Valero Energy Annual Report 2014

Plain-text annual report

FORM 10-KUNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549(Mark One)þANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2014ORoTRANSITION 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 þ 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 o No þIndicate 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 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes þ 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 thatthe registrant was required to submit and post such files). Yes þ 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. þIndicate 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 þAccelerated 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 þThe aggregate market value of the voting and non-voting common stock held by non-affiliates was approximately $26.5 billion based on the last sales pricequoted as of June 30, 2014 on the New York Stock Exchange, the last business day of the registrant’s most recently completed second fiscal quarter.As of January 30, 2015, 514,888,348 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 April 30,2015, at which directors will be elected. Portions of the 2015 Proxy Statement are incorporated by reference in Part III of this Form 10-K and are deemed to bea part of this report.Table of ContentsCROSS-REFERENCE SHEETThe following table indicates the headings in the 2015 Proxy Statement where certain information required in Part III of this Form 10-Kmay be found.Form 10-K ItemNo. and Caption Heading in 2015 Proxy Statement 10.Directors,ExecutiveOfficers andCorporateGovernance Information Regarding the Board of Directors, Independent Directors, AuditCommittee, Proposal No. 1 Election of Directors, Information ConcerningNominees and Other Directors, Identification of ExecutiveOfficers, Section 16(a) Beneficial Ownership Reporting Compliance,and Governance Documents and Codes of Ethics 11.ExecutiveCompensation Compensation Committee, Compensation Discussion and Analysis, DirectorCompensation, Executive Compensation, and Certain Relationships andRelated Transactions 12.SecurityOwnership ofCertainBeneficialOwners andManagementand RelatedStockholderMatters Beneficial Ownership of Valero Securities and Equity Compensation PlanInformation 13.CertainRelationshipsand RelatedTransactions,andDirectorIndependence Certain Relationships and Related Transactions and Independent Directors 14.PrincipalAccountantFees andServices KPMG Fees for Fiscal Years 2014 and 2013 and Audit Committee Pre-Approval PolicyCopies of all documents incorporated by reference, other than exhibits to such documents, will be provided without charge to eachperson who receives a copy of this Form 10-K upon written request to Valero Energy Corporation, Attn: Secretary, P.O. Box 696000,San Antonio, Texas 78269-6000.iCONTENTS PAGEPART I Items 1. & 2.Business and Properties1 Segments1 Valero’s Operations2 Environmental Matters11 Properties11Item 1A.Risk Factors12Item 1B.Unresolved Staff Comments18Item 3.Legal Proceedings18Item 4.Mine Safety Disclosures18 PART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities19Item 6.Selected Financial Data22Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations23Item 7A.Quantitative and Qualitative Disclosures About Market Risk52Item 8.Financial Statements and Supplementary Data54Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure127Item 9A.Controls and Procedures127Item 9B.Other Information127 PART III Item 10.Directors, Executive Officers and Corporate Governance128Item 11.Executive Compensation128Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters128Item 13.Certain Relationships and Related Transactions, and Director Independence128Item 14.Principal Accountant Fees and Services128 PART IV Item 15.Exhibits and Financial Statement Schedules128 Signature 132 iiTable 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 ourconsolidated subsidiaries, or to all of them taken as a whole. In this Form 10-K, we make certain forward-looking statements, includingstatements regarding our plans, strategies, objectives, expectations, intentions, and resources under the safe harbor provisions of thePrivate Securities Litigation Reform Act of 1995. You should read our forward-looking statements together with our disclosuresbeginning on page 23 of this report under the heading: “CAUTIONARY STATEMENT FOR THE PURPOSE OF SAFE HARBORPROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.”ITEMS 1. and 2. BUSINESS 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 (NYSE)under the symbol “VLO.” We were incorporated in Delaware in 1981 under the name Valero Refining and Marketing Company. Wechanged our name to Valero Energy Corporation on August 1, 1997. On January 31, 2015, we had 10,065 employees.Our 15 petroleum refineries are located in the United States (U.S.), Canada, and the United Kingdom (U.K.). Our refineries can produceconventional gasolines, premium gasolines, gasoline meeting the specifications of the California Air Resources Board (CARB), dieselfuel, low-sulfur diesel fuel, ultra-low-sulfur diesel fuel, CARB diesel fuel, other distillates, jet fuel, asphalt, petrochemicals, lubricants,and other refined products. We market branded and unbranded refined products on a wholesale basis in the U.S., Canada, theCaribbean, the U.K., and Ireland through an extensive bulk and rack marketing network and through approximately 7,400 outlets thatcarry our brand names. We also own 11 ethanol plants in the central plains region of the U.S. that primarily produce ethanol, which wemarket on a wholesale basis through a bulk marketing network.Available Information. Our website address is www.valero.com. Information on our website is not part of this annual report onForm 10-K. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K filed with (or furnishedto) the U.S. Securities and Exchange Commission (SEC) are available on our website (under “Investor Relations”) free of charge, soonafter we file or furnish such material. In this same location, we also post our corporate governance guidelines, codes of ethics, and thecharters of the committees of our board of directors. These documents are available in print to any stockholder that makes a writtenrequest to Valero Energy Corporation, Attn: Secretary, P.O. Box 696000, San Antonio, Texas 78269-6000.SEGMENTSWe have two reportable segments: refining and ethanol. Our refining segment includes refining operations, wholesale marketing,product supply and distribution, and transportation operations in the U.S., Canada, the U.K., Aruba, and Ireland. Our ethanol segmentprimarily includes sales of internally produced ethanol and distillers grains. Financial information about our segments is presented inNote 18 of Notes to Consolidated Financial Statements and is incorporated herein by reference.We formerly had a third reportable segment: retail. In 2013, we completed the separation of our retail business by creating anindependent public company named CST Brands, Inc. (CST). The separation of our retail business is discussed in Note 3 of Notes toConsolidated Financial Statements and that discussion is incorporated herein by reference.1Table of ContentsVALERO’S OPERATIONSREFININGOn December 31, 2014, our refining operations included 15 petroleum refineries in the U.S., Canada, and the U.K., with a combinedtotal throughput capacity of approximately 2.9 million barrels per day (BPD). The following table presents the locations of theserefineries and their approximate feedstock throughput capacities as of December 31, 2014.Refinery Location ThroughputCapacity (a)(BPD)U.S. Gulf Coast: Corpus Christi (b) Texas 325,000Port Arthur Texas 375,000St. Charles Louisiana 290,000Texas City Texas 260,000Houston Texas 175,000Meraux Louisiana 135,000Three Rivers Texas 100,000 1,660,000 U.S. Mid-Continent: Memphis Tennessee 195,000McKee Texas 180,000Ardmore Oklahoma 90,000 465,000 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 2,935,000(a)“Throughput capacity” represents estimated capacity for processing crude oil, inter-mediates, and other feedstocks. Total estimated crude oil capacity isapproximately 2.4 million BPD.(b)Represents the combined capacities of two refineries – the Corpus Christi East and Corpus Christi West Refineries.2Table 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 yearended December 31, 2014. Our total combined throughput volumes averaged approximately 2.8 million BPD for the year endedDecember 31, 2014.Combined Total Refining System Charges and YieldsCharges: sour crude oil33% sweet crude oil42% residual fuel oil8% other feedstocks5% blendstocks12%Yields: gasolines and blendstocks48% distillates37% petrochemicals3% other products (includes gas oils, No. 6 fuel oil,petroleum coke, and asphalt)12%U.S. Gulf CoastThe following table presents the percentages of principal charges and yields (on a combined basis) for the eight refineries in this regionfor the year ended December 31, 2014. Total throughput volumes for the U.S. Gulf Coast refining region averaged approximately 1.6million BPD for the year ended December 31, 2014.Combined U.S. Gulf Coast Region Charges and YieldsCharges: sour crude oil44% sweet crude oil23% residual fuel oil14% other feedstocks6% blendstocks13%Yields: gasolines and blendstocks46% distillates37% petrochemicals4% other products (includes gas oil, No. 6 fuel oil,petroleum coke, and asphalt)13%Corpus Christi East and West Refineries. Our Corpus Christi East and West Refineries are located on the Texas Gulf Coast along theCorpus Christi Ship Channel. The East Refinery processes sour crude oil, and the West Refinery processes sweet crude oil, sour crudeoil, and residual fuel oil. The feedstocks are delivered by tanker or barge via deepwater docking facilities along the Corpus Christi ShipChannel, and West Texas or South Texas crude oil is delivered via pipelines. The refineries’ physical locations allow for the transfer ofvarious feedstocks and blending components between them. The refineries produce gasoline, aromatics, jet fuel, diesel, and asphalt.Truck racks service local markets for gasoline, diesel, jet fuels, liquefied petroleum gases, and asphalt. These and other finishedproducts are also distributed by ship or barge across docks and third-party pipelines.3Table of ContentsPort Arthur Refinery. Our Port Arthur Refinery is located on the Texas Gulf Coast approximately 90 miles east of Houston. Therefinery processes heavy sour crude oils and other feedstocks into gasoline, diesel, and jet fuel. The refinery receives crude oil by rail,marine docks, and crude oil pipelines. Finished products are distributed into the Colonial, Explorer, and other pipelines and across therefinery docks into ships or barges.St. Charles Refinery. Our St. Charles Refinery is located approximately 15 miles west of New Orleans along the Mississippi River. Therefinery processes sour crude oils and other feedstocks into gasoline and diesel. The refinery receives crude oil over docks and hasaccess to the Louisiana Offshore Oil Port. Finished products can be shipped over these docks or through the Colonial pipeline network.Texas City Refinery. Our Texas City Refinery is located southeast of Houston on the Texas City Ship Channel. The refinery processescrude oils into gasoline, diesel, and jet fuel. The refinery receives its feedstocks by pipeline and by ship or barge via deepwater dockingfacilities along the Texas City Ship Channel. The refinery uses ships and barges, as well as the Colonial, Explorer, and other pipelinesfor distribution of its products.Houston Refinery. Our Houston Refinery is located on the Houston Ship Channel. It processes a mix of crude and intermediate oils intogasoline, jet fuel, and diesel. The refinery receives its feedstocks by tankers or barges at deepwater docking facilities along the HoustonShip Channel and by various interconnecting pipelines with the Texas City Refinery. The majority of its finished products are deliveredto local, mid-continent U.S., and northeastern U.S. markets through various pipelines, including the Colonial and Explorer pipelines.Meraux Refinery. Our Meraux Refinery is located approximately 25 miles southeast of New Orleans along the Mississippi River. Therefinery processes sour and sweet crude oils into gasoline, diesel, jet fuel, and high sulfur fuel oil. The refinery receives crude oil at itsdock and has access to the Louisiana Offshore Oil Port. Finished products can be shipped from the refinery’s dock or through theColonial pipeline. The Meraux Refinery is located about 40 miles from our St. Charles Refinery, allowing for integration of feedstocksand refined product blending.Three Rivers Refinery. Our Three Rivers Refinery is located in South Texas between Corpus Christi and San Antonio. It processessweet and sour crude oils into gasoline, distillates, and aromatics. The refinery has access to crude oil from sources outside the U.S.delivered to the Texas Gulf Coast at Corpus Christi as well as crude oil from local sources through third-party pipelines and trucks. Therefinery distributes its refined products primarily through third-party pipelines.4Table of ContentsU.S. Mid-ContinentThe following table presents the percentages of principal charges and yields (on a combined basis) for the three refineries in this regionfor the year ended December 31, 2014. Total throughput volumes for the U.S. Mid-Continent refining region averaged approximately446,000 BPD for the year ended December 31, 2014.Combined U.S. Mid-Continent Region Charges and YieldsCharges: sour crude oil6% sweet crude oil82% other feedstocks1% blendstocks11%Yields: gasolines and blendstocks53% distillates36% petrochemicals4% other products (includes gas oil, No. 6 fuel oil,and asphalt)7%Memphis Refinery. Our Memphis Refinery is located in Tennessee along the Mississippi River. It processes primarily sweet crude oils.Most of its production is gasoline, diesel, and jet fuels. Crude oil is supplied to the refinery via the Capline pipeline and can also bereceived, along with other feedstocks, via barge. Most of the refinery’s products are distributed via truck rack and barges.McKee Refinery. Our McKee Refinery is located in the Texas Panhandle. It processes primarily sweet crude oils into gasoline, diesel, jetfuels, and asphalt. The refinery has access to local and Permian Basin crude oil sources via third-party pipelines. The refinery distributesits 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. Itprocesses medium sour and sweet crude oils into gasoline, diesel, and asphalt. The refinery receives local crude oil and feedstocksupply via third-party pipelines. Refined products are transported to market via rail, trucks, and the Magellan pipeline system.5Table of ContentsNorth AtlanticThe following table presents the percentages of principal charges and yields (on a combined basis) for the two refineries in this regionfor the year ended December 31, 2014. Total throughput volumes for the North Atlantic refining region averaged approximately457,000 BPD for the year ended December 31, 2014.Combined North Atlantic Region Charges and YieldsCharges: sour crude oil1% sweet crude oil88% residual fuel oil2% other feedstocks1% blendstocks8%Yields: gasolines and blendstocks40% distillates47% petrochemicals1% other products (includes gas oil, No. 6 fuel oil,and other products)12%Pembroke Refinery. Our Pembroke Refinery is located in the County of Pembrokeshire in southwest Wales, U.K. The refineryprocesses primarily sweet crude oils into gasoline, diesel, jet fuel, heating oil, and low-sulfur fuel oil. The refinery receives all of itsfeedstocks and delivers the majority of its products by ship and barge via deepwater docking facilities along the Milford HavenWaterway, with its remaining products being delivered by our Mainline pipeline system and by trucks.Quebec City Refinery. Our Quebec City Refinery is located in Lévis, Canada (near Quebec City). It processes sweet crude oils intogasoline, diesel, jet fuel, heating oil, and low-sulfur fuel oil. The refinery receives crude oil by ship at its deepwater dock on the St.Lawrence River and by rail. The refinery transports its products through our pipeline from Quebec City to our terminal in Montreal andto various other terminals throughout eastern Canada by rail, ships, trucks, and third-party pipelines.6Table 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 regionfor the year ended December 31, 2014. Total throughput volumes for the U.S. West Coast refining region averaged approximately262,000 BPD for the year ended December 31, 2014.Combined U.S. West Coast Region Charges and YieldsCharges: sour crude oil70% sweet crude oil3% other feedstocks12% blendstocks15%Yields: gasolines and blendstocks59% distillates26% other products (includes gas oil, No. 6 fuel oil,petroleum coke, and asphalt)15%Benicia Refinery. Our Benicia Refinery is located northeast of San Francisco on the Carquinez Straits of San Francisco Bay. It processessour crude oils into gasoline, diesel, jet fuel, and asphalt. Gasoline production is primarily CARBOB gasoline, which meets CARBspecifications when blended with ethanol. The refinery receives crude oil feedstocks via a marine dock and crude oil pipelinesconnected to a southern California crude oil delivery system. Most of the refinery’s products are distributed via pipeline and truck rackinto northern California markets.Wilmington Refinery. Our Wilmington Refinery is located near Los Angeles, California. The refinery processes a blend of heavy andhigh-sulfur crude oils. The refinery produces CARBOB gasoline, diesel, CARB diesel, jet fuel, and asphalt. The refinery is connectedby pipeline to marine terminals and associated dock facilities that can move and store crude oil and other feedstocks. Refined productsare distributed via pipeline systems to various third-party terminals in southern California, Nevada, and Arizona.7Table of ContentsFeedstock SupplyApproximately 46 percent of our current crude oil feedstock requirements are purchased through term contracts while the remainingrequirements are generally purchased on the spot market. Our term supply agreements include arrangements to purchase feedstocks atmarket-related prices directly or indirectly from various national oil companies as well as international and U.S. oil companies. Thecontracts generally permit the parties to amend the contracts (or terminate them), effective as of the next scheduled renewal date, bygiving the other party proper notice within a prescribed period of time (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 at the 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.Refining Segment SalesOverviewOur refining segment includes sales of refined products in both the wholesale rack and bulk markets. These sales include refinedproducts that are manufactured in our refining operations as well as refined products purchased or received on exchange from thirdparties. Most of our refineries have access to marine transportation facilities and interconnect with common-carrier pipeline systems,allowing us to sell products in the U.S., Canada, the U.K., and other countries. No customer accounted for more than 10 percent of ourtotal operating revenues in 2014.Wholesale MarketingWe market branded and unbranded refined products on a wholesale basis through an extensive rack marketing network. The principalpurchasers of our refined products from terminal truck racks are wholesalers, distributors, retailers, and truck-delivered end usersthroughout the U.S., Canada, 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 membersof the Valero-brand family that operate approximately 5,600 branded sites in the U.S. and the Caribbean, approximately 1,000 brandedsites in the U.K. and Ireland, and approximately 800 branded sites in Canada. These sites are independently owned and are supplied byus under multi-year contracts. For wholesale branded sites, we promote the Valero®, Beacon®, and Shamrock® brands in the U.S. andthe Caribbean, the Ultramar® brand in Canada, 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. Ourbulk sales are made to various oil companies and traders as well as certain bulk end-users such as railroads, airlines, and utilities. Ourbulk sales are transported primarily 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, optimizerefinery utilization, balance refined product availability, broaden geographic distribution, and provide access to markets not connectedto our refined-product pipeline systems. Exchange agreements provide for the delivery of refined products by us to unaffiliatedcompanies at our and third-parties’ terminals in exchange for delivery of a similar amount of refined products to us by these unaffiliatedcompanies at specified locations. Purchase agreements involve our purchase of refined products from third parties with deliveryoccurring at specified locations.8Table of ContentsSpecialty ProductsWe sell a variety of other products produced at our refineries, which we refer to collectively as “Specialty Products.” Our SpecialtyProducts include asphalt, 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, androofing applications through 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 cementmanufacturers. Petroleum coke is used largely as a substitute for coal.•We produce and market a number of commodity petrochemicals including aromatics (benzene, toluene, and xylene) andtwo grades of propylene. Aromatics and propylenes are sold to customers in the chemical industry for further processinginto such products as paints, plastics, and adhesives.•We are a large producer of sulfur with sales primarily to customers serving the agricultural sector. Sulfur is used inmanufacturing fertilizer.Logistics and TransportationWe own several transportation and logistics assets (crude oil pipelines, refined product pipelines, terminals, tanks, marine docks, truckrack bays, rail cars, and rail facilities) that support our refining and ethanol operations. In addition, through subsidiaries, we own 100percent of the general partner interest of Valero Energy Partners LP (VLP) and approximately 70 percent of its limited partner interests.VLP is a midstream master limited partnership. Its common units representing limited partner interests are traded on the NYSE under thesymbol “VLP.” Its assets support the operations of our Port Arthur, McKee, Three Rivers, Ardmore, and Memphis Refineries. VLP isdiscussed more fully in Note 5 of Notes to Consolidated Financial Statements.9Table of ContentsETHANOLWe own 11 ethanol plants with a combined ethanol production capacity of about 1.3 billion gallons per year. Our ethanol plants are drymill facilities1 that process corn to produce ethanol and distillers grains.2 We source our corn supply from local farmers and commercialelevators. Our facilities receive corn primarily by rail and truck. We publish on our website a corn bid for local farmers and cooperativedealers to use to facilitate corn supply transactions.After processing, our ethanol is held in storage tanks on-site pending loading to trucks and rail cars. We sell our ethanol (i) to largecustomers – primarily refiners and gasoline blenders – under term and spot contracts, and (ii) in bulk markets such as New York,Chicago, the U.S. Gulf Coast, Florida, and the U.S. West Coast. We ship our dry distillers grains (DDG) by truck or rail primarily toanimal 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 theirapproximate corn processing capacities.State City Ethanol ProductionCapacity(in gallons per year) Productionof DDG(in tons per year) Corn Processed(in bushels per year)Indiana Linden 120 million 355,000 42 million Mount Vernon 100 million 320,000 37 millionIowa Albert City 120 million 355,000 42 million Charles City 125 million 370,000 44 million Fort Dodge 125 million 370,000 44 million Hartley 125 million 370,000 44 millionMinnesota Welcome 125 million 370,000 44 millionNebraska Albion 120 million 355,000 42 millionOhio Bloomingburg 120 million 355,000 42 millionSouth Dakota Aurora 125 million 370,000 44 millionWisconsin Jefferson 100 million 320,000 37 million total 1,305 million 3,910,000 462 million The combined production of denatured ethanol from our plants in 2014 averaged 3.4 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 the fermentationprocess, 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) areconcentrated to yield modified distillers grains, or, after further drying, dried distillers grains. Distillers grains generally are an economical partial replacement for corn andsoybeans in feeds for cattle, swine, and poultry.10Table of ContentsENVIRONMENTAL MATTERSWe incorporate by reference into this Item the environmental disclosures contained in the following sections of this report:•Item 1A, “Risk Factors”—Compliance with and changes in environmental laws, including proposed climate change lawsand regulations, could adversely affect our performance,•Item 1A, “Risk Factors”—We may incur additional costs as a result of our use of rail cars for the transportation of crudeoil and the products that we manufacture,•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 thecaption “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 2014, our capital expenditures attributable tocompliance with environmental regulations were $62 million, and they are currently estimated to be $106 million for 2015 and$67 million for 2016. The estimates for 2015 and 2016 do not include amounts related to capital investments at our facilities thatmanagement has deemed to be strategic investments. These amounts could materially change as a result of governmental andregulatory actions.PROPERTIESOur principal properties are described above under the caption “Valero’s Operations,” and that information is incorporated herein byreference. We believe that our properties and facilities are generally adequate for our operations and that our facilities are maintained ina good state of repair. As of December 31, 2014, we were the lessee under a number of cancelable and noncancelable leases for certainproperties. Our leases are discussed more fully in Notes 11 and 12 of Notes to Consolidated Financial Statements. Financial informationabout our properties is presented in Note 8 of Notes to Consolidated Financial Statements and is incorporated herein by reference.Our patents relating to our refining operations are not material to us as a whole. The trademarks and tradenames under which weconduct our branded wholesale business – including Valero®, Diamond Shamrock®, Shamrock®, Ultramar®, Beacon®, Texaco® – andother trademarks employed in the marketing of petroleum products are integral to our wholesale marketing operations.11Table of ContentsITEM 1A. RISK FACTORSYou should carefully consider the following risk factors in addition to the other information included in this report. Each of these riskfactors could adversely affect our business, operating results, and/or financial condition, as well as adversely affect the value of aninvestment in our common stock.Our financial results are affected by volatile refining margins, which are dependent upon factors beyond our control, including theprice of crude oil and the market price at which we can sell refined products.Our financial results are primarily affected by the relationship, or margin, between refined product prices and the prices for crude oiland other feedstocks. Historically, refining margins have been volatile, and we believe they will continue to be volatile in the future.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 turn depend on, among other things, the availability and quantity of imports, the production levels of U.S. and internationalsuppliers, levels of refined product 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.Some of these factors can vary by region and may change quickly, adding to market volatility, while others may have longer-termeffects. The longer-term effects of these and other factors on refining and marketing margins are uncertain. We do not produce crude oiland must purchase all of the crude oil we refine. We may purchase our crude oil and other refinery feedstocks long before we refinethem and sell the refined products. Price level changes during the period between purchasing feedstocks and selling the refinedproducts from these feedstocks could have a significant effect on our financial results. A decline in market prices may negativelyimpact the carrying value of our inventories.Economic turmoil and political unrest or hostilities, including the threat of future terrorist attacks, could affect the economies of the U.S.and other countries. Lower levels of economic activity could result in declines in energy consumption, including declines in thedemand for and consumption of our refined products, which could cause our revenues and margins to decline and limit our futuregrowth prospects.Refining margins are also significantly impacted by additional refinery conversion capacity through the expansion of existing refineriesor the construction of new refineries. Worldwide refining capacity expansions may result in refining production capability exceedingrefined product demand, 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 havebeen cheaper than benchmark crude oils, such as Louisiana Light Sweet (LLS) and Brent crude oils. These crude oil feedstockdifferentials vary significantly depending on overall economic conditions and trends and conditions within the markets for crude oil andrefined products, and they could decline in the future, which would have a negative impact on our results of operations.Compliance with and changes in environmental laws, including proposed climate change laws and regulations, could adversely affectour performance.The principal environmental risks associated with our operations are emissions into the air and releases into the soil, surface water, orgroundwater. Our operations are subject to extensive environmental laws and regulations, including those relating to the discharge ofmaterials into the environment, waste management, pollution prevention measures, greenhouse gas emissions, and characteristics andcomposition of gasoline12Table of Contentsand diesel fuels. Certain of these laws and regulations could impose obligations to conduct assessment or remediation efforts at ourfacilities as well as at formerly owned properties or third-party sites where we have taken wastes for disposal or where our wastes havemigrated. Environmental laws and regulations also may impose liability on us for the conduct of third parties, or for actions thatcomplied with applicable requirements when taken, regardless of negligence or fault. If we violate or fail to comply with these laws andregulations, we could be fined or otherwise sanctioned.Because environmental laws and regulations are becoming more stringent and new environmental laws and regulations arecontinuously being enacted or proposed, such as those relating to greenhouse gas emissions and climate change, the level ofexpenditures required for environmental matters could increase in the future. Current and future legislative action and regulatoryinitiatives could result in changes to operating permits, material changes in operations, increased capital expenditures and operatingcosts, increased costs of the goods we sell, and decreased demand for our products that cannot be assessed with certainty at this time.We may be required to make expenditures to modify operations or install pollution control equipment that could materially andadversely affect our business, financial condition, results of operations, and liquidity.For example, the U.S. Environmental Protection Agency (EPA) has, in recent years, adopted final rules making more stringent theNational Ambient Air Quality Standards (NAAQS) for ozone, sulfur dioxide, and nitrogen dioxide, and the U.S. EPA is consideringfurther revisions to the NAAQS. Emerging rules and permitting requirements implementing these revised standards may require us toinstall more stringent controls at our facilities, which may result in increased capital expenditures. Governmental restrictions ongreenhouse gas emissions – including so-called “cap-and-trade” programs targeted at reducing carbon dioxide emissions – could resultin material increased compliance costs, additional operating restrictions or permitting delays for our business, and an increase in thecost of, and reduction in demand for, the products we produce, which could have a material adverse effect on our 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, NorthAmerica, and South America. We are, therefore, subject to the political, geographic, and economic risks attendant to doing businesswith suppliers located in, and supplies originating from, these areas. If one or more of our supply contracts were terminated, or ifpolitical events disrupt our traditional crude oil supply, we believe that adequate alternative supplies of crude oil would be available, butit is possible that we would be unable to find alternative sources of supply. If we are unable to obtain adequate crude oil volumes or areable to obtain such volumes only at unfavorable prices, our results of operations could be materially adversely affected, includingreduced sales volumes of refined products or reduced margins as a result of higher crude oil costs.In addition, the U.S. government can prevent or restrict us from doing business in or with other countries. These restrictions, and thoseof other governments, could limit our ability to gain access to business opportunities in various countries. Actions by both the U.S. andother countries have affected our operations in the past and will continue to do so in the future.We are subject to interruptions and increased costs as a result of our reliance on third-party transportation of crude oil and theproducts that we manufacture.We generally use the services of third parties to transport feedstocks to our facilities and to transport the products we manufacture tomarket. If we experience prolonged interruptions of supply or increases in costs to deliver our products to market, or if the ability of thepipelines, vessels, or railroads to transport feedstocks or products is disrupted because of weather events, accidents, derailment,collision, fire, explosion,13Table of Contentsgovernmental regulations, or third-party actions, it could have a material adverse effect on our financial position, results of operations,and liquidity.We may incur additional costs as a result of our use of rail cars for the transportation of crude oil and the products that wemanufacture.We currently use rail cars for the transportation of some feedstocks to certain of our facilities and for the transportation of some of theproducts we manufacture to their markets. We own and lease rail cars for our operations. Rail transportation is subject to a variety offederal, state, and local regulations. New laws and regulations and changes in existing laws and regulations are continuously beingenacted or proposed that could result in increased expenditures for compliance. For example, in 2014 the U.S. Department ofTransportation (DOT) and Transport Canada (TC) issued proposed regulations for rail car standards and railroad operating requirementsfor flammable liquids with particular emphasis on shipments of crude oil, gasoline, and ethanol. The regulations as proposed wouldrequire significant physical modifications to rail cars. We may be required to incur additional costs in connection with these and otherfuture regulations of rail transportation to the extent they are applicable to us.Competitors that produce their own supply of feedstocks, own their own 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. Wecompete with many companies for available supplies of crude oil and other feedstocks and for sites for our refined products. We do notproduce any of our crude oil feedstocks and, following the separation of our retail business, we do not have a company-owned retailnetwork. Many of our competitors, however, obtain a significant portion of their feedstocks from company-owned production and somehave extensive retail sites. Such competitors are at times able to offset losses from refining operations with profits from producing orretailing operations, and may be better positioned to withstand periods of depressed refining margins or feedstock shortages.Some of our competitors also have materially greater financial and other resources than we have. Such competitors have a greaterability to bear the economic risks inherent in all phases of our industry. In addition, we compete with other industries that providealternative means to satisfy the energy and fuel requirements of our industrial, commercial, and individual consumers.Uncertainty and illiquidity in credit and capital markets can impair our ability to obtain credit and financing on acceptable terms, andcan adversely 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. Ourability to access credit and capital markets may be restricted at a time when we would like, or need, to access those markets, whichcould have an impact on our flexibility to react to changing economic and business conditions. In addition, the cost and availability ofdebt and equity financing may be adversely impacted by unstable or illiquid market conditions. Protracted uncertainty and illiquidity inthese markets also could have an adverse impact on our lenders, commodity hedging counterparties, or our customers, causing them tofail to meet their obligations to us. In addition, decreased returns on pension fund assets may also materially increase our pensionfunding requirements.Our access to credit and capital markets also depends on the credit ratings assigned to our debt by independent credit rating agencies.We currently maintain 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 oursecurities. Each rating should be14Table of Contentsevaluated independently of any other rating. We cannot provide assurance that any of our current ratings will remain in effect for anygiven period of time or that a rating will not be lowered or withdrawn entirely by a rating agency if, in its judgment, circumstances sowarrant. Specifically, if ratings agencies were to downgrade our long-term rating, particularly below investment grade, our borrowingcosts 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 ofcredit, or other forms of security, which would increase our operating costs. As a result, a downgrade below investment grade in ourcredit ratings could have a material 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 adverselyaffected if we were unable to obtain necessary funds from financing activities. From time to time, we may need to supplement our cashgenerated from operations with proceeds from financing activities. We have existing revolving credit facilities, committed letter ofcredit facilities, and an accounts receivable sales facility to provide us with available financing to meet our ongoing cash needs. Inaddition, we rely on the counterparties to our derivative instruments to fund their obligations under such arrangements. Uncertainty andilliquidity in financial markets may materially impact the ability of the participating financial institutions and other counterparties tofund their commitments to us under our various financing facilities or our derivative instruments, which could have a material adverseeffect on our financial position, results of operations, and liquidity.A significant interruption in one or more of our refineries 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 ofour refineries were to experience a major accident or mechanical failure, be damaged by severe weather or other natural or man-madedisaster, such as an act of terrorism, or otherwise be forced to shut down. If any refinery were to experience an interruption inoperations, 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 forcrude oil feedstocks and refined products, and could increase instability in the financial and insurance markets, making it more difficultfor us to access capital and to obtain insurance coverage that we consider adequate.A significant interruption related to our information technology systems could adversely affect our business.