Valero Energy
Annual Report 2012

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Table of ContentsFORM 10-KUNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549(Mark One)RANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2012ORoTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _______________Commission file number 1-13175VALERO ENERGY CORPORATION(Exact name of registrant as specified in its charter)Delaware74-1828067(State or other jurisdiction of(I.R.S. Employerincorporation or organization)Identification No.)One Valero Way78249San Antonio, Texas(Zip Code)(Address of principal executive offices) Registrant’s telephone number, including area code: (210) 345-2000 Securities registered pursuant to Section 12(b) of the Act: Common stock, $0.01 par value per share listed on the New York Stock Exchange.Securities registered pursuant to Section 12(g) of the Act: None.Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yes R No oIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.Yes R No oIndicate 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 duringthe 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 requirementsfor the past 90 days. Yes R No oIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required tobe submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that theregistrant was required to submit and post such files). Yes R No oIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and willnot be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K orany amendment to this Form 10-K. [X]Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See thedefinitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule12b-2 of the Exchange Act.Large accelerated filer RAccelerated filer oNon-accelerated filer oSmaller reporting company oIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No RThe aggregate market value of the voting and non-voting common stock held by non-affiliates was approximately $13.3 billion based on the last sales pricequoted as of June 29, 2012 on the New York Stock Exchange, the last business day of the registrant’s most recently completed second fiscal quarter.As of January 31, 2013, 552,933,285 shares of the registrant’s common stock were outstanding.DOCUMENTS INCORPORATED BY REFERENCEWe intend to file with the Securities and Exchange Commission a definitive Proxy Statement for our Annual Meeting of Stockholders scheduled for May 2,2013, at which directors will be elected. Portions of the 2013 Proxy Statement are incorporated by reference in Part III of this Form 10-K and are deemed to be apart of this report. Table of ContentsCROSS-REFERENCE SHEETThe following table indicates the headings in the 2013 Proxy Statement where certain information required in Part III of this Form 10-K may befound.Form 10-K Item No. and Caption Heading in 2013 Proxy Statement 10.Directors, Executive Officers andCorporate Governance Information Regarding the Board of Directors,Independent Directors, Audit Committee, Proposal No. 1Election of Directors, Information Concerning Nomineesand Other Directors, Identification of ExecutiveOfficers, Section 16(a) Beneficial Ownership ReportingCompliance, and Governance Documents and Codes ofEthics 11.Executive Compensation Compensation Committee, Compensation Discussionand Analysis, Director Compensation, ExecutiveCompensation, and Certain Relationships and RelatedTransactions 12.Security Ownership of Certain BeneficialOwners and Management and RelatedStockholder Matters Beneficial Ownership of Valero Securities and EquityCompensation Plan Information 13.Certain Relationships and RelatedTransactions, andDirector Independence Certain Relationships and Related Transactions andIndependent Directors 14.Principal Accountant Fees and Services KPMG Fees for Fiscal Year 2012, KPMG Fees for FiscalYear 2011, and Audit Committee Pre-Approval PolicyCopies of all documents incorporated by reference, other than exhibits to such documents, will be provided without charge to each person whoreceives a copy of this Form 10-K upon written request to Valero Energy Corporation, Attn: Secretary, P.O. Box 696000, San Antonio, Texas78269-6000.i CONTENTS PAGEPART I Items 1., 1A., & 2.Business, Risk Factors, and Properties1 Segments2 Valero’s Operations3 Risk Factors13 Environmental Matters19 Properties19Item 1B.Unresolved Staff Comments19Item 3.Legal Proceedings20Item 4.Mine Safety Disclosures21 PART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities22Item 6.Selected Financial Data25Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations26Item 7A.Quantitative and Qualitative Disclosures About Market Risk56Item 8.Financial Statements and Supplementary Data58Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure137Item 9A.Controls and Procedures137Item 9B.Other Information137 PART III Item 10.Directors, Executive Officers and Corporate Governance138Item 11.Executive Compensation138Item 12.Security Ownership of Certain Beneficial Owners and Managementand Related Stockholder Matters138Item 13.Certain Relationships and Related Transactions, and Director Independence138Item 14.Principal Accountant Fees and Services138 PART IV Item 15.Exhibits and Financial Statement Schedules138 Signature 142 ii Table of ContentsPART IThe terms “Valero,” “we,” “our,” and “us,” as used in this report, may refer to Valero Energy Corporation, to one or more of our consolidatedsubsidiaries, or to all of them taken as a whole. In this Form 10-K, we make certain forward-looking statements, including statements regarding ourplans, strategies, objectives, expectations, intentions, and resources, under the safe harbor provisions of the Private Securities Litigation Reform Actof 1995. You should read our forward-looking statements together with our disclosures beginning on page 26 of this report under the heading:“CAUTIONARY STATEMENT FOR THE PURPOSE OF SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIESLITIGATION REFORM ACT OF 1995.”ITEMS 1., 1A., and 2. BUSINESS, RISK FACTORS, AND PROPERTIESOverview. We are a Fortune 500 company based in San Antonio, Texas. Our corporate offices are at One Valero Way, San Antonio, Texas, 78249,and our telephone number is (210) 345-2000. Our common stock trades on the New York Stock Exchange under the symbol “VLO.” We wereincorporated in Delaware in 1981 under the name Valero Refining and Marketing Company. We changed our name to Valero Energy Corporation onAugust 1, 1997. On January 31, 2013, we had 21,671 employees.Our 16 petroleum refineries are located in the United States (U.S.), Canada, the United Kingdom (U.K.), and Aruba. Our refineries can produceconventional gasolines, distillates, jet fuel, asphalt, petrochemicals, lubricants, and other refined products as well as a slate of premium productsincluding CBOB and RBOB1, gasoline meeting the specifications of the California Air Resources Board (CARB), CARB diesel fuel, and low-sulfur and ultra-low-sulfur diesel fuel.We market branded and unbranded refined products on a wholesale basis in the U.S., Canada, the U.K., and Ireland through an extensive bulk andrack marketing network, and we sell refined products through a network of 1,880 company-owned and leased retail sites in the U.S. and Canada and5,450 branded wholesale sites that we neither own nor operate in the U.S., Canada, the U.K., Aruba, and Ireland.We also own 10 ethanol plants in the central plains region of the U.S. that primarily produce ethanol, which we market on a wholesale basis through abulk marketing network.Available Information. Our website address is www.valero.com. Information on our website is not part of this annual report on Form 10-K. Ourannual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K filed with (or furnished to) the Securities andExchange Commission (SEC) are available on our website (under “Investor Relations”) free of charge, soon after we file or furnish such material.In this same location, we also post our corporate governance guidelines, codes of ethics, and the charters of the committees of our board of directors.These documents are available in print to any stockholder that makes a written request to Valero Energy Corporation, Attn: Secretary, P.O. Box696000, San Antonio, Texas 78269-6000._____________________________1 CBOB, or “conventional blendstock for oxygenate blending,” is conventional gasoline blendstock intended for blending with oxygenates downstream of the refinery where it wasproduced. CBOB becomes conventional gasoline after blending with oxygenates. RBOB is a base unfinished reformulated gasoline mixture known as “reformulated gasolineblendstock for oxygenate blending.” It is a specially produced reformulated gasoline blendstock intended for blending with oxygenates downstream of the refinery where it wasproduced to produce finished gasoline that meets or exceeds U.S. emissions performance requirements for federal reformulated gasoline. Ethanol is the primary oxygenatecurrently used in gasoline blending in the U.S.1 Table of ContentsSEGMENTSWe have three reportable business segments: refining, ethanol, and retail. The financial information about our segments is discussed in Note 18 ofNotes to Consolidated Financial Statements and is incorporated herein by reference.•Our refining segment includes refining operations, wholesale marketing, product supply and distribution, and transportation operations. Therefining segment is segregated geographically into the U.S. Gulf Coast, U.S. Mid-Continent, North Atlantic, and U.S. West Coast regions.•Our ethanol segment includes sales of internally produced ethanol and distillers grains. Our ethanol operations are geographically located inthe central plains region of the U.S.•Our retail segment includes company-operated convenience stores in the U.S. and Canada; and filling stations, cardlock facilities, andheating oil operations in Canada. The retail segment is segregated into two geographic regions. Our retail operations in the U.S. are referred toas Retail–U.S. and our retail operations in Canada are referred to as Retail–Canada.2 Table of ContentsVALERO’S OPERATIONSREFININGOn December 31, 2012, our refining operations included 16 refineries in the U.S., Canada, the U.K., and Aruba, with a combined total throughputcapacity of approximately 3.0 million barrels per day (BPD). The following table presents the locations of these refineries and their approximatefeedstock throughput capacities as of December 31, 2012.Refinery Location ThroughputCapacity (a)(BPD)U.S. Gulf Coast: Corpus Christi (b) Texas 325,000Port Arthur Texas 310,000St. Charles Louisiana 270,000Texas City Texas 245,000Aruba (c) Aruba 235,000Houston Texas 160,000Meraux Louisiana 135,000Three Rivers Texas 100,000 1,780,000 U.S. Mid-Continent: Memphis Tennessee 195,000McKee Texas 170,000Ardmore Oklahoma 90,000 455,000 North Atlantic: Pembroke Wales, U.K. 270,000Quebec City Quebec, Canada 235,000 505,000 U.S. West Coast: Benicia California 170,000Wilmington California 135,000 305,000Total 3,045,000(a) “Throughput capacity” represents estimated capacity for processing crude oil, intermediates, and other feedstocks. Total estimated crude oil capacity isapproximately 2.6 million BPD.(b) Represents the combined capacities of two refineries – the Corpus Christi East and Corpus Christi West Refineries.(c) The operations of the Aruba Refinery were suspended in March 2012. For further discussion of this matter, see Note 4 in Notes to ConsolidatedFinancial Statements.3 Table of ContentsTotal Refining SystemThe following table presents the percentages of principal charges and yields (on a combined basis) for all of our refineries for the year endedDecember 31, 2012. Our total combined throughput volumes averaged 2.6 million BPD for the year ended December 31, 2012.Combined Total Refining System Charges and Yields Charges: sour crude oil38% acidic sweet crude oil3% sweet crude oil35% residual fuel oil8% other feedstocks5% blendstocks11%Yields: gasolines and blendstocks47% distillates35% petrochemicals3% other products (includes petrochemicals, gas oils, No. 6 fuel oil,petroleum coke, and asphalt)15%U.S. Gulf CoastThe following table presents the percentages of principal charges and yields (on a combined basis) for the nine refineries in this region for the yearended December 31, 2012. Total throughput volumes for the U.S. Gulf Coast refining region averaged 1.49 million BPD for the year endedDecember 31, 2012.Combined U.S. Gulf Coast Region Charges and Yields Charges: sour crude oil53% acidic sweet crude oil2% sweet crude oil14% residual fuel oil13% other feedstocks5% blendstocks13%Yields: gasolines and blendstocks44% distillates34% petrochemicals4% other products (includes gas oil, No. 6 fuel oil, petroleum coke,and asphalt)18%4 Table of ContentsCorpus Christi East and West Refineries. Our Corpus Christi East and West Refineries are located on the Texas Gulf Coast along the CorpusChristi Ship Channel. The East Refinery processes sour crude oil into conventional gasoline, diesel, jet fuel, asphalt, aromatics, and other lightproducts. The West Refinery specializes in processing primarily sour crude oil and residual fuel oil into premium products such as RBOB. The Eastand West Refineries allow for the transfer of various feedstocks and blending components between the two refineries and the sharing of resources.The refineries typically receive and deliver feedstocks and products by tanker and barge via deepwater docking facilities along the Corpus ChristiShip Channel. Three truck racks with a total of 16 bays service local markets for gasoline, diesel, jet fuels, liquefied petroleum gases, and asphalt.Finished products are distributed across the refineries’ docks into ships or barges, and are transported via third-party pipelines to the Colonial,Explorer, Valley, and other major pipelines.Port Arthur Refinery. Our Port Arthur Refinery is located on the Texas Gulf Coast approximately 90 miles east of Houston. The refineryprocesses primarily heavy sour crude oils and other feedstocks into gasoline, diesel, jet fuel, petrochemicals, intermediates, petroleum coke, andsulfur. In 2012, we completed construction of a 57,000 BPD hydrocracker at this refinery, expanding the refinery’s yield of distillates. The refineryreceives crude oil over marine docks and through crude oil pipelines, and has access to the Sunoco and Oiltanking terminals at Nederland, Texas.Finished products are distributed into the Colonial, Explorer, and TEPPCO pipelines and across the refinery docks into ships or barges.St. Charles Refinery. Our St. Charles Refinery is located approximately 15 miles from New Orleans along the Mississippi River. The refineryprocesses sour crude oils and other feedstocks into gasoline, distillates, and other light products. In 2012, we continued construction on a planned60,000 BPD hydrocracker at this refinery, which is expected to be completed in the second quarter of 2013. The refinery receives crude oil over fivemarine docks and has access to the Louisiana Offshore Oil Port where it can receive crude oil through a 24-inch pipeline. Finished products can beshipped over these docks or through the Colonial pipeline network for distribution to the eastern U.S.Texas City Refinery. Our Texas City Refinery is located southeast of Houston on the Texas City Ship Channel. The refinery processes sour crudeoils into a wide slate of products. The refinery receives and delivers its feedstocks and products by ship and barge via deepwater docking facilitiesalong the Texas City Ship Channel and uses the Colonial, Explorer, and TEPPCO pipelines for distribution of its products.Houston Refinery. Our Houston Refinery is located on the Houston Ship Channel. It processes a mix of crude oils and intermediate oils intoreformulated gasoline and distillates. The refinery receives its feedstocks via interstate crude pipelines, tankers at deepwater docking facilities alongthe Houston Ship Channel and interconnecting pipelines with the Texas City Refinery. It delivers its products through major refined-productpipelines, including the Colonial, Explorer, Orion, and TEPPCO pipelines.Meraux Refinery. Our Meraux Refinery is located in St. Bernard Parish southeast of New Orleans. The refinery processes primarily medium sourcrude oils into gasoline, distillates, and other light products. The refinery receives crude oil at its marine dock and has access to the LouisianaOffshore Oil Port where it can receive crude oil via the Clovelly-Alliance-Meraux pipeline system. Finished products can be shipped from therefinery’s dock or through the Colonial pipeline network for distribution to the eastern U.S. The Meraux Refinery is located about 40 miles from ourSt. Charles Refinery, allowing for integration of feedstocks and refined product blending.5 Table of ContentsThree Rivers Refinery. Our Three Rivers Refinery is located in South Texas between Corpus Christi and San Antonio. It processes sweet andmedium sour crude oils into gasoline, distillates, and aromatics. The refinery has access to crude oil from sources outside the U.S. delivered to theTexas Gulf Coast at Corpus Christi as well as crude oil from U.S. sources through third-party pipelines and trucks. A 70-mile pipeline transportscrude oil via connections to the Three Rivers Refinery from Corpus Christi. To capitalize on the increase in the production of domestic crude oil inSouth Texas, the refinery has installed facilities to receive domestic crude oil by truck and new third-party pipelines. The refinery distributes itsrefined products primarily through third-party pipelines.Aruba Refinery. Our Aruba Refinery is located on the island of Aruba in the Caribbean Sea. The refinery heretofore processed primarily heavy sourcrude oil and produced intermediate feedstocks and finished distillate products. The refinery receives crude oil by ship at its two deepwater marinedocks, which can berth ultra-large crude carriers. The operations of the Aruba Refinery were suspended in March 2012, and in September 2012, wedecided to reorganize the refinery into a crude oil and refined products terminal. We intend to maintain the refinery to allow it to be restarted and do notconsider it to be abandoned. For additional information about this matter, see Note 4 of Notes to Consolidated Financial Statements.U.S. Mid-ContinentThe following table presents the percentages of principal charges and yields (on a combined basis) for the three refineries in this region for the yearended December 31, 2012. Total throughput volumes for the U.S. Mid-Continent refining region averaged approximately 430,000 BPD for the yearended December 31, 2012.Combined U.S. Mid-Continent Region Charges and Yields Charges: sour crude oil9% sweet crude oil81% other feedstocks1% blendstocks9%Yields: gasolines and blendstocks54% distillates36% petrochemicals4% other products (includes gas oil, No. 6 fuel oil, and asphalt)6%Memphis Refinery. Our Memphis Refinery is located in Tennessee along the Mississippi River’s Lake McKellar. It processes primarily sweetcrude oils. Most of its production is light products, including regular and premium gasoline, diesel, jet fuels, and petrochemicals. Crude oil issupplied to the refinery via the Capline pipeline and can also be received, along with other feedstocks, via barge. The refinery’s products aredistributed via truck racks at our three product terminals, barges, and a pipeline network, including one pipeline directly to the Memphis airport.McKee Refinery. Our McKee Refinery is located in the Texas Panhandle. It processes primarily sweet crude oils into conventional gasoline,RBOB, low-sulfur diesel, jet fuels, and asphalt. The refinery has access to crude oil from Texas, Oklahoma, Kansas, and Colorado through third-party pipelines. The refinery also has access at Wichita Falls, Texas to third-party pipelines that transport crude oil from West Texas to the U.S.6 Table of ContentsMid-Continent region. The refinery distributes its products primarily via third-party pipelines to markets in Texas, New Mexico, Arizona, Colorado,and Oklahoma.Ardmore Refinery. Our Ardmore Refinery is located in Ardmore, Oklahoma, approximately 100 miles south of Oklahoma City. It processesmedium sour and sweet crude oils into conventional gasoline, ultra-low-sulfur diesel, liquefied petroleum gas products, and asphalt. Local crude oil isgathered by Enterprise’s crude oil gathering/trunkline systems and trucking operations, and is then transported to the refinery through third-party crudeoil pipelines. The refinery also receives crude oil from other locations via third-party pipelines. Refined products are transported to market via railcars,trucks, and the Magellan pipeline system.North AtlanticThe following table presents the percentages of principal charges and yields (on a combined basis) for the two refineries in this region for the yearended December 31, 2012. Total throughput volumes for the North Atlantic refining region averaged approximately 428,000 BPD for the year endedDecember 31, 2012.Combined North Atlantic Region Charges and Yields Charges: sour crude oil2% acidic sweet crude oil6% sweet crude oil81% residual fuel oil2% other feedstocks2% blendstocks7%Yields: gasolines and blendstocks43% distillates44% petrochemicals1% other products (includes gas oil, No. 6 fuel oil, and otherproducts)12%Pembroke Refinery. Our Pembroke Refinery is located in the County of Pembrokeshire in southwest Wales, U.K. The refinery processes primarilysweet crude oils into ultra-low sulfur gasoline and diesel, jet fuel, heating oil, and low sulfur fuel oil. The refinery receives all of its feedstocks anddelivers the majority of its products by ship and barge via deepwater docking facilities along the Milford Haven Waterway with its remaining productsbeing delivered by our Mainline pipeline system and by tanker trucks.Quebec City Refinery. Our Quebec City Refinery is located in Lévis, Canada (near Quebec City). It processes sweet, high mercaptan crude oilsand lower-quality, sweet acidic crude oils into conventional gasoline, low-sulfur diesel, jet fuel, heating oil, and propane. The refinery receives crudeoil by ship at its deepwater dock on the St. Lawrence River. The refinery transports its products through our pipeline (commissioned in December2012) from Quebec to our terminal in Montreal and to various other terminals throughout eastern Canada by trains, ships, truck and third-partypipeline.7 Table of ContentsU.S. West CoastThe following table presents the percentages of principal charges and yields (on a combined basis) for the two refineries in this region for the yearended December 31, 2012. Total throughput volumes for the U.S. West Coast refining region averaged approximately 267,000 BPD for the yearended December 31, 2012.Combined U.S. West Coast Region Charges and Yields Charges: sour crude oil62% acidic sweet crude oil11% sweet crude oil4% other feedstocks10% blendstocks13%Yields: gasolines and blendstocks62% distillates25% other products (includes gas oil, No. 6 fuel oil, petroleum coke,and asphalt)13%Benicia Refinery. Our Benicia Refinery is located northeast of San Francisco on the Carquinez Straits of San Francisco Bay. It processes sourcrude oils into premium products, primarily CARBOB gasoline, a reformulated gasoline mixture that meets the specifications of the CARB whenblended with ethanol. The refinery receives crude oil feedstocks via a marine dock that can berth large crude oil carriers and a 20-inch crude oilpipeline connected to a southern California crude oil delivery system. Most of the refinery’s products are distributed via the Kinder Morgan pipelinesystem in California.Wilmington Refinery. Our Wilmington Refinery is located near Los Angeles, California. The refinery processes a blend of lower-cost heavy andhigh-sulfur crude oils. The refinery can produce all of its gasoline as CARBOB gasoline and produces ultra-low-sulfur diesel, CARB diesel, and jetfuel. The refinery is connected by pipeline to marine terminals and associated dock facilities that can move and store crude oil and other feedstocks.Refined products are distributed via the Kinder Morgan pipeline system and various third-party terminals in southern California, Nevada, and Arizona.8 Table of ContentsFeedstock SupplyApproximately 77 percent of our current crude oil feedstock requirements are purchased through term contracts while the remaining requirements aregenerally purchased on the spot market. Our term supply agreements include arrangements to purchase feedstocks at market-related prices directly orindirectly from various national oil companies as well as international and U.S. oil companies. The contracts generally permit the parties to amend thecontracts (or terminate them), effective as of the next scheduled renewal date, by giving the other party proper notice within a prescribed period oftime (e.g., 60 days, 6 months) before expiration of the current term. The majority of the crude oil purchased under our term contracts is purchased atthe producer’s official stated price (i.e., the “market” price established by the seller for all purchasers) and not at a negotiated price specific to us.The U.S. network of crude oil pipelines and terminals allows us to acquire crude oil from producing leases, crude oil trading centers, and shipsdelivering cargoes of crude oil. Our Pembroke and Quebec City Refineries rely on crude oil that is delivered to the refineries’ dock facilities by ship.In 2012, our refining business benefited from processing sweet crude oils sourced from the inland U.S. This development is discussed further inItem 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the caption “Outlook.”Refining Segment SalesOverviewOur refining segment includes sales of refined products in both the wholesale rack and bulk markets. These sales include refined products that aremanufactured in our refining operations as well as refined products purchased or received on exchange from third parties. Most of our refineries haveaccess to marine transportation facilities and interconnect with common-carrier pipeline systems, allowing us to sell products in the U.S., Canada, theU.K., and other countries. No customer accounted for more than 10 percent of our total operating revenues in 2012.Wholesale MarketingWe market branded and unbranded refined products on a wholesale basis through an extensive rack marketing network. The principal purchasers ofour refined products from terminal truck racks are wholesalers, distributors, retailers, and truck-delivered end users throughout the U.S., the U.K.,and Ireland.The majority of our rack volume is sold through unbranded channels. The remainder is sold to distributors and dealers that are members of the Valero-brand family that operate approximately 4,450 branded sites in the U.S. and approximately 1,000 branded sites in the U.K. and Ireland. These sites areindependently owned and are supplied by us under multi-year contracts. For wholesale branded sites, we promote our Valero®, Beacon®, andShamrock® brands in the U.S., and the Texaco® brand in the U.K. and Ireland.Bulk Sales and TradingWe sell a significant portion of our gasoline and distillate production through bulk sales channels in U.S. and international markets. Our bulk sales aremade to various oil companies and traders as well as certain bulk end-users such as railroads, airlines, and utilities. Our bulk sales are transportedprimarily by pipeline, barges, and tankers to major tank farms and trading hubs.We also enter into refined product exchange and purchase agreements. These agreements help minimize transportation costs, optimize refineryutilization, balance refined product availability, broaden geographic9 Table of Contentsdistribution, and provide access to markets not connected to our refined-product pipeline systems. Exchange agreements provide for the delivery ofrefined products by us to unaffiliated companies at our and third-parties’ terminals in exchange for delivery of a similar amount of refined products tous by these unaffiliated companies at specified locations. Purchase agreements involve our purchase of refined products from third parties withdelivery occurring at specified locations.Specialty ProductsWe sell a variety of other products produced at our refineries, which we refer to collectively as “Specialty Products.” Our Specialty Products includeasphalt, lube oils, natural gas liquids (NGLs), petroleum coke, petrochemicals, and sulfur.•We produce asphalt at five of our refineries. Our asphalt products are sold for use in road construction, road repair, and roofing applicationsthrough a network of refinery and terminal loading racks.•We produce naphthenic oils at one of our refineries suitable for a wide variety of lubricant and process applications.•NGLs produced at our refineries include butane, isobutane, and propane. These products can be used for gasoline blending, home heating,and petrochemical plant feedstocks.•We are a significant producer of petroleum coke, supplying primarily power generation customers and cement manufacturers. Petroleumcoke is used largely as a substitute for coal.•We produce and market a number of commodity petrochemicals including aromatics (benzene, toluene, and xylene) and two grades ofpropylene. Aromatics and propylenes are sold to customers in the chemical industry for further processing into such products as paints,plastics, and adhesives.•We are a large producer of sulfur with sales primarily to customers in the agricultural sector. Sulfur is used in manufacturing fertilizer.10 Table of ContentsETHANOLWe own 10 ethanol plants with a combined ethanol nameplate production capacity of about 1.1 billion gallons per year. Our ethanol plants are dry millfacilities1 that process corn to produce ethanol and distillers grains.2 We source our corn supply from local farmers and commercial elevators. Ourfacilities receive corn by rail and truck. We publish on our website a corn bid for local farmers and cooperative dealers to use to facilitate corn supplytransactions.After processing, our ethanol is held in storage tanks on-site pending loading to trucks and railcars. We sell our ethanol (i) to large customers –primarily refiners and gasoline blenders – under term and spot contracts, and (ii) in bulk markets such as New York, Chicago, Dallas, Florida, andthe U.S. West Coast. We also use our ethanol for our own needs in blending gasoline. We ship our dry distillers grains (DDG) by truck or railprimarily to animal feed customers in the U.S. and Mexico, with some sales into the Far East. We also sell modified distillers grains locally at ourplant sites.The following table presents the locations of our ethanol plants, their approximate ethanol and DDG production capacities, and their approximate cornprocessing capacities.State City Ethanol NameplateProduction(in gallons per year) Production of DDG(in tons per year) Corn Processed(in bushels per year)Indiana Linden 110 million 350,000 40 millionIowa Albert City 110 million 350,000 40 million Charles City 110 million 350,000 40 million Fort Dodge 110 million 350,000 40 million Hartley 110 million 350,000 40 millionMinnesota Welcome 110 million 350,000 40 millionNebraska Albion 110 million 350,000 40 millionOhio Bloomingburg 110 million 350,000 40 millionSouth Dakota Aurora 120 million 390,000 43 millionWisconsin Jefferson 110 million 350,000 40 million Total 1,110 million 3,540,000 403 millionThe combined ethanol production from our plants in 2012 averaged 3.0 million gallons per day.________________________1 Ethanol is commercially produced using either the wet mill or dry mill process. Wet milling involves separating the grain kernel into its component parts (germ, fiber,protein, and starch) prior to fermentation. In the dry mill process, the entire grain kernel is ground into flour. The starch in the flour is converted to ethanol during thefermentation process, creating carbon dioxide and distillers grains.2 During fermentation, nearly all of the starch in the grain is converted into ethanol and carbon dioxide, while the remaining nutrients (proteins, fats, minerals, and vitamins)are concentrated to yield modified distillers grains, or, after further drying, dried distillers grains. Distillers grains generally are an economical partial replacement for corn,soybean, and dicalcium phosphate in feeds for livestock, swine, and poultry.11 Table of ContentsRETAILOur retail segment operations include:•the sale of motor fuel at convenience stores, filling stations, and cardlocks;•the sale of convenience merchandise items and services at our convenience stores; and•the sale of heating oil to residential customers and heating oil and motor fuel to small commercial customers.We are one of the largest independent retailers of motor fuel in the central and southwest U.S. and eastern Canada. Our retail operations are segregatedgeographically into two groups: Retail–U.S. and Retail–Canada.We plan to separate our retail business under a new company named CST Brands, Inc. (CST). CST is a wholly owned subsidiary of Valero EnergyCorporation. The separation is planned by way of a pro rata distribution of 80 percent of the outstanding shares of CST common stock to Valerostockholders. For a further discussion of the planned separation, see Item 7, “Management’s Discussion and Analysis of Financial Condition andResults of Operations” under the caption “Outlook.”Retail–U.S.Sales in Retail–U.S. represent sales of motor fuel and convenience merchandise items and services through our company-operated conveniencestores. For the year ended December 31, 2012, total sales of motor fuel through Retail–U.S.’s sites averaged 122,583 BPD. In addition to motorfuel, our company-operated stores sell convenience-type items, such as tobacco products, beer, snacks and beverages, and fast foods. Our storesalso offer services such as ATM access, money orders, lottery tickets, car wash facilities, air and water, and video rentals. On December 31, 2012,we had 1,032 company-operated convenience stores in Retail–U.S. (of which 833 were owned and 199 were leased). Our company-operatedconvenience stores are operated primarily under the Corner Store® brand name. Motor fuel sold in our Retail–U.S. stores are sold primarily under theValero® brand.Retail–CanadaSales in Retail–Canada include:•the sale of motor fuel and convenience merchandise items through our company-operated convenience stores and cardlocks,•the sale of motor fuel through filling stations owned and operated by independent dealers or agents where we retain title to the motor fuel andsell it directly to our customers, and•the sale of heating oil to residential and small commercial customers.Retail–Canada includes retail operations in eastern Canada where we are a major supplier of motor fuel serving Quebec, Ontario, Newfoundland andLabrador, Nova Scotia, New Brunswick, and Prince Edward Island. For the year ended December 31, 2012, total retail sales of motor fuel throughRetail–Canada averaged approximately 68,100 BPD. Motor fuel is sold under the Ultramar® brand through a network of 848 retail sites throughouteastern Canada. On December 31, 2012, we owned or leased 261 convenience stores in Retail–Canada and sold motor fuel through 507 fillingstations. In addition, Retail–Canada operates 80 cardlocks, which are card- or key-activated, self-service, unattended filling stations that allowcommercial, trucking, and governmental fleets to buy motor fuel 24 hours a day. Retail–Canada operations also include the sale of heating oil toresidential customers and heating oil and motor fuel to small commercial customers in eastern Canada. Our heating oil business is seasonal to theextent of increased demand for heating oil during the winter.12 Table of ContentsRISK FACTORSRisk Factors Related to Our BusinessOur financial results are affected by volatile refining margins, which are dependent upon factors beyond our control.Our financial results are primarily affected by the relationship, or margin, between refined product prices and the prices for crude oil and otherfeedstocks. Our cost to acquire feedstocks and the price at which we can ultimately sell refined products depend upon several factors beyond ourcontrol, including regional and global supply of and demand for crude oil, gasoline, diesel, and other feedstocks and refined products. These in turndepend on, among other things, the availability and quantity of imports, the production levels of U.S. and international suppliers, levels of refinedproduct inventories, productivity and growth (or the lack thereof) of U.S. and global economies, U.S. relationships with foreign governments,political affairs, and the extent of governmental regulation. Historically, refining margins have been volatile, and we believe they will continue to bevolatile in the future.Economic turmoil and political unrest or hostilities, including the threat of future terrorist attacks, could affect the economies of the U.S. and othercountries. Lower levels of economic activity could result in declines in energy consumption, including declines in the demand for and consumptionof our refined products, which could cause our revenues and margins to decline and limit our future growth prospects.Refining margins are also significantly impacted by additional refinery conversion capacity through the expansion of existing refineries or theconstruction of new refineries. Worldwide refining capacity expansions may result in refining production capability exceeding refined productdemand, which would have an adverse effect on refining margins.A significant portion of our profitability is derived from the ability to purchase and process crude oil feedstocks that historically have been cheaperthan benchmark crude oils, such as Louisiana Light Sweet (LLS) and Brent crude oils. These crude oil feedstock differentials vary significantlydepending on overall economic conditions and trends and conditions within the markets for crude oil and refined products, and they could decline inthe future, which would have a negative impact on our results of operations.Uncertainty and illiquidity in credit and capital markets can impair our ability to obtain credit and financing on acceptable terms, and canadversely affect the financial strength of our business partners.Our ability to obtain credit and capital depends in large measure on capital markets and liquidity factors that we do not control. Our ability to accesscredit and capital markets may be restricted at a time when we would like, or need, to access those markets, which could have an impact on ourflexibility to react to changing economic and business conditions. In addition, the cost and availability of debt and equity financing may be adverselyimpacted by unstable or illiquid market conditions. Protracted uncertainty and illiquidity in these markets also could have an adverse impact on ourlenders, commodity hedging counterparties, or our customers, causing them to fail to meet their obligations to us. In addition, decreased returns onpension fund assets may also materially increase our pension funding requirements.Our access to credit and capital markets also depends on the credit ratings assigned to our debt by independent credit rating agencies. We currentlymaintain investment-grade ratings by Standard & Poor’s Ratings Services (S&P), Moody’s Investors Service (Moody’s), and Fitch Ratings (Fitch)on our senior unsecured debt. (Ratings from credit agencies are not recommendations to buy, sell, or hold our securities. Each rating should beevaluated independently of any other rating.) We cannot provide assurance that any of our current ratings13 Table of Contentswill remain in effect for any given period of time or that a rating will not be lowered or withdrawn entirely by a rating agency if, in its judgment,circumstances so warrant. Specifically, if S&P, Moody’s, or Fitch were to downgrade our long-term rating, particularly below investment grade, ourborrowing costs would increase, which could adversely affect our ability to attract potential investors and our funding sources could decrease. Inaddition, we may not be able to obtain favorable credit terms from our suppliers or they may require us to provide collateral, letters of credit, or otherforms of security which would increase our operating costs. As a result, a downgrade below investment grade in our credit ratings could have amaterial adverse impact on our financial position, results of operations, and liquidity.From time to time, our cash needs may exceed our internally generated cash flow, and our business could be materially and adversely affected if wewere unable to obtain necessary funds from financing activities. From time to time, we may need to supplement our cash generated from operationswith proceeds from financing activities. We have existing revolving credit facilities, committed letter of credit facilities, and an accounts receivablesales facility to provide us with available financing to meet our ongoing cash needs. In addition, we rely on the counterparties to our derivativeinstruments to fund their obligations under such arrangements. Uncertainty and illiquidity in financial markets may materially impact the ability of theparticipating financial institutions and other counterparties to fund their commitments to us under our various financing facilities or our derivativeinstruments, which could have a material adverse effect on our financial position, results of operations, and liquidity.Compliance with and changes in environmental laws, including proposed climate change laws and regulations, could adversely affect ourperformance.The principal environmental risks associated with our operations are emissions into the air and releases into the soil, surface water, or groundwater.Our operations are subject to extensive environmental laws and regulations, including those relating to the discharge of materials into the environment,waste management, pollution prevention measures, greenhouse gas emissions, and characteristics and composition of gasoline and diesel fuels.Certain of these laws and regulations could impose obligations to conduct assessment or remediation efforts at our facilities as well as at formerlyowned properties or third-party sites where we have taken wastes for disposal or where our wastes have migrated. Environmental laws and regulationsalso may impose liability on us for the conduct of third parties, or for actions that complied with applicable requirements when taken, regardless ofnegligence or fault. If we violate or fail to comply with these laws and regulations, we could be fined or otherwise sanctioned.Because environmental laws and regulations are becoming more stringent and new environmental laws and regulations are continuously being enactedor proposed, such as those relating to greenhouse gas emissions and climate change, the level of expenditures required for environmental matterscould increase in the future. Current and future legislative action and regulatory initiatives could result in changes to operating permits, materialchanges in operations, increased capital expenditures and operating costs, increased costs of the goods we sell, and decreased demand for ourproducts that cannot be assessed with certainty at this time. We may be required to make expenditures to modify operations or install pollution controlequipment that could materially and adversely affect our business, financial condition, results of operations, and liquidity. For example, in 2012, theU.S. Environmental Protection Agency (EPA) proposed more stringent requirements for refinery air emissions through revisions to existing NewSource Performance Standards and National Emission Standards for Hazardous Air Pollutants. The EPA also issued final amendments to Subpart Jaof the New Source Performance Standards, which included revisions to certain emission limits, monitoring requirements, fuel gas concentrationlimits, and waste gas flow limits for process heaters and flares. In addition, the EPA has, in recent years, adopted final rules making more stringent theNational14 Table of ContentsAmbient Air Quality Standards (NAAQS) for ozone, sulfur dioxide and nitrogen dioxide, and the EPA is considering further revisions to theNAAQS. Emerging rules and permitting requirements implementing these revised standards may require us to install more stringent controls at ourfacilities, which may result in increased capital expenditures. Governmental restrictions on greenhouse gas emissions – including so-called “cap-and-trade” programs targeted at reducing carbon dioxide emissions – could result in material increased compliance costs, additional operating restrictionsfor our business, and an increase in the cost of, and reduction in demand for, the products we produce, which could have a material adverse effect onour financial position, results of operations, and liquidity.Disruption of our ability to obtain crude oil could adversely affect our operations.A significant portion of our feedstock requirements is satisfied through supplies originating in the Middle East, Africa, Asia, North America, andSouth America. We are, therefore, subject to the political, geographic, and economic risks attendant to doing business with suppliers located in, andsupplies originating from, these areas. If one or more of our supply contracts were terminated, or if political events disrupt our traditional crude oilsupply, we believe that adequate alternative supplies of crude oil would be available, but it is possible that we would be unable to find alternativesources of supply. If we are unable to obtain adequate crude oil volumes or are able to obtain such volumes only at unfavorable prices, our results ofoperations could be materially adversely affected, including reduced sales volumes of refined products or reduced margins as a result of higher crudeoil costs.In addition, the U.S. government can prevent or restrict us from doing business in or with other countries. These restrictions, and those of othergovernments, could limit our ability to gain access to business opportunities in various countries. Actions by both the U.S. and other countries haveaffected our operations in the past and will continue to do so in the future.We are subject to interruptions of supply and increased costs as a result of our reliance on third-party transportation of crude oil and refinedproducts.We often use the services of third parties to transport feedstocks and refined products to and from our facilities. If we experience prolongedinterruptions of supply or increases in costs to deliver refined products to market, or if the ability of the pipelines or vessels to transport feedstocks orrefined products is disrupted because of weather events, accidents, governmental regulations, or third-party actions, it could have a material adverseeffect on our financial position, results of operations, and liquidity.Competitors that produce their own supply of feedstocks, have more extensive retail sites, have greater financial resources, or providealternative energy sources may have a competitive advantage.The refining and marketing industry is highly competitive with respect to both feedstock supply and refined product markets. We compete with manycompanies for available supplies of crude oil and other feedstocks and for sites for our refined products. We do not produce any of our crude oilfeedstocks and, following the proposed separation of our retail business, will not have a company-owned retail network. Many of our competitors,however, obtain a significant portion of their feedstocks from company-owned production and some have extensive retail sites. Such competitors areat times able to offset losses from refining operations with profits from producing or retailing operations, and may be better positioned to withstandperiods of depressed refining margins or feedstock shortages.15 Table of ContentsSome of our competitors also have materially greater financial and other resources than we have. Such competitors have a greater ability to bear theeconomic risks inherent in all phases of our industry. In addition, we compete with other industries that provide alternative means to satisfy the energyand fuel requirements of our industrial, commercial, and individual consumers.A significant interruption in one or more of our refineries or our information technology systems could adversely affect our business.Our refineries are our principal operating assets. As a result, our operations could be subject to significant interruption if one or more of our refinerieswere to experience a major accident or mechanical failure, encounter work stoppages relating to organized labor issues, be damaged by severe weatheror other natural or man-made disaster, such as an act of terrorism, or otherwise be forced to shut down. If any refinery were to experience aninterruption in operations, earnings from the refinery could be materially adversely affected (to the extent not recoverable through insurance) becauseof lost production and repair costs. Significant interruptions in our refining system could also lead to increased volatility in prices for crude oilfeedstocks and refined products, and could increase instability in the financial and insurance markets, making it more difficult for us to access capitaland to obtain insurance coverage that we consider adequate.In addition, our information technology systems and network infrastructure may be subject to unauthorized access or attack, which could result in aloss of sensitive business information, systems interruption, or the disruption of our business operations. There can be no assurance that ourinfrastructure protection technologies and disaster recovery plans can prevent a technology systems breach or systems failure, which could have amaterial adverse effect on our financial position or results of operations.We are subject to operational risks and our insurance may not be sufficient to cover all potential losses arising from operating hazards.Failure by one or more insurers to honor its coverage commitments for an insured event could materially and adversely affect our financialposition, results of operations, and liquidity.Our refining and marketing operations are subject to various hazards common to the industry, including explosions, fires, toxic emissions, maritimehazards, and natural catastrophes. As protection against these hazards, we maintain insurance coverage against some, but not all, such potential lossesand liabilities. We may not be able to maintain or obtain insurance of the type and amount we desire at reasonable rates. As a result of marketconditions, premiums and deductibles for certain of our insurance policies could increase substantially. In some instances, certain insurance couldbecome unavailable or available only for reduced amounts of coverage. For example, coverage for hurricane damage is very limited, and coverage forterrorism risks includes very broad exclusions. If we were to incur a significant liability for which we were not fully insured, it could have a materialadverse effect on our financial position.Our insurance program includes a number of insurance carriers. Significant disruptions in financial markets could lead to a deterioration in thefinancial condition of many financial institutions, including insurance companies. We can make no assurances that we will be able to obtain the fullamount of our insurance coverage for insured events.Compliance with and changes in tax laws could adversely affect our performance.We are subject to extensive tax liabilities imposed by multiple jurisdictions, including income taxes, indirect taxes (excise/duty, sales/use, grossreceipts, and value-added taxes), payroll taxes, franchise taxes,16 Table of Contentswithholding taxes, and ad valorem taxes. New tax laws and regulations and changes in existing tax laws and regulations are continuously beingenacted or proposed that could result in increased expenditures for tax liabilities in the future. Many of these liabilities are subject to periodic audits bythe respective taxing authority. Subsequent changes to our tax liabilities as a result of these audits may subject us to interest and penalties.We may incur losses as a result of our forward-contract activities and derivative transactions.We currently use commodity derivative instruments, and we expect to continue their use in the future. If the instruments we use to hedge our exposureto various types of risk are not effective, we may incur losses.Risk Factors Related to the Planned Separation of our Retail BusinessRisks associated with the separation of CST.Our planned separation of CST is subject to a number of risks, including the following:Risk of Non-Consummation. Although we expect to distribute 80 percent of the shares of CST common stock to Valero stockholders, thedistribution remains subject to conditions, including, but not limited to: (i) the SEC having declared effective CST’s registration statement on Form10; (ii) the receipt of a private letter ruling from the Internal Revenue Service (IRS) to the effect that the distribution, together with certain relatedtransactions, will qualify as a reorganization for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Internal RevenueCode of 1986, as amended (Code); and (iii) the receipt of an opinion from a nationally recognized investment banking firm or other authorityconfirming the solvency and financial viability of CST after the distribution. There can be no assurance that any or all of these conditions will be metand that the distribution will be completed in the manner currently contemplated, or at all. In addition, the fulfillment of these conditions does notcreate any obligations on our part to effect the distribution, and our board of directors has reserved the right, in its sole discretion, to abandon,modify, or change the terms of the distribution.Risks of Not Obtaining Benefits from the Separation. We and CST may not realize some or all of the benefits we expect from the separation inthe time frame currently contemplated, or at all.Risks Relating to Less Diversification. If the distribution is completed, our diversification of revenue sources will diminish due to the separationof CST from our other businesses, and it is possible that our results of operations, cash flows, working capital and financing requirements may besubject to increased volatility as a result.Risks Relating to Taxes. We are seeking a private letter ruling from the IRS substantially to the effect that, for U.S. federal income tax purposes,the distribution of 80 percent of the shares of CST common stock, except for cash received in lieu of fractional shares, will qualify as tax-free underSections 355 and 361 of the Code, and that certain internal transactions undertaken in anticipation of the distribution will qualify for favorabletreatment. Notwithstanding the private letter ruling, the IRS could determine on audit that the distribution or the internal transactions should be treatedas taxable transactions if it determines that any of the facts, assumptions, representations, or undertakings we or CST have made or provided to theIRS is not correct, or that the distribution or the internal transactions should be taxable for other reasons, including as a result of a significant changein stock or asset ownership after the distribution. If the distribution ultimately is determined to be taxable, we and/or our stockholders that are subjectto U.S. federal income tax could incur significant U.S. federal income tax liabilities.17 Table of ContentsRisks Relating to Post-Separation Share Value. Until the market has fully analyzed the value of our company after the distribution, we mayexperience more stock price volatility than usual. In addition, it is possible that the combined trading prices of our common stock and CST commonstock immediately after the distribution will be less than the trading price of shares of our common stock immediately before the distribution.Our minority investment in CST will be subject to certain risks and uncertainties and we may not be able to capture the full benefits fromthis investment.After the distribution, we expect to retain 20 percent of the outstanding shares of CST common stock. As with any investment in a publicly tradedcompany, our investment in CST will be subject to certain risks and uncertainties, which are disclosed in more detail in CST’s filings with the SEC.In addition, in connection with the separation, we will agree, and will grant to CST a proxy, to vote all of the shares of CST common stock that weretain in proportion to the votes cast by CST’s other stockholders. As a result, after the distribution, we may be required to vote our shares of CSTcommon stock in a manner that is contrary to the manner we would otherwise have voted such shares.We currently plan to dispose of all of the shares of CST common stock we will retain after the distribution through one or more exchanges for ourindebtedness outstanding at the time of such exchange. We expect that pursuant to the private letter ruling we are seeking from the IRS in connectionwith the distribution, we will be required to dispose of any shares we do not dispose of pursuant to such exchanges as soon as practicable andconsistent with our reasons for retaining such shares, but in no event later than five years after the distribution in connection with the separation. As aresult, we may be required to sell some or all of our retained shares of CST common stock at a time when we might not otherwise choose to do so,and any such disposition in the public market, or the perception that such dispositions could occur, could adversely affect prevailing market prices forCST common stock and/or the value or the terms of such disposition.18 Table of ContentsENVIRONMENTAL MATTERSWe incorporate by reference into this Item the environmental disclosures contained in the following sections of this report:•Item 1 under the caption “Risk Factors – Compliance with and changes in environmental laws, including proposed climate change laws andregulations, could adversely affect our performance,”•Item 3, “Legal Proceedings” under the caption “Environmental Enforcement Matters,” and•Item 8, “Financial Statements and Supplementary Data” in Note 10 of Notes to Consolidated Financial Statements under the caption“Environmental Liabilities” and Note 12 of Notes to Consolidated Financial Statements under the caption “Environmental Matters.”Capital Expenditures Attributable to Compliance with Environmental Regulations. In 2012, our capital expenditures attributable tocompliance with environmental regulations were $135 million, and are currently estimated to be $100 million for 2013 and $70 million for 2014. Theestimates for 2013 and 2014 do not include amounts related to capital investments at our facilities that management has deemed to be strategicinvestments. These amounts could materially change as a result of governmental and regulatory actions.PROPERTIESOur principal properties are described above under the caption “Valero’s Operations,” and that information is incorporated herein by reference. Wealso own feedstock and refined product storage and transportation facilities in various locations. We believe that our properties and facilities aregenerally adequate for our operations and that our facilities are maintained in a good state of repair. As of December 31, 2012, we were the lesseeunder a number of cancelable and noncancelable leases for certain properties. Our leases are discussed more fully in Notes 11 and 12 of Notes toConsolidated Financial Statements.Our patents relating to our refining operations are not material to us as a whole. The trademarks and tradenames under which we conduct our retail andbranded wholesale business – including Valero®, Diamond Shamrock®, Shamrock®, Ultramar®, Beacon®, Texaco®, Corner Store®, andStop N Go® – and other trademarks employed in the marketing of petroleum products are integral to our wholesale and retail marketing operations.ITEM 1B. UNRESOLVED STAFF COMMENTSNone.19 Table of ContentsITEM 3. LEGAL PROCEEDINGSLitigationWe incorporate by reference into this Item our disclosures made in Part II, Item 8 of this report included in Note 12 of Notes to ConsolidatedFinancial Statements under the caption “Litigation Matters.”Environmental Enforcement MattersWhile it is not possible to predict the outcome of the following environmental proceedings, if any one or more of them were decided against us, webelieve that there would be no material effect on our financial position, results of operations, or liquidity. We are reporting these proceedings tocomply with SEC regulations, which require us to disclose certain information about proceedings arising under federal, state, or local provisionsregulating the discharge of materials into the environment or protecting the environment if we reasonably believe that such proceedings will result inmonetary sanctions of $100,000 or more.EPA (Linden ethanol plant). In the third quarter of 2012, the EPA issued a notice of violation (NOV) to our Linden, Indiana ethanol plant. The EPAseeks penalties of $205,000, alleging excess air emissions. We are evaluating our response to the NOV.EPA (Port Arthur Refinery). In our annual report on Form 10-K for the year ended December 31, 2011, and in our quarterly report on Form 10-Qfor the quarter ended March 31, 2012, we reported potential stipulated penalties payable to the EPA and the Texas Commission on EnvironmentalQuality (TCEQ) relating to certain flaring events at our Port Arthur Refinery. In the third quarter of 2012, we received a total stipulated penaltydemand of $5,197,500 for the flaring events. In the fourth quarter of 2012, we paid the demanded amount resolving this matter with the EPA.Bay Area Air Quality Management District (BAAQMD) (Benicia Refinery). We currently have 104 outstanding Violation Notices (VNs) issuedby the BAAQMD. These VNs are for various alleged air regulation and air permit violations at our Benicia Refinery and asphalt plant.People of the State of Illinois, ex rel. v. The Premcor Refining Group Inc., et al., Third Judicial Circuit Court, Madison County (Case No.03-CH-00459, filed May 29, 2003) (Hartford Refinery and terminal). The Illinois Environmental Protection Agency has issued several NOVsalleging violations of air and waste regulations at Premcor’s Hartford, Illinois terminal and closed refinery. We are negotiating the terms of a consentorder for corrective action.South Coast Air Quality Management District (SCAQMD) (Wilmington Refinery). In our annual report on Form 10-K for the year endedDecember 31, 2011, we reported that our Wilmington Refinery received a penalty demand from the SCAQMD due to excess flare related emissionsin 2011. In 2012, we paid mitigation fees under SCAQMD Rule 1118 to resolve the matter.SCAQMD (Wilmington Refinery). In the fourth quarter of 2012, the SCAQMD issued three NOVs to our Wilmington Refinery for allegedreporting violations and excess emissions, which we reasonably believe may result in penalties of $100,000 or more. We are evaluating the NOVs.TCEQ (Port Arthur Refinery). In our quarterly report on Form 10-Q for the quarter ended March 31, 2012, we reported that our Port Arthur Refineryreceived a proposed agreed order from the TCEQ that assessed a penalty of $180,911 for various alleged air emission and reporting violations. Weare working with the TCEQ to resolve this matter.20 Table of ContentsTCEQ (Port Arthur Refinery). In the fourth quarter of 2012, the TCEQ issued a Notice of Enforcement (NOE) for unauthorized flare emissions. Weare evaluating the NOE. Potential stipulated penalties under our EPA §114 Clean Air Act Consent Decree for these three incidents are expected to be$166,000 if the EPA issues a stipulated penalty demand letter for these events.ITEM 4. MINE SAFETY DISCLOSURESNone.21 Table of ContentsPART IIITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUERPURCHASES OF EQUITY SECURITIESOur common stock trades on the New York Stock Exchange under the symbol “VLO.”As of January 31, 2013, there were 7,305 holders of record of our common stock.The following table shows the high and low sales prices of and dividends declared on our common stock for each quarter of 2012 and 2011. Sales Prices of theCommon Stock DividendsPerCommonShareQuarter Ended High Low 2012: December 31 $34.38 $28.20 $0.175September 30 33.75 23.64 0.175June 30 26.33 20.37 0.150March 31 28.56 19.61 0.1502011: December 31 26.70 17.17 0.150September 30 26.89 17.78 0.050June 30 30.50 23.18 0.050March 31 30.73 23.19 0.050On January 23, 2013, our board of directors declared a quarterly cash dividend of $0.20 per common share payable March 13, 2013 to holders ofrecord at the close of business on February 13, 2013.Dividends are considered quarterly by the board of directors and may be paid only when approved by the board.22 Table of ContentsThe following table discloses purchases of shares of Valero’s common stock made by us or on our behalf during the fourth quarter of 2012.PeriodTotal Number ofShares PurchasedAverage Price Paidper ShareTotal Number of SharesNot Purchased as Part ofPublicly Announced Plansor Programs (a)Total Number of SharesPurchased as Part of PubliclyAnnounced Plans or ProgramsApproximate Dollar Value ofShares that May Yet BePurchased Under the Plans orPrograms (b)October 201250,163$29.0150,163—$ 3.46 billionNovember 2012927,587$30.43427,587500,000$ 3.44 billionDecember 20123,214,969$32.1014,6373,200,332$ 3.34 billionTotal4,192,719$31.69492,3873,700,332$ 3.34 billion(a)The shares reported in this column represent purchases settled in the fourth quarter of 2012 relating to (i) our purchases of shares in open-markettransactions to meet our obligations under incentive compensation plans, and (ii) our purchases of shares from our employees and non-employeedirectors in connection with the exercise of stock options, the vesting of restricted stock, and other stock compensation transactions in accordance withthe terms of our incentive compensation plans.(b)On April 26, 2007, we publicly announced an increase in our common stock purchase program from $2 billion to $6 billion, as authorized by ourboard of directors on April 25, 2007. The $6 billion common stock purchase program has no expiration date. On February 28, 2008, we announcedthat our board of directors approved a $3 billion common stock purchase program, which is in addition to the $6 billion program. This $3 billionprogram has no expiration date.23 Table of ContentsThe following performance graph is not “soliciting material,” is not deemed filed with the SEC, and is not to be incorporated byreference into any of Valero’s filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, as amended,respectively.This performance graph and the related textual information are based on historical data and are not indicative of future performance. The followingline graph compares the cumulative total return1 on an investment in our common stock against the cumulative total return of the S&P 500 CompositeIndex and an index of peer companies (that we selected) for the five-year period commencing December 31, 2007 and ending December 31, 2012.Our peer group consists of the following ten companies: Alon USA Energy, Inc.; BP plc (BP); CVR Energy, Inc.; Hess Corporation; HollyFrontierCorporation; Marathon Petroleum Corporation; Phillips 66 (PSX); Royal Dutch Shell plc (RDS); Tesoro Corporation; and Western Refining, Inc.Our peer group previously included Chevron Corporation (CVX) and Exxon Mobil Corporation (XOM) but they were replaced with BP, PSX, andRDS. In 2012, PSX became an independent downstream energy company and was added to our peer group. CVX and XOM were replaced with BPand RDS as they were viewed as having operations that more closely aligned with our core businesses.COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN1 Among Valero Energy Corporation, the S&P 500 Index,Old Peer Group, and New Peer Group 12/2007 12/2008 12/2009 12/2010 12/2011 12/2012Valero Common Stock$100.00 $31.45 $25.09 $35.01 $32.26 $53.61S&P 500100.00 63.00 79.67 91.67 93.61 108.59Old Peer Group100.00 80.98 76.54 88.41 104.33 111.11New Peer Group100.00 66.27 86.87 72.84 74.70 76.89____________1 Assumes that an investment in Valero common stock and each index was $100 on December 31, 2007. “Cumulative total return” is based on share price appreciation plusreinvestment of dividends from December 31, 2007 through December 31, 2012.24 Table of ContentsITEM 6. SELECTED FINANCIAL DATAThe selected financial data for the five-year period ended December 31, 2012 was derived from our audited financial statements. The following tableshould be read together with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and with thehistorical financial statements and accompanying notes included in Item 8, “Financial Statements and Supplementary Data.”The following summaries are in millions of dollars, except for per share amounts: Year Ended December 31, 2012 (a) 2011 (b) 2010 (c) 2009 (c) 2008Operating revenues$139,250 $125,987 $82,233 $64,599 $106,676Income (loss) from continuing operations2,080 2,096 923 (273) (1,154)Earnings per commonshare from continuingoperations – assuming dilution3.75 3.69 1.62 (0.50) (2.20)Dividends per common share0.65 0.30 0.20 0.60 0.57Total assets44,477 42,783 37,621 35,572 34,417Debt and capital leaseobligations, less current portion6,463 6,732 7,515 7,163 6,264___________________________(a)The operations of the Aruba Refinery were suspended in March 2012, as further described in Note 4 in Notes to Consolidated Financial Statements.(b)We acquired the Meraux Refinery on October 1, 2011 and the Pembroke Refinery on August 1, 2011. The information presented for 2011 includes theresults of operations from these acquisitions commencing on their respective acquisition dates.(c)We acquired three ethanol plants in the first quarter of 2010 and seven ethanol plants in the second quarter of 2009. The information presented for 2010and 2009 includes the results of operations of these plants commencing on their respective acquisition dates.25 Table of ContentsITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following review of our results of operations and financial condition should be read in conjunction with Items 1, 1A, and 2, “Business, RiskFactors, and Properties,” and Item 8, “Financial Statements and Supplementary Data,” included in this report.CAUTIONARY STATEMENT FOR THE PURPOSE OF SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIESLITIGATION REFORM ACT OF 1995This report, including without limitation our disclosures below under the heading “OVERVIEW AND OUTLOOK,” includes forward-lookingstatements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You canidentify our forward-looking statements by the words “anticipate,” “believe,” “expect,” “plan,” “intend,” “estimate,” “project,” “projection,”“predict,” “budget,” “forecast,” “goal,” “guidance,” “target,” “could,” “should,” “may,” and similar expressions.These forward-looking statements include, among other things, statements regarding:•future refining margins, including gasoline and distillate margins;•future retail margins, including gasoline, diesel, heating oil, and convenience store merchandise margins;•future ethanol margins;•expectations regarding feedstock costs, including crude oil differentials, and operating expenses;•anticipated levels of crude oil and refined product inventories;•our anticipated level of capital investments, including deferred refinery turnaround and catalyst costs and capital expenditures forenvironmental and other purposes, and the effect of these capital investments on our results of operations;•anticipated trends in the supply of and demand for crude oil and other feedstocks and refined products globally and in the regions where weoperate;•expectations regarding environmental, tax, and other regulatory initiatives; and•the effect of general economic and other conditions on refining, retail, and ethanol industry fundamentals.We based our forward-looking statements on our current expectations, estimates, and projections about ourselves and our industry. We caution thatthese statements are not guarantees of future performance and involve risks, uncertainties, and assumptions that we cannot predict. In addition, webased many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. Accordingly, our actual resultsmay differ materially from the future performance that we have expressed or forecast in the forward-looking statements. Differences between actualresults and any future performance suggested in these forward-looking statements could result from a variety of factors, including the following:•acts of terrorism aimed at either our facilities or other facilities that could impair our ability to produce or transport refined products orreceive feedstocks;•political and economic conditions in nations that produce crude oil or consume refined products;•demand for, and supplies of, refined products such as gasoline, diesel fuel, jet fuel, heating oil, petrochemicals, and ethanol;•demand for, and supplies of, crude oil and other feedstocks;26 Table of Contents•the ability of the members of the Organization of Petroleum Exporting Countries (OPEC) to agree on and to maintain crude oil price andproduction controls;•the level of consumer demand, including seasonal fluctuations;•refinery overcapacity or undercapacity;•our ability to successfully integrate any acquired businesses into our operations;•the actions taken by competitors, including both pricing and adjustments to refining capacity in response to market conditions;•the level of competitors’ imports into markets that we supply;•accidents, unscheduled shutdowns, or other catastrophes affecting our refineries, machinery, pipelines, equipment, and informationsystems, or those of our suppliers or customers;•changes in the cost or availability of transportation for feedstocks and refined products;•the price, availability, and acceptance of alternative fuels and alternative-fuel vehicles;•the levels of government subsidies for ethanol and other alternative fuels;•delay of, cancellation of, or failure to implement planned capital projects and realize the various assumptions and benefits projected for suchprojects or cost overruns in constructing such planned capital projects;•earthquakes, hurricanes, tornadoes, and irregular weather, which can unforeseeably affect the price or availability of natural gas, crude oil,grain and other feedstocks, and refined products and ethanol;•rulings, judgments, or settlements in litigation or other legal or regulatory matters, including unexpected environmental remediation costs, inexcess of any reserves or insurance coverage;•legislative or regulatory action, including the introduction or enactment of legislation or rulemakings by governmental authorities, includingtax and environmental regulations, such as those to be implemented under the California Global Warming Solutions Act (also known as AB32) and the EPA’s regulation of greenhouse gases, which may adversely affect our business or operations;•changes in the credit ratings assigned to our debt securities and trade credit;•changes in currency exchange rates, including the value of the Canadian dollar, the pound sterling, and the euro relative to the U.S. dollar;•overall economic conditions, including the stability and liquidity of financial markets; and•other factors generally described in the “Risk Factors” section included in Items 1, 1A, and 2, “Business, Risk Factors, and Properties” inthis report.Any one of these factors, or a combination of these factors, could materially affect our future results of operations and whether any forward-lookingstatements ultimately prove to be accurate. Our forward-looking statements are not guarantees of future performance, and actual results and futureperformance may differ materially from those suggested in any forward-looking statements. We do not intend to update these statements unless we arerequired 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 bythe foregoing. We undertake no obligation to publicly release any revisions to any such forward-looking statements that may be made to reflect eventsor circumstances after the date of this report or to reflect the occurrence of unanticipated events.27 Table of ContentsOVERVIEW AND OUTLOOKOverviewFor the year ended December 31, 2012, we reported net income attributable to Valero stockholders from continuing operations of $2.1 billion, or$3.75 per share (assuming dilution), which was comparable to the $2.1 billion, or $3.69 per share (assuming dilution), in net income attributable toValero stockholders from continuing operations for the year ended December 31, 2011. Included in our 2012 results, however, were noncash assetimpairment losses totaling $983 million after taxes, or $1.77 per share (assuming dilution), primarily related to the impairment of the refining assetsof our Aruba Refinery in connection with our decision in September 2012 to reorganize the refinery into a crude oil and refined products terminal.This matter is more fully discussed in Note 4 of Notes to Consolidated Financial Statements.Our operating income increased $330 million from 2011 to 2012 as outlined by business segment in the following table (in millions): Year Ended December 31, 2012 2011 ChangeOperating income (loss) by business segment: Refining $4,450 $3,516 $934Retail 348 381 (33)Ethanol (47) 396 (443)Corporate (741) (613) (128)Total $4,010 $3,680 $330Operating income for 2012 was also negatively impacted by the noncash asset impairment losses discussed above, as well as severance expense of$41 million related to the operations at our Aruba Refinery, and operating income for 2011 was impacted by a $542 million loss on commodityderivative contracts related to forward sales of refined product. Excluding these significant items, total operating income for 2012 and 2011 wouldhave been $5.1 billion and $4.2 billion, respectively, reflecting a $900 million favorable increase between the years, and refining segment operatingincome for 2012 and 2011 would have been $5.5 billion and $4.1 billion, respectively, reflecting a favorable increase of $1.4 billion between theyears.The $1.4 billion increase in refining segment operating income was primarily the result of improvements in the margin generated by our U.S. Mid-Continent and North Atlantic refining operations, which experienced increases in throughput margin of $2.58 per barrel and $3.81 per barrel,respectively, in 2012 compared to 2011. Our U.S. Mid-Continent region continued to benefit from the favorable difference between the price ofBrent crude oil and WTI-type crude oil, which is the type of crude oil primarily processed by our refineries in this region. Because the market forrefined products generally tracks the price of Brent crude oil, we benefit when the price of WTI-type crude oil is lower than the price of Brent crudeoil. The favorable difference between the price of WTI and Brent crude oil improved by $1.67 per barrel in 2012 compared to 2011, whichcontributed significantly to the increase in the throughput margin generated by our operations in this region. The results of our North Atlantic regionwere favorably impacted by increases in refined product prices due largely to a reduction in the supply of refined products in this region as comparedto the prior year. This reduction in supply resulted from the continued shutdown of refineries in the U.S. East Coast, Caribbean, and Western Europeduring 2012, which was due to poor refining economics in these areas, and supply disruptions caused by Hurricane Sandy, which struck the U.S.East Coast in October 2012.The favorable results of our refining segment were partially offset by the $443 million decrease in our ethanol segment’s operating income in 2012compared to 2011. This decrease was due to significantly lower gross28 Table of Contentsmargins in 2012 caused by a combination of high corn prices and an oversupply of ethanol in the market. The increase in corn prices in 2012 waslargely due to the severe drought experienced in grain producing regions of the U.S. in 2012, and the oversupply of ethanol inventories was largelyattributable to lower exports of ethanol to Europe and increased imports of ethanol from Brazil.OutlookThroughout 2011 and 2012, our refining business benefited from processing sweet crude oils sourced from the inland U.S., such as WTI crude oil,due to the favorable difference between the price of this type of crude oil and the price of a benchmark sweet crude oil, such as Brent crude oil.Historically, the price of WTI-type crude oil has closely approximated Brent crude oil, but due to the significant development of crude oil reserveswithin the U.S. Mid-Continent region and increased deliveries of crude oil from Canada into the U.S. Mid-Continent region, the increased supply ofWTI crude oil has resulted in WTI crude oil being priced at a significant discount to Brent crude oil. This benefit, however, may decline as variouscrude oil pipeline and logistics projects are completed. These projects will allow cost-advantaged crude oils from the inland U.S. and Canada to betransported to the U.S. Gulf Coast region, which is expected to result in a narrowing of the price differential of WTI-priced crude oils relative toBrent-priced crude oils. As a result, the margins for refined products for refiners that process WTI-priced crude oils may decline.Continued refinery closures in the U.S. East Coast, Caribbean, and Western Europe and additional closures expected to occur in the industrycombined with poor reliability and low utilization in Latin American refineries create opportunities for competitive refineries to export quality productsat higher margins. However, some marginally profitable refineries may continue to be operated, which could negatively impact refined productmargins.Thus far in the first quarter of 2013, ethanol margins have improved, but the improvement is not significant and the margins remain far below thoseexperienced in 2011. We expect a continued modest improvement in ethanol margins throughout 2013 relative to those in 2012.Energy markets and margins are volatile, and we expect them to continue to be volatile in the near to mid-term.We continue to make progress in the separation of our retail business under a new company named CST Brands, Inc. The separation is planned byway of a pro rata distribution of 80 percent of the outstanding shares of CST common stock to Valero stockholders. The distribution is expected totake place in the second quarter of 2013, assuming a favorable private letter ruling from the IRS and clearance of all comments from the SEC relatingto CST’s registration statement on Form 10. When the distribution occurs, we expect to receive approximately $1.1 billion of cash and incur a taxliability of approximately $230 million. We also expect to liquidate the remaining 20 percent of CST outstanding shares within 18 months of thedistribution. Details of the separation and distribution are provided in filings with the SEC by CST.29 Table of ContentsRESULTS OF OPERATIONSThe following tables highlight our results of operations, our operating performance, and market prices that directly impact our operations. Thenarrative following these tables provides an analysis of our results of operations.2012 Compared to 2011Financial Highlights (a) (b)(millions of dollars, except per share amounts) Year Ended December 31, 2012 2011 ChangeOperating revenues$139,250 $125,987 $13,263Costs and expenses: Cost of sales (c)127,268 115,719 11,549Operating expenses: Refining (d)3,668 3,406 262Retail686 678 8Ethanol332 399 (67)General and administrative expenses698 571 127Depreciation and amortization expense: Refining1,370 1,338 32Retail119 115 4Ethanol42 39 3Corporate43 42 1Asset impairment loss (e)1,014 — 1,014Total costs and expenses135,240 122,307 12,933Operating income4,010 3,680 330Other income, net9 43 (34)Interest and debt expense, net of capitalized interest(313) (401) 88Income from continuing operations beforeincome tax expense3,706 3,322 384Income tax expense1,626 1,226 400Income from continuing operations2,080 2,096 (16)Loss from discontinued operations, net of income taxes— (7) 7Net income2,080 2,089 (9)Less: Net loss attributable to noncontrolling interests(3) (1) (2)Net income attributable to Valero stockholders$2,083 $2,090 $(7) Net income attributable to Valero stockholders: Continuing operations$2,083 $2,097 $(14)Discontinued operations— (7) 7Total$2,083 $2,090 $(7) Earnings per common share – assuming dilution: Continuing operations$3.75 $3.69 $0.06Discontinued operations— (0.01) 0.01Total$3.75 $3.68 $0.07________________See note references on page 35.30 Table of ContentsRefining Operating Highlights(millions of dollars, except per barrel amounts) Year Ended December 31, 2012 2011 ChangeRefining (a) (b): Operating income (c) (d) (e)$4,450 $3,516 $934Throughput margin per barrel (f)$10.96 $9.91 $1.05Operating costs per barrel: Operating expenses (d)3.79 3.83 (0.04)Depreciation and amortization expense1.44 1.51 (0.07)Total operating costs per barrel (e)5.23 5.34 (0.11)Operating income per barrel$5.73 $4.57 $1.16 Throughput volumes (thousand BPD): Feedstocks: Heavy sour crude453 454 (1)Medium/light sour crude547 442 105Acidic sweet crude81 116 (35)Sweet crude910 745 165Residuals200 282 (82)Other feedstocks120 122 (2)Total feedstocks2,311 2,161 150Blendstocks and other302 273 29Total throughput volumes2,613 2,434 179 Yields (thousand BPD): Gasolines and blendstocks1,251 1,120 131Distillates918 834 84Other products (g)467 494 (27)Total yields2,636 2,448 188__________See note references on page 35.31 Table of ContentsRefining Operating Highlights by Region (h)(millions of dollars, except per barrel amounts) Year Ended December 31, 2012 2011 ChangeU.S. Gulf Coast (a): Operating income (c) (d) (e)$2,541 $2,205 $336Throughput volumes (thousand BPD)1,488 1,450 38Throughput margin per barrel (c) (f)$9.65 $9.33 $0.32Operating costs per barrel: Operating expenses (d)3.55 3.66 (0.11)Depreciation and amortization expense1.44 1.50 (0.06)Total operating costs per barrel (d) (e)4.99 5.16 (0.17)Operating income per barrel$4.66 $4.17 $0.49 U.S. Mid-Continent: Operating income (c)$2,044 $1,535 $509Throughput volumes (thousand BPD)430 411 19Throughput margin per barrel (c) (f)$18.49 $15.91 $2.58Operating costs per barrel: Operating expenses4.02 4.15 (0.13)Depreciation and amortization expense1.48 1.52 (0.04)Total operating costs per barrel5.50 5.67 (0.17)Operating income per barrel$12.99 $10.24 $2.75 North Atlantic (b): Operating income$752 $171 $581Throughput volumes (thousand BPD)428 317 111Throughput margin per barrel (f)$9.24 $5.43 $3.81Operating costs per barrel: Operating expenses3.59 3.08 0.51Depreciation and amortization expense0.85 0.87 (0.02)Total operating costs per barrel4.44 3.95 0.49Operating income per barrel$4.80 $1.48 $3.32 U.S. West Coast: Operating income (c)$147 $147 $—Throughput volumes (thousand BPD)267 256 11Throughput margin per barrel (c) (f)$8.84 $9.11 $(0.27)Operating costs per barrel: Operating expenses5.09 5.25 (0.16)Depreciation and amortization expense2.25 2.29 (0.04)Total operating costs per barrel7.34 7.54 (0.20)Operating income per barrel$1.50 $1.57 $(0.07) Operating income for regions above$5,484 $4,058 $1,426Loss on derivative contracts related to the forward sales of refined product (c)— (542) 542Severance expense (d)(41) — (41)Asset impairment loss applicable to refining (e)(993) — (993)Total refining operating income$4,450 $3,516 $934__________See note references on page 35.32 Table of ContentsAverage Market Reference Prices and Differentials(dollars per barrel, except as noted) Year Ended December 31, 2012 2011 ChangeFeedstocks: Brent crude oil$111.70 $110.93 0.77Brent less WTI crude oil17.55 15.88 1.67Brent less Alaska North Slope (ANS) crude oil1.08 1.39 (0.31)Brent less LLS crude oil(0.91) (0.54) (0.37)Brent less Mars crude oil3.97 3.46 0.51Brent less Maya crude oil12.06 12.18 (0.12)LLS crude oil112.61 111.47 1.14LLS less Mars crude oil4.88 4.00 0.88LLS less Maya crude oil12.97 12.72 0.25WTI crude oil94.15 95.05 (0.90) Natural gas (dollars per million British thermal units)2.71 3.96 (1.25) Products: U.S. Gulf Coast: Conventional 87 gasoline less Brent6.49 5.58 0.91Ultra-low-sulfur diesel less Brent16.48 13.78 2.70Propylene less Brent(22.38) 8.23 (30.61)Conventional 87 gasoline less LLS5.58 5.04 0.54Ultra-low-sulfur diesel less LLS15.57 13.24 2.33Propylene less LLS(23.29) 7.69 (30.98)U.S. Mid-Continent: Conventional 87 gasoline less WTI25.40 22.37 3.03Ultra-low-sulfur diesel less WTI34.96 31.06 3.90North Atlantic: Conventional 87 gasoline less Brent11.46 6.24 5.22Ultra-low-sulfur diesel less Brent19.06 15.64 3.42U.S. West Coast: CARBOB 87 gasoline less ANS15.39 11.48 3.91CARB diesel less ANS19.93 18.47 1.46CARBOB 87 gasoline less WTI31.86 25.97 5.89CARB diesel less WTI36.40 32.96 3.44New York Harbor corn crush (dollars per gallon)(0.15) 0.25 (0.40)__________See note references on page 35.33 Table of ContentsRetail and Ethanol Operating Highlights(millions of dollars, except per gallon amounts) Year Ended December 31, 2012 2011 ChangeRetail–U.S.: Operating income (e)$240 $213 $27Company-operated fuel sites (average)1,013 994 19Fuel volumes (gallons per day per site)5,083 5,060 23Fuel margin per gallon$0.162 $0.144 $0.018Merchandise sales$1,239 $1,223 $16Merchandise margin (percentage of sales)29.7% 28.7% 1.0 %Margin on miscellaneous sales$89 $88 $1Operating expenses$434 $416 $18Depreciation and amortization expense$77 $77 $—Asset impairment loss (e)$12 $— $12 Retail–Canada: Operating income (e)$108 $168 $(60)Fuel volumes (thousand gallons per day)3,096 3,195 (99)Fuel margin per gallon$0.258 $0.299 $(0.041)Merchandise sales$257 $261 $(4)Merchandise margin (percentage of sales)29.0% 29.4% (0.4)%Margin on miscellaneous sales$44 $43 $1Operating expenses$252 $262 $(10)Depreciation and amortization expense$42 $38 $4Asset impairment loss (e)$9 $— $9 Ethanol: Operating income (loss)$(47) $396 $(443)Ethanol production (thousand gallons per day)2,967 3,352 (385)Gross margin per gallon of production (f)$0.30 $0.68 $(0.38)Operating costs per gallon of production: Operating expenses0.30 0.33 (0.03)Depreciation and amortization expense0.04 0.03 0.01Total operating costs per gallon of production0.34 0.36 (0.02)Operating income (loss) per gallon of production$(0.04) $0.32 $(0.36)__________See note references on page 35.34 Table of ContentsThe following notes relate to references on pages 30 through 34.(a)The financial highlights and operating highlights for the refining segment and U.S. Gulf Coast region reflect the results of operations of our Meraux Refinery, includingrelated logistics assets, from the date of its acquisition on October 1, 2011.(b)The financial highlights and operating highlights for the refining segment and North Atlantic region reflect the results of operations of our Pembroke Refinery, including therelated market and logistics business, from the date of its acquisition on August 1, 2011.(c)Cost of sales for the year ended December 31, 2011 includes a loss of $542 million ($352 million after taxes) on commodity derivative contracts related to the forward salesof refined product. These contracts were closed and realized during the first quarter of 2011. This loss is reflected in refining segment operating income for the year endedDecember 31, 2011, but throughput margin per barrel for the refining segment has been restated from the amount previously presented to exclude this $542 million loss($0.61 per barrel). In addition, operating income and throughput margin per barrel for the U.S. Gulf Coast, the U.S. Mid-Continent, and the U.S. West Coast regions forthe year ended December 31, 2011 have been restated from the amounts previously presented to exclude the portion of this loss that had been allocated to them of$372 million ($0.70 per barrel), $122 million ($0.81 per barrel), and $48 million ($0.51 per barrel), respectively.(d)In September 2012, we decided to reorganize our Aruba Refinery into a crude oil and refined products terminal. These terminal operations require a considerably smallerworkforce; therefore, the reorganization resulted in the termination of the majority of our employees in Aruba. We recognized severance expense of $41 million inSeptember 2012. This expense is reflected in refining segment operating income for the year ended December 31, 2012, but it is excluded from operating costs per barrelfor the refining segment and the U.S. Gulf Coast region. No income tax benefits were recognized related to this severance expense.(e)During the year ended December 31, 2012, we recognized the following asset impairment losses (in millions):Refining segment: Aruba Refinery $928Cancelled capital projects 65Asset impairment losses - refining segment 993Retail segment: U.S. stores 12Canada stores 9Asset impairment losses - retail segment 21Total asset impairment losses $1,014The asset impairment loss related to the Aruba Refinery resulted from our decision in March 2012 to suspend refining operations at the refinery and our subsequentdecision in September 2012 to reorganize the refinery into a crude oil and refined products terminal, as discussed in note (d). We recognized an asset impairment loss of$595 million in March 2012 and an additional asset impairment loss of $308 million in September 2012, resulting in no remaining book value being associated with therefinery’s idled processing units and related infrastructure (refining assets). In addition, we recorded a loss of $25 million related to supplies inventories that supported therefining operations. The refining operations will remain suspended indefinitely; however, we continue to maintain the refining assets to allow them to be restarted and do notconsider them to be abandoned. No income tax benefits were recorded related to this asset impairment loss.We also recognized asset impairment losses related to permanently cancelled capital projects at certain of our refineries and related to our determination that the net bookvalues of certain of our retail stores were not recoverable through the future operation and disposition of those stores. The after-tax amount of these asset impairment losseswas $55 million for the year ended December 31, 2012.The asset impairment losses reflected in the table above are included in the operating income of the respective segment for the year ended December 31, 2012. However, theasset impairment losses related to the refining segment are excluded from the segment’s operating costs per barrel and from the operating income and operating costs perbarrel by region.(f)Throughput margin per barrel represents operating revenues less cost of sales of our refining segment divided by throughput volumes. Gross margin per gallon ofproduction represents operating revenues less cost of sales of our ethanol segment divided by production volumes.(g)Other products primarily include petrochemicals, gas oils, No. 6 fuel oil, petroleum coke, and asphalt.(h)The regions reflected herein contain the following refineries: the U.S. Gulf Coast region includes the Corpus Christi East, Corpus Christi West, Texas City, Houston,Three Rivers, St. Charles, Aruba, Port Arthur, and Meraux Refineries; the U.S. Mid-Continent region includes the McKee, Ardmore, and Memphis Refineries; theNorth Atlantic region includes the Pembroke and Quebec City Refineries; and the U.S. West Coast region includes the Benicia and Wilmington Refineries.35 Table of ContentsGeneralOperating revenues increased 11 percent (or $13.3 billion) for the year ended December 31, 2012 compared to the year ended December 31, 2011primarily as a result of higher average refined product prices for most of the products we produce and higher throughput volumes between the twoyears related to our refining segment operations. Refined product prices are most significantly influenced by the price of crude oil, which is aworldwide commodity whose price is influenced by many factors, including, but not limited to, worldwide supply and demand characteristics,worldwide political conditions, and worldwide economic conditions. However, regional factors also impact the price of refined product prices inthose geographic regions. Regional factors can be similar to those that affect the worldwide price of crude oil, but they can also be significantlyinfluenced by weather conditions that disrupt the supply of and demand for refined products in the region. For example, in October 2012, HurricaneSandy struck the U.S. East Coast and disrupted the supply of refined products in that region for some time, which contributed to the increase of$5.99 per barrel in the North Atlantic benchmark reference price of conventional 87 gasoline in 2012 compared to 2011. The higher throughputvolumes in 2012 resulted primarily from the incremental throughput of 75,000 BPD from the Meraux Refinery, which was acquired on October 1,2011, and incremental throughput of 95,000 BPD from the Pembroke Refinery, which was acquired on August 1, 2011.Operating income increased $330 million and income from continuing operations before income tax expense increased $384 million for the yearended December 31, 2012 compared to the amounts reported for the year ended December 31, 2011 due to a $934 million increase in refiningsegment operating income, a $33 million decrease in retail segment operating income, a $443 million decrease in ethanol segment operating income,and a $128 million increase in corporate expenses. The reasons for these changes are described below.RefiningRefining segment operating income increased from $3.5 billion for the year ended December 31, 2011 to $4.5 billion for the year endedDecember 31, 2012. This increase was impacted by asset impairment losses of $928 million related to the Aruba Refinery and $65 million related tocancelled capital projects in 2012, $41 million of severance expense related to the Aruba Refinery, and a $542 million loss on derivative contracts in2011. (See Notes 4 and 10 of Notes to Consolidated Financial Statements for further discussions of the asset impairment losses and the severanceexpense, respectively). Excluding these amounts, our refining segment operating income increased $1.4 billion from $4.1 billion for the year endedDecember 31, 2011 to $5.5 billion for the year ended December 31, 2012. This $1.4 billion improvement in operating income was primarily due to a$1.7 billion increase in refining margin, partially offset by a $262 million increase in operating expenses.The $1.7 billion increase in refining margin (a $1.05 per barrel, or 11 percent, increase between 2012 and 2011) was primarily the result ofimprovements in the margin generated in our U.S. Mid-Continent and North Atlantic regions, which experienced increases in refining margin of$526 million (a $2.58 per barrel increase), and $821 million (a $3.81 per barrel increase), respectively.The $526 million increase in refining margin in the U.S. Mid-Continent region was largely due to improved gasoline and distillate margins in thatregion in 2012 compared to 2011. For example, the U.S. Mid-Continent benchmark reference margins for conventional 87 gasoline and ultra-low-sulfur diesel, a type of distillate, increased year over year by $3.03 per barrel and $3.90 per barrel, respectively, and these increases were primarily theresult of a $1.67 per barrel increase in the discount between the price of WTI crude oil versus Brent crude oil. Brent crude oil is the type of crude oilused by the market to set the price of refined products, but our refineries in the U.S. Mid-Continent region primarily process WTI-type crude oil;therefore, the increase in the price discount between WTI crude oil versus Brent crude oil had a positive impact to our refining margin in this regionof approximately $300 million. WTI crude oil priced at a significant discount36 Table of Contentsto Brent crude oil during 2012 because of increases in crude oil reserves within the U.S. Mid-Continent region and increased deliveries of crude oilfrom Canada into that region, coupled with the inability to transport significant quantities of that crude oil to refineries in other regions of the country.As discussed in “OVERVIEW AND OUTLOOK.” we believe these conditions to remain in the near term; however, we believe the discount willbegin to narrow as crude oil pipeline and logistics projects are completed and other forms of transportation are obtained, such as rail cars, to enablesignificant quantities of WTI-type crude oil to be transported to other regions.The $821 million increase in refining margin in the North Atlantic region was also due to improved gasoline and distillate margins in that region in2012 compared to 2011. For example, the North Atlantic benchmark reference margins for conventional 87 gasoline and ultra-low-sulfur dieselincreased year over year by $5.22 per barrel and $3.42 per barrel, respectively, and these increases were due largely to a reduction in the supply ofrefined products, which resulted from the continued shutdown of refineries in the U.S. East Coast, Caribbean, and Western Europe during 2012, andsupply disruptions caused by Hurricane Sandy, which struck the U.S. East Coast in October 2012.The increase of $262 million in operating expenses discussed above was primarily due to an increase of $123 million in operating expenses of theMeraux Refinery, an increase of $214 million in operating expenses incurred by the Pembroke Refinery, and a decrease of $123 million in operatingexpenses incurred by the Aruba Refinery. We acquired the Pembroke Refinery on August 1, 2011 and the Meraux Refinery on October 1, 2011;therefore, operating expenses for 2011 only reflected five months of operating expenses of the Pembroke Refinery and three months of operatingexpenses of the Meraux Refinery. In addition, in March 2012, we suspended the operations of the Aruba Refinery, which resulted in a significantdecrease in operating expenses related to that refinery in 2012. The remaining increase in operating expenses of $48 million was primarily due to anincrease of $31 million in employee-related expenses due to higher compensation expense related to merit increases and promotions and higherexpenses for employee benefit costs, an increase of $9 million in catalyst and chemical costs due to higher prices of rare earth metals used in ourfluid catalytic cracking units, an increase of $61 million in ad valorem taxes and insurance expense due to increased insurance reserves in 2012combined with a nonrecurring favorable ad valorem tax adjustment in 2011, and a decrease of $63 million in energy costs due to lower natural gasprices. Even though operating expenses increased year over year, operating expenses per barrel in 2012 were comparable to 2011 due to theincremental throughput of 179,000 BPD, which primarily resulted from the incremental throughput of the Pembroke and Meraux Refineriesdiscussed above.RetailRetail operating income was $348 million for the year ended December 31, 2012 compared to $381 million for the year ended December 31, 2011.This 9 percent (or $33 million) decrease was primarily due to a $21 million noncash asset impairment loss related to certain convenience stores (seeNote 4 of Notes to Consolidated Financial Statements), a $56 million decrease in fuel margin from our Canadian retail operations, and a $41 millionincrease in fuel margin in our U.S. retail operations.The Canadian retail fuel margin for 2012 was impacted by a decline in fuel volumes sold as a result of fewer retail sites combined with a decline in thefuel margin per gallon, which was due to pricing pressure from our competitors and changes in wholesale motor fuel prices during the year. Our U.S.retail fuel margin improved during 2012 due to increased fuel volumes sold as a result of more retail sites combined with improved fuel margin pergallon as wholesale motor fuel prices peaked in March 2012 and declined throughout the remainder of the year.37 Table of ContentsEthanolEthanol segment operating loss was $47 million for the year ended December 31, 2012 compared to operating income of $396 million for the yearended December 31, 2011. This decrease of $443 million was primarily due to a $507 million decrease in gross margin, partially offset by a$67 million decrease in operating expenses.The decrease in gross margin was due to a 56 percent decrease in the gross margin per gallon of ethanol production (a $0.38 per gallon decreasebetween the comparable periods) primarily due to lower ethanol prices in 2012 versus 2011. Ethanol prices during 2012 were pressured by a surplusof ethanol supply due to reduced demand for ethanol associated with the decline in gasoline demand in the U.S., lower exports of ethanol to Europe,and increased imports of ethanol from Brazil. In addition, ethanol production decreased 385,000 gallons per day between the comparable periods dueto lower utilization rates at our ethanol plants during 2012. The reduction in operating expenses was due primarily to a $57 million decrease in energycosts resulting from decreased consumption because of the lower utilization rates previously discussed, combined with lower natural gas pricesversus the comparable period of 2011.Corporate Expenses and OtherGeneral and administrative expenses increased $127 million for the year ended December 31, 2012 compared to the year ended December 31, 2011due to $58 million in administrative costs related to our European operations, which we acquired on August 1, 2011, a $23 million increase inemployee benefits expense (primarily related to increased costs for medical and retirement benefits), and favorable legal settlements of $47 million in2011, which did not recur in 2012.“Other income, net” for the year ended December 31, 2012 decreased $34 million from the year ended December 31, 2011 due to an increase of$15 million of foreign currency transaction losses, an $11 million reduction in interest income due to the collection of a note receivable from PBFHoldings LLC in February 2012, and a $7 million reduction in bank interest income due to lower levels of temporary cash investments during 2012 ascompared to the prior year.