
9.	NET INCOME PER LIMITED PARTNER UNIT

Payments made to our unitholders are determined in relation to actual distributions declared and are not based on the net income allocations used in the calculation of net income per limited partner unit.

We calculate net income available to limited partners based on the distributions pertaining to each period’s net income. After considering the appropriate period’s distributions, the remaining undistributed earnings or excess distributions over earnings, if any, are allocated to the general partner, limited partners, and other participating securities in accordance with the contractual terms of our partnership agreement and as prescribed under the two-class method. Participating securities include IDRs and awards under our Valero Energy Partners LP 2013 Incentive Compensation Plan (2013 ICP) that receive DERs. However, the terms of our partnership agreement limit the general partner’s incentive distribution to the amount of available cash, which, as defined in our partnership agreement, is net of reserves deemed appropriate. As such, IDRs are not allocated undistributed earnings or distributions in excess of earnings in the calculation of net income per limited partner unit.

Basic net income per limited partner unit is determined pursuant to the two-class method for master limited partnerships. The two-class method is an earnings allocation formula that is used to determine earnings to our general partner, common unitholders, and participating securities according to (i) distributions pertaining to each period’s net income and (ii) participation rights in undistributed earnings.

Diluted net income per limited partner unit is also determined using the two-class method, unless the treasury stock method is more dilutive. For the three months ended March 31, 2015, we used the two-class method to determine diluted net income per limited partner unit. We did not have any potentially dilutive instruments outstanding during the three months ended March 31, 2015.

Net income per unit was computed as follows (in thousands, except per unit amounts):



	Three Months Ended March 31, 2015
			Limited Partners
	General Partner		Common Units		Subordinated Units		Restricted Units		Total
Allocation of net income to determine net income available to limited partners:
Distributions, excluding general partner’s IDRs	$	345	$	8,519	$	7,989	$	—	$	16,853
General partner’s IDRs	410		—		—		—		410
DERs	—		—		—		3		3
Distributions and DERs declared	755		8,519		7,989		3		17,266
Undistributed earnings	97		2,404		2,353		1		4,855
Net income available to limited partners – basic and diluted	$	852	$	10,923	$	10,342	$	4	$	22,121

Net income per limited partner unit – basic and diluted:
Weighted-average units outstanding			29,426		28,790

Net income per limited partner unit			$	0.37	$	0.36



	Three Months Ended March 31, 2014
				Limited Partners
	General Partner			Common Units			Subordinated Units			Restricted Units			Total
Allocation of net income to determine net income available to limited partners:
Distributions	$	250		$	6,118		$	6,118		$	—		$	12,486
DERs	—			—			—			1			1
Distributions and DERs declared	250			6,118			6,118			1			12,487
Excess distributions over earnings	(40		)	(982		)	(982		)	(1		)	(2,005		)
Net income available to limited partners – basic	$	210		5,136			5,136			$	—		$	10,482
Add: DERs				1			—
Net income available to limited partners – diluted				$	5,137		$	5,136

Net income per limited partner unit – basic:
Weighted-average units outstanding				28,790			28,790

Net income per limited partner unit – basic				$	0.18		$	0.18

Net income per limited partner unit – diluted:
Weighted-average units outstanding				28,790			28,790
Common equivalent units for restricted units				2			—
Weighted-average units outstanding – diluted				28,792			28,790

Net income per limited partner unit – diluted				$	0.18		$	0.18