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 thatour infrastructure protection technologies and disaster recovery plans can prevent a technology systems breach or systems failure,which could have a material adverse effect on our financial position or results of operations.Our business may be negatively affected by work stoppages, slowdowns or strikes by our employees, as well as new labor legislationissued by regulators.Workers at various of our refineries are covered by collective bargaining agreements. To the extent we are in negotiations for laboragreements expiring in the future, there is no assurance an agreement will be reached without a strike, work stoppage, or other laboraction. Any prolonged strike, work stoppage, or other labor action could have an adverse effect on our financial condition or results ofoperations. In addition, future15Table of Contentsfederal or state labor legislation could result in labor shortages and higher costs, especially during critical maintenance periods.We are subject to operational risks and our insurance may not be sufficient to cover all potential losses arising from operatinghazards. Failure by one or more insurers to honor its coverage commitments for an insured event could materially and adverselyaffect our financial position, results of operations, and liquidity.Our refining and marketing operations are subject to various hazards common to the industry, including explosions, fires, toxicemissions, maritime hazards, and natural catastrophes. As protection against these hazards, we maintain insurance coverage againstsome, but not all, potential losses and liabilities. We may not be able to maintain or obtain insurance of the type and amount we desireat reasonable rates. As a result of market conditions, premiums and deductibles for certain of our insurance policies could increasesubstantially. In some instances, certain insurance could become unavailable or available only for reduced amounts of coverage. Forexample, coverage for hurricane damage is very limited, and coverage for terrorism risks includes very broad exclusions. If we were toincur a significant liability for which we were not fully insured, it could have a material adverse effect on our financial position, resultsof operations, and liquidity.Our insurance program includes a number of insurance carriers. Significant disruptions in financial markets could lead to a deteriorationin the financial condition of many financial institutions, including insurance companies. We can make no assurances that we will beable to obtain the full amount of our insurance coverage for insured events.Large capital projects can take many years to complete, and market conditions could deteriorate over time, negatively impactingproject returns.We may engage in capital projects based on the forecasted project economics and level of return on the capital to be employed in theproject. Large-scale projects take many years to complete, and market conditions can change from our forecast. As a result, we may beunable to fully realize our expected returns, which could negatively impact our financial condition, results of operations, and cashflows.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, gross receipts, and value-added taxes), payroll taxes, franchise taxes, withholding taxes, and ad valorem taxes. New tax lawsand regulations and changes in existing tax laws and regulations are continuously being enacted or proposed that could result inincreased expenditures for tax liabilities in the future. Many of these liabilities are subject to periodic audits by the respective taxingauthority. Subsequent changes to our tax liabilities as a result of these audits may subject us to interest and penalties.We may incur losses and incur additional costs 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 tohedge our exposure to various types of risk are not effective, we may incur losses. In addition, we may be required to incur additionalcosts in connection with future regulation of derivative instruments to the extent it is applicable to us.16Table of ContentsOne of our subsidiaries acts as the general partner of a publicly traded master limited partnership, VLP, which may involve a greaterexposure to legal liability than our historic business operations.One of our subsidiaries acts as the general partner of VLP, a publicly traded master limited partnership. Our control of the generalpartner of VLP may increase the possibility of claims of breach of fiduciary duties, including claims of conflicts of interest, related toVLP. Liability resulting from such claims could have a material adverse effect on our financial position, results of operations, andliquidity.If our spin-off of CST (the “Spin-off”), or certain internal transactions undertaken in anticipation of the Spin-off, were determined tobe taxable for U.S. federal income tax purposes, then we and our stockholders could be subject to significant tax liability.We received a private letter ruling from the Internal Revenue Service (IRS) substantially to the effect that, for U.S. federal income taxpurposes, the Spin-off, except for cash received in lieu of fractional shares, qualified as tax-free under sections 355 and 361 of the U.S.Internal Revenue Code of 1986, as amended (Code), and that certain internal transactions undertaken in anticipation of the Spin-offqualified for favorable treatment. The IRS did not rule, however, on whether the Spin-off satisfied certain requirements necessary toobtain tax-free treatment under section 355 of the Code. Instead, the private letter ruling was based on representations by us that thoserequirements were satisfied, and any inaccuracy in those representations could invalidate the private letter ruling. In connection with theprivate letter ruling, we also obtained an opinion from a nationally recognized accounting firm, substantially to the effect that, for U.S.federal income tax purposes, the Spin-off qualified under sections 355 and 361 of the Code. The opinion relied on, among other things,the continuing validity of the private letter ruling and various assumptions and representations as to factual matters made by CST and uswhich, if inaccurate or incomplete in any material respect, would jeopardize the conclusions reached by such counsel in its opinion.The opinion is not binding on the IRS or the courts, and there can be no assurance that the IRS or the courts would not challenge theconclusions stated in the opinion or that any such challenge would not prevail. Furthermore, notwithstanding the private letter ruling,the IRS could determine on audit that the Spin-off or the internal transactions undertaken in anticipation of the Spin-off should betreated as taxable transactions if it determines that any of the facts, assumptions, representations, or undertakings we or CST have madeor provided to the IRS are incorrect or incomplete, or that the Spin-off or the internal transactions should be taxable for other reasons,including as a result of a significant change in stock or asset ownership after the Spin-off.If the Spin-off ultimately were determined to be taxable, each holder of our common stock who received shares of CST common stockin the Spin-off generally would be treated as receiving a spin-off of property in an amount equal to the fair market value of the shares ofCST common stock received by such holder. Any such spin-off would be a dividend to the extent of our current earnings and profits asof the end of 2013, and any accumulated earnings and profits. Any amount that exceeded our relevant earnings and profits would betreated first as a non-taxable return of capital to the extent of such holder’s tax basis in our shares of common stock with any remainingamount generally being taxed as a capital gain. In addition, we would recognize gain in an amount equal to the excess of the fairmarket value of shares of CST common stock distributed to our holders on the Spin-off date over our tax basis in such shares of CSTcommon stock. Moreover, we could incur significant U.S. federal income tax liabilities if it ultimately were determined that certaininternal transactions undertaken in anticipation of the Spin-off were taxable.Under the terms of the tax matters agreement we entered into with CST in connection with the Spin-off, we generally are responsible forany taxes imposed on us and our subsidiaries in the event that the Spin-off and/or certain related internal transactions were to fail toqualify for tax-free treatment. However, if the Spin-off and/or such internal transactions were to fail to qualify for tax-free treatmentbecause of actions or failures to act by CST or its subsidiaries, CST would be responsible for all such taxes. If we were to become liable17Table of Contentsfor taxes under the tax matters agreement, that liability could have a material adverse effect on us. The Spin-off is more fully describedin Note 3 of Notes to Consolidated Financial Statements.ITEM 1B. UNRESOLVED STAFF COMMENTSNone.ITEM 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 toConsolidated Financial 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 decidedagainst us, we believe that there would be no material effect on our financial position, results of operations, or liquidity. We arereporting these proceedings to comply with SEC regulations, which require us to disclose certain information about proceedings arisingunder federal, state, or local provisions regulating the discharge of materials into the environment or protecting the environment if wereasonably believe that such proceedings will result in monetary sanctions of $100,000 or more.People of the State of Illinois, ex rel. v. The Premcor Refining Group Inc., et al., Third Judicial Circuit Court, Madison County (CaseNo. 03-CH-00459, filed May 29, 2003) (Hartford Refinery and terminal). The Illinois EPA has issued several Notices of Violation(NOVs) alleging violations of air and waste regulations at Premcor’s Hartford, Illinois terminal and closed refinery. We are negotiatingthe terms of a consent order for corrective action.Bay Area Air Quality Management District (BAAQMD) (Benicia Refinery). We currently have multiple outstanding Violation Notices(VNs) issued by the BAAQMD, which we reasonably believe may result in penalties of $100,000 or more. These VNs are for variousalleged air regulation and air permit violations at our Benicia Refinery and asphalt plant. We continue to work with the BAAQMD toresolve these VNs.South Coast Air Quality Management District (SCAQMD) (Wilmington Refinery). We currently have multiple NOVs issued by theSCAQMD, which we reasonably believe may result in penalties of $100,000 or more. These NOVs are for alleged reporting violationsand excess emissions at our Wilmington Refinery. In the first quarter of 2015, we entered into an Agreement to resolve various NOVs,and we continue to work with the SCAQMD to resolve the remaining NOVs.Texas Commission on Environmental Quality (TCEQ) (Port Arthur Refinery). In our annual report on Form 10-K for the year endedDecember 31, 2013, we reported that our Port Arthur Refinery had received a proposed agreed order from the TCEQ that assessed apenalty of $180,911 for alleged air emission and reporting violations, and a Notice of Enforcement (NOE) for unauthorized emissionswith potential stipulated penalties of $166,000. In the first quarter of 2014, we received two proposed Agreed Orders from the TCEQresolving multiple violations that occurred between May 2007 and April 2013, including all the unauthorized emissions, reportingviolations, and stipulated penalties in the two NOEs referenced above. We continue to work with the TCEQ to finalize these AgreedOrders.ITEM 4. MINE SAFETY DISCLOSURESNone.18Table of ContentsPART IIITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUERPURCHASES OF EQUITY SECURITIESOur common stock trades on the NYSE under the symbol “VLO.”As of January 31, 2015, there were 6,213 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 2014 and2013. Sales Prices of theCommon Stock DividendsPerCommonShareQuarter Ended High Low 2014: December 31 $52.10 $42.53 $0.275September 30 54.61 45.73 0.275June 30 59.69 50.03 0.250March 31 55.96 45.90 0.2502013: December 31 50.54 33.20 0.225September 30 37.50 33.00 0.225June 30 45.53 33.27 0.200March 31 48.97 34.05 0.200On January 23, 2015, our board of directors declared a quarterly cash dividend of $0.40 per common share payable March 3, 2015 toholders of record at the close of business on February 11, 2015.Dividends are considered quarterly by the board of directors and may be paid only when approved by the board.19The following table discloses purchases of shares of Valero’s common stock made by us or on our behalf during the fourth quarter of2014.Period Total Numberof SharesPurchased AveragePrice Paidper Share Total Number ofShares NotPurchased as Part ofPublicly AnnouncedPlans or Programs (a) Total Number ofShares Purchased asPart of PubliclyAnnounced Plans orPrograms Approximate DollarValue of Shares thatMay Yet Be PurchasedUnder the Plans orPrograms (b)October 2014 3,180,678 $46.27 302,005 2,878,673 $ 1.8 billionNovember 2014 2,001,273 $50.32 119,047 1,882,226 $ 1.7 billionDecember 2014 5,120,398 $48.56 2,624 5,117,774 $ 1.5 billionTotal 10,302,349 $48.20 423,676 9,878,673 $ 1.5 billion(a)The shares reported in this column represent purchases settled in the fourth quarter of 2014 relating to (i) our purchases of shares in open-markettransactions to meet our obligations under stock-based 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 stock-based compensation plans.(b)On February 28, 2008, we announced that our board of directors approved a $3 billion common stock purchase program. This $3 billion program has noexpiration date.20The 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 following line graph compares the cumulative total return1 on an investment in our common stock against the cumulative totalreturn of the S&P 500 Composite Index and an index of peer companies (that we selected) for the five-year period commencingDecember 31, 2009 and ending December 31, 2014. Our peer group comprises the following 11 companies: Alon USA Energy, Inc.;BP plc; CVR Energy, Inc.; Delek US Holdings, Inc.; HollyFrontier Corporation; Marathon Petroleum Corporation; PBF Energy Inc.;Phillips 66; Royal Dutch Shell plc; Tesoro Corporation; and Western Refining, Inc.COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN1 Among Valero Energy Corporation, the S&P 500 Index,and Peer Group 12/2009 12/2010 12/2011 12/2012 12/2013 12/2014Valero Common Stock$100.00 $139.54 $128.59 $213.68 $352.58 $353.43S&P 500100.00 115.06 117.49 136.30 180.44 205.14Peer Group100.00 93.33 100.51 109.79 133.61 123.08____________________________________1 Assumes that an investment in Valero common stock and each index was $100 on December 31, 2009. “Cumulative total return” is based on share price appreciation plusreinvestment of dividends from December 31, 2009 through December 31, 2014.21Table of ContentsITEM 6. SELECTED FINANCIAL DATAThe selected financial data for the five-year period ended December 31, 2014 was derived from our audited financial statements. Thefollowing table should be read together with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results ofOperations” and with the historical financial statements and accompanying notes included in Item 8, “Financial Statements andSupplementary Data.”The following summaries are in millions of dollars, except for per share amounts: Year Ended December 31, (a) 2014 (b) 2013 (c) 2012 2011 (d) 2010 (e)Operating revenues$130,844 $138,074 $138,393 $120,607 $82,154Income from continuingoperations3,775 2,722 3,114 2,336 1,178Earnings per commonshare from continuingoperations – assuming dilution6.97 4.96 5.61 4.11 2.07Dividends per common share1.05 0.85 0.65 0.30 0.20Total assets45,550 47,260 44,477 42,783 37,621Debt and capital leaseobligations, less current portion5,780 6,261 6,463 6,732 7,515_________________________________________________(a)As further described in Note 2 of Notes to Consolidated Financial Statements, the results of operations of the Aruba Refinery are reported as discontinuedoperations for all years presented.(b)We acquired an idled ethanol plant in the first quarter of 2014, and resumed production during the third quarter of 2014. The information presented in2014 includes the results of operations for this plant commencing on its acquisition date.(c)Includes the operations of our retail business prior to its separation from us on May 1, 2013, as further described in Note 3 of Notes to ConsolidatedFinancial Statements.(d)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.(e)We acquired three ethanol plants in the first quarter of 2010. The information presented for 2010 includes the results of operations of these plantscommencing on their respective acquisition dates.22Table 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 Item 1A, “Risk Factors,”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-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of1934. You can identify 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 similarexpressions.These forward-looking statements include, among other things, statements regarding:•future refining margins, including gasoline and distillate 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 expendituresfor environmental 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 in the regions where weoperate, as well as globally;•expectations regarding environmental, tax, and other regulatory initiatives; and•the effect of general economic and other conditions on refining and ethanol industry fundamentals.We based our forward-looking statements on our current expectations, estimates, and projections about ourselves and our industry. Wecaution that these statements are not guarantees of future performance and involve risks, uncertainties, and assumptions that we cannotpredict. In addition, we based many of these forward-looking statements on assumptions about future events that may prove to beinaccurate. Accordingly, our actual results may differ materially from the future performance that we have expressed or forecast in theforward-looking statements. Differences between actual results and any future performance suggested in these forward-lookingstatements 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 refinedproducts or receive 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, petrochemicals, and ethanol;•demand for, and supplies of, crude oil and other feedstocks;•the ability of the members of the Organization of Petroleum Exporting Countries 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;23•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, andinformation systems, 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 alternative fuels;•the volatility in the market price of biofuel credits (primarily Renewable Identification Numbers (RINs) needed to comply withthe U.S. federal Renewable Fuel Standard);•delay of, cancellation of, or failure to implement planned capital projects and realize the various assumptions and benefitsprojected for such projects 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 environmentalremediation costs, in excess of any reserves or insurance coverage;•legislative or regulatory action, including the introduction or enactment of legislation or rulemakings by governmentalauthorities, including tax and environmental regulations, such as those implemented under the California Global WarmingSolutions Act (also known as AB 32), Quebec’s Regulation respecting the cap-and-trade system for greenhouse gas emissionallowances (the Quebec cap-and-trade system), and the U.S. EPA’s regulation of greenhouse gases, which may adversely affectour 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 theU.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 Item 1A, “Risk Factors” in this report.Any one of these factors, or a combination of these factors, could materially affect our future results of operations and whether anyforward-looking statements ultimately prove to be accurate. Our forward-looking statements are not guarantees of future performance,and actual results and future performance may differ materially from those suggested in any forward-looking statements. We do notintend to update these statements unless we are required by the securities laws to do so.All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified intheir entirety by the foregoing. We undertake no obligation to publicly release any revisions to any such forward-looking statementsthat may be made to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.24OVERVIEW AND OUTLOOKOverviewFor the year ended December 31, 2014, we reported net income attributable to Valero stockholders from continuing operations of$3.7 billion, or $6.97 per share (assuming dilution), compared to $2.7 billion, or $4.96 per share (assuming dilution), for the year endedDecember 31, 2013. The increase of $980 million was due primarily to the increase of $1.9 billion in our operating income as shown inthe table below. The increase in our operating income was partially offset by a $325 million nontaxable gain recorded in 2013 related tothe disposition of our retained interest in CST, which is more fully described in Notes 3 and 11 of Notes to Consolidated FinancialStatements.Our operating income increased $1.9 billion from 2013 to 2014 as outlined by business segment in the following table (in millions): Year Ended December 31, 2014 2013 ChangeOperating income (loss) by business segment: Refining $5,884 $4,211 $1,673Ethanol 786 491 295Retail — 81 (81)Corporate (768) (826) 58Total $5,902 $3,957 $1,945The $1.7 billion increase in refining segment operating income for 2014 compared to 2013 was due to wider discounts for sweet andsour crude oils relative to Brent crude oil, higher throughput volumes in our U.S. Gulf Coast region, and higher margins on otherrefined products (e.g., petroleum coke and sulfur), partially offset by weaker distillate margins. Higher energy costs and depreciationexpense between the periods also impacted our refining segment income. Our ethanol segment operating income increased$295 million in 2014 compared to 2013 due to lower corn feedstock costs and higher production volumes, partially offset by lower co-product prices and lower ethanol prices.On May 1, 2013, we completed the separation of our retail business, by spinning off CST as an independent public company.Therefore, we did not have any retail segment operations in 2014, resulting in the $81 million decrease in retail segment operatingincome in 2014 compared to 2013.Additional details and analysis of the changes in the operating income of our business segments and other components of net incomeattributable to Valero stockholders are provided below under “RESULTS OF OPERATIONS.”25OutlookEnergy markets and margins were volatile during 2014, especially in the latter part of the year, and we expect them to continue to bevolatile in the near to mid-term. Below is a summary of factors that have impacted or may impact our results of operations during thefirst quarter of 2015:•Discounts in the price of medium sour and heavy sour crude oils as compared to the price of Brent crude oil have widened sinceyear end as producers of those crude oils have attempted to maintain market share in an oversupplied crude oil market.•Discounts in the price of North American sweet crude oils as compared to the price of Brent crude oil are expected to increasedue to a build in U.S. crude oil inventories, driven primarily by (i) increasing imports of medium sour and heavy sour crudeoils, (ii) seasonal planned refinery maintenance, and (iii) a crude oil market structure where the future price is higher than thecurrent price of crude oil, which indicates that the crude oil market is oversupplied.•Refined product margins are expected to strengthen due to an increase in the demand for refined products and the impact onproduct inventories from refinery maintenance thus far in the first quarter of 2015.•Ethanol margins are expected to remain relatively low as long as gasoline prices remain low.•The market price of biofuel credits (primarily RINs) is expected to remain volatile during 2015.•The cost to implement certain provisions of the AB 32 cap-and-trade system and low carbon fuel standard in California and theQuebec cap-and-trade system may be significant; however, we expect to recover the majority of these costs from our customers.•A further decline in market prices of crude oil and refined products may negatively impact the carrying value of our inventories.•The United Steelworkers union and the U.S. refining industry are currently in the process of collective bargaining and strikeshave been called at 12 U.S. refineries. We have four refineries that could be targeted for a strike but none has been targeted atthis time. Also note our disclosures in Item 1A, “Risk Factors” — Our business may be negatively affected by work stoppages,slowdowns or strikes by our employees, as well as new labor legislation issued by regulators.26RESULTS OF OPERATIONSThe following tables highlight our results of operations, our operating performance, and market prices that directly impact ouroperations. The narrative following these tables provides an analysis of our results of operations.2014 Compared to 2013Financial Highlights (a)(millions of dollars, except per share amounts) Year Ended December 31, 2014 2013 (b) ChangeOperating revenues$130,844 $138,074 $(7,230)Costs and expenses: Cost of sales118,141 127,316 (9,175)Operating expenses: Refining3,900 3,710 190Retail— 226 (226)Ethanol487 387 100General and administrative expenses724 758 (34)Depreciation and amortization expense: Refining1,597 1,566 31Retail— 41 (41)Ethanol49 45 4Corporate44 68 (24)Total costs and expenses124,942 134,117 (9,175)Operating income5,902 3,957 1,945Gain on disposition of retained interest in CST Brands, Inc. (b)— 325 (325)Other income, net47 59 (12)Interest and debt expense, net of capitalized interest(397) (365) (32)Income from continuing operations before income tax expense5,552 3,976 1,576Income tax expense1,777 1,254 523Income from continuing operations3,775 2,722 1,053Income (loss) from discontinued operations(64) 6 (70)Net income3,711 2,728 983Less: Net income attributable to noncontrolling interests81 8 73Net income attributable to Valero Energy Corporation stockholders$3,630 $2,720 $910 Net income attributable to Valero Energy Corporation stockholders: Continuing operations$3,694 $2,714 $980Discontinued operations(64) 6 (70)Total$3,630 $2,720 $910 Earnings per common share – assuming dilution: Continuing operations$6.97 $4.96 $2.01Discontinued operations(0.12) 0.01 (0.13)Total$6.85 $4.97 $1.88________________See note references on page 31.27Refining Operating Highlights (a)(millions of dollars, except per barrel amounts) Year Ended December 31, 2014 2013 ChangeRefining: Operating income$5,884 $4,211 $1,673 Throughput margin per barrel (c)$11.28 $9.69 $1.59Operating costs per barrel: Operating expenses3.87 3.79 0.08Depreciation and amortization expense1.58 1.60 (0.02)Total operating costs per barrel5.45 5.39 0.06Operating income per barrel$5.83 $4.30 $1.53 Throughput volumes (thousand BPD): Feedstocks: Heavy sour crude oil457 486 (29)Medium/light sour crude oil466 466 —Sweet crude oil1,149 1,039 110Residuals230 282 (52)Other feedstocks134 106 28Total feedstocks2,436 2,379 57Blendstocks and other329 303 26Total throughput volumes2,765 2,682 83 Yields (thousand BPD): Gasolines and blendstocks1,329 1,287 42Distillates1,047 984 63Other products (d)423 440 (17)Total yields2,799 2,711 88________________See note references on page 31.28Refining Operating Highlights by Region (e)(millions of dollars, except per barrel amounts) Year Ended December 31, 2014 2013 ChangeU.S. Gulf Coast (a): Operating income$3,484 $2,375 $1,109Throughput volumes (thousand BPD)1,600 1,523 77 Throughput margin per barrel (c)$11.23 $9.57 $1.66Operating costs per barrel: Operating expenses3.66 3.67 (0.01)Depreciation and amortization expense1.60 1.63 (0.03)Total operating costs per barrel5.26 5.30 (0.04)Operating income per barrel$5.97 $4.27 $1.70 U.S. Mid-Continent: Operating income$1,358 $1,293 $65Throughput volumes (thousand BPD)446 435 11 Throughput margin per barrel (c)$13.85 $13.37 $0.48Operating costs per barrel: Operating expenses3.90 3.58 0.32Depreciation and amortization expense1.61 1.64 (0.03)Total operating costs per barrel5.51 5.22 0.29Operating income per barrel$8.34 $8.15 $0.19 North Atlantic: Operating income$971 $570 $401Throughput volumes (thousand BPD)457 459 (2) Throughput margin per barrel (c)$10.38 $7.93 $2.45Operating costs per barrel: Operating expenses3.40 3.50 (0.10)Depreciation and amortization expense1.16 1.03 0.13Total operating costs per barrel4.56 4.53 0.03Operating income per barrel$5.82 $3.40 $2.42 U.S. West Coast: Operating income (loss)$71 $(27) $98Throughput volumes (thousand BPD)262 265 (3) Throughput margin per barrel (c)$8.79 $7.43 $1.36Operating costs per barrel: Operating expenses5.91 5.35 0.56Depreciation and amortization expense2.14 2.35 (0.21)Total operating costs per barrel8.05 7.70 0.35Operating income (loss) per barrel$0.74 $(0.27) $1.01 Total refining operating income$5,884 $4,211 $1,673________________See note references on page 31.29Average Market Reference Prices and Differentials(dollars per barrel, except as noted) Year Ended December 31, 2014 2013 ChangeFeedstocks: Brent crude oil$99.57 $108.74 (9.17)Brent less West Texas Intermediate (WTI) crude oil6.40 10.80 (4.40)Brent less Alaska North Slope (ANS) crude oil1.73 1.00 0.73Brent less Louisiana Light Sweet (LLS) crude oil2.79 0.41 2.38Brent less Mars crude oil6.75 5.52 1.23Brent less Maya crude oil13.73 11.31 2.42LLS crude oil96.78 108.33 (11.55)LLS less Mars crude oil3.96 5.11 (1.15)LLS less Maya crude oil10.94 10.90 0.04WTI crude oil93.17 97.94 (4.77) Natural gas (dollars per million British thermal units (MMBtu))4.36 3.69 0.67 Products: U.S. Gulf Coast: CBOB gasoline less Brent3.54 2.69 0.85Ultra-low-sulfur diesel less Brent14.28 15.95 (1.67)Propylene less Brent5.57 (2.72) 8.29CBOB gasoline less LLS6.33 3.10 3.23Ultra-low-sulfur diesel less LLS17.07 16.36 0.71Propylene less LLS8.36 (2.31) 10.67U.S. Mid-Continent: CBOB gasoline less WTI12.28 16.77 (4.49)Ultra-low-sulfur diesel less WTI24.05 28.33 (4.28)North Atlantic: CBOB gasoline less Brent9.07 8.50 0.57Ultra-low-sulfur diesel less Brent18.25 17.84 0.41U.S. West Coast: CARBOB 87 gasoline less ANS13.40 12.69 0.71CARB diesel less ANS19.14 18.83 0.31CARBOB 87 gasoline less WTI18.07 22.49 (4.42)CARB diesel less WTI23.81 28.63 (4.82)New York Harbor corn crush (dollars per gallon)0.85 0.42 0.43________________See note references on page 31.30Ethanol and Retail Operating Highlights(millions of dollars, except per gallon amounts) Year Ended December 31, 2014 2013 ChangeEthanol: Operating income$786 $491 $295Production (thousand gallons per day)3,422 3,294 128 Gross margin per gallon of production (c)$1.06 $0.77 $0.29Operating costs per gallon of production: Operating expenses0.39 0.32 0.07Depreciation and amortization expense0.04 0.04 —Total operating costs per gallon of production0.43 0.36 0.07Operating income per gallon of production$0.63 $0.41 $0.22 Retail: Operating income$— $81 $(81)________________See note references on page 31.The following notes relate to references on pages 27 through 31.(a)In May 2014, we abandoned our Aruba Refinery, except for the associated crude oil and refined products terminal assets that we continue to operate. As aresult, the refinery’s results of operations have been presented as discontinued operations and the operating highlights for the refining segment and theU.S. Gulf Coast region exclude the Aruba Refinery for all years presented. This transaction is more fully described in Note 2 of Notes to ConsolidatedFinancial Statements.(b)On May 1, 2013, we completed the separation of our retail business. As a result and effective May 1, 2013, our results of operations no longer includethose of CST, our former retail business. The nature and significance of our post-separation participation in the supply of motor fuel to CST represents acontinuation of activities with CST for accounting purposes. As such, the historical results of operations related to CST have not been reported asdiscontinued operations in the statements of income. This transaction is more fully discussed in Note 3 of Notes to Consolidated Financial Statements.(c)Throughput margin per barrel represents operating revenues less cost of sales of our refining segment divided by throughput volumes. Gross margin pergallon of production represents operating revenues less cost of sales of our ethanol segment divided by production volumes.(d)Other products primarily include petrochemicals, gas oils, No. 6 fuel oil, petroleum coke, sulfur, and asphalt.(e)The regions reflected herein contain the following refineries: the U.S. Gulf Coast region includes the Corpus Christi East, Corpus Christi West, Houston,Meraux, Port Arthur, St. Charles, Texas City, and Three Rivers Refineries; the U.S. Mid-Continent region includes the Ardmore, McKee, and MemphisRefineries; the North Atlantic region includes the Pembroke and Quebec City Refineries; and the U.S. West Coast region includes the Benicia andWilmington Refineries.31GeneralOperating revenues decreased $7.2 billion (or 5 percent) for the year ended December 31, 2014 compared to the year endedDecember 31, 2013. This decrease was primarily due to a decrease in refined product prices in all of our regions. Despite the decline inoperating revenues, operating income increased $1.9 billion for the year ended December 31, 2014 compared to the year endedDecember 31, 2013 due primarily to a $1.7 billion increase in refining segment operating income, a $295 million increase in ethanolsegment operating income, and a $34 million decrease in general and administrative expenses, partially offset by an $81 milliondecrease in retail segment operating income due to the spin-off of our retail business in 2013 as mentioned previously. The reasons forthese changes in the operating results of our segments and general and administrative expenses, as well as other items that affected ourincome, are discussed below.RefiningRefining segment operating income increased $1.7 billion from $4.2 billion for the year ended December 31, 2013 to $5.9 billion forthe year ended December 31, 2014, due primarily to a $1.9 billion increase in refining margin, partially offset by a $190 millionincrease in operating expenses and a $31 million increase in depreciation and amortization expense.Refining margin increased $1.9 billion (a $1.59 per barrel increase) in 2014 compared to 2013, due primarily to the following:•Higher discounts on light sweet crude oils and sour crude oils - Because the market prices for refined products generally track theprice of Brent crude oil, which is a benchmark sweet crude oil, we benefit when we process crude oils that are priced at a discountto Brent crude oil. For the year ended December 31, 2014, the discount in the price of some light sweet crude oils and sour crudeoils compared to the price of Brent crude oil widened. For example, LLS crude oil processed in our U.S. Gulf Coast region, which isa light sweet crude oil, sold at a discount of $2.79 per barrel to Brent crude oil for the year ended December 31, 2014 compared to$0.41 per barrel for the year ended December 31, 2013, representing a favorable increase of $2.38 per barrel. Another example isMaya crude oil, a sour crude oil, which sold at a discount of $13.73 per barrel to Brent crude oil during the year endedDecember 31, 2014 compared to a discount of $11.31 per barrel during the year ended December 31, 2013, representing afavorable increase of $2.42 per barrel. We estimate that the discounts for light sweet crude oils and sour crude oils that weprocessed during the year ended December 31, 2014 had a positive impact to our refining margin of approximately $680 millionand $800 million, respectively.•Higher throughput volumes - Refining throughput volumes increased 83,000 BPD for the year ended December 31, 2014 comparedto the year ended December 31, 2013. We estimate that the increase in refining throughput volumes had a positive impact on ourrefining margin of approximately $340 million.•Lower costs of biofuel credits - As more fully described in Note 21 of Notes to Consolidated Financial Statements, we purchasebiofuel credits in order to meet our biofuel blending obligations under various government and regulatory compliance programs,and the cost of these credits (primarily RINs in the U.S.) decreased by $145 million from $517 million in 2013 to $372 million in2014. This decrease was due primarily to a reduction in the market price of RINs between the two years.•Increase in other refinery products margins - We experienced an increase in the margins of other refinery products relative to Brentcrude oil, such as petroleum coke and sulfur during 2014 compared to 2013. Margins for other refinery products were higherduring 2014 due to the decrease in the cost of crude oils during the year compared to 2013. For example, the benchmark price ofBrent crude oil was $99.57 per barrel for the year ended December 31, 2014 compared to $108.74 for the year endedDecember 31,322013. We estimate that the increase in other refinery products margins during the year ended December 31, 2014 compared to theyear ended December 31, 2013 had a positive impact to our refining margin of approximately $430 million.•Decrease in distillate margins - We experienced a decrease in distillate margins in our U.S. Gulf Coast region primarily due to thedecrease in refined product prices . For example, the Brent-based benchmark reference margin for U.S. Gulf Coast ultra-low sulfurdiesel was $14.28 per barrel for the year ended December 31, 2014 compared to $15.95 per barrel for the year ended December 31,2013, representing an unfavorable decrease of $1.67 per barrel. We estimate that the decline in distillate margins during the yearended December 31, 2014 compared to the year ended December 31, 2013 had a negative impact to our refining margin ofapproximately $400 million.The increase of $190 million in operating expenses was primarily due to a $128 million increase in energy costs related to highernatural gas prices ($4.36 per MMBtu for the year ended December 31, 2014 compared to $3.69 per MMBtu for the year endedDecember 31, 2013) and a $22 million increase in maintenance expense primarily related to higher levels of routine maintenanceactivities during the year ended December 31, 2014.The increase of $31 million in depreciation and amortization expense was primarily due to additional depreciation expense of$25 million associated with the new hydrocracker unit at our St. Charles Refinery that began operating in July 2013.EthanolEthanol segment operating income was $786 million for the year ended December 31, 2014 compared to $491 million for the yearended December 31, 2013. The $295 million increase in operating income was due primarily to a $399 million increase in gross margin(a $0.29 per gallon increase), partially offset by a $100 million increase in operating expenses.Ethanol gross margin per gallon increased to $1.06 per gallon for the year ended December 31, 2014 from $0.77 per gallon for the yearended December 31, 2013 due primarily to the following:•Lower corn prices - Corn prices were lower in 2014 due to higher corn inventories in 2014 compared to 2013, which resultedfrom a higher yielding harvest in 2013 compared to the drought-stricken harvest of 2012. For example, the Chicago Board ofTrade corn price was $4.16 per bushel in 2014 compared to $5.80 per bushel in 2013. The decrease in the price of corn that weprocessed during 2014 favorably impacted our ethanol margin by approximately $910 million.•Lower ethanol prices - Ethanol prices were lower in 2014 due to higher ethanol inventories resulting from higher industry runrates in 2014 as compared to 2013. The decrease in crude oil and gasoline prices in 2014 also contributed to the decrease inethanol prices. For example, the New York Harbor ethanol price was $2.37 per gallon in 2014 compared to $2.53 per gallon in2013. The decrease in the price of ethanol per gallon during 2014 had an unfavorable impact to our ethanol margin ofapproximately $260 million.