Valero Energy Annual Report 2015

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, 2015ORoTRANSITION 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 Way San Antonio, Texas78249(Address of principal executive offices)(Zip Code) 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 Rule 12b-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 $31.3 billion based on the last sales pricequoted as of June 30, 2015 on the New York Stock Exchange, the last business day of the registrant’s most recently completed second fiscal quarter.As of January 29, 2016, 470,392,665 shares of the registrant’s common stock were outstanding.DOCUMENTS INCORPORATED BY REFERENCEWe intend to file with the Securities and Exchange Commission a definitive Proxy Statement for our Annual Meeting of Stockholders scheduled for May 12,2016, at which directors will be elected. Portions of the 2016 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 2016 Proxy Statement where certain information required in Part III of this Form 10-Kmay be found.Form 10-K ItemNo. and Caption Heading in 2016 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 LLP Fees 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 1Items 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 Disclosures19 PART II 20Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities20Item 6.Selected Financial Data23Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations24Item 7A.Quantitative and Qualitative Disclosures About Market Risk52Item 8.Financial Statements and Supplementary Data55Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure126Item 9A.Controls and Procedures126Item 9B.Other Information126 PART III 127Item 10.Directors, Executive Officers and Corporate Governance127Item 11.Executive Compensation127Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters127Item 13.Certain Relationships and Related Transactions, and Director Independence127Item 14.Principal Accountant Fees and Services127 PART IV 127Item 15.Exhibits and Financial Statement Schedules127 Signature 131 iiTable of ContentsThe 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 24 of this report under the heading: “CAUTIONARY STATEMENT FOR THE PURPOSE OF SAFE HARBORPROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.”PART IITEMS 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, 2016, we had 10,103 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), diesel,low-sulfur diesel, ultra-low-sulfur diesel, CARB diesel, other distillates, jet fuel, asphalt, petrochemicals, lubricants, and other refinedproducts. We market branded and unbranded refined products on a wholesale basis in the U.S., Canada, the Caribbean, the U.K., andIreland through an extensive bulk and rack marketing network and through approximately 7,500 outlets that carry our brand names.We also own 11 ethanol plants in the central plains region of the U.S. that primarily produce ethanol, which we market on a wholesalebasis 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 “Investors”) free of charge, soon after wefile or furnish such material. In this same location, we also post our corporate governance guidelines, codes of ethics, and the chartersof the committees of our board of directors. These documents are available in print to any stockholder that makes a written request toValero 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 and marketing operations in the U.S.,Canada, the U.K., Aruba, and Ireland. Our ethanol segment includes ethanol and marketing operations in the U.S. Financial informationabout our segments is presented in Note 17 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, 2015, our refining operations included 15 petroleum refineries in the U.S., Canada, and the U.K., with a combinedtotal throughput capacity of approximately 3.0 million barrels per day (BPD). The following table presents the locations of theserefineries and their approximate feedstock throughput capacities as of December 31, 2015.Refinery Location ThroughputCapacity (a)(BPD)U.S. Gulf Coast: Corpus Christi (b) Texas 370,000Port Arthur Texas 375,000St. Charles Louisiana 305,000Texas City Texas 260,000Houston Texas 175,000Meraux Louisiana 135,000Three Rivers Texas 100,000 1,720,000 U.S. Mid-Continent: Memphis Tennessee 195,000McKee Texas 200,000Ardmore Oklahoma 90,000 485,000 North Atlantic: Pembroke Wales, U.K. 270,000Quebec City Quebec, Canada 235,000 505,000 U.S. West Coast: Benicia California 170,000Wilmington California 135,000 305,000Total 3,015,000(a)“Throughput capacity” represents estimated capacity for processing crude oil, inter-mediates, and other feedstocks. Total estimated crude oil capacity isapproximately 2.5 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, 2015. Our total combined throughput volumes averaged approximately 2.8 million BPD for the year endedDecember 31, 2015.Combined Total Refining System Charges and YieldsCharges: sour crude oil31% sweet crude oil43% residual fuel oil10% other feedstocks5% blendstocks11%Yields: gasolines and blendstocks48% distillates38% petrochemicals3% other products (includes gas oils, No. 6 fuel oil,petroleum coke, and asphalt)11%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, 2015. Total throughput volumes for the U.S. Gulf Coast refining region averaged approximately1.6 million BPD for the year ended December 31, 2015.Combined U.S. Gulf Coast Region Charges and YieldsCharges: sour crude oil40% sweet crude oil25% residual fuel oil16% other feedstocks7% blendstocks12%Yields: gasolines and blendstocks46% distillates38% petrochemicals4% other products (includes gas oil, No. 6 fuel oil,petroleum coke, and asphalt)12%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. In 2015, we completed construction and placed into service a new 70,000 BPD crude distillation unit in theWest Refinery. The feedstocks are delivered by tanker or barge via deepwater docking facilities along the Corpus Christi Ship Channel,and West Texas or South Texas crude oil is delivered via pipelines. The refineries’ physical locations allow for the transfer of variousfeedstocks and blending components between them. The refineries produce gasoline, aromatics, jet fuel, diesel, and asphalt. Truckracks service local markets for gasoline, diesel, jet3Table of Contentsfuels, liquefied petroleum gases, and asphalt. These and other finished products are also distributed by ship or barge across docks andthird-party pipelines.Port 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. In 2015, we completed a 15,000 BPDhydrocracker expansion project at this refinery. The refinery receives crude oil by rail, marine docks, and pipelines. Finished productsare distributed into the Colonial, Explorer, and other pipelines and across the refinery 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 Parkway or Bengalpipelines, which ultimately provide access to the Plantation or Colonial pipeline networks.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 our 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 refinery is located about 40 miles from our St. Charles Refinery, allowing for integration of feedstocks andrefined 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, 2015. Total throughput volumes for the U.S. Mid-Continent refining region averaged approximately447,000 BPD for the year ended December 31, 2015.Combined U.S. Mid-Continent Region Charges and YieldsCharges: sour crude oil6% sweet crude oil85% other feedstocks1% blendstocks8%Yields: gasolines and blendstocks54% distillates36% petrochemicals4% other products (includes gas oil, No. 6 fuel oil,and asphalt)6%Memphis Refinery. Our Memphis Refinery is located in Tennessee along the Mississippi River. 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. In 2015, we completedthe final phases of a multi-year project, which increased the refinery’s crude oil processing capacity by approximately 20,000 BPD. Therefinery distributes its products primarily via third-party pipelines to markets in Texas, New Mexico, Arizona, Colorado, and Oklahoma.Ardmore Refinery. Our Ardmore Refinery is located in Oklahoma, approximately 100 miles south of Oklahoma City. It processesmedium sour and sweet crude oils into gasoline, diesel, and asphalt. The refinery receives local crude oil and feedstock supply viathird-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, 2015. Total throughput volumes for the North Atlantic refining region averaged approximately494,000 BPD for the year ended December 31, 2015.Combined North Atlantic Region Charges and YieldsCharges: sour crude oil3% sweet crude oil84% residual fuel oil5% other feedstocks1% blendstocks7%Yields: gasolines and blendstocks44% distillates44% petrochemicals1% other products (includes gas oil, No. 6 fuel oil,and other products)11%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 theSt. Lawrence River or by pipeline/ship from western Canada. The refinery transports its products through our pipeline fromQuebec City to our terminal in Montreal and to various other terminals throughout eastern Canada by rail, ships, trucks, and third-partypipelines.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, 2015. Total throughput volumes for the U.S. West Coast refining region averaged approximately266,000 BPD for the year ended December 31, 2015.Combined U.S. West Coast Region Charges and YieldsCharges: sour crude oil70% sweet crude oil5% other feedstocks11% blendstocks14%Yields: gasolines and blendstocks60% distillates25% 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 59 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.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 5,700 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®, Diamond Shamrock®, and Shamrock®brands in the U.S. and the Caribbean, the Texaco® brand in the U.K. and Ireland, and we license the Ultramar® brand in Canada.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 the2.0 percent general partner interest in Valero Energy Partners LP (VLP) and a 65.7 percent limited partner interest in VLP. VLP is amidstream 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 Ardmore, Corpus Christi, Houston, McKee, Memphis, Port Arthur, St. Charles,and Three Rivers Refineries. VLP is discussed more fully in Note 4 of Notes to Consolidated Financial Statements.9Table of ContentsETHANOLWe own 11 ethanol plants with a combined ethanol production capacity of about 1.4 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 rail cars, trucks and barges. We sell our ethanol (i) tolarge customers–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 130 million 385,000 46 million Mount Vernon 100 million 320,000 37 millionIowa Albert City 130 million 385,000 46 million Charles City 135 million 400,000 48 million Fort Dodge 135 million 400,000 48 million Hartley 135 million 400,000 48 millionMinnesota Welcome 135 million 400,000 48 millionNebraska Albion 130 million 385,000 46 millionOhio Bloomingburg 130 million 385,000 46 millionSouth Dakota Aurora 135 million 400,000 48 millionWisconsin Jefferson 105 million 335,000 39 million total 1,400 million 4,195,000 500 million The combined production of denatured ethanol from our plants in 2015 averaged 3.8 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 isconverted to ethanol during the fermentation process, creating carbon dioxide and distillers grains.2 During fermentation, nearly all of the starch in the grain is converted into ethanol and carbon dioxide, while the remaining nutrients (proteins, fats,minerals, and vitamins) are concentrated to yield modified distillers grains, or, after further drying, dried distillers grains. Distillers grains generally are aneconomical partial replacement for corn and soybeans 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 9 of Notes to Consolidated Financial Statements under thecaption “Environmental Liabilities,” and Note 11 of Notes to Consolidated Financial Statements under the caption“Environmental Matters.”Capital Expenditures Attributable to Compliance with Environmental Regulations. In 2015, our capital expenditures attributable tocompliance with environmental regulations were $140 million, and they are currently estimated to be $83 million for 2016 and$95 million for 2017. The estimates for 2016 and 2017 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, 2015, we were the lessee under a number of cancelable and noncancelable leases for certainproperties. Our leases are discussed more fully in Notes 10 and 11 of Notes to Consolidated Financial Statements. Financial informationabout our properties is presented in Note 7 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 (GHG) emissions, andcharacteristics and composition of fuels, including gasoline and diesel. Certain of these laws and regulations could impose obligationsto conduct12Table of Contentsassessment or remediation efforts at our facilities as well as at formerly owned properties or third-party sites where we have takenwastes for disposal or where our wastes have migrated. Environmental laws and regulations also may impose liability on us for theconduct of third parties, or for actions that complied with applicable requirements when taken, regardless of negligence or fault. If weviolate or fail to comply with these laws and regulations, we could be fined or otherwise sanctioned.Because environmental laws and regulations are becoming more stringent and new environmental laws and regulations arecontinuously being enacted or proposed, such as those relating to GHG emissions and climate change, the level of expendituresrequired for environmental matters could increase in the future. Current and future legislative action and regulatory initiatives couldresult in changes to operating permits, material changes in operations, increased capital expenditures and operating costs, increasedcosts of the goods we sell, and decreased demand for our products that cannot be assessed with certainty at this time. We may berequired to make expenditures to modify operations or install pollution control equipment that could materially and adversely affect ourbusiness, 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 regulations regardingGHG emissions–including so-called “cap-and-trade” programs targeted at reducing carbon dioxide emissions–and low carbon fuelstandards could result in increased compliance costs, additional operating restrictions or permitting delays for our business, and anincrease in the cost of, and reduction in demand for, the products we produce, which could have a material adverse effect on ourfinancial position, results of operations, and liquidity.In addition, in 2015, the U.S., Canada, and the U.K. participated in the United Nations Conference on Climate Change, which led to thecreation of the Paris Agreement. The Paris Agreement will be open for signing on April 22, 2016, and will require countries to reviewand “represent a progression” in their intended nationally determined contributions (which set GHG emission reduction goals) everyfive years beginning in 2020. Restrictions on emissions of methane or carbon dioxide that have been or may be imposed in variousU.S. states or at the U.S. federal level or in other countries could adversely affect the oil and gas industry.Finally, some scientists have concluded that increasing concentrations of GHG emissions in the Earth’s atmosphere may produceclimate changes that have significant physical effects, such as increased frequency and severity of storms, droughts, and floods andother climatic events. If any such effects were to occur, it is uncertain if they would have an adverse effect on our financial conditionand operations.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.13Table of ContentsIn 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, governmental regulations, or third-party actions, it could have a material adverse effect on our financialposition, 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 May 2014, the U.S. Department ofTransportation (DOT) issued an order requiring rail carriers to provide certain notifications to state agencies along routes used by trainsover a certain length carrying crude oil. In addition, in November 2014, the U.S. DOT issued a final rule regarding safety trainingstandards under the Rail Safety Improvement Act of 2008. The rule required each railroad or contractor to develop and submit atraining program to perform regular oversight and annual written reviews. In May 2015, the Pipeline and Hazardous Materials SafetyAdministration and the Federal Railroad Administration issued new final rules for enhanced tank car standards and operational controlsfor high-hazard flammable trains. Although we do not believe recently adopted rules will have a material impact on our financialposition, results of operations, and liquidity, further changes in law, regulations or industry standards could require us to incuradditional costs 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.14Table of ContentsUncertainty 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 be evaluated independently of any other rating. We cannot provide assurance that any of our currentratings will remain in effect for any given period of time or that a rating will not be lowered or withdrawn entirely by a rating agency if,in its judgment, circumstances so warrant. Specifically, if ratings agencies were to downgrade our long-term rating, particularly belowinvestment grade, our borrowing costs would increase, which could adversely affect our ability to attract potential investors and ourfunding sources could decrease. In addition, we may not be able to obtain favorable credit terms from our suppliers or they may requireus to provide collateral, letters of credit, or other forms of security, which would increase our operating costs. As a result, a downgradebelow investment grade in our credit ratings could have a material adverse impact on our financial position, results of operations, andliquidity.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.15Table of ContentsA 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 some 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, future federal or state labor legislation could result in labor shortages and higher costs, especially during criticalmaintenance 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 operations are subject to various hazards common to the industry, including explosions, fires, toxic emissions, maritime hazards,and natural catastrophes. As protection against these hazards, we maintain insurance coverage against some, but not all, potential lossesand liabilities. We may not be able to maintain or obtain insurance of the type and amount we desire at reasonable rates. As a result ofmarket conditions, premiums and deductibles for certain of our insurance policies could increase substantially. In some instances,certain insurance could become unavailable or available only for reduced amounts of coverage. For example, coverage for hurricanedamage is very limited, and coverage for terrorism risks includes very broad exclusions. If we were to incur a significant liability forwhich we were not fully insured, it could have a material adverse effect on our financial position, results of 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 tax16Table of Contentsliabilities in the future. Many of these liabilities are subject to periodic audits by the respective taxing authority. Subsequent changes toour 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.One 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 certain of 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 would17Table of Contentsrecognize gain in an amount equal to the excess of the fair market value of shares of CST common stock distributed to our holders onthe Spin-off date over our tax basis in such shares of CST common stock. Moreover, we could incur significant U.S. federal income taxliabilities if it ultimately were determined that certain internal 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 liablefor 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 11 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. These VNs are for various alleged air regulation and air permit violations at our Benicia Refinery andasphalt plant. In the fourth quarter of 2015, we entered into an agreement with BAAQMD to resolve various VNs and continue to workwith the BAAQMD to resolve the remaining VNs.South Coast Air Quality Management District (SCAQMD) (Wilmington Refinery). We currently have multiple NOVs issued by theSCAQMD. These NOVs are for alleged reporting violations and excess emissions at our Wilmington Refinery. In the fourth quarter of2015, we entered into an agreement to resolve various NOVs, and we continue to work with the SCAQMD to resolve the remainingNOVs.18Table of ContentsTexas Commission on Environmental Quality (TCEQ) (Port Arthur Refinery). In our annual report on Form 10-K for the year endedDecember 31, 2014, we reported that we had received two proposed Agreed Orders from the TCEQ resolving multiple violations thatoccurred at our Port Arthur Refinery between May 2007 and April 2013. We continue to work with the TCEQ to finalize these AgreedOrders.Quebec Ministry of Environment (QME) (Quebec City Refinery). In the fourth quarter of 2015, the QME issued a NOV for allegedexcess emissions at our Quebec City Refinery. We are currently working with the QME to resolve the NOV.ITEM 4. MINE SAFETY DISCLOSURESNone.19Table 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, 2016, there were 5,911 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 2015 and2014. Sales Prices of theCommon Stock DividendsPerCommonShareQuarter Ended High Low 2015: December 31 $73.88 $58.98 $0.500September 30 71.50 51.68 0.400June 30 64.28 56.09 0.400March 31 64.49 43.45 0.4002014: 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 0.250On January 21, 2016, our board of directors declared a quarterly cash dividend of $0.60 per common share payable March 3, 2016 toholders of record at the close of business on February 9, 2016.Dividends are considered quarterly by the board of directors and may be paid only when approved by the board.20Table of ContentsThe following table discloses purchases of shares of our common stock made by us or on our behalf during the fourth quarter of 2015.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 2015 1,658,771 $62.12 842,059 816,712 $2.0 billionNovember 2015 2,412,467 $71.08 212,878 2,199,589 $1.8 billionDecember 2015 7,008,414 $70.31 980 7,007,434 $1.3 billionTotal 11,079,652 $69.25 1,055,917 10,023,735 $1.3 billion(a)The shares reported in this column represent purchases settled in the fourth quarter of 2015 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 July 13, 2015, we announced that our board of directors approved our purchase of $2.5 billion of our outstanding common stock (with no expirationdate), which was in addition to the remaining amount available under our $3 billion program previously authorized. During the third quarter of 2015,we completed our purchases under the $3 billion program. As of December 31, 2015, we had $1.3 billion remaining available for purchase under the$2.5 billion program.21Table of ContentsThe following performance graph is not “soliciting material,” is not deemed filed with the SEC, and is not to be incorporated byreference into any of Valero’s filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, as amended,respectively.This performance graph and the related textual information are based on historical data and are not indicative of future performance.The 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, 2010 and ending December 31, 2015. 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 As of December 31, 2010 2011 2012 2013 2014 2015Valero Common Stock$100.00 $92.15 $153.13 $252.67 $253.28 $371.80S&P 500100.00 102.11 118.45 156.82 178.29 180.75Peer Group100.00 107.70 117.64 143.16 131.88 118.95____________________________________1 Assumes that an investment in Valero common stock and each index was $100 on December 31, 2010. “Cumulative total return” is based on share price appreciation plusreinvestment of dividends from December 31, 2010 through December 31, 2015.22Table of ContentsITEM 6. SELECTED FINANCIAL DATAThe selected financial data for the five-year period ended December 31, 2015 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, 2015 (a) 2014 2013 (b) 2012 2011 (c)Operating revenues$87,804 $130,844 $138,074 $138,393 $120,607Income from continuingoperations4,101 3,775 2,722 3,114 2,336Earnings per commonshare from continuingoperations – assuming dilution7.99 6.97 4.96 5.61 4.11Dividends per common share1.70 1.05 0.85 0.65 0.30Total assets44,343 45,550 47,260 44,477 42,783Debt and capital leaseobligations, less current portion7,250 5,780 6,261 6,463 6,732_________________________________________________(a)Includes a noncash lower of cost or market inventory valuation adjustment of $790 million, as described in Note 6 of Notes to Consolidated FinancialStatements.(b)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.(c)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.23Table 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 costs for refinery turnarounds and catalyst, capital expendituresfor environmental and other purposes, and joint venture investments, and the effect of those capital investments on our resultsof 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, 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;24Table of Contents•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) and GHG emission credits needed to comply with the requirements of various GHGemission programs;•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 GHGs, which may adversely affect ourbusiness 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.25Table of ContentsOVERVIEW AND OUTLOOKOverviewFor the year ended December 31, 2015, we reported net income attributable to Valero stockholders from continuing operations of$4.0 billion, or $7.99 per share (assuming dilution), compared to $3.7 billion, or $6.97 per share (assuming dilution), for the year endedDecember 31, 2014. Included in our 2015 results was a noncash charge for a lower of cost or market inventory valuation adjustmentrecorded in December 2015 of $790 million ($624 million after taxes, or $1.25 per share (assuming dilution)), of which $740 millionwas attributable to our refining segment and $50 million was attributable to our ethanol segment. This matter is more fully described inNote 6 of Notes to Consolidated Financial Statements. Included in our 2014 results was a last-in, first-out (LIFO) inventory gain of$233 million ($151 million after taxes, or $0.29 per share (assuming dilution)) primarily related to our refining segment.Our operating income increased $456 million from 2014 to 2015 as outlined by business segment in the following table (in millions): Year Ended December 31, 2015 2014 ChangeOperating income (loss) by business segment: Refining $6,973 $5,884 $1,089Ethanol 142 786 (644)Corporate (757) (768) 11Total $6,358 $5,902 $456However, excluding the effect of the lower of cost or market inventory valuation adjustment and the LIFO gain discussed above, totaloperating income for 2015 and 2014 was $7.1 billion and $5.7 billion, respectively, reflecting a $1.4 billion favorable increase betweenthe years, with refining segment operating income of $7.7 billion and $5.6 billion, respectively, (a favorable increase of $2.1 billion)and ethanol segment operating income of $192 million and $782 million, (an unfavorable decrease of $590 million).The $2.1 billion increase in refining segment operating income in 2015 compared to 2014 was due to higher margins on gasoline andother refined products (e.g., petroleum coke, propane, sulfur, and lubes), partially offset by lower discounts for most sweet and sourcrude oils relative to Brent crude oil and lower distillate margins. Our ethanol segment operating income decreased $590 million in2015 compared to 2014 due to lower ethanol margins that resulted from lower ethanol and co-product prices, partially offset by lowercorn feedstock costs.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.”In March 2015, we issued $600 million of 3.65 percent senior notes due March 15, 2025 and $650 million of 4.9 percent senior notesdue March 15, 2045, and our consolidated subsidiary, VLP, borrowed $200 million under its revolving credit facility (the VLPRevolver), as further described in Note 10 of Notes to Consolidated Financial Statements. On July 1, 2015, VLP repaid $25 million ofthe amount borrowed under the VLP Revolver.26Table of ContentsOn July 13, 2015, our board of directors authorized us to purchase an additional $2.5 billion of our outstanding common stock, with noexpiration date to such authorization, and we had $1.3 billion remaining available under that authorization as of December 31, 2015.Effective November 24, 2015, VLP completed a public offering of 4,250,000 common units at a price of $46.25 per unit and receivednet proceeds from the offering of $189 million after deducting the underwriting discount and other offering costs. This transaction isfurther described in Note 4 of Notes to Consolidated Financial Statements.OutlookEnergy markets and margins were volatile during 2015, and we expect them to continue to be volatile in the 2016. Below is a summaryof factors that have impacted or may impact our results of operations during the first quarter of 2016:•Gasoline margins have been volatile, but are expected to recover from seasonal lows in the near term as domestic and exportdemand is expected to increase. Distillate margins have been negatively impacted by mild winter temperatures and are alsoexpected to recover from their seasonal lows.•Medium and heavy sour crude oil discounts are expected to remain wide as sour crude oil remains oversupplied. Fuel oil priceweakness has also put pressure on heavy sour crude oil discounts. Sweet crude oil discounts are expected to remain weak onlower domestic sweet crude oil production and higher foreign sweet and sour crude oil imports.•Ethanol margins are expected to remain depressed as long as gasoline prices remain low.