“Interest and debt expense, net of capitalized interest” for the year ended December 31, 2012 decreased $88 million from the year endedDecember 31, 2011. This decrease is primarily due to an increase of $69 million in capitalized interest related to an increase in capital expendituresbetween the years and a $33 million favorable impact from the decrease in average borrowings, partially offset by a $12 million write-off ofunamortized debt discounts related to the early redemption of certain industrial revenue bonds in the first quarter of 2012.Income tax expense for the year ended December 31, 2012 increased $400 million from the year ended December 31, 2011 partially as a result ofhigher operating income in 2012. The variation in the customary relationship between income tax expense and income from continuing operationsbefore income tax expense for the year ended December 31, 2012 was primarily due to not recognizing the tax benefits associated with the assetimpairment loss of $928 million and the severance expense of $41 million related to the Aruba Refinery as we do not expect to realize a tax benefitfrom these losses.38 Table of Contents2011 Compared to 2010Financial Highlights (a) (b) (d) (e)(millions of dollars, except per share amounts) Year Ended December 31, 2011 2010 ChangeOperating revenues$125,987 $82,233 $43,754Costs and expenses: Cost of sales (c)115,719 74,458 41,261Operating expenses: Refining3,406 2,944 462Retail678 654 24Ethanol399 363 36General and administrative expenses571 531 40Depreciation and amortization expense: Refining1,338 1,210 128Retail115 108 7Ethanol39 36 3Corporate42 51 (9)Asset impairment loss— 2 (2)Total costs and expenses122,307 80,357 41,950Operating income3,680 1,876 1,804Other income, net43 106 (63)Interest and debt expense, net of capitalized interest(401) (484) 83Income from continuing operationsbefore income tax expense3,322 1,498 1,824Income tax expense1,226 575 651Income from continuing operations2,096 923 1,173Loss from discontinued operations, net of income taxes(7) (599) 592Net income2,089 324 1,765Less: Net loss attributable to noncontrolling interest(1) — (1)Net income attributable to Valero stockholders$2,090 $324 $1,766 Net income (loss) attributable to Valero stockholders: Continuing operations$2,097 $923 $1,174Discontinued operations(7) (599) 592Total$2,090 $324 $1,766 Earnings per common share – assuming dilution: Continuing operations$3.69 $1.62 $2.07Discontinued operations(0.01) (1.05) 1.04Total$3.68 $0.57 $3.11__________See note references on page 44.39 Table of ContentsRefining Operating Highlights(millions of dollars, except per barrel amounts) Year Ended December 31, 2011 2010 ChangeRefining (a) (b) (d): Operating income (c)$3,516 $1,903 $1,613Throughput margin per barrel (f)$9.91 $7.80 $2.11Operating costs per barrel: Operating expenses3.83 3.79 0.04Depreciation and amortization expense1.51 1.56 (0.05)Total operating costs per barrel5.34 5.35 (0.01)Operating income per barrel$4.57 $2.45 $2.12 Throughput volumes (thousand BPD): Feedstocks: Heavy sour crude454 458 (4)Medium/light sour crude442 386 56Acidic sweet crude116 60 56Sweet crude745 668 77Residuals282 204 78Other feedstocks122 110 12Total feedstocks2,161 1,886 275Blendstocks and other273 243 30Total throughput volumes2,434 2,129 305 Yields (thousand BPD): Gasolines and blendstocks1,120 1,048 72Distillates834 712 122Other products (g)494 395 99Total yields2,448 2,155 293 __________See note references on page 44.40 Table of ContentsRefining Operating Highlights by Region (h)(millions of dollars, except per barrel amounts) Year Ended December 31, 2011 2010 ChangeU.S. Gulf Coast (a): Operating income (c)$2,205 $1,349 $856Throughput volumes (thousand BPD)1,450 1,280 170Throughput margin per barrel (f)$9.33 $8.20 $1.13Operating costs per barrel: Operating expenses3.66 3.71 (0.05)Depreciation and amortization expense1.50 1.60 (0.10)Total operating costs per barrel5.16 5.31 (0.15)Operating income per barrel$4.17 $2.89 $1.28 U.S. Mid-Continent: Operating income (c)$1,535 $339 $1,196Throughput volumes (thousand BPD)411 398 13Throughput margin per barrel (f)$15.91 $7.33 $8.58Operating costs per barrel: Operating expenses4.15 3.60 0.55Depreciation and amortization expense1.52 1.40 0.12Total operating costs per barrel5.67 5.00 0.67Operating income per barrel$10.24 $2.33 $7.91 North Atlantic (b): Operating income$171 $129 $42Throughput volumes (thousand BPD)317 195 122Throughput margin per barrel (f)$5.43 $6.18 $(0.75)Operating costs per barrel: Operating expenses3.08 2.99 0.09Depreciation and amortization expense0.87 1.39 (0.52)Total operating costs per barrel3.95 4.38 (0.43)Operating income per barrel$1.48 $1.80 $(0.32) U.S. West Coast: Operating income (c)$147 $88 $59Throughput volumes (thousand BPD)256 256 —Throughput margin per barrel (f)$9.11 $7.73 $1.38Operating costs per barrel: Operating expenses5.25 5.09 0.16Depreciation and amortization expense2.29 1.69 0.60Total operating costs per barrel7.54 6.78 0.76Operating income per barrel$1.57 $0.95 $0.62 Operating income for regions above$4,058 $1,905 $2,153Loss on derivative contracts related to the forward sales of refined product (c)(542) — (542)Asset impairment loss applicable to refining— (2) 2Total refining operating income$3,516 $1,903 $1,613__________See note references on page 44.41 Table of ContentsAverage Market Reference Prices and Differentials (i)(dollars per barrel, except as noted) Year Ended December 31, 2011 2010 ChangeFeedstocks: Brent crude oil$110.93 $79.54 $31.39Brent less WTI15.88 0.13 15.75Brent less ANS crude oil1.39 0.46 0.93Brent less LLS crude oil(0.54) (2.09) 1.55Brent less Mars crude oil3.46 1.54 1.92Brent less Maya crude oil12.18 9.26 2.92LLS111.47 81.62 29.85LLS less Mars crude oil4.00 3.62 0.38LLS less Maya crude oil12.72 11.34 1.38WTI crude oil95.05 79.41 15.64 Natural gas (dollars per million British thermal units)3.96 4.34 (0.38) Products: U.S. Gulf Coast: Conventional 87 gasoline less Brent5.58 7.39 (1.81)Ultra-low-sulfur diesel less Brent13.78 11.01 2.77Propylene less Brent8.23 7.79 0.44Conventional 87 gasoline less LLS5.04 5.30 (0.26)Ultra-low-sulfur diesel less LLS13.24 8.93 4.31Propylene less LLS7.69 5.71 1.98U.S. Mid-Continent: Conventional 87 gasoline less WTI22.37 8.20 14.17Ultra-low-sulfur diesel less WTI31.06 11.91 19.15North Atlantic: Conventional 87 gasoline less Brent6.24 8.38 (2.14)Ultra-low-sulfur diesel less Brent15.64 12.63 3.01U.S. West Coast: CARBOB 87 gasoline less ANS11.48 14.21 (2.73)CARB diesel less ANS18.47 13.79 4.68CARBOB 87 gasoline less WTI25.97 13.88 12.09CARB diesel less WTI32.96 13.45 19.51New York Harbor corn crush (dollars per gallon)0.25 0.39 (0.14)__________See note references on page 44.42 Table of ContentsRetail and Ethanol Operating Highlights(millions of dollars, except per gallon amounts) Year Ended December 31, 2011 2010 ChangeRetail–U.S.: Operating income$213 $200 $13Company-operated fuel sites (average)994 990 4Fuel volumes (gallons per day per site)5,060 5,086 (26)Fuel margin per gallon$0.144 $0.140 $0.004Merchandise sales$1,223 $1,205 $18Merchandise margin (percentage of sales)28.7% 28.3% 0.4 %Margin on miscellaneous sales$88 $86 $2Operating expenses$416 $412 $4Depreciation and amortization expense$77 $73 $4 Retail–Canada: Operating income$168 $146 $22Fuel volumes (thousand gallons per day)3,195 3,168 27Fuel margin per gallon$0.299 $0.271 $0.028Merchandise sales$261 $240 $21Merchandise margin (percentage of sales)29.4% 30.1% (0.7)%Margin on miscellaneous sales$43 $38 $5Operating expenses$262 $242 $20Depreciation and amortization expense$38 $35 $3 Ethanol (e): Operating income$396 $209 $187Ethanol production (thousand gallons per day)3,352 3,021 331Gross margin per gallon of production (f)$0.68 $0.55 $0.13Operating costs per gallon of production: Operating expenses0.33 0.33 —Depreciation and amortization expense0.03 0.03 —Total operating costs per gallon of production0.36 0.36 —Operating income per gallon of production$0.32 $0.19 $0.13__________See note references on page 44.43 Table of ContentsThe following notes relate to references on pages 39 through 43.(a)The financial highlights and operating highlights for the refining segment and U.S. Gulf Coast region reflect the results of operations of our Meraux Refinery, includingrelated logistics assets, from the date of its acquisition on October 1, 2011 through December 31, 2011.(b)The financial highlights and operating highlights for the refining segment and North Atlantic region reflect the results of operations of our Pembroke Refinery, including therelated market and logistics business, from the date of its acquisition on August 1, 2011 through December 31, 2011.(c)Cost of sales for the year ended December 31, 2011 includes a loss of $542 million ($352 million after taxes) on commodity derivative contracts related to the forward salesof refined product. These contracts were closed and realized during the first quarter of 2011. This loss is reflected in refining segment operating income for the year endedDecember 31, 2011, but throughput margin per barrel for the refining segment has been restated from the amount previously presented to exclude this $542 million loss($0.61 per barrel). In addition, operating income and throughput margin per barrel for the U.S. Gulf Coast, the U.S. Mid-Continent, and the U.S. West Coast regions forthe year ended December 31, 2011 have been restated from the amounts previously presented to exclude the portion of this loss that had been allocated to them of$372 million ($0.70 per barrel), $122 million ($0.81 per barrel), and $48 million ($0.51 per barrel), respectively.(d)In 2010, we sold our Paulsboro Refinery and our shutdown Delaware City refinery assets and associated terminal and pipeline assets. The results of operations of theserefineries have been presented as discontinued operations for the year ended December 31, 2010. In addition, the operating highlights for the refining segment and NorthAtlantic region exclude these refineries for the year ended December 31, 2010.(e)We acquired three ethanol plants in the first quarter of 2010. The information presented reflects the results of operations of these plants commencing on their respectiveacquisition dates. Ethanol production volumes are based on total production during each year divided by actual calendar days per year.(f)Throughput margin per barrel represents operating revenues less cost of sales of our refining segment divided by throughput volumes. Gross margin per gallon ofproduction represents operating revenues less cost of sales of our ethanol segment divided by production volumes.(g)Other products primarily include petrochemicals, gas oils, No. 6 fuel oil, petroleum coke, and asphalt.(h)The regions reflected herein contain the following refineries: the U.S. Gulf Coast region includes the Corpus Christi East, Corpus Christi West, Texas City, Houston,Three Rivers, St. Charles, Aruba, Port Arthur, and Meraux Refineries; the U.S. Mid-Continent region includes the McKee, Ardmore, and Memphis Refineries; theNorth Atlantic region includes the Pembroke and Quebec City Refineries; and the U.S. West Coast region includes the Benicia and Wilmington Refineries.(i)Average market reference prices for LLS crude oil, along with price differentials between the price of LLS crude oil and other types of crude oil, have been included in thetable of Average Market Reference Prices and Differentials. The table also includes price differentials by region between the prices of certain products and the benchmarkcrude oil that provides the best indicator of product margins for each region. Prior to the first quarter of 2011, feedstock and product differentials were based on the price ofWTI crude oil. However, the price of WTI crude oil no longer provides a reasonable benchmark price of crude oil for all regions. Beginning in late 2010, WTI crude oilbegan to price at a discount to benchmark sweet crude oils, such as LLS and Brent, because of increased WTI supplies resulting from greater U.S. production andincreased deliveries of crude oil from Canada into the U.S. Mid-Continent region. Therefore, the use of the price of WTI crude oil as a benchmark price for regions that donot process WTI crude oil is no longer reasonable.GeneralOperating revenues increased 53 percent (or $43.8 billion) for the year ended December 31, 2011 compared to the year ended December 31, 2010primarily as a result of higher average refined product prices and higher throughput volumes between the two years related to our refining segmentoperations. The higher throughput volumes resulted primarily from the incremental throughput of 33,000 BPD1 ($1.3 billion of revenue) from theMeraux Refinery, which was acquired on October 1, 2011, incremental throughput of 109,000 BPD1 ($7.5 billion of revenue) from the PembrokeRefinery, which was acquired on August 1, 2011, and incremental throughput of 145,000 BPD ($4.9 billion of revenue) from the Aruba Refinery,which restarted operations in January 2011. Operating income increased $1.8 billion and income from continuing operations before taxes alsoincreased $1.8 billion for the year ended December 31, 2011 compared to the amounts reported for the year ended December 31, 2010 primarily dueto a $1.6 billion increase in refining segment operating income discussed below._______________1Calculated based on throughput volumes of the Meraux Refinery and the Pembroke Refinery from the date of their respective acquisitions (October 1, 2011 and August 1,2011), divided by the number of days during the year ended December 31, 2011.44 Table of ContentsRefiningRefining segment operating income nearly doubled from $1.9 billion for the year ended December 31, 2010 to $3.5 billion for the year endedDecember 31, 2011. The $1.6 billion improvement in operating income was due to a $2.2 billion increase in refining margin, partially offset by a$462 million increase in operating expenses.The $2.2 billion increase in refining margin was primarily due to a 27 percent increase in throughput margin per barrel (a $2.11 per barrel increasebetween the years). This increase in refining margin was largely driven by an improvement in the U.S. Mid-Continent region, which experienced anincrease in its throughput margin per barrel of $8.58. The U.S. Mid-Continent throughput margin per barrel of $15.91 for the year endedDecember 31, 2011 was more than double the throughput margin per barrel of $7.33 for the year ended December 31, 2010. This increase was dueto the substantial discount in the price of WTI-type crude oil, the primary type of crude oil processed by our U.S. Mid-Continent refineries, versusthe price of LLS and Brent crude oils. Historically, the price of WTI-type crude oil has closely approximated LLS and Brent crude oils, but due tothe significant development of crude oil reserves within the U.S. Mid-Continent region and increased deliveries of crude oil from Canada into theU.S. Mid-Continent region, the increased supply of WTI-type crude oil resulted in WTI-type crude oil being priced at a significant discount to LLSand Brent crude oils during 2011. For example, the WTI-based benchmark reference margin for U.S. Mid-Continent conventional 87 gasoline was$22.37 per barrel for the year ended December 31, 2011 compared to $8.20 per barrel for the year ended December 31, 2010, representing afavorable increase of $14.17 per barrel. In addition, the WTI-based benchmark reference margin for U.S. Mid-Continent ultra-low sulfur diesel (atype of distillate) was $31.06 per barrel for the year ended December 31, 2011 compared to $11.91 per barrel for the year ended December 31,2010, representing a favorable increase of $19.15 per barrel. We estimate that these increases in gasoline and distillate margins per barrel had apositive impact to our refining margin of approximately $1.1 billion and $1.0 billion, respectively, year over year.The increase of $462 million in operating expenses discussed above was partially due to $42 million in operating expenses of the Meraux Refinery,which was acquired on October 1, 2011, and $141 million in operating expenses of the Pembroke Refinery, which was acquired on August 1, 2011.The remaining increase of $279 million was due to a $107 million increase in chemicals and catalyst costs due to higher prices of rare earth metalsused in our fluid catalytic cracking units, an $86 million increase in employee-related expenses due to higher incentive compensation, and a $75million increase in reliability expenses due to the re-start of the Aruba Refinery and higher routine maintenance during refinery downtime.RetailRetail operating income was $381 million for the year ended December 31, 2011 compared to $346 million for the year ended December 31, 2010.This 10 percent (or $35 million) increase was primarily due to increases in fuel margins of $43 million primarily from our Canadian operations,including a favorable impact from the strengthening of the Canadian dollar relative to the U.S. dollar, and an increase in merchandise margins of$15 million, offset by increased operating expenses of $24 million. The increase in operating expenses was primarily from our Canadian operationswhich were impacted by the strengthening of the Canadian dollar relative to the U.S. dollar. On average, Cdn$1 was equal to $1.01 during 2011compared to $0.96 during 2010, representing an increase in value of five percent.EthanolEthanol segment operating income was $396 million for the year ended December 31, 2011 compared to $209 million for the year endedDecember 31, 2010. This increase of $187 million was primarily due to a $226 million increase in gross margin, partially offset by a $36 millionincrease in operating expenses.45 Table of ContentsGross margin increased from the year ended December 31, 2010 to the year ended December 31, 2011 due to an increase in ethanol production (a331,000 gallon per day increase between the years) primarily resulting from the full operation of three additional plants acquired in the first quarter of2010 and higher utilization rates and increased yields during 2011 combined with a $0.13 per gallon increase in the ethanol gross margin.The increase in operating expenses was primarily due to $27 million of additional expenses related to the three ethanol plants acquired in the firstquarter of 2010. We operated these plants for all of 2011 compared to part of 2010.Corporate Expenses and OtherGeneral and administrative expenses increased $40 million for the year ended December 31, 2011 compared to the year ended December 31, 2010due to a $25 million increase in variable compensation expense, $27 million in costs incurred in connection with the Pembroke Acquisition, and afavorable settlement with an insurance company for $40 million recorded in 2010, which reduced general and administrative expenses in 2010. Theseincreases in general and administrative expenses were partially offset by favorable legal settlements of $47 million in 2011.“Other income, net” for the year ended December 31, 2011 decreased $63 million from the year ended December 31, 2010 due to a pre-tax gain of$55 million related to the sale of our 50 percent interest in Cameron Highway Oil Pipeline Company (CHOPS) recognized in November 2010 and the$16 million effect of earnings on our interest in CHOPS recognized in 2010.“Interest and debt expense, net of capitalized interest” for the year ended December 31, 2011 decreased $83 million from the year endedDecember 31, 2010. This decrease is primarily due to an increase of $62 million in capitalized interest related to an increase in capital expendituresbetween the years and the resumption of construction activity on previously suspended projects combined with a $19 million favorable impact fromthe decrease in average borrowings.Income tax expense for the year ended December 31, 2011 increased $651 million from the year ended December 31, 2010 mainly as a result ofhigher operating income in 2011 and a one-time $20 million income tax benefit recognized in 2010 related to a tax settlement with the Government ofAruba (GOA).The loss from discontinued operations of $7 million for the year ended December 31, 2011 is primarily due to adjustments to the working capitalsettlement related to the sale of our Paulsboro Refinery in December 2010. The loss from discontinued operations of $599 million for the year endedDecember 31, 2010 represents a $47 million after-tax loss from the discontinued operations of the Delaware City and Paulsboro Refineries and a$610 million after-tax loss on the sale of the Paulsboro Refinery, partially offset by a $58 million after-tax gain on the sale of the shutdown refineryassets at Delaware City.46 Table of ContentsLIQUIDITY AND CAPITAL RESOURCESCash Flows for the Year Ended December 31, 2012Net cash provided by operating activities for the year ended December 31, 2012 was $5.3 billion compared to $4.0 billion for the year endedDecember 31, 2011. The increase in cash generated from operating activities was primarily due to the increase in operating income discussed aboveunder “RESULTS OF OPERATIONS,” after excluding the effect of the asset impairment loss included in the 2012 operating income that had noeffect on cash. Changes in cash provided by or used for working capital during the years ended December 31, 2012 and 2011 are shown in Note19 of Notes to Consolidated Financial Statements.The net cash generated from operating activities during the year ended December 31, 2012 combined with $300 million of proceeds from theremarketing of the 4.0% Gulf Opportunity Zone Revenue Bonds Series 2010 (GO Zone Bonds), $1.1 billion of borrowings under our revolvingcredit facility, and $1.5 billion of proceeds from the sale of receivables under our accounts receivable sales facility were used mainly to:•fund $3.4 billion of capital expenditures and deferred turnaround and catalyst costs;•redeem our Series 1997 5.6%, Series 1998 5.6%, Series 1999 5.7%, Series 2001 6.65%, and Series 1997A 5.45% industrial revenuebonds for $108 million;•make scheduled long-term note repayments of $754 million;•repay borrowings under our revolving credit facility of $1.1 billion;•make repayments under our accounts receivable sales facility of $1.7 billion;•purchase common stock for treasury of $281 million;•pay common stock dividends of $360 million; and•increase available cash on hand by $699 million.Cash Flows for the Year Ended December 31, 2011Net cash provided by operating activities for the year ended December 31, 2011 was $4.0 billion compared to $3.0 billion for the year endedDecember 31, 2010. The increase in cash generated from operating activities was primarily due to the $1.8 billion increase in operating incomediscussed above under “RESULTS OF OPERATIONS.” Changes in cash provided by or used for working capital during the years endedDecember 31, 2011 and 2010 are shown in Note 19 of Notes to Consolidated Financial Statements. Both receivables and accounts payable increasedin 2011 due to significant increases in prices for gasoline, distillate, and crude oil at the end of 2011 compared to such prices at the end of 2010.The net cash generated from operating activities during the year ended December 31, 2011 combined with $150 million of proceeds from the sale ofreceivables and $2.3 billion from available cash on hand was used mainly to:•fund $3.0 billion of capital expenditures and deferred turnaround and catalyst costs;•purchase the Pembroke Refinery and the related marketing and logistics business for $1.7 billion;•purchase the Meraux Refinery for $547 million;•redeem our Series 1997B 5.4% and Series 1997C 5.4% industrial revenue bonds for $56 million;•make scheduled long-term note repayments of $418 million;•acquire the GO Zone Revenue Bonds Series 2010 for $300 million;•purchase our common stock for $349 million; and•pay common stock dividends of $169 million.Capital InvestmentsOur operations, especially those of our refining segment, are highly capital intensive. Each of our refineries comprises a large base of property assets,consisting of a series of interconnected, highly integrated and interdependent crude oil processing facilities and supporting logistical infrastructure(Units), and these Units47 Table of Contentsare improved continuously. The cost of improvements, which consist of the addition of new Units and betterments of existing Units, can besignificant. We have historically acquired our refineries at amounts significantly below their replacement costs, whereas our improvements are made atfull replacement value. As such, the costs for improving our refinery assets increase over time and are significant in relation to the amounts we paid toacquire our refineries. We plan for these improvements by developing a multi-year capital program that is updated and revised based on changinginternal and external factors.We make improvements to our refineries in order to maintain and enhance their operating reliability, to meet environmental obligations with respect toreducing emissions and removing prohibited elements from the products we produce, or to enhance their profitability. Reliability and environmentalimprovements generally do not increase the throughput capacities of our refineries. Improvements that enhance refinery profitability may increasethroughput capacity, but many of these improvements allow our refineries to process higher volumes of sour crude oil, which lowers our feedstockcosts, and enables us to refine crude oil into products with higher market values. Therefore, many of our improvements do not increase throughputcapacity significantly.During the year ended December 31, 2012, we expended $2.9 billion for capital expenditures and $479 million for deferred turnaround and catalystcosts. Capital expenditures for the year ended December 31, 2012 included $135 million of costs related to environmental projects.For 2013, we expect to incur approximately $1.9 billion for capital expenditures (approximately $100 million of which is for environmentalprojects) and approximately $600 million for deferred turnaround and catalyst costs. The capital expenditure estimate excludes expenditures related tofuture strategic acquisitions. We continuously evaluate our capital budget and make changes as conditions warrant.Contractual ObligationsOur contractual obligations as of December 31, 2012 are summarized below (in millions). Payments Due by Period 2013 2014 2015 2016 2017 Thereafter TotalDebt and capital lease obligations (including interest on capital lease obligations)$592 $210 $484 $8 $957 $4,859 $7,110Operating lease obligations337 250 179 133 86 350 1,335Purchase obligations33,255 1,950 1,129 1,049 416 1,178 38,977Other long-term liabilities— 134 128 127 126 1,615 2,130Total$34,184 $2,544 $1,920 $1,317 $1,585 $8,002 $49,552Debt and Capital Lease ObligationsDuring 2012, the following debt activity occurred:•in March 2012, we exercised the call provisions on our Series 1997 5.6%, Series 1998 5.6%, Series 1999 5.7%, Series 2001 6.65%,and Series 1997A 5.45% industrial revenue bonds, which were redeemed on May 3, 2012 for $108 million, or 100 percent of theiroutstanding stated values;•in April 2012, we made scheduled debt repayments of $4 million related to our Series 1997A 5.45% industrial revenue bonds and $750million related to our 6.875% notes;•in May 2012, we borrowed $1.1 billion under our revolving credit facility;•in June 2012, we repaid $1.1 billion under our revolving credit facility; and48 Table of Contents•also in June 2012, we received proceeds of $300 million from the remarketing of the 4.0% GO Zone Bonds, which are due December 1,2040, but are subject to mandatory tender on June 1, 2022.We have an accounts receivable sales facility with a group of third-party entities and financial institutions to sell eligible trade receivables on arevolving basis. In July 2012, we amended our agreement to increase the facility from $1.0 billion to $1.5 billion and extended the maturity date toJuly 2013. During the year ended December 31, 2012, we sold $1.5 billion of interests in eligible receivables to the third-party entities and financialinstitutions under this facility, and we repaid $1.7 billion under this facility. As of December 31, 2012, the amount of eligible receivables sold was$100 million. All amounts outstanding under this facility are reflected as debt.Our debt and financing agreements do not have rating agency triggers that would automatically require us to post additional collateral. However, in theevent of certain downgrades of our senior unsecured debt to below investment grade ratings by S&P, Moody’s and Fitch, the cost of borrowingsunder some of our bank credit facilities and other arrangements would increase. As of December 31, 2012, all of our ratings on our senior unsecureddebt are at or above investment grade level as follows:Rating Agency RatingStandard & Poor’s Ratings Services BBB (negative outlook)Moody’s Investors Service Baa2 (stable outlook)Fitch Ratings BBB (stable outlook)We cannot provide assurance that these ratings will remain in effect for any given period of time or that one or more of these ratings will not belowered or withdrawn entirely by a rating agency. We note that these credit ratings are not recommendations to buy, sell, or hold our securities and maybe revised or withdrawn at any time by the rating agency. Each rating should be evaluated independently of any other rating. Any future reductionbelow investment grade or withdrawal of one or more of our credit ratings could have a material adverse impact on our ability to obtain short- andlong-term financing and the cost of such financings.Operating Lease ObligationsOur operating lease obligations include leases for land, office facilities and equipment, retail facilities and equipment, transportation equipment, timecharters for ocean-going tankers and coastal vessels, dock facilities, and various facilities and equipment used in the storage, transportation,production, and sale of refinery feedstocks, refined product, and corn inventories. Operating lease obligations include all operating leases that haveinitial or remaining noncancelable terms in excess of one year, and are not reduced by minimum rentals to be received by us under subleases.Purchase ObligationsA purchase obligation is an enforceable and legally binding agreement to purchase goods or services that specifies significant terms, including (i)fixed or minimum quantities to be purchased, (ii) fixed, minimum, or variable price provisions, and (iii) the approximate timing of the transaction.We have various purchase obligations including industrial gas and chemical supply arrangements (such as hydrogen supply arrangements), crude oiland other feedstock supply arrangements, and various throughput and terminalling agreements. We enter into these contracts to ensure an adequatesupply of utilities and feedstock and adequate storage capacity to operate our refineries. Substantially all of our purchase obligations are based onmarket prices or adjustments based on market indices. Certain of these purchase obligations include fixed or minimum volume requirements, whileothers are based on our usage requirements. The purchase obligation amounts shown in the table above include both short- and long-term obligationsand are based on (a) fixed49 Table of Contentsor minimum quantities to be purchased and (b) fixed or estimated prices to be paid based on current market conditions. As of December 31, 2012,our short- and long-term purchase obligations decreased by approximately $3 billion from the amount reported as of December 31, 2011. Thedecrease is primarily attributable to contracts expiring in 2013.Other Long-term LiabilitiesOur other long-term liabilities are described in Note 10 of Notes to Consolidated Financial Statements. For purposes of reflecting amounts for otherlong-term liabilities in the table above, we made our best estimate of expected payments for each type of liability based on information available as ofDecember 31, 2012.Other Commercial CommitmentsAs of December 31, 2012, our committed lines of credit were as follows (in millions): BorrowingCapacity Expiration OutstandingLetters of CreditLetter of credit facilities $550 June 2013 $418U.S. revolving credit facility $3,000 December 2016 $59Canadian revolving credit facility C$50 November 2013 C$10As of December 31, 2012, we had no amounts borrowed under our revolving credit facilities. The letters of credit outstanding as of December 31,2012 expire during 2013 and 2014.Other Matters Impacting Liquidity and Capital ResourcesStock Purchase ProgramsAs of December 31, 2012, we have approvals under common stock purchase programs previously approved by our board of directors to purchaseapproximately $3.3 billion of our common stock.Pension Plan FundingWe have $30 million of minimum required contributions to one of our international pension plans during 2013. In addition, we plan to contributeapproximately $115 million to our other pension plans and $21 million to our other postretirement plans during 2013.On February 15, 2013, we announced changes to certain of our pension plans that will reduce our benefit costs and obligations for 2013 and futureyears, as further discussed in Note 14 of Notes to Consolidated Financial Statements. These changes, however, will not impact our plannedcontributions during 2013, but we expect future contributions to decline.Environmental MattersOur operations are subject to extensive environmental regulations by governmental authorities relating to the discharge of materials into theenvironment, waste management, pollution prevention measures, greenhouse gas emissions, and characteristics and composition of gasolines anddistillates. Because environmental laws and regulations are becoming more complex and stringent and new environmental laws and regulations arecontinuously 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 operating facilities could require material additional expenditures to comply with environmental laws and regulations.See Note 12 of Notes to Consolidated Financial Statements for a further discussion of our environmental matters.50 Table of ContentsTax MattersWe are subject to extensive tax liabilities imposed by multiple jurisdictions, including income taxes, indirect taxes (excise/duty, sales/use, grossreceipts, and value-added taxes), payroll taxes, franchise taxes, withholding taxes, and ad valorem taxes. New tax laws and regulations and changesin existing tax laws and regulations are continuously being enacted or proposed that could result in increased expenditures for tax liabilities in thefuture. Many of these liabilities are subject to periodic audits by the respective taxing authority. Subsequent changes to our tax liabilities as a result ofthese audits may subject us to interest and penalties. See Notes 12 and 16 of Notes to Consolidated Financial Statements for a further discussion ofour tax matters.As of December 31, 2012, the Internal Revenue Service (IRS) has ongoing tax audits related to our U.S. federal tax returns from 2002 through2009, as discussed in Note 16 of Notes to Consolidated Financial Statements. We have received Revenue Agent Reports on our tax years for 2002through 2007 and we are vigorously contesting many of the tax positions and assertions from the IRS. Although we believe our tax liabilities are fairlystated and properly reflected in our financial statements, should the IRS eventually prevail, it could result in a material amount of our deferred taxliabilities being reclassified to current liabilities which could have a material adverse effect on our liquidity.Cash Held by Our International SubsidiariesWe operate in countries outside the U.S. through subsidiaries incorporated in these countries, and the earnings of these subsidiaries are taxed by thecountries in which they are incorporated. We intend to reinvest these earnings indefinitely in our international operations even though we are notrestricted from repatriating such earnings to the U.S. in the form of cash dividends. Should we decide to repatriate such earnings, we would incur andpay taxes on the amounts repatriated. In addition, such repatriation could cause us to record deferred tax expense that could significantly impact ourresults of operations, as further discussed in Note 16 of Notes to Consolidated Financial Statements. We believe, however, that a substantial portionof our international cash can be returned to the U.S. without significant tax consequences through means other than a repatriation of earnings. As ofDecember 31, 2012, $1.1 billion of our cash and temporary cash investments was held by our international subsidiaries.Financial Regulatory ReformIn July 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (Wall Street Reform Act). Keyprovisions of the Wall Street Reform Act create new statutory requirements that require most derivative instruments to be traded on exchanges androuted through clearinghouses, as well as impose new recordkeeping and reporting responsibilities on market participants. While certain final rulesimplementing the Wall Street Reform Act became effective in the fourth quarter of 2012, others will not become effective until 2013; therefore, theultimate impact to our operations is yet unknown. However, the implementation could result in higher clearing costs and more reporting requirementswith respect to our derivative activities.Concentration of CustomersOur refining and marketing operations have a concentration of customers in the refining industry and customers who are refined product wholesalersand retailers. These concentrations of customers may impact our overall exposure to credit risk, either positively or negatively, in that these customersmay be similarly affected by changes in economic or other conditions. However, we believe that our portfolio of accounts receivable is sufficientlydiversified to the extent necessary to minimize potential credit risk. Historically, we have not had any significant problems collecting our accountsreceivable.51 Table of ContentsSources of LiquidityWe believe that we have sufficient funds from operations and, to the extent necessary, from borrowings under our credit facilities, to fund ourongoing operating requirements. We expect that, to the extent necessary, we can raise additional funds from time to time through equity or debtfinancings in the public and private capital markets or the arrangement of additional credit facilities. However, there can be no assurances regardingthe availability of any future financings or additional credit facilities or whether such financings or additional credit facilities can be made available onterms that are acceptable to us.NEW ACCOUNTING PRONOUNCEMENTSAs discussed in Note 1 of Notes to Consolidated Financial Statements, certain new financial accounting pronouncements have been issued that eitherhave already been reflected in the accompanying financial statements, or will become effective for our financial statements at various dates in thefuture. The adoption of these pronouncements has not had, and is not expected to have, a material effect on our financial statements.CRITICAL ACCOUNTING POLICIES INVOLVING CRITICAL ACCOUNTING ESTIMATESThe preparation of financial statements in accordance with U.S. generally accepted accounting principles requires us to make estimates andassumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.The following summary provides further information about our critical accounting policies that involve critical accounting estimates, and should beread in conjunction with Note 1 of Notes to Consolidated Financial Statements, which summarizes our significant accounting policies. The followingaccounting policies involve estimates that are considered critical due to the level of sensitivity and judgment involved, as well as the impact on ourfinancial position and results of operations. We believe that all of our estimates are reasonable.Property, Plant and EquipmentThe cost of property, plant and equipment (property assets) purchased or constructed, including betterments of property assets, are capitalized.However, the cost of repairs to and normal maintenance of property assets is expensed as incurred. Betterments of property assets are those whicheither extend the useful life, increase the capacity or improve the operating efficiency of the asset, or improve the safety of our operations. The costof property assets constructed includes interest and certain overhead costs allocable to the construction activities.Our operations, especially those of our refining segment, are highly capital intensive. Each of our refineries comprises a large base of property assets,consisting of a series of interconnected, highly integrated and interdependent crude oil processing facilities and supporting logistical infrastructure(Units), and these Units are improved continuously. Improvements consist of the addition of new Units and betterments of existing Units. We plan forthese improvements by developing a multi-year capital program that is updated and revised based on changing internal and external factors.Depreciation of property assets used in our refining segment is recorded on a straight-line basis over the estimated useful lives of these assetsprimarily using the composite method of depreciation. We maintain a separate composite group of property assets for each of our refineries. Weestimate the useful life of each group based on an evaluation of the property assets comprising the group, and such evaluations consist of, but are notlimited to, the physical inspection of the assets to determine their condition, consideration of the manner in which the assets are maintained,assessment of the need to replace assets, and evaluation of the manner in which improvements impact the useful life of the group. The estimateduseful lives of our composite groups range primarily from 25 to 30 years.52 Table of ContentsUnder the composite method of depreciation, the cost of an improvement is added to the composite group to which it relates and is depreciated overthat group’s estimated useful life. We design improvements to our refineries in accordance with engineering specifications, design standards andpractices accepted in our industry, and these improvements have design lives consistent with our estimated useful lives. Therefore, we believe the useof the group life to depreciate the cost of improvements made to the group is reasonable because the estimated useful life of each improvement isconsistent with that of the group. It should be noted, however, that factors such as competition, regulation, or environmental matters could cause us tochange our estimates, thus impacting depreciation expense in the future.Also under the composite method of depreciation, the historical cost of a minor property asset (net of salvage value) that is retired or replaced ischarged to accumulated depreciation and no gain or loss is recognized in income. However, a gain or loss is recognized in income for a major propertyasset that is retired, replaced or sold and for an abnormal disposition of a property asset (primarily involuntary conversions). Gains and losses arereflected in depreciation and amortization expense, unless such amounts are reported separately due to materiality.Impairment of AssetsLong-lived assets, which include property, plant and equipment, intangible assets, and refinery turnaround and catalyst costs, are tested forrecoverability whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. An impairment lossshould be recognized if the carrying amount of the asset exceeds its fair value.In order to test for recoverability, we must make estimates of projected cash flows related to the asset being evaluated, which include, but are notlimited to, assumptions about the use or disposition of the asset, its estimated remaining life, and future expenditures necessary to maintain its existingservice potential. In order to determine fair value, management must make certain estimates and assumptions including, among other things, anassessment of market conditions, projected cash flows, investment rates, interest/equity rates, and growth rates, that could significantly impact thefair value of the asset being tested for impairment. Our impairment evaluations are based on assumptions that we deem to be reasonable. Providingsensitivity analyses if other assumptions were used in performing the impairment evaluations is not practicable due to the significant number ofassumptions involved in the estimates. See Note 4 of Notes to Consolidated Financial Statements for a further discussion of our asset impairmentanalysis and certain losses resulting from those analyses.We evaluate our equity method investments for impairment when there is evidence that we may not be able to recover the carrying amount of ourinvestments or the investee is unable to sustain an earnings capacity that justifies the carrying amount. A loss in the value of an investment that is otherthan a temporary decline is recognized currently in earnings, and is based on the difference between the estimated current fair value of the investmentand its carrying amount.Environmental MattersOur operations are subject to extensive environmental regulations by governmental authorities relating primarily to the discharge of materials into theenvironment, waste management, and pollution prevention measures. Future legislative action and regulatory initiatives, as discussed in Note 12 ofNotes to Consolidated Financial Statements could result in changes to required operating permits, additional remedial actions, or increased capitalexpenditures and operating costs that cannot be assessed with certainty at this time.Accruals for environmental liabilities are based on best estimates of probable undiscounted future costs over a 20-year time period using currentlyavailable technology and applying current regulations, as well as our53 Table of Contentsown internal environmental policies. However, environmental liabilities are difficult to assess and estimate due to uncertainties related to the magnitudeof possible remediation, the timing of such remediation, and the determination of our obligation in proportion to other parties. Such estimates aresubject to change due to many factors, including the identification of new sites requiring remediation, changes in environmental laws and regulationsand their interpretation, additional information related to the extent and nature of remediation efforts, and potential improvements in remediationtechnologies. An estimate of the sensitivity to earnings for changes in those factors is not practicable due to the number of contingencies that must beassessed, the number of underlying assumptions, and the wide range of possible outcomes.The amount of and changes in our accruals for environmental matters as of and for the years ended December 31, 2012, 2011, and 2010 is includedin Note 10 of Notes to Consolidated Financial Statements.Pension and Other Postretirement Benefit ObligationsWe have significant pension and other postretirement benefit liabilities and costs that are developed from actuarial valuations. Inherent in thesevaluations are key assumptions including discount rates, expected return on plan assets, future compensation increases, and health care cost trendrates. Changes in these assumptions are primarily influenced by factors outside our control. For example, the discount rate assumption represents ayield curve comprised of various long-term bonds that have an average rating of double-A when averaging all available ratings by the recognizedrating agencies, while the expected return on plan assets is based on a compounded return calculated assuming an asset allocation that is representativeof the asset mix in our pension plans. These assumptions can have a significant effect on the amounts reported in our financial statements. Forexample, a 0.25 percent decrease in the assumptions related to the discount rate or expected return on plan assets or a 0.25 percent increase in theassumptions related to the health care cost trend rate or rate of compensation increase would have the following effects on the projected benefitobligation as of December 31, 2012 and net periodic benefit cost for the year ending December 31, 2013 (in millions): PensionBenefits OtherPostretirementBenefitsIncrease in projected benefit obligation resulting from: Discount rate decrease$109 $12Compensation rate increase36 n/aHealth care cost trend rate increasen/a 4 Increase in expense resulting from: Discount rate decrease17 —Expected return on plan assets decrease4 n/aCompensation rate increase9 n/aHealth care cost trend rate increasen/a —See Note 14 of Notes to Consolidated Financial Statements for a further discussion of our pension and other postretirement benefit obligations. Asdiscussed in Note 14, we announced changes to certain of our pension plans on February 15, 2013 that will reduce our benefit costs and obligationsfor 2013 and future years.54 Table of ContentsTax MattersWe record tax liabilities based on our assessment of existing tax laws and regulations. A contingent loss related to an indirect tax claim is recorded ifthe loss is both probable and estimable. The recording of our tax liabilities requires significant judgments and estimates. Actual tax liabilities can varyfrom our estimates for a variety of reasons, including different interpretations of tax laws and regulations and different assessments of the amount oftax due. In addition, in determining our income tax provision, we must assess the likelihood that our deferred tax assets, primarily consisting of netoperating loss and tax credit carryforwards, will be recovered through future taxable income. Significant judgment is required in estimating theamount of valuation allowance, if any, that should be recorded against those deferred income tax assets. If our actual results of operations differ fromsuch estimates or our estimates of future taxable income change, the valuation allowance may need to be revised. However, an estimate of thesensitivity to earnings that would result from changes in the assumptions and estimates used in determining our tax liabilities is not practicable due tothe number of assumptions and tax laws involved, the various potential interpretations of the tax laws, and the wide range of possible outcomes. SeeNotes 12 and 16 of Notes to Consolidated Financial Statements for a further discussion of our tax liabilities.Legal MattersA variety of claims have been made against us in various lawsuits. We record a liability related to a loss contingency attributable to such legal mattersif we determine that it is probable that a loss has been incurred and that the loss is reasonably estimable. The recording of such liabilities requiresjudgments and estimates, the results of which can vary significantly from actual litigation results due to differing interpretations of relevant law anddiffering opinions regarding the degree of potential liability and the assessment of reasonable damages. However, an estimate of the sensitivity toearnings if other assumptions were used in recording our legal liabilities is not practicable due to the number of contingencies that must be assessedand the wide range of reasonably possible outcomes, both in terms of the probability of loss and the estimates of such loss.55 Table of ContentsITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKCOMMODITY PRICE RISKWe are exposed to market risks related to the volatility in the price of crude oil, refined products (primarily gasoline and distillate), grain (primarilycorn), and natural gas used in our operations. To reduce the impact of price volatility on our results of operations and cash flows, we use commodityderivative instruments, including swaps, futures, and options to hedge:•inventories and firm commitments to purchase inventories generally for amounts by which our current year inventory levels (determined on alast-in, first-out (LIFO) basis) differ from our previous year-end LIFO inventory levels and•forecasted feedstock and refined product purchases, refined product sales, natural gas purchases, and corn purchases to lock in the price ofthese forecasted transactions at existing market prices that we deem favorable.We use the futures markets for the available liquidity, which provides greater flexibility in transacting our hedging and trading operations. We useswaps primarily to manage our price exposure. We also enter into certain commodity derivative instruments for trading purposes to take advantage ofexisting market conditions related to future results of operations and cash flows.Our positions in commodity derivative instruments are monitored and managed on a daily basis by a risk control group to ensure compliance with ourstated risk management policy that has been approved by our board of directors.The following sensitivity analysis includes all positions at the end of the reporting period with which we have market risk (in millions): Derivative Instruments Held For Non-Trading Purposes TradingPurposesDecember 31, 2012: Gain (loss) in fair value resulting from: 10% increase in underlying commodity prices$(131) $(9)10% decrease in underlying commodity prices135 (1) December 31, 2011: Gain (loss) in fair value resulting from: 10% increase in underlying commodity prices(156) 110% decrease in underlying commodity prices156 2See Note 21 of Notes to Consolidated Financial Statements for notional volumes associated with these derivative contracts as of December 31, 2012.56 Table of ContentsCOMPLIANCE PROGRAM PRICE RISKWe are exposed to market risks related to the volatility in the price of financial instruments associated withvarious governmental and regulatory compliance programs that we must purchase in the open market to comply with these programs. To reduce theimpact of this risk on our results of operations and cash flows, we may enter into derivative instruments, such as futures. As of December 31, 2012,there was no gain or loss in the fair value of derivative instruments that would result from a 10 percent increase or decrease in the underlying price ofthe futures contracts. See Note 21 of Notes to Consolidated Financial Statements for a discussion about these compliance programs and notionalvolumes associated with these derivative contracts as of December 31, 2012.INTEREST RATE RISKThe following table provides information about our debt instruments, excluding capital lease obligations (dollars in millions), the fair values of whichare sensitive to changes in interest rates. Principal cash flows and related weighted-average interest rates by expected maturity dates are presented. Wehad no interest rate derivative instruments outstanding as of December 31, 2012 and 2011. December 31, 2012 Expected Maturity Dates 2013 2014 2015 2016 2017 There-after Total FairValueDebt: Fixed rate$480 $200 $475 $— $950 $4,824 $6,929 $8,521Average interest rate5.5% 4.8% 5.2% —% 6.4% 7.3% 6.8% Floating rate$100 $— $— $— $— $— $100 $100Average interest rate0.9% —% —% —% —% —% 0.9% December 31, 2011 Expected Maturity Dates 2012 2013 2014 2015 2016 There-after Total FairValueDebt: Fixed rate$754 $484 $200 $475 $— $5,578 $7,491 $9,048Average interest rate6.9% 5.5% 4.8% 5.2% —% 7.3% 6.9% Floating rate$250 $— $— $— $— $— $250 $250Average interest rate0.6% —% —% —% —% —% 0.6% FOREIGN CURRENCY RISKAs of December 31, 2012, we had commitments to purchase $552 million of U.S. dollars. Our market risk was minimal on the contracts, as theymatured on or before January 31, 2013, resulting in a gain of $1 million in the first quarter of 2013.57 Table of ContentsITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAMANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTINGOur management is responsible for establishing and maintaining adequate “internal control over financial reporting” (as defined in Rule 13a-15(f)under the Securities Exchange Act of 1934) for Valero. Our management evaluated the effectiveness of Valero’s internal control over financialreporting as of December 31, 2012. In its evaluation, management used the criteria established in Internal Control – Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Management believes that as of December 31, 2012,our internal control over financial reporting was effective based on those criteria.Our independent registered public accounting firm has issued an attestation report on the effectiveness of our internal control over financial reporting,which begins on page 60 of this report.58 Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMThe Board of Directors and Stockholdersof Valero Energy Corporation and subsidiaries:We have audited the accompanying consolidated balance sheets of Valero Energy Corporation and subsidiaries (the Company) as of December 31,2012 and 2011, and the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2012. These consolidated financial statements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these consolidated financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States) (the PCAOB). Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit alsoincludes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statementpresentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Valero EnergyCorporation and subsidiaries as of December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the years in thethree-year period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles.We also have audited, in accordance with the standards of the PCAOB, the Company’s internal control over financial reporting as of December 31,2012, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of theTreadway Commission, and our report dated February 28, 2013 expressed an unqualified opinion on the effectiveness of the Company’s internalcontrol over financial reporting./s/ KPMG LLPSan Antonio, TexasFebruary 28, 201359 Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMThe Board of Directors and Stockholdersof Valero Energy Corporation and subsidiaries:We have audited Valero Energy Corporation and subsidiaries’ (the Company’s) internal control over financial reporting as of December 31, 2012,based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the TreadwayCommission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for itsassessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Controlover Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States) (the PCAOB). Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reportingwas maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the riskthat a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Ouraudit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides areasonable basis for our opinion.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’sinternal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions arerecorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts andexpenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) providereasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could havea material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that thedegree of compliance with the policies or procedures may deteriorate.In our opinion, Valero Energy Corporation and subsidiaries maintained, in all material respects, effective internal control over financial reporting as ofDecember 31, 2012, based on criteria established in Internal Control – Integrated Framework issued by COSO.60 Table of ContentsWe also have audited, in accordance with the standards of the PCAOB, the consolidated balance sheets of Valero Energy Corporation and subsidiariesas of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, equity, and cash flows for each ofthe years in the three-year period ended December 31, 2012, and our report dated February 28, 2013 expressed an unqualified opinion on thoseconsolidated financial statements./s/ KPMG LLPSan Antonio, TexasFebruary 28, 201361 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(Millions of Dollars, Except Par Value) December 31, 2012 2011ASSETS Current assets: Cash and temporary cash investments$1,723 $1,024Receivables, net8,167 8,706Inventories5,973 5,623Income taxes receivable169 212Deferred income taxes274 283Prepaid expenses and other154 124Total current assets16,460 15,972Property, plant and equipment, at cost34,132 32,253Accumulated depreciation(7,832) (7,076)Property, plant and equipment, net26,300 25,177Intangible assets, net213 227Deferred charges and other assets, net1,504 1,407Total assets$44,477 $42,783LIABILITIES AND EQUITY Current liabilities: Current portion of debt and capital lease obligations$586 $1,009Accounts payable9,348 9,472Accrued expenses590 595Taxes other than income taxes1,026 1,264Income taxes payable1 119Deferred income taxes378 249Total current liabilities11,929 12,708Debt and capital lease obligations, less current portion6,463 6,732Deferred income taxes5,860 5,017Other long-term liabilities2,130 1,881Commitments 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 issued7 7Additional paid-in capital7,322 7,486Treasury stock, at cost; 121,406,520 and 116,689,450 common shares(6,437) (6,475)Retained earnings17,032 15,309Accumulated other comprehensive income108 96Total Valero Energy Corporation stockholders’ equity18,032 16,423Noncontrolling interest63 22Total equity18,095 16,445Total liabilities and equity$44,477 $42,783See Notes to Consolidated Financial Statements.62 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME(Millions of Dollars, Except per Share Amounts) Year Ended December 31, 2012 2011 2010Operating revenues (a)$139,250 $125,987 $82,233Costs and expenses: Cost of sales127,268 115,719 74,458Operating expenses: Refining3,668 3,406 2,944Retail686 678 654Ethanol332 399 363General and administrative expenses698 571 531Depreciation and amortization expense1,574 1,534 1,405Asset impairment losses1,014 — 2Total costs and expenses135,240 122,307 80,357Operating income4,010 3,680 1,876Other income, net9 43 106Interest and debt expense, net of capitalized interest(313) (401) (484)Income from continuing operations before income tax expense3,706 3,322 1,498Income tax expense1,626 1,226 575Income from continuing operations2,080 2,096 923Loss from discontinued operations, net of income taxes— (7) (599)Net income2,080 2,089 324Less: Net loss attributable to noncontrolling interest(3) (1) —Net income attributable to Valero Energy Corporation stockholders$2,083 $2,090 $324Net income attributable to Valero Energy Corporation stockholders: Continuing operations$2,083 $2,097 $923Discontinued operations— (7) (599)Total$2,083 $2,090 $324Earnings per common share: Continuing operations$3.77 $3.70 $1.63Discontinued operations— (0.01) (1.06)Total$3.77 $3.69 $0.57Weighted-average common shares outstanding (in millions)550 563 563Earnings per common share – assuming dilution: Continuing operations$3.75 $3.69 $1.62Discontinued operations— (0.01) (1.05)Total$3.75 $3.68 $0.57Weighted-average common shares outstanding – assuming dilution (in millions)556 569 568Dividends per common share$0.65 $0.30 $0.20_______________________________________________ Supplemental information: (a) Includes excise taxes on sales by our U.S. retail system$964 $892 $891See Notes to Consolidated Financial Statements.63 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(Millions of Dollars) Year Ended December 31, 2012 2011 2010Net income$2,080 $2,089 $324 Other comprehensive income (loss): Foreign currency translation adjustment164 (122) 158Net loss on pensionand other postretirement benefits(211) (292) (16)Net gain (loss) on derivative instruments designated andqualifying as cash flow hedges(28) 29 (180) Other comprehensive loss beforeincome tax benefit(75) (385) (38)Income tax benefit related to items of othercomprehensive loss(87) (93) (61)Other comprehensive income (loss)12 (292) 23 Comprehensive income2,092 1,797 347Less: Comprehensive loss attributable tononcontrolling interest(3) (1) —Comprehensive income attributable toValero Energy Corporation stockholders$2,095 $1,798 $347See Notes to Consolidated Financial Statements.64 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF EQUITY(Millions of Dollars) Valero Energy Corporation Stockholders’ Equity CommonStock AdditionalPaid-inCapital TreasuryStock RetainedEarnings AccumulatedOtherComprehensiveIncome (Loss) Total Non-controllingInterest TotalEquityBalance as of December 31, 2009$7 $7,896 $(6,721) $13,178 $365 $14,725 $— $14,725Net income— — — 324 — 324 — 324Dividends on common stock— — — (114) — (114) — (114)Stock-based compensationexpense— 54 — — — 54 — 54Tax deduction in excess of stock-based compensation expense— 6 — — — 6 — 6Transactions in connection withstock-based compensationplans: Stock issuances— (252) 272 — — 20 — 20Stock repurchases— — (13) — — (13) — (13)Other comprehensive income— — — — 23 23 — 23Balance as of December 31, 20107 7,704 (6,462) 13,388 388 15,025 — 15,025Net income— — — 2,090 — 2,090 (1) 2,089Dividends on common stock— — — (169) — (169) — (169)Stock-based compensationexpense— 57 — — — 57 — 57Tax deduction in excess of stock-based compensation expense— 22 — — — 22 — 22Transactions in connection withstock-based compensationplans: Stock issuances— (287) 336 — — 49 — 49Stock repurchases— (10) (349) — — (359) — (359)Contributions from noncontrollinginterest— — — — — — 23 23Recognition of noncontrollinginterests in MLP in connectionwith Pembroke Acquisition— — — — — — 5 5Acquisition of noncontrollinginterests in MLP— — — — — — (5) (5)Other comprehensive loss— — — — (292) (292) — (292)Balance as of December 31, 20117 7,486 (6,475) 15,309 96 16,423 22 16,445Net income— — — 2,083 — 2,083 (3) 2,080Dividends on common stock— — — (360) — (360) — (360)Stock-based compensationexpense— 57 — — — 57 — 57Tax deduction in excess of stock-based compensation expense— 29 — — — 29 — 29Transactions in connection withstock-based compensationplans: Stock issuances— (260) 319 — — 59 — 59Stock repurchases— 10 (163) — — (153) — (153)Stock repurchases underbuyback program— — (118) — — (118) — (118)Contributions from noncontrollinginterest— — — — — — 44 44Other comprehensive income— — — — 12 12 — 12Balance as of December 31, 2012$7 $7,322 $(6,437) $17,032 $108 $18,032 $63 $18,095See Notes to Consolidated Financial Statements.65 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(Millions of Dollars) Year Ended December 31, 2012 2011 2010Cash flows from operating activities: Net income$2,080 $2,089 $324Adjustments to reconcile net income to net cash provided byoperating activities: Depreciation and amortization expense1,574 1,534 1,473Asset impairment losses1,014 — 2Loss on shutdown and sales of refinery assets, net— 12 888Gain on sale of investment in Cameron Highway Oil Pipeline Company— — (55)Stock-based compensation expense58 58 54Deferred income tax expense963 461 347Changes in current assets and current liabilities(302) 81 68Changes in deferred charges and credits and other operating activities, net(117) (197) (56)Net cash provided by operating activities5,270 4,038 3,045Cash flows from investing activities: Capital expenditures(2,931) (2,355) (1,730)Deferred turnaround and catalyst costs(479) (629) (535)Acquisition of Pembroke Refinery, net of cash acquired— (1,691) —Acquisition of Meraux Refinery— (547) —Acquisitions of ethanol plants— — (260)Minor acquisitions(80) (37) —Proceeds from the sale of the Paulsboro Refinery160 — 547Proceeds from the sale of the Delaware City Refinery assets andassociated terminal and pipeline assets— — 220Proceeds from the sale of investment in Cameron HighwayOil Pipeline Company— — 330Other investing activities, net(21) (39) 23Net cash used in investing activities(3,351) (5,298) (1,405)Cash flows from financing activities: Non-bank debt: Borrowings300 — 1,544Repayments(862) (774) (517)Bank credit agreements: Borrowings1,100 — —Repayments(1,100) (4) —Accounts receivable sales program: Proceeds from the sale of receivables1,500 150 1,225Repayments(1,650) — (1,325)Proceeds from the exercise of stock options59 49 20Purchase of common stock for treasury(281) (349) (13)Common stock dividends(360) (169) (114)Contributions from noncontrolling interest44 22 —Other financing activities, net17 9 (4)Net cash provided by (used in) financing activities(1,233) (1,066) 816Effect of foreign exchange rate changes on cash13 16 53Net increase (decrease) in cash and temporary cash investments699 (2,310) 2,509Cash and temporary cash investments at beginning of year1,024 3,334 825Cash and temporary cash investments at end of year$1,723 $1,024 $3,334See Notes to Consolidated Financial Statements.66 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS1.BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBasis of PresentationGeneralAs used in this report, the terms “Valero,” “we,” “us,” or “our” may refer to Valero Energy Corporation, one or more of its consolidatedsubsidiaries, or all of them taken as a whole. We are an independent petroleum refining and marketing company and own 16 refineries with acombined total throughput capacity of approximately 3.0 million barrels per day as of December 31, 2012. We market branded and unbranded refinedproducts on a wholesale basis in the United States (U.S.), Canada, the United Kingdom (U.K.), and Ireland through an extensive bulk and rackmarketing network, and we sell refined products through a network of 1,880 company-owned and leased retail sites in the U.S. and Canada and5,450 branded wholesale sites that we neither own nor operate in the U.S., Canada, the U.K., Aruba, and Ireland. Refined products are marketedunder various brand names including Valero®, Diamond Shamrock®, Shamrock®, Ultramar®, Beacon®, and Texaco®. We also produce ethanol andoperate ten ethanol plants in the U.S. with a combined nameplate production capacity of approximately 1.1 billion gallons per year as ofDecember 31, 2012. Our operations are affected by:•company-specific factors, primarily refinery utilization rates and refinery maintenance turnarounds;•seasonal factors, such as the demand for refined products during the summer driving season and heating oil during the winter season; and•industry factors, such as movements in and the level of crude oil prices including the effect of quality differentials between grades of crudeoil, the demand for and prices of refined products, industry supply capacity, and competitor refinery maintenance turnarounds.We have evaluated subsequent events that occurred after December 31, 2012 through the filing of this Form 10-K. Any material subsequent eventsthat occurred during this time have been properly recognized or disclosed in these financial statements.Significant Accounting PoliciesReclassificationsCertain amounts previously reported in our annual report on Form 10-K for the year ended December 31, 2011 have been reclassified to conform tothe 2012 presentation.Principles of ConsolidationGeneralThese consolidated financial statements include the accounts of Valero and subsidiaries in which Valero has a controlling interest. Intercompanybalances and transactions have been eliminated in consolidation. Investments in significant noncontrolled entities are accounted for using the equitymethod.Noncontrolling InterestOn January 21, 2011, we entered into a joint venture agreement with Darling Green Energy LLC, a subsidiary of Darling International, Inc., to formDiamond Green Diesel Holdings LLC (DGD Holdings). DGD Holdings, through its wholly owned subsidiary, Diamond Green Diesel LLC (DGD),is constructing and will operate a biomass-based diesel plant having a design feed capacity of 10,000 barrels per day that will process animal fats, usedcooking oils, and other vegetable oils into renewable green diesel. The plant will be located next to our St. Charles Refinery. The aggregate cost of thisfacility is estimated to be approximately67 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)$368 million and the construction is expected to be completed in the second quarter of 2013. The joint venture agreement requires that contributionsbe made to DGD Holdings based on the percentage of units held by each member, which is currently on a 50/50 basis. In addition, on May 31, 2011,we agreed to lend DGD up to $221 million in order to finance 60 percent of the construction costs of the plant.Because of our controlling financial interest in DGD Holdings, we have included the financial statements of DGD Holdings in these consolidatedfinancial statements and have separately disclosed the related noncontrolling interest.Use of EstimatesThe preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires us to make estimates andassumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Onan ongoing basis, we review our estimates based on currently available information. Changes in facts and circumstances may result in revisedestimates.Cash and Temporary Cash InvestmentsOur temporary cash investments are highly liquid, low-risk debt instruments that have a maturity of three months or less when acquired.ReceivablesTrade receivables are carried at original invoice amount. We maintain an allowance for doubtful accounts, which is adjusted based on management’sassessment of our customers’ historical collection experience, known credit risks, and industry and economic conditions.InventoriesInventories are carried at the lower of cost or market. The cost of refinery feedstocks purchased for processing, refined products, and grain andethanol inventories are determined under the last-in, first-out (LIFO) method using the dollar-value LIFO method, with any increments valued basedon average purchase prices during the year. The cost of feedstocks and products purchased for resale and the cost of materials, supplies, andconvenience store merchandise are determined principally under the weighted-average cost method.Property, Plant and EquipmentThe cost of property, plant and equipment (property assets) purchased or constructed, including betterments of property assets, is capitalized.However, the cost of repairs to and normal maintenance of property assets is expensed as incurred. Betterments of property assets are those whichextend the useful life, increase the capacity or improve the operating efficiency of the asset, or improve the safety of our operations. The cost ofproperty assets constructed includes interest and certain overhead costs allocable to the construction activities.Our operations, especially those of our refining segment, are highly capital intensive. Each of our refineries comprises a large base of property assets,consisting of a series of interconnected, highly integrated and interdependent crude oil processing facilities and supporting logistical infrastructure(Units), and these Units are continuously improved. Improvements consist of the addition of new Units and betterments of existing Units. We planfor these improvements by developing a multi-year capital program that is updated and revised based on changing internal and external factors.68 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Depreciation of property assets used in our refining segment is recorded on a straight-line basis over the estimated useful lives of these assetsprimarily using the composite method of depreciation. We maintain a separate composite group of property assets for each of our refineries. Weestimate the useful life of each group based on an evaluation of the property assets comprising the group, and such evaluations consist of, but are notlimited to, the physical inspection of the assets to determine their condition, consideration of the manner in which the assets are maintained,assessment of the need to replace assets, and evaluation of the manner in which improvements impact the useful life of the group. The estimateduseful lives of our composite groups range primarily from 25 to 30 years.Under the composite method of depreciation, the cost of an improvement is added to the composite group to which it relates and is depreciated overthat group’s estimated useful life. We design improvements to our refineries in accordance with engineering specifications, design standards andpractices accepted in our industry, and these improvements have design lives consistent with our estimated useful lives. Therefore, we believe the useof the group life to depreciate the cost of improvements made to the group is reasonable because the estimated useful life of each improvement isconsistent with that of the group. It should be noted, however, that factors such as competition, regulation, or environmental matters could cause us tochange our estimates, thus impacting depreciation expense in the future.Also under the composite method of depreciation, the historical cost of a minor property asset (net of salvage value) that is retired or replaced ischarged to accumulated depreciation and no gain or loss is recognized in income. However, a gain or loss is recognized in income for a major propertyasset that is retired, replaced or sold and for an abnormal disposition of a property asset (primarily involuntary conversions). Gains and losses arereflected in depreciation and amortization expense, unless such amounts are reported separately due to materiality.Depreciation of property assets used in our retail and ethanol segments is recorded on a straight-line basis over the estimated useful lives of the relatedassets. Leasehold improvements and assets acquired under capital leases are amortized using the straight-line method over the shorter of the lease termor the estimated useful life of the related asset.Deferred Charges and Other Assets“Deferred charges and other assets, net” include the following:•turnaround costs, which are incurred in connection with planned major maintenance activities at our refineries and ethanol plants and whichare deferred when incurred and amortized on a straight-line basis over the period of time estimated to lapse until the next turnaround occurs;•fixed-bed catalyst costs, representing the cost of catalyst that is changed out at periodic intervals when the quality of the catalyst hasdeteriorated beyond its prescribed function, which are deferred when incurred and amortized on a straight-line basis over the estimated usefullife of the specific catalyst;•investments in entities that we do not control; and•other noncurrent assets such as convenience store dealer incentive programs, investments of certain benefit plans (related primarily to certainU.S. nonqualified defined benefit plans whose plan assets are not protected from our creditors and therefore cannot be reflected as areduction from our obligations under those pension plans), debt issuance costs, and various other costs.69 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Impairment of AssetsLong-lived assets, which include property, plant and equipment, intangible assets, and refinery turnaround and catalysts costs, are tested forrecoverability whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. A long-lived asset isnot recoverable if its carrying amount exceeds the sum of the undiscounted cash flows expected to result from its use and eventual disposition. If along-lived asset is not recoverable, an impairment loss is recognized for the amount by which the carrying amount of the long-lived asset exceeds itsfair value, with fair value determined based on discounted estimated net cash flows or other appropriate methods. See Note 4 for our impairmentanalysis of our long-lived assets.We evaluate our equity method investments for impairment when there is evidence that we may not be able to recover the carrying amount of ourinvestments or the investee is unable to sustain an earnings capacity that justifies the carrying amount. A loss in the value of an investment that is otherthan a temporary decline is recognized currently in income, and is based on the difference between the estimated current fair value of the investmentand its carrying amount.Environmental MattersLiabilities for future remediation costs are recorded when environmental assessments from governmental regulatory agencies and/or remedial effortsare probable and the costs can be reasonably estimated. Other than for assessments, the timing and magnitude of these accruals generally are based onthe completion of investigations or other studies or a commitment to a formal plan of action. Environmental liabilities are based on best estimates ofprobable undiscounted future costs over a 20-year time period using currently available technology and applying current regulations, as well as ourown internal environmental policies, without establishing a range of loss for these liabilities. Environmental liabilities are difficult to assess andestimate due to uncertainties related to the magnitude of possible remediation, the timing of such remediation, and the determination of our obligation inproportion to other parties. Such estimates are subject to change due to many factors, including the identification of new sites requiring remediation,changes in environmental laws and regulations and their interpretation, additional information related to the extent and nature of remediation efforts,and potential improvements in remediation technologies. Amounts recorded for environmental liabilities have not been reduced by possible recoveriesfrom third parties.Asset Retirement ObligationsWe record a liability, which is referred to as an asset retirement obligation, at fair value for the estimated cost to retire a tangible long-lived asset at thetime we incur that liability, which is generally when the asset is purchased, constructed, or leased. We record the liability when we have a legalobligation to incur costs to retire the asset and when a reasonable estimate of the fair value of the liability can be made. If a reasonable estimate cannotbe made at the time the liability is incurred, we record the liability when sufficient information is available to estimate the liability’s fair value.Foreign Currency TranslationThe functional currency of each of our international operations is generally the respective local currency, which includes the Canadian dollar, theAruban florin, the pound sterling, and the euro. Balance sheet accounts are translated into U.S. dollars using exchange rates in effect as of the balancesheet date. Revenue and expense accounts are translated using the weighted-average exchange rates during the year presented. Foreign currencytranslation adjustments are recorded as a component of accumulated other comprehensive income.70 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Revenue RecognitionRevenues for products sold by the refining, retail, and ethanol segments are recorded upon delivery of the products to our customers, which is thepoint at which title to the products is transferred, and when payment has either been received or collection is reasonably assured.We present excise taxes on sales by our U.S. retail system on a gross basis with supplemental information regarding the amount of such taxesincluded in revenues provided in a footnote on the face of the statements of income. All other excise taxes are presented on a net basis.We enter into certain purchase and sale arrangements with the same counterparty that are deemed to be made in contemplation of one another. Wecombine these transactions and, as a result, revenues and cost of sales are not recognized in connection with these arrangements. We also enter intorefined product exchange transactions to fulfill sales contracts with our customers by accessing refined products in markets where we do not operateour own refineries. These refined product exchanges are accounted for as exchanges of non-monetary assets, and no revenues are recorded on thesetransactions.Product Shipping and Handling CostsCosts incurred for shipping and handling of products are included in cost of sales.Stock-Based CompensationCompensation expense for our share-based compensation plans is based on the fair value of the awards granted and is recognized in income on astraight-line basis over the requisite service period of each award. For new grants that have retirement-eligibility provisions, we use the non-substantive vesting period approach, under which compensation cost is recognized immediately for awards granted to retirement-eligible employees orover the period from the grant date to the date retirement eligibility is achieved if that date is expected to occur during the nominal vesting period.Income TaxesIncome taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the futuretax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective taxbases. Deferred amounts are measured using enacted tax rates expected to apply to taxable income in the year those temporary differences areexpected to be recovered or settled.We have elected to classify any interest expense and penalties related to the underpayment of income taxes in income tax expense.Earnings per Common ShareEarnings per common share is computed by dividing net income by the weighted-average number of common shares outstanding for the year.Participating share-based payment awards, including shares of restricted stock granted under certain of our stock-based compensation plans, areincluded in the computation of basic earnings per share using the two-class method. Earnings per common share – assuming dilution reflects thepotential dilution arising from our outstanding stock options and nonvested shares granted to employees in connection with our stock-basedcompensation plans. Potentially dilutive securities are excluded from the71 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)computation of earnings per common share – assuming dilution when the effect of including such shares would be antidilutive.Financial InstrumentsOur financial instruments include cash and temporary cash investments, receivables, payables, debt, capital lease obligations, commodity derivativecontracts, and foreign currency derivative contracts. The estimated fair values of these financial instruments approximate their carrying amounts,except for certain debt as discussed in Note 20.Derivatives and HedgingAll derivative instruments are recorded in the balance sheet as either assets or liabilities measured at their fair values. When we enter into a derivativeinstrument, it is designated as a fair value hedge, a cash flow hedge, an economic hedge, or a trading derivative. The gain or loss on a derivativeinstrument designated and qualifying as a fair value hedge, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, arerecognized currently in income in the same period. The effective portion of the gain or loss on a derivative instrument designated and qualifying as acash flow hedge is initially reported as a component of other comprehensive income and is then recorded in income in the period or periods duringwhich the hedged forecasted transaction affects income. The ineffective portion of the gain or loss on the cash flow derivative instrument, if any, isrecognized in income as incurred. For our economic hedging relationships (derivative instruments not designated as fair value or cash flow hedges)and for derivative instruments entered into for trading purposes, the derivative instrument is recorded at fair value and changes in the fair value of thederivative instrument are recognized currently in income. The cash flow effects of all of our derivative instruments are reflected in operating activitiesin the statements of cash flows.New Accounting PronouncementsIn December 2011, the provisions of Accounting Standards Codification (ASC) Topic 210, “Balance Sheet,” were amended to require an entity todisclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of thesearrangements on its financial position. In January 2013, the provisions of ASC Topic 210 were further amended to clarify that the scope of theprevious amendment only applies to derivative instruments, including separated bifurcated derivatives, repurchase agreements and reverse repurchaseagreements, and securities borrowing and securities lending transactions that are either eligible for offset in the balance sheet or are subject to anagreement similar to a master netting agreement. The guidance requires entities to disclose both gross information and net information about assets andliabilities within the scope of the amendment. These provisions are effective for interim and annual reporting periods beginning on or after January 1,2013. The adoption of this guidance effective January 1, 2013 will not affect our financial position or results of operations, but will result inadditional disclosures.In February 2013, the provisions of ASC Topic 220, “Comprehensive Income,” were amended to require an entity to disclose information about theamounts reclassified out of accumulated other comprehensive income by component. For amounts required to be reclassified out of accumulatedother comprehensive income in their entirety in the same reporting period, the guidance requires entities to present significant amounts by therespective line items of net income, either on the face of the income statement or in the notes to the financial statements. For other amounts that are notrequired to be reclassified to net income in their entirety, a cross-reference is required to other disclosures that provide additional details about thoseamounts. These provisions are effective for annual reporting periods beginning after December 15, 2012. The adoption of72 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)this guidance effective January 1, 2013 will not affect our financial position or results of operations, but will result in additional disclosures.2.ACQUISITIONSAcquisitions of RefineriesThe acquired refining and marketing businesses discussed below involve the production and marketing of refined petroleum products. Theseacquisitions are consistent with our general business strategy and complement our existing refining and marketing network.Meraux AcquisitionOn October 1, 2011, we acquired the Meraux Refinery and related logistics assets from Murphy Oil Corporation for an initial payment of $586million, which was funded from available cash. This acquisition is referred to as the Meraux Acquisition. The Meraux Refinery has a totalthroughput capacity of 135,000 barrels per day and is located in Meraux, Louisiana.In the fourth quarter of 2011, we recorded an adjustment related to inventories acquired that reduced the purchase price to $547 million. In the fourthquarter of 2012, an independent appraisal of the assets acquired and liabilities assumed and certain other evaluations of the fair values related to theMeraux Acquisition were completed and finalized. The purchase price of the Meraux Acquisition was allocated based on the fair values of the assetsacquired and the liabilities assumed at the date of acquisition resulting from this final appraisal and other evaluations. The primary adjustments to thepreliminary purchase price allocation disclosed in 2011 consisted of an $8 million increase in materials and supplies inventories, a $27 milliondecrease in property, plant and equipment, and a $19 million increase in deferred charges and other assets, net. The final amounts assigned to theassets acquired and liabilities assumed in the Meraux Acquisition were recognized at their acquisition-date fair values and are as follows (in millions):Inventories$227Property, plant and equipment293Deferred charges and other assets, net28Other long-term liabilities(1)Purchase price$547Pembroke AcquisitionOn August 1, 2011, we acquired 100 percent of the outstanding shares of Chevron Limited from a subsidiary of Chevron Corporation (Chevron),and we subsequently changed the name of Chevron Limited to Valero Energy Ltd. Valero Energy Ltd owns and operates the Pembroke Refinery,which has a total throughput capacity of 270,000 barrels per day and is located in Wales, U.K. Valero Energy Ltd also owns, directly and throughvarious subsidiaries, an extensive network of marketing and logistics assets throughout the U.K. and Ireland. On the acquisition date, we initially paid$1.8 billion from available cash, of which $1.1 billion was for working capital. Subsequent to the acquisition date, we recorded an adjustment toworking capital (primarily inventory), resulting in an adjusted purchase price of $1.7 billion. This acquisition is referred to as the PembrokeAcquisition.73 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)In the third quarter of 2012, an independent appraisal of the assets acquired and liabilities assumed and certain other evaluations of the fair valuesrelated to the Pembroke Acquisition were completed and finalized. The purchase price of the Pembroke Acquisition was allocated based on the fairvalues of the assets acquired and the liabilities assumed at the date of acquisition resulting from this final appraisal and other evaluations. The primaryadjustments to the preliminary purchase price allocation disclosed in 2011 consisted of a $143 million increase in property, plant and equipment, a$124 million increase in deferred income taxes, and a $17 million increase in other long-term liabilities. The final amounts assigned to the assetsacquired and liabilities assumed in the Pembroke Acquisition were recognized at their acquisition-date fair values and are as follows (in millions):Current assets, net of cash acquired$2,215Property, plant and equipment947Intangible assets22Deferred charges and other assets, net37Current liabilities, less current portion of debtand capital lease obligations(1,294)Debt and capital leases assumed, including current portion(12)Deferred income taxes(159)Other long-term liabilities(60)Noncontrolling interest(5)Purchase price, net of cash acquired$1,691Because of the adjustment to property, plant and equipment discussed above, we recorded an additional $6 million of depreciation expense in the thirdquarter of 2012 to true-up depreciation expense for the period from the date of the Pembroke Acquisition (August 1, 2011) through July 31, 2012.In connection with the Pembroke Acquisition, we acquired an 85 percent interest in Mainline Pipelines Limited (MLP). MLP owns a pipeline thatdistributes refined products from the Pembroke Refinery to terminals in the U.K. In the fourth quarter of 2011, we acquired the remaining 15 percentinterest in MLP.Acquisitions of Ethanol PlantsThe acquired ethanol businesses as discussed below involve the production and marketing of ethanol and its co-products, including distillers grains.The operations of our ethanol business complement our existing clean motor fuels business.ASA and Renew AssetsIn December 2009, we signed an agreement with ASA Ethanol Holdings, LLC to buy two ethanol plants located in Linden, Indiana andBloomingburg, Ohio and made a $20 million advance payment towards the acquisition of these plants. In January 2010, we completed the acquisitionof these plants, including certain inventories, for total consideration of $202 million.Also in December 2009, we received approval from a bankruptcy court to acquire one ethanol plant located near Jefferson, Wisconsin from RenewEnergy LLC and made a $1 million advance payment towards the74 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)acquisition of this plant. We completed the acquisition of this plant, including certain receivables and inventories, in February 2010 for totalconsideration of $79 million.3.SALES OF ASSETSPaulsboro RefineryIn December 2010, we sold our Paulsboro Refinery to PBF Holding Company LLC (PBF Holding). Working capital, consisting primarily ofinventory, was included as part of this transaction. The results of operations of the Paulsboro Refinery, including the loss on the sale discussed below,have been presented as discontinued operations for the years ended December 31, 2011 and 2010.We received total proceeds of $707 million, including $361 million from the sale of working capital, resulting in a pre-tax loss of $980 million($610 million after taxes). The loss includes a $50 million charge related to a LIFO inventory liquidation that resulted from the sale of inventory toPBF Holding. The sale proceeds consisted of $547 million of cash and a $160 million note secured by the Paulsboro Refinery. In February 2012, wereceived full payment on this note.Selected results of operations of the Paulsboro Refinery prior to its sale, excluding the loss on the sale in 2010, are shown below (in millions). Year Ended December 31, 2011 2010Operating revenues$— $4,692Loss before income taxes(9) (53)Delaware City Refinery Assets and Associated Terminal and Pipeline AssetsIn November 2009, we announced the permanent shutdown of our Delaware City Refinery, and wrote-down the book value of the refinery assets tonet realizable value. The results of operations of the Delaware City Refinery have been presented as discontinued operations for the years endedDecember 31, 2011 and 2010.In June 2010, we sold the shutdown refinery assets and associated terminal and pipeline assets to wholly owned subsidiaries of PBF Energy PartnersLP for $220 million of cash proceeds. The sale resulted in a gain of $92 million ($58 million after taxes) related to the shutdown refinery assets and again of $3 million related to the terminal and pipeline assets. The gain on the sale of the shutdown refinery assets primarily resulted from receivingproceeds related to the scrap value of the assets and the reversal of certain liabilities recorded in the fourth quarter of 2009 associated with theshutdown of the refinery, which we did not incur because of the sale. This gain is presented in discontinued operations for the year endedDecember 31, 2010.75 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Selected results of operations of the Delaware City Refinery prior to its sale, excluding the gain on the sale in 2010, are shown below (in millions). Year Ended December 31, 2011 2010Operating revenues$— $—Loss before income taxes(3) (29)Investment in Cameron Highway Oil Pipeline Company (CHOPS)In November 2010, we sold our 50 percent interest in CHOPS to Genesis Energy, L.P. for total cash proceeds of $330 million. The sale resulted in apre-tax gain of $55 million ($36 million after taxes), which is included in “other income, net” for the year ended December 31, 2010. CHOPS is ageneral partnership that operates a 390-mile pipeline, which delivers up to 500,000 barrels per day of crude oil from the Gulf of Mexico to majorrefining areas of Port Arthur and Texas City, Texas.4.IMPAIRMENTSAruba RefineryIn September 2012, we decided to reorganize the Aruba Refinery into a crude oil and refined products terminal in response to the withdrawal of anon-binding offer to purchase the refinery. We had received the offer on March 28, 2012, and had accepted it, subject to the finalization of apurchase and sale agreement, but the interested party withdrew its offer on August 14, 2012.We suspended the operations of the Aruba Refinery in March 2012 because of its inability to generate positive cash flows on a sustained basissubsequent to its restart in January 2011 and the sensitivity of its profitability to sour crude oil differentials, which had narrowed significantly in thefourth quarter of 2011. Shortly thereafter, we received the non-binding offer to purchase the refinery for $350 million, plus working capital as of theclosing date. Because of our decision to suspend operations and the possibility of selling the refinery, we evaluated the refinery for potentialimpairment as of March 31, 2012 and concluded that it was impaired. We wrote down the refinery’s net book value (carrying value) of $945 millionto its estimated fair value of $350 million, resulting in an asset impairment loss of $595 million that was recorded in March 2012. We determined thatthe best measure of the refinery’s fair value at that time was the $350 million offer because it was based on the interested party’s specific knowledgeof the refinery, experience in the refining and marketing industry, and extensive knowledge of the economic factors affecting our business. We didnot, however, classify the Aruba Refinery as “held for sale” in our balance sheet because all of the accounting criteria required for that classificationhad not been met.Because of our decision to reorganize the Aruba Refinery into a crude oil and refined products terminal, we bifurcated the idled crude oil processingunits and related infrastructure (refining assets) from the terminal assets and evaluated the refining assets for potential impairment as of September 30,2012. We concluded that the refining assets were impaired and determined that their carrying value of $308 million was not recoverable through thefuture operations and disposition of the refinery. We determined that these refining assets had no value after considering estimated salvage costs,resulting in an asset impairment loss of $308 million that was recorded in September 2012. We also recognized an asset impairment loss of$25 million related to materials and supplies inventories that supported the refining operations, resulting in76 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)a total asset impairment loss of $333 million that was recognized in September 2012 related to the Aruba Refinery. The terminal assets were notimpaired as of September 30, 2012.We currently intend to maintain the refining assets to allow them to be restarted and do not consider them to be abandoned. Therefore, we have notreflected the Aruba Refinery as a discontinued operation in our financial statements. It is possible, however, that we may abandon these assets in thefuture. Should we ultimately decide to abandon these assets, we may be required under our land lease agreement with the Government of Aruba(GOA) to recognize an asset retirement obligation, and the amount recognized would be immediately charged to expense. We do not expect theseamounts to be material to our financial position or results of operations.Cancelled Capital ProjectsDuring 2012 and 2010, we wrote down the carrying value of equipment associated with permanently cancelled capital projects at several of ourrefineries and recognized asset impairment losses of $65 million and $2 million, respectively.Retail StoresDuring 2012, we evaluated certain of our convenience stores operated by our retail segment for potential impairment and concluded that they wereimpaired, and we wrote down the carrying values of these stores to their estimated fair values and recognized asset impairment losses of $21 million.5.RECEIVABLESReceivables consisted of the following (in millions): December 31, 2012 2011Accounts receivable$8,061 $8,366Commodity derivative and foreign currencycontract receivables136 174Notes receivable and other26 214 8,223 8,754Allowance for doubtful accounts(56) (48)Receivables, net$8,167 $8,706Notes receivable in 2011 primarily represent amounts due from PBF Holding related to the sale of the Paulsboro Refinery, the full payment of whichwas received in February 2012.77 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Changes in the allowance for doubtful accounts consisted of the following (in millions): Year Ended December 31, 2012 2011 2010Balance as of beginning of year$48 $42 $45Increase in allowance charged to expense21 21 14Accounts charged against the allowance,net of recoveries(13) (14) (17)Foreign currency translation— (1) —Balance as of end of year$56 $48 $426.INVENTORIESInventories consisted of the following (in millions): December 31, 2012 2011Refinery feedstocks$2,458 $2,474Refined products and blendstocks2,995 2,633Ethanol feedstocks and products191 195Convenience store merchandise112 103Materials and supplies217 218Inventories$5,973 $5,623During the years ended December 31, 2012, 2011, and 2010, we had net liquidations of LIFO inventory layers that were established in prior years,which decreased cost of sales in each of those years by $134 million, $247 million, and $16 million, respectively. The effect of the liquidation in2010 excludes the impact from the sale of inventory in connection with the sale of our Paulsboro Refinery to PBF Holding. The effect of the 2010liquidation attributable to the sale of that inventory increased the loss on the sale of the Paulsboro Refinery by $50 million ($31 million after taxes) asdiscussed in Note 3 and is reflected in discontinued operations.As of December 31, 2012 and 2011, the replacement cost (market value) of LIFO inventories exceeded their LIFO carrying amounts byapproximately $6.7 billion and $6.8 billion, respectively.78 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)7.PROPERTY, PLANT AND EQUIPMENTMajor classes of property, plant and equipment, which include capital lease assets, consisted of the following (in millions): December 31, 2012 2011Land $802 $722Crude oil processing facilities 24,865 23,322Pipeline and terminal facilities 1,471 856Grain processing equipment 694 673Retail facilities 1,480 1,346Administrative buildings 734 712Other 1,457 1,290Construction in progress 2,629 3,332Property, plant and equipment, at cost 34,132 32,253Accumulated depreciation (7,832) (7,076)Property, plant and equipment, net $26,300 $25,177We have miscellaneous assets under capital leases that primarily support our refining operations totaling $83 million and $77 million as ofDecember 31, 2012 and 2011, respectively. Accumulated amortization on assets under capital leases was $35 million and $26 million, respectively,as of December 31, 2012 and 2011.Depreciation expense for the years ended December 31, 2012, 2011, and 2010 was $1.1 billion, $1.1 billion, and $985 million, respectively.79 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)8.INTANGIBLE ASSETSIntangible assets include trade names, customer lists, air emission credits, and various other agreements. All of our intangible assets are subject toamortization. Intangible assets with finite useful lives are amortized on a straight-line basis. The gross