•Lower co-product prices - The decrease in corn prices in 2014 had a negative effect on the prices we received for corn-relatedethanol co-products, such as distillers grains and corn oil. The decrease in co-products prices had an unfavorable impact to ourethanol segment margin of approximately $250 million.33The $100 million increase in operating expenses during 2014 compared to 2013 was partially due to $22 million in operating expensesof the Mount Vernon plant acquired in March 2014. The remaining increase of $78 million was primarily due to increased energy costsand chemical costs. The increase in energy costs of $57 million was due primarily to the severe winter weather in the U.S. in the firstquarter of 2014 that caused a significant increase in regional natural gas prices combined with higher use of natural gas due to theincrease in production volumes. The increase in chemical costs of $16 million was due to higher production volumes.Corporate Expenses and OtherGeneral and administrative expenses decreased $34 million from the year ended December 31, 2013 to the year ended December 31,2014 primarily due to $30 million of transaction costs related to the separation of our retail business on May 1, 2013 that were recordedin 2013 and did not recur.Depreciation and amortization expense decreased $24 million primarily due to a $20 million loss on the sale of certain corporateproperty in 2013 that was reflected in depreciation and amortization expense.“Interest and debt expense, net of capitalized interest” for the year ended December 31, 2014 increased $32 million from the yearended December 31, 2013. This increase was primarily due to a $48 million decrease in capitalized interest due to the completion ofseveral large capital projects during 2013, including the new hydrocracker at our St. Charles Refinery, partially offset by a $20 millionfavorable impact from a decrease in average borrowings.Income tax expense increased $523 million from the year ended December 31, 2013 to the year ended December 31, 2014 due tohigher income from continuing operations before income tax expense. The effective rate for both years is lower than the U.S. statutoryrate because income from continuing operations from our international operations was taxed at statutory rates that were lower than inthe U.S. and due to a higher benefit from our U.S. manufacturing deduction.Income (loss) from discontinued operations for the year ended December 31, 2014 includes expenses of $59 million for an assetretirement obligation and $4 million for certain contractual obligations associated with our decision in May 2014 to abandon the ArubaRefinery, as further described in Note 2 of Notes to Consolidated Financial Statements.342013 Compared to 2012Financial Highlights (a)(millions of dollars, except per share amounts) Year Ended December 31, 2013 (b) 2012 ChangeOperating revenues$138,074 $138,393 $(319)Costs and expenses: Cost of sales127,316 126,485 831Operating expenses: Refining3,710 3,513 197Retail226 686 (460)Ethanol387 332 55General and administrative expenses758 698 60Depreciation and amortization expense: Refining1,566 1,345 221Retail41 119 (78)Ethanol45 42 3Corporate68 43 25Asset impairment losses (c)— 86 (86)Total costs and expenses134,117 133,349 768Operating income3,957 5,044 (1,087)Gain on disposition of retained interest in CST Brands, Inc. (b)325 — 325Other income, net59 10 49Interest and debt expense, net of capitalized interest(365) (314) (51)Income from continuing operations before income tax expense3,976 4,740 (764)Income tax expense1,254 1,626 (372)Income from continuing operations2,722 3,114 (392)Income (loss) from discontinued operations6 (1,034) 1,040Net income2,728 2,080 648Less: Net income (loss) attributable to noncontrolling interest8 (3) 11Net income attributable to Valero Energy Corporation stockholders$2,720 $2,083 $637 Net income attributable to Valero Energy Corporation stockholders: Continuing operations$2,714 $3,117 $(403)Discontinued operations6 (1,034) 1,040Total$2,720 $2,083 $637 Earnings per common share – assuming dilution: Continuing operations$4.96 $5.61 $(0.65)Discontinued operations0.01 (1.86) 1.87Total$4.97 $3.75 $1.22________________See note references on page 39.35Refining Operating Highlights (a)(millions of dollars, except per barrel amounts) Year Ended December 31, 2013 2012 ChangeRefining (c): Operating income$4,211 $5,484 $(1,273) Throughput margin per barrel (e)$9.69 $11.00 $(1.31)Operating costs per barrel: Operating expenses3.79 3.71 0.08Depreciation and amortization expense1.60 1.42 0.18Total operating costs per barrel5.39 5.13 0.26Operating income per barrel$4.30 $5.87 $(1.57) Throughput volumes (thousand BPD): Feedstocks: Heavy sour crude oil486 431 55Medium/light sour crude oil466 546 (80)Sweet crude oil1,039 991 48Residuals282 199 83Other feedstocks106 118 (12)Total feedstocks2,379 2,285 94Blendstocks and other303 299 4Total throughput volumes2,682 2,584 98 Yields (thousand BPD): Gasolines and blendstocks1,287 1,249 38Distillates984 909 75Other products (f)440 451 (11)Total yields2,711 2,609 102________________See note references on page 39.36Refining Operating Highlights by Region (g)(millions of dollars, except per barrel amounts) Year Ended December 31, 2013 2012 ChangeU.S. Gulf Coast (a) (c): Operating income$2,375 $2,606 $(231)Throughput volumes (thousand BPD)1,523 1,459 64 Throughput margin per barrel (e)$9.57 $9.71 $(0.14)Operating costs per barrel: Operating expenses3.67 3.41 0.26Depreciation and amortization expense1.63 1.42 0.21Total operating costs per barrel5.30 4.83 0.47Operating income per barrel$4.27 $4.88 $(0.61) U.S. Mid-Continent: Operating income$1,293 $2,044 $(751)Throughput volumes (thousand BPD)435 430 5 Throughput margin per barrel (e)$13.37 $18.49 $(5.12)Operating costs per barrel: Operating expenses3.58 4.02 (0.44)Depreciation and amortization expense1.64 1.48 0.16Total operating costs per barrel5.22 5.50 (0.28)Operating income per barrel$8.15 $12.99 $(4.84) North Atlantic: Operating income$570 $752 $(182)Throughput volumes (thousand BPD)459 428 31 Throughput margin per barrel (e)$7.93 $9.24 $(1.31)Operating costs per barrel: Operating expenses3.50 3.59 (0.09)Depreciation and amortization expense1.03 0.85 0.18Total operating costs per barrel4.53 4.44 0.09Operating income per barrel$3.40 $4.80 $(1.40) U.S. West Coast: Operating income (loss)$(27) $147 $(174)Throughput volumes (thousand BPD)265 267 (2) Throughput margin per barrel (e)$7.43 $8.84 $(1.41)Operating costs per barrel: Operating expenses5.35 5.09 0.26Depreciation and amortization expense2.35 2.25 0.10Total operating costs per barrel7.70 7.34 0.36Operating income (loss) per barrel$(0.27) $1.50 $(1.77) Operating income for regions above$4,211 $5,549 $(1,338)Asset impairment loss applicable to refining (c)— (65) 65Total refining operating income$4,211 $5,484 $(1,273)________________See note references on page 39.37Average Market Reference Prices and Differentials(dollars per barrel, except as noted) Year Ended December 31, 2013 2012 ChangeFeedstocks: Brent crude oil$108.74 $111.70 $(2.96)Brent less WTI crude oil10.80 17.55 (6.75)Brent less ANS crude oil1.00 1.08 (0.08)Brent less LLS crude oil0.41 (0.91) 1.32Brent less Mars crude oil5.52 3.97 1.55Brent less Maya crude oil11.31 12.06 (0.75)LLS crude oil108.33 112.61 (4.28)LLS less Mars crude oil5.11 4.88 0.23LLS less Maya crude oil10.90 12.97 (2.07)WTI crude oil97.94 94.15 3.79 Natural gas (dollars per million British thermal units (MMBtu))3.69 2.71 0.98 Products: U.S. Gulf Coast: CBOB gasoline less Brent2.69 4.89 (2.20)Ultra-low-sulfur diesel less Brent15.95 16.48 (0.53)Propylene less Brent(2.72) (22.38) 19.66CBOB gasoline less LLS3.10 3.98 (0.88)Ultra-low-sulfur diesel less LLS16.36 15.57 0.79Propylene less LLS(2.31) (23.29) 20.98U.S. Mid-Continent: CBOB gasoline less WTI (d)16.77 25.40 (8.63)Ultra-low-sulfur diesel less WTI28.33 34.96 (6.63)North Atlantic: CBOB gasoline less Brent8.50 10.66 (2.16)Ultra-low-sulfur diesel less Brent17.84 19.06 (1.22)U.S. West Coast: CARBOB 87 gasoline less ANS12.69 15.39 (2.70)CARB diesel less ANS18.83 19.93 (1.10)CARBOB 87 gasoline less WTI22.49 31.86 (9.37)CARB diesel less WTI28.63 36.40 (7.77)New York Harbor corn crush (dollars per gallon)0.42 (0.15) 0.57________________See note references on page 39.38Ethanol and Retail Operating Highlights(millions of dollars, except per gallon amounts) Year Ended December 31, 2013 2012 ChangeEthanol: Operating income (loss)$491 $(47) $538Production (thousand gallons per day)3,294 2,967 327 Gross margin per gallon of production (f)$0.77 $0.30 $0.47Operating costs per gallon of production: Operating expenses0.32 0.30 0.02Depreciation and amortization expense0.04 0.04 —Total operating costs per gallon of production0.36 0.34 0.02Operating income (loss) per gallon of production$0.41 $(0.04) $0.45 Retail: Operating income (b) (d)$81 $348 $(267)________________See note references on page 39.The following notes relate to references on pages 35 through 39.(a)In May 2014, we abandoned our Aruba Refinery, except for the associated crude oil and refined products terminal assets that we continue to operate. As aresult, the refinery’s results of operations have been presented as discontinued operations and the operating highlights for the refining segment and theU.S. Gulf Coast region exclude the Aruba Refinery for all years presented.This transaction is more fully described in Note 2 of Notes to ConsolidatedFinancial Statements.(b)On May 1, 2013, we completed the separation of our retail business. As a result and effective May 1, 2013, our results of operations no longer includethose of CST, our former retail business. The nature and significance of our post-separation participation in the supply of motor fuel to CST represents acontinuation of activities with CST for accounting purposes. As such, the historical results of operations related to CST have not been reported asdiscontinued operations in the statements of income. This transaction is more fully discussed in Note 3 of Notes to Consolidated Financial Statements.(c)Asset impairment losses for the year ended December 31, 2012 include asset impairment losses of $65 million ($42 million after taxes) related toequipment associated with permanently cancelled capital project at several of our refineries and $21 million ($13 million after taxes) related to certainretail stores in 2012 that we owned prior to the separation of our retail business. The total asset impairment losses of $86 million are reflected in theoperating income of the respective segments for the year ended December 31, 2012, but the asset impairment losses associated with the cancelled capitalprojects are excluded from the operating costs per barrel and operating income per barrel for the refining segment and the U.S. Gulf Coast region.(d)U.S. Mid-Continent product specifications for gasoline changed on September 16, 2013 from Conventional 87 to CBOB gasoline. Therefore, averagemarket reference prices for comparable products meeting the new specifications required in this region are now being provided for all years presented.(e)Throughput margin per barrel represents operating revenues less cost of sales of our refining segment divided by throughput volumes. Gross margin pergallon of production represents operating revenues less cost of sales of our ethanol segment divided by production volumes.(f)Other products primarily include petrochemicals, gas oils, No. 6 fuel oil, petroleum coke, sulfur, and asphalt.(g)The regions reflected herein contain the following refineries: the U.S. Gulf Coast region includes Corpus Christi East, Corpus Christi West, Houston,Meraux, Port Arthur, St. Charles, Texas City, and Three Rivers Refineries;39the U.S. Mid-Continent region includes the Ardmore, McKee, and Memphis Refineries; the North Atlantic region includes the Pembroke and QuebecCity Refineries; and the U.S.West Coast region includes the Benicia and Wilmington Refineries.GeneralOperating revenues decreased $319 million for the year ended December 31, 2013 compared to the year ended December 31, 2012primarily as a result of lower average refined product prices between the two years related to our refining segment operations. Inaddition, operating income decreased $1.1 billion for the year ended December 31, 2013 compared to the year ended December 31,2012 primarily due to a $1.3 billion decrease in refining segment operating income, a $267 million decrease in retail segment operatingincome, and a $60 million increase in general and administrative expenses, partially offset by a $538 million increase in ethanolsegment operating income. The reasons for these changes in the operating results of our segments and general and administrativeexpenses, as well as other items that affected our income, are discussed below.RefiningRefining segment operating income decreased $1.3 billion from $5.5 billion for the year ended December 31, 2012 to $4.2 billion forthe year ended December 31, 2013. The decrease in refining segment operating income was primarily due to an $855 million decreasein refining margin, a $221 million increase in depreciation and amortization expense, and a $197 million increase in operatingexpenses.Refining margin decreased $855 million (a $1.31 per barrel decrease) in 2013 compared to 2012, primarily due to the following:•Decrease in gasoline margins - We experienced a decline in gasoline margins throughout all of our regions during 2013 comparedto 2012. For example, the WTI-based benchmark reference margin for U.S. Mid-Continent CBOB gasoline was $16.77 per barrelduring 2013 compared to $25.40 per barrel during 2012, representing an unfavorable decrease of $8.63 per barrel. We estimate thatthe decline in gasoline margins per barrel during 2013 compared to 2012 had a negative impact to our refining margin ofapproximately $790 million for all refining regions.•Lower discounts on WTI-type crude oils in the U.S. Mid-Continent region - Because the market for refined products generally tracksthe price of Brent crude oil, which is a benchmark sweet crude oil, we benefit when we process crude oils that are priced at adiscount to Brent crude oil. In 2013, the discount in the price of WTI compared to the price of Brent crude oil narrowed comparedto 2012. WTI crude oil sold at a discount of $10.80 per barrel to Brent crude oil in 2013 compared to a discount of $17.55 perbarrel in 2012, representing an unfavorable decrease of $6.75 per barrel. Therefore, the lower discount on WTI-type crude oils thatwe processed negatively impacted our refining margin. We estimate that the decrease in the discounts for WTI-type crude oils thatwe processed during 2013 reduced our refining margin by approximately $640 million.•Higher costs of biofuel credits - As more fully described in Note 21 of Notes to Consolidated Financial Statements, we mustpurchase biofuel credits in order to meet our biofuel blending obligation under various government and regulatory complianceprograms, and the cost of these credits (primarily RINs in the U.S.) increased by $267 million from $250 million in 2012 to$517 million in 2013. This increase was due to an increase in the market price of RINs caused by an expectation in the market of ashortage in available RINs.40•Increase in distillate margins - Despite lower distillate prices throughout all of our regions during 2013 compared to 2012, weexperienced an increase in distillate margins during 2013 compared to 2012 as a result of increased production volumes of distillatebetween the years. This production volume increase of 75,000 barrels per day was primarily due to the start up of our newhydrocracker units at our Port Arthur and St. Charles Refineries, resulting in a $370 million increase in our refining margin in 2013.•Higher discounts on medium sour crude oils - In 2013, the discount in the price of medium sour crude oils compared to the price ofBrent crude oil widened. For example, Mars crude oil, which is a medium sour crude oil, sold at a discount of $5.52 per barrel toBrent crude oil in 2013 compared to a discount of $3.97 per barrel during 2012, representing a favorable increase of $1.55 perbarrel. Therefore, the higher discounts on the medium sour crude oils we processed favorably impacted our refining margin. Weestimate that the increase in the discounts for medium sour crude oils that we processed during 2013 had a favorable impact to ourrefining margin of approximately $260 million.The increase of $197 million in operating expenses was primarily due to a $185 million increase in energy costs related to highernatural gas costs and higher use of natural gas associated with our new hydrocracker units at our Port Arthur and St. Charles Refineries.The increase of $221 million in depreciation and amortization expense was due to additional depreciation expense primarily associatedwith our new hydrocracker units at our Port Arthur and St. Charles Refineries that began operating in late 2012 and the third quarter of2013, respectively, and an increase in refinery turnaround and catalyst amortization.RetailRetail segment operating income was $81 million for the year ended December 31, 2013 compared to $348 million for the yearDecember 31, 2012. The $267 million decrease was primarily due to the separation of our retail business on May 1, 2013, which ismore fully described in Note 3 of Notes to Consolidated Financial Statements. As a result of the separation, retail segment operatingincome for 2013 reflects the operations of our former retail business for only the first four months of 2013.EthanolEthanol segment operating income was $491 million for the year ended December 31, 2013 compared to an operating loss of$47 million for the year ended December 31, 2012. The $538 million increase in operating income was primarily due to a $596 millionincrease in gross margin, partially offset by a $55 million increase in operating expenses.Ethanol gross margin per gallon increased $0.47 per gallon from $0.30 per gallon in 2012 to $0.77 per gallon in 2013 due to thefollowing:•Lower corn prices - Corn prices were lower in 2013 as many of the corn-producing regions of the U.S. Mid-Continentrecovered from a drought that began in the second quarter of 2012. For example, the Chicago Board of Trade corn price was$5.80 per bushel in 2013 compared to $6.94 per bushel in 2012. The decrease in the price of corn that we processed during2013 favorably impacted our ethanol margin by approximately $290 million.•Higher ethanol prices - Ethanol prices were higher in 2013 due to a decrease in the supply of ethanol in the market. Thedecrease in supply resulted from reduced production in 2012 and early 2013 as the industry responded to a narrowing ofethanol gross margin per gallon, which was due to higher corn prices primarily caused by the drought in the corn-producingregions of the U.S. Mid-Continent41described above. By mid-2013, ethanol inventory levels in the U.S. had declined to their lowest level in over three years and asa result, prices increased significantly beginning late in the first quarter of 2013. For example, the New York Harbor ethanolprice was $2.53 per gallon in 2013 compared to $2.37 per gallon in 2012. The increase in the price of ethanol per gallon during2013 had a favorable impact to our ethanol margin of approximately $160 million.•Increased production volumes - Ethanol margin also improved due to increased production volumes between the years of327,000 gallons per day in 2013 compared to 2012 in response to the improved ethanol gross margin per gallon. The increasein production volumes during 2013 had a favorable impact to our ethanol gross margin of approximately $85 million.The $55 million increase in operating expenses during 2013 compared to 2012 was primarily due to a $40 million increase in energycosts compared to 2012 resulting from higher natural gas prices during 2013 and a $12 million year over year increase in chemicalcosts due to higher production.Corporate Expenses and OtherGeneral and administrative expenses increased $60 million from the year ended December 31, 2012 to the year ended December 31,2013 primarily due to $52 million of environmental and legal reserve adjustments that were recorded during 2013 and $30 million fortransaction costs related to the separation of our retail business on May 1, 2013. These increases were partially offset by an $11 millionreduction in insurance reserves during 2013. The increase in corporate depreciation and amortization expense was primarily due to$20 million of losses incurred on the sale of certain corporate property.During the year ended December 31, 2013, we recognized a nontaxable gain of $325 million, or $0.60 per share, related to thedisposition of our retained interest in CST, which is more fully described in Notes 3 and 11 of Notes to Consolidated FinancialStatements.“Interest and debt expense, net of capitalized interest” for the year ended December 31, 2013 increased $51 million from the yearended December 31, 2012. This increase was primarily due to a $102 million decrease in capitalized interest due to completion ofseveral large capital projects, including the new hydrocrackers at our Port Arthur and St. Charles Refineries, offset by a $44 millionfavorable impact from the decrease in average borrowings and a $12 million write-off of unamortized debt discounts related to the earlyredemption of certain industrial revenue bonds in the first quarter of 2012.Income tax expense decreased $372 million from the year ended December 31, 2012 to the year ended December 31, 2013. Thevariation in the customary relationship between income tax expense and income from continuing operations before income tax expensefor the year ended December 31, 2013 was primarily due to the nontaxable gain on the disposition of our retained interest in CST.Loss from discontinued operations for the year ended December 31, 2012 represents the results of operations of the Aruba Refinery,which was abandoned in May 2014, including an asset impairment loss of $928 million as discussed in Note 2 of Notes to ConsolidatedFinancial Statements.42Table of ContentsLIQUIDITY AND CAPITAL RESOURCESCash Flows for the Year Ended December 31, 2014Net cash provided by operating activities for the year ended December 31, 2014 was $4.2 billion compared to $5.6 billion for the yearended December 31, 2013. The decrease in net cash provided by operating activities was due primarily to a $2.7 billion unfavorableeffect from changes in working capital between the periods partially offset by the increase in income from continuing operationsdiscussed above under “RESULTS OF OPERATIONS.” The changes in cash provided by or used for working capital during the yearsended December 31, 2014 and 2013 are shown in Note 19 of Notes to Consolidated Financial Statements.The net cash provided by operating activities during the year ended December 31, 2014, along with$603 million from available cash onhand, was used mainly to:•fund $2.8 billion of capital expenditures and deferred turnaround and catalyst costs;•make a scheduled long-term note repayment of $200 million;•purchase common stock for treasury of $1.3 billion; and•pay common stock dividends of $554 million.Cash Flows for the Year Ended December 31, 2013Net cash provided by operating activities for the year ended December 31, 2013 was $5.6 billion compared to $5.3 billion for the yearended December 31, 2012. Changes in cash provided by or used for working capital during the years ended December 31, 2013 and2012 are shown in Note 19 of Notes to Consolidated Financial Statements.The net cash generated from operating activities during the year ended December 31, 2013 combined with $735 million of net cashreceived in connection with the separation of our retail business (consisting of $550 million of proceeds on short-term debt, a$500 million cash distribution from CST less $315 million of cash retained by CST), and $525 million of proceeds on short-term debtrelated to the disposition of our retained interest in CST were used mainly to:•fund $2.8 billion of capital expenditures and deferred turnaround and catalyst costs;•make scheduled long-term note repayments of $480 million;•make a short-term debt repayment of $58 million;•purchase common stock for treasury of $928 million;•pay common stock dividends of $462 million; and•increase available cash on hand by $2.2 billion.In addition, VLP completed its initial public offering of common units for net proceeds of $369 million. Because we consolidate VLP’sfinancial statements, the total cash reported by us also increased by these net proceeds; however, such proceeds can only be used byVLP for its purposes.Capital InvestmentsOur operations, especially those of our refining segment, are highly capital intensive. Each of our refineries comprises a large base ofproperty assets, consisting of a series of interconnected, highly integrated and interdependent crude oil processing facilities andsupporting logistical infrastructure (Units), and these Units are improved continuously. The cost of improvements, which consist of theaddition of new Units and betterments of existing Units, can be significant. We have historically acquired our refineries at amountssignificantly below their replacement costs, whereas our improvements are made at full replacement value. As such, the costs forimproving our refinery assets increase over time and are significant in relation to the amounts we paid to acquire our refineries. We planfor these improvements by developing a multi-year capital program that is updated and revised based on changing internal and externalfactors.43Table of ContentsWe make improvements to our refineries in order to maintain and enhance their operating reliability, to meet environmental obligationswith respect to reducing emissions and removing prohibited elements from the products we produce, or to enhance their profitability.Reliability and environmental improvements generally do not increase the throughput capacities of our refineries. Improvements thatenhance refinery profitability may increase throughput capacity, but many of these improvements allow our refineries to processdifferent types of crude oil and refine crude oil into products with higher market values. Therefore, many of our improvements do notincrease throughput capacity significantly.For 2015, we expect to incur approximately $1.95 billion for capital expenditures and approximately $700 million for deferredturnaround and catalyst costs. The capital expenditure estimate excludes expenditures related to potential strategic acquisitions and jointventure arrangements. We continuously evaluate our capital budget and make changes as conditions warrant.We hold an option until January 2016 to purchase a 50 percent interest in the Diamond Pipeline project, a 440-mile, 20-inch crude oilpipeline that is projected to provide capacity of up to 200,000 BPD of domestic sweet crude oil from the Plains Cushing, Oklahomaterminal to our Memphis Refinery. The Diamond Pipeline project is currently being constructed by a third party for an estimated $900million and is expected to be completed in 2017.Contractual ObligationsOur contractual obligations as of December 31, 2014 are summarized below (in millions). Payments Due by Period 2015 2016 2017 2018 2019 Thereafter TotalDebt and capitallease obligations(including interest oncapital lease obligations)$609 $8 $956 $6 $756 $4,092 $6,427Operating lease obligations314 229 159 131 75 275 1,183Purchase obligations17,929 2,475 1,205 769 366 4,269 27,013Other long-term liabilities— 159 144 145 139 1,352 1,939Total$18,852 $2,871 $2,464 $1,051 $1,336 $9,988 $36,562Debt and Capital Lease ObligationsIn February 2015, we made a scheduled debt repayment of $400 million related to our 4.5% senior notes.As of December 31, 2014, we had an accounts receivable sales facility with a group of third-party entities and financial institutions tosell eligible trade receivables on a revolving basis up to $1.5 billion. In December 2014, the actual availability under the facility fellbelow the facility borrowing capacity to $1.4 billion primarily due to a decline in eligible trade receivables as a result of a decrease inthe latter part of 2014 in the market prices of the finished products that we produce. As of December 31, 2014, the amount of eligiblereceivables sold was $100 million. All amounts outstanding under this facility are reflected as debt.44Table of ContentsOur debt and financing agreements do not have rating agency triggers that would automatically require us to post additional collateral.However, in the event of certain downgrades of our senior unsecured debt by the ratings agencies, the cost of borrowings under someof our bank credit facilities and other arrangements would increase. All of our ratings on our senior unsecured debt are at or aboveinvestment grade level as follows:Rating Agency RatingMoody’s Investors Service Baa2 (stable outlook)Standard & Poor’s Ratings Services BBB (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 ratingswill not be lowered or withdrawn entirely by a rating agency. We note that these credit ratings are not recommendations to buy, sell, orhold our securities and may be revised or withdrawn at any time by the rating agency. Each rating should be evaluated independentlyof any other rating. Any future reduction below investment grade or withdrawal of one or more of our credit ratings could have amaterial adverse impact on our ability to obtain short- and long-term financing and the cost of such financings.Operating Lease ObligationsOur operating lease obligations include leases for land, office facilities and equipment, transportation equipment, time charters forocean-going tankers and coastal vessels, dock facilities, and various facilities and equipment used in the storage, transportation,production, and sale of refinery feedstocks, refined products, and corn inventories. Operating lease obligations include all operatingleases that have initial or remaining noncancelable terms in excess of one year, and are not reduced by minimum rentals to be receivedby 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 approximatetiming of the transaction. We have various purchase obligations including industrial gas and chemical supply arrangements (such ashydrogen supply arrangements), crude oil and other feedstock supply arrangements, and various throughput and terminallingagreements. We enter into these contracts to ensure an adequate supply of utilities and feedstock and adequate storage capacity tooperate our refineries. Substantially all of our purchase obligations are based on market prices or adjustments based on market indices.Certain of these purchase obligations include fixed or minimum volume requirements, while others are based on our usagerequirements. The purchase obligation amounts shown in the table above include both short- and long-term obligations and are basedon (a) fixed or minimum quantities to be purchased and (b) fixed or estimated prices to be paid based on current market conditions.Purchase obligations decreased from 2013 to 2014 primarily because of a decline in crude oil and refined product prices.Other Long-term LiabilitiesOur other long-term liabilities are described in Note 10 of Notes to Consolidated Financial Statements. For purposes of reflectingamounts for other long-term liabilities in the table above, we made our best estimate of expected payments for each type of liabilitybased on information available as of December 31, 2014.45Table of ContentsOther Commercial CommitmentsAs of December 31, 2014, we had outstanding letters of credit under our committed lines of credit as follows (in millions): BorrowingCapacity Expiration OutstandingLetters of CreditLetter of credit facilities $550 June 2015 $56Revolver $3,000 November 2018 $54VLP Revolver $300 December 2018 $—Canadian Revolver C$50 November 2015 C$10As of December 31, 2014, we had no amounts borrowed under our revolving credit facilities. The letters of credit outstanding as ofDecember 31, 2014 expire in 2015 through 2017.Off-Balance Sheet ArrangementsWe have not entered into any transactions, agreements, or other contractual arrangements that would result in off-balance sheetliabilities.Other Matters Impacting Liquidity and Capital ResourcesStock Purchase ProgramsAs of December 31, 2014, we have approvals under our $3 billion common stock purchase program to purchase approximately$1.5 billion of our common stock, but we have no obligation to make purchases under this program. Year to date through February 20,2015, we have purchased one million shares for $57 million under this stock purchase program.Pension Plan FundingWe plan to contribute approximately $47 million to our pension plans and $20 million to our other postretirement benefit plans during2015.Environmental MattersOur operations are subject to extensive environmental regulations by governmental authorities relating to the discharge of materials intothe environment, waste management, pollution prevention measures, greenhouse gas emissions, and characteristics and composition ofgasolines and distillates. Because environmental laws and regulations are becoming more complex and stringent and newenvironmental laws and regulations are continuously being enacted or proposed, the level of future expenditures required forenvironmental matters could increase in the future as previously discussed above in “OUTLOOK.” In addition, any major upgrades inany of our operating facilities could require material additional expenditures to comply with environmental laws and regulations. SeeNotes 10 and 12 of Notes to Consolidated Financial Statements for a further discussion of our environmental matters.Tax MattersDuring the year ended December 31, 2014, we paid $1.6 billion in income taxes, of which $400 million related to 2013 that wasrecorded in income taxes payable as of December 31, 2013. The payments made for the year ended December 31, 2014 exceededincome taxes paid for 2013 by $800 million. The increase in income taxes paid in 2014 is due in part to higher income from continuingoperations before income tax expense. Although the amount of cash required to pay our 2014 income taxes increased compared torecent years, we generated and expect to continue generating sufficient cash from operations to make our tax payments as they becomedue.46Table of ContentsThe Internal Revenue Service (IRS) has ongoing tax audits related to our U.S. federal tax returns from 2004 through 2011, and we havereceived Revenue Agent Reports (RARs) in connection with the audits for tax years 2004 through 2009. We are vigorously contestingcertain tax positions and assertions included in the RARs and continue to make significant progress in resolving certain of these matterswith the IRS. During the year ended December 31, 2014, we settled the audit related to our 2002 and 2003 tax years and the auditrelated to a group of our subsidiaries for their 2004 and 2005 tax years consistent with the recorded amounts of uncertain tax positionliabilities associated with those audits. In addition, we expect to settle our audits for tax years 2004 through 2007 within the next 12months and we believe they will be settled for amounts that do not exceed the recorded amounts of uncertain tax position liabilitiesassociated with those audits. As a result, we have classified a portion of our uncertain tax position liabilities as a current liability. As ofDecember 31, 2014, the total amount of uncertain tax position liabilities, including related penalties and interest, was $484 million, with$168 million reflected as a current liability in income taxes payable and $316 million reflected in other long-term liabilities. Should weultimately settle for amounts consistent with our estimates, we believe that we will have sufficient cash on hand at that time to makesuch payments.