•A further decline in market prices of crude oil and refined products may negatively impact the carrying value of our inventories.27Table of ContentsRESULTS 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.2015 Compared to 2014Financial Highlights(millions of dollars, except per share amounts) Year Ended December 31, 2015 2014 ChangeOperating revenues$87,804 $130,844 $(43,040)Costs and expenses: Cost of sales (excluding the lower of cost or market inventory valuationadjustment) (a)73,861 118,141 (44,280)Lower of cost or market inventory valuation adjustment (b)790 — 790Operating expenses: Refining3,795 3,900 (105)Ethanol448 487 (39)General and administrative expenses710 724 (14)Depreciation and amortization expense: Refining1,745 1,597 148Ethanol50 49 1Corporate47 44 3Total costs and expenses81,446 124,942 (43,496)Operating income6,358 5,902 456Other income, net46 47 (1)Interest and debt expense, net of capitalized interest(433) (397) (36)Income from continuing operations before income tax expense5,971 5,552 419Income tax expense1,870 1,777 93Income from continuing operations4,101 3,775 326Loss from discontinued operations— (64) 64Net income4,101 3,711 390Less: Net income attributable to noncontrolling interests111 81 30Net income attributable to Valero Energy Corporation stockholders$3,990 $3,630 $360 Net income attributable to Valero Energy Corporation stockholders: Continuing operations$3,990 $3,694 $296Discontinued operations— (64) 64Total$3,990 $3,630 $360Earnings per common share – assuming dilution: Continuing operations$7.99 $6.97 $1.02Discontinued operations— (0.12) 0.12Total$7.99 $6.85 $1.14________________See note references on page 32.28Table of ContentsRefining Operating Highlights(millions of dollars, except per barrel amounts) Year Ended December 31, 2015 2014 ChangeRefining (c): Operating income$6,973 $5,884 $1,089Throughput margin per barrel (a) (b) (d)$12.97 $11.05 $1.92Operating costs per barrel: Operating expenses3.71 3.87 (0.16)Depreciation and amortization expense1.71 1.58 0.13Total operating costs per barrel5.42 5.45 (0.03)Operating income per barrel$7.55 $5.60 $1.95 Throughput volumes (thousand BPD): Feedstocks: Heavy sour crude oil438 457 (19)Medium/light sour crude oil428 466 (38)Sweet crude oil1,208 1,149 59Residuals274 230 44Other feedstocks140 134 6Total feedstocks2,488 2,436 52Blendstocks and other311 329 (18)Total throughput volumes2,799 2,765 34 Yields (thousand BPD): Gasolines and blendstocks1,364 1,329 35Distillates1,066 1,047 19Other products (e)408 423 (15)Total yields2,838 2,799 39________________See note references on page 32.29Table of ContentsRefining Operating Highlights by Region (a) (b) (f)(millions of dollars, except per barrel amounts) Year Ended December 31, 2015 2014 ChangeU.S. Gulf Coast: Operating income$3,978 $3,368 $610Throughput volumes (thousand BPD)1,592 1,600 (8) Throughput margin per barrel (d)$12.27 $11.03 $1.24Operating costs per barrel: Operating expenses3.64 3.66 (0.02)Depreciation and amortization expense1.78 1.60 0.18Total operating costs per barrel5.42 5.26 0.16Operating income per barrel$6.85 $5.77 $1.08 U.S. Mid-Continent: Operating income$1,434 $1,323 $111Throughput volumes (thousand BPD)447 446 1 Throughput margin per barrel (d)$14.09 $13.63 $0.46Operating costs per barrel: Operating expenses3.59 3.90 (0.31)Depreciation and amortization expense1.71 1.61 0.10Total operating costs per barrel5.30 5.51 (0.21)Operating income per barrel$8.79 $8.12 $0.67 North Atlantic: Operating income$1,446 $911 $535Throughput volumes (thousand BPD)494 457 37 Throughput margin per barrel (d)$12.06 $10.02 $2.04Operating costs per barrel: Operating expenses2.88 3.40 (0.52)Depreciation and amortization expense1.17 1.16 0.01Total operating costs per barrel4.05 4.56 (0.51)Operating income per barrel$8.01 $5.46 $2.55 U.S. West Coast: Operating income$855 $53 $802Throughput volumes (thousand BPD)266 262 4 Throughput margin per barrel (d)$17.00 $8.60 $8.40Operating costs per barrel: Operating expenses5.92 5.91 0.01Depreciation and amortization expense2.26 2.14 0.12Total operating costs per barrel8.18 8.05 0.13Operating income per barrel$8.82 $0.55 $8.27 Operating income for regions above$7,713 $5,655 $2,058Lower of cost or market inventory valuation adjustment (b)(740) — (740)LIFO gain (a)— 229 (229)Total refining operating income$6,973 $5,884 $1,089________________See note references on page 32.30Table of ContentsAverage Market Reference Prices and Differentials(dollars per barrel, except as noted) Year Ended December 31, 2015 2014 ChangeFeedstocks: Brent crude oil$53.62 $99.57 $(45.95)Brent less West Texas Intermediate (WTI) crude oil4.91 6.40 (1.49)Brent less Alaska North Slope (ANS) crude oil0.67 1.73 (1.06)Brent less LLS crude oil2.37 2.79 (0.42)Brent less Mars crude oil6.54 6.75 (0.21)Brent less Maya crude oil9.54 13.73 (4.19)LLS crude oil51.25 96.78 (45.53)LLS less Mars crude oil4.17 3.96 0.21LLS less Maya crude oil7.17 10.94 (3.77)WTI crude oil48.71 93.17 (44.46) Natural gas (dollars per million British thermal units (MMBtu))2.58 4.36 (1.78) Products: U.S. Gulf Coast: CBOB gasoline less Brent9.83 3.54 6.29Ultra-low-sulfur diesel less Brent12.64 14.28 (1.64)Propylene less Brent(5.94) 5.57 (11.51)CBOB gasoline less LLS12.20 6.33 5.87Ultra-low-sulfur diesel less LLS15.01 17.07 (2.06)Propylene less LLS(3.57) 8.36 (11.93)U.S. Mid-Continent: CBOB gasoline less WTI17.59 12.28 5.31Ultra-low-sulfur diesel less WTI19.02 24.05 (5.03)North Atlantic: CBOB gasoline less Brent12.85 9.07 3.78Ultra-low-sulfur diesel less Brent16.05 18.25 (2.20)U.S. West Coast: CARBOB 87 gasoline less ANS25.56 13.40 12.16CARB diesel less ANS16.90 19.14 (2.24)CARBOB 87 gasoline less WTI29.80 18.07 11.73CARB diesel less WTI21.14 23.81 (2.67)New York Harbor corn crush (dollars per gallon)0.22 0.85 (0.63)31Table of ContentsEthanol Operating Highlights (a) (b)(millions of dollars, except per gallon amounts) Year Ended December 31, 2015 2014 ChangeEthanol (c): Operating income$192 $782 $(590)Production (thousand gallons per day)3,827 3,422 405 Gross margin per gallon of production (d)$0.49 $1.06 $(0.57)Operating costs per gallon of production: Operating expenses0.32 0.39 (0.07)Depreciation and amortization expense0.03 0.04 (0.01)Total operating costs per gallon of production0.35 0.43 (0.08)Operating income per gallon of production$0.14 $0.63 $(0.49) Operating income from above$192 $782 $(590)Lower of cost or market inventory valuation adjustment (b)(50) — (50)LIFO gain (a)— 4 (4)Total ethanol operating income$142 $786 $(644)________________See note references below.The following notes relate to references on pages 28 through 32.(a)Cost of sales for the year ended December 31, 2014 reflects a LIFO gain of $233 million ($151 million after taxes), of which $229 million is attributableto our refining segment and $4 million is attributable to our ethanol segment. These amounts have been excluded from (1) the segment and regionalthroughput margins per barrel and the regional operating income amounts for the refining segment, and (2) the operating income and gross margin pergallon of production amounts for the ethanol segment.(b)In December 2015, we recorded a lower of cost or market inventory valuation adjustment of $790 million ($624 million after taxes), of which$740 million is attributable to our refining segment and $50 million is attributable to our ethanol segment. In accordance with U.S. generally acceptedaccounting principles (GAAP), we are required to state our inventories at the lower of cost or market. Cost is primarily determined using the LIFOinventory valuation methodology, whereby the most recently incurred costs are charged to cost of sales in the statement of income and inventories arevalued at base layer acquisition costs in the balance sheet. Market is determined based on an assessment of the net realizable value of our inventory. Inperiods where the market price of our inventory falls below cost, we record an inventory valuation adjustment to write down the value to market inaccordance with U.S. GAAP. The lower of cost or market inventory valuation adjustment for the year ended December 31, 2015 has been excluded from(1) the segment and regional throughput margins per barrel and the regional operating income amounts for the refining segment, and (2) the grossoperating income and the gross margin per gallon of production amounts for the ethanol segment. This adjustment is further discussed in Note 6 of Notesto Consolidated Financial Statements.(c)The LIFO gain of $233 million recorded in 2014 (see note (a)) and the lower of cost or market inventory valuation adjustment of $790 million recordedin 2015 (see note (b)) are reflected in refining operating income and ethanol operating income for the years ended December 31, 2015 and 2014, but areexcluded from throughput margin per barrel and operating income per barrel for the refining segment, and from gross margin per gallon and operatingincome per gallon for the ethanol segment, respectively, as also described in notes (a) and (b).(d)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.(e)Other products primarily include petrochemicals, gas oils, No. 6 fuel oil, petroleum coke, sulfur, and asphalt.32Table of Contents(f)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.GeneralOperating revenues decreased $43.0 billion (or 33 percent) and cost of sales decreased $44.3 billion (or 37 percent) for the year endedDecember 31, 2015 compared to the year ended December 31, 2014 primarily due to a decrease in refined product prices and crude oilfeedstock costs, respectively. Despite the decrease in operating revenues, cost of sales decreased to a greater extent resulting in anincrease in operating income of $456 million in 2015, with refining segment operating income increasing by $1.1 billion and ethanolsegment operating income decreasing by $644 million. The reasons for these changes in the operating results of our segments andcorporate expenses, as well as other items that affected our income, are discussed below.RefiningRefining segment operating income increased $1.1 billion from $5.9 billion in 2014 to $7.0 billion in 2015. Excluding the effect of thelower of cost or market inventory valuation adjustment of $740 million in 2015 and the LIFO gain of $229 million in 2014, our refiningsegment operating income increased $2.1 billion. This increase was primarily due to a $2.1 billion (or $1.92 per barrel) increase inrefining margin and a $105 million decrease in operating expenses, partially offset by a $148 million increase in depreciation andamortization expense.The increase in refining margin of $2.1 billion was due primarily to the following:•Increase in gasoline margins - We experienced an increase in gasoline margins throughout all our regions during 2015. Forexample, the Brent-based benchmark reference margin for U.S. Gulf Coast CBOB gasoline was $9.83 per barrel in 2015 comparedto $3.54 per barrel in 2014, a favorable increase of $6.29 per barrel. Another example is the ANS-based reference margin forU.S. West Coast CARBOB gasoline that was $25.56 per barrel in 2015 compared to $13.40 per barrel in 2014, a favorable increaseof $12.16 per barrel. We estimate that the increase in gasoline margins per barrel in 2015 compared to 2014 had a positive impactto our refining margin of approximately $2.9 billion.•Increase in other refined products margins - We experienced an increase in the margins of other refined products such as petroleumcoke, propane, sulfur, and lubes in 2015 compared to 2014. Margins for other refined products were higher during 2015 due to thelower cost of crude oils in 2015 compared to 2014. Because the market prices for our other refined products remain relativelystable, we benefit when the cost of crude oils that we process declines. For example, the benchmark price of Brent crude oil was$53.62 per barrel in 2015 compared to $99.57 per barrel in 2014. We estimate that the increase in margins for other refinedproducts in 2015 compared to 2014 had a positive impact to our refining margin of approximately $1.6 billion.•Lower discounts on light sweet and sour crude oils - Because the market prices for refined products generally track the price ofBrent crude oil, which is a benchmark sweet crude oil, we benefit when we process crude oils that are priced at a discount to Brentcrude oil. For 2015, the discount in the price of light sweet and sour crude oils compared to the price of Brent crude oil narrowed.Therefore, while we benefitted from processing crude oils priced at a discount to Brent crude oil, that benefit declined in 2015compared to 2014. For example, we processed LLS crude oil (a type of light sweet crude oil) in our U.S. Gulf Coast region that soldat a discount of $2.37 per barrel to Brent crude oil in 2015 compared33Table of Contentsto $2.79 per barrel in 2014, representing an unfavorable decrease of $0.42 per barrel. Another example is Maya crude oil (a type ofsour crude oil) that sold at a discount of $9.54 per barrel to Brent crude oil in 2015 compared to a discount of $13.73 per barrel in2014, representing an unfavorable decrease of $4.19 per barrel. We estimate that the narrowing of the discounts for sweet crude oilsand sour crude oils that we processed during 2015 had an unfavorable impact to our refining margin of approximately $260 millionand $770 million, respectively.•Lower benefit from processing other feedstocks - In addition to crude oil, we use other feedstocks and blendstocks in our refiningprocesses, such as natural gas. When combined with steam, natural gas produces hydrogen that is used in our hydrotreater andhydrocracker processing units to produce refined products. Although natural gas costs declined from 2014 to 2015, the decline wasnot as significant as the decline in the cost of Brent crude oil; therefore, the benefit we normally derive by using natural gas as afeedstock declined. We estimate that the decline in the benefit we derived from processing other feedstocks had an unfavorableimpact to our refining margin of approximately $980 million in 2015 compared to 2014.•Decrease in distillate margins - We experienced a decrease in distillate margins throughout all our regions during 2015. Forexample, the WTI-based benchmark reference margin for U.S. Mid-Continent ultra-low-sulfur diesel (a type of distillate) was$19.02 per barrel in 2015 compared to $24.05 per barrel in 2014, an unfavorable decrease of $5.03 per barrel. Another example isthe Brent-based benchmark reference margin for U.S. Gulf Coast ultra-low-sulfur diesel that was $12.64 per barrel in 2015compared to $14.28 per barrel in 2014, an unfavorable decrease of $1.64 per barrel. We estimate that the decrease in distillatemargins per barrel in 2015 compared to 2014 had an unfavorable impact to our refining margin of approximately $650 million.•Higher throughput volumes - Refining throughput volumes increased by 34,000 BPD in 2015. We estimate that the increase inrefining throughput volumes had a positive impact to our refining margin of approximately $160 million in 2015.The decrease of $105 million in operating expenses was primarily due to a $196 million decrease in energy costs driven by lowernatural gas prices ($2.58 per MMBtu in 2015 compared to $4.36 per MMBtu in 2014). This decrease in energy costs was partially offsetby a $47 million increase in employee-related expenses primarily due to higher employee benefit costs and incentive compensationexpenses, and a $26 million increase in costs associated with higher levels of maintenance activities in 2015.The increase of $148 million in depreciation and amortization expense was primarily associated with the impact of new capital projectsthat began operating in 2015 and higher refinery turnaround and catalyst amortization.EthanolEthanol segment operating income was $142 million in 2015 compared to $786 million in 2014. Excluding the effect of the lower ofcost or market inventory valuation adjustment of $50 million in 2015 and the LIFO gain of $4 million in 2014, our ethanol segmentoperating income decreased $590 million. This decrease was primarily due to a $628 million (or $0.57 per gallon) decrease in grossmargin, partially offset by a $39 million decrease in operating expenses.The decrease in ethanol gross margin of $628 million was due primarily to the following:•Lower ethanol prices - Ethanol prices were lower in 2015 primarily due to the decrease in crude oil and gasoline prices in 2015compared to 2014. For example, the New York Harbor ethanol price was $1.59 per34Table of Contentsgallon in 2015 compared to $2.37 per gallon in 2014. We estimate that the decrease in the price of ethanol per gallon during 2015had an unfavorable impact to our ethanol margin of approximately $800 million.•Lower corn prices - Corn prices were lower in 2015 compared to 2014 due to a higher domestic corn yield realized during the 2014fall harvest (most of which is processed in the following year). For example, the Chicago Board of Trade (CBOT) corn price was$3.77 per bushel in 2015 compared to $4.16 per bushel in 2014. We estimate that the decrease in the price of corn that weprocessed during 2015 had a favorable impact to our ethanol margin of approximately $160 million.•Lower co-product prices - The decrease in corn prices in 2015 compared to 2014 had a negative effect on the prices we receivedfor corn-related ethanol co-products, such as distillers grains and corn oil. We estimate that the decrease in co-product prices had anunfavorable impact to our ethanol margin of approximately $40 million.•Increased production volumes - Ethanol margin was favorably impacted by increased production volumes of 405,000 gallons perday in 2015. Production volumes in 2014 were negatively impacted by weather-related rail disruptions. In addition, productionvolumes in 2015 were positively impacted by production volumes from our Mount Vernon plant, which began operations inAugust 2014. We estimate that the increase in production volumes had a favorable impact to our ethanol margin of approximately$50 million.The $39 million decrease in operating expenses was primarily due to a $40 million decrease in energy costs related to lower natural gasprices ($2.58 per MMBtu in 2015 compared to $4.36 per MMBtu in 2014).Other“Interest and debt expense, net of capitalized interest” increased by $36 million in 2015. This increase was primarily due to the impactfrom $1.25 billion of debt issued by Valero and $200 million borrowed by VLP under the VLP Revolver in 2015.Income tax expense increased $93 million in 2015. This increase was lower than expected given the increase in income fromcontinuing operations of $419 million and was due primarily to earnings from our international operations that are taxed at statutory taxrates that are lower than in the U.S. In addition, in 2015, the U.K. statutory rate was lowered and we favorably settled various U.S.income tax audits.The loss from discontinued operations in 2014 includes expenses of $64 million primarily related to an asset retirement obligationassociated with our decision in May 2014 to abandon the Aruba Refinery, as further described in Note 2 of Notes to ConsolidatedFinancial Statements.35Table of Contents2014 Compared to 2013Financial Highlights (a)(millions of dollars, except per share amounts) Year Ended December 31, 2014 2013 (c) ChangeOperating revenues$130,844 $138,074 $(7,230)Costs and expenses: Cost of sales (b)118,141 127,316 (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. (c)— 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 interest81 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 $910Earnings 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 40.36Table of ContentsRefining Operating Highlights (a)(millions of dollars, except per barrel amounts) Year Ended December 31, 2014 2013 ChangeRefining (d): Operating income$5,884 $4,211 $1,673Throughput margin per barrel (b) (e)$11.05 $9.69 $1.36Operating 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$5.60 $4.30 $1.30 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 (f)423 440 (17)Total yields2,799 2,711 88________________See note references on page 40.37Table of ContentsRefining Operating Highlights by Region (b) (g)(millions of dollars, except per barrel amounts) Year Ended December 31, 2014 2013 ChangeU.S. Gulf Coast (a): Operating income$3,368 $2,375 $993Throughput volumes (thousand BPD)1,600 1,523 77 Throughput margin per barrel (e)$11.03 $9.57 $1.46Operating 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$5.77 $4.27 $1.50 U.S. Mid-Continent: Operating income$1,323 $1,293 $30Throughput volumes (thousand BPD)446 435 11 Throughput margin per barrel (e)$13.63 $13.37 $0.26Operating 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$8.12 $8.15 $(0.03) North Atlantic: Operating income$911 $570 $341Throughput volumes (thousand BPD)457 459 (2) Throughput margin per barrel (e)$10.02 $7.93 $2.09Operating 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$5.46 $3.40 $2.06 U.S. West Coast: Operating income (loss)$53 $(27) $80Throughput volumes (thousand BPD)262 265 (3) Throughput margin per barrel (e)$8.60 $7.43 $1.17Operating 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$0.55 $(0.27) $0.82 Operating income for regions above$5,655 $4,211 $1,444LIFO gain (b)229 — 229Total refining operating income$5,884 $4,211 $1,673________________See note references on page 40.38Table of ContentsAverage 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 WTI crude oil6.40 10.80 (4.40)Brent less ANS crude oil1.73 1.00 0.73Brent less 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 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 0.4339Table of ContentsEthanol and Retail Operating Highlights(millions of dollars, except per gallon amounts) Year Ended December 31, 2014 2013 ChangeEthanol (d): Operating income$782 $491 $291Production (thousand gallons per day)3,422 3,294 128 Gross margin per gallon of production (e)$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 Operating income from above$782 $491 $291LIFO gain (b)4 — 4Total ethanol operating income$786 $491 $295 Retail: Operating income$— $81 $(81)________________See note references below.The following notes relate to references on pages 36 through 40.(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)Cost of sales for the year ended December 31, 2014 reflects a LIFO gain of $233 million ($151 million after taxes), of which $229 million is attributableto our refining segment and $4 million is attributable to our ethanol segment. These amounts have been excluded from (1) the segment and regionalthroughput margins per barrel and the regional operating income amounts for the refining segment, and (2) the operating income and gross margin pergallon of production amounts for the ethanol segment.(c)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.(d)The LIFO gain of $233 million recorded in 2014 (see note (b)) is reflected in refining operating income and ethanol operating income for the year endedDecember 31, 2014, but is excluded from throughput margin per barrel and operating income per barrel for the refining segment, and from gross marginper gallon and operating income per gallon for the ethanol segment, respectively, as also described in note (b).(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.40Table of Contents(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; 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.GeneralOperating 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 in 2014 due primarily to a $1.7 billion increase in refining segmentoperating income, a $295 million increase in ethanol segment operating income, and a $34 million decrease in general andadministrative expenses, partially offset by an $81 million decrease in retail segment operating income due to the spin-off of our retailbusiness in 2013 as mentioned previously. The reasons for these changes in the operating results of our segments and general andadministrative expenses, as well as other items that affected our income, are discussed below.RefiningRefining segment operating income increased $1.7 billion from $4.2 billion in 2013 to $5.9 billion in 2014. Excluding the LIFO gain of$229 million in 2014 related to our refining segment, our refining segment operating income increased by $1.4 billion. This increasewas primarily due to a $1.7 billion (or $1.36 per barrel) increase in refining margin, partially offset by a $190 million increase inoperating expenses and a $31 million increase in depreciation and amortization expense.The increase in refining margin of $1.7 billion was 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 2014, the discount in the price of some light sweet crude oils and sour crude oils compared to the price ofBrent crude oil widened. For example, LLS crude oil processed in our U.S. Gulf Coast region, which is a light sweet crude oil, soldat a discount of $2.79 per barrel to Brent crude oil in 2014 compared to $0.41 per barrel in 2013, representing a favorable increaseof $2.38 per barrel. Another example is Maya crude oil, a sour crude oil, which sold at a discount of $13.73 per barrel to Brentcrude oil in 2014 compared to a discount of $11.31 per barrel in 2013, representing a favorable increase of $2.42 per barrel. Weestimate that the discounts for light sweet crude oils and sour crude oils that we processed in 2014 had a positive impact to ourrefining margin of approximately $680 million and $800 million, respectively.•Higher throughput volumes - Refining throughput volumes increased 83,000 BPD in 2014. We estimate that the increase in refiningthroughput volumes had a positive impact on our refining margin of approximately $340 million.•Lower costs of biofuel credits - As more fully described in Note 20 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 years.41Table of Contents•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 in 2014 compared to $108.74 in 2013. We estimate that the increase in other refineryproducts margins in 2014 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 in 2014 compared to $15.95 per barrel in 2013, representing an unfavorable decrease of $1.67 perbarrel. We estimate that the decline in distillate margins in 2014 had a negative impact to our refining margin of approximately$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 in 2014 compared to $3.69 per MMBtu in 2013) and a $22 million increase in maintenanceexpense primarily related to higher levels of routine maintenance activities in 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 in 2014 compared to $491 million in 2013. The $295 million increase in operatingincome was due primarily to a $399 million (or $0.29 per gallon) increase in gross margin, partially offset by a $100 million increase inoperating expenses.The increase in ethanol gross margin of $399 million was 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 CBOT corn pricewas $4.16 per bushel in 2014 compared to $5.80 per bushel in 2013. The decrease in the price of corn that we processed during2014 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.42Table of ContentsThe $100 million increase in operating expenses in 2014 was partially due to $22 million in operating expenses of the Mount Vernonplant acquired in March 2014. The remaining increase of $78 million was primarily due to increased energy costs and chemical costs.The increase in energy costs of $57 million was due primarily to the severe winter weather in the U.S. in the first quarter of 2014 thatcaused a significant increase in regional natural gas prices combined with higher use of natural gas due to the increase in productionvolumes. The increase in chemical costs of $16 million was due to higher production volumes.Corporate Expenses and OtherGeneral and administrative expenses decreased $34 million in 2014 primarily due to $30 million of transaction costs in 2013 related tothe separation of our retail business on May 1, 2013.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” increased $32 million in 2014. This increase was primarily due to a $48 milliondecrease in capitalized interest due to the completion of several large capital projects during 2013, including the new hydrocracker atour St. Charles Refinery, partially offset by a $20 million favorable impact from a decrease in average borrowings.Income tax expense increased $523 million in 2014 due to higher income from continuing operations before income tax expense. Theeffective rate for both years is lower than the U.S. statutory rate because income from continuing operations from our internationaloperations was taxed at statutory rates that were lower than in the U.S. and due to a higher benefit from our U.S. manufacturingdeduction.Income (loss) from discontinued operations in 2014 includes expenses of $59 million for an asset retirement obligation and $4 millionfor certain contractual obligations associated with our decision in May 2014 to abandon the Aruba Refinery, as further described inNote 2 of Notes to Consolidated Financial Statements.43Table of ContentsLIQUIDITY AND CAPITAL RESOURCESCash Flows for the Year Ended December 31, 2015Our operations generated $5.6 billion of cash in 2015, driven primarily by net income of $4.1 billion and excluding $2.6 billion ofnoncash charges to income ($1.8 billion for depreciation and amortization expense and $790 million for a lower of cost or marketinventory valuation adjustment). See “RESULTS OF OPERATIONS” for further discussion of our operations. However, the change inworking capital during the year had a negative impact to cash generated by our operations of $1.3 billion. This use of cash wascomposed primarily of (i) a decrease in accounts payable, net of a decrease in receivables, of $493 million, (ii) an increase in incometaxes receivable and a decrease in income taxes payable totaling $432 million, and (iii) an increase in inventories of $222 million asshown in Note 18 of Notes to Consolidated Financial Statements. The unfavorable effect of accounts payable, net of accountsreceivable, was mainly due to a decrease in commodity prices from December 2014 to December 2015. The unfavorable effect inincome taxes was due to tax payments associated with the settlement of several IRS audits and an overpayment of taxes in 2015. Thisoverpayment resulted from a change in the U.S. Federal tax laws late in the year that reinstated the bonus depreciation deduction, whichlowered our current income tax expense. The unfavorable effect in inventories was mainly due to the build in inventory volumes in2015 as we purchased crude oil at prices we deemed favorable during the fourth quarter of 2015.The $5.6 billion of cash generated by our operations in 2015, along with (i) $1.45 billion in proceeds from the issuance of debt and(ii) net proceeds of $189 million from VLP’s public offering of 4,250,000 common units as discussed in Note 4 of Notes toConsolidated Financial Statements, were used mainly to:•fund $2.5 billion of investing activities, including $2.4 billion in capital investments. Capital investments are comprised ofcapital expenditures, deferred turnaround and catalyst costs, and joint venture investments;•make payments on debt and capital lease obligations of $513 million, of which $400 million related to our 4.5 percent seniornotes, $75 million related to our 8.75 percent debentures, $25 million related to the VLP Revolver, $10 million related to capitallease obligations, and $3 million related to other non-bank debt;•purchase common stock for treasury of $2.8 billion;•pay common stock dividends of $848 million; and•increase available cash on hand by $425 million.Cash Flows for the Year Ended December 31, 2014Our operations generated $4.2 billion of cash in 2014, driven primarily by net income of $3.7 billion and excluding $1.7 billion ofnoncash charges to income (primarily depreciation and amortization expense). See “RESULTS OF OPERATIONS” for furtherdiscussion of our operations. However, the change in our working capital during the year had a negative impact to cash generated byour operations of $1.8 billion. This use of cash was composed primarily of a decrease in accounts receivable of $2.8 billion, which wasoffset by a decrease in accounts payable of $3.1 billion, a decrease in income taxes payable of $319 million, and an increase ininventories of $1.0 billion as shown in Note 18 of Notes to Consolidated Financial Statements. The favorable effect in accountsreceivable and the unfavorable effect in accounts payable were mainly due to a decrease in commodity prices from December 2013 toDecember 2014. The unfavorable effect associated with income taxes payable resulted from income tax payments exceeding incometax liabilities incurred in 2014 due to the payment of liabilities associated with prior period earnings. The unfavorable effect ininventories was mainly due to the build in inventory volumes from 2013 to 2014 as we purchased crude oil at prices we deemedfavorable during the fourth quarter of 2014.44Table of ContentsThe $4.2 billion of cash provided by our operations in 2014, along with $603 million from available cash on hand, was used mainly to:•fund $2.8 billion of capital investments, which included capital expenditures and deferred turnaround and catalyst costs;•make debt and capital lease obligations repayments of $204 million, of which $200 million related to our 4.75 percent seniornotes, and $4 million related to capital lease obligations;•purchase common stock for treasury of $1.3 billion; and•pay common stock dividends of $554 million.Capital InvestmentsWe define capital investments as capital expenditures for additions to and improvements of our refining and ethanol segment assets(including turnaround and catalyst costs) and investments in joint ventures.