by a positive change in working capital of $1.3 billion and noncash charges to income of $968 million, partially offset by increased energy costs at certain of our refineries and ethanol plants due to effects arising out of Winter Storm Uri, as described in “OVERVIEW AND OUTLOOK—Overview—Business Operations Update.” Noncash charges included $1.2 billion of depreciation and amortization expense, partially offset by a $136 million deferred income tax benefit and a $62 million gain on the sale of a partial interest in MVP, as described in Note 6 of Condensed Notes to Consolidated Financial Statements. Details regarding the components of the change in working capital, along with the reasons for the changes in those components, are described in Note 11 of Condensed Notes to Consolidated Financial Statements. In addition, see “RESULTS OF OPERATIONS” for an analysis of our net loss.

Our investing activities of $836 million consisted of $1.1 billion in capital investments, as defined below, of which $399 million related to self-funded capital investments by DGD, and $35 million was related to capital expenditures of VIEs other than DGD. These activities were partially offset by $270 million received from the sale of a partial interest in MVP, as described in Note 6 of Condensed Notes to Consolidated Financial Statements.

Other financing activities of $882 million consisted primarily of $801 million in dividend payments, $63 million of payments of debt and finance lease obligations, and $15 million for the purchase of common stock for treasury in connection with stock-based compensation plans.

Cash Flows for the Six Months Ended June 30, 2020
In the first six months of 2020, we used $264 million of our cash on hand, $687 million of cash generated by our operations, and $2.0 billion in borrowings to make $1.3 billion of investments in our business and fund $1.5 billion of other financing activities. The borrowings are described in Note 4 of Condensed Notes to Consolidated Financial Statements.


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As previously noted, our operations generated $687 million of cash in the first six months of 2020, which resulted from noncash charges to income of $1.7 billion, partially offset by an unfavorable change in working capital of $478 million. Noncash charges included $1.2 billion of depreciation and amortization expense, $294 million related to the LCM inventory valuation adjustment, and $223 million of deferred income tax expense. The change in working capital was affected primarily by a $1.3 billion use of cash1 resulting from the rapid decline in market prices of refined petroleum products and crude oil as a result of the negative economic effects of the COVID-19 pandemic that impacted our receivables and accounts payable, partially offset by a $1.1 billion source of cash driven by a reduction in inventory levels on hand. Details regarding the components of the change in working capital, along with the reasons for the changes in those components, are described in Note 11 of Condensed Notes to Consolidated Financial Statements. In addition, see “RESULTS OF OPERATIONS” for an analysis of our net loss.

Our investing activities of $1.3 billion consisted of $1.4 billion in capital investments, as defined below, of which $187 million related to self-funded capital investments by DGD, and $143 million was related to capital expenditures of VIEs other than DGD.

Other financing activities of $1.5 billion consisted primarily of $801 million in dividend payments, $432 million of payments of debt and finance lease obligations, $147 million for the purchase of common stock for treasury, and $127 million to pay distributions to noncontrolling interests.

Capital Investments
Our capital investments include capital expenditures, deferred turnaround and catalyst cost expenditures, and investments in unconsolidated joint ventures. Capital investments attributable to Valero, which is a non-GAAP financial measure, reflects our net share of capital investments and is defined as all capital expenditures, deferred turnaround and catalyst cost expenditures, and investments in unconsolidated joint ventures presented in our consolidated statements of cash flows, excluding the portion of DGD’s capital investments attributable to our joint venture partner and all of the capital expenditures of other VIEs.

We are a 50/50 joint venture partner in DGD and consolidate DGD’s financial statements; 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 partners 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 partner, only 50 percent of DGD’s capital investments should be attributed to our net share of capital investments. We also exclude the capital expenditures of our other consolidated VIEs because we do not operate those VIEs. We believe capital investments attributable to Valero is an important measure because it more accurately reflects our capital investments.

Capital investments attributable to Valero should not be considered as an alternative to capital investments, its most comparable U.S. GAAP measure, nor should it be considered in isolation or as a substitute for an analysis of our cash flows as reported under U.S. GAAP. In addition, this non-GAAP
1 Represents the net cash flow change in “receivables, net” of $4.1 billion and accounts payable of $5.4 billion during the six months ended June 30, 2020, as described in Note 11 of Condensed Notes to Consolidated Financial Statements.