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 aretaxed by the countries in which they are incorporated. We intend to reinvest these earnings indefinitely in our international operationseven though we are not restricted from repatriating such earnings to the U.S. in the form of cash dividends. Should we decide torepatriate such earnings, we would incur and pay taxes on the amounts repatriated. In addition, such repatriation could cause us torecord deferred tax expense that could significantly impact our results of operations, as further discussed in Note 16 of Notes toConsolidated Financial Statements. We believe, however, that a substantial portion of our international cash can be returned to the U.S.without significant tax consequences through means other than a repatriation of earnings. As of December 31, 2014, $738 million ofour cash and temporary cash investments was held by our international subsidiaries.Emissions Allowances and Cap-and-TradeThe cost to implement certain provisions of the AB 32 cap-and-trade system and low carbon fuel standard in California and the Quebeccap-and-trade system may be significant; however, we expect to recover the majority of these costs from our customers.Concentration of CustomersOur refining and marketing operations have a concentration of customers in the refining industry and customers who are refinedproduct wholesalers and retailers. These concentrations of customers may impact our overall exposure to credit risk, either positively ornegatively, in that these customers may be similarly affected by changes in economic or other conditions. However, we believe that ourportfolio of accounts receivable is sufficiently diversified to the extent necessary to minimize potential credit risk. Historically, we havenot had any significant problems collecting our accounts receivable.Sources of LiquidityWe believe that we have sufficient funds from operations and, to the extent necessary, from borrowings under our credit facilities, tofund our ongoing operating requirements. We expect that, to the extent necessary, we can raise additional funds from time to timethrough equity or debt financings in the public and private capital markets or the arrangement of additional credit facilities. However,there can be no assurances regarding the availability of any future financings or additional credit facilities or whether such financings oradditional credit facilities can be made available on terms that are acceptable to us.47Table of ContentsNEW ACCOUNTING PRONOUNCEMENTSAs discussed in Note 1 of Notes to Consolidated Financial Statements, certain new financial accounting pronouncements will becomeeffective for our financial statements in the future. The adoption of these pronouncements is not expected to have a material effect onour financial statements, except as otherwise disclosed.CRITICAL ACCOUNTING POLICIES INVOLVING CRITICAL ACCOUNTING ESTIMATESThe preparation of financial statements in accordance with U.S. generally accepted accounting principles requires us to make estimatesand assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ fromthose estimates. The following summary provides further information about our critical accounting policies that involve criticalaccounting estimates, and should be read in conjunction with Note 1 of Notes to Consolidated Financial Statements, which summarizesour significant accounting policies. The following accounting policies involve estimates that are considered critical due to the level ofsubjectivity and judgment involved, as well as the impact on our financial position and results of operations. We believe that all of ourestimates are reasonable.Property, Plant, and EquipmentDepreciation of property assets used in our refining segment is recorded on a straight-line basis over the estimated useful lives of theseassets primarily using the composite method of depreciation. We maintain a separate composite group of property assets for each of ourrefineries. We estimate the useful life of each group based on an evaluation of the property assets comprising the group, and suchevaluations consist of, but are not limited to, the physical inspection of the assets to determine their condition, consideration of themanner in which the assets are maintained, assessment of the need to replace assets, and evaluation of the manner in whichimprovements impact the useful life of the group. The estimated useful lives of our composite groups range primarily from 25 to30 years.Under the composite method of depreciation, the cost of an improvement is added to the composite group to which it relates and isdepreciated over that group’s estimated useful life. We design improvements to our refineries in accordance with engineeringspecifications, design standards, and practices accepted in our industry, and these improvements have design lives consistent with ourestimated useful lives. Therefore, we believe the use of the group life to depreciate the cost of improvements made to the group isreasonable because the estimated useful life of each improvement is consistent with that of the group. It should be noted, however, thatfactors such as competition, regulation, or environmental matters could cause us to change our estimates, thus impacting depreciationexpense in the future.Impairment of AssetsLong-lived assets (which include property, plant, and equipment, intangible assets, and deferred refinery turnaround and catalyst costs)and equity method investments are tested for recoverability whenever events or changes in circumstances indicate that the carryingamount of the asset may not be recoverable. An impairment loss should be recognized if the carrying amount of the asset exceeds itsfair 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 not limited to, assumptions about the use or disposition of the asset, its estimated remaining life, and future expendituresnecessary to maintain its existing service potential. In order to determine fair value, management must make certain estimates andassumptions including, among other things, an assessment of market conditions, projected cash flows, investment rates, interest/equityrates, and growth rates, that could significantly impact the fair value of the asset being tested for impairment. Our48Table of Contentsimpairment evaluations are based on assumptions that we deem to be reasonable. Providing sensitivity analyses if other assumptionswere used in performing the impairment evaluations is not practicable due to the significant number of assumptions involved in theestimates. See Notes 2 and 4 of Notes to Consolidated Financial Statements for a further discussion of our asset impairment analysis andcertain losses resulting from those analyses.Environmental MattersOur operations are subject to extensive environmental regulations by governmental authorities relating primarily to the discharge ofmaterials into the environment, waste management, and pollution prevention measures. Future legislative action and regulatoryinitiatives, as discussed in Note 12 of Notes to Consolidated Financial Statements could result in changes to required operating permits,additional remedial actions, or increased capital expenditures 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 periodusing currently available technology and applying current regulations, as well as our own internal environmental policies. However,environmental liabilities are difficult to assess and estimate due to uncertainties related to the magnitude of possible remediation, thetiming of such remediation, and the determination of our obligation in proportion to other parties. Such estimates are subject to changedue to many factors, including the identification of new sites requiring remediation, changes in environmental laws and regulations andtheir interpretation, additional information related to the extent and nature of remediation efforts, and potential improvements inremediation technologies. An estimate of the sensitivity to earnings for changes in those factors is not practicable due to the number ofcontingencies that must be assessed, 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, 2014, 2013, and2012 is included in Note 10 of Notes to Consolidated Financial Statements.49Table of ContentsPension and Other Postretirement Benefit ObligationsWe have significant pension and other postretirement benefit liabilities and costs that are developed from actuarial valuations. Inherentin these valuations are key assumptions including discount rates, expected return on plan assets, future compensation increases, andhealth care cost trend rates, and these assumptions are disclosed and described in Note 14 of Notes to Consolidated FinancialStatements. Changes in these assumptions are primarily influenced by factors outside of our control. For example, the discount rateassumption represents a yield curve comprised of various long-term bonds that have an average rating of double-A when averaging allavailable ratings by the recognized rating agencies, while the expected return on plan assets is based on a compounded returncalculated assuming an asset allocation that is representative of the asset mix in our pension plans. To determine the expected return onplan assets, we utilized a forward-looking model of asset returns. The historical geometric average return over the 10 years prior toDecember 31, 2014 was 7.71 percent. The actual return on assets for the years ended December 31, 2014, 2013 and 2012 was7.33 percent, 19.38 percent, and 11.84 percent, respectively. These assumptions can have a significant effect on the amounts reportedin our financial statements. For example, a 0.25 percent decrease in the assumptions related to the discount rate or expected return onplan assets or a 0.25 percent increase in the assumptions related to the health care cost trend rate or rate of compensation increasewould have the following effects on the projected benefit obligation as of December 31, 2014 and net periodic benefit cost for the yearending December 31, 2015 (in millions): PensionBenefits OtherPostretirementBenefitsIncrease in projected benefit obligation resulting from: Discount rate decrease$105 $12Compensation rate increase7 n/aHealth care cost trend rate increasen/a 1 Increase in expense resulting from: Discount rate decrease10 —Expected return on plan assets decrease5 n/aCompensation rate increase2 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 benefitobligations.Tax MattersWe record tax liabilities based on our assessment of existing tax laws and regulations. A contingent loss related to an indirect tax(excise/duty, sales/use, gross receipts, and/or value-added tax) claim is recorded if the loss is both probable and estimable. Therecording of our tax liabilities requires significant judgments and estimates. Actual tax liabilities can vary from our estimates for avariety of reasons, including different interpretations of tax laws and regulations and different assessments of the amount of tax due. Inaddition, 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 inestimating the amount of valuation allowance, if any, that should be recorded against those deferred income tax assets. If our actualresults of operations differ from such estimates50Table of Contentsor 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 notpracticable due to the number of assumptions and tax laws involved, the various potential interpretations of the tax laws, and the widerange of possible outcomes. See Notes 12 and 16 of Notes to Consolidated Financial Statements for a further discussion of our taxliabilities.Legal MattersA variety of claims have been made against us in various lawsuits. We record a liability related to a loss contingency attributable tosuch legal matters if we determine that it is probable that a loss has been incurred and that the loss is reasonably estimable. Therecording of such liabilities requires judgments and estimates, the results of which can vary significantly from actual litigation resultsdue to differing interpretations of relevant law and differing opinions regarding the degree of potential liability and the assessment ofreasonable damages. However, an estimate of the sensitivity to earnings if other assumptions were used in recording our legal liabilitiesis not practicable due to the number of contingencies that must be assessed and the wide range of reasonably possible outcomes, bothin terms of the probability of loss and the estimates of such loss.51Table 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(primarily corn), and natural gas used in our operations. To reduce the impact of price volatility on our results of operations and cashflows, we use commodity derivative 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 a last-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 inthe price of those 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 tradingoperations. We use swaps primarily to manage our price exposure. We also enter into certain commodity derivative instruments fortrading purposes to take advantage of existing 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 ensurecompliance with our stated 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, 2014: Gain (loss) in fair value resulting from: 10% increase in underlying commodity prices$(127) $(2)10% decrease in underlying commodity prices126 7 December 31, 2013: Gain (loss) in fair value resulting from: 10% increase in underlying commodity prices(91) 310% decrease in underlying commodity prices91 (2)See Note 21 of Notes to Consolidated Financial Statements for notional volumes associated with these derivative contracts as ofDecember 31, 2014.52Table of ContentsCOMPLIANCE PROGRAM PRICE RISKWe are exposed to market risk related to the volatility in the price of biofuel credits needed to comply with various governmental andregulatory programs. To manage this risk, we enter into contracts to purchase these credits when prices are deemed favorable. Some ofthese contracts are derivative instruments; however, we elect the normal purchase exception and do not record these contracts at theirfair values. As of December 31, 2014, there was no gain or loss in the fair value of derivative instruments that would result from a10 percent increase or decrease in the underlying price of the contracts. See Note 21 of Notes to Consolidated Financial Statements for adiscussion about these compliance programs.INTEREST RATE RISKThe following table provides information about our debt instruments, excluding capital lease obligations (dollars in millions), the fairvalues of which are sensitive to changes in interest rates. Principal cash flows and related weighted-average interest rates by expectedmaturity dates are presented. We had no interest rate derivative instruments outstanding as of December 31, 2014 and 2013. December 31, 2014 Expected Maturity Dates 2015 2016 2017 2018 2019 There-after Total FairValueDebt: Fixed rate$475 $— $950 $— $750 $4,074 $6,249 $7,436Average interest rate5.2% —% 6.4% —% 9.4% 6.9% 7.0% Floating rate$126 $— $— $— $— $— $126 $126Average interest rate2.0% —% —% —% —% —% 2.0% December 31, 2013 Expected Maturity Dates 2014 2015 2016 2017 2018 There-after Total FairValueDebt: Fixed rate$200 $475 $— $950 $— $4,824 $6,449 $7,559Average interest rate4.8% 5.2% —% 6.4% —% 7.3% 6.9% Floating rate$100 $— $— $— $— $— $100 $100Average interest rate0.9% —% —% —% —% —% 0.9% FOREIGN CURRENCY RISKAs of December 31, 2014, we had commitments to purchase $377 million of U.S. dollars. Our market risk was minimal on thecontracts, as the majority of them matured on or before January 31, 2015, resulting in a gain of $12 million in the first quarter of 2015.53Table 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 Rule13a-15(f) under the Securities Exchange Act of 1934) for Valero. Our management evaluated the effectiveness of Valero’s internalcontrol over financial reporting as of December 31, 2014. In its evaluation, management used the criteria established in InternalControl – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).Management believes that as of December 31, 2014, 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 overfinancial reporting, which begins on page 56 of this report.54Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMThe Board of Directors and StockholdersValero Energy Corporation and subsidiaries:We have audited the accompanying consolidated balance sheets of Valero Energy Corporation and subsidiaries (the Company) as ofDecember 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income, equity, and cash flows foreach of the years in the three-year period ended December 31, 2014. These consolidated financial statements are the responsibility ofthe Company’s management. Our responsibility 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) (thePCAOB). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates madeby management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basisfor our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position ofValero Energy Corporation and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flowsfor each of the years in the three-year period ended December 31, 2014, in conformity with U.S. generally accepted accountingprinciples.We also have audited, in accordance with the standards of the PCAOB, the Company’s internal control over financial reporting as ofDecember 31, 2014, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee ofSponsoring Organizations of the Treadway Commission, and our report dated February 26, 2015 expressed an unqualified opinion onthe effectiveness of the Company’s internal control over financial reporting./s/ KPMG LLPSan Antonio, TexasFebruary 26, 201555Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMThe Board of Directors and StockholdersValero Energy Corporation and subsidiaries:We have audited Valero Energy Corporation’s (the Company’s) internal control over financial reporting as of December 31, 2014,based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizationsof the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control overfinancial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanyingManagement’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’sinternal 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) (thePCAOB). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internalcontrol over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internalcontrol over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operatingeffectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considerednecessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accountingprinciples. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to themaintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of thecompany; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements inaccordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only inaccordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effecton the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projectionsof any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes inconditions, or that the degree of compliance with the policies or procedures may deteriorate.In our opinion, Valero Energy Corporation maintained, in all material respects, effective internal control over financial reporting as ofDecember 31, 2014, based on criteria established in Internal Control – Integrated Framework (2013) issued by COSO.56Table of ContentsWe also have audited, in accordance with the standards of the PCAOB, the consolidated balance sheets of Valero Energy Corporationand subsidiaries as of December 31, 2014 and 2013, 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, 2014, and our report dated February 26, 2015expressed an unqualified opinion on those consolidated financial statements./s/ KPMG LLPSan Antonio, TexasFebruary 26, 201557Table of ContentsVALERO ENERGY CORPORATIONCONSOLIDATED BALANCE SHEETS(Millions of Dollars, Except Par Value) December 31, 2014 2013ASSETS Current assets: Cash and temporary cash investments$3,689 $4,292Receivables, net5,879 8,751Inventories6,623 5,758Income taxes receivable97 72Deferred income taxes162 266Prepaid expenses and other164 138Total current assets16,614 19,277Property, plant, and equipment, at cost35,933 33,933Accumulated depreciation(9,198) (8,226)Property, plant, and equipment, net26,735 25,707Deferred charges and other assets, net2,201 2,276Total assets$45,550 $47,260LIABILITIES AND EQUITY Current liabilities: Current portion of debt and capital lease obligations$606 $303Accounts payable6,760 9,931Accrued expenses596 522Taxes other than income taxes1,209 1,345Income taxes payable433 773Deferred income taxes376 249Total current liabilities9,980 13,123Debt and capital lease obligations, less current portion5,780 6,261Deferred income taxes6,607 6,601Other long-term liabilities1,939 1,329Commitments 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 capital7,116 7,187Treasury stock, at cost; 159,202,872 and 137,932,138common shares(8,125) (7,054)Retained earnings22,046 18,970Accumulated other comprehensive income (loss)(367) 350Total Valero Energy Corporation stockholders’ equity20,677 19,460Noncontrolling interests567 486Total equity21,244 19,946Total liabilities and equity$45,550 $47,260See Notes to Consolidated Financial Statements.58Table of ContentsVALERO ENERGY CORPORATIONCONSOLIDATED STATEMENTS OF INCOME(Millions of Dollars, Except per Share Amounts) Year Ended December 31, 2014 2013 2012Operating revenues$130,844 $138,074 $138,393Costs and expenses: Cost of sales118,141 127,316 126,485Operating expenses: Refining3,900 3,710 3,513Retail— 226 686Ethanol487 387 332General and administrative expenses724 758 698Depreciation and amortization expense1,690 1,720 1,549Asset impairment losses— — 86Total costs and expenses124,942 134,117 133,349Operating income5,902 3,957 5,044Gain on disposition of retained interest in CST Brands, Inc.— 325 —Other income, net47 59 10Interest and debt expense, net of capitalized interest(397) (365) (314)Income from continuing operations before income tax expense5,552 3,976 4,740Income tax expense1,777 1,254 1,626Income from continuing operations3,775 2,722 3,114Income (loss) from discontinued operations(64) 6 (1,034)Net income3,711 2,728 2,080Less: Net income (loss) attributable to noncontrolling interests81 8 (3)Net income attributable to Valero Energy Corporation stockholders$3,630 $2,720 $2,083Net income attributable to Valero Energy Corporation stockholders: Continuing operations$3,694 $2,714 $3,117Discontinued operations(64) 6 (1,034)Total$3,630 $2,720 $2,083Earnings per common share: Continuing operations$7.00 $4.98 $5.64Discontinued operations(0.12) 0.01 (1.87)Total$6.88 $4.99 $3.77Weighted-average common shares outstanding (in millions)526 542 550Earnings per common share – assuming dilution: Continuing operations$6.97 $4.96 $5.61Discontinued operations(0.12) 0.01 (1.86)Total$6.85 $4.97 $3.75Weighted-average common shares outstanding – assuming dilution(in millions)530 548 556Dividends per common share$1.05 $0.85 $0.65See Notes to Consolidated Financial Statements.59Table of ContentsVALERO ENERGY CORPORATIONCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(Millions of Dollars) Year Ended December 31, 2014 2013 2012Net income$3,711 $2,728 $2,080 Other comprehensive income (loss): Foreign currency translation adjustment(407) (98) 164Net gain (loss) on pensionand other postretirement benefits(475) 763 (211)Net gain (loss) on derivative instruments designated andqualifying as cash flow hedges1 (2) (28)Other comprehensive income (loss) beforeincome tax expense (benefit)(881) 663 (75)Income tax expense (benefit) related toitems of other comprehensive income (loss)(164) 262 (87)Other comprehensive income (loss)(717) 401 12Comprehensive income2,994 3,129 2,092Less: Comprehensive income (loss) attributable tononcontrolling interests81 8 (3)Comprehensive income attributable toValero Energy Corporation stockholders$2,913 $3,121 $2,095See Notes to Consolidated Financial Statements.60Table of ContentsVALERO ENERGY CORPORATIONCONSOLIDATED STATEMENTS OF EQUITY(Millions of Dollars) Valero Energy Corporation Stockholders’ Equity CommonStock AdditionalPaid-inCapital TreasuryStock RetainedEarnings AccumulatedOtherComprehensiveIncome (Loss) Total Non-controllingInterests TotalEquityBalance as of December 31, 2011$7 $7,486 $(6,475) $15,309 $96 $16,423 $22 $16,445Net income (loss)— — — 2,083 — 2,083 (3) 2,080Dividends on common stock— — — (360) — (360) — (360)Stock-basedcompensation expense— 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 under buybackprogram— — (118) — — (118) — (118)Contributions fromnoncontrollinginterest— — — — — — 44 44Other comprehensive income— — — — 12 12 — 12Balance as of December 31, 20127 7,322 (6,437) 17,032 108 18,032 63 18,095Net income— — — 2,720 — 2,720 8 2,728Dividends on common stock— — — (462) — (462) — (462)Stock-basedcompensation expense— 64 — — — 64 — 64Tax deduction in excess of stock-based compensation expense— 47 — — — 47 — 47Transactions in connection withstock-based compensationplans: Stock issuances— (243) 302 — — 59 — 59Stock repurchases— — (236) — — (236) — (236)Stock repurchases under buybackprogram— — (692) — — (692) — (692)Separation of retail business— (9) 9 (320) (159) (479) — (479)Net proceeds from initial publicoffering of common units ofValero Energy Partners LP— — — — — — 369 369Contributions fromnoncontrollinginterests— — — — — — 46 46Other— 6 — — — 6 — 6Other comprehensive income— — — — 401 401 — 401Balance as of December 31, 20137 7,187 (7,054) 18,970 350 19,460 486 19,946Net income— — — 3,630 — 3,630 81 3,711Dividends on common stock— — — (554) — (554) — (554)Stock-basedcompensation expense— 60 — — — 60 — 60Tax deduction in excess of stock-based compensation expense— 47 — — — 47 — 47Transactions in connection withstock-based compensationplans: Stock issuances— (178) 225 — — 47 — 47Stock repurchases— — (128) — — (128) — (128)Stock repurchases under buybackprogram— — (1,168) — — (1,168) — (1,168)Contributions fromnoncontrollinginterests— — — — — — 12 12Distributions to public unitholdersof Valero Energy Partners LP— — — — — — (12) (12)Other comprehensive loss— — — — (717) (717) — (717)Balance as of December 31, 2014$7 $7,116 $(8,125) $22,046 $(367) $20,677 $567 $21,244See Notes to Consolidated Financial Statements.61Table of ContentsVALERO ENERGY CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS(Millions of Dollars) Year Ended December 31, 2014 2013 2012Cash flows from operating activities: Net income$3,711 $2,728 $2,080Adjustments to reconcile net income to net cash provided byoperating activities: Depreciation and amortization expense1,690 1,720 1,574Aruba Refinery asset retirement expense and other63 — —Gain on disposition of retained interest in CST Brands, Inc.— (325) —Asset impairment losses— — 1,014Stock-based compensation expense60 64 58Deferred income tax expense445 501 963Changes in current assets and current liabilities(1,810) 922 (302)Changes in deferred charges and credits and other operating activities, net82 (46) (117)Net cash provided by operating activities4,241 5,564 5,270Cash flows from investing activities: Capital expenditures(2,153) (2,121) (2,931)Deferred turnaround and catalyst costs(649) (634) (479)Proceeds from the sale of the Paulsboro Refinery— — 160Other investing activities, net(42) (57) (101)Net cash used in investing activities(2,844) (2,812) (3,351)Cash flows from financing activities: Proceeds from debt borrowings28 — 2,900Repayments of debt(200) (480) (3,612)Proceeds from the exercise of stock options47 59 59Purchase of common stock for treasury(1,296) (928) (281)Common stock dividends(554) (462) (360)Net proceeds from initial public offering of common units ofValero Energy Partners LP— 369 —Contributions from noncontrolling interests12 45 44Distributions to public unitholders of Valero Energy Partners LP(12) — —Disposition of retail business: Proceeds from short-term debt in anticipation of separation— 550 —Cash distributed to Valero by CST Brands, Inc.— 500 —Cash held and retained by CST Brands, Inc. upon separation— (315) —Proceeds from short-term debt related to disposition of retained interest— 525 —Repayments of short-term debt related to disposition of retained interest— (58) —Other financing activities, net45 32 17Net cash used in financing activities(1,930) (163) (1,233)Effect of foreign exchange rate changes on cash(70) (20) 13Net increase (decrease) in cash and temporary cash investments(603) 2,569 699Cash and temporary cash investments at beginning of year4,292 1,723 1,024Cash and temporary cash investments at end of year$3,689 $4,292 $1,723See Notes to Consolidated Financial Statements.62Table of ContentsVALERO ENERGY CORPORATIONNOTES 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 15 refinerieswith a combined throughput capacity of approximately 2.9 million barrels per day as of December 31, 2014. We market branded andunbranded refined products on a wholesale basis in the United States (U.S.), Canada, the Caribbean, the United Kingdom (U.K.), andIreland through an extensive bulk and rack marketing network and through approximately 7,400 outlets that carry the Valero®,Shamrock®, Ultramar®, Beacon®, and Texaco® brand names. We also own 11 ethanol plants in the U.S. that primarily produce ethanolwith a combined production capacity of approximately 1.3 billion gallons per year as of December 31, 2014. Our operations areaffected 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 winterseason; and•industry factors, such as movements in and the level of crude oil prices including the effect of quality differentials betweengrades of crude oil, the demand for and prices of refined products, industry supply capacity, and competitor refinerymaintenance turnarounds.ReclassificationsCertain amounts reported as of and for the year ended December 31, 2013 have been reclassified to conform to the 2014 presentation.As discussed in Note 2, in May 2014, we abandoned the Aruba Refinery. As a result, the refinery’s results of operations have beenpresented as discontinued operations in the consolidated statements of income for all years presented.Significant Accounting PoliciesPrinciples of ConsolidationThese financial statements include the accounts of Valero, and subsidiaries and entities in which Valero has a controlling financialinterest. The ownership of noncontrolling investors are recorded as noncontrolling interests. Intercompany balances and transactionshave been eliminated in consolidation. Investments in significant noncontrolled entities are accounted for using the equity method.Use of EstimatesThe preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires us to makeestimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results coulddiffer from those estimates. On an ongoing basis, we review our estimates based on currently available information. Changes in factsand circumstances may result in revised estimates.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.63Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)ReceivablesTrade receivables are carried at original invoice amount. We maintain an allowance for doubtful accounts, which is adjusted based onmanagement’s assessment 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, andgrain and ethanol inventories are determined under the last-in, first-out (LIFO) method using the dollar-value LIFO method, with anyincrements valued based on average purchase prices during the year. The cost of feedstocks and products purchased for resale and thecost of materials and supplies 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, iscapitalized. However, the cost of repairs to and normal maintenance of property assets is expensed as incurred. Betterments of propertyassets are those that extend the useful life, increase the capacity or improve the operating efficiency of the asset, or improve the safetyof our operations. The cost of property assets constructed includes interest and certain overhead costs allocable to the constructionactivities.Our operations, especially those of our refining segment, are highly capital intensive. Each of our refineries comprises a large base ofproperty assets, consisting of a series of interconnected, highly integrated and interdependent crude oil processing facilities andsupporting logistical infrastructure (Units), and these Units are continuously improved. Improvements consist of the addition of newUnits and betterments of existing Units. We plan for these improvements by developing a multi-year capital program that is updatedand 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 theseassets primarily using the composite method of depreciation. We maintain a separate composite group of property assets for each of ourrefineries. We estimate the useful life of each group based on an evaluation of the property assets comprising the group, and suchevaluations consist of, but are not limited to, the physical inspection of the assets to determine their condition, consideration of themanner in which the assets are maintained, assessment of the need to replace assets, and evaluation of the manner in whichimprovements impact the useful life of the group. The estimated useful lives of our composite groups range primarily from 25 to 30years.Under the composite method of depreciation, the cost of an improvement is added to the composite group to which it relates and isdepreciated over that group’s estimated useful life. We design improvements to our refineries in accordance with engineeringspecifications, design standards and practices accepted in our industry, and these improvements have design lives consistent with ourestimated useful lives. Therefore, we believe the use of the group life to depreciate the cost of improvements made to the group isreasonable because the estimated useful life of each improvement is consistent with that of the group. It should be noted, however, thatfactors such as competition, regulation, or environmental matters could cause us to change our estimates, thus impacting depreciationexpense in the future.64Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Also under the composite method of depreciation, the historical cost of a minor property asset (net of salvage value) that is retired orreplaced is charged to accumulated depreciation and no gain or loss is recognized in income. However, a gain or loss is recognized inincome for a major property asset that is retired, replaced, or sold and for an abnormal disposition of a property asset (primarilyinvoluntary conversions). Gains and losses are reflected in depreciation and amortization expense, unless such amounts are reportedseparately due to materiality.Depreciation of property assets used in our ethanol segment and our former retail segment (see Note 3) is recorded on a straight-linebasis over the estimated useful lives of the related assets. Leasehold improvements are amortized on a straight-line basis over the shorterof the lease term or the estimated useful life of the related asset. Assets acquired under capital leases are amortized on a straight-linebasis over (i) the lease term if transfer of ownership does not occur at the end of the lease term or (ii) the estimated useful life of theasset if transfer of ownership does occur at the end of the lease term.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 ethanolplants and which are deferred when incurred and amortized on a straight-line basis over the period of time estimated to lapseuntil 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 catalysthas deteriorated beyond its prescribed function, which are deferred when incurred and amortized on a straight-line basis overthe estimated useful life of the specific catalyst;•intangible assets;•investments in entities that we do not control; and•other noncurrent assets such as investments of certain benefit plans (related primarily to certain U.S. nonqualified definedbenefit plans whose plan assets are not protected from our creditors and therefore cannot be reflected as a reduction from ourobligations under those pension plans), debt issuance costs, and various other costs.Impairment of AssetsLong-lived assets, which include property, plant, and equipment, intangible assets, and deferred refinery turnaround and catalysts costs,are tested for recoverability whenever events or changes in circumstances indicate that the carrying amount of the asset may not berecoverable. A long-lived asset is not recoverable if its carrying amount exceeds the sum of the undiscounted cash flows expected toresult from its use and eventual disposition. If a long-lived asset is not recoverable, an impairment loss is recognized for the amount bywhich the carrying amount of the long-lived asset exceeds its fair value, with fair value determined based on discounted estimated netcash flows or other appropriate methods. See Notes 2 and 4 for our impairment analysis 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 carryingamount of our investments or the investee is unable to sustain an earnings capacity that justifies the carrying amount. A loss in the valueof an investment that is other than a temporary decline is recognized currently in income, and is based on the difference between theestimated current fair value of the investment and its carrying amount.65Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Environmental MattersLiabilities for future remediation costs are recorded when environmental assessments and/or remedial efforts are probable and the costscan be reasonably estimated. Other than for assessments, the timing and magnitude of these accruals generally are based on thecompletion of investigations or other studies or a commitment to a formal plan of action. Amounts recorded for environmental liabilitieshave not been reduced by possible recoveries from third parties and have not been measured on a discounted basis.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 the time we incur that liability, which is generally when the asset is purchased, constructed, or leased. We record theliability when we have a legal obligation to incur costs to retire the asset and when a reasonable estimate of the fair value of the liabilitycan be made. If a reasonable estimate cannot be made at the time the liability is incurred, we record the liability when sufficientinformation 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 Canadiandollar, the Aruban florin, the pound sterling, and the euro. Balance sheet accounts are translated into U.S. dollars using exchange ratesin effect as of the balance sheet date. Revenue and expense accounts are translated using the weighted-average exchange rates duringthe year presented. Foreign currency translation adjustments are recorded as a component of accumulated other comprehensive income.Revenue RecognitionRevenues for products sold by the refining and ethanol segments and our former retail segment (see Note 3) are recorded upon deliveryof the products to our customers, which is the point at which title to the products is transferred, and when payment has either beenreceived or collection is reasonably assured.Excise taxes on sales by our U.S. retail system were presented on a gross basis. 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 oneanother. We combine these transactions and, as a result, revenues and cost of sales are not recognized in connection with thesearrangements. We also enter into refined product exchange transactions to fulfill sales contracts with our customers by accessing refinedproducts in markets where we do not operate our own refineries. These refined product exchanges are accounted for as exchanges ofnon-monetary assets, and no revenues are recorded on these transactions.Product Shipping and Handling CostsCosts incurred for shipping and handling of products are included in cost of sales.Cost of Biofuel CreditsWe purchase biofuel credits (primarily Renewable Identification Numbers (RINs) in the U.S.) to comply with government regulationsthat require us to blend a certain percentage of biofuels into the products we produce, as further described in Note 21 under“Compliance Program Price Risk.” To the degree that we are unable to blend biofuels at the required percentage, we must purchasebiofuel credits in the open market to66Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)meet our obligation. The cost of purchased biofuel credits is charged to cost of sales as such credits are needed to satisfy our obligation.To the extent we have not purchased enough biofuel credits to satisfy our obligation as of the balance sheet date, we charge cost ofsales for such deficiency based on the market price of the biofuel credits as of the balance sheet date, and we record a liability for ourobligation to purchase those credits. See Note 20 for disclosure of our fair value liability.Stock-Based CompensationCompensation expense for our share-based compensation plans is based on the fair value of the awards granted and is recognized inincome on a straight-line basis over the shorter of (a) the requisite service period of each award or (b) the period from the grant date tothe 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 arerecognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existingassets and liabilities and their respective tax bases. Deferred amounts are measured using enacted tax rates expected to apply to taxableincome in the year those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced byunrecognized tax benefits, if such items may be available to offset the unrecognized tax benefit.