
7.	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 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 and six months ended June 30, 2018 and 2017, 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 and six months ended June 30, 2018 and 2017.

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



	General Partner		Limited Partners Common Units		Restricted Units		Total
Three Months Ended June 30, 2018:
Allocation of net income to determine net income available to limited partners:
Distributions, excluding general partner’s IDRs	$	1,122	$	38,156	$	—	$	39,278
General partner’s IDRs	16,796		—		—		16,796
DERs	—		—		7		7
Distributions and DERs declared	17,918		38,156		7		56,081
Undistributed earnings	159		7,778		1		7,938
Net income available to limited partners – basic and diluted	$	18,077	$	45,934	$	8	$	64,019

Net income per limited partner common unit – basic and diluted:
Weighted-average units outstanding			69,251
Net income per limited partner common unit – basic and diluted			$	0.66



Three Months Ended June 30, 2017:
Allocation of net income to determine net income available to limited partners:
Distributions, excluding general partner’s IDRs	$	842	$	31,014	$	—	$	31,856
General partner’s IDRs	10,250		—		—		10,250
DERs	—		—		5		5
Distributions and DERs declared	11,092		31,014		5		42,111
Undistributed earnings	327		16,002		3		16,332
Net income available to limited partners – basic and diluted	$	11,419	$	47,016	$	8	$	58,443

Net income per limited partner common unit – basic and diluted:
Weighted-average units outstanding			68,157
Net income per limited partner common unit – basic and diluted			$	0.69



	General Partner		Limited Partners Common Units		Restricted Units		Total
Six Months Ended June 30, 2018:
Allocation of net income to determine net income available to limited partners:
Distributions, excluding general partner’s IDRs	$	2,178	$	74,686	$	—	$	76,864
General partner’s IDRs	32,030		—		—		32,030
DERs	—		—		13		13
Distributions and DERs declared	34,208		74,686		13		108,907
Undistributed earnings	424		20,764		3		21,191
Net income available to limited partners – basic and diluted	$	34,632	$	95,450	$	16	$	130,098

Net income per limited partner common unit – basic and diluted:
Weighted-average units outstanding			69,250
Net income per limited partner common unit – basic and diluted			$	1.38



Six Months Ended June 30, 2017:
Allocation of net income to determine net income available to limited partners:
Distributions, excluding general partner’s IDRs	$	1,437	$	60,150	$	—	$	61,587
General partner’s IDRs	18,557		—		—		18,557
DERs	—		—		10		10
Distributions and DERs declared	19,994		60,150		10		80,154
Undistributed earnings	892		35,527		7		36,426
Net income available to limited partners – basic and diluted	$	20,886	$	95,677	$	17	$	116,580

Net income per limited partner common unit – basic and diluted:
Weighted-average units outstanding			67,912
Net income per limited partner common unit – basic and diluted			$	1.41