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measure may not be comparable to similarly titled measures used by other companies because we may define it differently, which may diminish its utility.
Six Months Ended
June 30,
2021 2020
Reconciliation of capital investments
to capital investments attributable to Valero
Capital expenditures (excluding VIEs) $ 261  $ 555 
Capital expenditures of VIEs:
DGD 398  177 
Other VIEs 35  143 
Deferred turnaround and catalyst cost expenditures
(excluding VIEs)
426  437 
Deferred turnaround and catalyst cost expenditures
of DGD
1  10 
Investments in unconsolidated joint ventures 9  29 
Capital investments 1,130  1,351 
Adjustments:
DGD’s capital investments attributable to our joint
venture partner
(199) (94)
Capital expenditures of other VIEs (35) (143)
Capital investments attributable to Valero $ 896  $ 1,114 

As previously disclosed in our annual report on Form 10-K for the year ended December 31, 2020, we expect to incur $2.0 billion for capital investments attributable to Valero during 2021. Approximately 60 percent of the capital investments attributable to Valero are for sustaining the business and 40 percent are for growth strategies, over half of which is allocated to expanding the renewable diesel business. However, we continuously evaluate our capital budget and make changes as conditions warrant.
We have publicly announced GHG emissions reduction/offset targets for 2025 and 2035. We believe that our expected allocation of growth capital into lower-carbon projects is consistent with such targets. Certain of these lower-carbon projects are already in execution and the associated capital investments are included in our expected capital investments for 2021 discussed above. Our capital investments in future years to achieve these targets are expected to include investments associated with certain lower-carbon projects currently at various stages of progress, evaluation, or approval.

Other Matters Impacting Liquidity and Capital Resources
Stock Purchase Program
As of June 30, 2021, we had $1.4 billion available for purchase under our stock purchase program, which has no expiration date. We have not purchased any shares of our common stock under our stock purchase program since mid-March 2020, and we will evaluate the timing of repurchases when appropriate. We have no obligation to make purchases under this program.

Pension Plan Funding
As previously disclosed in our annual report on Form 10-K for the year ended December 31, 2020, we plan to contribute approximately $128 million to our pension plans and $22 million to our other postretirement benefit plans during 2021.


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Environmental Matters
Our operations are subject to extensive environmental regulations by governmental authorities relating to the discharge of materials into the environment, waste management, pollution prevention measures, GHG emissions, and characteristics and composition of gasolines and distillates. 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 expenditures required for environmental matters could increase in the future. In addition, any major upgrades in any of our refineries or plants could require material additional expenditures to comply with environmental laws and regulations. See Note 13 of Condensed Notes to Consolidated Financial Statements for additional information on our government and regulatory compliance program and related costs.

Tax Matters
We deferred approximately $250 million of value-added and motor fuel tax payments that were due in 2020 as permitted by various taxing authorities to help companies address the negative impacts of the COVID-19 pandemic. Of this amount, approximately 90 percent will be paid in 2021 and 10 percent in 2022. During the first six months of 2021, we paid approximately $30 million of these tax payments.

Cash Held by Our International Subsidiaries
As of June 30, 2021, $2.1 billion of our cash and cash equivalents was held by our international subsidiaries. Cash held by our international subsidiaries can be repatriated to us without any U.S. federal income tax consequences, but certain other taxes may apply, including, but not limited to, withholding taxes imposed by certain international jurisdictions and U.S. state income taxes. Therefore, there is a cost to repatriate cash held by certain of our international subsidiaries to us, but we believe that such amount is not material to our financial position or liquidity.

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 the COVID-19 pandemic and volatility in the global 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.

Contractual Obligations
As of June 30, 2021, our contractual obligations included debt, finance lease obligations, operating lease obligations, purchase obligations, and other long-term liabilities. In the ordinary course of business, we had debt-related activities during the six months ended June 30, 2021, 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 six months ended June 30, 2021.