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 forthe year. Participating share-based payment awards, including shares of restricted stock granted under certain of our stock-basedcompensation plans, are included in the computation of basic earnings per share using the two-class method. Earnings per commonshare – assuming dilution reflects the potential dilution arising from our outstanding stock options and nonvested shares granted toemployees in connection with our stock-based compensation plans. Potentially dilutive securities are excluded from the computation ofearnings 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 derivative contracts, and foreign currency derivative contracts. The estimated fair values of these financial instrumentsapproximate 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 enterinto 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 thehedged item attributable to the hedged risk, are recognized currently in income in the same period. The effective portion of the gain or67Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)loss on a derivative instrument designated and qualifying as a cash flow hedge is initially reported as a component of othercomprehensive income and is then recorded in income in the period or periods during which the hedged forecasted transaction affectsincome. The ineffective portion of the gain or loss on the cash flow derivative instrument, if any, is recognized in income as incurred.For our economic hedging relationships (derivative instruments not designated as fair value or cash flow hedges) and for derivativeinstruments 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 inoperating activities in the statements of cash flows.New Accounting PronouncementsIn April 2014, the provisions of Accounting Standards Codification (ASC) Topic 205, “Presentation of Financial Statements,” and ASCTopic 360, “Property, Plant, and Equipment,” were amended to change the criteria for reporting discontinued operations. Theprovisions of these amendments modify the definition of discontinued operations by limiting discontinued operations reporting todisposals of components of an entity that represent strategic shifts that have or will have a major effect on an entity’s operations andfinancial results. These amendments require additional disclosures about discontinued operations and new disclosures for otherdisposals of individually material components of an organization that do not meet the definition of a discontinued operation. Inaddition, the guidance allows companies to have significant continuing involvement and continuing cash flows with the discontinuedoperation. These provisions are effective prospectively for annual reporting periods beginning on or after December 15, 2014, andinterim periods within those annual periods, with early adoption permitted. The adoption of this guidance effective January 1, 2015 willnot affect our financial position or results of operations; however, it may result in changes to the manner in which future dispositions ofoperations or assets, if any, are presented in our financial statements, or it may require additional disclosures.In May 2014, the Financial Accounting Standards Board (FASB) amended the ASC and issued a new accounting standard, Topic 606,“Revenue from Contracts with Customers,” to clarify the principles for recognizing revenue. The core principle of the new standard isthat an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects theconsideration to which the entity expects to be entitled in exchange for those goods or services. The standard also requires improvedinterim and annual disclosures that enable the users of financial statements to better understand the nature, amount, timing, anduncertainty of revenues and cash flows arising from contracts with customers. The new standard is effective for annual reportingperiods beginning after December 15, 2016, including interim reporting periods within that reporting period, and can be adopted eitherretrospectively to each prior reporting period presented using a practical expedient, as allowed by the new standard, or retrospectivelywith a cumulative effect adjustment to retained earnings as of the date of initial application. Early adoption is not permitted. We arecurrently evaluating the effect that adopting this new standard will have on our financial statements and related disclosures.In January 2015, the provisions of ASC Subtopic 225-20, “Income Statement–Extraordinary and Unusual Items” were amended toeliminate the concept of extraordinary items from U.S. GAAP as part of the FASB’s simplification initiative. The guidance eliminatesthe separate presentation of extraordinary items on the income statement, net of tax and the related earnings per share, but does notaffect the requirement to disclose material items that are unusual in nature or infrequently occurring or to exclude those items from theestimated annual effective tax rate for interim reporting purposes. These provisions may be applied prospectively or68Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)retrospectively and are effective for annual reporting periods beginning after December 15, 2015, and interim periods within thoseannual periods, with early adoption permitted. The adoption of this guidance effective January 1, 2016 will not affect our financialposition or results of operations; however, it may affect the manner in which future extraordinary or unusual items, if any, are presentedin our financial statements.In February 2015, the provisions of ASC Topic 810, “Consolidation” were amended to improve consolidation guidance for certaintypes of legal entities. The guidance modifies the evaluation of whether limited partnerships and similar legal entities are variableinterest entities (VIEs) or voting interest entities, eliminates the presumption that a general partner should consolidate a limitedpartnership, affects the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have feearrangements and related party relationships, and provides a scope exception from consolidation guidance for certain money marketfunds. These provisions are effective for annual reporting periods beginning after December 15, 2015, and interim periods within thoseannual periods, with early adoption permitted. These provisions may also be adopted retrospectively in previously issued financialstatements for one or more years with a cumulative-effect adjustment to retained earnings as of the beginning of the first year restated.We are currently evaluating the effect that adopting this new accounting standard will have on our consolidated financial statements andrelated disclosures.2.DISCONTINUED OPERATIONSIn May 2014, we abandoned our Aruba Refinery, except for the associated crude oil and refined products terminal assets that wecontinue to operate. As a result, the refinery’s results of operations have been presented in this report as discontinued operations for allyears presented.We had suspended operations of the refinery in 2012 and at that time we wrote off the entire carrying value of the refinery’s idled crudeoil processing units and related infrastructure (refining assets) and supplies inventories that supported the refining operations; as aresult, we recognized an asset impairment loss of $928 million. In addition, we terminated the employees who supported the refiningoperations and incurred severance costs of $41 million at that time. Even though we suspended refining operations in 2012, wecontinued to maintain the refining assets to allow them to be restarted and did not abandon them until our recent decision to no longerpursue options to restart refining operations.The Aruba Refinery resides on land leased from the Government of Aruba (GOA) and our agreements with the GOA require us todismantle our leasehold improvements under certain conditions. Because of our May 2014 decision to abandon the refining assets, webelieve the GOA will require us to dismantle those assets. As a result, we recognized an asset retirement obligation of $59 million,which was charged to expense during the second quarter of 2014 and is reflected in discontinued operations. We had not recognized anasset retirement obligation previously due to our belief that we would not be required to dismantle the assets as long as we intended tooperate them. During the second quarter of 2014, we also recognized liabilities of $4 million relating to obligations under certaincontracts, including a liability for the remaining lease payments for the land on which the refining assets reside.69Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Selected results of operations of the Aruba Refinery are shown below (in millions). Year Ended December 31, 2014 2013 2012Operating revenues$— $— $857Income (loss) before income taxes(64) 6 (1,034)There was no tax benefit recognized for the loss from discontinued operations for the years ended December 31, 2014 and 2012 as wedo not expect to realize this tax benefit.3.SEPARATION OF RETAIL BUSINESSOn May 1, 2013, we completed the separation of our retail business by creating an independent public company named CST Brands,Inc. (CST) and distributing 80 percent of the outstanding shares of CST common stock to our stockholders. Each Valero stockholderreceived one share of CST common stock for every nine shares of Valero common stock held at the close of business on the recorddate of April 19, 2013.In connection with the separation, we received an aggregate of $1.05 billion in cash, consisting of $550 million from the issuance ofshort-term debt to a third-party financial institution on April 16, 2013 and $500 million distributed to us by CST on May 1, 2013. Thecash distributed to us by CST was borrowed by CST on May 1, 2013 under its senior secured credit facility. See Note 11 for furtherdiscussion of that credit facility. Also on May 1, 2013, CST issued $550 million of its senior unsecured bonds to us, and we exchangedthose bonds with the third-party financial institution in satisfaction of our short-term debt. Immediately prior to May 1, 2013,subsidiaries of CST held $315 million of cash, and CST retained that cash following the distribution on May 1, 2013. We also incurred$30 million in costs during the three months ended June 30, 2013 to effect the separation, which were included in general andadministrative expenses.We also entered into long-term motor fuel supply agreements with CST in the U.S. and Canada. The nature and significance of ouragreements to supply motor fuel to CST through 2028 represents a continuation of activities with CST for accounting purposes. Assuch, the historical results of operations of our retail business have not been reported as discontinued operations in our statements ofincome.On November 14, 2013, we disposed of our 20 percent retained interest in CST by transferring all remaining shares of CST commonstock owned by us to a third-party financial institution in exchange for $467 million of our short-term debt and recognized a$325 million nontaxable gain, as further described in Note 11.Selected historical results of operations of our retail business prior to the separation are disclosed in Note 18. Subsequent to May 1,2013 and through November 14, 2013, our share of CST’s results of operations was reflected in “other income, net.” Our share ofincome taxes incurred directly by CST during this period was reported in the equity in earnings from CST, and as such was not includedin income taxes in our statements of income.70Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The following table presents the carrying values of the major categories of assets and liabilities of our retail business, immediatelypreceding its separation on May 1, 2013, which were excluded from our consolidated balance sheet as of December 31, 2013(in millions):Assets Cash and temporary cash investments$315Credit card receivables from Valero44Other receivables, net109Inventories170Deferred income taxes14Prepaid expenses and other13Total current assets665Property, plant, and equipment, at cost1,891Accumulated depreciation(611)Property, plant, and equipment, net1,280Intangible assets, net38Deferred charges and other assets, net191Total assets$2,174 Liabilities Current portion of capital lease obligations$2Trade payable to Valero242Other accounts payable96Accrued expenses31Taxes other than income taxes20Total current liabilities391Debt and capital lease obligations, less current portion1,053Deferred income taxes83Other long-term liabilities112Total liabilities$1,639We retained certain environmental and other liabilities related to our former retail business and we have indemnified CST for certainself-insurance liabilities related to its employees and property.71Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)4.IMPAIRMENTSCancelled Capital ProjectsDuring 2012, 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.Retail StoresDuring 2012, we evaluated certain of our convenience stores operated by our former retail segment for potential impairment andconcluded that they were impaired, and we wrote down the carrying values of these stores to their estimated fair values and recognizedasset impairment losses of $21 million.5.VALERO ENERGY PARTNERS LPIn July 2013, we formed VLP, a master limited partnership, to own, operate, develop, and acquire crude oil and refined petroleumproducts pipelines, terminals, and other transportation and logistics assets. On December 16, 2013, VLP completed its initial publicoffering (the Offering) of 17,250,000 common units at a price of $23.00 per unit. VLP received $369 million in net proceeds from thesale of the units, after deducting underwriting fees, structuring fees, and other offering costs. As of December 31, 2014, VLP’s assetsincluded crude oil and refined petroleum products pipeline and terminal systems in the U.S. Gulf Coast and U.S. Mid-Continent regionsthat are integral to the operations of our Ardmore, McKee, Memphis, Port Arthur, and Three Rivers Refineries.As of December 31, 2014 and 2013, we owned a 68.6 percent limited partner interest and a 2 percent general partner interest in VLP,and the public owned a 29.4 percent limited partner interest. VLP’s cash and temporary cash investments were $237 million and$375 million as of December 31, 2014 and 2013, respectively. Valero consolidates the financial statements of VLP into its financialstatements and as such, VLP’s cash and temporary cash investments are included in Valero’s consolidated cash and temporary cashinvestments. However, VLP’s cash and temporary cash investments can be used to settle only its obligations. In addition, VLP’spartnership capital attributable to the public’s ownership interest in VLP of $375 million and $370 million as of December 31, 2014 and2013, respectively, is reflected in noncontrolling interests.We have agreements with VLP that establish fees for certain general and administrative services and operational and maintenanceservices provided by us. In addition, we have a master transportation services agreement and a master terminal services agreement withVLP under which VLP provides commercial transportation and terminaling services to us. These transactions are eliminated inconsolidation.On July 1, 2014, we sold our Texas Crude Systems Business to VLP. That business is engaged in transporting, terminaling, and storingcrude oil and refined petroleum products through various pipeline and terminal systems that compose the McKee Crude System, theThree Rivers Crude System, and the Wynnewood Products System. We sold the Texas Crude Systems Business for total cashconsideration of $154 million. Because we consolidate the financial statements of VLP into our financial statements, this transactionwas eliminated in consolidation and did not impact our consolidated financial position or cash flows.72Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)6.RECEIVABLESReceivables consisted of the following (in millions): December 31, 2014 2013Accounts receivable$5,509 $8,582Commodity derivative and foreign currencycontract receivables151 98Other receivables256 117 5,916 8,797Allowance for doubtful accounts(37) (46)Receivables, net$5,879 $8,751Changes in the allowance for doubtful accounts consisted of the following (in millions): Year Ended December 31, 2014 2013 2012Balance as of beginning of year$46 $56 $48Increase in allowance charged to expense7 13 21Accounts charged against the allowance,net of recoveries(15) (23) (13)Foreign currency translation(1) — —Balance as of end of year$37 $46 $5673Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)7.INVENTORIESInventories consisted of the following (in millions): December 31, 2014 2013Refinery feedstocks$2,269 $2,135Refined products and blendstocks3,926 3,231Ethanol feedstocks and products195 166Materials and supplies233 226Inventories$6,623 $5,758As of December 31, 2014, the volumes of our refinery feedstocks and refined products and blendstocks held as inventory increased,which resulted in a LIFO increment. During the years ended December 31, 2013 and 2012, we had net liquidations of LIFO inventorylayers that decreased cost of sales in each of those years by $17 million and $134 million, respectively.As of December 31, 2014 and 2013, the replacement cost (market value) of LIFO inventories exceeded their LIFO carrying amounts byapproximately $857 million and $6.9 billion, respectively. As of December 31, 2014 and 2013, our non-LIFO inventories accountedfor $906 million and $681 million, respectively, of our total inventories.74Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)8.PROPERTY, PLANT, AND EQUIPMENTMajor classes of property, plant, and equipment, which include capital lease assets, consisted of the following (in millions): December 31, 2014 2013Land $396 $404Crude oil processing facilities 28,054 27,260Pipeline and terminal facilities 1,955 1,513Grain processing equipment 779 719Administrative buildings 800 800Other 2,596 2,109Construction in progress 1,353 1,128Property, plant, and equipment, at cost 35,933 33,933Accumulated depreciation (9,198) (8,226)Property, plant, and equipment, net $26,735 $25,707We have various assets under capital leases that primarily support our refining operations totaling $72 million and $74 million as ofDecember 31, 2014 and 2013, respectively. Accumulated amortization on assets under capital leases was $40 million and $35 millionas of December 31, 2014 and 2013, respectively.Depreciation expense for the years ended December 31, 2014, 2013, and 2012 was $1.2 billion, $1.2 billion, and $1.1 billion,respectively.9.DEFERRED CHARGES AND OTHER ASSETS“Deferred charges and other assets, net” primarily includes turnaround and catalyst costs, which are deferred and amortized asdiscussed in Note 1. Amortization expense for deferred refinery turnaround and catalyst costs and other assets was $489 million,$498 million, and $447 million for the years ended December 31, 2014, 2013, and 2012, respectively.75Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)10.ACCRUED EXPENSES AND OTHER LONG-TERM LIABILITIESAccrued expenses and other long-term liabilities consisted of the following (in millions): AccruedExpenses Other Long-Term Liabilities December 31, 2014 2013 2014 2013Defined benefit plan liabilities (see Note 14) $48 $30 $792 $507Wage and other employee-related liabilities 294 257 104 97Uncertain income tax position liabilities,including related penalties and interest (see Note 16) (a) — — 316 205Environmental liabilities 26 24 269 277Accrued interest expense 88 90 — —Derivative liabilities — 13 — —Asset retirement obligations 20 5 71 26Other accrued liabilities 120 103 387 217Accrued expenses and other long-term liabilities $596 $522 $1,939 $1,329___________________________ (a) As of December 31, 2014, our total liability for uncertain tax positions, including related penalties and interest, was $484 million, with $168 million classified as a current liabilityand reflected in “Income taxes payable” and the remaining $316 million classified as a long-term liability and reflected in “Other long-term liabilities” as detailed in this table. Asof December 31, 2013, our total liability for uncertain tax positions, including related penalties and interest, was $443 million, with $238 million classified as a current liabilityand reflected in “Income taxes payable” and the remaining $205 million classified as a long-term liability and reflected in “Other long-term liabilities” as detailed in this table.Environmental LiabilitiesChanges in our environmental liabilities were as follows (in millions): Year Ended December 31, 2014 2013 2012Balance as of beginning of year$301 $269 $274Additions to liability26 67 23Reductions to liability— (1) (1)Payments, net of third-party recoveries(27) (28) (29)Separation of retail business— (4) —Foreign currency translation(5) (2) 2Balance as of end of year$295 $301 $269See Note 12 for further information regarding environmental matters.Asset Retirement ObligationsWe have asset retirement obligations with respect to certain of our refinery assets due to various legal obligations to clean and/ordispose of various component parts of each refinery at the time they are retired.76Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)However, these component parts can be used for extended and indeterminate periods of time as long as they are properly maintainedand/or upgraded. It is our practice and current intent to maintain our refinery assets and continue making improvements to those assetsbased on technological advances. As a result, we believe that our refineries have indeterminate lives for purposes of estimating assetretirement 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 estimatethe cost of performing the retirement activities and record a liability for the fair value of that cost using established present valuetechniques.Prior to the separation of our retail business, we also had asset retirement obligations for the removal of underground storage tanks(USTs) at owned and leased retail sites. There is no legal obligation to remove USTs while they remain in service. However,environmental laws in the U.S. and Canada require that unused USTs be removed within certain periods of time after the USTs are nolonger in service, usually one to two years depending on the jurisdiction in which the USTs are located. We had previously estimatedthat USTs at our formerly owned retail sites would remain in service approximately 20 years and that we would then have an obligationto remove those USTs. For our formerly leased retail sites, our lease agreements generally required that we remove certainimprovements, primarily USTs and signage, upon termination of the lease. All of the USTs and the related asset retirement obligationswere retained by CST after the separation from us. Therefore, we have no asset retirement obligations in connection with the USTssubsequent to the separation of our retail business on May 1, 2013.Changes in our asset retirement obligations were as follows (in millions). Year Ended December 31, 2014 2013 2012Balance as of beginning of year$31 $108 $87Additions to accrual60 2 14Revisions in estimated cash flows— — 13Accretion expense1 2 5Settlements(1) (1) (11)Separation of retail business— (80) —Balance as of end of year$91 $31 $108See Note 2 for further information regarding the 2014 additions to accrual related to our Aruba Refinery.There are no assets that are legally restricted for purposes of settling our asset retirement obligations.77Table of ContentsVALERO ENERGY CORPORATIONNOTES 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, 2014 2013Bank credit facilitiesVarious $— $—Senior Notes: 4.5%2015 400 4004.75%2014 — 2006.125%2017 750 7506.125%2020 850 8506.625%2037 1,500 1,5006.75%2037 24 247.2%2017 200 2007.45%2097 100 1007.5%2032 750 7508.75%2030 200 2009.375%2019 750 75010.5%2039 250 250Debentures: 7.65%2026 100 1008.75%2015 75 75Gulf Opportunity Zone Revenue Bonds, Series 2010, 4.0%2040 300 300Accounts receivable sales facility2015 100 100Other debt2015 26 —Net unamortized discount, including fair value adjustments (21) (24)Total debt 6,354 6,525Capital lease obligations, including unamortized fair value adjustments 32 39Total debt and capital lease obligations 6,386 6,564Less current portion (606) (303)Debt and capital lease obligations, less current portion $5,780 $6,26178Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Credit FacilitiesRevolverWe have a $3 billion revolving credit facility (the Revolver) with a group of financial institution lenders that has a maturity date ofNovember 2018. We have the option to increase the aggregate commitments under the Revolver to $4.5 billion, subject to, among otherthings, the consent of the existing lenders whose commitments will be increased or any additional lenders providing such additionalcapacity. We may request additional one-year extensions, subject to certain conditions, including the consent of the lenders holding themajority of the commitments and each lender extending its individual commitment. The Revolver includes sub-facilities for swinglineloans and letters of credit.Outstanding borrowings under the Revolver bear interest, at our option, at either (a) the adjusted LIBO rate (as defined in the Revolver)for the applicable interest period in effect from time to time plus the applicable margin or (b) the alternate base rate (as defined in theRevolver) plus the applicable margin. The interest rate and fees under the Revolver are subject to adjustment based upon the creditratings assigned to our senior unsecured debt. We are also charged various fees and expenses in connection with the Revolver,including facility fees and letter of credit fees. The Revolver has certain restrictive covenants, including a maximum debt-to-capitalization ratio of 60 percent. Our debt-to-capitalization ratio, calculated in accordance with the terms of the Revolver, was12 percent as of December 31, 2014 and 2013.VLP RevolverVLP has a $300 million senior unsecured revolving credit facility agreement (the VLP Revolver) with a group of lenders that has amaturity date of December 2018. The VLP Revolver is available only to the operations of VLP, and creditors of VLP do not haverecourse against Valero. VLP has the option to increase the aggregate commitments under the VLP Revolver to $500 million, subject to,among other things, the consent of the existing lenders whose commitments will be increased or any additional lenders providing suchadditional capacity. VLP may request two additional one-year extensions, subject to certain conditions. VLP may terminate the VLPRevolver with notice to the lenders of at least three business days prior to termination. The VLP Revolver includes sub-facilities forswingline loans and letters of credit. VLP’s obligations under the VLP Revolver will be jointly and severally guaranteed by all of VLP’sdirectly owned material subsidiaries. As of December 31, 2014, the only guarantor under the VLP Revolver was Valero PartnersOperating Co. LLC.Outstanding borrowings under the VLP Revolver bear interest, at VLP’s option, at either (a) the adjusted LIBO rate (as defined in theVLP Revolver) for the applicable interest period in effect from time to time plus the applicable margin or (b) the alternate base rate (asdefined in the VLP Revolver) plus the applicable margin. The VLP Revolver also provides for customary fees, including administrativeagent fees, participation fees, and commitment fees. The VLP Revolver contains certain restrictive covenants, including a ratio of totaldebt to EBITDA (as defined in the VLP Revolver) for the prior four fiscal quarters of not greater than 5.0 to 1.0 as of the last day ofeach fiscal quarter, and limitations on VLP’s ability to pay distributions to its unitholders.Canadian RevolverOne of our Canadian subsidiaries has a C$50 million committed revolving credit facility (the Canadian Revolver) under which it mayborrow and obtain letters of credit that has a maturity date of November 2015.79Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Activities Under Our Credit FacilitiesDuring the years ended December 31, 2014 and 2013, we had no borrowings or repayments under the Revolver, the VLP Revolver, orthe Canadian Revolver. During the year ended December 31, 2012, we borrowed and repaid $1.1 billion under the Revolver and hadno borrowings or repayments under the Canadian Revolver.Letters of CreditWe had outstanding letters of credit under our committed lines of credit as follows (in millions): Amounts Outstanding BorrowingCapacity Expiration December 31, 2014 2013Letter of credit facilities $550 June 2015 $56 $278Revolver $3,000 November 2018 $54 $59VLP Revolver $300 December 2018 $— $—Canadian Revolver C$50 November 2015 C$10 C$10We also have various other uncommitted short-term bank credit facilities. As of December 31, 2014 and 2013, we had no borrowingsoutstanding under our uncommitted short-term bank credit facilities; however, there were letters of credit outstanding under suchfacilities of $80 million and $189 million, respectively, for which we are charged letter of credit issuance fees. The uncommitted creditfacilities have no commitment fees or compensating balance requirements.Bank DebtOn March 20, 2013, in anticipation of the separation of our retail business as described in Note 3, CST entered into an $800 millionsenior secured credit agreement. This credit agreement was retained by CST after the separation from us. Therefore, we have no rightsto obtain credit under nor any liabilities in connection with this credit agreement.On April 16, 2013, also in anticipation of the separation of our retail business, we borrowed $550 million under a short-term debtagreement with a third-party financial institution. On May 1, 2013, CST issued $550 million of its senior unsecured bonds to us, and weexchanged those bonds with the third-party financial institution in satisfaction of our short-term debt.On October 24, 2013, we borrowed $525 million under a short-term debt agreement with a third-party financial institution inanticipation of liquidating our retained interest in CST. This liquidation was completed on November 14, 2013 by transferring allremaining shares of CST common stock owned by us to the financial institution in exchange for $467 million of our short-term debt,and we paid the remaining $58 million of short-term debt in cash. After paying $19 million of fees, we recognized a $325 millionnontaxable gain.80Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Non-Bank DebtIn February 2015, we made a scheduled debt repayment of $400 million related to our 4.5% senior notes.During the year ended December 31, 2014, we made a scheduled debt repayment of $200 million related to our 4.75% senior notes.During the year ended December 31, 2013, we made scheduled debt repayments of $180 million related to our 6.7% senior notes and$300 million related to our 4.75% senior notes.During the year ended December 31, 2012,•we redeemed 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 for $108 million, or 100% of their outstanding stated values;•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•we received proceeds of $300 million from the remarketing of the 4.0% Gulf Opportunity Zone Revenue Bonds Series 2010issued by the Parish of St. Charles, State of Louisiana, which are due December 1, 2040, but are subject to mandatory tender onJune 1, 2022.Accounts Receivable Sales FacilityWe have an accounts receivable sales facility with a group of third-party entities and financial institutions to sell up to $1.5 billion ofeligible trade receivables on a revolving basis. In July 2014, we amended this facility to extend the maturity date to July 2015. Proceedsfrom the sale of receivables under this facility are reflected as debt. Under this program, one of our marketing subsidiaries (ValeroMarketing) sells eligible receivables, without recourse, to another of our subsidiaries (Valero Capital), whereupon the receivables are nolonger owned by Valero Marketing. Valero Capital, in turn, sells an undivided percentage ownership interest in the eligible receivables,without recourse, to the third-party entities and financial institutions. To the extent that Valero Capital retains an ownership interest inthe receivables it has purchased from Valero Marketing, such interest is included in our financial statements solely as a result of theconsolidation of the financial statements of Valero Capital with those of Valero Energy Corporation; the receivables are not available tosatisfy the claims of the creditors of Valero Marketing or Valero Energy Corporation.As of December 31, 2014 and 2013, $1.7 billion and $3.3 billion, respectively, of our accounts receivable composed the designatedpool of accounts receivable included in the program. All amounts outstanding under the accounts receivable sales facility are reflectedas debt on our balance sheets and proceeds and repayments are reflected as cash flows from financing activities on the statements ofcash flows. Changes in the amounts outstanding under our accounts receivable sales facility were as follows (in millions): Year Ended December 31, 2014 2013 2012Balance as of beginning of year$100 $100 $250Proceeds from the sale of receivables— — 1,500Repayments— — (1,650)Balance as of end of year$100 $100 $10081Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Capitalized InterestFor the years ended December 31, 2014, 2013, and 2012, capitalized interest was $70 million, $118 million, and $220 million,respectively.Other DisclosuresIn addition to the maximum debt-to-capitalization ratio applicable to the Revolver discussed above under “Credit Facilities,” our bankcredit facilities 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, 2014 were asfollows (in millions): Debt CapitalLeaseObligations2015$601 $82016— 82017950 62018— 62019750 6Thereafter4,074 18Net unamortized discountand fair value adjustments(21) 1Less interest expense— (21)Total$6,354 $3212.COMMITMENTS AND CONTINGENCIESOperating LeasesWe have long-term operating lease commitments for land, office facilities and equipment, transportation equipment, time charters forocean-going tankers and coastal vessels, dock facilities, and various facilities and equipment used in the storage, transportation,production, and sale of refinery feedstock, refined product and corn inventories.Certain leases for processing equipment and feedstock and refined product storage facilities provide for various contingent paymentsbased on, among other things, throughput volumes in excess of a base amount. Certain leases for vessels contain renewal options andescalation clauses, which vary by charter, and provisions for the payment of chartering fees, which either vary based on usage orprovide for payments, in addition to established minimums, that are contingent on usage. In most cases, we expect that in the normalcourse of business, our leases will be renewed or replaced by other leases.82Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)As of December 31, 2014, our future minimum rentals and minimum rentals to be received under subleases for leases having initial orremaining noncancelable lease terms in excess of one year were as follows (in millions):2015$314201622920171592018131201975Thereafter275Total minimum rental payments$1,183Minimum rentals to be receivedunder subleases$14Rental expense was as follows (in millions): Year Ended December 31, 2014 2013 2012Minimum rental expense$618 $588 $512Contingent rental expense43 47 67Total rental expense661 635 579Less sublease rental income— — (2)Net rental expense$661 $635 $577Purchase ObligationsWe have various purchase obligations under certain industrial gas and chemical supply arrangements (such as hydrogen supplyarrangements), crude oil and other feedstock supply arrangements, and various throughput and terminalling agreements. We enter intothese contracts to ensure an adequate supply of utilities and feedstock and adequate storage capacity to operate our refineries.Substantially all of our purchase obligations are based on market prices or adjustments based on market indices. Certain of thesepurchase obligations include fixed or minimum volume requirements, while others are based on our usage requirements. None of theseobligations are associated with suppliers’ financing arrangements. These purchase obligations 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 adjacent shutdown refinery site, which we acquired as part of a prior acquisition. We have been conducting initial mitigationand cleanup with other companies pursuant to an administrative order issued by the U.S. Environmental Protection Agency (EPA). TheU.S. EPA is seeking further cleanup obligations from us and other potentially responsible parties (PRPs) for the Village. In parallel withthe Village cleanup, we are in litigation with the Illinois EPA and other PRPs relating to the remediation of the shutdown refinery site. Ineach of these matters, we have various defenses and rights for contribution from the other responsible parties. We have accrued for ourown expected contribution obligations. However,83Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)because of the unpredictable nature of these cleanups and the methodology for allocation of liabilities, it is reasonably possible that wecould incur a loss in a range of $0 to $200 million in excess of the amount of our accrual to ultimately resolve these matters. Factorsunderlying this estimated range are expected to change from time to time, and actual results may vary significantly from this estimate.Regulation of Greenhouse GasesThe U.S. EPA began regulating greenhouse gases (GHG) on January 2, 2011, under the Clean Air Act Amendments of 1990 (Clean AirAct). The U.S. EPA is developing refinery-specific GHG regulations and performance standards that are expected to impose GHGemission limits and/or technology requirements on new and modified operations. These control requirements may affect a wide rangeof refinery operations but have not yet been delineated. Any such controls, however, could result in material increased compliancecosts, additional operating restrictions for our business, and an increase in the cost of the products we produce, which could have amaterial adverse effect on our financial position, results of operations, and liquidity.Certain states and foreign governments have pursued regulation of GHG independent of the U.S. EPA. For example, the CaliforniaGlobal Warming Solutions Act, also known as AB 32, directs the California Air Resources Board (CARB) to develop and issueregulations to reduce GHG emissions in California to 1990 levels by 2020. CARB has issued a variety of regulations aimed at reachingthis goal, including a Low Carbon Fuel Standard (LCFS) as well as a statewide cap-and-trade program. The cap-and-trade program costsare expected to increase significantly beginning in 2015 with the inclusion of transportation fuels in the program. Complying with AB32, including the LCFS and the cap-and-trade program, could result in material increased compliance costs for us, increased capitalexpenditures, increased operating costs, and additional operating restrictions for our business, resulting in an increase in the cost of, anddecreases in the demand for, the products we produce. To the degree we are unable to recover these increased compliance costs, thesematters could have a material adverse effect 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 contingencyliability with respect to some of these matters because we have determined that it is remote that a loss has been incurred. For othermatters, we have recorded a loss contingency liability where we have determined that it is probable that a loss has been incurred andthat the loss is reasonably estimable. These loss contingency liabilities are not material to our financial position. We re-evaluate andupdate our loss contingency liabilities as matters progress over time, and we believe that any changes to the recorded liabilities will notbe 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, gross receipts, and value-added taxes), payroll taxes, franchise taxes, withholding taxes, and ad valorem taxes. New tax lawsand regulations and changes in existing tax laws and regulations are continuously being enacted or proposed that could result inincreased expenditures for tax liabilities in the future. Many of these liabilities are subject to periodic audits by the respective taxingauthority. Subsequent changes to our tax liabilities as a result of these audits may subject us to interest and penalties.84Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)IRS AuditsAs of December 31, 2014, the Internal Revenue Service (IRS) has ongoing tax audits related to our U.S. federal tax returns from 2004through 2011, as discussed in Note 16. We have received Revenue Agent Reports on our tax years for 2004 through 2009 and we arevigorously contesting many of the tax positions and assertions from the IRS. We are continuing to work with the IRS to resolve thesematters and we believe that they will be resolved for amounts consistent with the recorded amounts of unrecognized tax benefitsassociated with these matters. During the year ended December 31, 2014, we settled the audit related to our 2002 and 2003 tax yearsand the audit related to a group of our subsidiaries for their 2004 and 2005 tax years consistent with the recorded amounts of uncertaintax position liabilities associated with those audits.Self-InsuranceWe are self-insured for certain medical and dental, workers’ compensation, automobile liability, general liability, and property liabilityclaims up to applicable retention limits. Liabilities are accrued for self-insured claims, or when estimated losses exceed coverage limits,and when sufficient information is available to reasonably estimate the amount of the loss. These liabilities are included in accruedexpenses and other long-term liabilities.85Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)13.EQUITYShare ActivityFor the years ended December 31, 2014, 2013, and 2012, activity in the number of shares of common stock and treasury stock was asfollows (in millions): CommonStock TreasuryStockBalance as of December 31, 2011673 (117)Transactions in connection withstock-based compensation plans: Stock issuances— 6Stock repurchases— (6)Stock repurchases under buybackprogram— (4)Balance as of December 31, 2012673 (121)Transactions in connection withstock-based compensation plans: Stock issuances— 6Stock repurchases— (6)Stock repurchases under buybackprogram— (17)Balance as of December 31, 2013673 (138)Transactions in connection withstock-based compensation plans: Stock issuances— 4Stock repurchases— (2)Stock repurchases under buybackprogram— (23)Balance as of December 31, 2014673 (159)Preferred StockWe have 20 million shares of preferred stock authorized with a par value of $0.01 per share. No shares of preferred stock wereoutstanding as of December 31, 2014 or 2013.Treasury StockWe purchase shares of our common stock in open market transactions to meet our obligations under employee stock-basedcompensation plans. We also purchase shares of our common stock from our employees and non-employee directors in connectionwith the exercise of stock options, the vesting of restricted stock, and other stock compensation transactions.86Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)On February 28, 2008, our board of directors approved a $3 billion common stock purchase program, which was in addition to a$6 billion program previously authorized. This additional $3 billion program has no expiration date. During 2013, we completed the$6 billion program. During the years ended December 31, 2014, 2013, and 2012, we purchased $1.2 billion, $692 million, and$118 million, respectively, of our common stock under our programs. As of December 31, 2014, we have approvals under the$3 billion program to purchase approximately $1.5 billion of our common stock. Year to date through February 20, 2015, we havepurchased one million shares for $57 million.Common Stock DividendsOn January 23, 2015, our board of directors declared a quarterly cash dividend of $0.40 per common share payable March 3, 2015 toholders of record at the close of business on February 11, 2015.Income Tax Effects Related to Components of Other Comprehensive Income (Loss)The following table reflects the tax effects allocated to each component of other comprehensive income (loss) for the years endedDecember 31, 2014, 2013, and 2012 (in millions): Before-Tax Amount Tax Expense(Benefit) Net AmountYear Ended December 31, 2014: Foreign currency translation adjustment$(407) $— $(407)Pension and other postretirement benefits: Loss arising during the year related to: Net actuarial loss(471) (162) (309)Prior service cost(1) (1) —(Gain) loss reclassified into income related to: Net actuarial loss34 12 22Prior service credit(40) (14) (26)Curtailment and settlement3 — 3Net loss on pension and otherpostretirement benefits(475) (165) (310)Derivative instruments designated andqualifying as cash flow hedges: Net loss arising during the year(1) — (1)Net loss reclassified into income2 1 1Net gain on cash flow hedges1 1 —Other