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 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.We 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 to refine crude oil into products with higher market values. Therefore, many of our improvements donot increase throughput capacity significantly.We hold investments in joint ventures and we invest in these joint ventures or enter into new joint venture arrangements to enhance ouroperations. In December 2015, we exercised our option to purchase a 50 percent interest in Diamond Pipeline LLC (Diamond Pipeline),which was formed by Plains Pipeline, L.P. (Plains) to construct and operate a 440-mile, 20-inch crude oil pipeline expected to providecapacity of up to 200,000 BPD of domestic sweet crude oil from the Plains Cushing, Oklahoma terminal to our Memphis Refinery, withthe ability to connect into the Capline Pipeline. The pipeline is expected to be completed in 2017 for an estimated $925 million,pending receipt of necessary regulatory approvals. We contributed $136 million upon exercise of our option and expect to invest anadditional $170 million in 2016.For 2016, we expect to incur approximately $2.6 billion for capital investments, including capital expenditures, deferred turnaroundand catalyst costs, and joint venture investments. This consists of approximately $1.6 billion for stay-in-business capital and $1.0 billionfor growth strategies, including our continued investment in Diamond Pipeline. This capital investment estimate excludes potentialstrategic acquisitions. We continuously evaluate our capital budget and make changes as conditions warrant.45Table of ContentsContractual ObligationsOur contractual obligations as of December 31, 2015 are summarized below (in millions). Payments Due by Period 2016 2017 2018 2019 2020 Thereafter TotalDebt and capitallease obligations (a)$134 $966 $16 $766 $1,039 $4,517 $7,438Operating lease obligations430 283 200 143 100 311 1,467Purchase obligations14,975 3,204 2,458 1,197 985 4,535 27,354Other long-term liabilities— 172 134 131 125 1,049 1,611Total$15,539 $4,625 $2,808 $2,237 $2,249 $10,412 $37,870______________________________(a)Debt obligations exclude amounts related to unamortized discount and fair value adjustments. Capital lease obligations include related interest expense.These items are further described in Note 10 of Notes to Consolidated Financial Statements.Debt and Capital Lease ObligationsWe have an accounts receivable sales facility with a group of third-party entities and financial institutions to sell eligible tradereceivables on a revolving basis. In July 2015, we amended our agreement to decrease the facility from $1.5 billion to $1.4 billion andextended the maturity date to July 2016. As of December 31, 2015, the actual availability under the facility fell below the facilityborrowing capacity to $1.1 billion primarily due to a decrease in eligible trade receivables as a result of the ongoing decline in themarket prices of the finished products that we produce. As of December 31, 2015, the amount of eligible receivables sold was$100 million. All amounts outstanding under this facility are reflected as debt.Our debt and financing agreements do not have rating agency triggers that would automatically require us to post additional collateral.However, in 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 or46Table of Contentsremaining noncancelable terms in excess of one year, and are not reduced by minimum rentals to be received by us under subleases.Purchase ObligationsA purchase obligation is an enforceable and legally binding agreement to purchase goods or services that specifies significant terms,including (i) fixed or minimum quantities to be purchased, (ii) fixed, minimum, or variable price provisions, and (iii) the 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.Other Long-term LiabilitiesOur other long-term liabilities are described in Note 9 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, 2015.Summary of Credit FacilitiesAs of December 31, 2015, we had outstanding borrowings and letters of credit issued under our credit facilities as follows (in millions): December 31, 2015 FacilityAmount Maturity Date Borrowings Letters ofCredit Available Committed facilities: Revolver $3,000 November 2020 $— $57 $2,943VLP Revolver $750 November 2020 $175 $— $575Canadian Revolver C$50 November 2016 C$— C$10 C$40Accounts receivable salesfacility $1,400 July 2016 $100 $— $992Letter of credit facilities $275 June 2016 andNovember 2016 $— $9 $266 Uncommitted facilities: Letter of credit facilities $775 N/A $— $87 $688Letters of credit issued as of December 31, 2015 expire in 2016 through 2018.Off-Balance Sheet ArrangementsWe have not entered into any transactions, agreements, or other contractual arrangements that would result in off-balance sheetliabilities.47Table of ContentsOther Matters Impacting Liquidity and Capital ResourcesStock Purchase ProgramsOn July 13, 2015, our board of directors authorized us to purchase an additional $2.5 billion of our outstanding common stock with noexpiration date to such authorization. This authorization was in addition to the remaining amount available under a $3 billion programpreviously authorized. During the third quarter of 2015, we completed our purchases under the $3 billion program. As of December 31,2015, we had approximately $1.3 billion remaining available under the $2.5 billion program, but we have no obligation to makepurchases under this program.Pension Plan FundingWe plan to contribute approximately $36 million to our pension plans and $20 million to our other postretirement benefit plans during2016.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, GHG emissions, and characteristics and composition of gasolinesand distillates. Because environmental laws and regulations are becoming more complex and stringent and new environmental laws andregulations are continuously being enacted or proposed, the level of future expenditures required for environmental matters couldincrease in the future as previously discussed above in “OUTLOOK.” In addition, any major upgrades in any of our operating facilitiescould require material additional expenditures to comply with environmental laws and regulations. See Notes 9 and 11 of Notes toConsolidated Financial Statements for a further discussion of our environmental matters.Tax MattersThe IRS has ongoing tax audits related to our U.S. federal tax returns from 2008 through 2011, and we have received Revenue AgentReports (RARs) in connection with the audits for tax years 2008 and 2009. We are contesting certain tax positions and assertionsincluded in the RARs and continue to make progress in resolving certain of these matters with the IRS. During 2015, we settled theaudits related to our 2004 through 2007 tax years consistent with the recorded amounts of uncertain tax position liabilities associatedwith those audits. In addition, we expect to settle our audit for tax years 2008 and 2009 within the next 12 months and we believe it willbe settled for amounts consistent with the recorded amounts of uncertain tax position liabilities associated with that audit. As a result,we have classified a portion of our uncertain tax position liabilities as a current liability. Our net uncertain tax position liabilities,including related penalties and interest, was $391 million as of December 31, 2015. Should we ultimately settle for amounts consistentwith our estimates, we believe that we will have sufficient cash on hand at that time to make such 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 15 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, 2015, $1.7 billion of ourcash and temporary cash investments was held by our international subsidiaries.48Table of ContentsEmissions 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 are significant; however, we are recovering the majority of these costs from our customers. If we are unable torecover these costs from our customers in the future, we believe that we will have sufficient cash on hand to cover these costs.Concentration of CustomersOur operations have a concentration of customers in the refining industry and customers who are refined product wholesalers andretailers. These concentrations of customers may impact our overall exposure to credit risk, either positively or negatively, in that thesecustomers may be similarly affected by changes in economic or other conditions. However, we believe that our portfolio of accountsreceivable is sufficiently diversified to the extent necessary to minimize potential credit risk. Historically, we have not had anysignificant 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.NEW 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. GAAP requires us to make estimates and assumptions that affect theamounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The followingsummary provides further information about our critical accounting policies that involve critical accounting estimates, and should beread in conjunction with Note 1 of Notes to Consolidated Financial Statements, which summarizes our significant accounting policies.The following accounting policies involve estimates that are considered critical due to the level of subjectivity and judgment involved,as well as the impact on our financial position and results of operations. We believe that all of our estimates are reasonable. Unlessotherwise noted, estimates of the sensitivity to earnings that would result from changes in the assumptions used in determining ourestimates is not practicable due to the number of assumptions and contingencies involved, and the wide range of possible outcomes.Lower of Cost or Market Inventory ValuationInventories are carried at the lower of cost or market. Cost is principally determined under the LIFO method using the dollar-value LIFOapproach. Market value is determined based on the net realizable value of the inventories.We compare the market value of inventories to their cost on an aggregate basis, excluding materials and supplies. In determining themarket value of our inventories, we assume our refinery and ethanol feedstocks49Table of Contentsare converted into refined products, which requires us to make estimates regarding the refined products expected to be produced fromthose feedstocks and the conversion costs required to convert those feedstocks into refined products. We also estimate the usual andcustomary transportation costs required to move the inventory from our refineries and ethanol plants to the appropriate points of sale.We then apply an estimated selling price to our inventories. If the aggregate market value is less than cost, we record a lower of cost ormarket inventory valuation adjustment to reflect our inventories at market value.The lower of cost or market inventory valuation adjustment for the year ended December 31, 2015 is discussed in Note 6 of Notes toConsolidated Financial Statements.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 and equity method investments are tested for recoverability whenever events or changes in circumstances indicatethat the carrying amount of the asset may not be recoverable. An impairment loss should be recognized if the carrying amount of theasset exceeds its fair value.In order to test for recoverability, we must make estimates of projected cash flows related to the asset being evaluated, which include,but are 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. Our impairmentevaluations are based on assumptions that we deem to be reasonable.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 11 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.50Table of ContentsAccruals 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.The amount of our accruals for environmental matters as of December 31, 2015 and 2014 are included in Note 9 of Notes toConsolidated Financial Statements.Pension 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. These assumptions are disclosed and described in Note 13 of Notes to Consolidated Financial Statements.Changes in these assumptions are primarily influenced by factors outside of our control. For example, the discount rate assumptionrepresents a yield curve comprised of various long-term bonds that have an average rating of double-A when averaging all availableratings by the recognized rating agencies, while the expected return on plan assets is based on a compounded return calculatedassuming an asset allocation that is representative of the asset mix in our pension plans. To determine the expected return on planassets, we utilized a forward-looking model of asset returns. The historical geometric average return over the 10 years prior toDecember 31, 2015 was 5.69 percent. The actual return on assets for the years ended December 31, 2015, 2014, and 2013 was1.46 percent, 7.33 percent, and 19.38 percent, respectively. These assumptions can have a significant effect on the amounts reported inour financial statements. For example, a 0.25 percent decrease in the assumptions related to the discount rate or expected return on planassets or a 0.25 percent increase in the assumptions related to the health care cost trend rate or rate of compensation increase wouldhave the following effects on the projected benefit obligation as of December 31, 2015 and net periodic benefit cost for the year endingDecember 31, 2016 (in millions): PensionBenefits OtherPostretirementBenefitsIncrease in projected benefit obligation resulting from: Discount rate decrease$101 $11Compensation rate increase10 n/aHealth care cost trend rate increasen/a 1 Increase in expense resulting from: Discount rate decrease9 —Expected return on plan assets decrease5 n/aCompensation rate increase3 n/aHealth care cost trend rate increasen/a —51Table of ContentsBeginning in 2016, our net periodic benefit cost will be determined using the spot-rate approach. Under this approach, our net periodicbenefit cost will be impacted by the spot rates of the corporate bond yield curve used to calculate our liability discount rate. If the yieldcurve were to flatten entirely and our liability discount rate remained unchanged, our net periodic benefit cost would increase by$19 million for pension benefits and $3 million for other postretirement benefits in 2016.See Note 13 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. Judgment is required in estimating theamount of a valuation allowance, if any, that should be recorded against those deferred income tax assets. If our actual results ofoperations differ from such estimates or our estimates of future taxable income change, the valuation allowance may need to be revised.See Notes 11 and 15 of Notes to Consolidated Financial Statements for a further discussion of our tax liabilities.Legal MattersA variety of claims have been made against us in various lawsuits. We record a liability related to a loss contingency attributable 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.ITEM 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 manage the volatility of:•inventories and firm commitments to purchase inventories generally for amounts by which our current year inventory levels(determined on a LIFO basis) differ from our previous year-end LIFO inventory levels and•forecasted 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 price risk activities. We useswaps primarily to manage our price exposure. We also enter into certain commodity derivative instruments for trading purposes to takeadvantage of existing market conditions related to future results of operations and cash flows.52Table of ContentsOur positions in commodity derivative instruments are monitored and managed on a daily basis by our 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, 2015: Gain (loss) in fair value resulting from: 10% increase in underlying commodity prices$(45) $—10% decrease in underlying commodity prices45 5 December 31, 2014: Gain (loss) in fair value resulting from: 10% increase in underlying commodity prices(127) (2)10% decrease in underlying commodity prices126 7See Note 20 of Notes to Consolidated Financial Statements for notional volumes associated with these derivative contracts as ofDecember 31, 2015.COMPLIANCE PROGRAM PRICE RISKWe are exposed to market risk related to the volatility in the price of biofuel credits and GHG emission credits needed to comply withvarious governmental and regulatory programs. To manage these risks, we enter into contracts to purchase these credits when prices aredeemed favorable. Some of these contracts are derivative instruments; however, we elect the normal purchase exception and do notrecord these contracts at their fair values. As of December 31, 2015, there was an immaterial amount of gain or loss in the fair value ofderivative instruments that would result from a 10 percent increase or decrease in the underlying price of the contracts. See Note 20 ofNotes to Consolidated Financial Statements for a discussion about these compliance programs.53Table of ContentsINTEREST RATE RISKThe following table provides information about our debt obligations (dollars in millions), the fair values of which are sensitive tochanges in interest rates. Principal cash flows and related weighted-average interest rates by expected maturity dates are presented. Wehad no interest rate derivative instruments outstanding as of December 31, 2015 or 2014. December 31, 2015 Expected Maturity Dates 2016 2017 2018 2019 2020 There-after Total (a) FairValueFixed rate$— $950 $— $750 $850 $4,474 $7,024 $7,467Average interest rate—% 6.4% —% 9.4% 6.1% 6.3% 6.6% Floating rate$117 $— $— $— $175 $— $292 $292Average interest rate1.7% —% —% —% 1.5% —% 1.6% December 31, 2014 Expected Maturity Dates 2015 2016 2017 2018 2019 There-after Total (a) FairValueFixed 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% ________________________(a)Excludes unamortized discount and fair value adjustments recorded when the debt was acquired in connection with a business combination.FOREIGN CURRENCY RISKAs of December 31, 2015, we had commitments to purchase $292 million of U.S. dollars. Our market risk was minimal on thesecontracts, as all of them matured on or before January 31, 2016, resulting in a gain of $10 million in the first quarter of 2016.54Table 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 inRule 13a-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, 2015. 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, 2015, 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 57 of this report.55Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMThe Board of Directors and StockholdersValero Energy Corporation:We have audited the accompanying consolidated balance sheets of Valero Energy Corporation and subsidiaries (the Company) as ofDecember 31, 2015 and 2014, 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, 2015. 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, 2015 and 2014, and the results of their operations and their cash flowsfor each of the years in the three-year period ended December 31, 2015, 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, 2015, 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 25, 2016 expressed an unqualified opinion onthe effectiveness of the Company’s internal control over financial reporting./s/ KPMG LLPSan Antonio, TexasFebruary 25, 201656Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMThe Board of Directors and StockholdersValero Energy Corporation:We have audited Valero Energy Corporation (the Company’s) internal control over financial reporting as of December 31, 2015, basedon criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of theTreadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financialreporting 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, 2015, based on criteria established in Internal Control – Integrated Framework (2013) issued by COSO.57Table 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, 2015 and 2014, 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, 2015, and our report dated February 25, 2016expressed an unqualified opinion on those consolidated financial statements./s/ KPMG LLPSan Antonio, TexasFebruary 25, 201658Table of ContentsVALERO ENERGY CORPORATIONCONSOLIDATED BALANCE SHEETS(Millions of Dollars, Except Par Value) December 31, 2015 2014ASSETS Current assets: Cash and temporary cash investments$4,114 $3,689Receivables, net4,464 5,879Inventories5,898 6,623Income taxes receivable218 97Deferred income taxes74 162Prepaid expenses and other204 164Total current assets14,972 16,614Property, plant, and equipment, at cost36,907 35,933Accumulated depreciation(10,204) (9,198)Property, plant, and equipment, net26,703 26,735Deferred charges and other assets, net2,668 2,201Total assets$44,343 $45,550LIABILITIES AND EQUITY Current liabilities: Current portion of debt and capital lease obligations$127 $606Accounts payable4,907 6,760Accrued expenses554 596Taxes other than income taxes1,069 1,209Income taxes payable337 433Deferred income taxes366 376Total current liabilities7,360 9,980Debt and capital lease obligations, less current portion7,250 5,780Deferred income taxes6,768 6,607Other long-term liabilities1,611 1,939Commitments 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 capital7,064 7,116Treasury stock, at cost;200,462,208 and 159,202,872 common shares(10,799) (8,125)Retained earnings25,188 22,046Accumulated other comprehensive loss(933) (367)Total Valero Energy Corporation stockholders’ equity20,527 20,677Noncontrolling interests827 567Total equity21,354 21,244Total liabilities and equity$44,343 $45,550See Notes to Consolidated Financial Statements.59Table of ContentsVALERO ENERGY CORPORATIONCONSOLIDATED STATEMENTS OF INCOME(Millions of Dollars, Except per Share Amounts) Year Ended December 31, 2015 2014 2013Operating revenues (a)$87,804 $130,844 $138,074Costs and expenses: Cost of sales (excluding the lower of cost or market inventoryvaluation adjustment)73,861 118,141 127,316Lower of cost or market inventory valuation adjustment790 — —Operating expenses4,243 4,387 4,323General and administrative expenses710 724 758Depreciation and amortization expense1,842 1,690 1,720Total costs and expenses81,446 124,942 134,117Operating income6,358 5,902 3,957Gain on disposition of retained interest in CST Brands, Inc.— — 325Other income, net46 47 59Interest and debt expense, net of capitalized interest(433) (397) (365)Income from continuing operations before income tax expense5,971 5,552 3,976Income tax expense1,870 1,777 1,254Income from continuing operations4,101 3,775 2,722Income (loss) from discontinued operations— (64) 6Net income4,101 3,711 2,728Less: Net income attributable to noncontrolling interests111 81 8Net income attributable to Valero Energy Corporation stockholders$3,990 $3,630 $2,720 Net income attributable to Valero Energy Corporation stockholders: Continuing operations$3,990 $3,694 $2,714Discontinued operations— (64) 6Total$3,990 $3,630 $2,720Earnings per common share: Continuing operations$8.00 $7.00 $4.98Discontinued operations— (0.12) 0.01Total$8.00 $6.88 $4.99Weighted-average common shares outstanding (in millions)497 526 542Earnings per common share – assuming dilution: Continuing operations$7.99 $6.97 $4.96Discontinued operations— (0.12) 0.01Total$7.99 $6.85 $4.97Weighted-average common shares outstanding – assuming dilution(in millions)500 530 548 Dividends per common share$1.70 $1.05 $0.85_______________________________________________ Supplemental information: (a) Includes excise taxes on sales by certain of our international operations$5,980 $5,901 $5,459See Notes to Consolidated Financial Statements.60Table of ContentsVALERO ENERGY CORPORATIONCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(Millions of Dollars) Year Ended December 31, 2015 2014 2013Net income$4,101 $3,711 $2,728 Other comprehensive income (loss): Foreign currency translation adjustment(606) (407) (98)Net gain (loss) on pensionand other postretirement benefits57 (475) 763Net gain (loss) on derivative instruments designatedand qualifying as cash flow hedges— 1 (2)Other comprehensive income (loss) beforeincome tax expense (benefit)(549) (881) 663Income tax expense (benefit) related toitems of other comprehensive income (loss)17 (164) 262Other comprehensive income (loss)(566) (717) 401 Comprehensive income3,535 2,994 3,129Less: Comprehensive income attributable tononcontrolling interests111 81 8Comprehensive income attributable toValero Energy Corporation stockholders$3,424 $2,913 $3,121See Notes to Consolidated Financial Statements.61Table 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, 2012$7 $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-based compensation expense— 64 — — — 64 — 64Tax deduction in excess of stock-based compensation expense— 47 — — — 47 — 47Transactions in connection withstock-based compensation plans: Stock issuances— (243) 302 — — 59 — 59Stock purchases— — (236) — — (236) — (236)Stock purchases under purchase program— — (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 from noncontrollinginterests— — — — — — 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-based compensation expense— 60 — — — 60 — 60Tax deduction in excess of stock-based compensation expense— 47 — — — 47 — 47Transactions in connection withstock-based compensation plans: Stock issuances— (178) 225 — — 47 — 47Stock purchases— — (128) — — (128) — (128)Stock purchases under purchase program— — (1,168) — — (1,168) — (1,168)Contributions from noncontrollinginterests— — — — — — 12 12Distributions to noncontrolling interests— — — — — — (12) (12)Other comprehensive loss— — — — (717) (717) — (717)Balance as of December 31, 20147 7,116 (8,125) 22,046 (367) 20,677 567 21,244Net income— — — 3,990 — 3,990 111 4,101Dividends on common stock— — — (848) — (848) — (848)Stock-based compensation expense— 59 — — — 59 — 59Tax deduction in excess of stock-based compensation expense— 44 — — — 44 — 44Transactions in connection withstock-based compensation plans: Stock issuances— (155) 189 — — 34 — 34Stock purchases— — (196) — — (196) — (196)Stock purchases under purchase program— — (2,667) — — (2,667) — (2,667)Net proceeds from issuance of ValeroEnergy Partners LP common units— — — — — — 189 189Contributions from noncontrollinginterests— — — — — — 5 5Distributions to noncontrolling interests— — — — — — (45) (45)Other comprehensive loss— — — — (566) (566) — (566)Balance as of December 31, 2015$7 $7,064 $(10,799) $25,188 $(933) $20,527 $827 $21,354See Notes to Consolidated Financial Statements.62Table of ContentsVALERO ENERGY CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS(Millions of Dollars) Year Ended December 31, 2015 2014 2013Cash flows from operating activities: Net income$4,101 $3,711 $2,728Adjustments to reconcile net income to net cash provided byoperating activities: Depreciation and amortization expense1,842 1,690 1,720Lower of cost or market inventory valuation adjustment790 — —Aruba Refinery asset retirement expense and other— 63 —Gain on disposition of retained interest in CST Brands, Inc.— — (325)Deferred income tax expense165 445 501Changes in current assets and current liabilities(1,306) (1,810) 922Changes in deferred charges and credits andother operating activities, net19 142 18Net cash provided by operating activities5,611 4,241 5,564Cash flows from investing activities: Capital expenditures(1,618) (2,153) (2,121)Deferred turnaround and catalyst costs(673) (649) (634)Investments in joint ventures(141) (14) (76)Other investing activities, net(55) (28) 19Net cash used in investing activities(2,487) (2,844) (2,812)Cash flows from financing activities: Proceeds from debt issuances or borrowings1,446 28 —Repayments of debt and capital lease obligations(513) (204) (486)Proceeds from the exercise of stock options34 47 59Purchase of common stock for treasury(2,838) (1,296) (928)Common stock dividends(848) (554) (462)Net proceeds from issuance of Valero Energy Partners LP common units189 — 369Contributions from noncontrolling interests5 12 45Distributions to noncontrolling interests(public unitholders) of Valero Energy Partners LP(20) (12) —Distribution to other noncontrolling interest(25) — —Disposition of retail business: Proceeds from short-term debt in anticipation of separation— — 550Cash distributed to Valero by CST Brands, Inc.— — 500Cash held and retained by CST Brands, Inc. upon separation— — (315)Proceeds from short-term debt related to dispositionof retained interest— — 525Repayments of short-term debt related to dispositionof retained interest— — (58)Other financing activities, net25 49 38Net cash used in financing activities(2,545) (1,930) (163)Effect of foreign exchange rate changes on cash(154) (70) (20)Net increase (decrease) in cash and temporary cash investments425 (603) 2,569Cash and temporary cash investments at beginning of year3,689 4,292 1,723Cash and temporary cash investments at end of year$4,114 $3,689 $4,292See Notes to Consolidated Financial Statements.63Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS1.BASIS OF PRESENTATION AND 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 3.0 million barrels per day (BPD) as of December 31, 2015. We market brandedand unbranded refined products on a wholesale basis in the United States (U.S.), Canada, the Caribbean, the United Kingdom (U.K.),and Ireland through an extensive bulk and rack marketing network and through approximately 7,500 outlets that carry the Valero®,Diamond Shamrock®, Shamrock®, Ultramar®, Beacon®, and Texaco® brand names. We also own 11 ethanol plants in the U.S. thatprimarily produce ethanol with a combined production capacity of approximately 1.4 billion gallons per year as of December 31, 2015.Our operations are affected by:•company-specific factors, primarily refinery utilization rates and refinery maintenance turnarounds;•seasonal factors, such as the demand for refined products during the summer driving season and heating oil during the 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, 2014 have been reclassified to conform to the 2015 presentation.Significant Accounting PoliciesPrinciples of ConsolidationThese financial statements include the accounts of Valero, its 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.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.64Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)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 approach, 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. Market value is determined based onthe net realizable value of the inventories. We compare the market value of inventories to their cost on an aggregate basis, excludingmaterials and supplies. If the aggregate market value is less than cost, we record a lower of cost or market inventory valuationadjustment to reflect our inventories at market value.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 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.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 in65Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)income. However, a gain or loss is recognized in income for a major property asset that is retired, replaced, or sold and for an abnormaldisposition of a property asset (primarily involuntary conversions). Gains and losses are reflected in depreciation and amortizationexpense, unless such amounts are reported separately 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” primarily 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;•income taxes receivable;•investments in joint ventures accounted for under the equity method;•intangible assets; and•re-imaging costs associated with branded outlets.Impairment of AssetsLong-lived assets are tested for recoverability whenever events or changes in circumstances indicate that the carrying amount of theasset may not be recoverable. A long-lived asset is not recoverable if its carrying amount exceeds the sum of the undiscounted cashflows expected to result from its use and eventual disposition. If a long-lived asset is not recoverable, an impairment loss is recognizedfor the amount by which the carrying amount of the long-lived asset exceeds its fair value, with fair value determined based ondiscounted estimated net cash flows or other appropriate methods.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.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 commitment66Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)to a formal plan of action. Amounts recorded for environmental liabilities have not been reduced by possible recoveries from thirdparties 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.We 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. However, these component parts can be used forextended and indeterminate periods of time as long as they are properly maintained and/or upgraded. It is our practice and currentintent to maintain our refinery assets and continue making improvements to those assets based on technological advances. As a result,we believe that our refineries have indeterminate lives for purposes of estimating asset retirement obligations because dates or ranges ofdates upon which we would retire refinery assets cannot reasonably be estimated at this time. When a date or range of dates canreasonably be estimated for the retirement of any component part of a refinery, we estimate the cost of performing the retirementactivities and record a liability for the fair value of that cost using established present value techniques.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.We present excise taxes on sales by certain of our international operations on a gross basis with supplemental information regarding theamount of such taxes included in revenues provided in a footnote on the statements of income. All other excise taxes are presented on anet 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.67Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Product Shipping and Handling CostsCosts incurred for shipping and handling of products are included in cost of sales.Environmental Compliance Program CostsWe purchase credits in the open market to meet our obligations under various environmental compliance programs. We purchasebiofuel credits (primarily Renewable Identification Numbers (RINs) in the U.S.) to comply with government regulations that require usto blend a certain percentage of biofuels into the products we produce, as further described in Note 20 under “EnvironmentalCompliance Program Price Risk.” To the degree that we are unable to blend biofuels at the required percentage, we must purchasebiofuel credits to meet our obligation. We purchase greenhouse gas (GHG) emission credits to comply with government regulationsconcerning various GHG emission programs, including cap-and-trade systems, as described in Note 20.The costs of purchased biofuel credits and GHG emission credits are charged to cost of sales as such credits are needed to satisfy ourobligation. To the extent we have not purchased enough 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 credits as of the balance sheet date, and we record a liability for ourobligation to purchase those credits. See Note 19 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 attributable to Valero stockholders by the weighted-average number ofcommon shares outstanding for the year. Participating share-based payment awards, including shares of restricted stock granted undercertain of our stock-based compensation plans, are included in the computation of basic earnings per share using the two-class method.Earnings per common share – assuming dilution reflects the potential dilution arising from our outstanding stock options and nonvestedshares granted to employees in connection with our stock-based compensation plans. Potentially dilutive securities are excluded fromthe computation of earnings per common share – assuming dilution when the effect of including such shares would be antidilutive.68Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)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 19.Derivatives and HedgingAll derivative instruments, not designated as normal purchases or sales, are recorded in the balance sheet as either assets or liabilitiesmeasured at their fair values. When we enter into a derivative instrument, it is designated as a fair value hedge, a cash flow hedge, aneconomic hedge, or a trading derivative. The gain or loss on a derivative instrument designated and qualifying as a fair value hedge, aswell as the offsetting loss or gain on the hedged item attributable to the hedged risk, are recognized currently in income in the sameperiod. The effective portion of the gain or loss on a derivative instrument designated and qualifying as a cash flow hedge is initiallyreported as a component of other comprehensive income and is then recorded in income in the period or periods during which thehedged forecasted transaction affects income. 