carrying amount of intangible assets as ofDecember 31, 2012 and 2011 was $429 million and $417 million, respectively. The accumulated amortization of intangible assets was $216 millionand $190 million as of December 31, 2012 and 2011, respectively. Amortization expense for intangible assets was $22 million, $18 million, and$22 million for the years ended December 31, 2012, 2011, and 2010, respectively. The estimated aggregate amortization expense for the years endingDecember 31, 2013 through December 31, 2017 is as follows (in millions): AmortizationExpense2013$21201421201521201618201779.DEFERRED CHARGES AND OTHER ASSETS“Deferred charges and other assets, net” primarily includes turnaround and catalyst costs, which are deferred and amortized as discussed in Note 1.Amortization expense for deferred refinery turnaround and catalyst costs was $459 million, $444 million, and $383 million for the years endedDecember 31, 2012, 2011, and 2010, respectively.10.ACCRUED EXPENSES AND OTHER LONG-TERM LIABILITIESAccrued expenses and other long-term liabilities consisted of the following as of December 31 (in millions): Accrued Expenses Other Long-TermLiabilities 2012 2011 2012 2011Defined benefit plan liabilities (see Note 14)$32 $37 $982 $795Wage and other employee-related liabilities282 259 91 79Uncertain income tax position liabilities (see Note 16)— — 391 337Environmental liabilities27 39 242 235Accrued interest expense96 108 — —Derivative liabilities14 25 — —Asset retirement obligations5 6 103 81Other accrued liabilities134 121 321 354Accrued expenses and other long-term liabilities$590 $595 $2,130 $1,88180 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Environmental LiabilitiesChanges in our environmental liabilities were as follows (in millions): Year Ended December 31, 2012 2011 2010Balance as of beginning of year$274 $268 $279Pembroke Acquisition— 30 —Additions to liability23 18 50Reductions to liability(1) (5) (21)Payments, net of third-party recoveries(29) (35) (42)Foreign currency translation2 (2) 2Balance as of end of year$269 $274 $268In connection with our Pembroke Acquisition, we assumed certain environmental liabilities including, but not limited to, certain remediationobligations, site restoration costs, and certain liabilities relating to soil and groundwater remediation. There were no significant environmental liabilitiesassumed in connection with the Meraux Acquisition.Asset Retirement ObligationsWe have asset retirement obligations with respect to certain of our refinery assets due to various legal obligations to clean and/or dispose of variouscomponent parts of each refinery at the time they are retired. However, these component parts can be used for extended and indeterminate periods oftime as long as they are properly maintained and/or upgraded. It is our practice and current intent to maintain our refinery assets and continue makingimprovements to those assets based on technological advances. As a result, we believe that our refineries have indeterminate lives for purposes ofestimating asset retirement obligations because dates or ranges of dates upon which we would retire refinery assets cannot reasonably be estimated atthis time. When a date or range of dates can reasonably be estimated for the retirement of any component part of a refinery, we estimate the cost ofperforming the retirement activities and record a liability for the fair value of that cost using established present value techniques.We also have asset retirement obligations for the removal of underground storage tanks (USTs) at owned and leased retail sites. There is no legalobligation to remove USTs while they remain in service. However, environmental laws in the U.S. and Canada require that unused USTs be removedwithin certain periods of time after the USTs are no longer in service, usually one to two years depending on the jurisdiction in which the USTs arelocated. We have estimated that USTs at our owned retail sites will remain in service approximately 20 years and that we will have an obligation toremove those USTs at that time. For our leased retail sites, our lease agreements generally require that we remove certain improvements, primarilyUSTs and signage, upon termination of the lease.81 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Changes in our asset retirement obligations were as follows (in millions). Year Ended December 31, 2012 2011 2010Balance as of beginning of year$87 $101 $179Additions to accrual28 4 3Reductions to accrual(1) — (34)Accretion expense5 4 7Settlements(11) (22) (54)Balance as of end of year$108 $87 $101There are no assets that are legally restricted for purposes of settling our asset retirement obligations.One-Time Severance BenefitsAs described in Note 4, we decided to reorganize the Aruba Refinery into a crude oil and refined products terminal in September 2012 resulting in adecrease in required personnel for our operations in Aruba. We notified 495 employees in September 2012 of the termination of their employmenteffective November 15, 2012. Benefits to each terminated employee consisted primarily of a cash payment based on a formula that considered theemployee’s current compensation and years of service, among other factors. We recognized a severance liability of $41 million in September 2012,which approximated fair value. We paid $31 million of these benefits in the fourth quarter of 2012. We expect to pay the remaining terminationbenefits in the first and second quarters of 2013. Because of the short discount period, the remaining liability of $10 million as of December 31,2012, which is included in “other accrued liabilities” in the detail of accrued expense and other long-term liabilities, is not materially different from itsfair value. Total severance expense of $41 million is included in refining operating expenses for the year ended December 31, 2012 and relates to ourrefining segment.82 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)11.DEBT AND CAPITAL LEASE OBLIGATIONSDebt, at stated values, and capital lease obligations consisted of the following (in millions): FinalMaturity December 31, 2012 2011Bank credit facilitiesVarious $— $—Industrial revenue bonds: Tax-exempt Revenue Refunding Bonds: Series 1997A, 5.45%2027 — 18Tax-exempt Waste Disposal Revenue Bonds: Series 1997, 5.6%2031 — 25Series 1998, 5.6%2032 — 25Series 1999, 5.7%2032 — 25Series 2001, 6.65%2032 — 194.5% notes2015 400 4004.75% notes2013 300 3004.75% notes2014 200 2006.125% notes2017 750 7506.125% notes2020 850 8506.625% notes2037 1,500 1,5006.875% notes2012 — 7507.5% notes2032 750 7508.75% notes2030 200 200Debentures: 7.65%2026 100 1008.75%2015 75 75Senior Notes: 6.7%2013 180 1806.75%2037 24 247.2%2017 200 2007.45%2097 100 1009.375%2019 750 75010.5%2039 250 250Gulf Opportunity Zone Revenue Bonds, Series 2010, 4.0%2040 300 —Accounts receivable sales facility2013 100 250Net unamortized discount, including fair value adjustments (29) (51)Total debt 7,000 7,690Capital lease obligations, including unamortized fair value adjustments 49 51Total debt and capital lease obligations 7,049 7,741Less current portion (586) (1,009)Debt and capital lease obligations, less current portion $6,463 $6,73283 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Bank Debt and Credit FacilitiesWe have a $3 billion revolving credit facility (the Revolver) that has a maturity date of December 2016. Borrowings under the Revolver bear interestat LIBOR plus a margin, or an alternate base rate as defined under the agreement, plus a margin. We are also charged various fees and expenses inconnection with the Revolver, including facility fees and letter of credit fees. The interest rate and fees under the Revolver are subject to adjustmentbased upon the credit ratings assigned to our non-bank debt. The Revolver has certain restrictive covenants, including a maximum debt-to-capitalization ratio of 60 percent. As of December 31, 2012 and 2011, our debt-to-capitalization ratios, calculated in accordance with the terms of theRevolver, were 23 percent and 29 percent, respectively. We believe that we will remain in compliance with this covenant.In November 2012, one of our Canadian subsidiaries entered into a C$50 million committed revolving credit facility that has a maturity date ofNovember 2013, which replaced the maturing C$115 million Canadian revolving credit facility.During the year ended December 31, 2012, we borrowed and repaid $1.1 billion under the Revolver and had no borrowings or repayments undereither of the Canadian credit facilities. During the years ended December 31, 2011 and 2010, we had no borrowings or repayments under theRevolver or the C$115 million Canadian revolving credit facility.We had outstanding letters of credit under our committed lines of credit as follows (in millions): Amounts Outstanding BorrowingCapacity Expiration December 31,2012 December 31,2011Letter of credit facilities $550 June 2013 $418 $300Revolver $3,000 December 2016 $59 $119Canadian revolving credit facility C$50 November 2013 C$10 C$20We also have various other uncommitted short-term bank credit facilities. As of December 31, 2012 and 2011, we had no borrowings outstandingunder our uncommitted short-term bank credit facilities; however, there were letters of credit outstanding under such facilities of $275 million and$391 million, respectively, for which we are charged letter of credit issuance fees. The uncommitted credit facilities have no commitment fees orcompensating balance requirements.Non-Bank DebtDuring the year ended December 31, 2012, the following activity occurred:•in June 2012, we remarketed and received proceeds of $300 million related to the 4.0% Gulf Opportunity Zone Revenue Bonds Series 2010issued by the Parish of St. Charles, State of Louisiana (GO Zone Bonds), which are due December 1, 2040, but are subject to mandatorytender on June 1, 2022;•in April 2012, we made scheduled debt repayments of $4 million related to our Series 1997A 5.45% industrial revenue bonds and$750 million related to our 6.875% notes; and•in March 2012, we exercised the call provisions on our Series 1997 5.6%, Series 1998 5.6%, Series 1999 5.7%, Series 2001 6.65%,and Series 1997A 5.45% industrial revenue bonds, which were redeemed on May 3, 2012 for $108 million, or 100% of their outstandingstated values.84 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)During the year ended December 31, 2011, the following activity occurred:•in December 2011, we redeemed our Series 1997B 5.4% and Series 1997C 5.4% industrial revenue bonds for $56 million, or 100% oftheir stated values;•in May 2011, we made a scheduled debt repayment of $200 million related to our 6.125% senior notes;•in April 2011, we made scheduled debt repayments of $8 million related to our Series 1997A 5.45%, Series 1997B 5.4%, and Series1997C 5.4% industrial revenue bonds;•in February 2011, we made a scheduled debt repayment of $210 million related to our 6.75% senior notes; and•in February 2011, we paid $300 million to acquire the GO Zone Bonds, which were subject to mandatory tender. These bonds wereremarketed in June 2012, as previously discussed.During the year ended December 31, 2010, the following activity occurred:•in December 2010, the Parish of St. Charles, State of Louisiana (Issuer) issued GO Zone Bonds totaling $300 million, with a maturity dateof December 1, 2040. The GO Zone Bonds initially bore interest at a weekly rate with interest payable monthly, commencing January 5,2011. Pursuant to a financing agreement, the Issuer lent the proceeds of the sale of the GO Zone Bonds to us to finance a portion of theconstruction costs of a hydrocracker project at our St. Charles Refinery. We received proceeds of $300 million. Under the financingagreement, we were obligated to pay the Issuer amounts sufficient for the Issuer to pay principal and interest on the GO Zone Bonds;•in June 2010, we made a scheduled debt repayment of $25 million related to our 7.25% debentures;•in May 2010, we redeemed our 6.75% senior notes with a maturity date of May 1, 2014 for $190 million, or 102.25% of stated value;•in April 2010, we made scheduled debt repayments of $8 million related to our Series 1997A 5.45%, Series 1997B 5.4%, andSeries 1997C 5.4% industrial revenue bonds;•in March 2010, we redeemed our 7.5% senior notes with a maturity date of June 15, 2015 for $294 million, or 102.5% of stated value; and•in February 2010, we issued $400 million of 4.5% notes due February 1, 2015 and $850 million of 6.125% notes due in February 1, 2020for total net proceeds of $1.2 billion.Accounts Receivable Sales FacilityWe have an accounts receivable sales facility with a group of third-party entities and financial institutions to sell eligible trade receivables on arevolving basis. In July 2012, we amended our agreement to increase the facility from $1.0 billion to $1.5 billion and extended the maturity date toJuly 2013. Under this program, one of our marketing subsidiaries (Valero Marketing) sells eligible receivables, without recourse, to another of oursubsidiaries (Valero Capital), whereupon the receivables are no longer owned by Valero Marketing. Valero Capital, in turn, sells an undividedpercentage ownership interest in the eligible receivables, without recourse, to the third-party entities and financial institutions. To the extent that ValeroCapital retains an ownership interest in the receivables it has purchased from Valero Marketing, such interest is included in our financial statementssolely as a result of the consolidation of the financial statements of Valero Capital with those of Valero Energy Corporation; the receivables are notavailable to satisfy the claims of the creditors of Valero Marketing or Valero Energy Corporation.As of December 31, 2012 and 2011, $3.2 billion and $3.3 billion, respectively, of our accounts receivable composed the designated pool ofaccounts receivable included in the program. All amounts outstanding85 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)under the accounts receivable sales facility are reflected as debt on our balance sheets and proceeds and repayments are reflected as cash flows fromfinancing activities on the statements of cash flows. Changes in the amounts outstanding under our accounts receivable sales facility were as follows(in millions): Year Ended December 31, 2012 2011 2010Balance as of beginning of year$250 $100 $200Proceeds from the sale of receivables1,500 150 1,225Repayments(1,650) — (1,325)Balance as of end of year$100 $250 $100Capitalized InterestFor the years ended December 31, 2012, 2011, and 2010, capitalized interest was $221 million, $152 million, and $90 million, respectively.Other DisclosuresIn addition to the maximum debt-to-capitalization ratio applicable to the Revolver discussed above under “Bank Credit Facilities,” our bank creditfacilities and other debt arrangements contain various customary restrictive covenants, including cross-default and cross-acceleration clauses.Principal payments on our debt obligations and future minimum rentals on capital lease obligations as of December 31, 2012 were as follows (inmillions): Debt CapitalLeaseObligations2013$580 $122014200 102015475 92016— 82017950 7Thereafter4,824 35Net unamortized discountand fair value adjustments(29) —Less interest expense— (32)Total$7,000 $4986 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)12.COMMITMENTS AND CONTINGENCIESOperating LeasesWe have long-term operating lease commitments for land, office facilities and equipment, retail facilities and related equipment, transportationequipment, time charters for ocean-going tankers and coastal vessels, dock facilities, and various facilities and equipment used in the storage,transportation, production, and sale of refinery feedstocks, refined product and corn inventories.Certain leases for processing equipment and feedstock and refined product storage facilities provide for various contingent payments based on,among other things, throughput volumes in excess of a base amount. Certain leases for vessels contain renewal options and escalation clauses, whichvary by charter, and provisions for the payment of chartering fees, which either vary based on usage or provide for payments, in addition toestablished minimums, that are contingent on usage. Leases for convenience stores may also include provisions for contingent rental payments basedon sales volumes. In most cases, we expect that in the normal course of business, our leases will be renewed or replaced by other leases.As of December 31, 2012, our future minimum rentals and minimum rentals to be received under subleases for leases having initial or remainingnoncancelable lease terms in excess of one year were as follows (in millions):2013$337201425020151792016133201786Thereafter350Total minimum rental payments$1,335Minimum rentals to be receivedunder subleases$30Rental expense was as follows (in millions): Year Ended December 31, 2012 2011 2010Minimum rental expense$508 $523 $485Contingent rental expense23 23 23Total rental expense531 546 508Less sublease rental income(2) (2) (3)Net rental expense$529 $544 $50587 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Purchase ObligationsWe have various purchase obligations under certain industrial gas and chemical supply arrangements (such as hydrogen supply arrangements), crudeoil and other feedstock supply arrangements, and various throughput and terminalling agreements. We enter into these contracts to ensure an adequatesupply of utilities and feedstock and adequate storage capacity to operate our refineries. Substantially all of our purchase obligations are based onmarket prices or adjustments based on market indices. Certain of these purchase obligations include fixed or minimum volume requirements, whileothers are based on our usage requirements. None of these obligations are associated with suppliers’ financing arrangements. These purchaseobligations are not reflected as liabilities.Environmental MattersHartford MattersWe are involved, together with several other companies, in an environmental cleanup in the Village of Hartford, Illinois (the Village) and the adjacentshutdown refinery site, which we acquired as part of a prior acquisition. In cooperation with some of the other companies, we have been conductinginitial mitigation and cleanup response pursuant to an administrative order issued by the U.S. Environmental Protection Agency (EPA). The EPA isseeking further cleanup obligations from us and other potentially responsible parties for the Village. In parallel with the Village cleanup, we are also inlitigation with the State of Illinois Environmental Protection Agency and other potentially responsible parties relating to the remediation of theshutdown refinery site. In each of these matters, we have various defenses and rights for contribution from the other potentially responsibleparties. We have accrued for our own expected contribution obligations. However, because of the unpredictable nature of these cleanups and themethodology for allocation of liabilities, it is reasonably possible that we could incur a loss in a range of $0 to $250 million in excess of the amountof our accrual to ultimately resolve these matters. Factors underlying this estimated range are expected to change from time to time, and actual resultsmay vary significantly from this estimate.Regulation of Greenhouse GasesThe EPA began regulating greenhouse gases on January 2, 2011, under the Clean Air Act Amendments of 1990 (Clean Air Act). Any newconstruction or material expansions will require that, among other things, a greenhouse gas permit be issued at either or both the state or federal level inaccordance with the Clean Air Act regulations, and we will be required to undertake a technology review to determine appropriate controls to beimplemented with the project in order to reduce greenhouse gas emissions. The determination would be on a case by case basis, and the EPA hasprovided only general guidance on which controls will be required or delegated to the states through State Implementation Plans.Furthermore, the EPA is currently developing refinery-specific greenhouse gas regulations and performance standards that are expected to impose, onnew and modified operations, greenhouse gas emission limits and/or technology requirements. These control requirements may affect a wide range ofrefinery operations but have not yet been delineated. Any such controls, however, could result in material increased compliance costs, additionaloperating restrictions for our business, and an increase in the cost of the products we produce, which could have a material adverse effect on ourfinancial position, results of operations, and liquidity.Certain states and foreign governments have pursued regulation of greenhouse gases independent of the EPA. For example, the California GlobalWarming Solutions Act, also known as AB 32, directs the California Air Resources Board (CARB) to develop and issue regulations to reducegreenhouse gas emissions in88 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)California to 1990 levels by 2020. CARB has issued a variety of regulations aimed at reaching this goal, including a Low Carbon Fuel Standard(LCFS) as well as a statewide cap-and-trade program.•The LCFS was scheduled to become effective in 2011, but rulings by the U.S. District Court have stayed enforcement of the LCFS untilcertain legal challenges to the LCFS have been resolved. Most notably, the court determined that the LCFS violates the Commerce Clause ofthe U.S. Constitution to the extent that the standard discriminates against out-of-state crude oils and corn ethanol. CARB appealed the lowercourt’s ruling to the U.S. Court of Appeals for the Ninth Circuit (Ninth Circuit Court), which lifted the stay on April 23, 2012. The NinthCircuit Court heard arguments on the merits of the appeal in October 2012. We await the Ninth Circuit Court’s final ruling on the merits.•The California statewide cap-and-trade program became effective in 2012, with the auctioning of emission credits commencing in the fourthquarter of 2012. Initially, the program will apply only to stationary sources of greenhouse gases (e.g., refinery and power plant greenhouse gasemissions). Greenhouse gas emissions from fuels that we sell in California will be covered by the program beginning in 2015. We anticipatethat free allocations of credits will be available in the early years of the program, but we expect that compliance costs will increase significantlybeginning in 2015, when transportation fuels are included in the program.•Complying with AB 32, including the LCFS and the cap-and-trade program, could result in material increased compliance costs for us,increased capital expenditures, increased operating costs, and additional operating restrictions for our business, resulting in an increase in thecost of, and decreases in the demand for, the products we produce. To the degree we are unable to recover these increased costs, these matterscould have a material adverse effect on our financial position, results of operations, and liquidity.Texas Permitting MattersThe EPA has disapproved certain permitting programs of the Texas Commission on Environmental Quality (TCEQ) that historically have streamlinedthe environmental permitting process or provided greater operational flexibility in Texas. For example, the EPA disapproved the TCEQ flexible permitprogram and pollution control standard permit, thus requiring the conversion of flexible permits to a more conventional permitting program andprecluding the prompt authorization of pollution control equipment. The Fifth Circuit Court of Appeals overturned the EPA’s disapproval of theflexible permit program and pollution control standard permit and directed the EPA to reconsider them consistent with the court’s decision. In otherinstances, the EPA’s decisions have been initially upheld and others are still pending before the courts. Regardless of the EPA’s response to the courts’various rulings, further litigation is probable.The EPA has also objected to numerous Title V permits in Texas and other states, including permits at our Port Arthur, Texas City, Meraux, CorpusChristi East, and McKee Refineries. Environmental activist groups have filed notices of intent to sue the EPA, seeking to require the EPA to assumecontrol of these permits from the TCEQ. Finally, as part of its regulation of greenhouse gases discussed above, the EPA has federalized the permittingof greenhouse gas emissions in Texas. This creates a dual permitting structure that must be navigated for material projects in Texas. All of thesedevelopments have created substantial uncertainty regarding existing and future permitting. Because of this uncertainty, we are unable to determine thecosts or effects of the EPA’s actions on our permitting activity. The greenhouse gas permitting regime and the EPA’s disruption of the Texaspermitting system could result in material increased compliance costs for us, increased capital expenditures, increased operating costs, and additionaloperating restrictions for our89 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)business, resulting in an increase in the cost of, and decreases in the demand for, the products we produce, which could have a material adverseeffect on our financial position, results of operations, and liquidity.Litigation MattersWe are party to claims and legal proceedings arising in the ordinary course of business. We have not recorded a loss contingency liability with respectto some of these matters because we have determined that it is remote that a loss has been incurred. For other matters, we have recorded a losscontingency liability where we have determined that it is probable that a loss has been incurred and that the loss is reasonably estimable. These losscontingency liabilities are not material to our financial position. We re-evaluate and update our loss contingency liabilities as matters progress overtime, and we believe that any changes to the recorded liabilities will not be material to our financial position, results of operations, or liquidity.Tax MattersGeneralWe are subject to extensive tax liabilities imposed by multiple jurisdictions, including income taxes, indirect taxes (excise/duty, sales/use, grossreceipts, and value-added taxes), payroll taxes, franchise taxes, withholding taxes, and ad valorem taxes. New tax laws and regulations and changesin existing tax laws and regulations are continuously being enacted or proposed that could result in increased expenditures for tax liabilities in thefuture. Many of these liabilities are subject to periodic audits by the respective taxing authority. Subsequent changes to our tax liabilities as a result ofthese audits may subject us to interest and penalties.IRS AuditsAs of December 31, 2012, the Internal Revenue Service (IRS) has ongoing tax audits related to our U.S. federal tax returns from 2002 through2009, as discussed in Note 16. We have received Revenue Agent Reports on our tax years for 2002 through 2007 and we are vigorously contestingmany of the tax positions and assertions from the IRS. Although we believe our tax liabilities are fairly stated and properly reflected in our financialstatements, should the IRS eventually prevail, it could result in a material amount of our deferred tax liabilities being reclassified to current liabilitieswhich could have a material adverse effect on our liquidity.ArubaEffective June 1, 2010, the GOA enacted a new tax regime applicable to refinery and terminal operations in Aruba. Under the new tax regime, we aresubject to a profit tax rate of 7 percent and a dividend withholding tax rate of zero percent. In addition, all imports and exports are exempt fromturnover tax and throughput fees. Beginning June 1, 2012, we are required to make a minimum annual tax payment of $10 million (payable in equalquarterly installments), with the ability to carry forward any excess tax prepayments to future tax years.The new tax regime was the result of a settlement agreement that we and the GOA entered into on February 24, 2010 to settle a lengthy andcomplicated tax dispute between the parties. On May 30, 2010, the Aruban Parliament adopted several laws that implemented the provisions of thesettlement agreement, which became effective June 1, 2010. Pursuant to the terms of the settlement agreement, we relinquished certain provisions of aprevious tax holiday regime. On June 4, 2010, we made a payment to the GOA of $118 million (primarily from restricted cash held in escrow) inconsideration of a full release of all tax claims prior to June 1, 2010.90 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)This settlement resulted in an after-tax gain of $30 million recognized primarily as a reduction to interest expense of $8 million and an income taxbenefit of $20 million for the year ended December 31, 2010.Self-InsuranceWe are self-insured for certain medical and dental, workers’ compensation, automobile liability, general liability, and property liability claims up toapplicable retention limits. Liabilities are accrued for self-insured claims, or when estimated losses exceed coverage limits, and when sufficientinformation is available to reasonably estimate the amount of the loss. These liabilities are included in accrued expenses and other long-term liabilities.13.EQUITYShare ActivityFor the years ended December 31, 2012, 2011, and 2010, activity in the number of shares of common stock and treasury stock was as follows (inmillions): CommonStock TreasuryStockBalance as of December 31, 2009673 (109)Transactions in connection withstock-based compensation plans: Stock issuances— 5Stock repurchases— (1)Balance as of December 31, 2010673 (105)Transactions in connection withstock-based compensation plans: Stock issuances— 5Stock repurchases— (17)Balance as of December 31, 2011673 (117)Transactions in connection withstock-based compensation plans: Stock issuances— 6Stock repurchases— (6)Stock repurchases under buyback program— (4)Balance as of December 31, 2012673 (121)Preferred StockWe have 20 million shares of preferred stock authorized with a par value of $0.01 per share. No shares of preferred stock were outstanding as ofDecember 31, 2012 and 2011.Treasury StockWe purchase shares of our common stock in open market transactions to meet our obligations under employee stock-based compensation plans. Wealso purchase shares of our common stock from our employees and91 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)non-employee directors in connection with the exercise of stock options, the vesting of restricted stock, and other stock compensation transactions.On February 28, 2008, our board of directors approved a $3 billion common stock purchase program, which is in addition to the remaining amountunder a $6 billion program previously authorized. This additional $3 billion program has no expiration date. As of December 31, 2012, we hadpurchased $118 million of our common stock under this $3 billion program. As of December 31, 2012, we have approvals under these stockpurchase programs to purchase approximately $3.3 billion of our common stock.Common Stock DividendsOn January 23, 2013, our board of directors declared a quarterly cash dividend of $0.20 per common share payable March 13, 2013 to holders ofrecord at the close of business on February 13, 2013.Income Tax Effects Related to Components of Other Comprehensive IncomeThe following table reflects the tax effects allocated to each component of other comprehensive income for the years ended December 31, 2012,2011, and 2010: Before-TaxAmount Tax Expense(Benefit) Net AmountYear Ended December 31, 2012: Foreign currency translation adjustment$164 $— $164Pension and other postretirement benefits: Loss arising during the year related to: Net actuarial loss(228) (79) (149)Prior service cost(9) (3) (6)(Gain) loss reclassified into income related to: Net actuarial loss34 12 22Prior service credit(20) (7) (13)Settlement12 — 12Net loss on pension and otherpostretirement benefits(211) (77) (134)Derivative instruments designated andqualifying as cash flow hedges: Net gain arising during the year45 16 29Net gain reclassified into income(73) (26) (47)Net loss on cash flow hedges(28) (10) (18)Other comprehensive income (loss)$(75) $(87) $1292 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Before-TaxAmount Tax Expense(Benefit) Net AmountYear Ended December 31, 2011: Foreign currency translation adjustment$(122) $— $(122)Pension and other postretirement benefits: Loss arising during the year related to: Net actuarial loss(285) (100) (185)Prior service cost(4) (1) (3)(Gain) loss reclassified into income related to: Net actuarial loss14 4 10Prior service credit(21) (7) (14)Settlement4 1 3Net loss on pension and otherpostretirement benefits(292) (103) (189)Derivative instruments designated andqualifying as cash flow hedges: Net gain arising during the year32 11 21Net gain reclassified into income(3) (1) (2)Net gain on cash flow hedges29 10 19Other comprehensive loss$(385) $(93) $(292)Year Ended December 31, 2010: Foreign currency translation adjustment$158 $— $158Pension and other postretirement benefits: Gain (loss) arising during the year related to: Net actuarial loss(40) (6) (34)Prior service credit31 11 20(Gain) loss reclassified into income related to: Net actuarial loss6 2 4Prior service credit(17) (6) (11)Settlement4 1 3Net gain (loss) on pension and other postretirementbenefits(16) 2 (18)Derivative instruments designated andqualifying as cash flow hedges: Net loss arising during the year(2) (1) (1)Net gain reclassified into income(178) (62) (116)Net loss on cash flow hedges(180) (63) (117)Other comprehensive income (loss)$(38) $(61) $2393 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Accumulated Other Comprehensive IncomeChanges in the balances of each component of accumulated other comprehensive income (loss) were as follows (in millions): ForeignCurrencyTranslationAdjustment Pension/OPEBLiabilityAdjustment Net Gain (Loss)On Cash FlowHedges AccumulatedOtherComprehensiveIncome (Loss)Balance as of December 31, 2009$465 $(217) $117 $365Other comprehensive income (loss)158 (18) (117) 23Balance as of December 31, 2010623 (235) — 388Other comprehensive income (loss)(122) (189) 19 (292)Balance as of December 31, 2011501 (424) 19 96Other comprehensive income (loss)164 (134) (18) 12Balance as of December 31, 2012$665 $(558) $1 $10814.EMPLOYEE BENEFIT PLANSDefined Benefit PlansWe have defined benefit pension plans, some of which are subject to collective bargaining agreements, that cover most of our employees. These plansprovide eligible employees with retirement income based primarily on years of service and compensation during specific periods under final averagepay and cash balance formulas. We fund our pension plans as required by local regulations. In the U.S., all qualified pension plans are subject to theEmployee Retirement Income Security Act (ERISA) minimum funding standard. We typically do not fund or fully fund U.S. nonqualified andcertain international pension plans that are not subject to funding requirements because contributions to these pension plans may be less economic andinvestment returns may be less attractive than our other investment alternatives.On February 15, 2013, we announced changes to certain of our U.S. qualified pension plans that cover the majority of our U.S. employees whowork in our refining segment and corporate operations. Benefits under our primary pension plan will change from a final average pay formula to acash balance formula with staged effective dates from July 1, 2013 through January 1, 2015 depending on the age and service of the affectedemployees. All final average pay benefits will be frozen as of December 31, 2014, with all future benefits to be earned under the new cash balanceformula. The change will reduce our benefit costs and obligations for 2013 and future years.We also provide health care and life insurance benefits for certain retired employees through our postretirement benefit plans. Most of our employeesbecome eligible for these benefits if, while still working for us, they reach normal retirement age or take early retirement. These plans are unfunded,and retired employees share the cost with us. Individuals who became our employees as a result of an acquisition became eligible for otherpostretirement benefits under our plans as determined by the terms of the relevant acquisition agreement.94 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The changes in benefit obligation related to all of our defined benefit plans, the changes in fair value of plan assets(a), and the funded status of ourdefined benefit plans as of and for the years ended December 31, 2012 and 2011 were as follows (in millions): Pension Plans Other PostretirementBenefit Plans 2012 2011 2012 2011Changes in benefit obligation: Benefit obligation at beginning of year$1,881 $1,626 $438 $426Service cost140 104 12 11Interest cost93 85 21 22Participant contributions— — 14 12Plan amendments9 4 — —Curtailment gain(16) — — —Benefits paid(90) (117) (35) (30)Actuarial (gain) loss289 179 (17) (9)Other1 — 3 6Benefit obligation at end of year$2,307 $1,881 $436 $438 Changes in plan assets(a): Fair value of plan assets at beginning of year$1,487 $1,362 $— $—Actual return on plan assets167 (2) — —Valero contributions164 244 19 15Participant contributions— — 14 12Benefits paid(90) (117) (35) (30)Other1 — 2 3Fair value of plan assets at end of year$1,729 $1,487 $— $— Reconciliation of funded status(a): Fair value of plan assets at end of year$1,729 $1,487 $— $—Less benefit obligation at end of year2,307 1,881 436 438Funded status at end of year$(578) $(394) $(436) $(438) Accumulated benefit obligation$1,857 $1,550 n/a n/a___________________________ (a)Plan assets include only the assets associated with pension plans subject to legal minimum funding standards. Plan assets associated with U.S. nonqualified pension plans arenot included here because they are not protected from our creditors and therefore cannot be reflected as a reduction from our obligations under the pension plans. As aresult, the reconciliation of funded status does not reflect the effect of plan assets that exist for all of our defined benefit plans. See Note 20 for the assets associated withcertain U.S. nonqualified pension plans.95 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The accumulated benefit obligations for certain of our pension plans exceed the fair values of the assets of those plans. For those plans, the tablebelow presents the total projected benefit obligation, accumulated benefit obligation, and fair value of the plan assets (in millions). December 31, 2012 2011Projected benefit obligation$250 $244Accumulated benefit obligation191 189Fair value of plan assets31 40Benefit payments that we expect to pay, including amounts related to expected future services, and the anticipated Medicare subsidies that we expectto receive are as follows for the years ending December 31 (in millions): PensionBenefits OtherPostretirementBenefits2013$93 $212014116 222015108 242016117 252017129 262018-2022840 143We have $30 million of minimum required contributions to one of our international pension plans during 2013. In addition, we plan to contributeapproximately $115 million to our pension plans and $21 million to our other postretirement plans during 2013.96 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The components of net periodic benefit cost were as follows for the years ended December 31, 2012, 2011, and 2010 (in millions): Pension Plans Other PostretirementBenefit Plans 2012 20112010 2012 2011 2010Components of net periodicbenefit cost: Service cost$140 $104 $88 $12 $11 $10Interest cost93 85 83 21 22 26Expected return on plan assets(125) (112) (112) — — —Amortization of: Prior service cost (credit)3 2 3 (23) (23) (20)Net actuarial loss33 12 2 1 2 4Net periodic benefit cost before specialcharges144 91 64 11 12 20Special charges (credits)(3) 4 8 — 4 —Net periodic benefit cost$141 $95 $72 $11 $16 $20Amortization of prior service cost (credit) shown in the above table was based on the average remaining service period of employees expected toreceive benefits under each respective plan. Special credits in 2012 include curtailments for termination benefits paid to employees at our ArubaRefinery, partially offset by settlements related to lump sum payments in excess of thresholds. Special charges in 2011 related to purchase accountingfor the Meraux Acquisition and settlements related to lump sum payments in excess of thresholds. Special charges in 2010 related to early retirementprograms for corporate employees and employees at our Delaware City and Paulsboro Refineries.97 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Pre-tax amounts recognized in other comprehensive income for the years ended December 31, 2012, 2011, and 2010 were as follows (in millions): Pension Plans Other PostretirementBenefit Plans 2012 2011 2010 2012 2011 2010Net loss (gain) arising duringthe year: Net actuarial loss (gain)$245 $294 $68 $(17) $(9) $(28)Prior service cost (credit)9 4 — — — (31) Net gain (loss) reclassified into income: Net actuarial loss(33) (12) (2) (1) (2) (4)Prior service (cost) credit(3) (2) (3) 23 23 20Curtailment and settlement(12) (4) (4) — — —Total changes in othercomprehensive (income) loss$206 $280 $59 $5 $12 $(43)The pre-tax amounts in accumulated other comprehensive income as of December 31, 2012 and 2011 that have not yet been recognized ascomponents of net periodic benefit cost were as follows (in millions): Pension Plans Other PostretirementBenefit Plans 20122011 2012 2011Prior service cost (credit)$21 $16 $(81) $(103)Net actuarial loss882 681 34 50Total$903 $697 $(47) $(53)The following pre-tax amounts included in accumulated other comprehensive income as of December 31, 2012 are expected to be recognized ascomponents of net periodic benefit cost during the year ending December 31, 2013 (in millions): Pension Plans OtherPostretirementBenefit PlansAmortization of prior service cost (credit)$3 $(13)Amortization of net actuarial loss57 —Total$60 $(13)98 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The weighted-average assumptions used to determine the benefit obligations as of December 31, 2012 and 2011 were as follows: Pension Plans OtherPostretirementBenefit Plans 2012 2011 2012 2011Discount rate4.28% 5.08% 4.19% 4.97%Rate of compensation increase3.73% 3.68% —% —%The discount rate assumption used to determine the benefit obligations as of December 31, 2012 and 2011 for the pension plans and otherpostretirement benefit plans was based on the Aon Hewitt AA Only Above Median yield curve and considered the timing of the projected cashoutflows under our plans. This curve was designed by Aon Hewitt to provide a means for plan sponsors to value the liabilities of their pension plansor postretirement benefit plans. It is a hypothetical double-A yield curve represented by a series of annualized individual discount rates with maturitiesfrom one-half year to 99 years. Each bond issue underlying the curve is required to have an average rating of double-A when averaging all availableratings by Moody’s Investor Services (Moody’s), Standard and Poor’s Ratings Service (S&P), and Fitch Ratings. Only the bonds representing the50 percent highest yielding issuance among these with average ratings of double-A are included in this yield curve.We based our December 31, 2012 and 2011 discount rate assumption on the Aon Hewitt AA Only Above Median yield curve because we believe it isrepresentative of the types of bonds we would use to settle our pension and other postretirement benefit plan liabilities as of those dates. We believethat the yields associated with the bonds used to develop this yield curve reflect the current level of interest rates. In 2010, we based our discount rateassumption on the Hewitt Above Median yield curve because it included a larger number of bonds which lessened the effect of outlier bonds whoseyields were influenced by the volatility in the market at that time.The weighted-average assumptions used to determine the net periodic benefit cost for the years ended December 31, 2012, 2011, and 2010 were asfollows: Pension Plans Other PostretirementBenefit Plans 2012 2011 2010 2012 2011 2010Discount rate5.08% 5.40% 5.80% 4.97% 5.22% 5.68%Expected long-term rate of return on planassets7.67% 7.69% 7.71% —% —% —%Rate of compensation increase3.68% 3.56% 4.18% —% —% —%99 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The assumed health care cost trend rates as of December 31, 2012 and 2011 were as follows: 2012 2011Health care cost trend rate assumed for the next year7.32% 7.43%Rate to which the cost trend rate was assumed to decline(the ultimate trend rate)5.00% 5.00%Year that the rate reaches the ultimate trend rate2020 2018Assumed health care cost trend rates impact the amounts reported for retiree health care plans. A one percentage-point change in assumed health carecost trend rates would have the following effects on other postretirement benefits (in millions): 1% Increase 1% DecreaseEffect on total of service and interest cost components$1 $(1)Effect on accumulated postretirement benefit obligation20 (17)100 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The tables below present the fair values of the assets of our pension plans (in millions) as of December 31, 2012 and 2011 by level of the fair valuehierarchy. Assets categorized in Level 1 of the hierarchy are measured at fair value using a market approach based on quotations from nationalsecurities exchanges. Assets categorized in Level 2 of the hierarchy are measured at net asset value as a practical expedient for fair value. Aspreviously noted, we do not fund or fully fund U.S. nonqualified and certain international pension plans that are not subject to funding requirements,and we do not fund our other postretirement benefit plans. Fair Value Measurements Using QuotedPrices inActiveMarkets(Level 1) SignificantOtherObservableInputs(Level 2) SignificantUnobservableInputs(Level 3) Total as ofDecember 31,2012Equity securities: U.S. companies(a)$441 $— $— $441International companies135 — — 135Preferred stock2 1 — 3Mutual funds: International growth127 — — 127Index funds(b)117 — — 117Corporate debt instruments— 290 — 290Government securities: U.S. Treasury securities107 — — 107Other government securities3 65 — 68Common collective trusts— 294 — 294Insurance contracts— 17 — 17Interest and dividends receivable5 — — 5Cash and cash equivalents98 27 — 125Total$1,035 $694 $— $1,729______________________See notes on page 102.101 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Fair Value Measurements Using QuotedPrices inActiveMarkets(Level 1) SignificantOtherObservableInputs(Level 2) SignificantUnobservableInputs(Level 3) Total as ofDecember 31,2011Equity securities: Valero Energy Corporationcommon stock$5 $— $— $5Other U.S. companies(a)375 — — 375International companies120 — — 120Preferred stock2 — — 2Mutual funds: International growth102 — — 102Index funds(b)63 — — 63Corporate debt instruments— 246 — 246Government securities: U.S. Treasury securities67 — — 67Other government securities— 84 — 84Common collective trusts— 247 — 247Insurance contracts— 17 — 17Interest and dividends receivable5 — — 5Cash and cash equivalents153 1 — 154Total$892 $595 $— $1,487___________________ (a) Equity securities are held in a wide range of industrial sectors, including consumer goods, information technology, healthcare, industrials, and financial services.(b) This class includes primarily investments in approximately 60 percent equities and 40 percent bonds.The investment policies and strategies for the assets of our pension plans incorporate a diversified approach that is expected to earn long-term returnsfrom capital appreciation and a growing stream of current income. This approach recognizes that assets are exposed to risk and the market value of thepension plans’ assets may fluctuate from year to year. Risk tolerance is determined based on our financial ability to withstand risk within theinvestment program and the willingness to accept return volatility. In line with the investment return objective and risk parameters, the pension plans’mix of assets includes a diversified portfolio of equity and fixed-income investments. As of December 31, 2012, the target allocations for plan assetsare 70 percent equity securities and 30 percent fixed income investments. Equity securities include international stocks and a blend of U.S. growthand value stocks of various sizes of capitalization. Fixed income securities include bonds and notes issued by the U.S. government and its agencies,corporate bonds, and mortgage-backed securities. The aggregate asset allocation is reviewed on an annual basis.The overall expected long-term rate of return on plan assets for the pension plans is estimated using models of asset returns. Model assumptions arederived using historical data given the assumption that capital markets102 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)are informationally efficient. Three methods are used to derive the long-term expected returns for each asset class. Because each method has distinctadvantages and disadvantages and differing results, an equal weighted average of the methods’ results is used.Defined Contribution PlansWe have defined contribution plans that cover substantially most of our employees. Our contributions to these plans are based on employees’compensation and/or a partial match of employee contributions to the plans. Our contributions to these defined contribution plans were $61 million,$59 million, and $57 million for the years ended December 31, 2012, 2011, and 2010, respectively.15.STOCK-BASED COMPENSATIONWe have various fixed and performance-based stock compensation plans under which awards have been granted, which are summarized as follows:•The 2011 Omnibus Stock Incentive Plan (the OSIP) authorizes the grant of various stock and stock-based awards to our employees and ournon-employee directors. Awards available under the OSIP include options to purchase shares of common stock, performance awards thatvest upon the achievement of an objective performance goal, stock appreciation rights, and restricted stock that vests over a perioddetermined by our compensation committee. The OSIP was approved by our stockholders on April 28, 2011. As of December 31, 2012,17,178,084 shares of our common stock remained available to be awarded under the OSIP.•Prior to the approval of the OSIP by our stockholders, most of the equity awards granted to our employees and non-employee directors weremade under our 2005 Omnibus Stock Incentive Plan. Prior awards granted under this plan included options to purchase shares of commonstock, performance awards that vest upon the achievement of an objective performance goal, and restricted stock that vests over a perioddetermined by our compensation committee. No additional grants may be awarded under this plan.•The Restricted Stock Plan for Non-Employee Directors authorized an annual grant of our common stock valued at $160,000 to each non-employee director. Vesting generally occurred based on the number of grants received as follows: (i) initial grants to vest in three equal annualinstallments, (ii) second grants to vest one-third on the first anniversary of the grant date and the remaining two-thirds on the secondanniversary of the grant date, and (iii) all grants thereafter to vest 100 percent on the first anniversary of the grant date. During 2012, the finalgrants of available shares under this plan were awarded and no additional grants may be awarded under this plan. Prospective grants to ournon-employee directors will be made under the OSIP, with vesting to occur in annual one-third increments over three years.•The 2003 Employee Stock Incentive Plan authorizes the grant of various stock and stock-related awards to employees and prospectiveemployees. Awards include options to purchase shares of common stock, performance awards that vest upon the achievement of an objectiveperformance goal, stock appreciation rights, and restricted stock that vests over a period determined by our compensation committee. As ofDecember 31, 2012, 1,914,877 shares of our common stock remained available to be awarded under this plan.