comprehensive loss$(881) $(164) $(717)87Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Before-TaxAmount Tax Expense(Benefit) Net AmountYear Ended December 31, 2013: Foreign currency translation adjustment$(98) $— $(98)Pension and other postretirement benefits: Gain arising during the year related to: Net actuarial gain367 125 242Plan amendments371 130 241(Gain) loss reclassified into income related to: Net actuarial loss57 20 37Prior service credit(33) (12) (21)Settlement1 — 1Net gain on pension and otherpostretirement benefits763 263 500Derivative instruments designated andqualifying as cash flow hedges: Net loss arising during the year(4) (2) (2)Net loss reclassified into income2 1 1Net loss on cash flow hedges(2) (1) (1)Other comprehensive income$663 $262 $401Year 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) $1288Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Accumulated Other Comprehensive Income (Loss)Changes in accumulated other comprehensive income (loss) by component, net of tax, were as follows (in millions): ForeignCurrencyTranslationAdjustment DefinedBenefitPlanItems Gains and(Losses) onCash FlowHedges TotalBalance as of December 31, 2011$501 $(424) $19 $96Other comprehensive income (loss)164 (134) (18) 12Balance as of December 31, 2012665 (558) 1 108Other comprehensive income (loss)before reclassifications(98) 483 (2) 383Amounts reclassified fromaccumulated other comprehensiveincome (loss)— 17 1 18Net other comprehensive income (loss)(98) 500 (1) 401Separation of retail business(159) — — (159)Balance as of December 31, 2013408 (58) — 350Other comprehensive lossbefore reclassifications(407) (309) (1) (717)Amounts reclassified fromaccumulated other comprehensiveincome (loss)— (1) 1 —Net other comprehensive loss(407) (310) — (717)Balance as of December 31, 2014$1 $(368) $— $(367)89Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Gains (losses) reclassified out of accumulated other comprehensive income (loss) and into net income were as follows (in millions):Details aboutAccumulated OtherComprehensive Income(Loss) Components Affected LineItem in theStatement ofIncome Year Ended December 31, 2014 2013 Amortization of items related todefined benefit pensionplans: Net actuarial loss $(34) $(57) (a)Prior service credit 40 33 (a)Curtailment and settlement (3) (1) (a) 3 (25) Total before tax (2) 8 Tax (expense)benefit $1 $(17) Net of tax Losses on cash flow hedges: Commodity contracts $(2) $(2) Cost of sales (2) (2) Total before tax 1 1 Tax benefit $(1) $(1) Net of tax Total reclassifications for theyear $— $(18) Net of tax_________________________(a)These accumulated other comprehensive income (loss) components are included in the computation of net periodic benefit cost, as further discussed inNote 14. Net periodic benefit cost is reflected in operating expenses and general and administrative expenses.90Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)14.EMPLOYEE BENEFIT PLANSDefined Benefit PlansWe have defined benefit pension plans, some of which are subject to collective bargaining agreements, that cover most of ouremployees. These plans provide eligible employees with retirement income based primarily on years of service and compensationduring specific periods under final average pay 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 the Employee Retirement Income Security Act (ERISA) minimum fundingstandard. We typically do not fund or fully fund U.S. nonqualified and certain international pension plans that are not subject to fundingrequirements because contributions to these pension plans may be less economic and investment returns may be less attractive than ourother investment alternatives.In February 2013, we announced changes to certain of our U.S. qualified pension plans that cover the majority of our U.S. employeeswho work in our refining segment and corporate operations. Benefits under our primary pension plan changed from a final average payformula to a cash balance formula with staged effective dates that commenced either on July 1, 2013 or January 1, 2015 depending onthe age and service of the affected employees. All final average pay benefits were frozen as of December 31, 2014, with all futurebenefits to be earned under the new cash balance formula. These plan amendments resulted in a $328 million decrease to pensionliabilities and a related increase to other comprehensive income during the year ended December 31, 2013. The benefit of thisremeasurement will be amortized into income through 2025.We also provide health care and life insurance benefits for certain retired employees through our postretirement benefit plans. Most ofour employees become 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 anacquisition became eligible for other postretirement benefits under our plans as determined by the terms of the relevant acquisitionagreement.In October 2013, we announced changes to our U.S. retiree health care plans to utilize more efficient insurance products for Medicareeligible retirees. These plan changes resulted in a $43 million decrease to our benefit obligations for other postretirement benefit plansand a related increase to other comprehensive income during the year ended December 31, 2013.91Table of ContentsVALERO ENERGY CORPORATIONNOTES 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 fundedstatus of our defined benefit plans as of and for the years ended were as follows (in millions): Pension Plans Other PostretirementBenefit Plans December 31, December 31, 2014 2013 2014 2013Changes in benefit obligation: Benefit obligation as of beginning of year$1,914 $2,307 $324 $436Service cost120 137 7 12Interest cost91 86 15 18Participant contributions— — 7 15Plan amendments2 (274) — (43)Curtailment gain— (6) — —Benefits paid(109) (170) (30) (37)Actuarial (gain) loss440 (169) 37 (77)Other(8) 3 1 —Benefit obligation as of end of year$2,450 $1,914 $361 $324 Changes in plan assets(a): Fair value of plan assets as of beginning of year$1,909 $1,729 $— $—Actual return on plan assets139 306 — —Valero contributions46 41 20 19Participant contributions— — 7 15Benefits paid(109) (170) (30) (37)Other(7) 3 3 3Fair value of plan assets as of end of year$1,978 $1,909 $— $— Reconciliation of funded status(a): Fair value of plan assets as of end of year$1,978 $1,909 $— $—Less benefit obligation as of end of year2,450 1,914 361 324Funded status as of end of year$(472) $(5) $(361) $(324) Accumulated benefit obligation$2,354 $1,811 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 are notincluded 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 a result, thereconciliation 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 with certain U.S.nonqualified pension plans.92Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)For the year ended December 31, 2014, the funded status of our pension and other postretirement benefit plans were negativelyimpacted by a combined actuarial loss of $477 million primarily due to approximately $300 million related to the change in thediscount rates of our pension plans to 4.10% from 4.92% and our other postretirement benefit plans to 4.13% from 4.88% as ofDecember 31, 2014 and 2013, respectively, and approximately $100 million related to our adoption of the updated mortality table thatreflects longer life expectancies.Amounts recognized in our balance sheet for our pension and other postretirement benefits plans as of December 31, 2014 and 2013include (in millions): Pension Plans Other PostretirementBenefit Plans 2014 2013 2014 2013Deferred charges and other assets, net$7 $208 $— $—Accrued expenses(28) (11) (20) (19)Other long-term liabilities(451) (202) (341) (305) $(472) $(5) $(361) $(324)The accumulated benefit obligations for certain of our pension plans exceed the fair values of the assets of those plans. For those plans,the table below presents the total projected benefit obligation, accumulated benefit obligation, and fair value of the plan assets(in millions). December 31, 2014 2013Projected benefit obligation$2,288 $215Accumulated benefit obligation2,217 168Fair value of plan assets1,812 3Benefit payments that we expect to pay, including amounts related to expected future services, and the anticipated Medicare subsidiesthat we expect to receive are as follows for the years ending December 31 (in millions): PensionBenefits OtherPostretirementBenefits2015$131 $202016127 202017132 212018142 212019189 212020-2024845 108We plan to contribute approximately $47 million to our pension plans and $20 million to our other postretirement benefit plans during2015.93Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The components of net periodic benefit cost related to our defined benefit plans were as follows (in millions): Pension Plans Other PostretirementBenefit Plans Year Ended December 31, Year Ended December 31, 2014 20132012 2014 2013 2012Components of net periodicbenefit cost: Service cost$120 $137 $140 $7 $12 $12Interest cost91 86 93 15 18 21Expected return on plan assets(133) (131) (125) — — —Amortization of: Prior service cost (credit)(22) (19) 3 (18) (14) (23)Net actuarial (gain) loss35 57 33 (1) — 1Special charges (credits)3 (5) (3) — — —Net periodic benefit cost$94 $125 $141 $3 $16 $11Amortization of prior service cost (credit) shown in the above table was based on a straight-line amortization of the cost over theaverage remaining service period of employees expected to receive benefits under each respective plan. Amortization of the netactuarial loss shown in the above table was based on the straight-line amortization of the excess of the unrecognized loss over10 percent of the greater of the projected benefit obligation or market-related value of plan assets (smoothed asset value) over theaverage remaining service period of active employees expected to receive benefits under each respective plan.Pre-tax amounts recognized in other comprehensive income were as follows (in millions): Pension Plans Other PostretirementBenefit Plans Year Ended December 31, Year Ended December 31, 2014 2013 2012 2014 2013 2012Net gain (loss) arising duringthe year: Net actuarial gain (loss)$(434) $290 $(245) $(37) $77 $17Prior service cost(1) — (9) — — —Remeasurement due to planamendments— 328 — — 43 —Net (gain) loss reclassified intoincome: Net actuarial (gain) loss35 57 33 (1) — 1Prior service cost (credit)(22) (19) 3 (18) (14) (23)Curtailment and settlement loss3 1 12 — — —Total changes in othercomprehensive income (loss)$(419) $657 $(206) $(56) $106 $(5)94Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The pre-tax amounts in accumulated other comprehensive income as of December 31, 2014 and 2013 that have not yet beenrecognized as components of net periodic benefit cost were as follows (in millions): Pension Plans Other PostretirementBenefit Plans 20142013 2014 2013Prior service credit$(210) $(233) $(92) $(110)Net actuarial (gain) loss876 479 (6) (44)Total$666 $246 $(98) $(154)The following pre-tax amounts included in accumulated other comprehensive income as of December 31, 2014 are expected to berecognized as components of net periodic benefit cost during the year ending December 31, 2015 (in millions): Pension Plans OtherPostretirementBenefit PlansAmortization of prior service credit$(22) $(18)Amortization of net actuarial loss63 —Total$41 $(18)The weighted-average assumptions used to determine the benefit obligations as of December 31, 2014 and 2013 were as follows: Pension Plans OtherPostretirementBenefit Plans 2014 2013 2014 2013Discount rate4.10% 4.92% 4.13% 4.88%Rate of compensation increase3.78% 3.81% —% —%The discount rate assumption used to determine the benefit obligations as of December 31, 2014 and 2013 for the majority of ourpension plans and other postretirement benefit plans was based on the Aon Hewitt AA Only Above Median yield curve and consideredthe timing of the projected cash outflows under our plans. This curve was designed by Aon Hewitt to provide a means for plan sponsorsto value the liabilities of their pension plans or postretirement benefit plans. It is a hypothetical double-A yield curve represented by aseries of annualized individual discount rates with maturities from one-half year to 99 years. Each bond issue underlying the curve isrequired to have an average rating of double-A when averaging all available ratings by Moody’s Investor Services, Standard and Poor’sRatings Service, and Fitch Ratings. Only the bonds representing the 50 percent highest yielding issuances among those with averageratings of double-A are included in this yield curve.We based our December 31, 2014, 2013, and 2012 discount rate assumption on the Aon Hewitt AA Only Above Median yield curvebecause we believe it is representative of the types of bonds we would use to settle our pension and other postretirement benefit planliabilities as of those dates. We believe that the yields associated with the bonds used to develop this yield curve reflect the current levelof interest rates.95Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The weighted-average assumptions used to determine the net periodic benefit cost for the years ended December 31, 2014, 2013, and2012 were as follows: Pension Plans Other PostretirementBenefit Plans 2014 2013 2012 2014 2013 2012Discount rate4.92% 4.33% 5.08% 4.88% 4.19% 4.97%Expected long-term rate of returnon plan assets7.61% 7.62% 7.67% —% —% —%Rate of compensation increase3.81% 3.73% 3.68% —% —% —%The assumed health care cost trend rates as of December 31, 2014 and 2013 were as follows: 2014 2013Health care cost trend rate assumed for the next year7.36% 7.39%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 2020Assumed health care cost trend rates impact the amounts reported for retiree health care plans. A one percentage-point change inassumed health care cost 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$— $—Effect on accumulated postretirement benefit obligation5 (4)96Table of ContentsVALERO ENERGY CORPORATIONNOTES 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, 2014 and 2013 by level ofthe fair value hierarchy. Assets categorized in Level 1 of the hierarchy are measured at fair value using a market approach based onquotations from national securities exchanges. Assets categorized in Level 2 of the hierarchy are measured at net asset value as apractical expedient for fair value. As previously noted, we do not fund or fully fund U.S. nonqualified and certain international pensionplans that are not subject to funding requirements, and we do not fund our other postretirement benefit plans. Fair Value Measurements Using Total as ofDecember 31,2014 Level 1 Level 2 Level 3 Equity securities: U.S. companies(a)$541 $— $— $541International companies144 — — 144Preferred stock1 1 — 2Mutual funds: International growth119 — — 119Index funds(b)199 — — 199Corporate debt instruments— 263 — 263Government securities: U.S. Treasury securities71 — — 71Other government securities— 100 — 100Common collective trusts— 379 — 379Private fund— 40 — 40Insurance contracts— 18 — 18Interest and dividends receivable5 — — 5Cash and cash equivalents75 22 — 97Total$1,155 $823 $— $1,978______________________See notes on page 98.97Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Fair Value Measurements Using Total as ofDecember 31,2013 Level 1 Level 2 Level 3 Equity securities: U.S. companies(a)$529 $— $— $529International companies155 — — 155Preferred stock2 1 — 3Mutual funds: International growth131 — — 131Index funds(b)160 — — 160Corporate debt instruments— 260 — 260Government securities: U.S. Treasury securities81 — — 81Other government securities— 79 — 79Common collective trusts— 373 — 373Private fund— 38 — 38Insurance contracts— 17 — 17Interest and dividends receivable5 — — 5Cash and cash equivalents72 6 — 78Total$1,135 $774 $— $1,909__________________________________ (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 well-diversified approach that is expected toearn long-term returns from capital appreciation and a growing stream of current income. This approach recognizes that assets areexposed to risk and the market value of the pension plans’ assets may fluctuate from year to year. Risk tolerance is determined basedon our financial ability to withstand risk within the investment program and the willingness to accept return volatility. In line with theinvestment 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, 2014, the target allocations for plan assets are 70 percent equity securities and 30 percentfixed income investments. Equity securities include international stocks and a blend of U.S. growth and value stocks of various sizes ofcapitalization. Fixed income securities include bonds and notes issued by the U.S. government and its agencies, corporate bonds, andmortgage-backed securities. The aggregate asset allocation is reviewed on an annual basis.The expected long-term rate of return on plan assets is based on a forward-looking expected asset return model. This model derives anexpected rate of return based on the target asset allocation of a plan’s assets. The underlying assumptions regarding expected rates ofreturn for each asset class reflect Aon Hewitt’s best expectations for these asset classes. The model reflects the positive effect ofperiodic rebalancing among diversified asset classes. We select an expected asset return that is supported by this model.98Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Defined Contribution PlansWe have defined contribution plans that cover 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, $62 million, and $61 million for the years ended December 31, 2014, 2013, and 2012, respectively.15.STOCK-BASED COMPENSATIONUnder our 2011 Omnibus Stock Incentive Plan (the OSIP), various stock and stock-based awards may be granted to employees andnon-employee directors. Awards available under the OSIP include options to purchase shares of common stock, performance awardsthat vest upon the achievement of an objective performance goal, stock appreciation rights, restricted stock that vests over a perioddetermined by our compensation committee, and dividend equivalent rights (DERs). The OSIP was approved by our stockholders onApril 28, 2011. As of December 31, 2014, 13,536,081 shares of our common stock remained available to be awarded under the OSIP.We also maintain other stock-based compensation plans under which previously granted equity awards remain outstanding. Noadditional grants may be awarded under these plans.The following table reflects activity related to our stock-based compensation arrangements (in millions): Year Ended December 31, 2014 2013 2012Stock-based compensation expense$60 $64 $58Tax benefit recognized on stock-basedcompensation expense21 22 20Tax benefit realized for tax deductionsresulting from exercises and vestings64 66 45Effect of tax deductions in excess ofrecognized stock-based compensationexpense reported as a financing cash flow47 47 27Each of our stock-based compensation arrangements is discussed below.Stock OptionsUnder the terms of our various stock-based compensation plans, the exercise price of options granted is not less than the fair marketvalue of our common stock on the date of grant. Stock options become exercisable pursuant to the individual written agreementsbetween the participants and us, usually in three equal annual installments beginning one year after the date of grant, with unexercisedoptions generally expiring seven or ten years from the date of grant.The fair value of stock options granted during 2014, 2013, and 2012 were estimated using the Monte Carlo simulation model, as theseoptions contain both a service condition and a market condition in order to be exercised. The expected life of options granted is theperiod of time from the grant date to the date of expected exercise or other expected settlement. The expected life for each of the yearsin the table below was calculated using the safe harbor provisions of SEC Staff Accounting Bulletin No. 107 and No. 110 related toshare‑based99Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)payments. Because the stock options granted in 2012 and later contain a market condition, historical exercise patterns did not provide areasonable basis for estimating the expected life. Expected volatility is based on closing prices of our common stock for periodscorresponding to the expected life of options granted. Expected dividend yield is based on annualized dividends at the date of grant.The risk-free interest rate used is the implied yield currently available from the U.S. Treasury zero‑coupon issues with a remaining termequal 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, 2014 2013 2012Expected life in years6.0 6.0 6.0Expected volatility43.21% 49.63% 49.11%Expected dividend yield2.27% 2.27% 2.39%Risk-free interest rate1.74% 1.77% 0.85%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, 20148,558,093 $27.88 Granted126,095 48.57 Exercised(2,564,125) 18.64 Expired(1,449,986) 66.67 Forfeited(856) 17.68 Outstanding as of December 31, 20144,669,221 21.48 4.5 $131 Exercisable as of December 31, 20144,315,414 19.99 4.2 127The following table reflects activity related to our stock options granted (in millions, except per share data): Year Ended December 31, 2014 2013 2012Weighted average grant-date fair value price per share$17.31 $15.83 $10.98Intrinsic value of stock options exercised85 101 78Cash received from stock option exercises47 59 59100Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)As of December 31, 2014, there was $1 million of unrecognized compensation cost related to outstanding unvested stock optionawards, which is expected to be recognized over a weighted-average period of approximately two years.Restricted StockRestricted stock is granted to employees and non-employee directors. Restricted stock granted to employees vests in accordance withindividual written agreements between the participants and us, usually in equal annual installments over a period of three yearsbeginning one year after the date of grant. Restricted stock granted to our non-employee directors generally vests in three yearsfollowing the date of grant. A summary of the status of our restricted stock awards is presented in the table below.Number ofShares Weighted-AverageGrant-DateFair ValuePer ShareNonvested shares as of January 1, 20142,205,314 $32.23Granted969,671 49.40Vested(1,402,753) 31.90Forfeited(14,082) 32.56Nonvested shares as of December 31, 20141,758,150 41.96As of December 31, 2014, there was $45 million of unrecognized compensation cost related to outstanding unvested restricted stockawards, which is expected to be recognized over a weighted-average period of approximately two years. The total fair value ofrestricted stock that vested during the years ended December 31, 2014, 2013, and 2012 was $60 million, $74 million, and $47 million,respectively.Performance AwardsPerformance awards are issued to certain of our key employees and represent rights to receive shares of our common stock upon theachievement by us of an objective performance measure. The objective performance measure is our total shareholder return, which isranked among the total shareholder returns of a defined peer group of companies. Our ranking determines the rate at which theperformance awards convert into our common shares. 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 peergroup of companies for each tranche of awards at the beginning of the one year vesting period for that tranche. Therefore, performanceawards are not considered to be granted for accounting purposes until our compensation committee establishes the peer group ofcompanies for each tranche of awards. The fair value of each tranche of awards is determined at the time the awards are considered tobe granted and is based on the expected conversion rate for those awards and the fair value per share. The fair value per share forawards granted during 2014 is equal to the market price of our common stock on the grant date as these grants include DERs. The fairvalue per share for awards granted prior to 2014 was equal to the market price of our common stock on the grant date reduced byexpected dividends over that tranche’s vesting period as these grants did not include DERs.101Table of ContentsVALERO ENERGY CORPORATIONNOTES 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, 2014947,165 —Granted225,829 —Vested(534,028) 534,028Converted— (534,028)Forfeited(24,576) —Awards outstanding as of December 31, 2014614,390 —There were three tranches of performance awards granted during the year ended December 31, 2014 as follows: AwardsGranted ExpectedConversionRate Fair ValuePer ShareThird tranche of 2012 awards99,023 100% $47.47Second tranche of 2013 awards76,232 100% 47.47First tranche of 2014 awards50,574 100% 48.57Total225,829 As of December 31, 2014, there was $11 million of unrecognized compensation cost related to outstanding unvested performanceawards, which will be recognized during 2015. The total fair value of performance awards that vested during the years endedDecember 31, 2014, 2013, and 2012 was $15 million, $12 million, and $3 million, respectively.Performance awards converted during the year ended December 31, 2014 were as follows: VestedAwardsConverted ActualConversionRate Number ofSharesIssued2010 awards201,422 100% 201,4222011 awards227,571 200% 455,1422012 awards102,855 200% 205,7102013 awards2,180 200% 4,360Total534,028 866,634102Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)16.INCOME TAXESIncome Tax ExpenseIncome from continuing operations before income tax expense was as follows (in millions): Year Ended December 31, 2014 2013 2012U.S. operations$4,677 $3,531 $4,015International operations875 445 725Income from continuing operations beforeincome tax expense$5,552 $3,976 $4,740The following is a reconciliation of income tax expense computed by applying the U.S. federal statutory income tax rate (35 percent forall years presented) to actual income tax expense related to continuing operations (in millions): Year Ended December 31, 2014 2013 2012Federal income tax expenseat the U.S. federal statutory rate$1,943 $1,392 $1,659U.S. state income tax expense,net of U.S. federal income tax effect62 62 64U.S. manufacturing deduction(74) (36) (33)International operations(88) (69) (96)Permanent differences(16) (104) 20Change in tax law— (32) —Other, net(50) 41 12Income tax expense$1,777 $1,254 $1,626The variation in the customary relationship between income tax expense and income from continuing operations before income taxexpense for the year ended December 31, 2014 was primarily due to an increase in income from continuing operations from ourinternational operations that was taxed at statutory rates that are lower than in the U.S. and an increase in our U.S. manufacturingdeduction. The variation in the customary relationship between income tax expense and income from continuing operations beforeincome tax expense for the year ended December 31, 2013 was primarily due to the $325 million nontaxable gain on the disposition ofour retained interest in CST as described in Notes 3 and 11.There was no income tax expense or benefit related to discontinued operations for the years ended December 31, 2014, 2013, and2012.103Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Components of income tax expense related to continuing operations were as follows (in millions): Year Ended December 31, 2014 2013 2012Current: U.S. federal$1,196 $635 $515U.S. state59 36 22International77 82 126Total current1,332 753 663 Deferred: U.S. federal268 459 854U.S. state36 59 77International141 (17) 32Total deferred445 501 963Income tax expense$1,777 $1,254 $1,626104Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Deferred Income Tax Assets and LiabilitiesThe tax effects of significant temporary differences representing deferred income tax assets and liabilities were as follows (in millions): December 31, 2014 2013Deferred income tax assets: Tax credit carryforwards$37 $48Net operating losses (NOLs)436 338Inventories160 264Property, plant, and equipment— 8Compensation and employee benefit liabilities358 178Environmental liabilities92 92Other178 187Total deferred income tax assets1,261 1,115Less: Valuation allowance(393) (347)Net deferred income tax assets868 768 Deferred income tax liabilities: Property, plant, and equipment6,682 6,536Deferred turnaround costs356 331Inventories426 310Investments152 94Other73 81Total deferred income tax liabilities7,689 7,352Net deferred income tax liabilities$6,821 $6,584We had the following income tax credit and loss carryforwards as of December 31, 2014 (in millions): Amount ExpirationU.S. state income tax credits$53 2015 through 2027U.S. state NOLs (gross amount)6,574 2015 through 2034International NOLs1,630 UnlimitedWe have recorded a valuation allowance as of December 31, 2014 and 2013 due to uncertainties related to our ability to utilize some ofour deferred income tax assets, primarily consisting of certain U.S. state income tax credits and NOLs, and international NOLs, beforethey expire. The valuation allowance is based on our estimates of taxable income in the various jurisdictions in which we operate andthe period over which deferred income tax assets will be recoverable. During 2014, the valuation allowance increased by $46 million,primarily due to increases in U.S. state NOLs. The realization of net deferred income tax assets recorded as of December 31, 2014 isprimarily dependent upon our ability to generate future taxable income in certain U.S. states and international jurisdictions.105Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Should we ultimately recognize tax benefits related to the valuation allowance for deferred income tax assets as of December 31, 2014,such amounts will be allocated as follows (in millions):Income tax benefit$386Additional paid-in capital7Total$393Deferred income taxes have not been provided on the future tax consequences attributable to differences between the financialstatement carrying amounts of existing assets and liabilities and the respective tax bases of our international subsidiaries based on thedetermination that such differences are essentially permanent in duration in that the earnings of these subsidiaries are expected to beindefinitely reinvested in the international operations. As of December 31, 2014, the cumulative undistributed earnings of thesesubsidiaries were approximately $2.9 billion. If those earnings were not considered indefinitely reinvested, deferred income taxeswould have been recorded after consideration of U.S. foreign tax credits. It is not practicable to estimate the amount of additional taxthat might be payable on those earnings, if distributed.Unrecognized Tax BenefitsThe following is a reconciliation of the change in unrecognized tax benefits, excluding related penalties, interest (net of the U.S. federaland state income tax effects), and the U.S. federal income tax effect of state unrecognized tax benefits (in millions): Year Ended December 31, 2014 2013 2012Balance as of beginning of year$950 $341 $326Additions based on tax positions related to the current year35 64 11Additions for tax positions related to prior years118 576 40Reductions for tax positions related to prior years(67) (26) (36)Reductions for tax positions related to the lapse ofapplicable statute of limitations(1) (4) —Settlements(46) (1) —Balance as of end of year$989 $950 $341The reconciliation of the change in unrecognized tax benefits for the year ended December 31, 2013 includes $556 million of additionsfor tax positions primarily related to prior years for tax refunds that we intend to claim by amending our income tax returns for 2005through 2012. We intend to propose that incentive payments received from the U.S. federal government for blending biofuels intorefined products be excluded from taxable income during these periods. However, due to the complexity of this matter anduncertainties with respect to the interpretation of the Internal Revenue Code, we concluded that the refund claims included in thereconciliation below cannot be recognized in our financial statements. As a result, these amounts are not included in our uncertain taxposition liabilities as of December 31, 2014 and 2013, even though they are reflected in the table above.106Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The following is a reconciliation of unrecognized tax benefits reflected in the table above to our uncertain tax position liabilities as ofDecember 31, 2014 and 2013 that are reflected in Note 10 (in millions): December 31, 2014 2013Unrecognized tax benefits$989 $950Tax refund claim not recognized in our financial statements(554) (556)Penalties, interest (net of U.S. federal and state income taxeffect), and the U.S. federal income tax effect of stateunrecognized tax benefits49 49Uncertain tax position liabilities$484 $443As of December 31, 2014 and 2013, there were $768 million and $763 million, respectively, of unrecognized tax benefits that ifrecognized would affect our annual effective tax rate. During the next 12 months, it is reasonably possible that tax audit resolutionscould reduce unrecognized tax benefits, excluding interest, by $133 million, either because the tax positions are sustained on audit orbecause we agree to their disallowance. We do not expect these reductions to have a significant impact on our financial statementsbecause such reductions would not significantly affect our annual effective rate.Penalties and interest, which are reflected within income tax expense, were immaterial for the year ended December 31, 2014. Duringthe years ended December 31, 2013 and 2012, we recognized $12 million and $23 million, respectively, in penalties and interest.Accrued penalties and interest totaled $141 million and $145 million as of December 31, 2014 and 2013, respectively, excluding theU.S. federal and state income tax effects related to interest.Tax Returns Under AuditAs of December 31, 2014, our tax years for 2004 through 2011 were under audit by the IRS. The IRS has proposed adjustments to ourtaxable income for certain open years. We are protesting the proposed adjustments and do not expect that the ultimate disposition ofthese adjustments will result in a material change to our financial position, results of operations, or liquidity. We are continuing to workwith the IRS to resolve these matters and we believe that they will be resolved for amounts consistent with recorded amounts ofunrecognized tax benefits associated with these matters.In December 2014, we paid the final IRS assessment for our tax years 2002 and 2003 and closed the audit related to all proposedadjustments. The amount paid was consistent with the recorded amount of unrecognized tax benefits associated with that audit.107Table of ContentsVALERO ENERGY CORPORATIONNOTES 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 shareamounts): Year Ended December 31, 2014 2013 2012 RestrictedStock CommonStock RestrictedStock CommonStock RestrictedStock CommonStockEarnings per common sharefrom continuing operations: Net income attributable toValero stockholders fromcontinuing operations $3,694$2,714$3,117Less dividends paid: Common stock 552 460 358Nonvested restricted stock 2 2 2Undistributed earnings $3,140 $2,252 $2,757Weighted-average commonshares outstanding2 526 3 542 3 550Earnings per common sharefrom continuing operations: Distributed earnings$1.05 $1.05 $0.85 $0.85 $0.65 $0.65Undistributed earnings5.95 5.95 4.13 4.13 4.99 4.99Total earnings per commonshare from continuingoperations$7.00 $7.00 $4.98 $4.98 $5.64 $5.64 Earnings per common sharefrom continuing operations –assuming dilution: Net income attributable toValero stockholders fromcontinuing operations $3,694 $2,714 $3,117Weighted-average commonshares outstanding 526 542 550Common equivalent shares: Stock options 2 4 4Performance awards andnonvested restricted stock 2 2 2Weighted-average commonshares outstanding –assuming dilution 530 548 556Earnings per common sharefrom continuing operations –assuming dilution $6.97 $4.96 $5.61108Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)18.SEGMENT INFORMATIONWe have two reportable segments, refining and ethanol, as of December 31, 2014. Prior to May 1, 2013, we also had a retail segment.As discussed in Note 3, we completed the separation of our retail business, CST, on May 1, 2013. Segment activity related to our retailbusiness prior to the separation is reflected in the retail segment results below. Motor fuel sales to CST, which were eliminated inconsolidation prior to the separation, are reported as refining segment operating revenues from external customers after May 1, 2013.Our refining segment includes refining operations, wholesale marketing, product supply and distribution, and transportation operationsin the U.S., Canada, the U.K., Aruba, and Ireland. Our ethanol segment primarily includes sales of internally produced ethanol anddistillers grains. The retail segment included company-operated convenience stores in the U.S. and Canada; filling stations, truckstopfacilities, cardlock facilities, and home heating oil operations in Canada; and credit card operations in the U.S. Operations that are notincluded in any of the 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 eachbusiness requires unique technology and marketing strategies. Performance is evaluated based on operating income. Intersegment salesare generally derived from transactions made at prevailing market rates.109Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The following table reflects activity related to continuing operations (in millions): Refining Ethanol Retail Corporate TotalYear ended December 31, 2014: Operating revenues from externalcustomers$126,004 $4,840 $— $— $130,844Intersegment revenues— 100 — — 100Depreciation and amortization expense1,597 49 — 44 1,690Operating income (loss)5,884 786 — (768) 5,902Total expenditures for long-lived assets2,750 42 — 30 2,822 Year ended December 31, 2013: Operating revenues from externalcustomers129,064 5,114 3,896 — 138,074Intersegment revenues2,876 128 — — 3,004Depreciation and amortization expense1,566 45 41 68 1,720Operating income (loss)4,211 491 81 (826) 3,957Total expenditures for long-lived assets2,597 33 62 65 2,757 Year ended December 31, 2012: Operating revenues from externalcustomers122,068 4,317 12,008 — 138,393Intersegment revenues8,946 115 — — 9,061Depreciation and amortization expense1,345 42 119 43 1,549Operating income (loss)5,484 (47) 348 (741) 5,044Total expenditures for long-lived assets3,147 36 164 66 3,413110Table of ContentsVALERO ENERGY CORPORATIONNOTES 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 oils and asphalt. Other product revenues include such products as gas oils, No. 6 fuel oil, and petroleum coke.Operating revenues from external customers for our principal products were as follows (in millions): Year Ended December 31, 2014 2013 2012Refining: Gasolines and blendstocks$56,846 $57,806 $55,647Distillates57,521 56,921 51,095Petrochemicals3,759 4,281 3,908Lubes and asphalts1,397 1,643 2,033Other product revenues6,481 8,413 9,385Total refining operating revenues126,004 129,064 122,068Ethanol: Ethanol4,192 4,245 3,545Distillers grains648 869 772Total ethanol operating revenues4,840 5,114 4,317Retail: Fuel sales (gasoline and diesel)— 3,226 10,045Merchandise sales and other— 524 1,649Home heating oil— 146 314Total retail operating revenues— 3,896 12,008Total operating revenues$130,844 $138,074 $138,393Operating revenues by geographic area are shown in the table below (in millions). The geographic area is based on location ofcustomer and no customer accounted for 10 percent or more of our operating revenues. Year Ended December 31, 2014 2013 2012U.S.$91,499 $100,418 $99,879Canada10,410 9,974 10,376U.K. and Ireland14,182 13,675 12,818Other countries14,753 14,007 15,320Total operating revenues$130,844 $138,074 $138,393111Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Long-lived assets include property, plant, and equipment and certain long-lived assets included in “deferred charges and other assets,net.” Geographic information by country for long-lived assets consisted of the following (in millions): December 31, 2014 2013U.S.