(Mark One)

(Exact name of registrant as specified in its charter)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files). Yesþ Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

The number of shares of the registrant’s only class of common stock, $0.01 par value, outstanding as of July 31,October 30, 2009 was 562,761,441.564,349,512.

 

As used in this report, the terms “Valero,” “we,” “us,” or “our” may refer to Valero Energy Corporation, one or more of its consolidated subsidiaries, or all of them taken as a whole.

These unaudited consolidated financial statements include the accounts of Valero and subsidiaries in which Valero has a controlling interest. Intercompany balances and transactions have been eliminated in consolidation. Investments in significant non-controlled entities are accounted for using the equity method.

These unaudited consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934. Accordingly, they do not include all of the information and notes required by GAAP for complete consolidated financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal recurring nature unless disclosed otherwise. Financial information for the three and sixnine months ended JuneSeptember 30, 2009 and 2008 included in these Condensed Notes to Consolidated Financial Statements is derived from our unaudited consolidated financial statements. Operating results for the three and sixnine months ended JuneSeptember 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009.

The consolidated balance sheet as of December 31, 2008 has been derived from the audited financial statements as of that date. For further information, refer to the consolidated financial statements and notes thereto included in our annual report onForm 10-K for the year ended December 31, 2008.

We have evaluated subsequent events that occurred after JuneSeptember 30, 2009 through the filing of this Form 10-Q on August 7,November 5, 2009. Any material subsequent events that occurred during this time have been properly recognized or disclosed in our financial statements.

Use of Estimates
The preparation of financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. On an ongoing basis, management reviews its estimates based on currently available information. Changes in facts and circumstances may result in revised estimates.

Reclassifications
Certain amounts previously reported for the threein 2008 and six months ended June 30, 20082009 have been reclassified to conform to the current 2009 presentation.

Fair Value Measurements and Disclosures
In February 2008, ASC Topic 820, “Fair Value Measurements and Disclosures,” was modified to delay the effective date for applying fair value in the financial statements on a recurring basis (at least annually),measurement disclosures for nonfinancial assets and nonfinancial liabilities until fiscal years beginning after November 15, 2008. The exceptions apply to the following: nonfinancial assets and nonfinancial liabilities measured at fair value in a business combination; impaired property, plant and equipment; goodwill; and the initial recognition of the fair value of asset retirement obligations and restructuring costs. The implementation of Statement No. 157this provision of Topic 820 for these assets and liabilities effective January 1, 2009 did not affect our financial position or results of operations but did result in additional disclosures, which are provided in Note 9.10.

FASB Statement No. 141 (revised 2007)Business Combinations
In December 2007, the FASBASC Topic 805, “Business Combinations,” was issued Statement No. 141 (revised 2007), “Business Combinations” (Statement No. 141(R)). This statement improvesto improve the financial reporting of business combinations and clarifiesclarify the accounting for these transactions. The provisions of Statement No. 141(R) areThis guidance in Topic 805 is to be applied prospectively to business combinations with acquisition dates on or after the beginning of an entity’s fiscal year that begins on or after December 15, 2008, with early adoption prohibited. In April 2009, Topic 805 was modified to address application issues raised related to (i) initial recognition and measurement, (ii) subsequent measurement and accounting, and (iii) disclosure of assets and liabilities arising from contingencies in a business combination. These provisions are to be applied to contingent assets or contingent liabilities acquired in business combinations for which the acquisition date is on or after the beginning of an entity’s fiscal year that begins on or after December 15, 2008.

Due to the adoption of Statement No. 141(R)the new business combination provisions of Topic 805 effective January 1, 2009, thethese provisions of this statement were applied to the acquisition of certain ethanol plants from VeraSun Energy Corporation (VeraSun)(VeraSun, with the acquisition referred to as the VeraSun Acquisition) in the second quarter of 2009, which is discussed in Note 3.

FASB Statement No. 160Noncontrolling Interests in Consolidated Financial Statements
In December 2007, the FASB issued Statement No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51.ASC Topic 810, “Consolidation,” Statement No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. This statement provideswas modified to provide guidance for the accounting and reporting of noncontrolling interests, changes in controlling interests, and the deconsolidation of subsidiaries. In addition, Statement No. 160 amends FASB Statement No. 128, “Earnings per Share,” to specify the computation, presentation,this modification provides that an entity shall disclose pro forma net income and disclosure requirements forpro forma earnings per share if an entity has one or more noncontrolling interests. The adoption of Statement No. 160these provisions of Topic 810 effective January 1, 2009 has not affected our financial position or results of operations.