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 cashflow hedges) and for derivative instruments entered into for trading purposes, the derivative instrument is recorded at fair value andchanges in the fair value of the derivative instrument are recognized currently in income. The cash flow effects of all of our derivativeinstruments are reflected in operating activities in the statements of cash flows.New Accounting PronouncementsIn May 2014, the Accounting Standards Codification (ASC) was amended and a new accounting standard, ASC Topic 606, “Revenuefrom Contracts with Customers,” was issued 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. In July 2015, the effective date of the new standard wasdeferred by one year. As a result, the standard is effective for annual reporting periods beginning after December 15, 2017, includinginterim reporting periods within those reporting periods, and can be adopted either retrospectively to each prior reporting periodpresented using a practical expedient, as allowed by the standard, or retrospectively with a cumulative-effect adjustment to retainedearnings as of the date of initial application. Early adoption is permitted, but not before the original effective date, which was for annualreporting periods beginning after December 15, 2016, including interim reporting periods within those reporting periods. We arecurrently evaluating the effect that adopting this standard will have on our financial statements and related disclosures.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 guidance69Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)for certain money market funds. These provisions are effective for annual reporting periods beginning after December 15, 2015, andinterim periods within those annual periods, with early adoption permitted. These provisions may also be adopted retrospectively inpreviously issued financial statements for one or more years with a cumulative-effect adjustment to retained earnings as of thebeginning of the first year restated. The adoption of this guidance effective January 1, 2016 will not affect our financial position orresults of operations, but will result in additional disclosures.In April 2015, the provisions of ASC Subtopic 835-30, “Interest–Imputation of Interest,” were amended to simplify the presentation ofdebt issuance costs. The guidance requires that debt issuance costs related to a note be reported in the balance sheet as a directdeduction from the face amount of that note, consistent with debt discounts, and that amortization of debt issuance costs be reported asinterest expense. In August 2015, these provisions were further amended with guidance from the Securities and Exchange Commissionstaff that they would not object to an entity deferring and presenting debt issuance costs related to line-of-credit arrangements as anasset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless ofwhether there are any outstanding borrowings on the line-of-credit arrangement. These provisions are to be applied retrospectively andare effective for annual reporting periods beginning after December 15, 2015, and interim periods within those annual periods, withearly adoption permitted. The adoption of this guidance effective January 1, 2016 will not materially affect our financial position orresults of operations; however, our debt issuance costs associated with issued debt (other than borrowings on our line-of-creditarrangements) will be reported in the balance sheet as a direct deduction from “debt and capital lease obligations, less current portion”and excluded from “deferred charges and other assets, net.” As of December 31, 2015, debt issuance costs associated with issued debttotaled $42 million. Debt issuance costs associated with borrowings on our line-of-credit arrangements will continue to be reported inthe balance sheet as “deferred charges and other assets, net,” and the related amortization will continue to be reported as interestexpense.Also in April 2015, the provisions of ASC Topic 715, “Compensation–Retirement Benefits” were amended to provide a practicalexpedient for the measurement date of an entity’s defined benefit pension or other postretirement plans. For an entity with a fiscal year-end that does not coincide with a month-end, the guidance provides a practical expedient that allows the entity to measure the definedbenefit plan assets and obligations using the month-end that is closest to the entity’s fiscal year-end. For an entity that has a significantevent in an interim period that calls for a remeasurement, the guidance allows an entity to remeasure the defined benefit plan assets andobligations using the month-end that is closest to the date of the significant event. These provisions are effective retrospectively forannual reporting periods beginning after December 15, 2015, and interim periods within those annual periods, with early adoptionpermitted. The adoption of this guidance effective January 1, 2016 will not affect our financial position or results of operations.In May 2015, the provisions of ASC Topic 820, “Fair Value Measurements,” were amended to remove the requirement to categorizewithin the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient.The guidance also removes the requirement to make certain disclosures for all investments that are eligible to be measured using the netasset value per share practical expedient and limits those disclosures to investments for which the entity has elected to measure the fairvalue using that practical expedient. These provisions are to be applied retrospectively and are effective for annual reporting periodsbeginning after December 15, 2015, and interim periods within those annual periods, with early adoption permitted. The adoption ofthis guidance effective January 1, 2016 will not affect our financial position or results of operations, but will result in reviseddisclosures.70Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)In July 2015, the provisions of ASC Topic 330, “Inventory” were amended to simplify the measurement of inventory. The guidancedoes not apply to inventory where the cost of such inventory is measured using the LIFO or the retail inventory methods. The guidanceapplies to inventory where the cost of such inventory is measured using the first-in, first-out or average cost methods, and it requires theinventory to be measured at the lower of cost and net realizable value rather than the lower of cost or market. Net realizable value isdefined as the estimated selling prices in the ordinary course of business, less reasonably predicable costs of completion, disposal, andtransportation. These provisions are to be applied prospectively and are effective for annual reporting periods beginning afterDecember 15, 2016, and interim periods within those annual periods, with early adoption permitted. The adoption of this guidanceeffective January 1, 2017 will not affect our financial position or results of operations.In September 2015, the provisions of ASC Topic 805, “Business Combinations,” were amended to simplify the accounting andreporting of adjustments made to provisional amounts recognized in a business combination. The amendment requires that an acquirer(i) record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other incomeeffects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at theacquisition date and (ii) present separately on the statement of income or disclose in the notes the portion of the amount recorded incurrent-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisionalamounts had been recognized as of the acquisition date. These provisions are effective for annual reporting periods beginning afterDecember 15, 2015, and interim periods within those annual periods, and should be applied prospectively to adjustments made toprovisional amounts that occur after the effective date. Earlier application is permitted for financial statements that have not yet beenissued. The adoption of this guidance effective January 1, 2016 will not affect our financial position or results of operations; however, itmay result in changes to the manner in which adjustments to provisional amounts recognized in a future business combination, if any,are presented in our financial statements.In November 2015, the provisions of ASC Topic 740, “Income Taxes,” were amended to simplify the presentation of deferred incometaxes. The amendments require that deferred tax liabilities and assets be classified as noncurrent in a classified balance sheet. Theamendments are effective for financial statements for annual periods beginning after December 15, 2016, and interim periods withinthose annual periods, with early adoption permitted as of the beginning of any interim or annual period. The amendments may beapplied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. Entities applying theguidance retrospectively should disclose in the first interim and first annual period of adoption the nature of and reason for the changein accounting principle and quantitative information about the effects of the accounting change on prior periods. Effective January 1,2016, the adoption of this guidance on a retrospective basis will not materially affect our financial position and will not impact ourresults of operations. Upon adoption, our current deferred income tax assets of $74 million and current deferred income tax liabilities of$366 million as of December 31, 2015 will be reclassified to noncurrent deferred income tax liabilities. Adoption of this guidancesimplifies the future presentation of our deferred income tax assets and liabilities.In January 2016, the provisions of ASC Subtopic 825-10, “Financial Instruments–Overall,” were amended to enhance the reportingmodel for financial instruments regarding certain aspects of recognition, measurement, presentation, and disclosure. The amendment(i) requires equity investments (except those accounted for under the equity method or that are consolidated) to be measured at fairvalue with changes71Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)in fair value recognized in net income; (ii) simplifies the impairment assessment of equity investments without readily determinable fairvalues by requiring a qualitative assessment to identify impairment; (iii) eliminates the requirement for an entity to disclose the methodsand significant assumptions used to estimate the fair value of financial instruments measured at amortized cost; (iv) requires an entity touse the exit price notion when measuring the fair value of financial instruments for disclosure purposes; and (v) requires separatepresentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or theaccompanying notes to the financial statements. These provisions are effective for annual reporting periods beginning afterDecember 15, 2017, and interim periods within those annual periods. The standard is to be applied using a cumulative-effectadjustment to the balance sheet as of the beginning of the fiscal year of adoption. We are currently evaluating the effect that adoptingthis standard will have on our financial statements and related disclosures.In February 2016, the ASC was amended and a new accounting standard, ASC Topic 842, “Leases,” was issued to increase thetransparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet anddisclosing key information about leasing arrangements. In order to meet that objective, the new standard requires recognition of theassets and liabilities that arise from leases. Accordingly, a lessee will recognize a right-of-use (ROU) asset for its right to use theunderlying asset and a lease liability for the corresponding lease obligation. Both the ROU asset and lease liability will initially bemeasured at the present value of the future minimum lease payments over the lease term. Subsequent measurement, including thepresentation of expenses and cash flows, will depend on the classification of the lease as either a finance or an operating lease. Initialcosts directly attributable to negotiating and arranging the lease will be included in the ROU asset. Lessees can make an accountingpolicy election by class of underlying asset not to recognize a ROU asset and corresponding lease liability for leases with a term of12 months or less. Accounting by lessors will remain largely unchanged from current U.S. GAAP. In transition, lessees and lessors arerequired to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. Themodified retrospective approach includes a number of optional practical expedients that companies may elect to apply. These practicalexpedients relate to the identification and classification of leases that commenced before the effective date, initial direct costs for leasesthat commenced before the effective date, and the ability to use hindsight in evaluating lessee options to extend or terminate a lease orto purchase the underlying asset. The transition guidance also provides specific guidance for sale and leaseback transactions, build-to-suit leases, leveraged leases, and amounts previously recognized in accordance with the business combinations guidance for leases. Thenew standard is effective for public companies for fiscal years beginning after December 15, 2018, and interim periods within thoseyears, with early adoption permitted. We are currently evaluating the effect that adopting this standard will have on our financialstatements and related 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 theyears ended December 31, 2014 and 2013.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 those72Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)assets. As a result, we recognized an asset retirement obligation of $59 million, which was charged to expense during the secondquarter of 2014 and is reflected in discontinued operations. We had not recognized an asset retirement obligation previously due to ourbelief that we would not be required to dismantle the assets as long as we intended to operate them. During the second quarter of 2014,we also recognized liabilities of $4 million relating to obligations under certain contracts, including a liability for the remaining leasepayments for the land on which the refining assets reside. The Aruba Refinery had no operating revenues and a $64 million loss beforeincome taxes for the year ended December 31, 2014. There was no tax benefit recognized for the loss from discontinued operations forthe year ended December 31, 2014 as we do not expect to realize this tax benefit. For the year ended December 31, 2013, the refineryhad no operating revenues and $6 million of income before income tax expense.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 10 under “BankDebt” for further discussion of that credit facility. Also on May 1, 2013, CST issued $550 million of its senior unsecured bonds to us,and we exchanged those bonds with the third-party financial institution in satisfaction of our short-term debt. Immediately prior toMay 1, 2013, subsidiaries of CST held $315 million of cash, and CST retained that cash following the distribution on May 1, 2013. Wealso incurred $30 million in costs during the three months ended June 30, 2013 to effect the separation, which were included in generaland administrative 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 10 under “Bank Debt”.Selected historical results of operations of our retail business prior to the separation are disclosed in Note 17. 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.73Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)We 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.4.VALERO ENERGY PARTNERS LPDescription of OperationsIn July 2013, we formed Valero Energy Partners LP (VLP), a master limited partnership, to own, operate, develop, and acquire crude oiland refined petroleum products pipelines, terminals, and other transportation and logistics assets. VLP’s assets include crude oil andrefined petroleum products pipeline and terminal systems in the U.S. Gulf Coast and U.S. Mid-Continent regions that are integral to theoperations of nine of our refineries.Public Equity Offerings and OwnershipOn December 16, 2013, VLP completed its initial public offering of 17,250,000 common units at a price of $23.00 per unit. VLPreceived $369 million in net proceeds from the sale of the units, after deducting underwriting fees, structuring fees, and other offeringcosts.Effective November 24, 2015, VLP completed a public offering of 4,250,000 common units at a price of $46.25 per unit and receivednet proceeds from the offering of $189 million after deducting the underwriting discount and other offering costs. Concurrent with theoffering, we contributed $4 million in exchange for 86,735 general partner units to maintain our 2.0 percent general partner interest inVLP.The ownership of VLP consisted of the following: December 31, 2015 2014Valero: Limited partner interest 65.7% 68.6%General partner interest 2.0% 2.0%Public: Limited partner interest 32.3% 29.4%Relationship and Agreements with ValeroWe consolidate the financial statements of VLP into our financial statements and as such, VLP’s cash and temporary cash investmentsare included in our consolidated cash and temporary cash investments. However, VLP’s cash and temporary cash investments can beused only to settle its own obligations. VLP’s cash and temporary cash investments were $81 million and $237 million as ofDecember 31, 2015 and 2014, respectively. In addition, VLP’s partnership capital attributable to the public’s ownership interest in VLPof $581 million and $375 million as of December 31, 2015 and 2014, 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 pipeline transportation and terminaling services to us. These transactions, along with ourcontributions to74Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)VLP and transactions under subordinated credit agreements between VLP and us, are eliminated in consolidation.5.RECEIVABLESReceivables consisted of the following (in millions): December 31, 2015 2014Accounts receivable$4,105 $5,509Commodity derivative and foreign currencycontract receivables147 151Other receivables247 256 4,499 5,916Allowance for doubtful accounts(35) (37)Receivables, net$4,464 $5,879Changes in the allowance for doubtful accounts consisted of the following (in millions): Year Ended December 31, 2015 2014 2013Balance as of beginning of year$37 $46 $56Increase in allowance charged to expense7 7 13Accounts charged against the allowance,net of recoveries(9) (15) (23)Foreign currency translation— (1) —Balance as of end of year$35 $37 $4675Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)6.INVENTORIESInventories consisted of the following (in millions): December 31, 2015 2014Refinery feedstocks$2,404 $2,269Refined products and blendstocks3,774 3,926Ethanol feedstocks and products242 195Materials and supplies244 233Inventories, before lower of cost or marketinventory valuation reserve6,664 6,623Lower of cost or market inventory valuation reserve(766) —Inventories$5,898 $6,623The market value of our LIFO inventory held as of December 31, 2015 fell below our historical LIFO inventory costs. As a result, werecorded a lower of cost or market inventory valuation adjustment of $790 million for the year ended December 31, 2015. The incomestatement effect differs from the balance sheet reserve due to the foreign currency effect of inventories held for our internationaloperations. As of December 31, 2014, the market value of LIFO inventories exceeded their LIFO carrying amounts by approximately$857 million.During the year ended December 31, 2013, we had net liquidations of LIFO inventory layers that decreased cost of sales by$17 million. As of December 31, 2015 and 2014, our non-LIFO inventories accounted for $668 million and $906 million, respectively,of our total inventories.76Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)7.PROPERTY, PLANT, AND EQUIPMENTMajor classes of property, plant, and equipment, which include capital lease assets, consisted of the following (in millions): December 31, 2015 2014Land $400 $396Crude oil processing facilities 28,278 27,629Pipeline and terminal facilities 2,456 2,380Grain processing equipment 792 779Administrative buildings 789 789Other 3,019 2,607Construction in progress 1,173 1,353Property, plant, and equipment, at cost 36,907 35,933Accumulated depreciation (10,204) (9,198)Property, plant, and equipment, net $26,703 $26,735We have various assets under capital leases that primarily support our refining operations totaling $134 million and $72 million as ofDecember 31, 2015 and 2014, respectively. Accumulated amortization on assets under capital leases was $50 million and $40 millionas of December 31, 2015 and 2014, respectively.Depreciation expense for the years ended December 31, 2015, 2014, and 2013 was $1.3 billion, $1.2 billion, and $1.2 billion,respectively.8.DEFERRED CHARGES AND OTHER ASSETS“Deferred charges and other assets, net” consisted of the following (in millions): December 31, 2015 2014Deferred turnaround and catalyst costs, net$1,484 $1,359Income taxes receivable266 182Investments in joint ventures201 78Intangible assets, net156 154Re-imaging costs, net154 141Other407 287Deferred charges and other assets, net$2,668 $2,201Amortization expense for the deferred charges and other assets shown above was $542 million, $489 million, and $498 million for theyears ended December 31, 2015, 2014, and 2013, respectively.77Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)9.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, 2015 2014 2015 2014Defined benefit plan liabilities (see Note 13)$40 $48 $719 $792Wage and other employee-related liabilities292 294 100 104Uncertain income tax position liabilities (see Note 15) (a)— — 148 316Environmental liabilities27 26 231 269Accrued interest expense96 88 — —Asset retirement obligations19 20 64 71Other accrued liabilities80 120 349 387Accrued expenses and other long-term liabilities$554 $596 $1,611 $1,939___________________________ (a) As of December 31, 2015, our net liability for uncertain tax positions, including related penalties and interest, was $391 million. Of this amount, $438 million was classified as acurrent liability and reflected in income taxes payable, and $148 million was classified as a long-term liability and reflected in other long-term liabilities as detailed in this table.These liabilities were reduced by a $195 million receivable classified as a long-term asset and reflected in “deferred charges and other assets, net.” As of December 31, 2014, ourtotal liability for uncertain tax positions, including related penalties and interest, was $484 million, with $168 million classified as a current liability and reflected in income taxespayable and the remaining $316 million classified as a long-term liability and reflected in other long-term liabilities as detailed in this table.During the years ended December 31, 2015, 2014, and 2013, there were no significant changes in our environmental liabilities or assetretirement obligations. See Note 2 for further information regarding the 2014 addition to our asset retirement obligations related to ourAruba Refinery. There are no assets that are legally restricted for purposes of settling our asset retirement obligations.78Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)10.DEBT AND CAPITAL LEASE OBLIGATIONSDebt, at stated values, and capital lease obligations consisted of the following (in millions): FinalMaturity December 31, 2015 2014Bank credit facilitiesVarious $175 $—Senior Notes: 3.65%2025 600 —4.5%2015 — 4004.9%2045 650 —6.125%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 — 75Gulf Opportunity Zone Revenue Bonds, Series 2010, 4.0%2040 300 300Accounts receivable sales facility2016 100 100Other debt2016 17 26Net unamortized discount, including fair value adjustments (24) (21)Total debt 7,292 6,354Capital lease obligations, including unamortized fair value adjustments 85 32Total debt and capital lease obligations 7,377 6,386Less current portion (127) (606)Debt and capital lease obligations, less current portion $7,250 $5,78079Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Credit FacilitiesRevolverIn November 2015, we amended and restated our $3 billion revolving credit facility (the Revolver) with a group of financial institutionlenders to, among other things, extend the maturity date from November 2018 to November 2020. We have the option to increase theaggregate commitments under the Revolver to $4.5 billion and we may request two additional one-year extensions, subject to certainconditions. The Revolver also provides for the issuance of letters of credit of up to $2.0 billion.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 Revolver also requires payments for customary fees, including facility fees, letter of creditparticipation fees, and administrative agent fees. The interest rate and facility fees under the Revolver are subject to adjustment basedupon the credit ratings assigned to our senior unsecured debt.During the years ended December 31, 2015, 2014, and 2013, we had no borrowings or repayments under the Revolver.VLP RevolverIn November 2015, VLP’s senior unsecured revolving credit facility agreement (the VLP Revolver) with a group of lenders wasamended and restated to, among other things, extend the maturity date from December 2018 to November 2020 and increase the totalcommitment from $300 million to $750 million. The VLP Revolver is available only to the operations of VLP, and creditors of VLP donot have recourse against Valero. VLP has the option to increase the aggregate commitments under the VLP Revolver to $1.0 billionand we may request two additional one-year extensions, subject to certain conditions. VLP may terminate the VLP Revolver with noticeto the lenders of at least three business days prior to termination. The VLP Revolver includes a letter of credit sub-facility of up to$100 million. VLP’s obligations under the VLP Revolver are jointly and severally guaranteed by all of VLP’s directly owned materialsubsidiaries. As of December 31, 2015, the only guarantor under the VLP Revolver was Valero Partners Operating 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. As of December 31, 2015, the variable rate was 1.5 percent. TheVLP Revolver requires payments for customary fees, including commitment fees, letter of credit participation fees, and administrativeagent fees. The VLP Revolver contains certain restrictive covenants, including a ratio of total debt to EBITDA (as defined in theVLP Revolver) for the prior four fiscal quarters of not greater than 5.0 to 1.0 as of the last day of each fiscal quarter, and limitations onVLP’s ability to pay distributions to its unitholders.During the year ended December 31, 2015, VLP borrowed $200 million under the VLP Revolver in connection with VLP’s acquisitionof the Houston and St. Charles Terminal Services Business and repaid $25 million on the VLP Revolver. During the years endedDecember 31, 2014 and 2013, VLP had no borrowings or repayments under the VLP Revolver. As of December 31, 2015, $175million was outstanding under the VLP Revolver.80Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)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 2016.During the years ended December 31, 2015, 2014, and 2013, we had no borrowings or repayments under the Canadian Revolver.Accounts Receivable Sales FacilityWe have an accounts receivable sales facility with a group of third-party entities and financial institutions to sell eligible tradereceivables on a revolving basis. In July 2015, we amended our agreement to decrease the facility from $1.5 billion to $1.4 billion andextended the maturity date to July 2016. Proceeds from the sale of receivables under this facility are reflected as debt. Under thisprogram, one of our marketing subsidiaries (Valero Marketing) sells eligible receivables, without recourse, to another of oursubsidiaries (Valero Capital), whereupon the receivables are no longer owned by Valero Marketing. Valero Capital, in turn, sells anundivided 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 in the receivables it has purchased from Valero Marketing, such interestis included in our financial statements solely as a result of the consolidation of the financial statements of Valero Capital with those ofValero Energy Corporation; the receivables are not available to satisfy the claims of the creditors of Valero Marketing or Valero EnergyCorporation.As of December 31, 2015 and 2014, $1.3 billion and $1.7 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. During the years ended December 31, 2015, 2014, and 2013, we had no proceeds from or repayments under the accountsreceivable sales facility.81Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Summary of Credit FacilitiesWe had outstanding borrowings and letters of credit issued under our credit facilities as follows (in millions): December 31, 2015 FacilityAmount Maturity Date Borrowings Letters ofCredit Available Committed facilities: Revolver $3,000 November 2020 $— $57 $2,943VLP Revolver $750 November 2020 $175 $— $575Canadian Revolver C$50 November 2016 C$— C$10 C$40Accounts receivable salesfacility $1,400 July 2016 $100 $— $992Letter of credit facilities $275 June 2016 andNovember 2016 $— $9 $266 Uncommitted facilities: Letter of credit facilities $775 N/A $— $87 $688In June 2015, one of our committed letter of credit facilities with a borrowing capacity of $300 million expired and was not renewed.The remaining committed letter of credit facility was amended in July 2015 to extend the maturity date to June 2016 and reduce theborrowing capacity from $250 million to $125 million.In November 2015, we entered into a new committed letter of credit facility with a borrowing capacity of $150 million that matures inNovember 2016. Also in November 2015, our Canadian Revolver was amended to extend the maturity date to November 2016.We also have various other uncommitted short-term bank credit facilities for which we are charged letter of credit issuance fees. Theseuncommitted credit facilities 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 remaining82Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)$58 million of short-term debt in cash. After paying $19 million of fees, we recognized a $325 million nontaxable gain.Non-Bank DebtDuring the year ended December 31, 2015, we issued $600 million of 3.65 percent senior notes due March 15, 2025 and $650 millionof 4.9 percent senior notes due March 15, 2045. Proceeds from these debt issuances totaled $1.246 billion. We also incurred$12 million of debt issuance costs. In addition, we made scheduled debt repayments of $400 million related to our 4.5 percent seniornotes and $75 million related to our 8.75 percent debentures.During the year ended December 31, 2014, we made a scheduled debt repayment of $200 million related to our 4.75 percent seniornotes.During the year ended December 31, 2013, we made scheduled debt repayments of $180 million related to our 6.7 percent senior notesand $300 million related to our 4.75 percent senior notes.Capitalized InterestFor the years ended December 31, 2015, 2014, and 2013, capitalized interest was $71 million, $70 million, and $118 million,respectively.Other DisclosuresOur credit 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, 2015 were asfollows (in millions): Debt CapitalLeaseObligations2016$117 $172017950 162018— 162019750 1620201,025 14Thereafter4,474 43Net unamortized discountand fair value adjustments(24) —Less interest expense— (37)Total$7,292 $8583Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)11.