Our 4.0 percent Gulf Opportunity Zone Revenue Bonds Series 2010 (GO Zone Bonds), which total $300 million, are due December 1, 2040, but are subject to mandatory tender on June 1, 2022, (the Mandatory Tender Date), at a price equal to par plus accrued and unpaid interest up to, but excluding, the Mandatory Tender Date. However, under the terms of the indenture governing the GO Zone Bonds, effective on or after the Mandatory Tender Date, we have the option to change the current interest rate and interest period duration of the bonds through the remarketing of such bonds for new proceeds. We cannot provide any assurance as to when, if ever, we may elect to remarket the GO Zone Bonds, and any

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GO Zone Bonds not remarketed effective as of the Mandatory Tender Date could be held for our own account for potential remarketing or cancellation prior to the 2040 maturity date.

As of June 30, 2021, the GO Zone Bonds are reflected in current portion of debt and finance lease obligations on the balance sheet.
CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with U.S. 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. As of June 30, 2021, there were no significant changes to our critical accounting estimates since the date our annual report on Form 10-K for the year ended December 31, 2020 was filed.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

COMMODITY PRICE RISK

We are exposed to market risks related to the volatility in the price of feedstocks (primarily crude oil and corn), the products we produce (primarily refined petroleum products), 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, including futures and options to manage the volatility of:

•inventories and firm commitments to purchase inventories generally for amounts by which our current year inventory levels (determined on a LIFO basis) differ from our previous year-end LIFO inventory levels; and

•forecasted purchases and/or product sales in order to lock-in such forecasted transactions at existing market prices that we deem favorable.

Our positions in commodity derivative instruments are monitored and managed on a daily basis by our risk control group to ensure compliance with our stated risk management policy that has been approved by our board of directors.

As of June 30, 2021 and December 31, 2020, the amount of gain or loss that would have resulted from a 10 percent increase or decrease in the underlying price for all of our commodity derivative instruments entered into for purposes other than trading with which we have market risk was not material. See Note 13 of Condensed Notes to Consolidated Financial Statements for notional volumes associated with these derivative contracts as of June 30, 2021.

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COMPLIANCE PROGRAM PRICE RISK

We are exposed to market risk related to the volatility in the price of credits needed to comply with various governmental and regulatory environmental compliance programs. To manage this risk, we enter into contracts to purchase these credits when prices are deemed favorable. As of June 30, 2021 and December 31, 2020, the amount of gain or loss in the fair value of derivative instruments that would have resulted from a 10 percent increase or decrease in the underlying price of the contracts was not material. See Note 13 of Condensed Notes to Consolidated Financial Statements for a discussion about these compliance programs.

INTEREST RATE RISK

The following table provides information about our debt instruments (dollars in millions), the fair values of which are sensitive to changes in interest rates. 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.
June 30, 2021 (a)
Expected Maturity Dates
Remainder
of 2021 (b) 		2022 (c) 2023 2024 2025 There-
after 		Total Fair
Value
Fixed rate $ —  $ 300 $ 850 $ 925 $ 1,650 $ 8,174 $ 11,899 $ 14,006
Average interest rate —  % 4.0  % 2.7  % 1.2  % 3.1  % 5.1  % 4.4  %
Floating rate (d) $ 617  $ 6  $ 595 $ —  $ —  $ —  $ 1,218 $ 1,218
Average interest rate 3.5  % 3.9  % 1.4  % —  % —  % —  % 2.5  %
December 31, 2020 (a)
Expected Maturity Dates
2021 (b) 2022 (c) 2023 2024 2025 There-
after 		Total Fair
Value
Fixed rate $ —  $ 300 $ 850 $ 925 $ 1,650 $ 8,174 $ 11,899 $ 13,899
Average interest rate —  % 4.0  % 2.7  % 1.2  % 3.1  % 5.1  % 4.4  %
Floating rate (d) $ 603  $ 6  $ 595 $ —  $ —  $ —  $ 1,204 $ 1,204
Average interest rate 3.9  % 3.0  % 1.4  % —  % —  % —  % 2.7  %
________________________
(a)Excludes unamortized discounts and debt issuance costs.
(b)As of June 30, 2021 and December 31, 2020, our floating rate debt includes $614 million and $598 million, respectively, associated with borrowings under the IEnova Revolver for the construction of terminals in Mexico by Central Mexico Terminals. The IEnova Revolver is only available to the operations of Central Mexico Terminals, and the creditors of Central Mexico Terminals do not have recourse against us.
(c)See “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS—LIQUIDITY AND CAPITAL RESOURCES—Other Matters Impacting Liquidity and Capital Resources—Contractual Obligations” for a discussion of the Mandatory Tender Date and maturity date of our GO Zone Bonds.
(d)As of June 30, 2021 and December 31, 2020, we had an interest rate swap associated with $29 million and $31 million, respectively, of our floating rate debt resulting in an effective interest rate of 3.85 percent as of each of those reporting dates. The fair value of the swap was immaterial for all periods presented.