FASB Statement No. 161Derivatives and Hedging
In March 2008, the FASB issued Statement No. 161, “Disclosures about Derivative InstrumentsASC Topic 815, “Derivatives and Hedging, Activities.” Statement No. 161 establishes, among other things, thewas modified to establish disclosure requirements for derivative instruments and for hedging activities. This statement requiresThe required disclosures include qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about contingent features related to credit risk in derivative agreements. Statement No. 161 isThese disclosures are effective for fiscal years, and interim periods within those fiscal years, beginning on or after November 15, 2008. The adoption of Statement No. 161these provisions of Topic 815 effective January 1, 2009 did not affect our financial position or results of operations but did result in additional disclosures, which are provided in Note 10.11.

FSP No. EITF 03-6-1Earnings Per Share
In June 2008, the FASB issued Staff Position No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (FSP No. EITF 03-6-1). FSP No. EITF 03-6-1 addressesmodified ASC Topic 260, “Earnings Per Share,” to address whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share under the two-class method described in Statement No. 128. FSP No. EITF 03-6-1 isTopic 260. These Codification amendments are effective for fiscal years, and interim periods within those fiscal years, beginning

EITF Issue No. 08-6Equity Method Investments
In November 2008, the FASB ratified its consensus on EITF Issue No. 08-6, “Equitymodified ASC Topic 323, “Investments—Equity Method Investment Accounting Considerations” (EITF No. 08-6). EITF No. 08-6 appliesand Joint Ventures,” to all investments accounted for under the equity method and providesprovide guidance regarding (i) initial measurement of an equity investment, (ii) recognition of an other-than-temporary impairment of an equity method investment, including any impairment charge taken by the investee, and (iii) accounting for a change in ownership level or degree of influence on an investee. The consensus isThese provisions are effective for fiscal years beginning on or after December 15, 2008, and interim periods within those fiscal years. EITF No. 08-6 isThese provisions are to be applied prospectively to equity method investments acquired after the effective date, and earlier application is not permitted. Due to its application to futureBecause we have not acquired any equity method investments during 2009, the adoption of EITF No. 08-6these provisions effective January 1, 2009 has not had any immediate effect onaffected our financial position or results of operations.

FSP No. FAS 132(R)-1Compensation – Retirement Benefits
In December 2008, the FASB issued Staff Position No. FAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets” (FSP No. FAS 132(R)-1). FSP No. FAS 132(R)-1 amends FASB Statement No. 132 (revised 2003), “Employers’ Disclosures about Pensions and Other Postretirementmodified ASC Topic 715, “Compensation—Retirement Benefits,” to provide guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. The additional requirements of FSP No. FAS 132(R)-1 are designed to enhancerequire enhanced disclosures regarding (i) investment policies and strategies, (ii) categories of plan assets, (iii) fair value measurements of plan assets, and (iv) significant concentrations of risk. FSP No. FAS 132(R)-1 isThese disclosures are effective for fiscal years ending after December 15, 2009, with earlier application permitted. Since FSP No. FAS 132(R)-1 only affects disclosuredisclosures are affected by these requirements, the adoption of FSP No. FAS 132(R)-1these provisions will not affect our financial position or results of operations.

FSP No. FAS 141(R)-1Financial Instruments
In April 2009, the FASB issued Staff Position No. FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies” (FSP No. FAS 141(R)-1). FSP No. FAS 141(R)-1 amends and clarifies FASB Statement No. 141(R) to address application issues raised related to (i) initial recognition and measurement, (ii) subsequent measurement and accounting, and (iii) disclosure of assets and liabilities arising from contingencies in a business combination. The provisions of FSP No. FAS 141(R)-1 are to be applied to contingent assets or contingent liabilities acquired in business combinations for which the acquisition date is on or after the beginning of an entity’s fiscal year that begins on or after December 15, 2008. The adoption of FSP No. FAS 141(R)-1 effective January 1, 2009 has not had a material effect on our financial position or results of operations.

prospectively and are effective for interim or annual financial periods ending after June 15, 2009. The adoption of Statement No. 165the provisions of Topic 855 in the second quarter of 2009 did not affect our financial position or results of operations but did result in additional disclosures, which are provided in Note 1.