•In addition, we maintained other stock option and incentive plans under which previously granted equity awards remain outstanding. Noadditional grants may be awarded under these plans.Each of our stock-based compensation arrangements is discussed below.103 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The following table reflects activity related to our stock-based compensation arrangements (in millions): Year Ended December 31, 2012 2011 2010Stock-based compensation expense$58 $58 $54Tax benefit recognized on stock-based compensationexpense20 20 19Tax benefit realized for tax deductions resulting fromexercises and vestings45 35 23Effect of tax deductions in excess of recognized stock-based compensation expense reported as a financing cashflow27 23 11Stock OptionsUnder the terms of our various stock-based compensation plans, the exercise price of options granted is not less than the fair market value of ourcommon stock on the date of grant. Stock options become exercisable pursuant to the individual written agreements between the participants and us,usually in three or five equal annual installments beginning one year after the date of grant, with unexercised options generally expiring seven or tenyears from the date of grant.The fair value of stock options granted during 2012 was estimated using the Monte Carlo simulation model, as these options contain both a servicecondition and a market condition in order to be exercised. Prior to 2012, the fair value of each stock option grant was estimated on the grant date usingthe Black-Scholes option-pricing model. The expected life of options granted is the period of time from the grant date to the date of expectedexercise or other expected settlement. The expected life for each of the years in the table below was calculated using the safe harbor provisions ofSEC Staff Accounting Bulletin No. 107 and No. 110 related to share-based payments. Because the vesting period for all of the stock options grantedduring the years ended December 31, 2012, 2011, and 2010 was three rather than five years as in prior years and the 2012 stock options grantscontain a market condition, historical exercise patterns did not provide a reasonable basis for estimating the expected life. Expected volatility is basedon closing prices of our common stock for periods corresponding to the expected life of options granted. Expected dividend yield is based onannualized dividends at the date of grant. The risk-free interest rate used is the implied yield currently available from the U.S. Treasury zero-couponissues with a remaining term equal to the expected life of the options at the grant date.A summary of the weighted-average assumptions used in our fair value measurements is presented in the table below. Year Ended December 31, 2012 2011 2010Expected life in years6.0 6.0 6.0Expected volatility49.11% 49.30% 48.21%Expected dividend yield2.39% 2.28% 1.05%Risk-free interest rate0.85% 1.44% 1.83%104 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)A summary of the status of our stock option awards is presented in the table below.Number ofStockOptions Weighted-AverageExercisePrice PerShare Weighted-AverageRemainingContractualTerm AggregateIntrinsicValue (in years) (in millions)Outstanding as of January 1, 201219,906,586 $27.11 Granted262,170 29.23 Exercised(4,738,312) 13.67 Expired(2,196,876) 47.72 Forfeited(18,840) 32.29 Outstanding as of December 31, 201213,214,728 28.54 3.3 $157 Exercisable as of December 31, 201212,594,488 28.65 3.0 152The weighted-average grant-date fair value of stock options granted during the years ended December 31, 2012, 2011, and 2010 was $10.98,$10.10, and $8.17 per stock option, respectively. The total intrinsic value of stock options exercised during the years ended December 31, 2012,2011, and 2010 was $78 million, $63 million, and $25 million, respectively. Cash received from stock option exercises for the years endedDecember 31, 2012, 2011, and 2010 was $59 million, $49 million, and $20 million, respectively.As of December 31, 2012, there was $1 million of unrecognized compensation cost related to outstanding unvested stock option awards, which isexpected to be recognized over a weighted-average period of approximately two years.105 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Restricted StockRestricted stock is granted to employees and non-employee directors. Restricted stock granted to employees vests in accordance with individualwritten agreements between the participants and us, usually in equal annual installments over a period of three to five years beginning one year after thedate of grant. Restricted stock granted to our non-employee directors vests from one to three years following the date of grant. A summary of thestatus of our restricted stock awards is presented in the table below.Number ofShares Weighted-AverageGrant-DateFair ValuePer ShareNonvested shares as of January 1, 20123,249,090 $22.28Granted1,459,317 28.90Vested(1,736,379) 23.67Forfeited(51,740) 22.07Nonvested shares as of December 31, 20122,920,288 24.76As of December 31, 2012, there was $40 million of unrecognized compensation cost related to outstanding unvested restricted stock awards, whichis expected to be recognized over a weighted-average period of approximately two years. The total fair value of restricted stock that vested during theyears ended December 31, 2012, 2011, and 2010 was $47 million, $32 million, and $25 million, respectively.Performance AwardsPerformance awards are issued to certain of our key employees and represent rights to receive shares of our common stock upon the achievement byus of an objective performance measure. The objective performance measure is our total shareholder return, which is ranked among the totalshareholder returns of a defined peer group of companies. Our ranking determines the rate at which the performance awards convert into our commonshares. Conversion rates can range from zero to 200 percent.Performance awards vest in equal one-third increments (tranches) on an annual basis. Our compensation committee establishes the peer group ofcompanies for each tranche of awards at the beginning of the one-year vesting period for that tranche. Therefore, performance awards are notconsidered to be granted for accounting purposes until our compensation committee establishes the peer group of companies for each tranche ofawards. The fair value of each tranche of awards is determined at the time the awards are considered to be granted and is based on the expectedconversion rate for those awards and the fair value per share. Fair value per share is equal to the market price of our common stock on the grant datereduced by expected dividends over that tranche’s vesting period.If a tranche of the performance awards awarded in 2010 fails to meet the minimum performance measure at the end of its vesting period as establishedby our compensation committee, that tranche of awards remains outstanding for an additional year and may convert into our common shares thatfollowing year. If such tranche of awards does not convert to our common shares the following year, those awards are forfeited. Performance awardsawarded in 2012 and 2011 do not have carry-forward features.106 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)A summary of the status of our performance awards considered granted is presented below. NonvestedAwards VestedAwardsAwards outstanding as of January 1, 2012691,191 24,635Granted547,140 —Vested(222,250) 222,250Forfeited(26,667) (37,969)Awards outstanding as of December 31, 2012989,414 208,916There were three tranches of performance awards granted during the year ended December 31, 2012 as follows: AwardsGranted ExpectedConversionRate Fair ValuePer ShareThird tranche of 2010 awards208,917 100% $28.53Second tranche of 2011 awards233,350 50% 28.53First tranche of 2012 awards104,873 75% 28.53Total547,140 The 222,250 performance awards that vested in January 2012 did not convert into our common shares at that time because the performance measurewas not achieved, but they were carried forward for one year. In January 2013, these awards, net of 13,334 awards that were forfeited during 2012,converted into 208,916 shares of our common stock.As of December 31, 2012, there was $12 million of unrecognized compensation cost related to outstanding unvested performance awards, whichwill be recognized during 2013. The total fair value of performance awards that vested during the years ended December 31, 2012 and 2011 was$3 million and $4 million, respectively. There were no performance awards that vested during 2010.107 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)16.INCOME TAXESIncome (loss) from continuing operations before income tax expense from U.S. and international operations was as follows (in millions): Year Ended December 31, 2012 2011 2010U.S. operations$4,015 $3,190 $1,436International operations(309) 132 62Income from continuing operations before income tax expense$3,706 $3,322 $1,498The following is a reconciliation of income tax expense related to continuing operations to income taxes computed by applying the U.S. statutoryfederal income tax rate (35 percent for all years presented) to income from continuing operations before income tax expense (in millions): Year Ended December 31, 2012 2011 2010Federal income tax expenseat the U.S. statutory rate$1,297 $1,163 $524U.S. state income tax expense (benefit),net of U.S. federal income tax effect64 29 (21)U.S. manufacturing deduction(33) (28) 5International operations266 46 27Permanent differences20 8 8Change in tax law— — 16Other, net12 8 16Income tax expense$1,626 $1,226 $575The Aruba Refinery’s profits through June 1, 2010 were non-taxable in Aruba due to a tax holiday granted by the GOA. The tax holiday, whichexpired on June 1, 2010, had an immaterial effect on our results of operations for the year ended December 31, 2010.The variation in the customary relationship between income tax expense and income from continuing operations before income tax expense related toour international operations for the year ended December 31, 2012 was primarily due to not recognizing the tax benefit associated with the assetimpairment loss of $928 million related to the Aruba Refinery as we do not expect to realize this tax benefit.There were no discontinued operations or related income tax benefit for the year ended December 31, 2012. The income tax benefit related todiscontinued operations for the years ended December 31, 2011 and 2010 was $4 million and $370 million, respectively.108 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Components of income tax expense related to continuing operations were as follows (in millions): Year Ended December 31, 2012 2011 2010Current: U.S. federal$515 $562 $(75)U.S. state22 13 (13)International126 186 22Total current663 761 (66) Deferred: U.S. federal854 527 634U.S. state77 32 (19)International32 (94) 26Total deferred963 465 641Income tax expense$1,626 $1,226 $575109 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The tax effects of significant temporary differences representing deferred income tax assets and liabilities were as follows (in millions): December 31, 2012 2011Deferred income tax assets: Tax credit carryforwards$61 $158Net operating losses (NOL)247 300Compensation and employee benefit liabilities383 324Environmental liabilities83 78Inventories258 273Property, plant and equipment78 14Other157 160Total deferred income tax assets1,267 1,307Less: Valuation allowance(304) (295)Net deferred income tax assets963 1,012 Deferred income tax liabilities: Turnarounds(300) (310)Property, plant and equipment(6,143) (5,292)Inventories(381) (274)Other(103) (119)Total deferred income tax liabilities(6,927) (5,995)Net deferred income tax liabilities$(5,964) $(4,983)We had the following income tax credit and loss carryforwards as of December 31, 2012 (in millions): Amount ExpirationU.S. state income tax credits$79 2013 through 2027U.S. state income tax credits12 UnlimitedU.S. state NOL (gross amount)4,806 2013 through 2032International NOL518 UnlimitedWe have recorded a valuation allowance as of December 31, 2012 and 2011 due to uncertainties related to our ability to utilize some of our deferredincome tax assets, primarily consisting of certain U.S. state NOLs and income tax credits, and international NOLs, before they expire. The valuationallowance is based on our estimates of taxable income in the various jurisdictions in which we operate and the period over which deferred income taxassets will be recoverable. The realization of net deferred income tax assets recorded as of December 31, 2012 is primarily dependent upon our abilityto generate future taxable income in certain U.S. states and international jurisdictions.110 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Subsequently recognized tax benefits related to the valuation allowance for deferred income tax assets as of December 31, 2012 will be allocated asfollows (in millions):Income tax benefit$297Additional paid-in capital7Total$304Deferred income taxes have not been provided on the future tax consequences attributable to differences between the financial statement carryingamounts of existing assets and liabilities and the respective tax bases of our international subsidiaries based on the determination that such differencesare essentially permanent in duration in that the earnings of these subsidiaries are expected to be indefinitely reinvested in the international operations.As of December 31, 2012, the cumulative undistributed earnings of these subsidiaries were approximately $3.5 billion. If those earnings were notconsidered indefinitely reinvested, deferred income taxes would have been recorded after consideration of U.S. foreign tax credits. It is notpracticable to estimate the amount of additional tax that might be payable on those earnings, if distributed.The following is a reconciliation of the change in unrecognized tax benefits, excluding the effect of related penalties and interest and the U.S. federaltax effect of U.S. state unrecognized tax benefits (in millions): Year Ended December 31, 2012 2011 2010Balance as of beginning of year$326 $330 $484Additions based on tax positions related to the current year11 14 4Additions for tax positions related to prior years40 55 49Reductions for tax positions related to prior years(36) (66) (203)Reductions for tax positions related to the lapse of applicable statute of limitations— (3) (4)Settlements— (4) —Balance as of end of year$341 $326 $330As of December 31, 2012, 2011, and 2010, there were $144 million, $135 million, and $153 million, respectively, of unrecognized tax benefitsthat if recognized would affect our annual effective tax rate. We do not expect our unrecognized tax benefits to change significantly over the next 12months.During the years ended December 31, 2012, 2011, and 2010, we recognized approximately $23 million, $1 million, and $19 million in interest andpenalties, which is reflected within income tax expense (benefit). We had accrued approximately $133 million and $110 million for the payment ofinterest and penalties as of December 31, 2012 and 2011, respectively.111 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Our tax years for 2002 through 2009 and Premcor Inc.’s separate tax years for 2004 and 2005 are currently under examination by the IRS. PremcorInc. was merged into Valero effect September 1, 2005. The IRS has proposed adjustments to our taxable income for certain open years. We areprotesting the proposed adjustments and do not expect that the ultimate disposition of these adjustments will result in a material change to our financialposition, results of operations, or liquidity; however, as discussed in Note 12, should the IRS eventually prevail, it could result in a material amountof our deferred tax liabilities being reclassified to current liabilities, which could have a material adverse effect on our liquidity. We believe thatadequate provisions for income taxes have been reflected in our financial statements.112 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)17.EARNINGS PER COMMON SHAREEarnings per common share from continuing operations were computed as follows (dollars and shares in millions, except per share amounts): Year Ended December 31, 2012 2011 2010 RestrictedStock CommonStock RestrictedStock CommonStock RestrictedStock CommonStockEarnings per common share fromcontinuing operations: Net income attributable to Valerostockholders from continuing operations $2,083 $2,097 $923Less dividends paid: Common stock 358 168 113Nonvested restricted stock 2 1 1Undistributed earnings $1,723 $1,928 $809Weighted-average common sharesoutstanding3 550 3 563 3 563Earnings per common share from continuingoperations: Distributed earnings$0.65 $0.65 $0.30 $0.30 $0.20 $0.20Undistributed earnings3.12 3.12 3.40 3.40 1.43 1.43Total earnings per common share fromcontinuing operations$3.77 $3.77 $3.70 $3.70 $1.63 $1.63 Earnings per common share fromcontinuing operations – assumingdilution: Net income attributable to Valerostockholders from continuing operations $2,083 $2,097 $923Weighted-average common sharesoutstanding 550 563 563Common equivalent shares: Stock options 4 4 3Performance awards and unvestedrestricted stock 2 2 2Weighted-average common sharesoutstanding – assuming dilution 556 569 568Earnings per common share from continuingoperations – assuming dilution $3.75 $3.69 $1.62113 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The following table reflects potentially dilutive securities (in millions) that were excluded from the calculation of “earnings per common share fromcontinuing operations – assuming dilution” as the effect of including such securities would have been antidilutive. These potentially dilutive securitiesincluded stock options for which the exercise prices were greater than the average market price of our common shares during each respectivereporting period. Year Ended December 31, 2012 2011 2010Stock options4 6 14114 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)18.SEGMENT INFORMATIONWe have three reportable segments, refining, retail, and ethanol. Our refining segment includes refining operations, wholesale marketing, productsupply and distribution, and transportation operations in the U.S., Canada, the U.K., Aruba, and Ireland. The retail segment includes company-operated convenience stores in the U.S. and Canada; filling stations, truckstop facilities, cardlock facilities, and home heating oil operations inCanada; and credit card operations in the U.S. Our ethanol segment includes primarily sales of internally produced ethanol and distillers grains.Operations that are not included in any of the three reportable segments are included in the corporate category.The reportable segments are strategic business units that offer different products and services. They are managed separately as each business requiresunique technology and marketing strategies. Performance is evaluated based on operating income. Intersegment sales are generally derived fromtransactions made at prevailing market rates.The following table reflects activity related to continuing operations (in millions): Refining Retail Ethanol Corporate TotalYear ended December 31, 2012: Operating revenues from externalcustomers$122,925 $12,008 $4,317 $— $139,250Intersegment revenues8,946 — 115 — 9,061Depreciation and amortization expense1,370 119 42 43 1,574Operating income (loss)4,450 348 (47) (741) 4,010Total expenditures for long-lived assets3,147 164 36 66 3,413 Year ended December 31, 2011: Operating revenues from externalcustomers109,138 11,699 5,150 — 125,987Intersegment revenues8,665 — 145 — 8,810Depreciation and amortization expense1,338 115 39 42 1,534Operating income (loss)3,516 381 396 (613) 3,680Total expenditures for long-lived assets2,708 134 32 113 2,987 Year ended December 31, 2010: Operating revenues from externalcustomers69,854 9,339 3,040 — 82,233Intersegment revenues6,416 — 245 — 6,661Depreciation and amortization expense1,210 108 36 51 1,405Operating income (loss)1,903 346 209 (582) 1,876Total expenditures for long-lived assets2,084 102 — 48 2,234115 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Our principal products include conventional and CARB gasolines, RBOB (reformulated gasoline blendstock for oxygenate blending), ultra-low-sulfur diesel, and gasoline blendstocks. We also produce a substantial slate of middle distillates, jet fuel, and petrochemicals, in addition to lube oilsand asphalt. Other product revenues include such products as gas oils, No. 6 fuel oil, and petroleum coke. Operating revenues from externalcustomers for our principal products were as follows (in millions): Year Ended December 31, 2012 2011 2010Refining: Gasolines and blendstocks$55,647 $49,019 $33,491Distillates51,504 43,713 26,402Petrochemicals3,908 4,253 3,161Lubes and asphalts2,033 1,948 1,315Other product revenues9,833 10,205 5,485Total refining operating revenues122,925 109,138 69,854Retail: Fuel sales (gasoline and diesel)10,045 9,730 7,498Merchandise sales and other1,649 1,635 1,581Home heating oil314 334 260Total retail operating revenues12,008 11,699 9,339Ethanol: Ethanol3,545 4,436 2,647Distillers grains772 714 393Total ethanol operating revenues4,317 5,150 3,040Consolidated operating revenues$139,250 $125,987 $82,233Operating revenues by geographic area are shown in the table below (in millions). The geographic area is based on location of customer and nocustomer accounted for more than 10 percent of our consolidated operating revenues. Year Ended December 31, 2012 2011 2010U.S.$100,733 $98,806 $67,392Canada10,376 10,110 6,945U.K.10,779 4,297 149Other countries17,362 12,774 7,747Consolidated operating revenues$139,250 $125,987 $82,233116 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Long-lived assets include property, plant and equipment, intangible assets, and certain long-lived assets included in “deferred charges and otherassets, net.” Geographic information by country for long-lived assets consisted of the following (in millions): December 31, 2012 2011U.S.$23,760 $22,317Canada2,639 2,372U.K.1,110 848Aruba41 958Ireland37 —Total long-lived assets$27,587 $26,495Total assets by reportable segment were as follows (in millions): December 31, 2012 2011Refining$39,490 $38,164Retail2,043 1,999Ethanol929 943Corporate2,015 1,677Total assets$44,477 $42,783Possible Divestiture of Retail BusinessIn July 2012, we announced our intention to pursue a plan to separate our retail business from Valero into a new company named CST Brands, Inc.(CST). The separation is planned by way of a pro rata distribution of 80 percent of the outstanding shares of CST common stock to Valerostockholders. The distribution is expected to take place in the second quarter of 2013, assuming a favorable private letter ruling from the IRS andclearance of all comments from the Securities and Exchange Commission (SEC) relating to CST’s registration statement on Form 10. When thedistribution occurs, we expect to receive approximately $1.1 billion of cash and incur a tax liability of approximately $230 million. We also expect toliquidate the remaining 20 percent of CST outstanding shares within 18 months of the distribution. Details of the separation and distribution areprovided in filings with the SEC by CST.117 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)19.SUPPLEMENTAL CASH FLOW INFORMATIONIn order to determine net cash provided by operating activities, net income is adjusted by, among other things, changes in current assets and currentliabilities as follows (in millions): Year Ended December 31, 2012 2011 2010Decrease (increase) in current assets: Receivables, net$437 $(3,110) $(679)Inventories(282) 643 (407)Income taxes receivable51 128 545Prepaid expenses and other(28) (2) 107Increase (decrease) in current liabilities: Accounts payable(113) 2,004 670Accrued expenses13 (18) (99)Taxes other than income taxes(260) 312 (66)Income taxes payable(120) 124 (3)Changes in current assets and current liabilities$(302) $81 $68The above changes in current assets and current liabilities differ from changes between amounts reflected in the applicable balance sheets for therespective periods for the following reasons:•the amounts shown above exclude changes in cash and temporary cash investments, deferred income taxes, and current portion of debt andcapital lease obligations, as well as the effect of certain noncash investing and financing activities discussed below;•the amounts shown above exclude the current assets and current liabilities acquired in connection with the Meraux Acquisition in October2011, the Pembroke Acquisition in August 2011, and the acquisitions of ethanol plants in 2010;•amounts accrued for capital expenditures and deferred turnaround and catalyst costs are reflected in investing activities when such amountsare paid;•amounts accrued for common stock purchases in the open market that are not settled as of the balance sheet date are reflected in financingactivities when the purchases are settled and paid; and•certain differences between balance sheet changes and the changes reflected above result from translating foreign currency denominatedbalances at the applicable exchange rates as of each balance sheet date.Noncash investing activities for the year ended December 31, 2010 consist of the $160 million note receivable from PBF Holding related to the saleof the Paulsboro Refinery discussed in Note 3. There were no significant noncash investing activities for the years ended December 31, 2012 and2011.There were no significant noncash financing activities for the years ended December 31, 2012, 2011, and 2010.118 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Cash flows related to interest and income taxes were as follows (in millions): Year Ended December 31, 2012 2011 2010Interest paid in excess of amount capitalized$302 $397 $457Income taxes paid (received), net705 486 (690)Cash flows related to the discontinued operations of the Paulsboro and Delaware City Refineries have been combined with the cash flows fromcontinuing operations within each category in the statements of cash flows for the year ended December 31, 2010 and are summarized as follows (inmillions): Year EndedDecember 31, 2010Cash provided by (used in) operating activities: Paulsboro Refinery$88Delaware City Refinery(26)Cash used in investing activities: Paulsboro Refinery(41)Delaware City Refinery—119 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)20.FAIR VALUE MEASUREMENTSGeneralGAAP requires that certain financial instruments, such as derivative instruments, be recognized at their fair values in our balance sheets. However,other financial instruments, such as debt obligations, are not required to be recognized at their fair values, but GAAP provides an option to elect fairvalue accounting for these instruments. GAAP requires the disclosure of the fair values of all financial instruments, regardless of whether they arerecognized at their fair values or carrying amounts in our balance sheets. For financial instruments recognized at fair value, GAAP requires thedisclosure of their fair values by type of instrument, along with other information, including changes in the fair values of certain financial instrumentsrecognized in income or other comprehensive income, and this information is provided below under “Recurring Fair Value Measurements.” Forfinancial instruments not recognized at fair value, the disclosure of their fair values is provided below under “Other Financial Instruments.”Nonfinancial assets, such as property, plant and equipment, and nonfinancial liabilities are recognized at their carrying amounts in our balance sheets.GAAP does not permit nonfinancial assets and liabilities to be remeasured at their fair values. However, GAAP requires the remeasurement of suchassets and liabilities to their fair values upon the occurrence of certain events, such as the impairment of property, plant and equipment. In addition, ifsuch an event occurs, GAAP requires the disclosure of the fair value of the asset or liability along with other information, including the gain or lossrecognized in income in the period the remeasurement occurred. This information is provided below under “Nonrecurring Fair ValueMeasurements.”GAAP provides a framework for measuring fair value and establishes a three-level fair value hierarchy that prioritizes inputs to valuation techniquesbased on the degree to which objective prices in external active markets are available to measure fair value. Following is a description of each of thelevels of the fair value hierarchy.•Level 1 - Observable inputs, such as unadjusted quoted prices in active markets for identical assets or liabilities.•Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities inmarkets that are not active.•Level 3 - Unobservable inputs for the asset or liability for which there is little, if any, market activity at the measurement date. Unobservableinputs reflect our own assumptions about what market participants would use to price the asset or liability. The inputs are developed based onthe best information available in the circumstances, which might include occasional market quotes or sales of similar instruments or our ownfinancial data such as internally developed pricing models, discounted cash flow methodologies, as well as instruments for which the fairvalue determination requires significant judgment.The financial instruments and nonfinancial assets and liabilities included in our disclosure of recurring and nonrecurring fair value measurements arecategorized according to the fair value hierarchy based on the inputs used to measure their fair values.120 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Recurring Fair Value MeasurementsThe tables below present information (in millions) about our financial instruments recognized at their fair values in our balance sheets categorizedaccording to the fair value hierarchy of the inputs utilized by us to determine the fair values as of December 31, 2012 and 2011.Cash collateral deposits of $127 million and $136 million with brokers under master netting arrangements are included in the fair value of thecommodity derivatives reflected in Level 1 as of December 31, 2012 and 2011, respectively. Certain of our commodity derivative contracts undermaster netting arrangements include both asset and liability positions. We have elected to offset the fair value amounts recognized for multiple similarderivative instruments executed with the same counterparty, including any related cash collateral asset or obligation under the column “NettingAdjustments” below; however, fair value amounts by hierarchy level are presented on a gross basis in the tables below. Fair Value Measurements Using Quoted Prices inActive Markets(Level 1) SignificantOtherObservableInputs(Level 2) SignificantUnobservable Inputs(Level 3) NettingAdjustments Total as ofDecember 31,2012Assets: Commodity derivative contracts$1,270 $60 $— $(1,195) $135Physical purchase contracts— 11 — — 11Investments of certain benefit plans87 — 11 — 98Foreign currency contracts1 — — — 1Other investments— — — — —Liabilities: Commodity derivative contracts1,138 70 — (1,195) 13Biofuels blending obligation10 — — — 10Foreign currency contracts1 — — — 1121 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Fair Value Measurements Using Quoted Prices inActive Markets(Level 1) SignificantOtherObservableInputs(Level 2) SignificantUnobservable Inputs(Level 3) NettingAdjustments Total as ofDecember 31,2011Assets: Commodity derivative contracts$2,038 $78 $— $(1,940) $176Physical purchase contracts— (2) — — (2)Investments of certain benefit plans84 — 11 — 95Other investments— — — — —Liabilities: Commodity derivative contracts1,864 101 — (1,940) 25Foreign currency contracts3 — — — 3A description of our financial instruments and the valuation methods used to measure those instruments at fair value are as follows:•Commodity derivative contracts consist primarily of exchange-traded futures and swaps, and as disclosed in Note 21, some of thesecontracts are designated as hedging instruments. These contracts are measured at fair value using the market approach. Exchange-tradedfutures are valued based on quoted prices from the exchange and are categorized in Level 1 of the fair value hierarchy. Swaps are pricedusing third-party broker quotes, industry pricing services, and exchange-traded curves, with appropriate consideration of counterparty creditrisk, but because they have contractual terms that are not identical to exchange-traded futures instruments with a comparable market price,these financial instruments are categorized in Level 2 of the fair value hierarchy.•Physical purchase contracts to purchase inventories represent the fair value of firm commitments to purchase crude oil feedstocks and thefair value of fixed-price corn purchase contracts, and as disclosed in Note 21, some of these contracts are designated as hedginginstruments. The fair values of these firm commitments and purchase contracts are measured using a market approach based on quoted pricesfrom the commodity exchange, but because these commitments have contractual terms that are not identical to exchange-traded futuresinstruments with a comparable market price, they 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 obligationsunder certain U.S. nonqualified benefit plans. The assets categorized in Level 1 of the fair value hierarchy are measured at fair value using amarket approach based on quotations from national securities exchanges. The assets categorized in Level 3 of the fair value hierarchyrepresent insurance contracts, the fair value of which is provided by the insurer.•Other investments consist of (i) equity securities of private companies over which we do not exercise significant influence nor whosefinancial statements are consolidated into our financial statements and (ii) debt securities of a private company whose financial statements arenot consolidated into our financial statements. We have elected to account for these investments at their fair values. These investments arecategorized in Level 3 of the fair value hierarchy as the fair values of these investments are determined using the income approach based oninternally developed analyses.122 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)•Our biofuels blending obligation represents a liability for the purchase of RINs and RTFCs, as defined and described in Note 21 under“Compliance Program Price Risk,” to satisfy our obligation to blend biofuels into the products we produce. Our obligation is based onour deficiency in RINs and RTFCs and the price of these instruments as of the balance sheet date. Our obligation is categorized in Level 1of the fair value hierarchy and is measured at fair value using the market approach based on quoted prices from an independent pricingservice.During the years ended December 31, 2012, 2011, and 2010 there were no transfers between assets classified as Level 1 and Level 2.The following is a reconciliation of the beginning and ending balances (in millions) for fair value measurements developed using significantunobservable inputs (Level 3). Investments ofCertainBenefit Plans Other Investments 2012 2011 2010 2012 2011 2010Balance as of beginning of year$11 $10 $10 $— $— $—Purchases— 1 — — 21 1Total losses included in refining operating expense— — — — (21) (1)Transfers in and/or out of Level 3— — — — — —Balance as of end of year$11 $11 $10 $— $— $—The amount of total losses included in income attributable to thechange in unrealized losses relating to assets still held at end of year$— $— $— $— $(21) $(1)Nonrecurring Fair Value MeasurementsThe table below presents the fair value (in millions) of our nonfinancial assets measured on a nonrecurring basis during the year ended December 31,2012. Fair Value Measurements Using Total LossRecognizedDuring theYear EndedDecember 31,2012 QuotedPrices inActiveMarkets(Level 1) SignificantOtherObservableInputs(Level 2) SignificantUnobservableInputs(Level 3) TotalFair Valueas ofDecember 31,2012 Assets: Long-lived assets ofthe Aruba Refinery$— $— $— $— $903Materials and suppliesinventories ofthe Aruba Refinery— — — — 25Cancelled capital projects— — 2 2 65Property, plant and equipment ofconvenience stores— — 8 8 21123 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)As of December 31, 2012, there were no liabilities that were measured at fair value on a nonrecurring basis. As of December 31, 2011, there were noassets or liabilities that were measured at fair value on a nonrecurring basis.Aruba RefineryAs more fully described in Note 4, in September 2012, we decided to reorganize the Aruba Refinery into a crude oil and refined products terminal inresponse to the August 2012 withdrawal of a non-binding offer to purchase the refinery. As a result, we evaluated the refining assets for potentialimpairment as of September 30, 2012. We concluded that these refining assets were impaired and determined that their carrying value was notrecoverable through the future operations and disposition of the refinery. We determined that these refining assets had no value after consideringestimated salvage costs. We also recognized an asset impairment loss related to materials and supplies inventories that supported the refiningoperations.Cancelled Capital ProjectsDuring 2012 and 2010, we wrote down the carrying value of equipment associated with permanently cancelled capital projects at several of ourrefineries and recognized asset impairment losses of $65 million and $2 million, respectively.Retail StoresDuring 2012, we evaluated certain of our convenience stores operated by our retail segment for potential impairment and concluded that they wereimpaired, and we wrote down the carrying values of these stores to their estimated fair values and recognized asset impairment losses of $21 million.Other Financial InstrumentsFinancial instruments that we recognize in our balance sheets at their carrying amounts are shown in the table below (in millions): December 31, 2012 December 31, 2011 CarryingAmount FairValue CarryingAmount FairValueFinancial assets: Cash and temporary cash investments$1,723 $1,723 $1,024 $1,024Financial liabilities: Debt (excluding capital leases)7,000 8,621 7,690 9,298The methods and significant assumptions used to estimate the fair value of these financial instruments are as follows:•The fair value of cash and temporary cash investments approximates the carrying value due to the low level of credit risk of these assetscombined with their short maturities and market interest rates (Level 1).•The fair value of debt is determined primarily using the market approach based on quoted prices provided by third-party brokers and vendorpricing services, but are not exchange-traded (Level 2).124 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)21.PRICE RISK MANAGEMENT ACTIVITIESWe are exposed to market risks related to the volatility in the price of commodities, the price of financial instruments associated with governmentaland regulatory compliance programs, interest rates, and foreign currency exchange rates, and we enter into derivative instruments to manage some ofthese risks. We also enter into derivative instruments to manage the price risk on other contractual derivatives into which we have entered. The onlytypes of derivative instruments we enter into are those related to the various commodities we purchase or produce, financial instruments we mustpurchase to maintain compliance with various governmental and regulatory programs, interest rate swaps, and foreign currency exchange andpurchase contracts, as described below. All derivative instruments are recorded as either assets or liabilities measured at their fair values (see Note 20).When we enter into a derivative instrument, it is designated as a fair value hedge, a cash flow hedge, an economic hedge, or a trading derivative. Thegain or loss on a derivative instrument designated and qualifying as a fair value hedge, as well as the offsetting loss or gain on the hedged itemattributable to the hedged risk, is recognized currently in income in the same period. The effective portion of the gain or loss on a derivative instrumentdesignated and qualifying as a cash flow hedge is initially reported as a component of other comprehensive income and is then recorded in income inthe period or periods during which the hedged forecasted transaction affects income. The ineffective portion of the gain or loss on the cash flowderivative instrument, if any, is recognized in income as incurred. For our economic hedges (derivative instruments not designated as fair value orcash flow hedges) and for derivative instruments entered into by us for trading purposes, the derivative instrument is recorded at fair value andchanges in the fair value of the derivative instrument are recognized currently in income. The cash flow effects of all of our derivative instruments arereflected in operating activities in our statements of cash flows for all periods presented.125 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Commodity Price RiskWe are exposed to market risks related to the volatility in the price of crude oil, refined products (primarily gasoline and distillate), grain (primarilycorn), and natural gas used in our operations. To reduce the impact of price volatility on our results of operations and cash flows, we use commodityderivative instruments, including futures, swaps, and options. We use the futures markets for the available liquidity, which provides greater flexibilityin transacting our hedging and trading operations. We use swaps primarily to manage our price exposure. Our positions in commodity derivativeinstruments are monitored and managed on a daily basis by a risk control group to ensure compliance with our stated risk management policy that hasbeen approved by our board of directors.For risk management purposes, we use fair value hedges, cash flow hedges, and economic hedges. In addition to the use of derivative instruments tomanage commodity price risk, we also enter into certain commodity derivative instruments for trading purposes. Our objective for entering into eachtype of hedge or trading derivative is described below.Fair Value HedgesFair value hedges are used to hedge price volatility in certain refining inventories and firm commitments to purchase inventories. The level of activityfor our fair value hedges is based on the level of our operating inventories, and generally represents the amount by which our inventories differ fromour previous year-end LIFO inventory levels.As of December 31, 2012, we had the following outstanding commodity derivative instruments that were entered into to hedge crude oil and refinedproduct inventories and commodity derivative instruments related to the physical purchase of crude oil and refined products at a fixed price. Theinformation presents the notional volume of outstanding contracts by type of instrument and year of maturity (volumes in thousands of barrels). NotionalContractVolumes byYear ofMaturityDerivative Instrument 2013Crude oil and refined products: Futures – long 1,052Futures – short 4,857Physical contracts - long 3,805126 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Cash Flow HedgesCash flow hedges are used to hedge price volatility in certain forecasted feedstock and refined product purchases, refined product sales, and naturalgas purchases. The objective of our cash flow hedges is to lock in the price of forecasted feedstock, product or natural gas purchases, or refinedproduct sales at existing market prices that we deem favorable.As of December 31, 2012, we had the following outstanding commodity derivative instruments that were entered into to hedge forecasted purchasesor sales of crude oil and refined products. The information presents the notional volume of outstanding contracts by type of instrument and year ofmaturity (volumes in thousands of barrels). NotionalContractVolumes byYear ofMaturityDerivative Instrument 2013Crude oil and refined products: Swaps – long 1,300Swaps – short 1,300Futures – long 11,894Futures – short 2,981Physical contracts – short 8,913127 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Economic HedgesEconomic hedges represent commodity derivative instruments that are not designated as fair value or cash flow hedges and are used to manage pricevolatility in certain (i) refinery feedstock, refined product, and corn inventories, (ii) forecasted refinery feedstock, refined product and cornpurchases, and refined product sales, and (iii) fixed-price corn purchase contracts. Our objective for entering into economic hedges is consistentwith the objectives discussed above for fair value hedges and cash flow hedges. However, the economic hedges are not designated as a fair valuehedge or a cash flow hedge for accounting purposes, usually due to the difficulty of establishing the required documentation at the date that thederivative instrument is entered into that would allow us to achieve “hedge deferral accounting.”As of December 31, 2012, we had the following outstanding commodity derivative instruments that were entered into as economic hedges andcommodity derivative instruments related to the physical purchase of corn at a fixed price. The information presents the notional volume ofoutstanding contracts by type of instrument and year of maturity (volumes in thousands of barrels, except those identified as natural gas contracts thatare presented in billions of British thermal units and corn contracts that are presented in thousands of bushels). Notional Contract Volumes byYear of MaturityDerivative Instrument 2013 2014Crude oil and refined products: Swaps – long 1,687 —Swaps – short 895 —Futures – long 48,109 —Futures – short 63,769 —Options – long 10 —Natural gas: Options – long 16,750 —Corn: Futures – long 13,995 5Futures – short 28,680 25Physical contracts – long 16,378 29128 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Trading DerivativesOur objective for entering into commodity derivative instruments for trading purposes is to take advantage of existing market conditions related tofuture results of operations and cash flows.As of December 31, 2012, we had the following outstanding commodity derivative instruments that were entered into for trading purposes. Theinformation presents the notional volume of outstanding contracts by type of instrument and year of maturity (volumes represent thousands of barrels,except those identified as natural gas contracts that are presented in billions of British thermal units and corn contracts that are presented in thousandsof bushels). Notional Contract Volumes byYear of MaturityDerivative Instrument 2013 2014Crude oil and refined products: Swaps – long 61,002 9,000Swaps – short 60,819 9,000Futures – long 69,939 2,236Futures – short 69,923 2,236Options – long 2,750 —Options – short 3,400 —Natural gas: Futures – long 1,450 —Futures – short 400 —Corn: Swaps - long 3,135 —Swaps - short 5,045 —Futures – long 4,830 —Futures – short 4,830 —Compliance Program Price RiskWe are exposed to market risks related to the volatility in the price of financial instruments associated with various governmental and regulatorycompliance programs that we must purchase in the open market to comply with these programs. These programs are described below.Obligation to Blend BiofuelsWe are obligated to blend biofuels into the products we produce in most of the countries in which we operate, and these countries set annual quotasfor 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 toblend at the applicable rate in the U.S. and the U.K., we must purchase Renewable Identification Numbers (RINs) in the U.S. and RenewableTransport Fuel Obligation certificates (RTFCs) in the U.K., and as such, we are exposed to the volatility in the market price of these financialinstruments. We have not129 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)entered into derivative instruments to manage this risk, but we purchase RINs and RTFCs when the price of these instruments is deemed favorable.For the years ended December 31, 2012, 2011, and 2010, the cost of meeting our obligations under these compliance programs was $250 million,$231 million, and $66 million, respectively, and these amounts are reflected in cost of sales.Maintaining Minimum Inventory QuantitiesIn the U.K., we are required to maintain a minimum quantity of crude oil and refined products as a reserve against shortages or interruptions in thesupply of these products. To the degree we decide not to physically hold the minimum quantity of crude oil and refined products, we must purchaseCompulsory Stock Obligation (CSO) tickets from other suppliers of refined products in the U.K. or other European Union (EU) member countries,and we make economic decisions as to the cost of maintaining certain quantities of crude oil and refined products versus the cost of purchasing CSOtickets. We have not entered into derivative instruments to manage the price volatility of CSO tickets. For the years ended December 31, 2012 and2011, the cost of purchasing CSO tickets to help meet our obligations under this compliance program was $8 million and $4 million, respectively,and these amounts were reflected in cost of sales. We had no obligations under this compliance program prior to completing the Pembroke Acquisitionin 2011.Emission AllowancesOur Pembroke Refinery is subject to a maximum amount of carbon dioxide that it can emit each year under the EU Emissions Trading Scheme.Under this cap-and-trade program, we purchase emission allowances on the open market for the difference between the amount of carbon dioxideemitted and the maximum amount allowed under the program. Therefore, we are exposed to the volatility in the market price of these allowances. Forthe years ended December 31, 2012 and 2011, the cost of meeting our obligation under this compliance program was immaterial. We had noobligations under this compliance program prior to completing the Pembroke Acquisition in 2011.We enter into derivative instruments (futures) to reduce the impact of this risk on our results of operations and cash flows. Our positions in thesederivative instruments are monitored and managed on a daily basis by a risk control group to ensure compliance with our stated risk managementpolicy that has been approved by our board of directors. As of December 31, 2012, we had no futures contracts outstanding related to thiscompliance program. As of December 31, 2011, we had purchased futures contracts – long for 68,000 metric tons of EU emission allowances thatwere entered into as economic hedges. As of December 31, 2011, the fair value of these futures contracts was immaterial and therefore not separatelypresented in the table below under “Fair Values of Derivative Instruments.” For the year ended December 31, 2011, the loss recognized inincome on these derivative instruments designated as economic hedges was also immaterial and therefore not separately presented in the table belowunder “Effect of Derivative Instruments on Statements of Income and Other Comprehensive Income.”Interest Rate RiskOur primary market risk exposure for changes in interest rates relates to our debt obligations. We manage our exposure to changing interest ratesthrough the use of a combination of fixed-rate and floating-rate debt. In addition, at times we have used interest rate swap agreements to manage ourfixed to floating interest rate position by converting certain fixed-rate debt to floating-rate debt. We had no interest rate derivative instrumentsoutstanding as of December 31, 2012 and 2011, or during the years ended December 31, 2012, 2011, or 2010.130 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Foreign Currency RiskWe are exposed to exchange rate fluctuations on transactions entered into by our international operations that are denominated in currencies other thanthe local (functional) currencies of these operations. To manage our exposure to these exchange rate fluctuations, we use foreign currency exchangeand purchase contracts. These contracts are not designated as hedging instruments for accounting purposes, and therefore they are classified aseconomic hedges. As of December 31, 2012, we had commitments to purchase $552 million of U.S. dollars. These commitments matured on orbefore January 31, 2013 resulting in a gain of $1 million in the first quarter of 2013.131 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Fair Values of Derivative InstrumentsThe following tables provide information about the fair values of our derivative instruments as of December 31, 2012 and 2011 (in millions) and theline items in the balance sheets in which the fair values are reflected. See Note 20 for additional information related to the fair values of our derivativeinstruments.As indicated in Note 20, we net fair value amounts recognized for multiple similar derivative instruments executed with the same counterparty undermaster netting arrangements. The tables below, however, are presented on a gross asset and gross liability basis, which results in the reflection ofcertain assets in liability accounts and certain liabilities in asset accounts. In addition, in Note 20, we included cash collateral on deposit with orreceived from brokers in the fair value of the commodity derivatives; these cash amounts are not reflected in the tables below. Balance SheetLocation December 31, 2012 AssetDerivatives LiabilityDerivatives Derivatives designated ashedging instruments Commodity contracts: FuturesReceivables, net $77 $64SwapsReceivables, net 15 13SwapsPrepaid expenses and other 2 2Total $94 $79 Derivatives not designated ashedging instruments Commodity contracts: FuturesReceivables, net $1,066 $1,073SwapsReceivables, net 9 6SwapsAccrued expenses 32 46OptionsReceivables, net 1 4OptionsAccrued expenses 1 —Physical purchase contractsInventories 11 —Foreign currency contractsReceivables, net 1 —Foreign currency contractsAccrued expenses — 1Total $1,121 $1,130Total derivatives $1,215 $1,209132 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Balance SheetLocation December 31, 2011 AssetDerivatives LiabilityDerivatives Derivatives designated ashedging instruments Commodity contracts: FuturesReceivables, net $264 $240SwapsAccrued expenses 36 46Total $300 $286 Derivatives not designated ashedging instruments Commodity contracts: FuturesReceivables, net $1,636 $1,624SwapsPrepaid expenses and other 4 2SwapsAccrued expenses 38 51OptionsReceivables, net 2 —OptionsAccrued expenses — 2Physical purchase contractsInventories — 2Foreign currency contractsAccrued expenses — 3Total $1,680 $1,684Total derivatives $1,980 $1,970Market and Counterparty RiskOur price risk management activities involve the receipt or payment of fixed price commitments into the future. These transactions give rise to marketrisk, which is the risk that future changes in market conditions may make an instrument less valuable. We closely monitor and manage our exposure tomarket risk on a daily basis in accordance with policies approved by our board of directors. Market risks are monitored by a risk control group toensure compliance with our stated risk management policy. Concentrations of customers in the refining industry may impact our overall exposure tocounterparty risk because these customers may be similarly affected by changes in economic or other conditions. In addition, financial servicescompanies are the counterparties in certain of our price risk management activities, and such financial services companies may be adversely affectedby periods of uncertainty and illiquidity in the credit and capital markets.There were no material amounts due from counterparties in the refining or financial services industry as of December 31, 2012 or 2011. Theseamounts represent the aggregate amount payable to us by companies in those industries, reduced by payables from us to those companies under masternetting arrangements that allow for the setoff of amounts receivable from and payable to the same party. We do not require any collateral or othersecurity to support derivative instruments into which we enter. We also do not have any derivative instruments that require us to maintain a minimuminvestment-grade credit rating.133 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Effect of Derivative Instruments on Statements of Income and Other Comprehensive IncomeThe following tables provide information about the gain or loss recognized in income and other comprehensive income (OCI) on our derivativeinstruments and the line items in the financial statements in which such gains and losses are reflected (in millions).Derivatives in Fair ValueHedging Relationships Location of Gain (Loss)Recognized in Incomeon Derivatives Year Ended December 31, 2012 2011 2010Commodity contracts: Gain (loss) recognized in income on derivatives Cost of sales $(250) $(6) $45Gain (loss) recognized in income on hedged item Cost of sales 183 (23) (40)Gain (loss) recognized in income on derivatives (ineffective portion) Cost of sales (67) (29) 5For fair value hedges, no component of the derivative instruments’ gains or losses was excluded from the assessment of hedge effectiveness for theyears ended December 31, 2012, 2011, and 2010. We recognized a gain of $28 million in income for hedged firm commitments that no longerqualified as fair value hedges during the year ended December 31, 2012. No amounts were recognized in income for hedged firm commitments thatno longer qualified as fair value hedges for the years ended December 31, 2011 and 2010.Derivatives in Cash FlowHedging Relationships Location of Gain (Loss)Recognized in Incomeon Derivatives Year Ended December 31, 2012 2011 2010Commodity contracts: Gain (loss) recognized inOCI on derivatives(effective portion) $45 $32 $(2)Gain reclassified fromaccumulated OCI intoincome (effective portion) Cost of sales 73 3 178Gain recognized inincome on derivatives(ineffective portion) Cost of sales 48 5 —For cash flow hedges, no component of the derivative instruments’ gains or losses was excluded from the assessment of hedge effectiveness for theyears ended December 31, 2012, 2011, and 2010. For the year ended December 31, 2012, cash flow hedges primarily related to forward sales ofgasoline and distillates, and associated forward purchases of crude oil, with $1 million of cumulative after-tax gains on cash flow hedges remainingin accumulated other comprehensive income. We estimate that $1 million of the deferred gain as of December 31, 2012 will be reclassified into costof sales over the next 12 months as a result of hedged transactions that are forecasted to occur. For the years ended December 31, 2012, 2011, and2010, there were no amounts reclassified from accumulated other comprehensive income into income as a result of the discontinuance of cash flowhedge accounting.134 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Derivatives Designated asEconomic Hedges and OtherDerivative Instruments Location of Gain (Loss)Recognized in Incomeon Derivatives Year Ended December 31, 2012 2011 2010Commodity contracts Cost of sales $1 $(349) $(210)Foreign currency contracts Cost of sales (38) 18 (24)Other contract Cost of sales — 29 —Total $(37) $(302) $(234)The gain of $29 million on the other contract for the year ended December 31, 2011 is related to the difference between the fair value of inventoriesacquired in connection with the Pembroke Acquisition and the amount paid for such inventories based on the terms of the purchase agreement. Theloss of $349 million on commodity contracts for the year ended December 31, 2011 includes a $542 million loss related to forward sales of refinedproducts.Trading Derivatives Location of Gain (Loss)Recognized in Incomeon Derivatives Year Ended December 31, 2012 2011 2010Commodity contracts Cost of sales $(16) $23 $8135 Table of ContentsVALERO ENERGY CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)22.QUARTERLY FINANCIAL DATA (Unaudited)The following table summarizes quarterly financial data for the years ended December 31, 2012 and 2011 (in millions, except per share amounts). 