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.As of December 31, 2015, our future minimum rentals for leases having initial or remaining noncancelable lease terms in excess ofone year were as follows (in millions):2016$4302017283201820020191432020100Thereafter311Total minimum rental payments$1,467Rental expense was as follows (in millions): Year Ended December 31, 2015 2014 2013Minimum rental expense$732 $618 $588Contingent rental expense105 43 47Total rental expense$837 $661 $635Purchase 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.84Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Environmental MattersHartford MattersWe are involved, together with several other companies, in an environmental cleanup in the Village of Hartford, Illinois (the Village)and recently, one of these companies assumed the ongoing remediation in the Village pursuant to a federal court order. We hadpreviously conducted an initial response in the Village, along with other companies, pursuant to an administrative order issued by theU.S. Environmental Protection Agency (EPA). The parties involved in the initial response may have further claims between themselvesfor costs already incurred. We also continue to be engaged in site assessment and interim measures at the adjacent shutdown refinerysite, which we acquired as part of an acquisition in 2005, and we are in litigation with the Illinois EPA and other potentially responsibleparties relating to the remediation of the site. In each of these matters, we have various defenses and rights for contribution from theother responsible parties. We have recorded a liability for our own expected contribution obligations. However, because of theunpredictable nature of these cleanups, the methodology for allocation of liabilities and the state of Illinois’ failure to directly sue thirdparties responsible for historic contamination at the site, it is reasonably possible that we could incur a loss in a range of $0 to$200 million in excess of the amount of our accrual to ultimately resolve these matters. Factors underlying this estimated range areexpected to change from time to time, and actual results may vary significantly from this estimate.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 MattersWe 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.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)12.EQUITYShare ActivityActivity in the number of shares of common stock and treasury stock was as follows (in millions): CommonStock TreasuryStockBalance as of December 31, 2012673 (121)Transactions in connection withstock-based compensation plans: Stock issuances— 6Stock purchases— (6)Stock purchases under purchase program— (17)Balance as of December 31, 2013673 (138)Transactions in connection withstock-based compensation plans: Stock issuances— 4Stock purchases— (2)Stock purchases under purchase program— (23)Balance as of December 31, 2014673 (159)Transactions in connection withstock-based compensation plans: Stock issuances— 4Stock purchases— (3)Stock purchases under purchase program— (42)Balance as of December 31, 2015673 (200)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, 2015 or 2014.Treasury StockWe purchase shares of our common stock as authorized under our common stock purchase program (described below) and to meet ourobligations under employee stock-based compensation plans.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 had no expiration date. We completed the $6 billionprogram during 2013 and the $3 billion program during 2015. On July 13, 2015, our board of directors authorized us to purchase anadditional $2.5 billion of our outstanding common stock with no expiration date. During the years ended December 31, 2015, 2014,and 2013, we purchased $2.7 billion, $1.2 billion, and $692 million, respectively, of our common stock under our programs. As ofDecember 31, 2015, we have approvals under the $2.5 billion program to purchase approximately $1.3 billion of our common stock.86Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Common Stock DividendsOn January 21, 2016, our board of directors declared a quarterly cash dividend of $0.60 per common share payable March 3, 2016 toholders of record at the close of business on February 9, 2016.Income Tax Effects Related to Components of Other Comprehensive Income (Loss)The tax effects allocated to each component of other comprehensive income (loss) were as follows (in millions): Before-TaxAmount Tax Expense(Benefit) Net AmountYear Ended December 31, 2015: Foreign currency translation adjustment$(606) $— $(606)Pension and other postretirement benefits: Gain (loss) arising during the year related to: Net actuarial gain50 15 35Prior service cost(22) (8) (14)Amounts reclassified into income related to: Net actuarial loss62 22 40Prior service credit(40) (14) (26)Curtailment and settlement7 2 5Net gain on pension and otherpostretirement benefits57 17 40Other comprehensive loss$(549) $17 $(566)87Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Before-TaxAmount Tax Expense(Benefit) Net AmountYear Ended December 31, 2014: Foreign currency translation adjustment$(407) $— $(407)Pension and other postretirement benefits: Loss arising during the year related to: Net actuarial loss(471) (162) (309)Prior service cost(1) (1) —Amounts reclassified into income related to: Net actuarial loss34 12 22Prior service credit(40) (14) (26)Curtailment and settlement3 — 3Net loss on pension and otherpostretirement benefits(475) (165) (310)Derivative instruments designated andqualifying as cash flow hedges: Net loss arising during the year(1) — (1)Net loss reclassified into income2 1 1Net gain on cash flow hedges1 1 —Other comprehensive loss$(881) $(164) $(717)Year Ended December 31, 2013: Foreign currency translation adjustment$(98) $— $(98)Pension and other postretirement benefits: Gain arising during the year related to: Net actuarial gain367 125 242Plan amendments371 130 241Amounts 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 $40188Table 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, 2012$665 $(558) $1 $108Other comprehensive income (loss)before reclassifications(98) 483 (2) 383Amounts reclassified fromaccumulated other comprehensive income (loss)— 17 1 18Net other comprehensive income (loss)(98) 500 (1) 401Separation of retail business(159) — — (159)Balance as of December 31, 2013408 (58) — 350Other comprehensive lossbefore reclassifications(407) (309) (1) (717)Amounts reclassified fromaccumulated other comprehensiveincome (loss)— (1) 1 —Net other comprehensive loss(407) (310) — (717)Balance as of December 31, 20141 (368) — (367)Other comprehensive income (loss)before reclassifications(606) 21 — (585)Amounts reclassified fromaccumulated other comprehensiveincome (loss)— 19 — 19Net other comprehensive income (loss)(606) 40 — (566)Balance as of December 31, 2015$(605) $(328) $— $(933)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, 2015 2014 2013 Amortization of items related todefined benefit pension plans: Net actuarial loss $(62) $(34) $(57) (a)Prior service credit 40 40 33 (a)Curtailment and settlement (7) (3) (1) (a) (29) 3 (25) Total before tax 10 (2) 8 Tax (expense) benefit $(19) $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 the year $(19) $— $(18) Net of tax_________________________(a)These accumulated other comprehensive income (loss) components are included in the computation of net periodic benefit cost, as further discussedin Note 13. Net periodic benefit cost is reflected in operating expenses and general and administrative expenses.90Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)13.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, 2015 2014 2015 2014Changes in benefit obligation: Benefit obligation as of beginning of year$2,450 $1,914 $361 $324Service cost109 120 8 7Interest cost98 91 14 15Participant contributions— — 8 7Plan amendments22 2 — —Benefits paid(169) (109) (27) (30)Actuarial (gain) loss(138) 440 (26) 37Other(7) (8) (2) 1Benefit obligation as of end of year$2,365 $2,450 $336 $361 Changes in plan assets(a): Fair value of plan assets as of beginning of year$1,978 $1,909 $— $—Actual return on plan assets19 139 — —Valero contributions126 46 18 20Participant contributions— — 8 7Benefits paid(169) (109) (27) (30)Other(7) (7) 1 3Fair value of plan assets as of end of year$1,947 $1,978 $— $— Reconciliation of funded status(a): Fair value of plan assets as of end of year$1,947 $1,978 $— $—Less benefit obligation as of end of year2,365 2,450 336 361Funded status as of end of year$(418) $(472) $(336) $(361) Accumulated benefit obligation$2,240 $2,354 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 19 for the assets associated with certain U.S.nonqualified pension plans.92Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Amounts recognized in our balance sheet for our pension and other postretirement benefits plans as of December 31, 2015 and 2014include (in millions): Pension Plans Other PostretirementBenefit Plans 2015 2014 2015 2014Deferred charges and other assets, net$5 $7 $— $—Accrued expenses(20) (28) (20) (20)Other long-term liabilities(403) (451) (316) (341) $(418) $(472) $(336) $(361)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, 2015 2014Projected benefit obligation$2,169 $2,288Accumulated benefit obligation2,070 2,217Fair value of plan assets1,747 1,812Benefit payments that we expect to pay, including amounts related to expected future services that we expect to receive are as followsfor the years ending December 31 (in millions): PensionBenefits OtherPostretirementBenefits2016$131 $202017132 212018141 222019190 222020166 222021-2025913 112We plan to contribute approximately $36 million to our pension plans and $20 million to our other postretirement benefit plans during2016.93Table 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, 2015 20142013 2015 2014 2013Components of net periodicbenefit cost: Service cost$109 $120 $137 $8 $7 $12Interest cost98 91 86 14 15 18Expected return on plan assets(133) (133) (131) — — —Amortization of: Prior service credit(22) (22) (19) (18) (18) (14)Net actuarial (gain) loss62 35 57 — (1) —Special charges (credits)7 3 (5) — — —Net periodic benefit cost$121 $94 $125 $4 $3 $16Amortization of prior service credit shown in the above table was based on a straight-line amortization of the cost over the averageremaining service period of employees expected to receive benefits under each respective plan. Amortization of the net actuarial (gain)loss shown in the above table was based on the straight-line amortization of the excess of the unrecognized loss over 10 percent of thegreater of the projected benefit obligation or market-related value of plan assets (smoothed asset value) over the average remainingservice 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, 2015 2014 2013 2015 2014 2013Net gain (loss) arising duringthe year: Net actuarial gain (loss)$24 $(434) $290 $26 $(37) $77Prior service cost(22) (1) — — — —Remeasurement due to planamendments— — 328 — — 43Net (gain) loss reclassified intoincome: Net actuarial (gain) loss62 35 57 — (1) —Prior service credit(22) (22) (19) (18) (18) (14)Curtailment and settlement loss7 3 1 — — —Total changes in othercomprehensive income (loss)$49 $(419) $657 $8 $(56) $10694Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The pre-tax amounts in accumulated other comprehensive income as of December 31, 2015 and 2014 that have not yet beenrecognized as components of net periodic benefit cost were as follows (in millions): Pension Plans Other PostretirementBenefit Plans 20152014 2015 2014Prior service credit$(166) $(210) $(75) $(92)Net actuarial (gain) loss783 876 (31) (6)Total$617 $666 $(106) $(98)The following pre-tax amounts included in accumulated other comprehensive income as of December 31, 2015 are expected to berecognized as components of net periodic benefit cost during the year ending December 31, 2016 (in millions): Pension Plans OtherPostretirementBenefit PlansAmortization of prior service credit$(20) $(16)Amortization of net actuarial (gain) loss49 (1)Total$29 $(17)The weighted-average assumptions used to determine the benefit obligations as of December 31, 2015 and 2014 were as follows: Pension Plans OtherPostretirementBenefit Plans 2015 2014 2015 2014Discount rate4.45% 4.10% 4.53% 4.13%Rate of compensation increase3.79% 3.78% —% —%The discount rate assumption used to determine the benefit obligations as of December 31, 2015 and 2014 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, 2015, 2014, and 2013 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 to95Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)settle our pension and other postretirement benefit plan liabilities as of those dates. We believe that the yields associated with the bondsused to develop this yield curve reflect the current level of interest rates.The weighted-average assumptions used to determine the net periodic benefit cost for the years ended December 31, 2015, 2014, and2013 were as follows: Pension Plans Other PostretirementBenefit Plans 2015 2014 2013 2015 2014 2013Discount rate4.10% 4.92% 4.33% 4.13% 4.88% 4.19%Expected long-term rate of returnon plan assets7.29% 7.61% 7.62% —% —% —%Rate of compensation increase3.78% 3.81% 3.73% —% —% —%The assumed health care cost trend rates as of December 31, 2015 and 2014 were as follows: 2015 2014Health care cost trend rate assumed for the next year7.29% 7.36%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 rate2026 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 obligation3 (2)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, 2015 and 2014 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 31,2015 Level 1 Level 2 Level 3 Equity securities: U.S. companies(a)$503 $— $— $503International companies158 — — 158Preferred stock2 — — 2Mutual funds: International growth89 — — 89Index funds(b)202 — — 202Corporate debt instruments— 279 — 279Government securities: U.S. Treasury securities57 — — 57Other government securities— 101 — 101Common collective trusts— 403 — 403Private fund— 37 — 37Insurance contracts— 19 — 19Interest and dividends receivable5 — — 5Cash and cash equivalents49 43 — 92Total$1,065 $882 $— $1,947______________________See notes on page 98.97Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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__________________________________ (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. 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. As of December 31, 2015, the targetallocations for plan assets are 70 percent equity securities and 30 percent fixed income investments.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$65 million, $61 million, and $62 million for the years ended December 31, 2015, 2014, and 2013, respectively.14.STOCK-BASED COMPENSATIONOverviewUnder 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, 2015, 12,109,301 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.No additional 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, 2015 2014 2013Stock-based compensation expense: Restricted stock$47 $43 $49Performance awards11 15 11Stock options1 2 4Total stock-based compensation expense$59 $60 $64Tax benefit recognized on stock-basedcompensation expense$21 $21 $22Tax benefit realized for tax deductionsresulting from exercises and vestings66 64 66Effect of tax deductions in excess ofrecognized stock-based compensationexpense reported as a financing cash flow44 47 47Each of our significant stock-based compensation arrangements is discussed below.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 vests in equal annual installmentsover a period of three years beginning one year after the date of grant. The fair value of each restricted stock per share is equal to the99Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)market price of our common stock. 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, 20151,758,150 $41.96Granted829,213 70.07Vested(1,016,862) 41.72Forfeited(19,061) 41.42Nonvested shares as of December 31, 20151,551,440 57.15As of December 31, 2015, there was $55 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 following table reflects activity related to our restricted stock (in millions, except per share data): Year Ended December 31, 2015 2014 2013Weighted-average grant-date fair value per share of restricted stockgranted$70.07 $49.40 $39.55Fair value of restricted stock vested69 60 74Performance 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 grant date principally using aMonte Carlo simulation model.100Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)A summary of the status of our performance awards is presented below. NonvestedAwards Weighted-AverageGrant-DateFair ValuePer ShareAwards outstanding as of January 1, 2015614,390 $42.06Granted183,299 88.97Vested(388,561) 38.77Forfeited(703) 48.57Awards outstanding as of December 31, 2015408,425 66.23As of December 31, 2015, there was $16 million of unrecognized compensation cost related to outstanding unvested performanceawards, which will be recognized during 2016.Performance awards converted during the year ended December 31, 2015 were as follows: VestedAwardsConverted ActualConversionRate Number ofSharesIssued2011 awards213,299 166.7% 355,5762012 awards96,845 200.0% 193,6902013 awards78,417 200.0% 156,834Total388,561 706,10015.INCOME TAXESIncome Tax ExpenseIncome from continuing operations before income tax expense was as follows (in millions): Year Ended December 31, 2015 2014 2013U.S. operations$5,327 $4,677 $3,531International operations644 875 445Income from continuing operations beforeincome tax expense$5,971 $5,552 $3,976101Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The following is a reconciliation of income tax expense computed by applying statutory income tax rates as reflected in the table belowto actual income tax expense related to continuing operations (in millions): Year Ended December 31, 2015 U.S. International TotalIncome tax expense at statutory rates$1,864 $92 $1,956U.S. state and Canadian provincial taxexpense, net of federal income tax effect45 73 118Permanent differences: Manufacturing deduction(102) — (102)Other(18) (5) (23)Change in tax law— (17) (17)Tax effects of income associated withnoncontrolling interests(39) — (39)Other, net(25) 2 (23)Income tax expense$1,725 $145 $1,870 Year Ended December 31, 2014 U.S. International TotalIncome tax expense at statutory rates$1,637 $145 $1,782U.S. state and Canadian provincial taxexpense, net of federal income tax effect62 71 133Permanent differences: Manufacturing deduction(74) — (74)Other(16) 1 (15)Tax effects of income associated withnoncontrolling interests(28) — (28)Other, net(22) 1 (21)Income tax expense$1,559 $218 $1,777102Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year Ended December 31, 2013 U.S. International TotalIncome tax expense at statutory rates$1,236 $84 $1,320U.S. state and Canadian provincial taxexpense, net of federal income tax effect62 24 86Permanent differences: Manufacturing deduction(36) — (36)Nontaxable gain on disposition(See Notes 3 and 10)(114) — (114)Other10 (1) 9Change in tax law(10) (22) (32)Tax effects of income associated withnoncontrolling interests(3) — (3)Other, net44 (20) 24Income tax expense$1,189 $65 $1,254Statutory income tax rates applicable to the countries in which we operate were as follows: Year Ended December 31, 2015 2014 2013U.S.35% 35% 35%Canada15% 15% 15%U.K.20% 21% 23%Ireland13% 13% 13%Aruba7% 7% 7%There was no income tax expense or benefit related to discontinued operations for the years ended December 31, 2015, 2014, and2013.103Table 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, 2015 U. S. International TotalCurrent: Country$1,513 $64 $1,577U.S. state / Canadian provincial85 43 128Total current1,598 107 1,705Deferred: Country143 8 151U.S. state / Canadian provincial(16) 30 14Total deferred127 38 165Income tax expense$1,725 $145 $1,870 Year Ended December 31, 2014 U. S. International TotalCurrent: Country$1,196 $53 $1,249U.S. state / Canadian provincial59 24 83Total current1,255 77 1,332Deferred: Country268 94 362U.S. state / Canadian provincial36 47 83Total deferred304 141 445Income tax expense$1,559 $218 $1,777 Year Ended December 31, 2013 U. S. International TotalCurrent: Country$635 $53 $688U.S. state / Canadian provincial36 29 65Total current671 82 753Deferred: Country459 (12) 447U.S. state / Canadian provincial59 (5) 54Total deferred518 (17) 501Income tax expense$1,189 $65 $1,254104Table 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, 2015 2014Deferred income tax assets: Tax credit carryforwards$33 $37Net operating losses (NOLs)423 436Inventories72 160Compensation and employee benefit liabilities331 358Environmental liabilities80 92Other139 178Total deferred income tax assets1,078 1,261Less: Valuation allowance(435) (393)Net deferred income tax assets643 868 Deferred income tax liabilities: Property, plant, and equipment6,725 6,682Deferred turnaround costs394 356Inventories287 426Investments226 152Other71 73Total deferred income tax liabilities7,703 7,689Net deferred income tax liabilities$7,060 $6,821We had the following income tax credit and loss carryforwards as of December 31, 2015 (in millions): Amount ExpirationU.S. state income tax credits$51 2016 through 2027U.S. state NOLs (gross amount)7,302 2016 through 2035International NOLs1,465 UnlimitedWe have recorded a valuation allowance as of December 31, 2015 and 2014 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 2015, the valuation allowance increased by $42 million,primarily due to increases in U.S. state NOLs. The realization of net deferred income tax assets recorded as of December 31, 2015 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, 2015,such amounts will be allocated as follows (in millions):Income tax benefit$429Additional paid-in capital6Total$435Deferred 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, 2015, the cumulative undistributed earnings of thesesubsidiaries were approximately $3.2 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, 2015 2014 2013Balance as of beginning of year$989 $950 $341Additions based on tax positions related to the current year36 35 64Additions for tax positions related to prior years83 118 576Reductions for tax positions related to prior years(82) (67) (26)Reductions for tax positions related to the lapse ofapplicable statute of limitations(3) (1) (4)Settlements(59) (46) (1)Balance as of end of year$964 $989 $950As of December 31, 2015, the balance in unrecognized tax benefits includes $570 million of tax refunds that we intend to claim byamending various of our income tax returns for 2005 through 2015. We intend to propose that incentive payments received from theU.S. federal government for blending biofuels into refined products be excluded from taxable income during these periods. However,due to the complexity of this matter and uncertainties with respect to the interpretation of the Internal Revenue Code, we concluded thatthe refund claims included in the reconciliation below cannot be recognized in our financial statements. As a result, these amounts arenot included in our uncertain tax position liabilities as of December 31, 2015, 2014, and 2013 even though they are reflected in thetable 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, 2015 and 2014 that are reflected in Note 9 (in millions): December 31, 2015 2014Unrecognized tax benefits$964 $989Tax refund claim not recognized in our financial statements(570) (554)Reduction of deferred tax asset(28) —Penalties, interest (net of U.S. federal and state income taxeffect), and the U.S. federal income tax effect of stateunrecognized tax benefits25 49Uncertain tax position liabilities$391 $484As of December 31, 2015 and 2014, there were $757 million and $768 million, respectively, of unrecognized tax benefits that ifrecognized would affect our annual effective tax rate.During the years ended December 31, 2015, 2014, and 2013, we recognized $5 million, $2 million, and $12 million, respectively, inpenalties and interest, which are reflected within income tax expense. Accrued penalties and interest totaled $117 million and$141 million as of December 31, 2015 and 2014, respectively, excluding the U.S. federal and state income tax effects related tointerest.During the next 12 months, it is reasonably possible that tax audit resolutions could reduce unrecognized tax benefits, excludinginterest, by approximately $370 million, either because the tax positions are sustained on audit or because we agree to theirdisallowance. We do not expect these reductions to have a significant impact on our financial statements because such reductionswould not significantly affect our annual effective rate.Tax Returns Under AuditAs of December 31, 2015, our tax years for 2008 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.During the year ended December 31, 2015, we settled the audits related to our 2004 through 2007 tax years consistent with therecorded amounts of uncertain tax position liabilities associated with those audits.107Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)16.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, 2015 2014 2013 ParticipatingSecurities CommonStock ParticipatingSecurities CommonStock ParticipatingSecurities CommonStockEarnings per common sharefrom continuing operations: Net income attributable toValero stockholders fromcontinuing operations $3,990$3,694$2,714Less dividends paid: Common stock 845 552 460Participating securities 3 2 2Undistributed earnings $3,142 $3,140 $2,252Weighted-average commonshares outstanding2 497 2 526 3 542Earnings per common sharefrom continuing operations: Distributed earnings$1.70 $1.70 $1.05 $1.05 $0.85 $0.85Undistributed earnings6.30 6.30 5.95 5.95 4.13 4.13Total earnings per commonshare from continuingoperations$8.00 $8.00 $7.00 $7.00 $4.98 $4.98 Earnings per common sharefrom continuing operations –assuming dilution: Net income attributable toValero stockholders fromcontinuing operations $3,990 $3,694 $2,714Weighted-average commonshares outstanding 497 526 542Common equivalent shares: Stock options 2 2 4Performance awards andnonvested restricted stock 1 2 2Weighted-average commonshares outstanding –assuming dilution 500 530 548Earnings per common sharefrom continuing operations –assuming dilution $7.99 $6.97 $4.96108Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)17.SEGMENT INFORMATIONWe have two reportable segments, refining and ethanol, as of December 31, 2015. 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 and marketing operations in the U.S., Canada, the U.K., Aruba, and Ireland. Our ethanolsegment includes ethanol and marketing operations in the U.S. The retail segment included company-operated convenience stores inthe U.S. and Canada; filling stations, truckstop facilities, cardlock facilities, and home heating oil operations in Canada; and credit cardoperations in the U.S. Operations that are not included 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, 2015: Total segment revenues$84,521 $3,434 $— $— $87,955Intersegment elimination— (151) — — (151)Operating revenues from externalcustomers$84,521 $3,283 $— $— $87,804Lower of cost or market inventoryvaluation adjustment$740 $50 $— $— $790Depreciation and amortization expense1,745 50 — 47 1,842Operating income (loss)6,973 142 — (757) 6,358Total expenditures for long-lived assets2,254 67 — 29 2,350 Year ended December 31, 2014: Total segment revenues$126,004 $4,940 $— $— $130,944Intersegment elimination— (100) — — (100)Operating revenues from externalcustomers$126,004 $4,840 $— $— $130,844Depreciation and amortization expense$1,597 $49 $— $44 $1,690Operating income (loss)5,884 786 — (768) 5,902Total expenditures for long-lived assets2,730 42 — 30 2,802 Year ended December 31, 2013: Total segment revenues$131,940 $5,242 $3,896 $— $141,078Intersegment elimination(2,876) (128) — — (3,004)Operating revenues from externalcustomers$129,064 $5,114 $3,896 $— $138,074Depreciation and amortization expense$1,566 $45 $41 $68 $1,720Operating income (loss)4,211 491 81 (826) 3,957Total expenditures for long-lived assets2,595 33 62 65 2,755110Table 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, 2015 2014 2013Refining: Gasolines and blendstocks$38,983 $56,846 $57,806Distillates38,093 57,521 56,921Petrochemicals1,824 3,759 4,281Lubes and asphalts874 1,397 1,643Other product revenues4,747 6,481 8,413Total refining operating revenues84,521 126,004 129,064Ethanol: Ethanol2,628 4,192 4,245Distillers grains655 648 869Total ethanol operating revenues3,283 4,840 5,114Retail: Fuel sales (gasoline and diesel)— — 3,226Merchandise sales and other— — 524Home heating oil— — 146Total retail operating revenues— — 3,896Total operating revenues$87,804 $130,844 $138,074Operating 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, 2015 2014 2013U.S.$60,319 $91,499 $100,418Canada6,841 10,410 9,974U.K. and Ireland11,232 14,182 13,675Other countries9,412 14,753 14,007Total operating revenues$87,804 $130,844 $138,074111Table 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, 2015 2014U.S.$25,210 $24,653Canada1,824 2,161U.K.1,131 1,199Aruba57 59Ireland20 22Total long-lived assets$28,242 $28,094Total assets by reportable segment were as follows (in millions): December 31, 2015 2014Refining$38,142 $40,103Ethanol1,016 954Corporate5,185 4,493Total assets$44,343 $45,550In 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)18.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, 2015 2014 2013Decrease (increase) in current assets: Receivables, net$1,294 $2,753 $(753)Inventories(222) (1,014) (13)Income taxes receivable(104) (23) 10Prepaid expenses and other(45) (32) 2Increase (decrease) in current liabilities: Accounts payable(1,787) (3,149) 977Accrued expenses(40) 38 53Taxes other than income taxes(74) (64) 337Income taxes payable(328) (319) 309Changes in current assets and current liabilities$(1,306) $(1,810) $922The 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.Noncash investing and financing activities for the year ended December 31, 2015 included the recognition of a capital lease asset andrelated obligation associated with an agreement for storage tanks near one of our refineries. Noncash financing activities for the yearended December 31, 2015 also included an accrual of $25 million for the purchase of 347,438 shares of our common stock, which wassettled in early January 2016.There were no significant noncash investing activities for the years ended December 31, 2014 and 2013.There were no significant noncash financing activities for the year ended December 31, 2014. Noncash financing activities for the yearended December 31, 2013 included the exchange of CST’s senior unsecured113Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)bonds and the exchange of all of our remaining shares of CST common stock with third-party financial institutions in satisfaction of ourshort-term debt agreements as described in Note 10.Cash flows related to interest and income taxes paid were as follows (in millions): Year Ended December 31, 2015 2014 2013Interest paid in excess of amount capitalized$416 $392 $361Income taxes paid, net2,093 1,624 387Cash flows related to the discontinued operations of the Aruba Refinery were immaterial for the years ended December 31, 2014 and2013.19.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, 2015 and2014.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, 2015 TotalGross FairValue Effect ofCounter-partyNetting Effect ofCashCollateralNetting NetCarryingValue onBalanceSheet CashCollateralPaid orReceivedNot Offset Fair Value Hierarchy Level 1 Level 2 Level 3 Assets: Commodity derivativecontracts$649 $33 $— $682 $(557) $(12) $113 $—Foreign currency contracts3 — — 3 n/a n/a 3 n/aInvestments of certainbenefit plans64 — 11 75 n/a n/a 75 n/aTotal$716 $33 $11 $760 $(557) $(12) $191 Liabilities: Commodity derivativecontracts$522 $35 $— $557 $(557) $— $— $(31)Environmental creditobligations— 2 — 2 n/a n/a 2 n/aPhysical purchasecontracts— 6 — 6 n/a n/a 6 n/aTotal$522 $43 $— $565 $(557) $— $8 115Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2014 TotalGrossFairValue 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)Environmental creditobligations— 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 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 20, 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 fixed-price corn purchase contracts. The fair values of these purchasecontracts are measured using a market approach based on quoted prices from the commodity exchange or an independentpricing service and are categorized in Level 2 of the fair value hierarchy.•Investments of certain benefit plans consist of investment securities held by trusts for the purpose of satisfying a portion of 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 transactions denominated in currencies other than the local(functional) currencies of those operations. These116Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)contracts are valued based on quoted prices from the exchange and are categorized in Level 1 of the fair value hierarchy.