FASB Statement No. 166
In June 2009, the FASB issued Statement No. 166, “Accounting for Transfers of Financial Assets – an amendment of FASB Statement No. 140.” According to ASC Topic 105, “Generally Accepted Accounting Principles,” Statement No. 166 shall continue to represent authoritative guidance until it is integrated into the Codification. Statement No. 166 amends and clarifies provisions related to the provisionstransfer of Statement No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,”financial assets in order to address application and disclosure issues. In general, Statement No. 166 clarifies the requirements for derecognizing transferred financial assets, removes the concept of a qualifying special-purpose entity and related exceptions, and requires additional disclosures related to transfers of financial assets. Statement No. 166 is effective for fiscal years, and interim periods within those fiscal years, beginning after November 15, 2009, and earlier application is prohibited. The adoption of Statement No. 166 effective January 1, 2010 is not expected to materially affect our financial position or results of operations.

The acquired ethanol business involves the production and marketing of ethanol and its co-products, including distillers grains. The ethanol operations are being reportedreflected as a new operatingreportable segment in Note 11,12, the operations of which will complement our existing clean motor fuels business. The

Inventories consisted of the following (in millions):

On April 1, 2009, we made scheduled debt repayments of $200 million related to our 3.5% notes and $9 million related to our 5.125% Series 1997D industrial revenue bonds.

In March 2009, we issued $750 million of 9.375% notes due March 15, 2019 and $250 million of 10.5% notes due March 15, 2039. Proceeds from the issuance of these notes totaled approximately $998 million, before deducting underwriting discounts and other issuance costs of $8 million.

On February 1, 2008, we redeemed our 9.50% senior notes for $367 million, or 104.75% of stated value. These notes had a carrying amount of $381 million on the date of redemption, resulting in a gain of $14 million that was included in “other income (expense), net” in the consolidated statement of income. In addition, in March 2008, we made a scheduled debt repayment of $7 million related to certain of our other debt.

During the sixnine months ended JuneSeptember 30, 2009, we had no borrowings or repayments under our revolving bank credit facilities. As of JuneSeptember 30, 2009, we had no borrowings outstanding under our revolving bank credit facilities. In October 2009, we borrowed and subsequently repaid approximately $40 million under our U.S. committed revolving bank credit facility.

As of JuneSeptember 30, 2009, we had $247$76 million of letters of credit outstanding under our uncommitted short-term bank credit facilities and $249$113 million of letters of credit outstanding under our U.S. committed

Accounts Receivable Sales Facility
We have an accounts receivable sales facility with a group of third-party entities and financial institutions to sell on a revolving basis up to $1 billion of eligible trade receivables. We amended our agreement in June 2009 to extend the maturity date to June 2010.

As of December 31, 2008, the amount of eligible receivables sold to the third-party entities and financial institutions was $100 million, which was repaid in February 2009. In March 2009, we sold $100 million of eligible receivables to the third-party entities and financial institutions. In April 2009, we sold an additional $400 million of eligible receivables under this program, which we repaid in June 2009. As of JuneSeptember 30, 2009, the amount of eligible receivables sold to the third-party entities and financial institutions was $100 million. Proceeds from the sale of receivables under this facility are reflected as debt in our consolidated balance sheets.

Other Disclosures
The estimated fair value of our debt, including current portion, was as follows (in millions):

Earnings (loss) per common share amounts were computed as follows (dollars and shares in millions, except per share amounts):

The following table reflects potentially dilutive securities that were excluded from the calculation of “earnings (loss) per common share – assuming dilution” as the effect of including such securities would have been anti-dilutiveantidilutive (in millions). As indicated above, for the three months ended June 30, 2009, common equivalent shares, which represent primarily stock options, were excluded as a result of the net losslosses reported for the second quarter ofthree and nine months ended September 30, 2009. In addition, for all periods, certain stock option amounts presented below were excluded, representing outstanding stock options for which the exercise prices were greater than the average market price of the common shares during each respective reporting period.

Cash flows related to interest and income taxes were as follows (in millions):

The valuation methods used to measure our financial instruments at fair value are as follows:

Cash received from brokers of $41 million, resulting from the equity in broker accounts covered by master netting arrangements are included inexceeding the minimum margin requirements for such accounts, is netted against the fair value of the commodity derivatives reflected in Level 1. Certain of our commodity derivative contracts under master netting arrangements include both asset and liability positions. Under the guidance of FASB Staff Position No. FIN 39-1, “Amendment of FASB Interpretation No. 39,” weWe have elected to offset the fair value amounts recognized for multiple similar derivative instruments executed with the same counterparty, including any related cash collateral asset or obligation.