2012 Quarter Ended March 31 (a) June 30 September 30 December 31Operating revenues$35,167 $34,662 $34,726 $34,695Operating income (loss)(244) 1,361 1,309 1,584Income (loss) from continuing operations(432) 830 673 1,009Net income (loss)(432) 830 673 1,009Net income (loss) attributable toValero Energy Corporation stockholders(432) 831 674 1,010Earnings (loss) per common share from continuing operations – assuming dilution(0.78) 1.50 1.21 1.82Earnings (loss) per common share – assuming dilution(0.78) 1.50 1.21 1.82 2011 Quarter Ended March 31 June 30 September 30 (b) December 31 (c)Operating revenues$26,308 $31,293 $33,713 $34,673Operating income244 1,290 1,979 167Income from continuing operations104 744 1,203 45Net income98 743 1,203 45Net income attributable toValero Energy Corporation stockholders98 744 1,203 45Earnings per common share from continuing operations – assuming dilution0.18 1.30 2.11 0.08Earnings per common share – assuming dilution0.17 1.30 2.11 0.08____________________ (a)The operations of the Aruba Refinery were suspended in March 2012.(b)Includes the operations related to the Pembroke Acquisition beginning August 1, 2011.(c)Includes the operations related to the Meraux Acquisition beginning October 1, 2011.136 Table of ContentsITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENone.ITEM 9A. CONTROLS AND PROCEDURESDisclosure Controls and Procedures. Our management has evaluated, with the participation of our principal executive officer and principalfinancial officer, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of1934) as of the end of the period covered by this report, and has concluded that our disclosure controls and procedures were effective as ofDecember 31, 2012.Internal Control over Financial Reporting.(a) Management’s Report on Internal Control over Financial Reporting.The management report on Valero’s internal control over financial reporting required by Item 9A appears in Item 8 on page 58 of this report, and isincorporated herein by reference.(b) Attestation Report of the Independent Registered Public Accounting Firm.KPMG LLP’s report on Valero’s internal control over financial reporting appears in Item 8 beginning on page 60 of this report, and is incorporatedherein by reference.(c) 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 isreasonably likely to materially affect, our internal control over financial reporting.ITEM 9B. OTHER INFORMATIONNone.137 Table of ContentsPART IIIITEMS 10-14.The information required by Items 10 through 14 of Form 10-K is incorporated herein by reference to the definitive proxy statement for our 2013annual meeting of stockholders. We will file the proxy statement with the SEC before March 31, 2013.PART IVITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES(a) 1. Financial Statements. The following consolidated financial statements of Valero Energy Corporation and its subsidiaries are included inPart II, Item 8 of this Form 10-K: PageManagement’s report on internal control over financial reporting58Reports of independent registered public accounting firm59Consolidated balance sheets as of December 31, 2012 and 201162Consolidated statements of income for the years ended December 31, 2012, 2011, and 201063Consolidated statements of comprehensive income for the years ended December 31, 2012, 2011, and 201064Consolidated statements of equity for the years ended December 31, 2012, 2011, and 201065Consolidated statements of cash flows for the years ended December 31, 2012, 2011, and 201066Notes to consolidated financial statements672. Financial Statement Schedules and Other Financial Information. No financial statement schedules are submitted because either theyare inapplicable or because the required information is included in the consolidated financial statements or notes thereto.3. Exhibits. Filed as part of this Form 10-K are the following exhibits: 3.01--Amended and Restated Certificate of Incorporation of Valero Energy Corporation, formerly known as Valero Refining and MarketingCompany - incorporated by reference to Exhibit 3.1 to Valero’s Registration Statement on Form S-1 (SEC File No. 333-27013) filedMay 13, 1997. 3.02--Certificate of Amendment (effective July 31, 1997) to Restated Certificate of Incorporation of Valero Energy Corporation - incorporated byreference to Exhibit 3.02 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2003 (SEC File No. 1-13175). 3.03--Certificate of Merger of Ultramar Diamond Shamrock Corporation with and into Valero Energy Corporation dated December 31, 2001 -incorporated by reference to Exhibit 3.03 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2003 (SEC File No. 1-13175). 3.04--Amendment (effective December 31, 2001) to Restated Certificate of Incorporation of Valero Energy Corporation - incorporated by referenceto Exhibit 3.1 to Valero’s Current Report on Form 8-K dated December 31, 2001, and filed January 11, 2002 (SEC File No. 1-13175). 3.05--Second Certificate of Amendment (effective September 17, 2004) to Restated Certificate of Incorporation of Valero Energy Corporation -incorporated by reference to Exhibit 3.04 to Valero’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 (SEC FileNo. 1-13175).138 Table of Contents 3.06--Certificate of Merger of Premcor Inc. with and into Valero Energy Corporation effective September 1, 2005 - incorporated by reference toExhibit 2.01 to Valero’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005 (SEC File No. 1-13175). 3.07--Third Certificate of Amendment (effective December 2, 2005) to Restated Certificate of Incorporation of Valero Energy Corporation -incorporated by reference to Exhibit 3.07 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2005 (SEC File No. 1-13175). 3.08--Fourth Certificate of Amendment (effective May 24, 2011) to Restated Certificate of Incorporation of Valero Energy Corporation -incorporated by reference to Exhibit 4.8 to Valero’s Current Report on Form 8-K dated and filed May 24, 2011 (SEC File No. 1-13175). *3.09--Amended and Restated Bylaws of Valero Energy Corporation. 4.01--Indenture dated as of December 12, 1997 between Valero Energy Corporation and The Bank of New York - incorporated by reference toExhibit 3.4 to Valero’s Registration Statement on Form S-3 (SEC File No. 333-56599) filed June 11, 1998. 4.02--First Supplemental Indenture dated as of June 28, 2000 between Valero Energy Corporation and The Bank of New York (including Formof 7 3/4% Senior Deferrable Note due 2005) - incorporated by reference to Exhibit 4.6 to Valero’s Current Report on Form 8-K datedJune 28, 2000, and filed June 30, 2000 (SEC File No. 1-13175). 4.03--Indenture (Senior Indenture) dated as of June 18, 2004 between Valero Energy Corporation and Bank of New York - incorporated byreference to Exhibit 4.7 to Valero’s Registration Statement on Form S-3 (SEC File No. 333-116668) filed June 21, 2004. 4.04--Form of Indenture related to subordinated debt securities - incorporated by reference to Exhibit 4.8 to Valero’s Registration Statement onForm S-3 (SEC File No. 333-116668) filed June 21, 2004. 4.05--Specimen Certificate of Common Stock - incorporated by reference to Exhibit 4.1 to Valero’s Registration Statement on Form S-3 (SEC FileNo. 333-116668) filed June 21, 2004. +10.01--Valero Energy Corporation Annual Bonus Plan, amended and restated as of July 29, 2009 - incorporated by reference to Exhibit 10.01 toValero’s Current Report on Form 8-K dated July 29, 2009, and filed August 4, 2009 (SEC File No. 1-13175). +10.02--Valero Energy Corporation Annual Incentive Plan for Named Executive Officers - incorporated by reference to Exhibit 10.01 to Valero’sCurrent Report on Form 8-K dated February 22, 2012, and filed February 27, 2012 (SEC File No. 1-13175). +10.03--Valero Energy Corporation 2005 Omnibus Stock Incentive Plan, amended and restated as of October 1, 2005 - incorporated by reference toExhibit 10.02 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2009 (SEC File No. 1-13175). +10.04--Valero Energy Corporation 2011 Omnibus Stock Incentive Plan - incorporated by reference to Appendix A to Valero’s Definitive ProxyStatement on Schedule 14A for the 2011 annual meeting of stockholders, filed March 18, 2011 (SEC File No. 1-13175). +10.05--Valero Energy Corporation Deferred Compensation Plan, amended and restated as of January 1, 2008 - incorporated by reference to Exhibit10.04 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2008 (SEC File No. 1-13175). +10.06--Form of Elective Deferral Agreement pursuant to the Valero Energy Corporation Deferred Compensation Plan - incorporated by reference toExhibit 10.05 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2011 (SEC File No. 1-13175). +10.07--Form of Investment Election Form pursuant to the Valero Energy Corporation Deferred Compensation Plan - incorporated by reference toExhibit 10.06 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2011 (SEC File No. 1-13175). +10.08--Form of Distribution Election Form pursuant to the Valero Energy Corporation Deferred Compensation Plan - incorporated by reference toExhibit 10.07 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2011 (SEC File No. 1-13175).139 Table of Contents +10.09--Valero Energy Corporation Amended and Restated Supplemental Executive Retirement Plan, amended and restated as of November 10,2008 - incorporated by reference to Exhibit 10.08 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2008 (SEC FileNo. 1-13175). +10.10--Valero Energy Corporation Excess Pension Plan, as amended and restated effective December 31, 2011 - incorporated by reference toExhibit 10.10 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2011 (SEC File No. 1-13175). +10.11--Valero Energy Corporation Restricted Stock Plan for Non-Employee Directors, as amended and restated July 11, 2007 - incorporated byreference to Exhibit 10.02 to Valero’s Current Report on Form 8-K/A dated July 11, 2007, and filed September 18, 2007 (SEC File No. 1-13175). +10.12--Form of Indemnity Agreement between Valero Energy Corporation (formerly known as Valero Refining and Marketing Company) andcertain officers and directors - incorporated by reference to Exhibit 10.8 to Valero’s Registration Statement on Form S-1 (SEC File No. 333-27013) filed May 13, 1997. +10.13--Schedule of Indemnity Agreements - incorporated by reference to Exhibit 10.14 to Valero’s Annual Report on Form 10-K for the year endedDecember 31, 2011 (SEC File No. 1-13175). +10.14--Change of Control Severance Agreement (Tier I) dated January 18, 2007, between Valero Energy Corporation and William R. Klesse -incorporated by reference to Exhibit 10.15 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2011 (SEC File No. 1-13175). +10.15--Schedule of Change of Control Severance Agreements (Tier I) - incorporated by reference to Exhibit 10.16 to Valero’s Annual Report onForm 10-K for the year ended December 31, 2011 (SEC File No. 1-13175). +10.16--Change of Control Severance Agreement (Tier II) dated March 15, 2007, between Valero Energy Corporation and Kimberly S. Bowers -incorporated by reference to Exhibit 10.17 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2011 (SEC File No. 1-13175). *+10.17--Form of Amendment to Change of Control Severance Agreements (to eliminate excise tax gross-up benefit). *+10.18--Schedule of Amendments to Change of Control Severance Agreements. +10.19--Form of Performance Award Agreement pursuant to the Valero Energy Corporation 2011 Omnibus Stock Incentive Plan - incorporated byreference to Exhibit 10.19 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2011 (SEC File No. 1-13175). +10.20--Form of Stock Option Agreement pursuant to the Valero Energy Corporation 2011 Omnibus Stock Incentive Plan - incorporated byreference to Exhibit 10.21 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2011 (SEC File No. 1-13175). *+10.21--Form of Performance Stock Option Agreement pursuant to the Valero Energy Corporation 2011 Omnibus Stock Incentive Plan. +10.22--Form of Stock Option Agreement pursuant to the Valero Energy Corporation Non-Employee Director Stock Option Plan - incorporated byreference to Exhibit 10.04 to Valero’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 (SEC File No. 1-13175). +10.23--Form of Restricted Stock Agreement pursuant to the Valero Energy Corporation 2005 Omnibus Stock Incentive Plan - incorporated byreference to Exhibit 10.02 to Valero’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005 (SEC File No. 1-13175). +10.24--Form of Restricted Stock Agreement (with acceleration feature) pursuant to the Valero Energy Corporation 2011 Omnibus Stock IncentivePlan - incorporated by reference to Exhibit 10.24 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2011 (SEC FileNo. 1-13175). *+10.25--Form of Restricted Stock Agreement (without acceleration feature) pursuant to the Valero Energy Corporation 2011 Omnibus StockIncentive Plan.140 Table of Contents +10.26--Form of Restricted Stock Agreement pursuant to the Valero Energy Corporation Restricted Stock Plan for Non-Employee Directors -incorporated by reference to Exhibit 10.03 to Valero’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 (SEC FileNo. 1-13175). 10.27--$3,000,000,000 5-Year Amended and Restated Revolving Credit Agreement, dated as of December 5, 2011, among Valero EnergyCorporation, as Borrower; JPMorgan Chase Bank, N.A., as Administrative Agent; and the lenders named therein - incorporated byreference to Exhibit 10.26 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2011 (SEC File No. 1-13175). *12.01--Statements of Computations of Ratios of Earnings to Fixed Charges. 14.01--Code of Ethics for Senior Financial Officers - incorporated by reference to Exhibit 14.01 to Valero’s Annual Report on Form 10-K for theyear ended December 31, 2003 (SEC File No. 1-13175). *21.01--Valero Energy Corporation subsidiaries. *23.01--Consent of KPMG LLP dated February 28, 2013. *24.01--Power of Attorney dated February 28, 2013 (on the signature page of this Form 10-K). *31.01--Rule 13a-14(a) Certification (under Section 302 of the Sarbanes-Oxley Act of 2002) of principal executive officer. *31.02--Rule 13a-14(a) Certification (under Section 302 of the Sarbanes-Oxley Act of 2002) of principal financial officer. *32.01--Section 1350 Certifications (under Section 906 of the Sarbanes-Oxley Act of 2002). 99.01--Audit Committee Pre-Approval Policy - incorporated by reference to Exhibit 99.01 to Valero’s Annual Report on Form 10-K for the yearended December 31, 2011 (SEC File No. 1-13175). **101--Interactive Data Files______________*Filed herewith.+Identifies management contracts or compensatory plans or arrangements required to be filed as an exhibit hereto.**Submitted electronically herewith.Copies of exhibits filed with this Form 10-K may be obtained by stockholders of record at a charge of $0.15 per page, minimum $5.00 each request. Directinquiries to Valero Energy Corporation, Attn: Secretary, P.O. Box 696000, San Antonio, Texas 78269-6000.Pursuant to paragraph 601(b)(4)(iii)(A) of Regulation S-K, the registrant has omitted from the foregoing listing of exhibits, and hereby agrees to furnish to theSEC upon its request, copies of certain instruments, each relating to debt not exceeding 10 percent of the total assets of the registrant and its subsidiaries on aconsolidated basis.141 Table of ContentsSIGNATUREPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned, thereunto duly authorized. VALERO ENERGY CORPORATION(Registrant) By: /s/ William R. Klesse (William R. Klesse) Chief Executive Officer andChairman of the BoardDate: February 28, 2013142 Table of ContentsPOWER OF ATTORNEYKNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints William R. Klesse, Michael S.Ciskowski, and Jay D. Browning, or any of them, each with power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substitutionand resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all subsequent amendments and supplements to this Annual Report onForm 10-K, and to file the same, or cause to be filed the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and ExchangeCommission, granting unto each said attorney-in-fact and agent full power to do and perform each and every act and thing requisite and necessary to be done in and aboutthe premises, as fully to all intents and purposes as he might or could do in person, hereby qualifying and confirming all that said attorney-in-fact and agent or his substituteor substitutes may lawfully do or cause to be done by virtue hereof.Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in thecapacities and on the dates indicated.Signature Title Date /s/ William R. Klesse Chief Executive Officer andChairman of the Board(Principal Executive Officer) February 28, 2013 (William R. Klesse) /s/ Michael S. Ciskowski Executive Vice President and Chief Financial Officer(Principal Financial and Accounting Officer) February 28, 2013(Michael S. Ciskowski) /s/ Ronald K. Calgaard Director February 28, 2013(Ronald K. Calgaard) /s/ Jerry D. Choate Director February 28, 2013(Jerry D. Choate) /s/ Ruben M. Escobedo Director February 28, 2013(Ruben M. Escobedo) /s/ Deborah P. Majoras Director February 28, 2013(Deborah P. Majoras) /s/ Bob Marbut Director February 28, 2013(Bob Marbut) /s/ Donald L. Nickles Director February 28, 2013(Donald L. Nickles) /s/ Philip J. Pfeiffer Director February 28, 2013(Philip J. Pfeiffer) /s/ Robert A. Profusek Director February 28, 2013(Robert A. Profusek) /s/ Susan Kaufman Purcell Director February 28, 2013 (Susan Kaufman Purcell) /s/ Stephen M. Waters Director February 28, 2013(Stephen M. Waters) /s/ Randall J. Weisenburger Director February 28, 2013(Randall J. Weisenburger) /s/ Rayford Wilkins, Jr. Director February 28, 2013(Rayford Wilkins, Jr.) 143 Exhibit 3.09VALERO ENERGY CORPORATIONBYLAWS(Amended and Restated effective as of September 13, 2012)ARTICLE I.MEETINGS OF STOCKHOLDERSSection 1. Date, Time and Location of Annual Meeting. The annual meeting of stockholders shall be held at such date and time and at such place asshall be designated from time to time by the Board of Directors and stated in the notice of the meeting for the purposes of electing directors and oftransacting such other business as may properly come before the meeting. At least ten days’ notice shall be given to the stockholders of the date, timeand place so fixed. Any previously scheduled annual meeting of the stockholders may be postponed by resolution of the Board of Directors uponpublic notice given on or prior to the date previously scheduled for such annual meeting of stockholders.Section 2. Calling of Special Meetings. Except as otherwise provided by law or by the Restated Certificate of Incorporation of the Corporation, asfrom time to time amended (the “Restated Certificate of Incorporation”), special meetings of the stockholders may be called only by the ChiefExecutive Officer or by the Board of Directors pursuant to a resolution adopted by a majority of the directors which the Corporation would have ifthere were no vacancies. Upon written request of any person or persons who have duly called a special meeting, it shall be the duty of the Secretary tofix the date and time of the special meeting (which date shall be not less than ten nor more than sixty days after receipt of the request) and to give duenotice thereof. If the Secretary shall neglect or refuse to fix the date or time of the meeting or to give notice thereof, the person or persons calling themeeting may do so. Any such notice shall include a statement of the purpose or purposes for which the special meeting is called. Any previouslyscheduled special meeting of the stockholders may be postponed by resolution of the Board of Directors upon public notice given on or prior to thedate previously scheduled for such special meeting of stockholders.Section 3. Location of Special Meetings. Every special meeting of the stockholders shall be held at such place within or without the State ofDelaware as the Board of Directors may designate, or, in the absence of such designation, at the registered office of the Corporation in the State ofDelaware.Section 4. Notice. Written notice of every meeting of the stockholders shall be given by the Secretary to each stockholder of record entitled to vote atthe meeting, by placing such notice in the mail at least ten days, but not more than sixty days, prior to the date fixed for the meeting addressed to eachstockholder at his address appearing on the books of the Corporation or supplied by him to the Corporation for the purpose of notice.Section 5. Record Date. The Board of Directors may fix a date, which date shall not precede the date upon which the resolution fixing such recorddate is adopted by the Board of Directors, and which date shall be not less than ten nor more than sixty days preceding the date of any meeting ofstockholders, as a record date for the determination of stockholders entitled to notice of, or to vote at, any such meeting. The Board of Directors shallnot close the books of the Corporation against transfers of shares during the whole or any part of such period.- 1 - Section 6. Form of Proxy. The notice of every meeting of the stockholders may be accompanied by a form of proxy approved by the Board ofDirectors in favor of such person or persons as the Board of Directors may select.Section 7. Quorum and Voting.(a) Except as otherwise provided by law or by the Restated Certificate of Incorporation or by these Bylaws, at any meeting of stockholdersthe presence in person or by proxy of the holders of the outstanding shares of stock of the Corporation entitled to vote thereat and having a majority ofthe voting power with respect to a subject matter shall constitute a quorum for the transaction of business as to that subject matter, and all questionswith respect to a subject matter, except the election of directors, shall be decided by vote of the shares having a majority of the voting power sorepresented in person or by proxy at the meeting and entitled to vote thereat. The stockholders present at any duly organized meeting may continue todo business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.(b) Every stockholder having the right to vote shall be entitled to vote in person, or by proxy appointed by an instrument in writingsubscribed by such stockholder (which for purposes hereof may include a signature and form of proxy pursuant to a facsimile or telegraphic form ofproxy or any other instrument acceptable to the duly appointed inspector or inspectors of such election), bearing a date not more than three years priorto voting, unless such instrument provides for a longer period, and filed with the Secretary of the Corporation before, or at the time of, the meeting,or by such other method as may be permitted under the General Corporation Law of the State of Delaware, as the same exists or may hereafter beamended (the “DGCL”), and approved by the Board of Directors. If such instrument shall designate two or more persons to act as proxies, unlesssuch instrument shall provide to the contrary, a majority of such persons present at any meeting at which their powers thereunder are to be exercisedshall have and may exercise all the powers of voting thereby conferred, or if only one be present, then such powers may be exercised by that one; or,if an even number attend and a majority do not agree on any particular issue, each proxy so attending shall be entitled to exercise such powers inrespect of the same portion of the shares as he is of the proxies representing such shares.(c) Any other corporation owning voting shares in the Corporation may vote the same by its President or by proxy appointed by him, unlesssome other person shall be appointed to vote such shares by resolution of the Board of Directors of such shareholder corporation. A partnershipholding shares of the Corporation may vote such shares by any general partner or by proxy appointed by any general partner.(d) Shares standing in the name of a deceased person may be voted by the executor or administrator of such deceased person, either inperson or by proxy. Shares standing in the name of a guardian, conservator or trustee may be voted by such fiduciary, either in person or by proxy,but no such fiduciary shall be entitled to vote shares held in such fiduciary capacity without a transfer of such shares into the name of such fiduciary.Shares standing in the name of a receiver may be voted by such receiver. A stockholder whose shares are pledged shall be entitled to vote such shares,unless in the transfer by the pledgor on the books of the Corporation, he has expressly empowered the pledgee to vote thereon, in which case only thepledgee, or his proxy, may represent the stock and vote thereon.Section 8. Adjournment. Except as otherwise provided by law or by the Restated Certificate of Incorporation, the presiding officer of any meeting orthe holders of a majority of the shares of stock of the Corporation entitled to vote at such meeting, present in person or represented by proxy, whethera quorum is present, shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting. At anysuch adjourned meeting at which a quorum shall be present any action may be taken- 2 - that could have been taken at the meeting originally called; provided, that if the adjournment is for more than thirty days or if after the adjournment anew record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote atthe adjourned meeting.Section 9. Nominations and Proposals for Annual Meetings of Stockholders.(a) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be considered by thestockholders may be made at an annual meeting of stockholders (i) pursuant to the Corporation’s notice of meeting, (ii) by or at the direction of theBoard of Directors, or (iii) by any stockholder of the Corporation who (A) was a stockholder of record at the time of giving of the notice providedfor in this Section 9 and at the time of the annual meeting, (B) is entitled to vote with respect to such matter at the meeting, and (C) complies with thenotice procedures set forth in this Section 9. At any annual meeting of stockholders, the presiding officer of such meeting may announce thenominations and other business to be considered which are set forth in the Corporation’s notice of meeting and proxy statement and, by virtue thereof,such nominations and other business so announced shall be properly before such meeting and may be considered and voted upon by the stockholdersof the Corporation entitled to vote thereat without further requirement of nomination, motion or second.(b) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) ofParagraph (a) of this Section 9, the stockholder making such nominations or proposing such other business must theretofore have given timely noticethereof in writing to the Secretary of the Corporation and such other business must otherwise be a proper matter for stockholder action. To be timely, astockholder’s notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the60th day nor earlier than the close of business on the 90th day prior to the first anniversary of the preceding year’s annual meeting; provided, however,that in the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by thestockholder to be timely must be so delivered not earlier than the close of business on the 90th day prior to such annual meeting and not later than theclose of business on the later of the 60th day prior to such annual meeting or the 10th day following the day on which public announcement of thedate of such meeting is first made by the Corporation. In no event shall the public announcement of an adjournment of an annual meeting commence anew time period for the giving of a stockholder’s notice as described above. To be in proper form, a stockholder’s notice to the Secretary must:(i) set forth, as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal ismade (A) the name and address of such stockholder, as they appear on the Corporation’s books, and of such beneficial owner, if any,(B) the class or series and number of shares of the Corporation that are owned beneficially and of record by such stockholder and suchbeneficial owner, if any, as of the date of such notice (which information shall be supplemented by such stockholder and beneficial ownernot later than 10 days after the record date for the meeting to disclose such ownership as of the record date), and (C) any other informationrelating to such stockholder and beneficial owner that would be required to be disclosed in a proxy statement or other filings required to bemade in connection with solicitations of proxies for, as applicable, the proposal and/or for the election of directors in a contested electionpursuant to Section 14 of the Securities Exchange Act of 1934, as amended and the rules and regulations promulgated thereunder (the“Exchange Act”);(ii) if the notice relates to any business other than the nomination of a director that the stockholder proposes to bring before themeeting, set forth (A) a brief description of the business desired to be brought before the meeting, the reasons for conducting such businessat the meeting- 3 - and any material interest of such stockholder and beneficial owner, if any, in such business, and (B) a description of all agreements,arrangements and understandings between such stockholder and beneficial owner and any other person or persons (including their names) inconnection with the proposal of such business by such stockholder;(iii) set forth, as to each person, if any, whom the stockholder proposes to nominate for election or reelection as a director (A) allinformation relating to such person that would be required to be disclosed in a proxy statement or other filings required to be made inconnection with solicitations of proxies for election of directors in a contested election pursuant to Section 14 of the Exchange Act(including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected) and (B) adescription of all direct and indirect compensation and other monetary agreements, arrangements and understandings during the past threeyears, and any other relationships, between or among such stockholder and beneficial owner, if any, and their respective affiliates andassociates, or others acting in concert therewith, on the one hand, and each proposed nominee, and his or her respective affiliates andassociates, or others acting on concert therewith, on the other hand, including , without limitation all information that would be required to bedisclosed pursuant to Rule 404 promulgated under Regulation S-K if the stockholder making the nomination and any beneficial owner onwhose behalf the nomination is made, if any, or any affiliate or associate thereof or person acting in concert therewith, were the “registrant”for purposes of such rule and the nominee were a director or executive officer of such registrant; and(iv) with respect to each nominee for election or reelection to the Board of Directors, include the completed and signedquestionnaire, representation and agreement required by Section 13 of this Article I. The Corporation may require any proposed nominee tofurnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee toserve as an independent director of the Corporation or that could be material to a reasonable stockholder’s understanding of the independence,or lack thereof, of such nominee.(c) Notwithstanding anything in the second sentence of Paragraph (b) of this Section 9 to the contrary, in the event that the number ofdirectors to be elected to the Board of Directors of the Corporation at an annual meeting is increased, whether by increase in the size of the Board ofDirectors, or by any vacancy in the Board of Directors to be filled at such annual meeting, and there is no public announcement by the Corporationnaming all of the nominees for director or specifying the size of the increased Board of Directors at least 70 days prior to the first anniversary of thepreceding year’s annual meeting, a stockholder’s notice required by this Section 9 shall also be considered timely, but only with respect to nomineesfor such vacant positions and for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive officesof the Corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by theCorporation.Section 10. Special Meetings of Stockholders. Only such business shall be conducted at a special meeting of stockholders as shall have been broughtbefore the meeting pursuant to the Corporation’s notice of meeting. Nominations of persons for election to the Board of Directors may be made at aspecial meeting of stockholders at which directors are to be elected pursuant to the Corporation’s notice of meeting (a) by or at the direction of theBoard of Directors or (b) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any stockholder ofthe Corporation who (i) is a stockholder of record at the time of giving of notice provided for in this Section 10 and at the time of the special meeting,(ii) is entitled to vote at the meeting and (iii) complies with the notice procedures set forth in this Section 10. In the event the Corporation calls aspecial meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder may nominate aperson or persons (as the case may be), for- 4 - election to such position(s) as specified in the Corporation’s notice of meeting, if the stockholder’s notice required by Paragraph (b) of Section 9 ofthis Article I (including the completed and signed questionnaire, representation and agreement required by Section 13 of this Article I) shall bedelivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the 90th day prior to suchspecial meeting and not later than the close of business on the later of the 60th day prior to such special meeting or the 10th day following the day onwhich public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected atsuch meeting. In no event shall the public announcement of an adjournment of a special meeting commence a new time period for the giving of astockholder’s notice as described above.Section 11. General.(a) Only such persons who are nominated in accordance with the procedures set forth in Sections 9 and 10 of this Article I shall be eligibleto serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting inaccordance with the procedures set forth therein. Except as otherwise provided by law, the Restated Certificate of Incorporation or these Bylaws, thepresiding officer of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before themeeting was made or proposed, as the case may be, in accordance with the procedures set forth in these Bylaws, and if any proposed nomination orbusiness is not in compliance with these Bylaws, to declare that such defective proposal shall be disregarded.(b) For purposes of Sections 9 and 10 of this Article I, “public announcement” shall mean disclosure in a press release reported by theDow Jones News Services, Associated Press, Reuters or comparable national news service or in a document publicly filed by the Corporation withthe Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.(c) Notwithstanding the provisions of Sections 9, 10 and 11 of this Article I, a stockholder shall also comply with all applicablerequirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth herein. Nothing in these Bylaws shallbe deemed to affect any rights (i) of stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 underthe Exchange Act or (ii) of the holders of any class or series of Preferred Stock of the Corporation if and to the extent provided under law, theRestated Certificate of Incorporation or these Bylaws.Section 12. Required Vote for Directors.(a) Majority Vote. Each director to be elected by stockholders shall be elected by the vote of the majority of the votes cast at any meetingfor the election of directors at which a quorum is present. For purposes of this Section 12, a majority of votes cast shall mean that the number ofshares voted “for” a director’s election exceeds 50% of the number of votes cast with respect to that director’s election. Votes cast shall include votesto withhold authority in each case and exclude abstentions with respect to that director’s election. Notwithstanding the foregoing, in the event of acontested election of directors, directors shall be elected by the vote of a plurality of the votes cast at any meeting for the election of directors at whicha quorum is present. For purposes of this Bylaw, a contested election shall mean any election of directors in which the number of candidates forelection as directors exceeds the number of directors to be elected.(b) Resignation. If a nominee for director who is an incumbent director is not elected and no successor has been elected at such meeting,the director shall promptly tender his or her resignation to the Board of Directors. The Nominating/Governance Committee shall make arecommendation to the Board of Directors as to whether to accept or reject the tendered resignation, or whether other action should be- 5 - taken. The Board of Directors shall act on the tendered resignation, taking into account the Nominating/Governance Committee’s recommendation,and publicly disclose (by a press release, a filing with the Securities and Exchange Commission or other broadly disseminated means ofcommunication) its decision regarding the tendered resignation and the rationale behind the Board’s decision within 90 days from the date of thecertification of the election results. The Nominating/Governance Committee in making its recommendation, and the Board of Directors in making itsdecision, may each consider any factors or other information that it considers appropriate and relevant. The director who tenders his or her resignationshall not participate in the recommendation of the Nominating/Governance Committee or the decision of the Board of Directors with respect to his orher resignation. If such incumbent director’s resignation is not accepted by the Board of Directors, such director shall continue to serve until the nextannual meeting and until his or her successor is duly elected, or his or her earlier resignation or removal. If a director’s resignation is accepted by theBoard of Directors pursuant to this Section 12, or if a nominee for director is not elected and the nominee is not an incumbent director, then the Boardof Directors, in its sole discretion, may fill any resulting vacancy pursuant to the provisions of Section 2 of Article II or may decrease the size of theBoard of Directors pursuant to the provisions of Section 1 of Article II of these Bylaws.Section 13. Submission of Questionnaire, Representation and Agreement. To be eligible to be a nominee for election or reelection as a director of theCorporation, a person must deliver (in accordance with the time periods prescribed for delivery of notice under Sections 9 and 10 above) to theSecretary of the Corporation at the principal executive offices of the Corporation a written and signed questionnaire (in the form customarily used bythe Corporation for its directors) with respect to the background and qualification of such person and the background of any other person or entity onwhose behalf the nomination is being made (which questionnaire shall be provided by the Secretary upon written request) and a written representationand agreement (in the form provided by the Secretary upon written request) that such person:(a) will abide by the requirements of Section 12 of this Article I,(b) is not and will not become a party to (i) any agreement, arrangement or understanding with, and has not given any commitment orassurance to, any person or entity as to how such person, if elected as a director of the Corporation, will act or vote on any issue or question (a“Voting Commitment”) that has not been disclosed to the Corporation or (ii) any Voting Commitment that could limit or interfere with such persons’ability to comply, if elected as a director of the Corporation, with such person’s fiduciary duties under applicable law,(c) is not and will not become a party to any agreement, arrangement or understanding with any person or entity other than the Corporationwith respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a director that has notbeen disclosed therein,(d) in such person’s individual capacity and on behalf of any person or entity on whose behalf the nomination is being made, would be incompliance, if elected as a director of the Corporation, and will comply with all applicable publicly disclosed corporate governance, conflict ofinterest, confidentiality and stock ownership and trading policies and guidelines of the Corporation.Section 14. Written Consent in Lieu of Meeting Not Permitted. In accordance with Article VI of the Restated Certificate of Incorporation, thestockholders shall not be entitled to consent to corporate action in writing without a meeting.- 6 - ARTICLE II.BOARD OF DIRECTORSSection 1. Management, Composition, Classification. The business and affairs of the Corporation shall be managed by or under the direction of theBoard of Directors. Except as otherwise fixed pursuant to the provisions of the Restated Certificate of Incorporation relating to the rights of theholders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect additional directorsunder specified circumstances, the number of directors shall be as fixed in such manner as may be determined by the vote of not less than a majorityof the directors then in office, but shall not be less than five nor more than thirteen directors. The directors shall be elected as provided in the RestatedCertificate of Incorporation at the annual meeting of stockholders, except as provided in Section 2 of this Article II. Each director shall hold officefor the full term to which he shall have been elected and until his successor is duly elected and shall qualify, or until his earlier death, resignation orremoval. A director need not be a resident of the State of Delaware or a stockholder of the Corporation.Section 2. Vacancy. Any vacancy in the Board of Directors, including vacancies resulting from an increase in the number of directors, shall be filledby a majority of the remaining members of the Board, though less than a quorum. Subject to the foregoing, directors elected to fill a vacancy shallhold office for a term expiring at the next annual meeting of stockholders at which directors are elected.Section 3. Resignation. Any director may resign at any time by written notice to the Corporation. Any such resignation shall take effect at the date ofreceipt of such notice or at any later time specified therein, and, unless otherwise specified therein, the acceptance of such resignation shall not benecessary to make it effective.Section 4. Regular Meetings. Regular meetings of the Board of Directors shall be held at such place or places within or without the State ofDelaware, at such hour and on such day as may be fixed by resolution of the Board of Directors, without further notice of such meetings. The timeor place of holding regular meetings of the Board of Directors may be changed by the Chairman of the Board or the Chief Executive Officer bygiving written notice thereof as provided in Section 6 of this Article II.Section 5. Special Meetings. Special meetings of the Board of Directors shall be held, whenever called by the Chairman of the Board or the ChiefExecutive Officer, by a majority of the Board of Directors or by resolution adopted by the Board of Directors, at such place or places within orwithout the State of Delaware as may be stated in the notice of the meeting.Section 6. Notice. Written notice of the time and place of all special meetings of the Board of Directors, and written notice of any change in the timeor place of holding the regular meetings of the Board of Directors, shall be given to each director either personally or by mail, telephone, expressdelivery service, facsimile, telex or similar means of communication at least one day before the date of the meeting; provided, however, that notice ofany meeting need not be given to any director if waived by him in writing, or if he shall be present at such meeting.Section 7. Quorum, Majority Vote, Participation. A majority of the directors in office shall constitute a quorum of the Board of Directors for thetransaction of business; but a lesser number may adjourn from day to day until a quorum is present. The directors present at a duly organized meetingmay continue to transact business until adjournment, notwithstanding the withdrawal of enough directors to leave less than a quorum, providedhowever, that such remaining directors constitute not less than one‑third of the total number of directors. Except as otherwise provided by law or inthese Bylaws, all questions shall be decided by the- 7 - vote of a majority of the directors present. Directors may participate in any meeting of the directors, and members of any committee of directors mayparticipate in any meeting of such committee, by means of conference telephone or similar communications equipment by means of which all personsparticipating in such meeting can hear each other, and such participation shall constitute presence in person at any such meeting.Section 8. Written Consent in Lieu of Meeting. Any action which may be taken at a meeting of the directors or members of any committee ofdirectors may be taken without a meeting if a consent in writing setting forth the action so taken shall be signed by all of the directors or members ofsuch committee of directors, as the case may be, and shall be filed with the Secretary.Section 9. Compensation. Directors shall be entitled to such compensation for their services as may be approved by the Board of Directors,including, if so approved by resolution of the Board of Directors, a fixed sum and expenses of attendance, if any, for attendance at each regular orspecial meeting of the Board of Directors or any meeting of a committee of directors. No provision of these Bylaws shall be construed to precludeany director from serving the Corporation in any other capacity and receiving compensation therefor.Section 10. Removal. Subject to the rights of the holders of any series of Preferred Stock with respect to such series of Preferred Stock, anydirector, or the entire Board of Directors, may be removed from office at any time, but only for cause and only by the affirmative vote of the holdersof at least 60 percent of the voting power of all of the then-outstanding shares of voting stock, voting together as a single class.ARTICLE III.COMMITTEES OF DIRECTORSSection 1. Committees. The Board of Directors may, by resolution adopted by a majority of the whole Board, designate one or more committees ofthe Board as they shall so determine. The Board, by resolution adopted by a majority of the whole Board, shall designate an Executive Committee, anAudit Committee, a Compensation Committee and a Nominating/Governance Committee. Each of the Executive Committee, Audit Committee,Compensation Committee, Nominating/Governance Committee, and any other committee created by the Board shall adopt and publish a written charterdescribing the committee’s duties and responsibilities in accordance with applicable securities laws, the requirements of any exchange on which theCorporation’s common stock is listed and the resolutions adopted by the Board applicable to such committee. Any committee of the Board designatedby the Board of Directors shall consist of one or more of the directors of the Corporation.Section 2. Authority. Any committee of the Board designated by the Board of Directors shall have and may, except as otherwise limited by statute, theRestated Certificate of Incorporation or these Bylaws, exercise such powers and authority of the Board of Directors in the management of thebusiness of the Corporation as may be provided in the resolution adopted by the Board of Directors designating such committee of the Board ofDirectors and in the committee’s charter (if the committee has adopted a charter). Each committee of the Board of Directors may authorize the seal ofthe Corporation to be affixed to all papers that may require it. The Board of Directors may designate one or more directors as alternate members of anycommittee of the Board of Directors who may replace any absent or disqualified member at any meeting of such committee. In the absence ordisqualification of any member of such committee or committees, the member or members thereof present at any meeting and not disqualified fromvoting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act atthe meeting in the place of any such absent or disqualified member.