•Environmental credit obligations represent our liability for the purchase of (i) biofuel credits (primarily RINs in the U.S.) neededto satisfy our obligation to blend biofuels into the products we produce and (ii) emission credits under the California GlobalWarming Solutions Act (the California cap-and-trade system, also known as AB 32) and Quebec’s Regulation respecting thecap-and-trade system for greenhouse gas emission allowances (the Quebec cap-and-trade system), (collectively, the cap-and-trade systems). To the degree we are unable to blend biofuels (such as ethanol and biodiesel) at percentages required under thebiofuel programs, we must purchase biofuel credits to comply with these programs. Under the cap-and-trade systems, we mustpurchase emission credits to comply with these systems. These programs are further described in Note 20 under “EnvironmentalCompliance Program Price Risk.” The liability for environmental credits is based on our deficit for such credits as of the balancesheet date, if any, after considering any credits acquired or under contract, and is equal to the product of the credits deficit andthe market price of these credits as of the balance sheet date. The environmental credit obligations are categorized in Level 2 ofthe fair value hierarchy and are measured at fair value using the market approach based on quoted prices from an independentpricing service.There were no transfers between Level 1 and Level 2 for assets and liabilities held as of December 31, 2015 and 2014 that weremeasured at fair value on a recurring basis.There was no activity during the years ended December 31, 2015, 2014, and 2013 related to the fair value amounts categorized inLevel 3 as of December 31, 2015, 2014, and 2013.Nonrecurring Fair Value MeasurementsThere were no assets or liabilities that were measured at fair value on a nonrecurring basis as of December 31, 2015 and 2014.117Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Other Financial InstrumentsFinancial instruments that we recognize in our balance sheets at their carrying amounts are shown in the table below along with theirassociated fair values (in millions): December 31, 2015 December 31, 2014 CarryingAmount FairValue CarryingAmount FairValueFinancial assets: Cash and temporary cash investments$4,114 $4,114 $3,689 $3,689Financial liabilities: Debt (excluding capital leases)7,292 7,759 6,354 7,562The 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).20.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 19), 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.118Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)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 ourrisk control 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.•Fair Value Hedges – Fair value hedges are used, from time to time, to hedge price volatility in certain refining inventories and firmcommitments to purchase inventories. The level of activity for our fair value hedges is based on the level of our operatinginventories, and generally represents the amount by which our inventories exceed our previous year-end LIFO inventory levels. Asof December 31, 2015, we had no outstanding commodity derivative instruments that were entered into as fair value hedges.•Cash Flow Hedges – Cash flow hedges are used, from time to time, to hedge price volatility in certain forecasted feedstock andrefined product purchases, refined product sales, and natural gas purchases. The objective of our cash flow hedges is to lock in theprice of forecasted feedstock, refined product, or natural gas purchases or refined product sales at existing market prices that wedeem favorable. As of December 31, 2015, we had no outstanding commodity derivative instruments that were entered into as cashflow hedges.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 qualify as hedging instruments foraccounting purposes.As of December 31, 2015, 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 2016 2017Crude oil and refined products: Swaps – long 11,727 —Swaps – short 11,559 —Futures – long 73,746 —Futures – short 85,999 —Corn: Futures – long 19,345 10Futures – short 39,995 75Physical contracts – long 18,336 65Soybean oil: Futures – long 83,340 —Futures – short 128,760 —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, 2015, 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 in thousands of barrels, except those identified as natural gas contracts that are presented in billions of British thermalunits). Notional Contract Volumes byYear of MaturityDerivative Instrument 2016 2017Crude oil and refined products: Swaps – long 7,739 —Swaps – short 7,739 —Futures – long 38,732 500Futures – short 39,279 —Options – long 10,800 —Options – short 12,400 —Natural gas: Futures – long 1,400 —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 hadno interest rate derivative instruments outstanding as of December 31, 2015 and 2014, or during the years ended December 31, 2015,2014, or 2013.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, 2015, we had commitments to purchase$292 million of U.S. dollars. These commitments matured on or before January 31, 2016 resulting in a gain of $10 million in the firstquarter of 2016.Environmental 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 environmental compliance programs. Certain of these programs require us to blend biofuels into the products we produce,and we are subject to such programs in most of the countries121Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)in which we operate. These countries set annual quotas for the percentage of biofuels that must be blended into the motor fuelsconsumed in these countries. As a producer of motor fuels from petroleum, we are obligated to blend biofuels into the products weproduce at a rate that is at least equal to the applicable quota. To the degree we are unable to blend at the applicable rate, we mustpurchase biofuel credits (primarily RINs in the U.S.). We are exposed to the volatility in the market price of these credits, and wemanage that risk by purchasing biofuel credits when prices are deemed favorable. For the years ended December 31, 2015, 2014, and2013, the cost of meeting our obligations under these compliance programs was $440 million, $372 million, and $517 million,respectively. These amounts are reflected in cost of sales.Effective January 1, 2015, we became subject to additional requirements under GHG emission programs, including the cap-and-tradesystems, as discussed in Note 19. Under these cap-and-trade systems, we purchase various GHG emission credits available on the openmarket. Therefore, we are exposed to the volatility in the market price of these credits. The cost to implement certain provisions of thecap-and-trade systems are significant; however, we have recovered the majority of these costs from our customers for the year endedDecember 31, 2015 and expect to continue to recover the majority of these costs in the future. For the years ended December 31, 2015,2014, and 2013, the net cost of meeting our obligations under these compliance programs was immaterial.Fair Values of Derivative InstrumentsThe following tables provide information about the fair values of our derivative instruments as of December 31, 2015 and 2014(in millions) and the line items in the balance sheets in which the fair values are reflected. See Note 19 for additional information relatedto the fair values of our derivative instruments.As indicated in Note 19, 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, 2015 AssetDerivatives LiabilityDerivativesDerivatives not designated ashedging instruments Commodity contracts: FuturesReceivables, net $648 $522SwapsReceivables, net 30 33OptionsReceivables, net 4 2Physical purchase contractsInventories — 6Foreign currency contractsReceivables, net 3 —Total $685 $563122Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 $2,925Market 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 our risk control group to ensure compliance with our stated risk management policy. We do not require any collateralor other security to support derivative instruments into which we enter. We also do not have any derivative instruments that require usto maintain a minimum investment-grade credit rating.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, 2015 2014 2013Commodity contracts: Loss recognized inincome on derivatives Cost of sales $— $(42) $(12)Gain recognized inincome on hedged item Cost of sales — 42 18Gain recognized inincome on derivatives(ineffective portion) Cost of sales — — 6123Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)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, 2015, 2014, and 2013. There were no amounts recognized in income for hedged firmcommitments that no longer qualified as fair value hedges during the years ended December 31, 2015, 2014, and 2013.Derivatives in Cash FlowHedging Relationships Location of Gain (Loss)Recognized in Incomeon Derivatives Year Ended December 31, 2015 2014 2013Commodity contracts: Loss recognized inOCI on derivatives(effective portion) $— $(1) $(4)Loss reclassified fromaccumulated OCI intoincome (effective portion) Cost of sales — (2) (2)Gain (loss) recognized inincome on derivatives(ineffective portion) Cost of sales — (1) 21For 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, 2015, 2014, and 2013. There were no cumulative after-tax gains or losses on cash flowhedges remaining in accumulated other comprehensive income as of December 31, 2015. For the years ended December 31, 2015,2014, and 2013, there were no amounts reclassified from accumulated other comprehensive income into income as a result of thediscontinuance of cash flow hedge accounting.Derivatives Designated asEconomic Hedges and OtherDerivative Instruments Location of GainRecognized in Incomeon Derivatives Year Ended December 31, 2015 2014 2013Commodity contracts Cost of sales $377 $693 $193Foreign currency contracts Cost of sales 49 40 14Trading Derivatives Location of Gain (Loss)Recognized in Incomeon Derivatives Year Ended December 31, 2015 2014 2013Commodity contracts Cost of sales $45 $38 $21RINs fixed-price contracts Cost of sales — — (20)124Table of ContentsVALERO ENERGY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)21.QUARTERLY FINANCIAL DATA (Unaudited)The following table summarizes quarterly financial data for the years ended December 31, 2015 and 2014 (in millions, except per shareamounts). 2015 Quarter Ended March 31 June 30 September 30 December 31 (a)Operating revenues$21,330 $25,118 $22,579 $18,777Operating income1,495 2,078 2,139 646Net income968 1,365 1,373 395Net income attributable toValero Energy Corporationstockholders964 1,351 1,377 298Earnings per common share1.87 2.67 2.79 0.62Earnings per common share –assuming dilution1.87 2.66 2.79 0.62 2014 Quarter Ended March 31 June 30 September 30 December 31Operating revenues33,663 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___________________________ (a)Operating income for the quarter ended December 31, 2015 reflects a noncash lower of cost or market inventory valuation adjustment of $790 million, asdescribed in Note 6.125Table 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, 2015.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 55 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 57 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.126Table 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 2016 annual meeting of stockholders. We will file the proxy statement with the SEC on or before March 31, 2016.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 reporting55Reports of independent registered public accounting firm56Consolidated balance sheets as of December 31, 2015 and 201459Consolidated statements of income for the years ended December 31, 2015, 2014, and 201360Consolidated statements of comprehensive income for the years ended December 31, 2015, 2014,and 201361Consolidated statements of equity for the years ended December 31, 2015, 2014, and 201362Consolidated statements of cash flows for the years ended December 31, 2015, 2014, and 201363Notes to consolidated financial statements642. 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). 127Table of Contents3.06--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 21, 2016 and filed January 26, 2016 (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 (SEC FileNo. 333-116668) filed June 21, 2004. +10.01--Valero Energy Corporation Annual Bonus Plan, amended and restated as of July 29, 2009–incorporated by reference to Exhibit 10.01 toValero’s Current Report on Form 8-K dated July 29, 2009, and filed August 4, 2009 (SEC File No. 1-13175). +10.02--Valero Energy Corporation Annual Incentive Plan for Named Executive Officers–incorporated by reference to Exhibit 10.01 to Valero’sCurrent Report on Form 8-K dated February 22, 2012, and filed February 27, 2012 (SEC File No. 1-13175). +10.03--Valero Energy Corporation 2005 Omnibus Stock Incentive Plan, amended and restated as of October 1, 2005–incorporated by reference toExhibit 10.02 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2009 (SEC File No. 1-13175). *+10.04--Valero Energy Corporation 2011 Omnibus Stock Incentive Plan, amended and restated February 25, 2016. +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. 128Table of Contents+10.09--Valero Energy Corporation Amended and Restated Supplemental Executive Retirement Plan, amended and restated as of November 10,2008–incorporated by reference to Exhibit 10.08 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2008 (SEC FileNo. 1-13175). +10.10--Valero Energy Corporation Excess Pension Plan, as amended and restated effective December 31, 2011–incorporated by reference toExhibit 10.10 to Valero’s Annual Report on Form 10-K for the year ended December 31, 2011 (SEC File No. 1-13175). +10.11--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–incorporated by reference to Exhibit 10.20 to Valero’s Annual Report on Form 10-K for the year ended December 31,2014 (SEC File No. 1-13175). +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 Restricted Stock Agreement pursuant to the Valero Energy Corporation 2011 Omnibus Stock Incentive Plan–incorporated byreference 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). 10.24--$3,000,000,000 5-Year Third Amended and Restated Revolving Credit Agreement, dated as of November 12, 2015, among Valero EnergyCorporation, as Borrower; JPMorgan Chase Bank, N.A., as Administrative Agent; and the lenders named therein–incorporated by referenceto Exhibit 10.1 to Valero’s Current Report on Form 8-K dated November 12, 2015, and filed November 13, 2015 (SEC File No. 1-13175). *12.01--Statements of Computations of Ratios of Earnings to Fixed Charges. 129Table of Contents14.01--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 25, 2016. *24.01--Power of Attorney dated February 25, 2016 (on the signature page of this Form 10-K). *31.01--Rule 13a-14(a) Certification (under Section 302 of the Sarbanes-Oxley Act of 2002) of principal executive officer. *31.02--Rule 13a-14(a) Certification (under Section 302 of the Sarbanes-Oxley Act of 2002) of principal financial officer. **32.01--Section 1350 Certifications (under Section 906 of the Sarbanes-Oxley Act of 2002). 99.01--Audit Committee Pre-Approval Policy–incorporated by reference to Exhibit 99.01 to Valero’s Annual Report on Form 10-K for the yearended December 31, 2014 (SEC File No. 1-13175). ***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.130Table 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 25, 2016131Table 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 25, 2016(Joseph W. Gorder) /s/ Michael S. Ciskowski Executive Vice Presidentand Chief Financial Officer(Principal Financial and Accounting Officer) February 25, 2016(Michael S. Ciskowski) /s/ Jerry D. Choate Director February 25, 2016(Jerry D. Choate) /s/ Deborah P. Majoras Director February 25, 2016(Deborah P. Majoras) /s/ Donald L. Nickles Director February 25, 2016(Donald L. Nickles) /s/ Philip J. Pfeiffer Director February 25, 2016(Philip J. Pfeiffer) /s/ Robert A. Profusek Director February 25, 2016(Robert A. Profusek) /s/ Susan Kaufman Purcell Director February 25, 2016 (Susan Kaufman Purcell) /s/ Stephen M. Waters Director February 25, 2016(Stephen M. Waters) /s/ Randall J. Weisenburger Director February 25, 2016(Randall J. Weisenburger) /s/ Rayford Wilkins, Jr. Director February 25, 2016(Rayford Wilkins, Jr.) 132Exhibit 10.04VALERO ENERGY CORPORATION2011 OMNIBUS STOCK INCENTIVE PLAN(amended and restated effective February 25, 2016)This Valero Energy Corporation 2011 Omnibus Stock Incentive Plan (hereinafter called the “Plan”) was approved by the Company’s stockholders andbecame effective on April 28, 2011.ARTICLE 1. PURPOSEThe purpose of the Plan is to attract and retain the services of employees and non-employee directors, to provide them with a proprietary interest in theCompany, and to motivate them using stock-based incentives linked to long-range performance goals and the interests of the Company’s stockholders.ARTICLE 2. DEFINITIONSFor the purpose of the Plan, unless the context requires otherwise, the following terms shall have the meanings indicated:2.1 “Annual Incentive Bonus Plan” means the annual bonus program or successor plans of the Company, its subsidiaries or its successors.2.2 “Award” means the grant of any Incentive Stock Option, Non-qualified Stock Option, SAR, Restricted Stock, Restricted Stock Unit, Stock Unit,Performance Share, Performance Unit, Performance Cash, or Dividend Equivalent whether granted singly, in combination or in tandem (each individuallyreferred to herein as an "Incentive"). "Award" also means any Incentive to which an award under the Annual Incentive Bonus Plan is converted into an Awardmade under the Plan.2.3 “Award Agreement” means a written agreement between a Participant and the Company, which contains the terms of the grant of an Award.2.4 “Award Period” means the period during which one or more Incentives granted under an Award may be exercised or earned.2.5 “Board” means the board of directors of the Company.2.6 “Cause” means the:(a) conviction of the Participant by a state or federal court of (i) a felony involving moral turpitude or (ii) embezzlement or misappropriation offunds of the Company,(b) the Company's reasonable determination that the Participant has (i) committed an act of fraud, embezzlement, theft, or misappropriation offunds in connection with such Participant's duties in the course of his or her employment with the Company (or applicable Subsidiary), or(ii) engaged in gross mismanagement, negligence or misconduct that causes or could potentially cause material loss, damage or injury tothe Company, any of its Subsidiaries, or their respective employees, or(c) the Company's reasonable determination that (i) the Participant has violated any company policy, including but not limited to, policiesregarding sexual harassment, insider trading, confidentiality, substance abuse and/or conflicts of interest, which violation could result inthe termination of the Participant's employment or service as a Non-employee Director, or (ii) the Participant has failed to satisfactorilyperform the material duties of the Participant's position with the Company or any of its Subsidiaries.Page 12.7 “Change of Control.” A Change of Control shall be deemed to occur when:(a) following approval by the stockholders of the Company, an agreement or transaction is consummated pursuant to which: (i) the Companymerges or consolidates with any other Person (other than a wholly owned subsidiary of the Company) and is not the surviving entity (or inwhich the Company survives only as the subsidiary of another entity); (ii) the Company sells all or substantially all of its assets to any otherPerson (other than a wholly owned subsidiary of the Company); or (iii) the Company is liquidated or dissolved; or(b) consummation by any “person” or “group” of a tender offer or exchange offer for 20 percent or more of the Shares then outstanding, or forany number or amount of Shares which, if the tender or exchange offer were to be fully subscribed and all Shares for which the tender orexchange offer is made were to be purchased or exchanged pursuant to the offer, would result in the acquiring person or group directly orindirectly beneficially owning 50 percent or more of the Shares then outstanding; or(c) individuals who, as of any date, constitute the Board (the “Incumbent Board”) thereafter cease for any reason to constitute at least a majorityof the Board, provided that any individual becoming a director whose election, or nomination for election by the Company's stockholders,was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though suchindividual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of officeoccurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatenedsolicitation of proxies or consents by or on behalf of a person or group other than the Board.2.8 “Code” means the Internal Revenue Code of 1986, as amended, together with the published rulings, regulations, and interpretations promulgatedthereunder.2.9 “Committee” means the Compensation Committee of the Board or such other Committee appointed or designated by the Board to administer the Planin accordance with Article 3 of this Plan.2.10 “Common Stock” means the Company’s $0.01 par value common stock, which the Company is currently authorized to issue or may in the future beauthorized to issue.2.11 “Company” means Valero Energy Corporation, a Delaware corporation, and any successor entity.2.12 “Covered Participant” means a Participant who is a “covered employee” as defined in Section 162(m)(3) of the Code, and any individual theCommittee determines should be treated as such a covered employee.2.13 “Date of Grant” means the effective date on which an Award is made to a Participant as set forth in the applicable Award Agreement.2.14 “Dividend Equivalent” means an Award, designated as a Dividend Equivalent, granted to Participants pursuant to Section 6.8 hereof, or inconjunction with other Awards, the value of which is determined, in whole or in part, by the value of payments tied to or based on the payment of dividendsto holders of Common Stock and may be conditioned on the attainment of Performance Goals in a manner deemed appropriate by the Committee anddescribed in the Award Agreement.2.15 “Employee” means common law employee (as defined in accordance with the Regulations and Revenue Rulings then applicable under Section3401(c) of the Code) of the Company or any Subsidiary, or an individual who has agreed to become an employee of the Company or any Subsidiary andactually becomes such an employee within the following six months.2.16 “Fair Market Value” of a share of Common Stock is the mean of the highest and lowest prices per share on the New York Stock Exchange on thepertinent date, or in the absence of reported sales on such day, then on the next following day for which sales were reported.Page 22.17 “Good Reason” means that the Participant’s employment may be terminated by the Employee for Good Reason following a Change of Control, oranytime within two years following the date of Change of Control, when Good Reason means:(a) The assignment to the Employee of any duties inconsistent in any respect with the Employee’s position (including status, offices, titles andreporting requirements), authority, duties, or responsibilities or any other action by the Company that results in a diminution in such position’s,authority, duties, or responsibilities, excluding for this purpose an isolated, insubstantial , and inadvertent action not taken in bad faith and thatis remedied by the Company promptly after receipt of notice thereof given by the Employee;(b) Any reduction in the Employee’s base salary, annual incentive target opportunity, and/or long‐term incentive target opportunity below thelevel at which the Employee was awarded compensation immediately prior to the Change of Control;(c) The Company’s requiring that the Employee to be based at any office or location other than the location at which the Employee was basedimmediately preceding the Change of Control or a location other than the principal executive offices of the Company, without the Employee’swritten consent; or(d) Any requirement for the Employee to travel on Company business to a substantially greater extent than required immediately prior to theChange of Control.2.18 “Incentive” means an Award under the Plan as defined by Section 2.2 of Article 2.2.19 “Incentive Stock Option” or “ISO” means an incentive stock option within the meaning of Section 422 of the Code, granted pursuant to this Plan.2.20 “Limited SAR” or “Limited Stock Appreciation Right” means an Award designated as an SAR as defined in this Article 2, which is granted withcertain limiting features as determined by the Committee and as set forth in the Award Agreement at the time of grant.2.21 “Non-Employee Director” means a member of the Board who is not an Employee.2.22 “Non-qualified Stock Option” or “NQSO” means a stock option, granted pursuant to this Plan that is not intended to comply with the requirements setforth in Section 422 of the Code.2.23 “NYSE” means the New York Stock Exchange.2.24 “Option Price” means the price which must be paid by a Participant upon exercise of a Stock Option to purchase a share of Common Stock.2.25 “Participant” shall mean an Employee or Non-Employee Director to whom an Award is granted under this Plan.2.26 “Performance Award” means an Award made pursuant to this Plan to a Participant that is subject to the attainment of one or more Performance Goals.Performance Awards may be in the form of Performance Shares, Performance Units, Performance Cash, or Dividend Equivalents.2.27 “Performance Cash” means an Award, designated as Performance Cash and denominated in cash, granted to a Participant pursuant to Section 6.7hereof, the value of which is conditioned, in whole or in part, by the attainment of Performance Goals in a manner deemed appropriate by the Committee anddescribed in the Award Agreement.2.28 “Performance Criteria” or “Performance Goals” or “Performance Measures” mean the objectives established by the Committee for a PerformancePeriod, for the purpose of determining when an Award subject to such objectives is earned.Page 32.29 “Performance Period” means the time period designated by the Committee during which performance goals must be met.2.30 “Performance Share” means an Award, designated as a Performance Share in the form of shares of Common Stock or other securities of the Company,granted to a Participant pursuant to Section 6.7 hereof, the value of which is determined, in whole or in part, by the value of Common Stock and/orconditioned on the attainment of Performance Goals in a manner deemed appropriate by the Committee and described in the Award Agreement.2.31 “Performance Unit” means an Award, designated as a Performance Unit, granted to a Participant pursuant to Section 6.7 hereof, the value of which isdetermined, in whole or in part, by the attainment of Performance Goals in a manner deemed appropriate by the Committee and described in the AwardAgreement.2.32 “Person” shall mean any individual, corporation, partnership, association, joint-stock company, trust, unincorporated organization, government orpolitical subdivision thereof or other entity.2.33 “Plan” means the Valero Energy Corporation 2011 Omnibus Stock Incentive Plan, as amended from time to time.2.34 “Restricted Stock” means shares of Common Stock issued or transferred to a Participant pursuant to Section 6.4 of this Plan that are subject torestrictions or limitations set forth in this Plan and in the related Award Agreement.2.35 “Restricted Stock Unit” means a fixed or variable dollar-denominated right to acquire Common Stock, which may or may not be subject torestrictions, contingently awarded under Section 6.4 of the Plan.2.36 “Retirement” means any termination of service due to retirement upon attainment of certain age and/or service requirements as specified by theCompany’s qualified retirement program(s) or successor programs or as determined by the Committee in the event of early retirement.2.37 “SAR” or “Stock Appreciation Right” means the right to receive a payment, in cash and/or Common Stock, equal to the excess of the Fair MarketValue of a specified number of shares of Common Stock on the date the SAR is exercised over the SAR Price for such shares, and may be granted as a LimitedSAR.2.38 “SAR Price” means the Fair Market Value of each share of Common Stock covered by a SAR, determined by the Committee on the Date of Grant ofthe SAR.2.39 “SEC” shall mean the Securities and Exchange Commission.2.40 “Share” means a share of Common Stock.2.41 “Stock Option” means a Non-qualified Stock Option or an Incentive Stock Option.2.42 “Stock Unit Award” means awards of Common Stock or other awards pursuant to Section 6.8 hereof that are valued in whole or in part by reference to,or are otherwise based on, shares of Common Stock or other securities of the Company.2.43 “Subsidiary” means any entity for which Valero Energy Corporation is the ultimate parent company and in which all of the equity, partnership,member or other interests are owned by Valero Energy Corporation or another one of its Subsidiaries. “Subsidiaries” means more than one of any suchentities.Page 4ARTICLE 3. ADMINISTRATION3.1 The Committee shall administer the Plan unless otherwise determined by the Board. The administering Committee shall consist of not fewer than twopersons. Any member of the Committee may be removed at any time, with or without cause, by resolution of the Board; and any vacancy occurring in themembership of the Committee may be filled by appointment by the Board.3.2 The Committee shall select one of its members to act as its Chair. A majority of the Committee shall constitute a quorum, and the act of a majority ofthe members of the Committee present at a meeting at which a quorum is present shall be the act of the Committee.3.3 The Committee shall determine and designate from time to time the eligible persons to whom Awards will be granted and shall set forth in each relatedAward Agreement the Award Period, the Date of Grant, and such other terms and conditions as may be approved by the Committee not inconsistent with thePlan. The Committee shall determine whether an Award shall include one type of Incentive, two or more Incentives granted in combination, or two or moreIncentives granted in tandem.3.4 The Committee, in its discretion, shall (i) interpret the Plan, (ii) prescribe, amend, and rescind any rules and regulations necessary or appropriate for theadministration of the Plan, and (iii) make such other determinations and take such other action as it deems necessary or advisable in the administration of thePlan. Any interpretation, determination, or other action made or taken by the Committee shall be final, binding, and conclusive on all interested parties.3.5 With respect to restrictions in the Plan that are based on the requirements of Rule 16b-3 under the Securities Exchange Act of 1934, Section 422 of theCode, Section 162(m) of the Code, the rules of the NYSE or any exchange or inter-dealer quotation system upon which the Company's securities are listed orquoted, or any other applicable law, rule or restriction (collectively, “applicable law”), to the extent that any such restrictions are no longer required byapplicable law, the Committee shall have the sole discretion and authority to grant Awards that are not subject to such mandated restrictions and/or to waiveany such mandated restrictions with respect to outstanding Awards.ARTICLE 4. ELIGIBILITYEmployees (including Employees who are also a director or an officer) and Non-Employee Directors are eligible to participate in the Plan. The Committee, inits discretion, may grant, but shall not be required to grant, an Award to any Employee or Non-Employee Director. Awards may be granted by the Committeeat any time and from time to time selectively to one or more new Participants, or to then Participants, or to a greater or lesser number of Participants, and mayinclude or exclude previous Participants, all as the Committee shall determine. Except as may be required by the Plan, Awards need not be uniform.ARTICLE 5. SHARES SUBJECT TO PLAN5.1 Total Shares Available. Subject to adjustment as provided in Articles 14 and 15, the maximum number of shares of Common Stock that may bedelivered pursuant to Awards granted under the Plan is (a) 20,800,000, plus (b) shares of Common Stock previously subject to Awards under the Plan that areforfeited, terminated, cancelled or rescinded, settled in cash in lieu of Common Stock, or exchanged for Awards that do not involve Common Stock, or expireunexercised.5.2 Source of Shares. Shares to be issued may be made available from authorized but unissued Common Stock, Common Stock held by the Company in itstreasury, or Common Stock purchased by the Company on the open market or otherwise. During the term of this Plan, the Company will at all times reserveand keep available a number of shares of Common Stock that shall be sufficient to satisfy the requirements of this Plan.5.3 Restoration and Retention of Shares (“Share Counting”). If any shares of Common Stock subject to an Award shall not be issued or transferred to aParticipant and shall cease to be issuable or transferable to a Participant because of the forfeiture, termination, expiration or cancellation, in whole or in part,of such Award or for any other reason, or if any such Shares shall, after issuance or transfer, be reacquired by the Company because of the Participant’sPage 5failure to comply with the terms and conditions of an Award or for any other reason, the Shares not so issued or transferred, or the Shares so reacquired by theCompany, as the case may be, shall no longer be charged against the limitation provided for in Section 5.1 and may be used thereafter for additional Awardsunder the Plan. The following additional parameters shall apply:(a) To the extent an Award under the Plan is settled or paid in cash, Shares subject to such Award will not be considered to have been issued andwill not be applied against the maximum number of shares of Common Stock provided for in Section 5.1.