$24,710 $23,572Canada2,250 2,260U.K.1,206 1,148Aruba59 53Ireland22 26Total long-lived assets$28,247 $27,059Total assets by reportable segment were as follows (in millions): December 31, 2014 2013Refining$40,103 $41,227Ethanol954 889Corporate4,493 5,144Total assets$45,550 $47,260In March 2014, we purchased an idled corn ethanol plant in Mount Vernon, Indiana for $34 million from a wholly owned subsidiary ofAventine Renewable Energy Holdings, Inc. We resumed production at that plant during the third quarter of 2014. In the fourth quarterof 2014, an independent appraisal of the assets acquired and liabilities assumed and certain other evaluations of the fair values relatedto the Mount Vernon plant were completed and finalized. The purchase price of the Mount Vernon plant 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 otherevaluations. There were no significant adjustments made to the preliminary purchase price allocation.112Table of ContentsVALERO ENERGY CORPORATIONNOTES 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 assetsand current liabilities as follows (in millions): Year Ended December 31, 2014 2013 2012Decrease (increase) in current assets: Receivables, net$2,753 $(753) $437Inventories(1,014) (13) (282)Income taxes receivable(23) 10 51Prepaid expenses and other(32) 2 (28)Increase (decrease) in current liabilities: Accounts payable(3,149) 977 (113)Accrued expenses38 53 13Taxes other than income taxes(64) 337 (260)Income taxes payable(319) 309 (120)Changes in current assets and current liabilities$(1,810) $922 $(302)The above changes in current assets and current liabilities differ from changes between amounts reflected in the applicable balancesheets for the respective periods for the following reasons:•the amounts shown above exclude changes in cash and temporary cash investments, deferred income taxes, and current portionof debt and capital lease obligations, as well as the effect of certain noncash investing and financing activities discussed below;•the amounts shown above for the year ended December 31, 2013 exclude the change in current assets and current liabilitiesresulting from the separation of our retail business as described in Note 3;•amounts accrued for capital expenditures and deferred turnaround and catalyst costs are reflected in investing activities whensuch amounts are paid;•amounts accrued for common stock purchases in the open market that are not settled as of the balance sheet date are reflected infinancing activities when the purchases are settled and paid; and•certain differences between balance sheet changes and the changes reflected above result from translating foreign currencydenominated balances at the applicable exchange rates as of each balance sheet date.There were no significant noncash investing activities for the years ended December 31, 2014, 2013 and 2012.Noncash financing activities for the year ended December 31, 2013 included the exchange of CST’s senior unsecured bonds and theexchange of all of our remaining shares of CST common stock with third-party financial institutions in satisfaction of our short-termdebt agreements as described in Note 11. There were no significant noncash financing activities for the years ended December 31, 2014and 2012.113Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Cash flows related to interest and income taxes paid were as follows (in millions): Year Ended December 31, 2014 2013 2012Interest paid in excess of amount capitalized$392 $361 $302Income taxes paid, net1,624 387 705Cash flows related to the discontinued operations of the Aruba Refinery were immaterial for the years ended December 31, 2014, 2013,and 2012.20.FAIR VALUE MEASUREMENTSGeneralU.S. GAAP requires or permits certain assets and liabilities to be measured at fair value on a recurring or nonrecurring basis in ourbalance sheets, and those assets and liabilities are presented below under “Recurring Fair Value Measurements” and “NonrecurringFair Value Measurements.” Assets and liabilities measured at fair value on a recurring basis, such as derivative financial instruments,are measured at fair value at the end of each reporting period. Assets and liabilities measured at fair value on a nonrecurring basis, suchas the impairment of property, plant and equipment, are measured at fair value in particular circumstances.U.S. GAAP also requires the disclosure of the fair values of financial instruments when an option to elect fair value accounting has beenprovided, but such election has not been made. A debt obligation is an example of such a financial instrument. The disclosure of thefair values of financial instruments not recognized at fair value in our balance sheet is presented below under “Other FinancialInstruments.”U.S. GAAP provides a framework for measuring fair value and establishes a three-level fair value hierarchy that prioritizes inputs tovaluation techniques based on the degree to which objective prices in external active markets are available to measure fair value.Following is a description of each of the levels 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 orindirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similarassets or liabilities in markets that are not active.•Level 3 - Unobservable inputs for the asset or liability. Unobservable inputs reflect our own assumptions about what marketparticipants would use to price the asset or liability. The inputs are developed based on the best information available in thecircumstances, which might include occasional market quotes or sales of similar instruments or our own financial data such asinternally developed pricing models, discounted cash flow methodologies, as well as instruments for which the fair valuedetermination requires significant judgment.114Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Recurring Fair Value MeasurementsThe tables below present information (in millions) about our assets and liabilities recognized at their fair values in our balance sheetscategorized according to the fair value hierarchy of the inputs utilized by us to determine the fair values as of December 31, 2014 and2013.We have elected to offset the fair value amounts recognized for multiple similar derivative contracts executed with the samecounterparty, including any related cash collateral assets or obligations as shown below; however, fair value amounts by hierarchy levelare presented on a gross basis in the tables below. We have no derivative contracts that are subject to master netting arrangements thatare reflected gross on the balance sheet. December 31, 2014 TotalGross FairValue Effect ofCounter-partyNetting Effect ofCashCollateralNetting NetCarryingValue onBalanceSheet CashCollateralPaid orReceivedNot Offset Fair Value Hierarchy Level 1 Level 2 Level 3 Assets: Commodity derivativecontracts$3,096 $36 $— $3,132 $(2,907) $(99) $126 $—Physical purchasecontracts— 1 — 1 n/a n/a 1 n/aInvestments of certainbenefit plans97 — 11 108 n/a n/a 108 n/aTotal$3,193 $37 $11 $3,241 $(2,907) $(99) $235 Liabilities: Commodity derivativecontracts$2,886 $34 $— $2,920 $(2,907) $(13) $— $(25)Biofuels blendingobligation— 14 — 14 n/a n/a 14 n/aPhysical purchasecontracts— 5 — 5 n/a n/a 5 n/aTotal$2,886 $53 $— $2,939 $(2,907) $(13) $19 115Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2013 TotalGrossFairValue Effect ofCounter-partyNetting Effect ofCashCollateralNetting NetCarryingValue onBalanceSheet CashCollateralPaid orReceivedNot Offset Fair Value Hierarchy Level 1 Level 2 Level 3 Assets: Commodity derivativecontracts$499 $38 $— $537 $(505) $(7) $25 $—Investments of certainbenefit plans98 — 11 109 n/a n/a 109 n/aTotal$597 $38 $11 $646 $(505) $(7) $134 Liabilities: Commodity derivativecontracts$492 $24 $— $516 $(505) $(6) $5 $(76)Biofuels blendingobligation— 11 — 11 n/a n/a 11 n/aPhysical purchasecontracts— 5 — 5 n/a n/a 5 n/aForeign currencycontracts8 — — 8 n/a n/a 8 n/aTotal$500 $40 $— $540 $(505) $(6) $29 A description of our assets and liabilities recognized at fair value along with the valuation methods and inputs we used to develop theirfair value measurements are as follows:•Commodity derivative contracts consist primarily of exchange-traded futures and swaps, and as disclosed in Note 21, some ofthese contracts are designated as hedging instruments. These contracts are measured at fair value using the market approach.Exchange-traded futures are valued based on quoted prices from the exchange and are categorized in Level 1 of the fair valuehierarchy. Swaps are priced using third-party broker quotes, industry pricing services, and exchange-traded curves, withappropriate consideration of counterparty credit risk, 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 fairvalue hierarchy.•Physical purchase contracts represent the fair value of firm commitments to purchase crude oil feedstocks and the fair value offixed-price corn purchase contracts, and as disclosed in Note 21, some of these contracts are designated as hedging instruments.The fair values of these firm commitments and purchase contracts are measured using a market approach based on quotedprices from the commodity exchange or an independent pricing service and are categorized in Level 2 of the fair valuehierarchy.•Investments of certain benefit plans consist of investment securities held by trusts for the purpose of satisfying a portion of ourobligations under certain U.S. nonqualified benefit plans. The assets categorized in Level 1 of the fair value hierarchy aremeasured at fair value using a market approach based on quoted prices from national securities exchanges. The assetscategorized in Level 3 of the fair value hierarchy represent insurance contracts, the fair value of which is provided by theinsurer.•Foreign currency contracts consist of foreign currency exchange and purchase contracts entered into for our internationaloperations to manage our exposure to exchange rate fluctuations on transactions116Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)denominated in currencies other than the local (functional) currencies of those operations. These contracts are valued based onquoted prices from the exchange and are categorized in Level 1 of the fair value hierarchy.•Our biofuels blending obligation represents a liability for the purchase of biofuel credits (primarily RINs in the U.S.) needed tosatisfy our obligation to blend biofuels into the products we produce. To the degree we are unable to blend at percentagesrequired under various governmental and regulatory programs, we must purchase biofuel credits to comply with theseprograms. These programs are further described in Note 21 under “Compliance Program Price Risk.” This liability is based onour deficit in biofuel credits as of the balance sheet date, if any, after considering any biofuel credits acquired or under contract,and is equal to the product of the biofuel credits deficit and the market price of these credits as of the balance sheet date. Thisliability is categorized in Level 2 of the fair value hierarchy and is measured at fair value using the market approach based onquoted prices from an independent pricing service.There were no transfers between Level 1 and Level 2 for assets and liabilities held as of December 31, 2014 and 2013 that weremeasured at fair value on a recurring basis.There was no activity during the years ended December 31, 2014, 2013, and 2012 related to the fair value amounts categorized inLevel 3 as of December 31, 2014, 2013, and 2012.Nonrecurring Fair Value MeasurementsThere were no assets or liabilities that were measured at fair value on a nonrecurring basis as of December 31, 2014 and 2013.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, 2014 December 31, 2013 CarryingAmount FairValue CarryingAmount FairValueFinancial assets: Cash and temporary cash investments$3,689 $3,689 $4,292 $4,292Financial liabilities: Debt (excluding capital leases)6,354 7,562 6,525 7,659The 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 ofthese assets combined 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-partybrokers and vendor pricing services (Level 2).117Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)21.PRICE RISK MANAGEMENT ACTIVITIESWe are exposed to market risks related to the volatility in the price of commodities, interest rates, and foreign currency exchange rates.We enter into derivative instruments to manage some of these risks, including derivative instruments related to the various commoditieswe purchase or produce, interest rate swaps, and foreign currency exchange and purchase contracts, as described below under “RiskManagement Activities by Type of Risk.” These derivative instruments are recorded as either assets or liabilities measured at their fairvalues (see Note 20), as summarized below under “Fair Values of Derivative Instruments.” In addition, the effect of these derivativeinstruments on our income is summarized below under “Effect of Derivative Instruments on Income and Other ComprehensiveIncome.”When we enter into a derivative instrument, it is designated as a fair value hedge, a cash flow hedge, an economic hedge, or a tradingderivative. The gain or loss on a derivative instrument designated and qualifying as a fair value hedge, as well as the offsetting loss orgain on the hedged item attributable to the hedged risk, is recognized currently in income in the same period. The effective portion ofthe gain or loss on a derivative instrument designated and qualifying as a cash flow hedge is initially reported as a component of othercomprehensive income and is then recorded into income in the period or periods during which the hedged forecasted transaction affectsincome. The ineffective portion of the gain or loss on the cash flow derivative instrument, if any, is recognized in income as incurred.For our economic hedges (derivative instruments not designated as fair value or cash flow hedges) and for derivative instrumentsentered into by us for trading purposes, the derivative instrument is recorded at fair value and changes in the fair value of the derivativeinstrument are recognized currently in income. The cash flow effects of all of our derivative instruments are reflected in operatingactivities in our statements of cash flows for all periods presented.We are also exposed to market risk related to the volatility in the price of credits needed to comply with various governmental andregulatory programs. To manage this risk, we enter into contracts to purchase these credits when prices are deemed favorable. Some ofthese contracts are derivative instruments; however, we elect the normal purchase exception and do not record these contracts at theirfair values.Risk Management Activities by Type of 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(primarily corn), soybean oil, and natural gas used in our operations. To reduce the impact of price volatility on our results ofoperations and cash flows, we use commodity derivative instruments, including futures, swaps, and options. We use the futures marketsfor the available liquidity, which provides greater flexibility in transacting our hedging and trading operations. We use swaps primarilyto manage our price exposure. Our positions in commodity derivative instruments are monitored and managed on a daily basis by a riskcontrol group to ensure compliance with our stated risk management policy that has been 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 derivativeinstruments to manage commodity price risk, we also enter into certain commodity derivative instruments for trading purposes. Ourobjective for entering into each type of hedge or trading derivative is described below.118Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)•Fair Value Hedges – Fair value hedges are used to hedge price volatility in certain refining inventories and firm commitments topurchase inventories. The level of activity for our fair value hedges is based on the level of our operating inventories, and generallyrepresents the amount by which our inventories differ from our previous year-end LIFO inventory levels. As of December 31, 2014,we had no outstanding commodity derivative instruments that were entered into as fair value hedges.•Cash Flow Hedges – Cash flow hedges are used to hedge price volatility in certain forecasted feedstock and refined productpurchases, refined product sales, and natural gas purchases. The objective of our cash flow hedges is to lock in the price offorecasted feedstock, refined product, or natural gas purchases or refined product sales at existing market prices that we deemfavorable. As of December 31, 2014, we had no outstanding commodity derivative instruments that were entered into as cash flowhedges.119Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)•Economic Hedges – Economic hedges represent commodity derivative instruments that are not designated as fair value or cash flowhedges and are used to manage price volatility in certain (i) feedstock and refined product inventories, (ii) forecasted feedstock andproduct purchases, and product sales, and (iii) fixed-price purchase contracts. Our objective for entering into economic hedges isconsistent with the objectives discussed above for fair value hedges and cash flow hedges. However, the economic hedges are notdesignated as a fair value hedge or a cash flow hedge for accounting purposes, usually due to the difficulty of establishing therequired documentation at the date that the derivative instrument is entered into that would allow us to achieve “hedge deferralaccounting.”As of December 31, 2014, we had the following outstanding commodity derivative instruments that were used as economic hedges,as well as commodity derivative instruments related to the physical purchase of corn at a fixed price. The information presents thenotional volume of outstanding contracts by type of instrument and year of maturity (volumes in thousands of barrels, except thoseidentified as natural gas contracts that are presented in billions of British thermal units, corn contracts that are presented inthousands of bushels, and soybean oil contracts that are presented in thousands of pounds). Notional Contract Volumes byYear of MaturityDerivative Instrument 2015 2016Crude oil and refined products: Swaps – long 7,532 —Swaps – short 5,676 —Futures – long 46,886 —Futures – short 67,600 —Natural gas: Options – long 1,250 —Corn: Futures – long 20,815 80Futures – short 46,585 1,155Physical contracts – long 25,327 1,081Soybean oil: Futures – long 94,920 —Futures – short 178,920 —120Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)•Trading Derivatives – Our objective for entering into commodity derivative instruments for trading purposes is to take advantage ofexisting market conditions related to future results of operations and cash flows.As of December 31, 2014, we had the following outstanding commodity derivative instruments that were entered into for tradingpurposes. The information 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 Britishthermal units). Notional Contract Volumes byYear of MaturityDerivative Instrument 2015 2016Crude oil and refined products: Swaps – long 645 —Swaps – short 645 —Futures – long 95,709 5,116Futures – short 96,897 4,341Options – long 1,900 —Options – short 1,200 —Natural gas: Futures – long 6,200 —Futures – short 4,200 —Interest Rate RiskOur primary market risk exposure for changes in interest rates relates to our debt obligations. We manage our exposure to changinginterest rates through the use of a combination of fixed-rate and floating-rate debt. In addition, at times we have used interest rate swapagreements to manage our fixed to floating interest rate position by converting certain fixed-rate debt to floating-rate debt. We had nointerest rate derivative instruments outstanding as of December 31, 2014 and 2013, or during the years ended December 31, 2014,2013, or 2012.Foreign Currency RiskWe are exposed to exchange rate fluctuations on transactions entered into by our international operations that are denominated incurrencies other than the local (functional) currencies of these operations. To manage our exposure to these exchange rate fluctuations,we use foreign currency exchange and purchase contracts. These contracts are not designated as hedging instruments for accountingpurposes, and therefore they are classified as economic hedges. As of December 31, 2014, we had commitments to purchase$377 million of U.S. dollars. These commitments matured on or before January 31, 2015 resulting in a gain of $12 million in the firstquarter of 2015.121Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Compliance Program Price RiskWe are exposed to market risk related to the volatility in the price of credits needed to comply with various governmental andregulatory programs. The most significant programs impacting our operations are those that require us to blend biofuels into theproducts we produce, and we are subject to such programs in most of the countries in which we operate. These countries set annualquotas for the percentage of biofuels that must be blended into the motor fuels consumed in these countries. As a producer of motorfuels from petroleum, we are obligated to blend biofuels into the products we produce at a rate that is at least equal to the applicablequota. To the degree we are unable to blend at the applicable rate, we must purchase biofuel credits (primarily RINs in the U.S.). We areexposed to the volatility in the market price of these credits, and we manage that risk by purchasing biofuel credits when prices aredeemed favorable. For the years ended December 31, 2014, 2013, and 2012, the cost of meeting our obligations under thesecompliance programs was $372 million, $517 million, and $250 million, respectively. These amounts are reflected in cost of sales.Fair Values of Derivative InstrumentsThe following tables provide information about the fair values of our derivative instruments as of December 31, 2014 and 2013(in millions) and the line items in the balance sheets in which the fair values are reflected. See Note 20 for additional information relatedto the fair values of our derivative instruments.As indicated in Note 20, we net fair value amounts recognized for multiple similar derivative contracts executed with the samecounterparty under master netting arrangements, including cash collateral assets and obligations. The tables below, however, arepresented on a gross asset and gross liability basis, which results in the reflection of certain assets in liability accounts and certainliabilities in asset accounts. Balance SheetLocation December 31, 2014 AssetDerivatives LiabilityDerivativesDerivatives not designated ashedging instruments Commodity contracts: FuturesReceivables, net $3,096 $2,886SwapsReceivables, net 34 31OptionsReceivables, net 2 3Physical purchase contractsInventories 1 5Total $3,133 $2,925122Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Balance SheetLocation December 31, 2013 AssetDerivatives LiabilityDerivativesDerivatives designated ashedging instruments Commodity contracts: FuturesReceivables, net $25 $36 Derivatives not designated ashedging instruments Commodity contracts: FuturesReceivables, net $474 $455SwapsReceivables, net 33 18SwapsPrepaid expenses and other 3 —SwapsAccrued expenses — 5OptionsReceivables, net 2 2Physical purchase contractsInventories — 5Foreign currency contractsAccrued expenses — 8Total $512 $493Total derivatives $537 $529Market and Counterparty RiskOur price risk management activities involve the receipt or payment of fixed price commitments into the future. These transactions giverise to market risk, which is the risk that future changes in market conditions may make an instrument less valuable. We closely monitorand manage our exposure to market risk on a daily basis in accordance with policies approved by our board of directors. Market risksare monitored by a risk control group to ensure compliance with our stated risk management policy. We do not require any collateral orother security to support derivative instruments into which we enter. We also do not have any derivative instruments that require us tomaintain a minimum investment-grade credit rating.123Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Effect of Derivative Instruments on Income and Other Comprehensive IncomeThe following tables provide information about the gain or loss recognized in income and other comprehensive income (OCI) on ourderivative instruments 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, 2014 2013 2012Commodity contracts: Loss recognized inincome on derivatives Cost of sales $(42) $(12) $(250)Gain recognized inincome on hedged item Cost of sales 42 18 183Gain (loss) recognized inincome on derivatives(ineffective portion) Cost of sales — 6 (67)For fair value hedges, no component of the derivative instruments’ gains or losses was excluded from the assessment of hedgeeffectiveness for the years ended December 31, 2014, 2013, and 2012. There were no amounts recognized in income for hedged firmcommitments that no longer qualified as fair value hedges during the years ended December 31, 2014 and 2013; however, a gain of$28 million was recognized in income during the year ended December 31, 2012 for hedged firm commitments that no longer qualifiedas fair value hedges.Derivatives in Cash FlowHedging Relationships Location of Gain (Loss)Recognized in Incomeon Derivatives Year Ended December 31, 2014 2013 2012Commodity contracts: Gain (loss) recognized inOCI on derivatives(effective portion) $(1) $(4) $45Gain (loss) reclassified fromaccumulated OCI intoincome (effective portion) Cost of sales (2) (2) 73Gain (loss) recognized inincome on derivatives(ineffective portion) Cost of sales (1) 21 48For cash flow hedges, no component of the derivative instruments’ gains or losses was excluded from the assessment of hedgeeffectiveness for the years ended December 31, 2014, 2013, and 2012. For the year ended December 31, 2014, cash flow hedgesprimarily related to forward purchases of crude oil, with no cumulative after-tax gains or losses on cash flow hedges remaining inaccumulated other comprehensive income. For the years ended December 31, 2014, 2013, and 2012, there were no amountsreclassified from accumulated other comprehensive income into income as a result of the discontinuance of cash flow hedgeaccounting.124Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Derivatives Designated asEconomic Hedges and OtherDerivative Instruments Location of Gain (Loss)Recognized in Incomeon Derivatives Year Ended December 31, 2014 2013 2012Commodity contracts Cost of sales $693 $193 $1Foreign currency contracts Cost of sales 40 14 (38)Trading Derivatives Location of Gain (Loss)Recognized in Incomeon Derivatives Year Ended December 31, 2014 2013 2012Commodity contracts Cost of sales $38 $21 $(16)RINs fixed-price contracts Cost of sales — (20) —125Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)22.QUARTERLY FINANCIAL DATA (Unaudited)The following table summarizes quarterly financial data for the years ended December 31, 2014 and 2013 (in millions, except per shareamounts). The amounts shown below differ from those previously reported in our quarterly reports on Form 10-Q for the quartersended March 31, 2013 and 2014 due to the abandonment of the Aruba Refinery in May 2014 as discussed in Note 2. The results ofoperations of the Aruba Refinery have been presented as discontinued operations for all periods presented. 2014 Quarter Ended March 31 June 30 September 30 December 31Operating revenues$33,663 $34,914 $34,408 $27,859Operating income1,351 1,085 1,670 1,796Net income836 593 1,062 1,220Net income attributable toValero Energy Corporationstockholders828 588 1,059 1,155Earnings per common share1.55 1.11 2.01 2.22Earnings per common share –assuming dilution1.54 1.10 2.00 2.22 2013 Quarter Ended March 31 June 30 (a) September 30 December 31Operating revenues33,474 34,034 36,137 34,429Operating income1,058 805 532 1,562Net income652 465 324 1,287Net income attributable toValero Energy Corporationstockholders654 466 312 1,288Earnings per common share1.18 0.86 0.58 2.39Earnings per common share –assuming dilution1.18 0.85 0.57 2.38____________________ (a)The separation of our retail business was completed on May 1, 2013.126Table of ContentsITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIALDISCLOSURENone.ITEM 9A. CONTROLS AND PROCEDURESDisclosure Controls and Procedures. Our management has evaluated, with the participation of our principal executive officer andprincipal financial officer, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the SecuritiesExchange Act of 1934) as of the end of the period covered by this report, and has concluded that our disclosure controls andprocedures were effective as of December 31, 2014.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 54 of thisreport, and is incorporated 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 56 of this report, and isincorporated herein 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 materiallyaffected, or is reasonably likely to materially affect, our internal control over financial reporting.ITEM 9B. OTHER INFORMATIONNone.127Table 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 forour 2015 annual meeting of stockholders. We will file the proxy statement with the SEC before March 31, 2015.PART IVITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES(a) 1. Financial Statements. The following consolidated financial statements of Valero Energy Corporation and its subsidiaries areincluded in Part II, Item 8 of this Form 10-K: PageManagement’s report on internal control over financial reporting54Reports of independent registered public accounting firm55Consolidated balance sheets as of December 31, 2014 and 201358Consolidated statements of income for the years ended December 31, 2014, 2013, and 201259Consolidated statements of comprehensive income for the years ended December 31, 2014, 2013, and 201260Consolidated statements of equity for the years ended December 31, 2014, 2013, and 201261Consolidated statements of cash flows for the years ended December 31, 2014, 2013, and 201262Notes to consolidated financial statements632. Financial Statement Schedules and Other Financial Information. No financial statement schedules are submitted becauseeither they are 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 (July 31, 1997) to Restated Certificate of Incorporation of Valero Energy Corporation - incorporated by referenceto 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 byreference to 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).128Table 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 - incorporated by reference to Exhibit 3.01 to Valero’s Current Report onForm 8-K dated January 23, 2015 and filed January 30, 2015 (SEC File No. 1-13175). 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 Form of7 3/4% Senior Deferrable Note due 2005) - incorporated by reference to Exhibit 4.6 to Valero’s Current Report on Form 8-K dated June 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 (SECFile No. 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 toExhibit 10.04 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. *+10.07--Form of Investment Election Form pursuant to the Valero Energy Corporation Deferred Compensation Plan. *+10.08--Form of Distribution Election Form pursuant to the Valero Energy Corporation Deferred Compensation Plan.129Table 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 (SECFile No. 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--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. *+10.12--Schedule of Indemnity Agreements. +10.13--Form of Change of Control Severance Agreement (Tier I) between Valero Energy Corporation and executive officer - incorporated byreference 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). *+10.14--Schedule of Change of Control Severance Agreements (Tier I). +10.15--Form of Change of Control Severance Agreement (Tier II) between Valero Energy Corporation and executive officer - incorporated byreference to Exhibit 10.16 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2013 (SEC File No. 1-13175). *+10.16--Schedule of Change of Control Severance Agreements (Tier II). +10.17--Form of Amendment to Change of Control Severance Agreements (to eliminate excise tax gross-up benefit) - incorporated by reference toExhibit 10.17 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2012 (SEC File No. 1-13175). *+10.18--Schedule of Amendments to Change of Control Severance Agreements. +10.19--Form of Performance Share Award Agreement pursuant to the Valero Energy Corporation 2011 Omnibus Stock Incentive Plan -incorporated by reference to Exhibit 10.19 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2013 (SEC File No. 1-13175). *+10.20--Form of Performance Share Award Agreement (with Dividend Equivalent Award) pursuant to the Valero Energy Corporation 2011 OmnibusStock Incentive Plan. +10.21--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). +10.22--Form of Performance Stock Option Agreement pursuant to the Valero Energy Corporation 2011 Omnibus Stock Incentive Plan -incorporated by reference to Exhibit 10.21 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2012 (SEC File No. 1-13175). +10.23--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). +10.24--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 - incorporated by reference to Exhibit 10.25 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2012(SEC File No. 1-13175). 10.26--$3,000,000,000 5-Year Second Amended and Restated Revolving Credit Agreement, dated as of November 22, 2013, among ValeroEnergy Corporation, as Borrower; JPMorgan Chase Bank, N.A., as Administrative Agent; and the lenders named therein - incorporated byreference to Exhibit 10.27 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2013 (SEC File No. 1-13175). *12.01--Statements of Computations of Ratios of Earnings to Fixed Charges.130Table of Contents 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 26, 2015. *24.01--Power of Attorney dated February 26, 2015 (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. ***101--Interactive Data Files______________*Filed herewith.**Furnished herewith.***Submitted electronically herewith.+Identifies management contracts or compensatory plans or arrangements required to be filed as an exhibit hereto.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.131Table 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 tobe signed on its behalf by the undersigned, thereunto duly authorized. VALERO ENERGY CORPORATION(Registrant) By:/s/ Joseph W. Gorder (Joseph W. Gorder) Chairman of the Board, President,and Chief Executive OfficerDate: February 26, 2015132Table of ContentsPOWER OF ATTORNEYKNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Joseph W. Gorder, 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 ofsubstitution and 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 thisAnnual Report on Form 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 theSecurities and Exchange Commission, granting unto each said attorney-in-fact and agent full power to do and perform each and every act and thing requisite andnecessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby qualifying and confirming all that saidattorney-in-fact and agent or his substitute or 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/ Joseph W. Gorder Chairman of the Board, President,and Chief Executive Officer(Principal Executive Officer) February 26, 2015(Joseph W. Gorder) /s/ Michael S. Ciskowski Executive Vice Presidentand Chief Financial Officer(Principal Financial and Accounting Officer) February 26, 2015(Michael S. Ciskowski) /s/ Jerry D. Choate Director February 26, 2015(Jerry D. Choate) /s/ Deborah P. Majoras Director February 26, 2015(Deborah P. Majoras) /s/ Donald L. Nickles Director February 26, 2015(Donald L. Nickles) /s/ Philip J. Pfeiffer Director February 26, 2015(Philip J. Pfeiffer) /s/ Robert A. Profusek Director February 26, 2015(Robert A. Profusek) /s/ Susan Kaufman Purcell Director February 26, 2015 (Susan Kaufman Purcell) /s/ Stephen M. Waters Director February 26, 2015(Stephen M. Waters) /s/ Randall J. Weisenburger Director February 26, 2015(Randall J. Weisenburger) /s/ Rayford Wilkins, Jr. Director February 26, 2015(Rayford Wilkins, Jr.) 133Exhibit 10.062015 ELECTIVE DEFERRAL AGREEMENTValero Energy Corporation Deferred Compensation PlanPursuant to the Valero Energy Corporation Deferred Compensation Plan (the “Plan”):¨ I elect not to participate in the Plan during 2015.