VLP Valero Energy Partners LP Common Units Representing Limited Partner Interests

(a)

On December 16, 2013, Valero Energy Corporation (Valero) contributed certain crude oil and refined petroleum products pipelines, terminals and other logistics assets (the Contributed Assets) to us and we completed the initial public offering (IPO) of 17,250,000 of our common units representing a 29.4 percent limited partner interest in us. Valero owns the 2 percent general partner interest and the remaining 68.6 percent limited partner interest in us.

The statement of income data for the three months and year ended December 31, 2012 and for the period from January 1, 2013 through December 15, 2013 reflect the results of operations of the Contributed Assets, and the balance sheet data as of December 31, 2012 reflects the assets, liabilities and net investment associated with the Contributed Assets. References to this financial data are made with respect to Valero Energy Partners LP Predecessor (Predecessor), our predecessor for accounting purposes. The statement of income data for the period from December 16, 2013 through December 31, 2013 reflect the results of operations of Valero Energy Partners LP (Partnership, we, our or us), and the balance sheet data as of December 31, 2013 reflects the assets, liabilities and partners' capital of the Partnership.

The Partnership's future results of operations may not be comparable to the Predecessor's historical results of operations for the reasons described below:

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Revenues. Our Predecessor generated revenues by providing fee-based transportation and terminaling services to Valero and by leasing certain crude oil and refined petroleum products storage capacity to Valero. Subsequent to the IPO, we entered into a master transportation services agreement and a master terminal services agreement with Valero with respect to our pipelines and terminals. Under these commercial agreements, the historical storage capacity lease arrangements were replaced with terminaling throughput fees. In addition, we began charging a terminaling throughput fee for crude oil delivered to our Lucas terminal for which we have not historically charged a throughput fee.

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General and administrative expenses. Our Predecessor's general and administrative expenses include direct charges for the management and operation of our logistics assets and certain expenses allocated by Valero for general corporate services, such as treasury, accounting and legal services. These expenses were charged, or allocated, to our Predecessor based on the nature of the expenses. Effective with the IPO, the Partnership pays a fee to Valero for the management of our operations and general corporate services. In addition, the Partnership incurs additional incremental general and administrative expenses as a result of being a separate publicly traded limited partnership.

(b)

The increase in operating expenses for the three months ended December 31, 2013 compared to the three months ended December 31, 2012 is primarily due to $1.5 million in higher maintenance expenses at our Lucas and Collierville crude systems and our West Memphis terminal related to tank inspection, cleaning and repair work for regulatory compliance purposes.

(c)

The increase in general and administrative expenses for the three months ended December 31, 2013 compared to the three months ended December 31, 2012 is due to $222,000 in incremental costs related to the management fee charged to us by Valero effective with the IPO and the additional incremental costs of being a separate publicly traded partnership, and an increase of $216,000 in costs allocated by Valero in the Predecessor's financial statements, which is primarily attributable to higher incentive compensation for Valero employees who provided general corporate services during 2013.

(d)

The increase in depreciation expense for the three months ended December 31, 2013 compared to the three months ended December 31, 2012 is primarily due to $378,000 for the write-off of the remaining net book value of miscellaneous equipment that was retired at our Port Arthur products system.

(e)

Our income tax expense is associated with the Texas margin tax. For the year ended December 31, 2013, our effective tax rate increased to 2.3% compared to less than 1% for the year ended December 31, 2012. The increase was primarily due to deferred tax expense recorded in connection with the initial recognition of a deferred tax liability associated with a change in the law with respect to the Texas margin tax. During the three months ended December 31, 2013, we made an adjustment to reduce our deferred tax liability resulting in an income tax benefit for the period. Because this was a one-time item associated with a law change, we anticipate our effective tax rate to return to previous levels in future periods. 

(f)

 Represents the sum of volumes transported through each separately tariffed pipeline segment. 

(g)

Management uses average revenue per barrel to evaluate performance and compare profitability to other companies in the industry. There are a variety of ways to calculate average revenue per barrel; different companies may calculate it in different ways. We calculate average revenue per barrel as revenue divided by throughput for the period. Throughput can be derived by multiplying the throughput barrels per day (BPD) by the number of days in the period. Investors and analysts use this financial measure to help analyze and compare companies in the industry on the basis of operating performance. This financial measure should not be considered as an alternative to revenues presented in accordance with U.S. generally accepted accounting principles (GAAP).    

(h)

Prior to the IPO, our Predecessor leased some of our refined petroleum products and crude oil storage capacity to Valero. Subsequent to the IPO, under our commercial agreements with Valero, these storage capacity lease agreements were replaced with terminaling fees.    

(i)

We define EBITDA as net income before income tax expense, interest expense and depreciation expense. We define distributable cash flow as EBITDA less cash payments during the period for interest, income taxes and maintenance capital expenditures, plus adjustments related to minimum throughput commitments and the receipt or amortization of deferred rental payments. We define coverage ratio as the ratio of distributable cash flow to the total distribution declared.

EBITDA, distributable cash flow and coverage ratio are supplemental financial measures that are not defined under GAAP that management and external users of our financial statements, such as industry analysts, investors, lenders and rating agencies, may use to assess:

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our operating performance as compared to other publicly traded limited partnerships in the transportation and logistics industry, without regard to historical cost basis or, in the case of EBITDA, financing methods;

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the ability of our business to generate sufficient cash to support our decision to make distributions to our unitholders;

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our ability to incur and service debt and fund capital expenditures; and

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the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.

We believe that the presentation of EBITDA provides useful information to investors in assessing our financial condition and results of operations. The GAAP measures most directly comparable to EBITDA are net income and net cash provided by operating activities. EBITDA should not be considered an alternative to net income or net cash provided by operating activities presented in accordance with GAAP. EBITDA has important limitations as an analytical tool because it excludes some, but not all, items that affect net income or net cash provided by operating activities. EBITDA should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Additionally, because EBITDA may be defined differently by other companies in our industry, our definition of EBITDA may not be comparable to similarly titled measures of other companies, thereby diminishing its utility.

We use distributable cash flow to measure whether we have generated from our operations, or "earned," an amount of cash sufficient to support the payment of the minimum quarterly distributions. Our partnership agreement contains the concept of "operating surplus" to determine whether our operations are generating sufficient cash to support the distributions that we are paying, as opposed to returning capital to our partners. Because operating surplus is a cumulative concept (measured from the IPO date, and compared to cumulative distributions from the IPO date), we use the term distributable cash flow to approximate operating surplus on a quarterly or annual, rather than a cumulative, basis. As a result, distributable cash flow is not necessarily indicative of the actual cash we have on hand to distribute or that we are required to distribute.

We use the coverage ratio to reflect the relationship between our distributable cash flow and the total distribution declared. We have also provided the ratio of net income attributable to partners, the most directly comparable GAAP measure to distributable cash flow, to the total distribution declared.

(j)

Actual distribution to our general partner was $43,479, which differs from the amount reflected on the table due to rounding.