(b) If an Award may be settled in shares of Common Stock or cash, such shares shall be deemed issued only when and to the extent thatsettlement or payment is actually made in shares of Common Stock. To the extent an Award is settled or paid in cash, and not shares ofCommon Stock, any Shares previously reserved for issuance or transfer pursuant to such Award will again be deemed available for issuanceor transfer under the Plan, and the maximum number of shares of Common Stock that may be issued or transferred under the Plan shall bereduced only by the number of Shares actually issued and transferred to the Participant.(c) Notwithstanding the foregoing: (i) Shares withheld or tendered to pay withholding taxes or the exercise price of an Award shall not again beavailable for the grant of Awards under the Plan, and (ii) the full number of Shares subject to a Stock Option or SAR granted that are settledby the issuance of Shares shall be counted against the Shares authorized for issuance under this Plan, regardless of the number of Sharesactually issued upon the settlement of such Stock Option or SAR.(d) Any Shares repurchased by the Company on the open market using the proceeds from the exercise of an Award shall not increase the numberof Shares available for the future grant of Awards.5.4 Uncertificated Shares. Shares issued under the Plan will be registered in uncertificated book-entry form (unless a holder of Common Stock requests acertificate representing such holder's shares of Common Stock). As a result, instead of receiving Common Stock certificates, holders of Common Stock willreceive account statements reflecting their ownership interest in shares of Common Stock. The book-entry Shares will be held with the Company’s transferagent, which will serve as the record keeper for all shares of Common Stock being issued in connection with the Plan. Any stockholder who wants to receive aphysical certificate evidencing shares of Common Stock issued under the Plan will be able to obtain a certificate by contacting the Company’s transfer agent.Computershare Investor Services, Chicago, Illinois, currently serves as transfer agent, registrar and dividend paying agent for the Common Stock.Correspondence relating to any stock accounts, dividends or transfers of Common Stock should be addressed to: Computershare Investor ServicesShareholder Communications, 250 Royall Street, Canton, Massachusetts 02021, (888) 470-2938 or (312) 360-5261, www.computershare.com.ARTICLE 6. GRANT OF AWARDS6.1 In General.(a) The grant of an Award shall be authorized by the Committee and may be evidenced by an Award Agreement setting forth the Incentive or Incentivesbeing granted, the total number of shares of Common Stock subject to the Incentive(s) or the value of the Performance Award (if applicable), theOption Price (if applicable), the Award Period, the Date of Grant, and such other terms as are approved by the Committee not inconsistent with thePlan. The Company may execute an Award Agreement with a Participant after the Committee approves the issuance of an Award. Any Award grantedpursuant to this Plan must be granted within 10 years of the date of adoption of this Plan or within 10 years following the date upon which the Planwas last amended and approved by its stockholders. The grant of an Award to a Participant shall not be deemed either to entitle the Participant to, orto disqualify the Participant from, receipt of any other Award under the Plan.Page 6(b) If the Committee establishes a Date of Grant purchase price for an Award, the Participant must pay such purchase price within 30 days (or suchshorter period as the Committee may specify) after the Date of Grant.6.2 Limitations on Awards(a) The Plan is subject to the following additional limitations:(i) The Option Price of Stock Options cannot be less than 100 percent of the Fair Market Value of a share of Common Stock on the Date ofGrant of the Stock Option.(ii) The SAR Price of a SAR cannot be less than 100 percent of the Fair Market Value of a share of Common Stock on the Date of Grant of theSAR.(iii) Repricing of Stock Options and SARs or other downward adjustments in the Option Price or SAR Price of previously granted Stock Optionsor SARs, respectively, are prohibited, except in connection with a corporate transaction involving the Company such as any stockdividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination,or exchange of shares, provided that the terms of outstanding Awards may not be amended without stockholder approval to reduce theexercise price of outstanding Stock Options or SARs or cancel outstanding Stock Options or SARs in exchange for cash, other awards orStock Options or SARs having an exercise price that is less than the exercise price of the original Stock Option or SAR.(iv) Not more than 90 percent of the available Shares pursuant to Awards under the Plan may be in the form of time-lapse Restricted Stock, time-lapse Restricted Stock Units, Stock Units, Performance Shares, Performance Units, Performance Cash, and Dividend Equivalents.(v) No Participant may receive during any calendar year Awards that are to be settled in Shares of Common Stock covering an aggregate ofmore than 1,000,000 Shares. In addition, a Participant who is a Non-Employee Director may not receive in any calendar year Awards thatare to be settled in Shares having a Fair Market Value (measured on the Date(s) of Grant) that is greater than $500,000 in the aggregate.(vi) No Participant may receive during any calendar year Awards that are to be settled in cash covering an aggregate of more than $20,000,000.(vii) The term of Awards may not exceed 10 years.(b) Limited SARs granted in tandem with Stock Options or other Awards shall not be counted towards the maximum individual grant limitation set forthin this Section, as the Limited SAR will expire based on conditions described in Section 6.5(b), below.6.3 Rights as Stockholder. Except as provided in Section 6.4 of this Plan, until the issuance of the Shares of Common Stock (as evidenced by theappropriate entry on the books of the Company or its transfer agent), no right to vote or receive dividends or any other rights as a stockholder of theCompany shall exist with respect to such Shares, notwithstanding the exercise of any Incentive or Award. No adjustment will be made for a dividend or otherrights for which the record date is prior to the date Shares are issued, except as otherwise provided in this Plan.6.4 Restricted Stock/Restricted Stock Units. If Restricted Stock and/or Restricted Stock Units are granted to a Participant under an Award, the Committeeshall establish: (i) the number of shares of Restricted Stock and/or the number of Restricted Stock Units awarded, (ii) the price, if any, to be paid by theParticipant for such Restricted Stock and/or Restricted Stock Units, (iii) the time(s) within which such Award may be subject to forfeiture, (iv) specifiedPerformance Goals of the Company, a Subsidiary, any division thereof or any group of Employees of the Company, or other criteria, if any, which theCommittee determines must be met in order to remove any restrictions (including vesting) on such Award, and (v) all other terms of the Restricted Stockand/or Restricted Stock Units,Page 7which shall be consistent with this Plan. The provisions of Restricted Stock and/or Restricted Stock Units need not be the same with respect to eachParticipant.(a) Record of Shares. Each Participant who is awarded Restricted Stock shall be issued the number of shares of Common Stock specified in theAward Agreement for such Restricted Stock, and such shares shall be recorded in the share transfer records of the Company and ownershipof such shares shall be evidenced by a book entry notation in the share transfer records of the Company’s transfer agent. Such shares shallbe registered in the name of the Participant, subject to any restrictions in effect for the Award.(b) Restrictions and Conditions. Shares of Restricted Stock and Restricted Stock Units shall be subject to the following restrictions andconditions:(i) Subject to the other provisions of this Plan and the terms of the particular Award Agreements, during such period as may bedetermined by the Committee commencing on the Date of Grant (the “Restriction Period”), the Participant shall not be permittedto sell, transfer, pledge or assign shares of Restricted Stock and/or Restricted Stock Units. Any Restricted Stock or Restricted StockUnits not granted pursuant to a Performance Award shall have a minimum Restriction Period of three years from the Date of Grant,provided that the Committee may provide for earlier vesting following a Change in Control or upon an Employee’s termination ofemployment by reason of death, disability or Retirement. Except for these limitations, the Committee may in its sole discretion,remove any or all of the restrictions on such Restricted Stock and/or Restricted Stock Units whenever it may determine that, byreason of changes in applicable laws or other changes in circumstances arising after the date of the Award, such action isappropriate.(ii) Except as provided in subparagraph (i) above and subject to the terms of a Participant's Award Agreement, the Participant shallhave, with respect to his or her Restricted Stock, all of the rights of a stockholder of the Company, including the right to vote theShares, and the right to receive any dividends thereon. Certificates or other evidence of ownership of shares of Common Stock freeof restriction under this Plan shall be delivered to the Participant promptly after, and only after, the Restriction Period shall expirewithout forfeiture in respect of such shares of Common Stock. Each Participant, by his or her acceptance of Restricted Stock, shallirrevocably grant to the Company a power of attorney to transfer any forfeited shares to the Company and agrees to execute anydocuments requested by the Company in connection with such forfeiture and transfer.(iii) The Restriction Period of Restricted Stock and/or Restricted Stock Units shall commence on the Date of Grant and, subject toArticle 15 of the Plan, unless otherwise established by the Committee in the Award Agreement setting forth the terms of theRestricted Stock and/or Restricted Stock Units, shall expire upon satisfaction of the conditions set forth in the Award Agreement;such conditions may provide for vesting based on (i) length of continuous service, (ii) achievement of specific business objectives,(iii) increases in specified indices, (iv) attainment of specified growth rates, or (v) other comparable Performance Measurements, asmay be determined by the Committee in its sole discretion.(c) Forfeiture. Except as otherwise determined by the Committee or the Chief Executive Officer, the provisions of Article 9 shall apply withrespect to Restricted Stock granted hereunder.Page 86.5 SARs and Limited SARs.(a) An SAR shall entitle the Participant at his or her election to surrender to the Company the SAR, or portion thereof, as the Participant shallchoose, and to receive from the Company in exchange therefore cash in an amount equal to the excess (if any) of the Fair Market Value (asof the date of the exercise of the SAR) per share over the SAR Price per share specified in such SAR, multiplied by the total number ofshares of the SAR being surrendered. In the discretion of the Committee, the Company may satisfy its obligation upon exercise of an SARby the distribution of that number of shares of Common Stock having an aggregate Fair Market Value (as of the date of the exercise of theSAR) equal to the amount of cash otherwise payable to the Participant with a cash settlement to be made for any fractional share interests, orthe Company may settle such obligation in part with shares of Common Stock and in part with cash.(b) A Limited SAR shall allow the Participant to receive from the Company cash in an amount equal to the excess (if any) of the Fair MarketValue (as of the date of the exercise of the Limited SAR) per share over the Limited SAR Price per share specified in such Limited SAR,multiplied by the total number of shares of the Limited SAR being surrendered. The Company will satisfy its obligation with a cashsettlement to be made for any fractional Limited SAR. Limited SARs will expire without consideration upon the vesting, exercise, orsettlement, in shares and/or in cash, of Awards for which the Limited SAR was granted in tandem.6.6 Tandem Awards. The Committee may grant two or more Incentives in one Award in the form of a “tandem award,” so that the right of the Participant toexercise one Incentive shall be canceled if, and to the extent, the other Incentive is exercised. For example, if a Stock Option and an SAR are issued in atandem Award, and the Participant exercises the SAR with respect to 100 shares of Common Stock, the right of the Participant to exercise the related StockOption shall be canceled to the extent of 100 shares of Common Stock.6.7 Performance Based Awards.(a) Grant of Performance Awards. The Committee may issue Performance Awards in the form of Performance Units, Performance Shares,Performance Cash, or Dividend Equivalents to Participants subject to the Performance Goals and Performance Period as it shall determine.The terms and conditions of each Performance Award will be set forth in the Award Agreement. The Committee shall have completediscretion in determining the number and/or value of Performance Awards granted to each Participant. Any Performance Units orPerformance Shares granted under the Plan shall have a minimum Restriction Period of one year from the Date of Grant, provided that theCommittee may provide for earlier vesting following a Change in Control or upon a Participant’s termination of service by reason of death,disability or Retirement. Participants receiving Performance Awards are not required to pay the Company therefor (except for applicable taxwithholding) other than the rendering of services.(b) Value of Performance Awards. The Committee shall set Performance Goals in its discretion for each Participant who is granted aPerformance Award. Such Performance Goals may be particular to a Participant, may relate to the performance of the Subsidiary or divisionwhich employs him or her, may be based on the performance of the Company generally, or a combination of the foregoing. ThePerformance Goals may be based on achievement of financial statement objectives, or any other objectives established by the Committee.The Performance Goals may be absolute in their terms or measured in relationship to other companies similarly or otherwise situated. Theextent to which such Performance Goals are met will determine the number and/or value of the Performance Award to the Participant.(c) Form of Payment. Payment of the amount to which a Participant shall be entitled upon the settlement of a Performance Award shall be madein a lump sum or installments in cash, shares of Common Stock, or a combination thereof as determined by the Committee. DividendEquivalents may not be paid on unvested Performance Shares.Page 96.8 Other Stock Based Awards.(a) Grant of Other Stock Based Awards. The Committee may issue to Participants, either alone or in addition to other Awards made under thePlan, Stock Unit Awards which may be in the form of Common Stock or other securities. The value of each such Award shall be based, inwhole or in part, on the value of the underlying Common Stock or other securities. The Committee, in its discretion, may determine that anAward, either in the form of a Stock Unit Award under this Section or as an Award granted pursuant to the other provisions of this Article,may provide to the Participant (i) dividends or Dividend Equivalents (payable on a current or deferred basis, except not for Stock Optionsand unvested SARs) and (ii) cash payments in lieu of or in addition to an Award. The Committee shall determine the terms, restrictions,conditions, vesting requirements, and payment rules (all of which are sometimes hereinafter collectively referred to as “rules”) of the Awardand shall set forth those rules in the related Award Agreement.(b) Rules for Stock Unit Awards. The Committee, in its sole and complete discretion, may grant a Stock Unit Award subject to the followingrules:(i) All rights with respect to such Stock Unit Awards granted to a Participant under the Plan shall be exercisable during his or herlifetime only by such Participant or his or her guardian or legal representative.(ii) Stock Unit Awards may require the payment of cash consideration by the Participant in receipt of the Award or provide that theAward, and any Common Stock or other securities issued in conjunction with the Award be delivered without the payment of cashconsideration.(iii) The Committee, in its sole and complete discretion, may establish certain Performance Criteria that may relate in whole or in part toreceipt of the Stock Unit Awards.(iv) Stock Unit Awards may be subject to a deferred payment schedule and/or vesting over a specified employment period.(v) The Committee as a result of certain circumstances may waive or otherwise remove, in whole or in part, any restriction or conditionimposed on a Stock Unit Award at the time of Award.ARTICLE 7. [reserved]ARTICLE 8. AWARD PERIOD; VESTING8.1 Award Period. Subject to the other provisions of this Plan, no Incentive granted under the Plan may be exercised at any time after the end of its AwardPeriod.8.2 Vesting. The Committee, in its sole discretion, may determine that an Incentive will be immediately exercisable, in whole or in part, or that all or anyportion may not be exercised until a date, or dates, subsequent to its Date of Grant, or until the occurrence of one or more specified events, subject in any caseto the terms of the Plan. If the Committee imposes conditions upon exercise, then subsequent to the Date of Grant, the Committee may, in its sole discretion,accelerate the date on which all or any portion of the Incentive may be exercised, consistent with the terms of this Plan.Page 10ARTICLE 9. TERMINATION OF SERVICE9.1 Termination of Service.(a) Vesting and Exercise. Except as otherwise provided in the Plan, or otherwise determined by the Committee and included in the applicableAward Agreement, a Stock Option, SAR or other Award having an exercise provision (each, an “Exercisable Award”) vests in and may beexercised by a Participant only while the Participant is and has continually been since the date of the grant of the Exercisable Award anEmployee or Non-Employee Director.(b) Voluntary Termination by Participant (Exercisable Awards). If a Participant’s employment or service as a Non-Employee Director isvoluntarily terminated by the Participant (other than through retirement, death or disability; see Section 9.3 below), then: (i) that portion ofany Exercisable Award that has not vested on or prior to such date of termination shall automatically lapse and be forfeited, and (ii) allvested but unexercised Exercisable Awards previously granted to that Participant under the Plan shall automatically lapse and be forfeitedat the close of business on the 30th day following that date of such Participant's termination, unless an Exercisable Award expires earlieraccording to its original terms.(c) Involuntary Termination for Cause (Exercisable Awards). If a Participant's employment or service as a Non-Employee Director isinvoluntarily terminated by the Company for Cause: (i) that portion of any Exercisable Award that has not vested on or prior to such date oftermination shall automatically lapse and be forfeited, and (ii) all vested but unexercised Exercisable Awards previously granted to thatParticipant under the Plan shall automatically lapse and be forfeited at the close of business on the 30th day following that date of suchParticipant's termination, unless an Exercisable Award expires earlier according to its original terms.(d) Involuntary Termination Other Than for Cause (Exercisable Awards). If a Participant's employment or service as a Non-Employee Directoris involuntarily terminated by the Company other than for Cause: (i) that portion of any Exercisable Award that has not vested on or priorto such date of termination shall automatically lapse and be forfeited, and (ii) all vested but unexercised Exercisable Awards previouslygranted to that Participant under the Plan shall automatically lapse and be forfeited at the close of business on the last business day of thetwelfth month following the date of the Participant's termination, unless an Exercisable Award expires earlier according to its original terms.9.2 Awards Other Than Exercisable Awards. Except as otherwise provided in the Plan, or otherwise determined by the Committee and included in theapplicable Award Agreement, if a Participant's employment or service as a Non-Employee Director is voluntarily terminated by the Participant (other thanthrough retirement, death or disability; see Section 9.3 below), or is terminated by the Company with or without Cause, then any Award other than anExercisable Award previously granted to that Participant under the Plan that remains unvested shall automatically lapse and be forfeited at the close ofbusiness on the date of such Participant's termination of employment or service.9.3 Retirement, Death, Disability. Except as otherwise provided in the Plan, or otherwise determined by the Committee and included in the applicableAward Agreement, if a Participant's employment or service as a Non-Employee Director is terminated because of retirement, death or disability (with thedetermination of disability to be made within the sole discretion of the Committee), any Award held by the Participant shall remain outstanding and vest orbecome exercisable according to the Award's original terms, provided that any Restricted Stock or Restricted Stock Units held by the Participant that remainunvested as of the date of retirement, death or disability shall immediately vest and become non-forfeitable as of such date.9.4 Amendment. Subject to the limitations set forth in Section 6.2 above, the Committee or the Chief Executive Officer may prescribe new or additionalterms for the vesting, exercise or realization of any Award, provided that no such action shall deprive a Participant or beneficiary, without his or her consent,of the right to any benefit accrued to his or her credit at the time of such action.Page 11ARTICLE 10. EXERCISE OF INCENTIVE10.1 In General. (a) A vested Incentive may be exercised during its Award Period, subject to limitations and restrictions set forth therein and in Article 9. Avested Incentive may be exercised at such times and in such amounts as provided in this Plan and the applicable Award Agreement, subject to the terms andconditions of the Plan. (b) An Incentive may not be exercised or shares of Common Stock be issued pursuant to an Award if a necessary listing or quotation of the shares ofCommon Stock on a stock exchange or inter-dealer quotation system or any registration under state or federal securities laws required under thecircumstances has not been accomplished. No Incentive may be exercised for a fractional share of Common Stock.10.2 Stock Options. (a) Subject to such administrative regulations as the Committee may from time to time adopt, a Stock Option may be exercised by thedelivery of written notice to the Company setting forth the number of shares of Common Stock with respect to which the Stock Option is to be exercised (the“Exercise Notice”) and the date of exercise thereof (the “Exercise Date”) in accordance with procedures established by the Company. On the Exercise Date,the Participant shall deliver to the Company consideration with a value equal to the total Option Price of the Shares to be purchased, payable as follows: (a)cash, check, bank draft, or money order payable to the order of the Company, (b) Common Stock (including Restricted Stock) owned by the Participant onthe Exercise Date, valued at its Fair Market Value on the Exercise Date, (c) by delivery (including by fax) to the Company or its designated agent of anexecuted irrevocable option exercise form together with irrevocable instructions from the Participant to a broker or dealer, reasonably acceptable to theCompany, to sell certain of the shares of Common Stock purchased upon exercise of the Stock Option and promptly deliver to the Company the amount ofsale proceeds necessary to pay such purchase price, and/or (d) in any other form of valid consideration that is acceptable to the Company in its solediscretion. If shares of Restricted Stock are tendered as consideration for the exercise of a Stock Option, a number of shares of Common Stock issued upon theexercise of the Stock Option equal to the number of shares of Restricted Stock used as consideration therefor shall be subject to the same restrictions andprovisions as the Restricted Stock so submitted, as well as any additional restrictions that may be imposed by the Committee. (b) Upon payment of all amounts due from the Participant, the Company shall cause shares of the Common Stock then being purchased to bedelivered as directed by the Participant (or the person exercising the Participant's Stock Option in the event of his death) at its principal business officepromptly after the Exercise Date, provided that if the Participant has exercised an Incentive Stock Option, the Company may at its option retain possession ofthe Shares acquired upon exercise until the expiration of the holding periods described in Section 422(a)(1) of the Code. The obligation of the Company todeliver shares of Common Stock shall, however, be subject to the condition that if at any time the Committee shall determine in its discretion that the listing,registration, or qualification of the Stock Option or the Common Stock upon any securities exchange or inter-dealer quotation system or under any state orfederal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the StockOption or the issuance or purchase of shares of Common Stock thereunder, the Stock Option may not be exercised in whole or in part unless such listing,registration, qualification, consent, or approval shall have been effected or obtained free of any conditions not acceptable to the Committee. (c) If the Participant fails to pay for any of the Common Stock specified in such notice or fails to accept delivery thereof, the Participant's right topurchase such Common Stock may be terminated by the Company.10.3 SARs. Subject to the conditions of this Section and such administrative regulations as the Committee may from time to time adopt, an SAR may beexercised by the delivery (including by fax) of written notice to the Committee setting forth the number of shares of Common Stock with respect to which theSAR is to be exercised and the date of exercise thereof in accordance with procedures established by the Company. On the SAR exercise date, the Participantshall receive from the Company in exchange therefore cash in an amount equal to the excess (if any) of the Fair Market Value (as of the date of the exercise ofthe SAR) per share of Common Stock over the SAR Price per share specified in such SAR, multiplied by the total number of shares of Common Stock of theSAR being surrendered. In the discretion of the Committee, the Company may satisfy its obligation upon exercise of an SAR by the distribution of thatnumber of shares of Common Stock having an aggregate Fair Market Value (as of the date of the exercise of the SAR) equal to the amount of cash otherwisepayable to the Participant, with a cash settlement to be made for any fractional share interests, or the Company may settle such obligation in part with sharesof Common Stock and in part with cash.Page 1210.4 Tax Payment Election. Subject to the approval of the Committee, and to any rules and limitations as the Committee may adopt, a person exercising anIncentive may make the payment of the amount of any taxes required to be collected or withheld by the Company in connection with such exercise in wholeor in part by electing, at or before the time of exercise, either (i) to have the Company withhold from the number of Shares otherwise deliverable a number ofShares whose value equals the amount of the applicable supplemental wage withholding required plus any required state, local or employment taxwithholdings, or (ii) to deliver certificates for other Shares owned by the person exercising the Award, endorsed in blank with appropriate signatureguarantee, having a value equal to the amount otherwise to be collected or withheld.10.5 Valuation. Any calculation with respect to a Participant's income, required tax withholding or other matters required to be made by the Companyupon the exercise of an Incentive shall be made using the Fair Market Value of the shares of Common Stock on the Exercise Date, whether or not the ExerciseNotice is delivered to the Company before or after the close of trading on that date, unless otherwise specified by the Committee. Notwithstanding theforegoing, for Stock Option exercises using the Company’s “same-day-sale for cash method” or “broker sale for stock method,” a Participant’s taxable gainand related tax withholding on the exercise will be calculated using the actual market price at which Shares were sold in the transaction.ARTICLE 11. SPECIAL PROVISIONSAPPLICABLE TO COVERED PARTICIPANTSAwards subject to Performance Criteria paid to Covered Participants under this Plan shall be governed by the conditions of this Article 11 in addition to therequirements of Article 6, above. If the conditions set forth under this Article 11 conflict with the requirements of Article 6, the conditions of this Article 11shall prevail.11.1 Establishment of Performance Measures, Goals or Criteria. All Performance Measures, Goals, or Criteria relating to Covered Participants for a relevantPerformance Period shall be established by the Committee in writing prior to the beginning of the Performance Period, or by such other later date for thePerformance Period as may be permitted under Section 162(m) of the Code. The Performance Goals may be identical for all Participants or, at the discretion ofthe Committee, may be different to reflect more appropriate measures of individual performance.11.2 Performance Goals. The Committee shall establish the Performance Goals relating to Covered Participants for a Performance Period in writing.Performance Goals may include alternative and multiple Performance Goals and may be based on one or more business and/or financial criteria. Inestablishing the Performance Goals for the Performance Period, the Committee in its discretion may include one or any combination of the following criteriain either absolute or relative terms, for the Company or any Subsidiary:(a) Increased revenue;(b) Net income measures (including but not limited to income after capital costs and income before or after taxes);(c) Stock price measures (including but not limited to growth measures and total stockholder return);(d) Market share;(e) Earnings per share (actual or targeted growth);(f) Earnings before interest, taxes, depreciation, and amortization (“EBITDA”);(g) Economic value added (“EVA®”);(h) Cash flow measures (including but not limited to net cash flow and adjusted net cash measures);(i) Return measures (including but not limited to return on equity, return on average assets, return on capital, risk-adjusted return on capital, returnon investors’ capital and return on average equity);(j) Operating measures (including operating income, funds from operations, cash from operations, after-tax operating income, sales volumes,production volumes, and production efficiency including mechanical availability);(k) Expense measures (including but not limited to cost-per-barrel, overhead cost and cost management, and general and administrative expense);(l) Margins;(m) Stockholder value;(n) Total stockholder return;Page 13(o) Proceeds from dispositions;(p) Production volumes;(q) Refinery runs or refinery utilization;(r) Total market value; and(s) Corporate values