¨I hereby elect to defer a portion of my compensation for the period commencing January 1, 2015 and ending December 31,2015 (the “Plan Year”) as follows:Salary (elect either 1 or 2)1. ________% (in even 1% increments not to exceed 30%) of the regular salary to which I may becomeentitled during the Plan Year;2. $_________ per pay period of the regular salary to which I may become entitled with respect to (checkeither (a) or (b) below):(a) ________ all pay periods during the Plan Year(b) ________ the following pay periods (specify):________________________________________________________________________________________Bonus (elect either 3 or 4 for bonus earned in 2015 and possibly payable in 2016)3. ________% (in even 1% increments not to exceed 50%) of any cash bonuses to which I may becomeentitled;4. $_________ of any cash bonuses to which I may become entitled.NOTE: In order to be effective, this form must be completed, signed, and returned to Financial Benefits (San Antonio/Mailstation E1Lor fax 210/345-3063) on or before December 1, 2014. If your form is not timely submitted, you will not be eligible to participate in thePlan for the 2015 Plan Year.The Company has taken measures to design the Plan in a manner that conforms to current tax law. However, it is possible that new legislation could affect your deferral elections.Your 2015 Plan Year deferral elections are irrevocable and are governed by the terms and conditions of the Plan as well as any modifications made to the Plan in order to conformto legal requirements.ACKNOWLEDGED AND AGREED:I hereby authorize the above amounts to be deducted and deferred through payroll deduction/reduction by the Company.Participant's Signature Date Participant's Name Participant's Employee ID NumberExhibit 10.072015 INVESTMENT ELECTION FORMValero Energy Corporation Deferred Compensation PlanDirection of InvestmentsThe undersigned Participant hereby directs that the measurement of the Participant’s account be determined as if it were invested in thefund options as indicated below.DEFERRALS OF SALARY AND/OR BONUSES BEGINNING 1/1/2015WILL BE TREATED AS IF INVESTED AS INDICATED BELOW.Enter your investment elections: 5% minimum/increments of 5%.The total of the percentages must equal 100%.You may invest in any one or more (including all) of the fund options._ _ _ _ _% Dreyfus Appreciation (DGAGX)_ _ _ _ _% Fidelity Intermediate Government (FSTGX)_ _ _ _ _% Janus Worldwide (JAWWX)_ _ _ _ _% Milestone Funds Treasury Obligations Portfolio (MTIXX)_ _ _ _ _% Oakmark I (OAKMX)_ _ _ _ _% Price Mid-Cap Growth (RPMGX)_ _ _ _ _% Columbia Income Z (SRINX)_ _ _ _ _% Vanguard Balanced Index (VBINX)_ _ _ _ _% Vanguard Index Extended Market (VEXMX)_ _ _ _ _% Vanguard Index 500 (VFINX)_ _ _ _ _% Vanguard Growth and Income (VQNPX)________ 100 % I understand that the elections I have chosen on this form shall remain in effect until I make a directive to change.Participant's Signature Date Participant's Name Participant's Employee ID NumberExhibit 10.082015 DISTRIBUTION ELECTION FORMValero Energy Corporation Deferred Compensation PlanPayment ElectionUpon RetirementDEFAULT PAYMENT IF NO ELECTION IS MADE:Fifteen annual installments commencing at date of retirementI elect that, upon retirement, the value of my Plan account related to deferrals made for the 2015 Plan Year will be paid at the time andin the manner elected below:Payment Commencement (choose one):¨ As soon as administratively possible following retirement(this is the default if no election is made)¨ January 1 after the year of retirementANDForm of Distribution (choose one):¨ Lump sum payment¨ Annual installments for _______ years (choose 2 - 15 years)Payment ElectionUpon Other SeparationDEFAULT PAYMENT IF NO ELECTION IS MADE:Immediate lump sum payable upon separationI elect that, upon my separation from employment for a reason other than retirement, the value of my Plan account related to deferralsmade for the 2015 Plan Year will be paid at the time and in the manner elected below:Payment Commencement (choose one):¨ As soon as administratively possible following separation(this is the default if no election is made)¨ January 1 after the year of separationANDForm of Distribution (choose one):¨ Lump sum (this is the default payment if no election is made)¨ Five annual installmentsDistribution on Specified DateIn accordance with Section 6.4 of the Plan, I hereby elect to receive in one lump sum payment my Account derived from deferralsmade during the 2015 Plan Year on the date or dates specified below, or the balance of the Account, if less. Any amounts distributedpursuant to this election shall immediately reduce my Account accordingly. (The earliest date that can be elected to receive 2015deferrals is January 1, 2019.) Specified Date Amount of Elective Deferral orTotal Amount of the Account (Whichever is Less) NOTE: In order to be effective, this form must be completed, signed, and returned to Financial Benefits (San Antonio/Mailstation E1L)on or before December 1, 2014. If your form is not timely submitted, your Plan deferral will be subject to the default distributionsnoted above.The Company has taken measures to design the Plan in a manner that conforms to current tax law. However, it is possible that new legislation could affect your distributionelections, including delaying your distributions, in order to comply with legal requirements. Distribution elections submitted pursuant to the Plan will be governed by the terms andconditions of the Plan and governing law, and your elections will be subject to modifications made to the Plan in order to conform to legal requirements.ACKNOWLEDGED AND AGREED:Participant's Signature Date Participant's Name Participant's Employee ID NumberEXHIBIT 10.12SCHEDULE OF INDEMNITY AGREEMENTSThe following have executed Indemnity Agreements substantially in the form of the agreement attached as Exhibit 10.8 to Valero’sRegistration Statement on Form S-1 (SEC File No. 333-27013) filed May 13, 1997.Susan Kaufman PurcellEXHIBIT 10.14SCHEDULE OF CHANGE OF CONTROL AGREEMENTS (Tier I)The following have executed Change of Control Agreements substantially in the form of the agreement attached as Exhibit 10.15 toValero’s Annual Report on Form 10-K for the year ended December 31, 2011 (SEC File No. 1-13175).Michael S. CiskowskiJoseph W. GorderEXHIBIT 10.16SCHEDULE OF CHANGE OF CONTROL AGREEMENTS (Tier II)The following have executed Change of Control Agreements substantially in the form of the agreement attached as Exhibit 10.16 toValero’s Annual Report on Form 10-K for the year ended December 31, 2013 (SEC File No. 1-13175).Jay D. BrowningR. Michael CrownoverExhibit 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 amendmentattached as Exhibit 10.17 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2012 (SEC File No. 1-13175).Jay D. BrowningMichael S. CiskowskiR. Michael CrownoverJoseph W. GorderExhibit 10.20PERFORMANCE SHARE AGREEMENT(with Dividend Equivalent Award)This Performance Share Agreement (the “Agreement”) is entered into as of October 23, 2014, by and between Valero EnergyCorporation, a Delaware corporation (“Valero”), and _____________, a participant (the “Participant”) in Valero’s 2011 OmnibusStock Incentive Plan (as may be amended, the “Plan”), pursuant to and subject to the provisions of the Plan.1.Grant of Performance Shares. Valero hereby grants to Participant 20,790 Performance Shares pursuant to Section 6.7 of thePlan. The Performance Shares represent rights to receive shares of Common Stock of Valero, subject to the terms and conditionsof this Agreement and the Plan.2.Vesting and Delivery of Shares.A.Vesting. The Performance Shares granted hereunder shall vest over a period of three years in equal, one-third incrementswith the first increment vesting on the date of the regularly scheduled meeting of the Board’s Compensation Committee inJanuary 2016, and the second and third increments vesting on the Committee’s meeting dates in January 2017 andJanuary 2018, respectively (each of these three vesting dates is referred to as a “Normal Vesting Date”); any award(s) ofshares of Common Stock resulting in connection with such vesting shall be subject to verification of attainment of thePerformance Objectives described in Section 4 below by the Compensation Committee. If the Committee is unable to meetin January of a given year, then the Normal Vesting Date for that year will be the date not later than March 31 of that yearas selected by the Compensation Committee.B.Rights. Until shares of Common Stock are actually issued to Participant (or his or her estate) in settlement of thePerformance Shares, neither Participant nor any person claiming by, through or under Participant shall have any rights as astockholder of Valero (including, without limitation, voting rights or any right to receive dividends or other distributions)with respect to such shares.C.Distribution. Any shares of Common Stock to be distributed under the terms of this Agreement shall be distributed as soonas administratively practicable after Performance Objectives described in Section 4 below have been verified by theCompensation Committee, but not later than two-and-one-half months following the end of the year in which suchverification occurred.3.Performance Period. Except as provided below with respect to a Change of Control (as defined in the Plan), the “PerformancePeriod” for any Performance Shares eligible to vest on any given Normal Vesting Date shall be as follows:A.First Segment. The Performance Period for the first one-third vesting of Performance Shares (those vesting on the NormalVesting Date in January 2016) shall be the calendar year ending on December 31, 2015.B.Second Segment. The Performance Period for the second one-third vesting of Performance Shares (those vesting on theNormal Vesting Date in January 2017) shall be the two calendar years ending December 31, 2016.C.Third Segment. The Performance Period for the final one-third vesting of Performance Shares (those vesting on the NormalVesting Date in January 2018) shall be the three calendar years ending December 31, 2017.Page 14.Performance Objectives.A.Total Shareholder Return. Total Shareholder Return (“TSR”) will be compiled for a peer group of companies (the “TargetGroup”) for the Performance Period immediately preceding each Normal Vesting Date. TSR for each such company ismeasured by dividing (A) the sum of (i) the dividends on the common stock of such company during the PerformancePeriod, assuming dividend reinvestment, and (ii) the difference between the average closing price of a share of suchcompany’s common stock for the 30 days of December 2 to December 31 at the end of the Performance Period and theaverage closing price of such shares for the 30 days of December 2 to December 31 immediately prior to the beginning ofthe Performance Period (appropriately adjusted for any stock dividend, stock split, spin-off, merger or other similarcorporate events), by (B) the average closing price of a share of such company’s common stock for the 30 days ofDecember 2 to December 31 immediately prior to the beginning of the Performance Period.B.Target Group. The applicable Target Group shall be selected by the Compensation Committee, acting in its sole discretion,each year not later than 90 days after the commencement of the calendar year preceding each Normal Vesting Date. Thesame Target Group shall be used to measure TSR with regard to all Performance Shares vesting under all PerformanceAward Agreements of Valero having a similar Normal Vesting Date.C.Performance Ranking and Award of Common Shares. For each Performance Period, the TSR for Valero and eachcompany in the Target Group shall be arranged by rank from best performer to worst performer according to the TSRachieved by each company. Shares of Common Stock will be awarded to Participant in accordance with Valero’spercentile ranking within the Target Group. The number of shares of Common Stock, if any, that Participant will beentitled to receive in settlement of the vested Performance Shares will be determined on each Normal Vesting Date and,subject to the provisions of the Plan and this Agreement, on such Normal Vesting Date, the following percentage of thevested Performance Shares will be awarded as shares of Common Stock to the Participant when Valero’s TSR during thePerformance Period falls within the following percentiles (“Percentiles”), with awards of Common Stock to be interpolatedbetween the “25th Percentile” and “50th Percentile” and between the “50th Percentile” and “75th Percentile”:Valero Performance Percent of vested PerformanceShares to be awarded asShares of Common Stock75th Percentile or Higher 200%50th Percentile (to 74.99%) 100% (to 199%)25th Percentile (to 49.99%) 25% (to 99%)Below 25th Percentile 0% D.Unearned Shares. Any Performance Shares not awarded as shares of Common Stock on a Normal Vesting Date willexpire and be forfeited; such Performance Shares may not be carried forward for any additional Performance Period.5.Dividend Equivalent Award. In addition to the Performance Shares granted in Section 1, the Participant is granted a DividendEquivalent Award payable in shares of Common Stock, asPage 2provided herein. On each Normal Vesting Date, the amount of dividends paid to holders of Common Stock during theapplicable Performance Period shall be determined with respect to the Participant’s Performance Shares that are vesting on thatNormal Vesting Date – calculated as if the Performance Shares were outstanding shares of Common Stock (the resulting valuebeing hereafter referred to as the “Target Dividend Equivalent Value”). The Target Dividend Equivalent Value shall then besubject to further calculation according to Valero’s TSR ranking during the Performance Period as prescribed in Section 4.C.above (i.e., payout from 0% to 200% depending on Valero’s TSR ranking). The number of shares of Common Stock payable toParticipant with respect to the Dividend Equivalent Award is equal to (x) the Target Dividend Equivalent Value multiplied bythe Performance Period’s payout percentage calculated per Section 4.C., divided by (y) the Fair Market Value of the CommonStock on the Normal Vesting Date (the resulting number being rounded up to the nearest whole number of shares). SeeExhibit A for an example of this calculation.6.Termination of Employment.A.Voluntary Termination, Termination for “Cause,” and Early Retirement. If Participant’s employment is(i)voluntarily terminated by the Participant (other than through normal retirement, death or disability), includingtermination in connection with Participant’s voluntary early retirement (i.e., prior to age 62),(ii)terminated by Valero for “cause” (as defined pursuant to the Plan),then those Performance Shares that are outstanding and have not vested as of the effective date of termination shallthereupon be forfeited.B.Retirement. If a Participant’s employment is terminated through his or her normal retirement (i.e., age 62+ retirement),then any Performance Shares that (i) have not theretofore vested or been forfeited, and (ii) were granted at least one yearprior to the Participant’s effective date of retirement, shall continue to remain outstanding and shall vest on the NormalVesting Dates according to their original vesting schedule.But any outstanding Performance Shares that were granted within one year of the Participant’s effective date of retirementshall be prorated as follows. The outstanding Performance Shares shall be prorated based on the number of months workedfrom the date of grant to the Participant’s retirement date (rounding upward), and the prorated number of PerformanceShares shall thereafter vest on the Normal Vesting Dates according to their original vesting schedule. Example:•20,790 Performance Shares granted on October 23, 2014,•normal retirement date of Participant is effective April 1, 2015,•working period is calculated as 6 months (5 full months plus partial month rounding upward to 6 months),•original grant is adjusted by 6/12ths (50%) resulting in 10,395 Performance Shares to vest according to theiroriginal vesting schedule.C.Death, Disability, Involuntary Termination Other Than for “Cause,” and Change of Control. If a Participant’semployment is terminated (i) through death or disability, or (ii) by Valero other than for cause (as determined pursuant tothe Plan), or (iii) as a result of a Change of Control (as described in the Plan) (each of the foregoing is hereafter referred toas a “Trigger Date”), then each Performance Period with respect to any Performance SharesPage 3that have not vested or been forfeited shall be terminated effective as of such Trigger Date; the TSR for Valero and for eachcompany in the Target Group shall be determined for each such shortened Performance Period and the percentage ofPerformance Shares to be awarded as shares of Common Stock for each such shortened Performance Period shall bedetermined in accordance with Section 4 and shall be distributed as soon as administratively practicable thereafter.(i)or purposes of determining the number of Performance Shares to be received as of any Trigger Date, the TargetGroup as most recently determined by the Compensation Committee prior to the Trigger Date shall be used.(ii)If the Trigger Date is the result of a Change of Control, then the number of shares of Common Stock to beawarded to the Participant shall be prorated commensurate with the length of service of the Participant duringeach Performance Period. See Exhibit B for an example of this calculation.7.Plan Incorporated by Reference. The Plan is incorporated into this Agreement by this reference and is made a part hereof forall purposes. Capitalized terms not otherwise defined in this Agreement shall have the meaning specified in the Plan.8.No Assignment. This Agreement and the Participant’s interest in the Performance Shares granted by this Agreement are of apersonal nature, and, except as expressly permitted under the Plan, Participant’s rights with respect thereto may not be sold,mortgaged, pledged, assigned, transferred, conveyed or disposed of in any manner by Participant, except by an executor orbeneficiary pursuant to a will or pursuant to the laws of descent and distribution. Any such attempted sale, mortgage, pledge,assignment, transfer, conveyance or disposition is void, and Valero will not be bound thereby.9.Integration. This Agreement constitutes the entire agreement of the parties relating to the transactions contemplated hereby, andsupersedes all provisions and concepts contained in all prior contracts or agreements between the Participant and Valero,including that certain Change of Control Severance Agreement (“COC Agreement”) between Participant and Valero. Foravoidance of doubt, Participant acknowledges that in the context of a Change of Control of Valero, the terms of this Agreementshall prevail over the terms of the COC Agreement with respect to the vesting of the Performance Shares granted under thisAgreement.10.Successors. This Agreement shall be binding upon any successors of Valero and upon the beneficiaries, legatees, heirs,administrators, executors, legal representatives, successors and permitted assigns of Participant.11.Code Section 409A. This Agreement is intended to comply, and shall be administered consistently in all respects, with Section409A of the Internal Revenue Code of 1986, as amended (the “Code”), and the regulations and additional guidancepromulgated thereunder to the extent applicable. Accordingly, Valero shall have the authority to take any action, or refrain fromtaking any action, with respect to this Agreement that is reasonably necessary to ensure compliance with Code Section 409A(provided that Valero shall choose the action that best preserves the value of payments and benefits provided to Participantunder this Agreement that is consistent with Code Section 409A), and the parties agree that this Agreement shall be interpretedin a manner that is consistent with Code Section 409A. In furtherance, but not in limitation of the foregoing:Page 4(a)in no event may Participant designate, directly or indirectly, the calendar year of any payment to be made hereunder;(b)to the extent the Participant is a “specified employee” within the meaning of Code Section 409A, payments, if any, thatconstitute a “deferral of compensation” under Code Section 409A and that would otherwise become due during the firstsix months following Participant’s termination of employment shall be delayed and all such delayed payments shall bepaid in full in the seventh month after such termination date, provided that the above delay shall not apply to anypayment that is excepted from coverage by Code Section 409A, such as a payment covered by the short-term deferralexception described in Treasury Regulations Section 1.409A-1(b)(4);(c)notwithstanding any other provision of this Agreement, a termination, resignation or retirement of Participant’semployment hereunder shall mean and be interpreted consistent with a “separation from service” within the meaning ofCode Section 409A.Executed effective as of the date first written above.VALERO ENERGY CORPORATIONby: ______________________________________R. Michael Crownover, Executive Vice Presidentand Chief Administrative Officer______________________________________ParticipantPage 5Exhibit AExample of Potential Payout of Dividend Equivalent Award in Shares of Common Stock(per Section 5 of the Agreement) Assumptions and Calculations (for illustration purposes only): 1.The number of Performance Shares granted to Participant on October 23, 2014 was: 20,790 2.The Normal Vesting Date for the second segment of Performance Shares is January 18, 2017. These Performance Shares are vesting with respect to the two-year Performance Period ending Dec. 31, 2016. The number of Performance Shares vesting on this date is: 20,790 divided by 3 6,930 3.The cumulative amount of dividends paid to holders of Common Stock during the Performance Period is: dividends per share paid:1Q15$0.2751Q16$0.29 2Q15$0.2752Q16$0.29 3Q15$0.2753Q16$0.29 4Q15$0.2754Q16$0.29 $1.10plus$1.16$2.26 4.The "Target Dividend Equivalent Value" is calculated to be: 6,930Performance Shares vesting $2.26times accumulated dividends per share $15,661.80Target Dividend Equivalent Value 5.Valero's TSR ranking for the Performance Period is determined (per Section 4.C.) to generate a payout of 150%. 6.The Fair Market Value of the Common Stock on the vesting date is $49.50. 7.Based on the foregoing, the total number of shares of Common Stock earned by the Participant on the vesting date is calculated as follows: Section 4.C. 6,930Performance Shares vesting x 150%TSR ranking payout percentage 10,395common shares earned for Performance Shares Section 5$15,661.80Target Dividend Equivalent Value x 150%TSR ranking payout percentage $23,492.70dividend equivalent based on segment performance divided by $49.50FMV per share 475common shares earned for Dividend Equivalent Award 10,870total common shares earned on vesting date Exhibit AExhibit BExample of Potential Payout in a Change of Control Context(per Section 6.C.(ii) of the Agreement) Assumptions and Calculations (for illustration purposes only): 1.The number of Performance Shares granted to Participant on October 23, 2014 was:20,790 2.The Participant's employment is terminated on June 30, 2015 as a result of a Change of Control. 3.Per Section 6.C. of the Agreement, all Performance Periods for all segments (First Segment, Second Segment, Third Segment (See Section 3)) are shortened to end June 30, 2015. 4.As a result of the TSR calculations of Section 4.C., Valero is ranked in the "75th percentile or higher" for each shortened Performance Period, resulting in a 200% payout of common shares in each instance. 5.Payout of common shares to the Participant is prorated based on the Participant's length of service during the original Performance Periods. First Segment calculation. 20,790divided by 3 =6,930performance shares 6 months of service in the 12-month Performance Period 6,930performance shares x 200%payout 13,860common sharesx 6 / 12 = 6,930common shares Second Segment calculation. 20,790divided by 3 =6,930performance shares 6 months of service in the 24-month Performance Period 6,930performance shares x 200%payout 13,860common sharesx 6 / 24 = 3,465common shares Third Segment calculation. 20,790divided by 3 =6,930performance shares 6 months of service in the 36-month Performance Period 6,930performance shares x 200%payout 13,860common sharesx 6 / 36 = 2,310common shares Total payout 12,705common shares Exhibit BExhibit 12.01VALERO ENERGY CORPORATIONSTATEMENTS OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES(Millions of Dollars) Year Ended December 31, (a) 2014 2013 2012 2011 2010 Earnings: Income from continuing operationsbefore income tax expense,excluding income from equityinvestees$5,538 $3,951 $4,736 $3,562 $1,736 Add: Fixed charges687 695 727 732 746 Amortization of capitalized interest35 31 24 22 19 Distributions from equity investees6 3 1 — 10 Less: Interest capitalized(70) (118) (220) (144) (84) Total earnings$6,196 $4,562 $5,268 $4,172 $2,427 Fixed charges: Interest and debt expense, netof capitalized interest$397 $365 $314 $409 $495 Interest capitalized70 118 220 144 84 Rental expense interest factor (b)220 212 193 179 167 Total fixed charges$687 $695 $727 $732 $746 Ratio of earnings to fixed charges9.0x 6.6x 7.2x 5.7x 3.3x__________(a)The results of operations of the Aruba Refinery have been reported as discontinued operations for all years presented.(b)The interest portion of rental expense represents one-third of rents, which is deemed representative of the interest portion of rental expense.Exhibit 21.01Valero Energy Corporation and Subsidiariesas of February 4, 2015Name of Entity State of Incorporation/Organization CANADIAN ULTRAMAR COMPANY Nova ScotiaCOLONNADE VERMONT INSURANCE COMPANY VermontDIAMOND 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 REFINING COMPANY, L.P. DelawareDIAMOND UNIT INVESTMENTS, L.L.C. DelawareDSRM NATIONAL BANK U.S.A.EASTVIEW FUEL OILS LIMITED OntarioENTERPRISE CLAIMS MANAGEMENT, INC. TexasGOLDEN EAGLE ASSURANCE LIMITED British ColumbiaHUNTWAY REFINING COMPANY DelawareMAINLINE PIPELINES LIMITED England and WalesMICHIGAN REDEVELOPMENT GP, LLC DelawareMICHIGAN REDEVELOPMENT, L.P. DelawareMRP PROPERTIES COMPANY, LLC MichiganNECHES RIVER HOLDING CORP. DelawareOCEANIC TANKERS AGENCY LIMITED QuebecPI DOCK FACILITIES LLC DelawarePORT ARTHUR COKER COMPANY L.P. DelawarePREMCOR USA INC. DelawarePROPERTY RESTORATION, L.P. DelawareSABINE RIVER HOLDING CORP. DelawareSABINE RIVER LLC DelawareSUNBELT REFINING COMPANY, L.P. DelawareTHE PREMCOR PIPELINE CO. DelawareTHE PREMCOR REFINING GROUP INC. DelawareTHE SHAMROCK PIPE LINE CORPORATION DelawareTRANSPORT MARITIME ST. LAURENT INC. QuebecULTRAMAR ACCEPTANCE INC. CanadaULTRAMAR ENERGY INC. DelawareULTRAMAR INC. NevadaVALERO 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.)Name of Entity State of Incorporation/OrganizationVALERO ARUBA MAINTENANCE/OPERATIONS COMPANY N.V. ArubaVALERO BROWNSVILLE TERMINAL LLC TexasVALERO 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 ENERGY ARUBA II COMPANY Cayman IslandsVALERO ENERGY INC. CanadaVALERO ENERGY (IRELAND) LIMITED IrelandVALERO ENERGY LTD England and WalesVALERO ENERGY PARTNERS GP LLC DelawareVALERO ENERGY PARTNERS LP DelawareVALERO ENERGY UK LTD England and WalesVALERO ENTERPRISES, INC. DelawareVALERO EQUITY SERVICES LTD England and WalesVALERO 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 LOGISTICS UK LTD England and WalesVALERO MARKETING & SUPPLY-ARUBA N.V. ArubaVALERO MARKETING AND SUPPLY COMPANY DelawareVALERO MARKETING AND SUPPY INTERNATIONAL LTD. Cayman IslandsVALERO MARKETING IRELAND LIMITED IrelandVALERO 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 OMEGA COMPANY, L.L.C. DelawareVALERO OPERATIONS SUPPORT, LTD England and WalesVALERO PARTNERS EP, LLC DelawareVALERO PARTNERS HOUSTON, LLC DelawareVALERO PARTNERS LOUISIANA, LLC DelawareVALERO PARTNERS LUCAS, LLC DelawareVALERO PARTNERS MEMPHIS, LLC DelawareVALERO PARTNERS NORTH TEXAS, LLC DelawareVALERO PARTNERS OPERATING CO. LLC DelawareVALERO PARTNERS PAPS, LLC DelawareVALERO PARTNERS SOUTH TEXAS, LLC DelawareName of Entity State of Incorporation/OrganizationVALERO PARTNERS WEST MEMPHIS, LLC DelawareVALERO PARTNERS WYNNEWOOD, LLC DelawareVALERO PAYMENT SERVICES COMPANY VirginiaVALERO PEMBROKESHIRE LLC DelawareVALERO PLAINS COMPANY LLC TexasVALERO POWER MARKETING LLC DelawareVALERO RAIL PARTNERS, 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 SECURITY SYSTEMS, INC. DelawareVALERO SERVICES, INC. DelawareVALERO TEJAS COMPANY LLC DelawareVALERO TERMINALING AND DISTRIBUTION COMPANY DelawareVALERO TEXAS POWER MARKETING, INC. DelawareVALERO ULTRAMAR HOLDINGS INC. DelawareVALERO UNIT INVESTMENTS, L.L.C. DelawareVALERO WEST WALES LLC DelawareVEC TRUST I DelawareVEC TRUST III DelawareVEC TRUST IV DelawareVRG PROPERTIES COMPANY DelawareVTD PROPERTIES COMPANY DelawareWARSHALL COMPANY LLC DelawareExhibit 23.01Consent of Independent Registered Public Accounting FirmThe Board of DirectorsValero 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, of our reports dated February 26, 2015,with respect to the consolidated balance sheets of Valero Energy Corporation and subsidiaries as of December 31, 2014 and 2013, andthe related consolidated statements of income, comprehensive income, equity, and cash flows for each of the years in the three-yearperiod ended December 31, 2014, and the effectiveness of internal control over financial reporting as of December 31, 2014, whichreports appear in the December 31, 2014 annual report on Form 10-K of Valero Energy Corporation and subsidiaries./s/ KPMG LLPSan Antonio, TexasFebruary 26, 2015Exhibit 31.01CERTIFICATION PURSUANT TO SECTION 302OF THE SARBANES-OXLEY ACT OF 2002I, Joseph W. Gorder, 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 make thestatements 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 forexternal purposes 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’smost recent 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 26, 2015/s/ Joseph W. Gorder Joseph W. GorderChief Executive Officer and President Exhibit 31.02CERTIFICATION PURSUANT TO SECTION 302OF THE SARBANES-OXLEY ACT OF 2002I, 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 make thestatements 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 forexternal purposes 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’smost recent 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 26, 2015/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 31,2014, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Joseph W. Gorder, Chief ExecutiveOfficer 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 ofoperations of the Company./s/ Joseph W. Gorder Joseph W. Gorder Chief Executive Officer and President February 26, 2015 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 31,2014, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Michael S. Ciskowski, Executive VicePresident and Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant toSection 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 ofoperations of the Company./s/ Michael S. Ciskowski Michael S. Ciskowski Executive Vice President and Chief Financial OfficerFebruary 26, 2015 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.Exhibit 99.01VALERO ENERGY CORPORATIONAudit Committee Pre-Approval PolicyI. Statement of PrinciplesPursuant to Section 10A of the Securities Exchange Act of 1934, as amended by Section 202 of the Sarbanes-Oxley Act of 2002(“SOX Act”), the Audit Committee of the board of directors (the “Audit Committee”) of Valero Energy Corporation (the“Company”) is required to pre-approve the audit and non-audit services performed by the Company’s independent auditor toassure that the provision of such services does not impair the auditor’s independence. The SEC’s rules establish two approaches forpre-approving services. The two approaches are not mutually exclusive:•the Audit Committee may pre-approve each particular service on a case-by-case basis (“separate pre-approval”), and•the Audit Committee may adopt a pre-approval policy that is detailed as to the particular types of services that may beprovided by the independent auditor without consideration by the Audit Committee on a case-by-case basis (“policy-basedpre-approval”).The Audit Committee believes that a combination of these approaches will provide an effective and efficient procedure to pre-approve services performed by the independent auditor. Therefore, unless a type of service has received policy-based pre-approval(as specifically identified in the appendices to this policy), it will require separate pre-approval by the Audit Committee.The appendices to this policy contain lists of services that have received policy-based pre-approval of this Audit Committee in thefollowing categories (categorized in accordance with the SEC’s rules):•Audit Services•Audit-Related Services•Tax Services•All Other ServicesII. Term of Pre-ApprovalsThe term of the policy-based pre-approvals stated in the appendices to this policy is the period from January 1, 2015 to January 31,2018, unless the Audit Committee specifically provides for a different period. The Audit Committee will review and pre-approvethe services that may be provided by the independent auditor. The Audit Committee will revise the list of policy-based pre-approved services from time to time as the Committee deems necessary or appropriate.Page 1III. DelegationIn accordance with the SOX Act and SEC rules, the Audit Committee hereby delegates to its Chairman the authority to grantseparate pre-approvals of services and fees in accordance with this policy. The Audit Committee may further delegate pre-approvalauthority from time to time to one or more of its other members in its discretion. Any committee member to whom pre-approvalauthority is delegated shall report any pre-approval decisions to the full Audit Committee at its next meeting. The Audit Committeedoes not delegate its responsibilities to pre-approve services to any member of the Company’s management.IV. Services for which Separate Pre-Approval is RequiredThe terms and fees for the following services of the independent auditor require separate pre-approval by the Audit Committee:•the annual financial statement audit, including all audits, reviews, procedures and other services required to be performed bythe independent auditor to form an opinion on the Company’s consolidated financial statements, and•the annual audit of the Company’s internal control over financial reporting, including all services required to be performedby the independent auditor to issue its report on the effectiveness of the Company’s internal control over financial reporting.The Audit Committee will monitor these engagements as it deems appropriate, and will approve, if necessary, any changes interms, conditions and fees resulting from changes in engagement scope, changes in the Company’s structure or other matters.V. Services for which Policy-Based Pre-Approval is AvailableA. Audit ServicesThe Audit Committee may grant policy-based pre-approval for Audit Services other than the services described in Section IVabove. These Audit Services are generally services that only the Company’s independent auditor reasonably can provide, andinclude:•services associated with SEC registration statements (e.g., comfort letters, consents), periodic reports and otherdocuments filed with the SEC or other documents issued in connection with securities offerings,•statutory audits or financial audits for subsidiaries or affiliates of the Company.The Audit Committee has given policy-based pre-approval for the Audit Services listed in Appendix A. All other AuditServices must be separately pre-approved by the Audit Committee.Page 2B. Audit-Related ServicesAudit-Related Services are assurance and related services that are reasonably related to the performance of the annual audit orquarterly review of the Company’s financial statements or that are traditionally performed by the independent auditor. TheAudit Committee may grant policy-based pre-approval for Audit-Related Services. These services would include:•employee benefit plan audits, and•due diligence services related to proposed mergers and acquisitions.The Audit Committee believes that the provision of the Audit-Related Services listed in Appendix B does not impair theindependence of the auditor, and has given policy-based pre-approval for the Audit-Related Services listed in Appendix B. Allother Audit-Related Services must be separately pre-approved by the Audit Committee.C. Tax ServicesThe Audit Committee believes that the independent auditor can provide Tax Services to the Company such as tax compliance,tax planning and tax advice without impairing the auditor’s independence. However, the Audit Committee will not permit theretention of the independent auditor in connection with a transaction initially recommended by the independent auditor, thepurpose of which may be tax avoidance and the tax treatment of which may not be supported in the U.S. Internal RevenueCode and related regulations or in the tax laws and regulations of any jurisdiction in which the Company is subject to taxation.In addition, the independent auditor may not provide any tax services to the Company that are deemed to be incompatible withauditor independence per standards promulgated by the Public Company Accounting Oversight Board (“PCAOB”).The Audit Committee has given policy-based pre-approval for the Tax Services listed in Appendix C. All other Tax Servicesmust be separately pre-approved by the Audit Committee, including Tax Services related to large and complex transactionsand Tax Services proposed to be provided by the independent auditor to any executive officer or director of the Company, inhis or her individual capacity, when such services are paid for by the Company.D. All Other ServicesThe Audit Committee may grant policy-based pre-approval for those permissible non-audit services classified as All OtherServices that it believes are routine, recurring services that would not impair the independence of the auditor. The AuditCommittee has given policy-based pre-approval for the All Other Services listed in Appendix D. Any permissible All OtherServices that are not listed in Appendix D must be separately pre-approved by the Audit Committee.Page 3VI. Prohibited ServicesA list of the SEC’s prohibited non-audit services is attached to this policy as Appendix E. The list sets forth the several services thatthe SOX Act and the SEC have specifically identified as services that may not be performed by the Company’s independentauditor. The Audit Committee will consult the SEC’s rules and relevant guidance, with the assistance of counsel when necessary orappropriate, to determine whether any proposed service by the independent auditor falls within any category of prohibited non-audit services.In addition, the independent auditor may not provide any service or product to the Company for a contingent fee (as defined andinterpreted by the SEC pursuant to Rule 2-01(c)(5) of Regulation S-X) or a commission, or pursuant to an agreement (written orotherwise) by the Company to pay a “value added” fee based on the results of the independent auditor’s performance of a service.VII. Pre-Approval Fee LevelsPre-approval fee levels for all services to be provided by the independent auditor have been established by the Audit Committee.All services that have received policy-based pre-approval are subject to the annual pre-approval fee levels set forth in theappendices to this policy. Any proposed services exceeding these amounts will require separate pre-approval by the AuditCommittee or by any person to whom pre-approval authority is granted under Section III above. Unused pre-approval amountsfrom one year may not be carried forward to the next year.VIII. ProceduresRequests or applications to provide services that require separate approval by the Audit Committee must be submitted to the AuditCommittee by both the independent auditor and the Company’s Chief Financial Officer (or his designee), and must be consistentwith the SEC’s rules on auditor independence. In connection with the Audit Committee’s consideration of any proposed service,the independent auditor, at the Committee’s request, will provide to the Audit Committee detailed documentation regarding thespecific services to be provided so that the Committee can make a well-reasoned assessment of the impact of the service on theauditor’s independence.The Audit Committee hereby designates the Company’s Vice President of Internal Audit (the “Monitor”) to monitor theperformance of all services provided by the independent auditor and to determine whether such services are in compliance withthis policy. The Monitor will report to the Audit Committee on a periodic basis the results of his monitoring.Page 4Appendix APre-Approved AUDIT SERVICESServiceassistance with and review of documents filed with the SEC including registration statements, reports on Forms 10-K and 10-Q,and other documentsservices associated with other documents issued in connection with securities offerings (e.g., comfort letters, consents)assistance in responding to SEC comment lettersstatutory audits (e.g., FERC and insurance audits) and financial audits for subsidiaries of the Company, to include servicesnormally provided by the Company’s independent auditor in connection with statutory and regulatory filingscertificates, letters and opinions issued to regulators, agencies and other third-parties (e.g., insurance, banking, environmental)regarding the Company’s assets and/or operations that only the Company’s independent auditors reasonably can provideconsultations concerning principles of accounting and/or financial reporting treatment under standards or interpretations by theSEC, PCAOB, FASB or other regulatory or standard-setting bodies necessary to reach an audit judgment and/or opinion on theCompany’s financial statementsAnnual pre-approval fee limit for Audit Services (other than services pertaining to registration statements or prospectuses inconnection with securities offerings)$750,000Annual pre-approval fee limit for Audit Services pertaining to registration statements or prospectuses in connection withsecurities offerings$250,000 per registration statement or prospectusAppendix BPre-Approved AUDIT-RELATED SERVICESServicedue diligence services pertaining to potential business acquisitions or dispositionsfinancial statement audits of employee benefit plansaccounting consultations and audits in connection with acquisitionsconsultations concerning principles of accounting and/or financial reporting treatment under standards or interpretations by theSEC, PCAOB, FASB or other regulatory or standard-setting bodies outside those consultations necessary to perform an audit orreview of Valero’s financial statements in accordance with generally accepted auditing standards Annual pre-approval fee limit for Audit-Related Services$500,000Appendix CPre-Approved TAX SERVICESService Note: The following are subject to the terms of subsection C. of Section V. of this policy.U.S. federal, state and local tax compliance, including the preparation of original and amended tax returns and claims for refundsU.S. federal, state and local tax planning and advice, including assistance with tax audits and appeals (but expressly excludingadvocacy or litigation services), tax advice related to mergers and acquisitions, tax advice relating to employee benefit plans, andrequests for rulings or technical advice from taxing authoritiesreview of Canadian federal and provincial income tax returnsCanadian federal and provincial tax planning and advice, including assistance with tax audits and appeals (but expressly excludingadvocacy or litigation services), and advice relating to the tax effects of certain employee benefit arrangementsreview of federal, state, local and international income, franchise, and other tax returns Annual pre-approval fee limit for Tax Services$250,000Appendix DPre-Approved ALL OTHER SERVICESServicesPermissible non-audit services that would not impair the independence of the auditor. Expressly excluded from this pre-approvalare the prohibited non-audit services listed on Appendix E of this policy. Annual pre-approval fee limit for All Other Services$ 150,000Appendix EProhibited Non-Audit Services•Bookkeeping or other services related to the accounting records or financial statements of the audit client*•Financial information systems design and implementation*•Appraisal or valuation services, fairness opinions or contribution-in-kind reports*•Actuarial services*•Internal audit outsourcing services*•Management functions•Human resources•Broker-dealer, investment adviser or investment banking services•Legal services•Expert services unrelated to the audit____________________*Provision of these non-audit services may be permitted if it is reasonable to conclude that the results of these services will not be subject to auditprocedures. Materiality is not an appropriate basis upon which to overcome the rebuttable presumption that prohibited services will be subject to auditprocedures.

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