- 8 - Section 3. Executive Committee. The Executive Committee, during intervals between meetings of the Board of Directors and while the Board is notin session, shall have and exercise all the powers and authority of the Board of Directors in the management of the business and affairs of theCorporation (except as such powers and authority may be limited by law, regulation, the Restated Certificate of Incorporation, these Bylaws or therules of any exchange on which the Corporation’s common stock is traded), and shall otherwise have the powers, duties and responsibilities set forthin its charter.Section 4. Audit Committee. The Audit Committee shall have the powers, duties and responsibilities set forth in its charter.Section 5. Compensation Committee. The Compensation Committee shall review the Corporation’s compensation policies and programs and assist theBoard with its responsibilities relating to compensation of the Corporation’s executives and directors, and shall otherwise have the powers, duties andresponsibilities set forth in its charter. The Compensation Committee may also delegate to the Chief Executive Officer or such other executive officeras the Compensation Committee may determine the authority to approve and cause to be placed into effect amendments to employee benefit plansdeemed necessary or appropriate in order to comply with any applicable federal or state statute or regulation or otherwise deemed advisable by theChief Executive Officer or such other executive officer as the Compensation Committee may determine, provided however, that each suchamendment or related series of amendments so approved shall involve costs to the Corporation not exceeding the expenditure approval authority of theChief Executive Officer as established from time to time by the Board, and provided further, that neither the Chief Executive Officer nor any suchother executive officer shall have the authority to approve any such amendment if such amendment would (a) materially increase the benefits accruingto participants under such plan, (b) materially modify the requirements for eligibility for participation in such plan, (c) increase the securities issuableunder such plan or (d) require stockholder approval under any provision of the Restated Certificate of Incorporation, these Bylaws, or any federal orstate statute or regulation or the rules of the New York Stock Exchange.Section 6. Nominating/Governance Committee. The Nominating/Governance Committee shall have the powers, duties and responsibilities set forth inits charter.Section 7. Minutes. Each committee of directors shall keep regular minutes of its proceedings and report the same to the Board of Directors whenrequired.Section 8. Compensation. Members of special or standing committees of the Board shall be entitled to receive such compensation for serving on suchcommittees as the Board of Directors shall determine.ARTICLE IV.CHAIRMAN OF THE BOARDThe Chairman of the Board of Directors, if there be one, shall be elected from among the directors, shall have the power to preside at all meetings ofthe Board of Directors and to sign (together with the Secretary or an Assistant Secretary) certificates for shares of the Corporation, and shall havesuch other powers and shall be subject to such other duties as the Board of Directors may from time to time prescribe.- 9 - ARTICLE V.OFFICERSSection 1. Officers. The officers of the Corporation shall consist of a Chief Executive Officer, a President, one or more Vice Presidents, any one ormore of which may be designated an Executive Vice President or a Senior Vice President, a Chief Financial Officer, a Secretary, a Treasurer and aController. The Board of Directors may appoint such other officers and agents, including Assistant Vice Presidents, Assistant Secretaries andAssistant Treasurers, as it shall deem necessary, who shall hold their offices for such terms and shall exercise such powers and perform such dutiesas shall be determined by the Board of Directors. Any two or more offices may be held by the same person.Section 2. Election of Officers. The officers of the Corporation shall be elected annually by the Board of Directors at a regular meeting of the Boardof Directors held immediately prior to, or immediately following, the annual meeting of stockholders, or as soon thereafter as conveniently possible.Each officer shall hold office until his successor shall have been chosen and shall have qualified or until his death or the effective date of hisresignation or removal.Section 3. Removal. Any officer or agent elected or appointed by the Board of Directors or the Executive Committee may be removed without causeby the Board of Directors whenever, in its judgment, the best interests of the Corporation shall be served thereby, but such removal shall be withoutprejudice to the contractual rights, if any, of the person so removed. Any officer may resign at any time by giving written notice to the Corporation.Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein, and unless otherwise specifiedtherein, the acceptance of such resignation shall not be necessary to make it effective.Section 4. Vacancy. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise, may be filled by the Boardof Directors for the unexpired portion of the term.Section 5. Salary. The salaries of all officers and agents of the Corporation shall be fixed by the Board of Directors or pursuant to its direction, andno officer shall be prevented from receiving such salary by reason of his also being a director.Section 6. Authority. The Chief Executive Officer, the President and each Vice President shall have authority to sign any deeds, bonds, mortgages,guarantees, indemnities, contracts, checks, notes, drafts or other instruments authorized to be executed by the Board of Directors or any dulyauthorized committee thereof, or if so authorized in any approval authority policy or procedure adopted by or at the direction of the Board ofDirectors, or if not inconsistent with the Restated Certificate of Incorporation, these Bylaws, any action of the Board of Directors or any dulyauthorized committee thereof or any such policy or procedure, and, together with the Secretary or any other officer of the Corporation thereuntoauthorized by the Board or the Executive Committee, may sign any certificates for shares of the Corporation which the Board of Directors or theExecutive Committee has authorized to be issued, except in cases where the signing and execution of any such instrument or certificate has beenexpressly delegated by these Bylaws or by the Board or the Executive Committee to some other officer or agent of the Corporation or shall be requiredby law to be otherwise executed.Section 7. Chief Executive Officer. The Chief Executive Officer shall serve as general manager of the business and affairs of the Corporation andshall report directly to the Board of Directors, with all other officers, officials, employees and agents reporting directly or indirectly to him. TheChief Executive Officer shall preside at all meetings of the stockholders. In the absence of the Chairman of the Board, or if there is- 10 - no Chairman of the Board, the Chief Executive Officer shall also preside at all meetings of the Board of Directors unless the Board of Directors shallhave chosen another presiding officer. The Chief Executive Officer shall formulate and submit to the Board of Directors or the Executive Committeematters of general policy for the Corporation; he shall keep the Board of Directors and Executive Committee fully informed and shall consult withthem concerning the business of the Corporation. Subject to the supervision, approval and review of his actions by the Board of Directors, the ChiefExecutive Officer shall have authority to cause the employment or appointment of and the discharge of assistant officers, employees and agents ofthe Corporation, and to fix their compensation; and to suspend for cause, pending final action by the Board of Directors or Executive Committee,any officer subordinate to the Chief Executive Officer. The Chief Executive Officer shall vote, or give a proxy to any other officer of theCorporation to vote, all shares of stock of any other corporation (or any partnership or other interest in any partnership or other enterprise) standing inthe name of the Corporation, and in general he shall perform all other duties normally incident to such office and such other duties as may beprescribed from time to time by the Board of Directors or the Executive Committee. The Chief Executive Officer shall designate the person orpersons who shall exercise his powers and perform his duties in his absence or disability and the absence or disability of the President.Section 8. President. The President shall in general supervise and control the business operations of the Corporation subject to the control of the Boardof Directors and Chief Executive Officer. In the absence of the Chairman of the Board and the Chief Executive Officer, the President shall preside atall meetings of the Board of Directors and, in the absence of the Chief Executive Officer, he shall preside at all meetings of the stockholders of theCorporation, unless in either case the Board of Directors shall have chosen another presiding officer. He shall keep the Chief Executive Officer fullyinformed and shall consult with him concerning the business of the Corporation. He shall perform all other duties normally incident to such office andsuch other duties as may be prescribed from time to time by the Board of Directors, the Executive Committee or the Chief Executive Officer. In theabsence or disability of the Chief Executive Officer, the President shall exercise the powers and perform the duties of the Chief Executive Officer,unless such authority shall have been designated by the Board of Directors, Executive Committee or Chief Executive Officer to another person.Section 9. Vice Presidents. The Vice Presidents shall perform all duties normally incident to such office and such other duties as may be prescribedfrom time to time by the Board of Directors, the Executive Committee, the Chief Executive Officer or the President.Section 10. General Counsel, Chief Legal Officer. The Chief Executive Officer shall appoint a general counsel or chief legal officer of theCorporation, who shall have charge of all matters of legal importance to the Corporation and shall keep the Board of Directors, the ExecutiveCommittee, the Chief Executive Officer and the President advised of the character and progress of all legal proceedings and claims by and against theCorporation, or in which it is interested by reason of its ownership of or affiliation with other corporations or entities; when requested by the Board ofDirectors, the Executive Committee, the Chief Executive Officer or the President, render his opinion upon any subjects of interest to the Corporationwhich may be referred to him; monitor activities of the Corporation to assure that the Corporation complies with the laws applicable to the Corporationand in general perform all other duties normally incident to such office and such other duties as may be prescribed from time to time by the Board ofDirectors, the Executive Committee, the Chief Executive Officer or the President.Section 11. Chief Financial Officer. The Chief Financial Officer shall be the principal financial officer of the Corporation and, unless the Board ofDirectors shall so designate another officer, shall also be the principal accounting officer of the Corporation. The Chief Financial Officer shall ingeneral supervise and control the keeping and maintaining of proper and correct accounts of the Corporation’s assets, liabilities, receipts,- 11 - disbursements, gains, losses, capital, surplus, shares, properties and business transactions, as well as all funds, securities, evidences of indebtednessand other valuable documents of the Corporation. He shall keep the Chief Executive Officer fully informed and shall consult with him concerningfinancial matters affecting the Corporation and shall render such reports to the Board of Directors, the Executive Committee, the Chief ExecutiveOfficer or the President as they may request. He shall perform all other duties normally incident to such office and such other duties as may beprescribed from time to time by the Board of Directors, the Executive Committee, the Chief Executive Officer or the President.Section 12. Secretary. The Secretary shall attend, and record and have custody of, the minutes of the meetings of the stockholders, the Board ofDirectors and committees of directors; see that all notices are duly given in accordance with the provisions of these Bylaws and as required by law; becustodian of the corporate records and of the seal of the Corporation; sign with the Chairman of the Board, the President or a Vice President,certificates for shares of the Corporation, the issue of which shall have been authorized by resolution of the Board of Directors or the ExecutiveCommittee; and in general, perform all duties normally incident to such office and such other duties as may be prescribed from time to time by theBoard of Directors, the Executive Committee, the Chief Executive Officer or the President.Section 13. Treasurer. The Treasurer shall have charge and custody of and be responsible for all funds of the Corporation; and in general, perform allthe duties incident to such office and such other duties as may be prescribed from time to time by the Board of Directors, the Executive Committee,the Chief Executive Officer or the President.Section 14. Controller. The Controller shall have charge and supervision of and be responsible for the accounting function of the Corporation and, ingeneral perform all duties incident to such office and such other duties as may be prescribed from time to time by the Board of Directors, theExecutive Committee, Chief Executive Officer or the President.ARTICLE VI.SEALThe seal of the Corporation shall be in such form as the Board of Directors shall prescribe.ARTICLE VII.CERTIFICATES OF STOCKThe shares of stock of the Corporation shall be represented by certificates of stock, provided, however, that the Board of Directors may provide byresolution or resolutions that some or all of any or all classes or series of the Corporation’s stock may be uncertificated shares. Owners of shares ofthe stock of the Corporation shall be recorded in the share transfer records of the Corporation and ownership of such shares shall be evidenced by acertificate or book entry notation in the share transfer records of the Corporation. Any certificates representing shares of stock of the Corporationshall be signed by the Chairman of the Board, the President or such Vice President or other officer as may be designated by the Board of Directors orthe Executive Committee, and countersigned by the Secretary or an Assistant Secretary, and if such certificates of stock are signed or countersignedby a transfer agent other than the Corporation, or by a registrar other than the Corporation, such signature of the Chairman of the Board, President,Vice President, or other officer, and such countersignature of the Secretary or an Assistant Secretary, or any of them, may be executed in facsimile,engraved or printed. In case any officer who has signed or whose facsimile signature has been placed upon any share certificate shall have ceased tobe such officer because of death, resignation or otherwise before the certificate is issued, it may be issued by the Corporation with the same effect asif the officer had- 12 - not ceased to be such at the date of its issuance. Said certificate of stock shall be in such form as the Board of Directors may from time to timeprescribe.ARTICLE VIII.INDEMNIFICATIONSection 1. Each director or officer of the Corporation who was or is made a party or is threatened to be made a party to or is involved in anythreatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a “proceeding”), byreason of the fact that he, or a person of whom he is the legal representative, is or was a director or officer of the Corporation or is or was serving atthe request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, non-profit orcharitable organization, or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is allegedaction in an official capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to thefullest extent authorized by the DGCL (but, in the case of any amendment thereto, only to the extent that such amendment permits the Corporation toprovide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), against all expenses (includingattorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection therewith and suchindemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his heirs,executors and administrators. The right to indemnification conferred in this Section shall be a contract right and shall include the right to be paid bythe Corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the DGCLrequires, the payment of such expenses incurred by a director or officer in his capacity as a director or officer (but not in any other capacity in whichservice was or is rendered by such person while a director or officer, including, without limitation, service with respect to an employee benefit plan)in advance of the final disposition of a proceeding shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of suchdirector or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnifiedunder the applicable provisions of the DGCL. The Corporation may, by action of its Board of Directors or as required pursuant to the RestatedCertificate of Incorporation, provide indemnification to employees and agents of the Corporation with the same scope and effect as the foregoingindemnification of directors and officers.Section 2. The indemnification and advancement of expenses provided herein shall not be deemed exclusive of any other rights to which thoseseeking indemnification or advancement of expenses may be entitled under any agreement, vote of stockholders, vote of disinterested directors,insurance arrangement or otherwise, both as to action in his official capacity and as to action in another capacity or holding such office.ARTICLE IX.AMENDMENTSThese Bylaws may be altered, amended, added to or repealed by the Board of Directors, acting by a majority vote of the members of the Board ofDirectors in office, or by the stockholders having voting power with respect thereto, provided that in the case of amendments by stockholders, theaffirmative vote of the holders of at least 80 percent of the voting power of the then outstanding voting stock, voting together as a single class, shallbe required to alter, amend or repeal any provision of the Bylaws.- 13 - Exhibit 10.17AMENDMENT TO REPLACE TAX GROSS UPWITH ALTERNATIVE CAPIN CHANGE OF CONTROLSEVERANCE AGREEMENTAMENDMENT to Replace Tax Gross Up with Alternative Cap in Change of Control Severance Agreement, dated as of the7th day of January, 2013 (the “Amendment”), by and between Valero Energy Corporation, a Delaware corporation (the“Company”), and William R. Klesse (the “Executive”).WHEREAS, the Company and Executive previously entered into that certain Change of Control Severance Agreement datedJanuary 18, 2007 (the “Agreement”) and have determined that for good and valuable consideration, it is in the best interests of theCompany to amend the Agreement to replace the tax gross up payment provisions contained in Section 8 of the Agreement with analternative cap on parachutes, as reflected in the amendment of Section 8 below.NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:Section 8 of the Agreement (shown below) is hereby amended in its entirety by replacing and superseding the former terms of Section8 with the terms provided below, as follows:Section 8. Potential Limitation on Payments.(a)Anything in this Agreement to the contrary notwithstanding, if it shall be determined that any payment ordistribution by the Company or its Affiliated Companies to or for the benefit of the Executive (whether paid or payable ordistributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to anyadditional payments required under this Section 8) (all such payments and benefits, including the payments and benefits underSection 5 hereof, being hereinafter referred to as the “Total Payments”) would be subject to the excise tax imposed bySection 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (suchexcise tax, together with any such interest and penalties, collectively the “Excise Tax”), then, after taking into account anyreduction in the Total Payments provided by reason of Section 280G of the Code in such other plan, arrangement oragreement, the payments under this Agreement shall be reduced in the order specified below, to the extent necessary so thatno portion of the Total Payments is subject to the Excise Tax but only if (i) the net amount of such Total Payments, as soreduced (and after subtracting the net amount of federal, state and local income taxes on such reduced Total Payments andafter taking into account the phase out of itemized deductions and personal exemptions attributable to such reduced TotalPayments) is greater than or equal to (ii) the net amount of such Total Payments without such reduction (but after subtractingthe net amount of federal, state and local income taxes on such Total Payments and the amount of Excise Tax to which theExecutive would be subject in respect of such unreduced Total Payments1 and after taking into account the phase out of itemized deductions and personal exemptions attributable to such unreducedTotal Payments). The payments and benefits under this Plan shall be reduced in the following order: (A) reduction of any cashseverance payments otherwise payable to the Executive that are exempt from Section 409A of the Code; (B) reduction of anyother cash payments or benefits otherwise payable to the Executive that are exempt from Section 409A of the Code, butexcluding any payments attributable to any acceleration of vesting or payments with respect to any equity award that areexempt from Section 409A of the Code; (C) reduction of any other payments or benefits otherwise payable to the Executiveon a pro-rata basis or such other manner that complies with Section 409A of the Code, but excluding any paymentsattributable to any acceleration of vesting and payments with respect to any equity award that are exempt from Section 409Aof the Code; and (D) reduction of any payments attributable to any acceleration of vesting or payments with respect to anyequity award that are exempt from Section 409A of the Code, in each case beginning with payments that would otherwise bemade last in time.(b)Subject to the provisions of Section 8(c) hereof, all determinations required to be made under this Section 8,including whether and when Total Payments should be reduced, the amount of such Total Payments, Excise Taxes and allother related determinations, as well as all assumptions to be utilized in arriving at such determinations, shall be made by Ernst& Young, LLP, or such other nationally recognized certified public accounting firm as may be designated by the Executive,subject to the Company’s approval which will not be unreasonably withheld (the “Accounting Firm”). The AccountingFirm shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of thereceipt of notice from the Executive that there has been a Payment or such earlier time as is requested by the Company. In theevent that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change ofControl, the Executive, subject to the Company’s approval which will not be unreasonably withheld, may appoint anothernationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then bereferred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by theCompany. Any determination by the Accounting Firm shall be binding upon the Company and the Executive.(c)For purposes of determining whether and the extent to which the Total Payments will be subject to theExcise Tax, (i) no portion of the Total Payments the receipt or enjoyment of which the Executive shall have waived at suchtime and in such manner as not to constitute a “payment” within the meaning of Section 280G(b) of the Code shall be takeninto account; (ii) no portion of the Total Payments shall be taken into account which, in the written opinion of the AccountingFirm, does not constitute a “parachute payment” within the meaning of Section 280G(b)(2) of the Code (including by reasonof Section 280G(b)(4)(A) of the Code) and, in calculating the Excise Tax, no portion of such Total Payments shall be takeninto account which, in the opinion of the Accounting Firm, constitutes reasonable compensation for services actuallyrendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the Base Amount (as defined in Section280G(b)(3) of the Code) allocable to such reasonable compensation; and (iii) the value of2 any non-cash benefit or any deferred payment or benefit included in the Total Payments shall be determined by theAccounting Firm in accordance with the principles of Sections 280G(d)(3) and (4) of the Code.(d)As a result of uncertainty in the application of Section 280G and Section 4999 of the Code at the time of theinitial calculation by the Accounting Firm hereunder, it is possible that the cash severance payment made by the Company willhave been less than the Company should have paid pursuant to Section 5 hereof (the amount of any such deficiency, the“Underpayment”), or more than the Company should have paid pursuant to Section 5 hereof (the amount of any suchoverage, the “Overpayment”). In the event of an Underpayment, the Company shall pay the Executive the amount of suchUnderpayment (together with interest at 120% of the rate provided in Section 1274(b)(2)(B) of the Code) not later than fivebusiness days after the amount of such Underpayment is subsequently determined, provided, however, such Underpaymentshall not be paid later than the end of the calendar year following the calendar year in which the Executive remitted therelated taxes. In the event of an Overpayment, the amount of such Overpayment shall by paid to the Company by theExecutive not later than five business days after the amount of such Overpayment is subsequently determined (together withinterest at 120% of the rate provided in Section 1274(b)(2)(B) of the Code).Capitalized terms not otherwise defined in this Amendment shall have the meanings given to them in the Agreement. As amendedhereby, the Agreement remains in full force and effect. This Amendment is governed by the laws of the State of Delaware.IN WITNESS WHEREOF, the Executive and Company execute this Amendment as of the day and year first above written.Executive__________________________________William R. KlesseVALERO ENERGY CORPORATIONby:________________________________R. Michael CrownoverSenior Vice President - Human Resources3 Exhibit 10.18SCHEDULE OF AMENDMENTS TO CHANGE OF CONTROL SEVERANCE AGREEMENTSThe following have executed Amendments to Change of Control Severance Agreements substantially in the form of the amendment attached asExhibit 10.XX to Valero’s Annual Report on Form 10-K for the year ended December 31, 2012 (SEC File No. 1-13175).Kimberly S. BowersMichael S. CiskowskiS. Eugene EdwardsJoseph W. GorderWilliam R. Klesse Exhibit 10.21Notice of Grant of Performance Stock Option and Option AgreementValero Energy CorporationID: 74-1828067P. O. Box 696000San Antonio, TX 78269-6000Effective [_____], 2012, you have been granted a «NUF_Option_Type1» to buy [______] shares of the common stock of ValeroEnergy Corporation (the “Company”) at [_______] per share. Your ability to exercise the Option is subject to the “PerformanceCondition Precedent” described in the attached agreement.The total Option price of the shares granted is «Total_Cost_To_Exercise»Your Option will vest on the dates shown below.Shares Grant Date Vest Type Full Vest ExpirationBy your signature and the Company’s signature below, you and the Company agree that the Option referenced above is granted underand governed by the terms and conditions of the Company’s 2011 Omnibus Stock Incentive Plan (as may be amended) and theAgreement attached hereto.VALERO ENERGY CORPORATION By:____________________________ _____________________R Michael Crownover DateSenior Vice President - Human Resources _______________________________ _____________________Employee Date PERFORMANCE STOCK OPTION AGREEMENTValero Energy Corporation 2011 Omnibus Stock Incentive PlanThis Performance Stock Option Agreement (this “Agreement”) is entered into between Valero Energy Corporation, a Delawarecorporation (“Valero”), and Employee pursuant to the terms of the Valero Energy Corporation 2011 Omnibus Stock IncentivePlan (as may be amended, the “Plan”). As used herein, Employee means [__________]. Capitalized terms used in this Agreement andthe attached Form A but not otherwise defined in this Agreement have the meanings set forth in the Plan.1. Grant of Option. Valero grants to Employee the option (the “Option”) to purchase up to [_________] shares of commonstock of Valero, $.01 par value per share (“Shares”), in accordance with the terms of this Agreement and the Plan. The Shares, whenissued to Employee upon the exercise of the Option, will be fully paid and non-assessable.2. Purchase Price. The purchase price of the Shares will be «Grant_Price» per Share.3. Term of Option and Time Vesting. The period during which the Option is in effect (the “Option Period”) willcommence on [grant date]. The Option Period will terminate on [expiration date]. No portion of the Option may be exercised prior to[first vest date]. Subject to (i) the terms of this Agreement, and (ii) the provisions of the Plan relating to suspension or termination fromthe Plan, the Option will be available for exercise in the following increments: [_____] shares on [date 1]; [______] shares on [date 2];and [____] shares on [date 3].4. Performance Condition Precedent. Notwithstanding the time vesting of the Option as described in Section 3 above, noOption may be exercised under this Agreement until, during the Option Period, the NYSE-reported closing price per share of Valero’scommon stock reaches $36.54 or higher (the “Performance Milestone”). Once the Performance Milestone has been achieved, theOption granted hereunder may be exercised by the Employee in accordance with the time vesting schedule described in Section 3 aboveand the other terms and conditions of this Agreement and the Plan.5. Procedures. The Option must be exercised in accordance with procedures established by Valero and pursuant to one of themethods for exercise set forth in the Exercise Notice substantially in the form of Form A attached hereto. Payment for the Shares willbe made at Valero’s San Antonio offices.6. Delivery and Payment. If any law or regulation requires Valero to take any action with respect to the Shares specified inthe Exercise Notice, then the date of delivery of the Shares against payment will be extended for the period necessary to take suchaction. In the event of any failure by Employee to pay for the number of Shares specified in the Exercise Notice on the Exercise Date,the exercise of the Option with respect to such number of Shares will be null and void and treated as if it had never been made. 7. Plan Incorporated by Reference. The Plan is incorporated herein, and by this reference, is made a part hereof for allpurposes.8. Limitation of Rights of Employee. Employee will have no rights with respect to any Shares not expressly conferred bythe Plan or this Agreement.9. No Assignment. This Agreement and the Option granted hereunder are of a personal nature and Employee’s rights withrespect hereto and thereto may not be sold, mortgaged, pledged, assigned, transferred, conveyed or disposed of in any manner byEmployee and may not be exercised by any person, other than Employee, except as expressly permitted under the Plan. Any suchattempted sale, mortgage, pledge, assignment, transfer, conveyance, disposition or exercise will be void, and Valero will not be boundthereby.10. Successors. This Agreement is binding upon any successors of Valero and the heirs and legal representatives ofEmployee.11. Direct Registration. In lieu of stock certificates, any Shares issuable in connection with the exercise of the Optionhereunder will be issued in uncertificated form pursuant to the Direct Registration System of Valero’s stock transfer agent. VALERO ENERGY CORPORATIONFORM A-STOCK OPTION EXERCISE FORMOn the day you exercise your options, this exercise form must be faxed to Valero’s Stock Administration department at (210) 345-2717 theoriginal(s) mailed to P.O. Box 696000, San Antonio, TX 78269-6000, mailstation VHC/E1N. The Stock Administration department must receiveyour original form(s) within three days after exercise date.ATTENTION: Stock Administration (VHC-E1N)Telephone (210) 345-2153 or (210) 345-2072Fax (210) 345-2717The undersigned elects to exercise an Option to purchase shares as follows:Name: __________________________________________________________________________________________________(Use Complete Legal Name)Address: ____________________________________________________________________________________________________________________________________________________________________________________________________Employee Number: ________________ Telephone Number: ______________ (Where you can be reached at time of exercise)Date of Grant to Which Exercise Applies: Option Number to Which Exercise Applies: Option Price to Which Exercise Applies: Number of Shares to Which Exercise Applies: The Settlement Date on which the shares will be tendered may not be less than three nor more than ten business days following thisExercise Date.Federal income tax will be withheld at 25%; if a higher amount is requested, please specify __________ (max 35%).On or before the Settlement Date, I will pay the Option price, applicable taxes, and any transaction fees as follows: [Choose One]___a) CASH METHOD. I will furnish a check made payable to Valero Energy Corporation on the date of exercise. In addition to the Optionprice, federal income tax, social security tax, Medicare tax and state tax, as applicable, will be payable to Valero on the Exercise Date. Iwill be informed not later than the close of business on the day after the Exercise Date of the total settlement funds required. All optionshares will be issued to me via the Computershare Direct Registration System; or___b) STOCK SWAP METHOD. I will submit a signed Representation of Ownership statement attesting as to shares of Valero Common Stockthat I own. The number of shares of Valero Common Stock attested to on this signed statement must have a market value equal to orexceeding the sum of the Option price plus the amount of applicable tax withholding for the number of Option shares being exercised.The stock will be valued at the average of the high and low sales price per share of Valero Common Stock quoted on the New York StockExchange on the exercise date. In addition to the Option price, federal income tax, social security tax, Medicare tax and state tax, asapplicable, will be deducted from the Option shares exercised, and a net number of shares will be issued to me via the ComputershareDirect Registration System. Fractional shares will be settled in cash within one week of the exercise date; orCASHLESS SELL METHOD or CASHLESS HOLD METHOD.To exercise your options, please select one of the following:1) Use Merrill Lynch AwardChoice On-line system at www.benefits.ml.com, or2)Contact Merrill Lynch Representatives at 1-877-401-5856The Cashless transactions must be completed before 3:00 p.m. CT to be in effect for the current trading day.The Valero Stock Administration team is available to assist you with any questions you might have.Executed this _______day of ___________________________, 20____ _________________________________________________Signature_________________________________________________Print Name Exhibit 10.25RESTRICTED STOCK AGREEMENTValero Energy Corporation 2011 Omnibus Stock Incentive PlanThis Restricted Stock Agreement (this “Agreement”) is between Valero Energy Corporation, a Delaware corporation (“Valero”), and[_____________], an employee of Valero or one of its Affiliates (“Employee”), who agree as follows:1. Introduction. Pursuant to the Valero Energy Corporation 2011 Omnibus Stock Incentive Plan (as may be amended, the “Plan”), on [GrantDate], Employee was awarded [______] shares of Common Stock of Valero, under the Plan as Restricted Stock (as defined in the Plan) (“Restricted Stock”).The parties hereby enter into this Agreement to evidence the terms, conditions and restrictions applicable to the Restricted Stock.2. The Plan, Restrictions, Vesting. The Plan is incorporated herein by reference for all purposes, and Employee hereby agrees to the terms andconditions stated therein applicable to the Restricted Stock and the rights and powers of Valero and the Committee as provided therein. In addition, Employeeagrees as follows:2.01 Except to the extent otherwise provided in the Plan or this Agreement, shares of Restricted Stock issued to Employee under the Planmay not be sold, exchanged, pledged, hypothecated, transferred, garnished or otherwise disposed of or alienated prior to vesting.2.02 Except to the extent otherwise provided in the Plan, Employee's rights to and interest in the shares of Restricted Stock described hereinshall vest and accrue to Employee in the following increments: [____] on [First Vest Date], [______] shares on [Second Vest Date]; [_____] on [Third VestDate].2.03 Employee agrees that in lieu of certificates representing Employee's shares of Restricted Stock, the Restricted Stock and any Sharesissuable in connection with their vesting may be issued in uncertificated form pursuant to the Direct Registration System (“DRS”) of Valero's stock transferagent.2.04 If, as the result of a stock split, stock dividend, combination of shares or any other change, including an exchange of securities forany reason, the Employee shall be entitled to new or additional or different shares of stock or securities, such stock or securities shall be subject to the termsand conditions of the Plan and this Agreement.3. Limitation. The Employee shall have no rights with respect to any shares of Restricted Stock not expressly conferred by the Plan or thisAgreement.4. Miscellaneous. All capitalized terms contained in this Agreement shall have the definitions set forth in the Plan unless otherwise defined herein.This Agreement shall be binding upon the parties hereto and their respective beneficiaries, heirs, administrators, executors, legal representatives andsuccessors.5. Code Section 409A. The issuance of shares under this Award shall be made on or as soon as reasonably practical following the applicable dateof vesting, but in any event no later than the 15th day of the third month following the end of the year in which the applicable date of vesting occurs. Withrespect to the receipt of dividends, the payment of dividends shall be made by the last day of the fiscal quarter during which dividends on Valero CommonStock are paid, but in any event by no later than the 15th day of the month following the end of the year in which the applicable dividends on Valero CommonStock are paid. This Agreement and the award evidenced hereby are intended to comply, and shall be administered consistently, in all respects with Section409A of the Internal Revenue Code and the regulations promulgated thereunder. If necessary in order to ensure such compliance, this Agreement may bereformed consistent with guidance issued by the Internal Revenue Service.EFFECTIVE as of the [___] day of [_____], 20[___].VALERO ENERGY CORPORATION__________________________________________R Michael CrownoverSenior Vice President-Human Resources__________________________________________Employee Exhibit 12.01VALERO ENERGY CORPORATION AND SUBSIDIARIESSTATEMENTS OF COMPUTATIONS OF RATIOS OF EARNINGS TO FIXED CHARGES(Millions of Dollars) Year Ended December 31, 2012 2011 2010 2009 2008 Earnings: Income (loss) from continuing operationsbefore income tax expense (benefit),excluding income from equity investees$3,702 $3,322 $1,481 $(334) $268 Add: Fixed charges711 735 743 701 626 Amortization of capitalized interest25 23 20 18 17 Distributions from equity investees1 — 10 — — Less: Interest capitalized(221) (152) (90) (105) (92) Total earnings$4,218 $3,928 $2,164 $280 $819 Fixed charges: Interest expense, net$313 $401 $484 $416 $360 Interest capitalized221 152 90 105 92 Rental expense interest factor (a)177 182 169 180 174 Total fixed charges$711 $735 $743 $701 $626 Ratio of earnings to fixed charges5.9x 5.3x 2.9x (b) 1.3x__________(a)The interest portion of rental expense represents one-third of rents, which is deemed representative of the interest portion of rental expense.(b)For the year ended December 31, 2009, earnings were insufficient to cover fixed charges by $421 million. The deficiency included the effect of a $222 million pre-tax impairmentloss resulting from the permanent cancellation of certain capital projects classified as “construction in progress” as a result of the unfavorable impact of the economic slowdown onrefining industry fundamentals during the year. The deficiency was also partially attributable to a $120 million loss contingency accrual related to our dispute of a turnover taxon export sales in Aruba. Exhibit 21.01Valero Energy Corporation and Subsidiariesas of February 15, 2013Name of Entity State of Incorporation/Organization AUTOTRONIC SYSTEMS, INC. DelawareBIG DIAMOND, INC. TexasBIG DIAMOND NUMBER 1, INC. TexasCANADIAN ULTRAMAR COMPANY Nova ScotiaCOLONNADE VERMONT INSURANCE COMPANY VermontCST BRANDS, INC. DelawareCST CANADA CO. Nova ScotiaCST CANADA HOLDING INC. Nova ScotiaCST MARKETING AND SUPPLY COMPANY DelawareCST SECURITY SERVICES, INC. DelawareDIAMOND ALTERNATIVE ENERGY, LLC DelawareDIAMOND ALTERNATIVE ENERGY OF CANADA INC. CanadaDIAMOND GREEN DIESEL HOLDINGS LLC DelawareDIAMOND GREEN DIESEL LLC DelawareDIAMOND K RANCH LLC TexasDIAMOND OMEGA COMPANY, L.L.C. DelawareDIAMOND SHAMROCK ARIZONA, INC. DelawareDIAMOND SHAMROCK REFINING COMPANY, L.P. DelawareDIAMOND SHAMROCK STATIONS, INC. DelawareDIAMOND UNIT INVESTMENTS, L.L.C. DelawareDSRM NATIONAL BANK U.S.A.EASTVIEW FUEL OILS LIMITED OntarioEMERALD MARKETING, INC. TexasENTERPRISE CLAIMS MANAGEMENT, INC. TexasGOLDEN EAGLE ASSURANCE LIMITED British ColumbiaHUNTWAY REFINING COMPANY DelawareKINROSS CELLULOSIC ETHANOL LLC DelawareMAINLINE PIPELINES LIMITED England and WalesMICHIGAN REDEVELOPMENT GP, LLC DelawareMICHIGAN REDEVELOPMENT, L.P. DelawareMRP PROPERTIES COMPANY, LLC MichiganNATIONAL CONVENIENCE STORES INCORPORATED DelawareNECHES RIVER HOLDING CORP. DelawareOCEANIC TANKERS AGENCY LIMITED QuebecPI DOCK FACILITIES LLC DelawarePORT ARTHUR COKER COMPANY L.P. DelawarePREMCOR USA INC. DelawarePROPERTY RESTORATION, L.P. DelawareROBINSON OIL COMPANY (1987) LIMITED Nova Scotia1 Name of Entity State of Incorporation/OrganizationSABINE RIVER HOLDING CORP. DelawareSABINE RIVER LLC DelawareSIGMOR BEVERAGE, INC. TexasSIGMOR CORPORATION DelawareSIGMOR NUMBER 5, INC. TexasSIGMOR NUMBER 43, INC. TexasSIGMOR NUMBER 79, INC. TexasSIGMOR NUMBER 80, INC. TexasSIGMOR NUMBER 103, INC. TexasSIGMOR NUMBER 105, INC. TexasSIGMOR NUMBER 119, INC. TexasSIGMOR NUMBER 178, INC. TexasSIGMOR NUMBER 196, INC. TexasSIGMOR NUMBER 238, INC. TexasSIGMOR NUMBER 259, INC. TexasSIGMOR NUMBER 422, INC. TexasSKIPPER BEVERAGE COMPANY, INC. TexasSUNBELT REFINING COMPANY, L.P. DelawareSUNSHINE BEVERAGE CO. TexasTEXOIL LIMITED IrelandTHE PREMCOR PIPELINE CO. DelawareTHE PREMCOR REFINING GROUP INC. DelawareTHE SHAMROCK PIPE LINE CORPORATION DelawareTOC-DS COMPANY DelawareULTRAMAR ACCEPTANCE INC. CanadaULTRAMAR ENERGY INC. DelawareULTRAMAR INC. NevadaULTRAMAR LTD. CanadaULTRAMAR SERVICES INC. CanadaVALERO ARKANSAS RETAIL LLC ArkansasVALERO ARUBA ACQUISITION COMPANY I, LTD. Virgin Islands (U.K.)VALERO ARUBA FINANCE INTERNATIONAL, LTD. Virgin Islands (U.K.)VALERO ARUBA HOLDING COMPANY N.V. ArubaVALERO ARUBA HOLDINGS INTERNATIONAL, LTD. Virgin Islands (U.K.)VALERO ARUBA MAINTENANCE/OPERATIONS COMPANY N.V. ArubaVALERO BROWNSVILLE TERMINAL LLC TexasVALERO CALIFORNIA RETAIL COMPANY DelawareVALERO CANADA FINANCE, INC. DelawareVALERO CANADA L.P. NewfoundlandVALERO CAPITAL CORPORATION DelawareVALERO CARIBBEAN SERVICES COMPANY DelawareVALERO COKER CORPORATION ARUBA N.V. ArubaVALERO CUSTOMS & TRADE SERVICES, INC. DelawareVALERO DIAMOND, L.P. Texas2 Name of Entity State of Incorporation/OrganizationVALERO DIAMOND METRO, INC. MichiganVALERO ENERGY ARUBA II COMPANY Cayman IslandsVALERO ENERGY (IRELAND) LIMITED IrelandVALERO ENERGY LTD England and WalesVALERO EQUITY SERVICES LTD England and WalesVALERO ENTERPRISES, INC. DelawareVALERO FINANCE L.P. I NewfoundlandVALERO FINANCE L.P. II NewfoundlandVALERO FINANCE L.P. III NewfoundlandVALERO GRAIN MARKETING, LLC TexasVALERO HOLDCO UK LTD United KingdomVALERO HOLDINGS, INC. DelawareVALERO INTERNATIONAL HOLDINGS, INC. NevadaVALERO LIVE OAK LLC TexasVALERO MARKETING & SUPPLY-ARUBA N.V. ArubaVALERO MARKETING AND SUPPLY COMPANY DelawareVALERO MARKETING AND SUPPY INTERNATIONAL LTD. Cayman IslandsVALERO MKS LOGISTICS, L.L.C. DelawareVALERO MOSELLE COMPANY S.à r.l. LuxembourgVALERO NEDERLAND COÖPERATIEF U.A. The NetherlandsVALERO NEW AMSTERDAM B.V. The NetherlandsVALERO NEW US LLC DelawareVALERO OMEGA COMPANY, L.L.C. DelawareVALERO OPERATIONS SUPPORT, LTD England and WalesVALERO PAYMENT SERVICES COMPANY VirginiaVALERO PEMBROKESHIRE LLC DelawareVALERO PLAINS COMPANY LLC TexasVALERO POWER MARKETING LLC DelawareVALERO REFINING AND MARKETING COMPANY DelawareVALERO REFINING COMPANY-ARUBA N.V. ArubaVALERO REFINING COMPANY-CALIFORNIA DelawareVALERO REFINING COMPANY-OKLAHOMA MichiganVALERO REFINING COMPANY-TENNESSEE, L.L.C. DelawareVALERO REFINING-MERAUX LLC DelawareVALERO REFINING-NEW ORLEANS, L.L.C. DelawareVALERO REFINING-TEXAS, L.P. TexasVALERO RENEWABLE FUELS COMPANY, LLC TexasVALERO RETAIL HOLDINGS, INC. DelawareVALERO SECURITY SYSTEMS, INC. DelawareVALERO SERVICES, INC. DelawareVALERO TERMINALING AND DISTRIBUTION COMPANY DelawareVALERO TEXAS POWER MARKETING, INC. DelawareVALERO ULTRAMAR HOLDINGS INC. DelawareVALERO UNIT INVESTMENTS, L.L.C. DelawareVALERO WEST WALES LLC Delaware3 Name of Entity State of Incorporation/OrganizationVALLEY SHAMROCK, INC. TexasVEC TRUST I DelawareVEC TRUST III DelawareVEC TRUST IV DelawareVRG DIAMOND HOLDINGS, LLC TexasVRG PROPERTIES COMPANY DelawareVTD PROPERTIES COMPANY Delaware4 Exhibit 23.01Consent of Independent Registered Public Accounting FirmThe Board of Directorsof Valero Energy Corporation and subsidiaries:We consent to the incorporation by reference in the registration statements, as amended, on Form S-3 (Registration No. 333-157867) and Form S-8 (Registration Nos. 333-31709, 333-31721, 333-31723, 333-31727, 333-81858, 333-106620, 333-118731, 333-125082, 333-129032, 333-136333, and 333-174721) of Valero Energy Corporation and subsidiaries (the Company), of our reports dated February 28, 2013,with respect to the consolidated balance sheets of Valero Energy Corporation and subsidiaries as of December 31, 2012 and 2011, and the relatedconsolidated statements of income, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31,2012, and the effectiveness of internal control over financial reporting as of December 31, 2012, which reports appear in the December 31, 2012annual report on Form 10-K of Valero Energy Corporation and subsidiaries./s/ KPMG LLPSan Antonio, TexasFebruary 28, 2013 Exhibit 31.01CERTIFICATION PURSUANT TO SECTION 302OF THE SARBANES-OXLEY ACT OF 2002I, William R. Klesse, certify that:1. I have reviewed this annual report on Form 10-K of Valero Energy Corporation;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to makethe statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have:(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by otherswithin those entities, particularly during the period in which this report is being prepared;(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles;(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's mostrecent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant's internal control over financial reporting; and5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant'sinternal control over financial reporting.Date: February 28, 2013/s/ William R. Klesse William R. KlesseChief Executive Officer Exhibit 31.02CERTIFICATION PURSUANT TO SECTION 302OF THE SARBANES-OXLEY ACT OF 2002 I, Michael S. Ciskowski, certify that:1. I have reviewed this annual report on Form 10-K of Valero Energy Corporation;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to makethe statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have:(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by otherswithin those entities, particularly during the period in which this report is being prepared;(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles;(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's mostrecent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant's internal control over financial reporting; and5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant'sinternal control over financial reporting.Date: February 28, 2013/s/ Michael S. Ciskowski Michael S. CiskowskiExecutive Vice President and Chief Financial Officer Exhibit 32.01CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report of Valero Energy Corporation (the Company) on Form 10-K for the year ended December 31, 2012, as filedwith the Securities and Exchange Commission on the date hereof (the Report), I, William R. Klesse, Chief Executive Officer of the Company,hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations ofthe Company./s/ William R. Klesse William R. Klesse Chief Executive Officer and President February 28, 2013 A signed original of the written statement required by Section 906 has been provided to Valero Energy Corporation and will be retained by Valero EnergyCorporation and furnished to the Securities and Exchange Commission or its staff upon request. CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report of Valero Energy Corporation (the Company) on Form 10-K for the year ended December 31, 2012, as filedwith the Securities and Exchange Commission on the date hereof (the Report), I, Michael S. Ciskowski, Executive Vice President and ChiefFinancial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑OxleyAct of 2002, that:1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations ofthe Company./s/ Michael S. Ciskowski Michael S. Ciskowski Executive Vice President and Chief Financial OfficerFebruary 28, 2013 A signed original of the written statement required by Section 906 has been provided to Valero Energy Corporation and will be retained by Valero EnergyCorporation and furnished to the Securities and Exchange Commission or its staff upon request.

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