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FOREIGN CURRENCY RISK

We are exposed to exchange rate fluctuations on transactions related to our international operations that are denominated in currencies other than the local (functional) currencies of those operations. To manage our exposure to these exchange rate fluctuations, we use foreign currency contracts. The following table provides information about our foreign currency contracts (dollars in millions) that, as of the dates set forth below, mature in 2021, the fair values of which are sensitive to changes in foreign currency exchange rates. Currency abbreviations presented below are as follows: U.S. dollars (USD), Canadian dollars (CAD), and pounds sterling (GBP).
Receive USD/
Pay CAD 		Receive USD/
Pay GBP 		Receive CAD/
Pay USD
June 30, 2021
Contract amount $ 281  $ 364  $ 1,800 
Weighted-average
contractual exchange rate
0.81829 1.39555 0.80993
Fair value asset (liability) $ 4  $ 4  $ (9)
December 31, 2020
Contract amount $ 228  $ 97  $ 1,600 
Weighted-average
contractual exchange rate
0.78205 1.34454 0.78492
Fair value liability $ (1) $ (1) $ (2)

See Note 13 of Condensed Notes to Consolidated Financial Statements for a discussion about our foreign currency risk management activities.

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 June 30, 2021.
(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.

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There have been no new proceedings or material developments in proceedings that we previously reported in our annual report on Form 10-K for the year ended December 31, 2020 or in our quarterly report on Form 10-Q for the quarter ended March 31, 2021.

ITEM 1A. RISK FACTORS

There have been no material changes from the risk factors disclosed in our annual report on Form 10-K for the year December 31, 2020. However, to the extent the COVID-19 pandemic adversely affects our business, financial condition, results of operation, 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 AND USE OF PROCEEDS

(a)Unregistered Sales of Equity Securities. Not applicable.

(b)Use of Proceeds. Not applicable.

(c)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 second quarter of 2021.
Period Total Number
of Shares
Purchased 		Average
Price Paid
per Share 		Total Number of
Shares Not
Purchased as Part of
Publicly Announced
Plans or Programs (a) 		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 (b)
April 2021 26  $ 72.37  26  —  $1.4 billion
May 2021 3,237  $ 76.05  3,237  —  $1.4 billion
June 2021 3,809  $ 80.34  3,809  —  $1.4 billion
Total 7,072  $ 78.35  7,072  —  $1.4 billion
________________________
(a)The shares reported in this column represent purchases settled in the second quarter of 2021 relating to (i) our purchases of shares in open-market transactions to meet our obligations under stock-based compensation plans and (ii) 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)On January 23, 2018, we announced that our board of directors authorized our purchase of up to $2.5 billion of our outstanding common stock (the 2018 Program), with no expiration date. As of June 30, 2021, we had $1.4 billion remaining available for purchase under the 2018 Program. We have not purchased any shares of our common stock under the 2018 Program since mid-March 2020, and we will evaluate the timing of repurchases when appropriate. We have no obligation to make purchases under the 2018 Program.


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ITEM 6. EXHIBITS
Exhibit
No.
Description
***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.
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 U.S. SEC all constituent agreements defining the rights of holders of our long-term debt not filed herewith.

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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: July 29, 2021


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