measures (including ethics compliance, health, environmental, and safety).11.3 Compliance with Section 162(m). The Performance Goals must be objective and must satisfy third party “objectivity” standards under Section 162(m)of the Code, and the regulations promulgated thereunder. In interpreting Plan provisions relating to Awards subject to Performance Goals paid to CoveredParticipants, it is the intent of the Plan to conform with the standards of Section 162(m) of the Code and Treasury Regulation §1.162-27(e)(2)(i), and theCommittee in establishing such goals and interpreting the Plan shall be guided by such provisions.11.4 Adjustments. The Committee is authorized to make adjustments in the method of calculating attainment of Performance Goals in recognition of: (i)extraordinary or non-recurring items, (ii) changes in tax laws, (iii) changes in generally accepted accounting principles or changes in accounting principles,(iv) charges related to restructured or discontinued operations, (v) restatement of prior period financial results, and (vi) any other unusual, non-recurring gainor loss that is separately identified and quantified in the Company's financial statements. Notwithstanding the foregoing, the Committee may, at its solediscretion, reduce the performance results upon which Awards are based under the Plan, to offset any unintended result(s) arising from events not anticipatedwhen the Performance Goals were established, or for any other purpose, provided that such adjustment is permitted by Section 162(m) of the Code.11.5 Discretionary Adjustments. The Performance Goals shall not allow for any discretion by the Committee as to an increase in any Award, but discretionto lower an Award is permissible.11.6 Certification. The Award and payment of any Award under this Plan to a Covered Participant with respect to a relevant Performance Period shall becontingent upon the attainment of the Performance Goals that are applicable to such Covered Participant. The Committee shall certify in writing prior topayment of any such Award that such applicable Performance Goals relating to the Award are satisfied. Approved minutes of the Committee may be used forthis purpose.11.7 Other Considerations. All Awards to Covered Participants under this Plan shall be further subject to such other conditions, restrictions, andrequirements as the Committee may determine to be necessary to carry out the purpose of this Article 11.ARTICLE 12. AMENDMENT OR DISCONTINUANCE12.1 In General. Subject to the limitations set forth in this Article 12, the Committee may at any time and from time to time, without the consent of theParticipants, alter, amend, revise, suspend, or discontinue the Plan in whole or in part, provided that no amendment that requires stockholder approval underthe rules of the national exchange on which the shares of Common Stock are listed (or in order for the Plan and Incentives awarded under the Plan to continueto comply with Section 162(m) of the Code, including any successors to such Section), shall be effective unless such amendment shall be approved by therequisite vote of the stockholders of the Company entitled to vote thereon. Any such amendment shall, to the extent deemed necessary or advisable by theCommittee, be applicable to any outstanding Incentives theretofore granted under the Plan, notwithstanding any contrary provisions contained in any AwardAgreement. In the event of any such amendment to the Plan, the holder of any Incentive outstanding under the Plan shall, upon request of the Committee andas a condition to the exercisability thereof, execute a conforming amendment in the form prescribed by the Committee to any Award Agreement relatingthereto.Page 1412.2 Amendments to Awards. Subject to the limitations set forth in the Plan, the Committee may waive any conditions or rights under, amend any terms of,or alter any Award theretofore granted, provided that, unless required by law, no action contemplated or permitted by this Article 12 shall adversely affectany rights of Participants or obligations of the Company to Participants with respect to any Incentive theretofore granted under the Plan without the consentof the affected Participant.12.3 Unusual or Nonrecurring Events. The Committee is hereby authorized to make adjustments in the terms, conditions, and criteria of Awards inrecognition of unusual or nonrecurring events (including the events described in Section 14 of the Plan) affecting the Company, any Subsidiary, or thefinancial statements of the Company, or in recognition of changes in applicable laws, regulations, or accounting principles, whenever the Committeedetermines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be madeavailable under the Plan.ARTICLE 13. EFFECTIVE DATE AND TERMThe Plan shall become effective on the date of its approval by the stockholders of the Company, and shall continue in existence and force for a period of 10years thereafter, subject to earlier termination as prescribed under Article 12 above. After termination of the Plan no future Awards may be granted hereunder,but any Awards or Incentives granted before the date of termination will continue to be in effect in accordance with their terms and conditions.ARTICLE 14. CAPITAL ADJUSTMENTS14.1 In General. If at any time while the Plan is in effect, or Incentives are outstanding, there shall be any increase or decrease in the number of issued andoutstanding shares of Common Stock resulting from (i) the declaration or payment of a stock dividend, (ii) any recapitalization resulting in a stock split-up,combination, or exchange of shares of Common Stock, or (iii) other increase or decrease in such shares of Common Stock effected without receipt ofconsideration by the Company, then:(a) An appropriate adjustment shall be made in the maximum number of shares of Common Stock then subject to being awarded under the Planand in the maximum number of shares of Common Stock that may be awarded to a Participant to the end that the same proportion of theCompany’s issued and outstanding shares of Common Stock shall continue to be subject to being so awarded.(b) Appropriate adjustments shall be made in the number of shares of Common Stock and the Option Price thereof then subject to purchasepursuant to each such Stock Option previously granted and unexercised, to the end that the same proportion of the Company’s issued andoutstanding shares of Common Stock in each such instance shall remain subject to purchase at the same aggregate Option Price.(c) Appropriate adjustments shall be made in the number of SARs and the SAR Price thereof then subject to exercise pursuant to each such SARpreviously granted and unexercised, to the end that the same proportion of the Company’s issued and outstanding shares of Common Stockin each instance shall remain subject to exercise at the same aggregate SAR Price.(d) Appropriate adjustments shall be made in the number of outstanding shares of Restricted Stock with respect to which restrictions have notyet lapsed prior to any such change.(e) Appropriate adjustments shall be made with respect to shares of Common Stock applicable to any other Incentives previously awardedunder the Plan as the Committee, in its sole discretion, deems appropriate, consistent with the event.Page 1514.2 Issuance of Stock or Other Convertible Securities. Except as otherwise expressly provided herein, the issuance by the Company of shares of its capitalstock of any class, or securities convertible into shares of capital stock of any class, either in connection with direct sale or upon the exercise of rights orwarrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect,and no adjustment by reason thereof shall be made with respect to (i) the number of or Option Price of shares of Common Stock then subject to outstandingStock Options granted under the Plan, (ii) the number of or SAR Price or SARs then subject to outstanding SARs granted under the Plan, (iii) the number ofoutstanding shares of Restricted Stock, or (iv) the number of shares of Common Stock otherwise payable under any other Incentive.14.3 Notification. Upon the occurrence of each event requiring an adjustment with respect to any Incentive, the Company shall notify each affectedParticipant its computation of such adjustment, which shall be conclusive and shall be binding upon each such Participant.ARTICLE 15. RECAPITALIZATION, MERGER AND CONSOLIDATION;CHANGE OF CONTROL15.1 Adjustments, Recapitalizations, Reorganizations, or Other Adjustments. The existence of this Plan and Incentives granted hereunder shall not affectin any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations, or otherchanges in the Company’s capital structure and its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred orpreference stocks ranking prior to or otherwise affecting the Common Stock or the rights thereof (or any rights, options, or warrants to purchase same), or thedissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whetherof a similar character or otherwise.15.2 Acquiring Entity. Subject to any required action by the stockholders, if the Company shall be the surviving or resulting corporation in any merger,consolidation or share exchange, any Incentive granted hereunder shall pertain to and apply to the securities or rights (including cash, property, or assets) towhich a Participant would have been entitled.15.3 Acquired Entity. In the event of any merger, consolidation or share exchange pursuant to which the Company is not the surviving or resultingcorporation, there shall be substituted for each share of Common Stock subject to the unexercised portions of such outstanding Incentives, that number ofshares of each class of stock or other securities or that amount of cash, property, or assets of the surviving, resulting or consolidated company that weredistributed or distributable to the stockholders of the Company in respect to each share of Common Stock held by them, such outstanding Incentives to bethereafter exercisable for such stock, securities, cash, or property in accordance with their terms.15.4 Change of Control. Unless otherwise specifically prohibited under applicable laws, or by the rules of any governing governmental agency or authorityor national securities exchange, or any policy previously adopted by the Board, the Committee may, in its sole discretion, at the time an Award is made orgranted hereunder or at any time prior to, coincident with, or after the time of a Change of Control, take one of the following actions which shall apply onlyupon the occurrence of a Change of Control or, if later, upon the action being taken:(a) Provide for the acceleration of any time periods, or the waiver of any other conditions, relating to the vesting, exercise, payment, or distributionof an Award so that any Award to a Participant whose employment has been terminated as a result of a Change in Control may be vested,exercised, paid, or distributed in full on or before a date fixed by the Committee, and in connection therewith the Committee may (i) provide foran extended period to exercise Options (not to exceed the original term) and (ii) determine the level of attainment of any applicableperformance goals;(b) Provide for the purchase of any Awards from a participant whose employment has been terminated as a result of a Change of Control, upon theParticipant’s request, for an amount of cash equal to the amount that could have been obtained upon the exercise, payment, or distribution ofsuch rights had such Award been currently exercisable or payable; orPage 16(c) Cause the Awards then outstanding to be assumed, or new rights substituted therefore, by the surviving corporation in such Change of Control.For purposes of sub‐paragraphs (a) and (b) above, any Participant whose employment is either (i) terminated by the Company other than for “Cause,” or (ii)terminated by the Participant for “Good Reason” (each as defined in this Plan) in either case upon, or on or prior to the second anniversary of a Change ofControl, shall be deemed to have been terminated as a result of the Change of Control.ARTICLE 16. LIQUIDATION OR DISSOLUTIONIn case the Company shall, at any time while any Incentive under this Plan shall be in force and remain unexpired, sell all or substantially all of its property,or dissolve, liquidate, or wind up its affairs (each, a “Dissolution Event”), then each Participant shall be thereafter entitled to receive, in lieu of each share ofCommon Stock of the Company which such Participant would have been entitled to receive under the Incentive, the same kind and amount of any securitiesor assets as may be issuable, distributable, or payable upon any such sale, dissolution, liquidation, or winding up with respect to each share of Common Stockof the Company. If the Company shall, at any time prior to the expiration of any Incentive, make any partial distribution of its assets, in the nature of a partialliquidation, whether payable in cash or in kind (but excluding the distribution of a cash dividend payable out of earned surplus and designated as such) thenin such event the Option Prices or SAR Prices then in effect with respect to each Stock Option or SAR shall be reduced, on the payment date of suchdistribution, in proportion to the percentage reduction in the tangible book value of the shares of the Company’s Common Stock (determined in accordancewith generally accepted accounting principles) resulting by reason of such distribution.ARTICLE 17. ADDITIONAL AUTHORITY OF COMMITTEEIn addition to the Committee's authority set forth elsewhere in this Plan, in order to maintain a Participant’s rights in the event of any Change of Control orDissolution Event described under Articles 15 and 16, the Committee, as constituted before the Change of Control or Dissolution Event, is herebyauthorized, and has sole discretion, as to any Incentive, either at the time the Award is made hereunder or any time thereafter, to take any one or more of thefollowing actions:(a) provide for the purchase of any Incentive, upon the Participant's request, for an amount of cash equal to the amount that could have beenattained upon the exercise of the Incentive or realization of the Participant's rights in the Incentive had the Incentive been currentlyexercisable or payable;(b) adjust any outstanding Incentive as the Committee deems appropriate to reflect the Change of Control or Dissolution Event; or(c) cause any outstanding Incentive to be assumed, or new rights substituted therefor, by the acquiring or surviving corporation after a Changeof Control or successor following a Dissolution Event.(d) The Committee may in its discretion include other provisions and limitations in any Award Agreement as it may deem equitable and in thebest interests of the Company.ARTICLE 18. INCENTIVES IN SUBSTITUTION FORINCENTIVES GRANTED BY OTHER CORPORATIONSIncentives may be granted under the Plan from time to time in substitution for similar instruments held by employees of a corporation who become or areabout to become Employees of the Company or any Subsidiary as a result of a merger or consolidation of the employing corporation with the Company orthe acquisition by the Company of stock of the employing corporation. The terms and conditions of the substitute Incentives so granted may vary from theterms and conditions set forth in this Plan to such extent as the Board at the time of grant may deem appropriate to conform, in whole or in part, to theprovisions of the Incentives in substitution for which they are granted.Page 17ARTICLE 19. MISCELLANEOUS PROVISIONS19.1 Code Section 409A. Notwithstanding anything in this Plan to the contrary, if any Plan provision or Award under the Plan would result in theimposition of an applicable tax under Section 409A of the Internal Revenue Code of 1986, as amended and related regulations and Treasury pronouncements(“Section 409A”), that Plan provision or Award may be reformed to avoid imposition of the applicable tax and no action taken to comply with Section 409Ashall be deemed to adversely affect the Participant’s rights to an Award. This Plan is intended to comply, and shall be administered consistently in allrespects, with Section 409A, and the regulations and additional guidance promulgated thereunder to the extent applicable. Accordingly, the Company shallhave the authority to take any action, or refrain from taking any action, with respect to this Plan or any Award hereunder that is reasonably necessary toensure compliance with Code Section 409A (provided that the Company shall choose the action that best preserves the value of payments and benefitsprovided to Participant that is consistent with Code Section 409A); this Plan shall be interpreted in a manner that is consistent with Code Section 409A. Infurtherance, but not in limitation of the foregoing:(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, that constitute a“deferral of compensation” under Code Section 409A and that would otherwise become due during the first six months followingParticipant’s termination of employment shall be delayed and all such delayed payments shall be paid in full in the seventh month aftersuch termination date, provided that the above delay shall not apply to any payment that is excepted from coverage by Code Section 409A,such as a payment covered by the short-term deferral exception described in Treasury Regulations Section 1.409A-1(b)(4).19.2 Investment Intent. The Company may require that there be presented to and filed with it by any Participant under the Plan, such evidence as it maydeem necessary to establish that the Incentives granted or the shares of Common Stock to be purchased or transferred are being acquired for investment andnot with a view to their distribution.19.3 No Right to Continued Employment. Neither the Plan nor any Incentive granted under the Plan shall confer upon any Participant any right withrespect to continuance of employment by the Company or any Subsidiary.19.4 Delegation. Subject to the terms of the Plan and applicable law, the Committee may delegate to one or more officers or managers of the Company orany Affiliate, or to a committee of such officers or managers, the authority, subject to the terms and limitations the Committee shall determine, to grantAwards or to cancel, modify or waive rights with respect to, or to amend, suspend, or terminate Awards.19.5 Indemnification of Board and Committee. No member of the Board or the Committee, nor any officer or employee of the Company acting on behalf ofthe Board or the Committee, shall be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Plan,and all members of the Board or the Committee and each and any officer or employee of the Company acting on their behalf shall, to the fullest extentpermitted by law, be fully indemnified and protected by the Company in respect of any such action, determination, or interpretation.19.6 Effect of the Plan. Neither the adoption of this Plan nor any action of the Board or the Committee shall be deemed to give any person any right to begranted an Award or any other rights except as may be evidenced by an Award Agreement, or any amendment thereto, duly authorized by the Committee andexecuted on behalf of the Company, and then only to the extent and upon the terms and conditions expressly set forth therein. 19.7 Compliance with Laws and Regulations. Notwithstanding anything contained herein to the contrary, the Company shall not be required to sell orissue shares of Common Stock under any Incentive if the issuance thereof would constitute a violation by the Participant or the Company of any provisionsof any law or regulation of any governmental authority or any national securities exchange or inter-dealer quotation system or other forum in which shares ofCommon Stock are quoted or traded (including without limitation Section 16 of the Securities Exchange Act of 1934 and 162(m) of the Code), and, as acondition of any sale or issuance of shares of Common Stock underPage 18an Incentive, the Committee may require such agreements or undertakings, if any, as the Committee may deem necessary or advisable to assure compliancewith any such law or regulation. The Plan, the grant and exercise of Incentives hereunder, and the obligation of the Company to sell and deliver shares ofCommon Stock, shall be subject to all applicable federal and state laws, rules and regulations and to such approvals by any government or regulatory agencyas may be required, and the grant or making of any Award shall be conditional and shall be granted or awarded subject to acceptance of the Sharesdeliverable pursuant to the Award for listing on the NYSE.19.8 Severability. If any provision of the Plan or any Award is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction as to anyPerson or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed ordeemed amended to conform to applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materiallyaltering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, Person or Award and the remainder of the Plan and anysuch Award shall remain in full force and effect.19.9 Tax Requirements, Withholding. The Company or any Affiliate is hereby authorized to withhold from any Award, from any payment due or transfermade under any Award or under the Plan or from any compensation or other amount owing to a Participant the amount (in cash, Shares, other securities, otherAwards or other property) of any applicable withholding taxes with respect to an Award, its exercise, the lapse of restrictions thereon, payment or transferunder an Award or under the Plan, and to take any other action necessary in the opinion of the Company to satisfy all obligations for the payment of thetaxes. Notwithstanding the foregoing, in the event of an assignment of a Non-qualified Stock Option or SAR, the Participant who assigns the Non-qualifiedStock Option or SAR shall remain subject to withholding taxes upon exercise of the Non-qualified Stock Option or SAR by the transferee to the extentrequired by the Code or the rules and regulations promulgated thereunder. Such payments shall be required to be made prior to the delivery of any shares ofCommon Stock. Such payment may be made in cash, by check, or through the delivery of shares of Common Stock owned by the Participant (which may beeffected by the actual delivery of shares of Common Stock by the Participant or by the Company's withholding a number of shares to be issued upon theexercise of a Stock Option, if applicable), which shares have an aggregate Fair Market Value equal to the required minimum withholding payment, or anycombination thereof.19.10 Assignability. (a) Incentive Stock Options may not be transferred or assigned other than by will or the laws of descent and distribution and may beexercised during the lifetime of the Participant only by the Participant or the Participant's legally authorized representative, and each Award Agreement inrespect of an Incentive Stock Option shall so provide. The designation by a Participant of a beneficiary will not constitute a transfer of the Stock Option. TheCommittee may waive or modify any limitation contained in the preceding sentences of this Section 19.10 that is not required for compliance with Section422 of the Code. (b) The Committee may, in its discretion, authorize all or a portion of a Non-qualified Stock Option or SAR to be granted to a Participant to be onterms which permit transfer by such Participant to (i) the spouse, children or grandchildren of the Participant (“Immediate Family Members”), (ii) a trust ortrusts for the exclusive benefit of such Immediate Family Members, or (iii) a partnership in which such Immediate Family Members are the only partners, (iv)an entity exempt from federal income tax pursuant to Section 501(c)(3) of the Code or any successor provision, or (v) a split interest trust or pooled incomefund described in Section 2522(c)(2) of the Code or any successor provision, provided that (a) there shall be no consideration for any such transfer, (b) theAward Agreement pursuant to which such Non-qualified Stock Option or SAR is granted must be approved by the Committee and must expressly provide fortransferability in a manner consistent with this Section, and (c) subsequent transfers of transferred Non-qualified Stock Options or SARs shall be prohibitedexcept those by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined in the Code or Title I of theEmployee Retirement Income Security Act of 1974, as amended. Following transfer, any such Non-qualified Stock Option and SAR shall continue to besubject to the same terms and conditions as were applicable immediately prior to transfer, provided that for purposes of Articles 10, 12, 14, 16 and 18 hereofthe term “Participant” shall be deemed to include the transferee. The events of Termination of Service shall continue to be applied with respect to the originalParticipant, following which the Non-qualified Stock Options and SARs shall be exercisable by the transferee only to the extent and for the periods specifiedin the Award Agreement. The Committee and the Company shall have no obligation to inform any transferee of a Non-qualified Stock Option or SAR of anyexpiration, termination, lapse or acceleration of such Option. The Company shall have no obligation to register with any federal or state securitiescommission or agencyPage 19any Common Stock issuable or issued under a Non-qualified Stock Option or SAR that has been transferred by a Participant under this Section 19.10.19.11 No Trust or Fund Created. Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or any fiduciaryrelationship between the Company or any Affiliate and a Participant or any other Person. To the extent that any Person acquires a right to receive paymentsfrom the Company or any Affiliate pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company orany Affiliate.19.12 Governing Law. The validity, construction and effect of the Plan and any actions taken or relating to the Plan shall be determined in accordance withthe laws of the State of Texas and applicable federal law.19.13 Successors and Assigns. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to allor substantially all of the business and/or assets of the Company, expressly to assume and agree to perform the Company's obligations under this Plan in thesame manner and to the same extent that the Company would be required to perform them if no such succession had taken place. As used herein, the“Company” shall mean the Company as herein before defined and any aforesaid successor to its business and/or assets.19.14 No Fractional Shares. No fractional Shares shall be issued or delivered pursuant to the Plan or any Award, and the Committee shall determine whethercash, other securities, or other property shall be paid or transferred in lieu of any fractional Shares or whether fractional Shares or any rights thereto shall becanceled, terminated, or otherwise eliminated.Page 20Exhibit 10.062016 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 2016.¨ I hereby elect to defer a portion of my compensation for the period commencing January 1, 2016 and ending December31, 2016 (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 2016 and possibly payable in 2017)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, 2015. If your form is not timely submitted, you will not be eligible to participate in thePlan for the 2016 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 2016 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 10.072016 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 1/1/2016WILL 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._ _ _ _ _% DGAGX Dreyfus Appreciation_ _ _ _ _% FSTGX Fidelity Intermediate Government_ _ _ _ _% JAWWX Janus Worldwide_ _ _ _ _% MTIXX Milestone Funds Treasury Obligations Portfolio_ _ _ _ _% OAKMX Oakmark I_ _ _ _ _% RPMGX Price Mid-Cap Growth_ _ _ _ _% SRINX Columbia Income Z_ _ _ _ _% VBINX Vanguard Balanced Index_ _ _ _ _% VEXMX Vanguard Index Extended Market_ _ _ _ _% VFINX Vanguard Index 500_ _ _ _ _% VQNPX Vanguard Growth and Income________ 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 10.082016 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 2016 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 2016 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 2016 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 2016deferrals is January 1, 2020.) Amount of Elective Deferral or Specified Date Total 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, 2015. 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.Jay D. BrowningSusan 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. BrowningExhibit 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. CiskowskiJoseph W. GorderExhibit 12.01VALERO ENERGY CORPORATIONSTATEMENTS OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES(Millions of Dollars) Year Ended December 31, 2015 2014 2013 2012 2011 Earnings: Income from continuing operationsbefore income tax expense,excluding income from equityinvestees$5,962 $5,538 $3,951 $4,736 $3,562 Add: Fixed charges783 687 695 727 732 Amortization of capitalized interest37 35 31 24 22 Distributions from equity investees26 6 3 1 — Less: Interest capitalized(71) (70) (118) (220) (144) Total earnings$6,737 $6,196 $4,562 $5,268 $4,172 Fixed charges: Interest and debt expense, netof capitalized interest$433 $397 $365 $314 $409 Interest capitalized71 70 118 220 144 Rental expense interest factor (a)279 220 212 193 179 Total fixed charges$783 $687 $695 $727 $732 Ratio of earnings to fixed charges8.6x 9.0x 6.6x 7.2x 5.7x__________(a)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, 2016Name of Entity State of Incorporation/Organization CANADIAN ULTRAMAR COMPANY Nova ScotiaCOLONNADE TEXAS INSURANCE COMPANY, LLC TexasCOLONNADE 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. DelawareNORCO METHANOL, LLC 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 DelawareSAINT BERNARD PROPERTIES COMPANY 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. CanadaExhibit 21.01ULTRAMAR 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.)VALERO 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. DelawareExhibit 21.01VALERO OPERATIONS SUPPORT, LTD England and WalesVALERO PARTNERS CCTS, LLC DelawareVALERO PARTNERS CORPUS EAST, LLC DelawareVALERO PARTNERS CORPUS WEST, LLC DelawareVALERO PARTNERS EP, LLC DelawareVALERO PARTNERS HOUSTON, LLC DelawareVALERO PARTNERS LOUISIANA, LLC DelawareVALERO PARTNERS LUCAS, LLC DelawareVALERO PARTNERS MCKEE, LLC DelawareVALERO PARTNERS MEMPHIS, LLC DelawareVALERO PARTNERS NORTH TEXAS, LLC DelawareVALERO PARTNERS OPERATING CO. LLC DelawareVALERO PARTNERS PAPS, LLC DelawareVALERO PARTNERS SOUTH TEXAS, LLC DelawareVALERO 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 SKELLYTOWN PIPELINE, LLC 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 DelawareExhibit 21.01VEC 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:We consent to the incorporation by reference in the registration statements, as amended, on Form S-3 (Registration Nos. 333-157867and 333-202635) 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, 333-174721, and 333-205756) of Valero Energy Corporation and subsidiaries, of ourreports dated February 25, 2016, with respect to the consolidated balance sheets of Valero Energy Corporation and subsidiaries as ofDecember 31, 2015 and 2014, 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, 2015, and the effectiveness of internal control over financial reporting asof December 31, 2015, which reports appear in the December 31, 2015 annual report on Form 10-K of Valero Energy Corporation andsubsidiaries./s/ KPMG LLPSan Antonio, TexasFebruary 25, 2016Exhibit 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 25, 2016/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 25, 2016/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 31,2015, as filed with the Securities and Exchange Commission on the date hereof (the Report), the undersigned hereby certifies, pursuantto 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and2.The information contained in the Report fairly presents, in all material respects, the financial condition and results ofoperations of the Company./s/ Joseph W. Gorder Joseph W. Gorder Chief Executive Officer and President February 25, 2016 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 31,2015, as filed with the Securities and Exchange Commission on the date hereof (the Report), the undersigned hereby certifies, pursuantto 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and2.The information contained in the Report fairly presents, in all material respects, the financial condition and results ofoperations of the Company./s/ Michael S. Ciskowski Michael S. Ciskowski Executive Vice President and Chief Financial OfficerFebruary 25, 2016 A signed original of the written statement required by Section 906 has been provided to Valero Energy Corporation and will be retained by Valero EnergyCorporation and furnished to the Securities and Exchange Commission or its staff upon request.

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