The following is a reconciliation of the beginning and ending balances (in millions) for fair value measurements developed using significant unobservable inputs for the three and sixnine months ended JuneSeptember 30, 2009. We did not have any fair value measurements using significant unobservable inputs for the six months ended June 30, 2008.

We enter into derivative instruments to manage our exposure to commodity price risk, interest rate risk, and foreign currency risk, and to hedge price risk on other contractual derivatives that we have entered into. In addition, we use derivative instruments for trading purposes based on our fundamental and technical analysis of market conditions. All derivative instruments are recorded on our balance sheet as either assets or liabilities measured at their fair values. When we enter into a derivative instrument, it is designated as a fair value hedge, a cash flow hedge, an economic hedge, or a trading activity. The gain or loss on a derivative instrument designated and qualifying as a fair value hedge, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, are recognized currently in income in the

Cash Flow Hedges
Cash flow hedges are used to hedge certain forecasted feedstock and product purchases, refined product sales, and natural gas purchases. The purpose of our cash flow hedges is to lock in the price of forecasted feedstock or natural gas purchases or refined product sales at existing market prices that are deemed favorable by management.

As of JuneSeptember 30, 2009, we had the following outstanding commodity derivative commodity instruments that were entered into to hedge forecasted purchases or sales of crude oil and refined products. The information presents the volume of outstanding contracts by type of instrument and year of maturity (volumes in thousands of barrels).

Economic Hedges
Economic hedges are hedges not designated as fair value or cash flow hedges that are used to (i) manage price volatility in certain refinery feedstock, refined product, and grain inventories, and (ii) manage price volatility in certain forecasted refinery feedstock, product, and grain purchases, refined product sales, and natural gas purchases; and (iii)purchases. In addition, through August 2009, we used economic hedges to manage price volatility in the referenced product margins associated with the Alon earn-out agreement, which iswas a separate contractual derivative that we entered into with the sale of our Krotz Springs Refinery but which was settled in August 2009, as further discussed in Note 9.3. Our objective in entering into economic hedges is consistent with the objectives discussed above for fair value hedges and cash flow hedges. However, the economic hedges are not designated as a fair value hedge or a cash flow hedge for accounting purposes, usually due to the difficulty of establishing the required documentation at the date that the derivative instrument is entered into that would allow us to achieve “hedge deferral accounting.” As of JuneSeptember 30, 2009, we had the following outstanding commodity derivative commodity instruments that were entered into as economic hedges. The information presents the volume of outstanding contracts by type of instrument and year of maturity (volumes in thousands of barrels, except those identified as grain contracts that are presented in thousands of bushels).

These represent commodity derivative commodity instruments held or issued for trading purposes. Our objective in entering into commodity derivative commodity instruments for trading purposes is to take advantage of existing market conditions related to crude oil and refined products that management perceives as opportunities to benefit our results of operations and cash flows, but for which there are no related physical transactions. As of JuneSeptember 30, 2009, we had the following outstanding commodity derivative commodity instruments that were entered into for trading purposes. The information presents the volume of outstanding contracts by type of instrument and year of maturity (volumes represent thousands of barrels, except those identified as natural gas contracts that are presented in billions of British thermal units).

Foreign Currency Risk
We are exposed to exchange rate fluctuations on transactions related to our Canadian 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 accounting purposes, and therefore they are classified as economic hedges. As of JuneSeptember 30, 2009, we had commitments to purchase $301$248 million of U.S. dollars. These commitments matured on or before July 20,November 2, 2009, resulting in a $7$5 million loss in the thirdfourth quarter of 2009.

Fair Values of Derivative Instruments
The following tables provide information about the fair values of our derivative instruments as of JuneSeptember 30, 2009 (in millions) and the line items in the balance sheet in which the fair values are reflected. See Note 910 for additional information related to the fair values of our derivative instruments. As indicated in Note 9,10, we net fair value amounts recognized for multiple similar derivative instruments executed with the same counterparty under master netting arrangements. The table below, however, is presented on a gross asset and gross liability basis, as required by Statement No. 161, which results in the reflection of certain assets in liability accounts and certain liabilities in asset accounts. In addition, in Note 910 we includednetted cash collateral of $104 million inreceived from brokers attributable to excess margin against the fair value of the commodity derivatives; thethis cash collateralreceipt is not reflected in the table below.