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Net Income Per Limited Partner Unit
 6 Months Ended
Jun. 30, 2012
Net Income Per Limited Partner Unit  
Net Income Per Limited Partner Unit

Note 8—Net Income Per Limited Partner Unit

 

Basic and diluted net income per limited partner unit is determined pursuant to the two-class method for Master Limited Partnerships as prescribed in the FASB guidance.  The two-class method is an earnings allocation formula that determines earnings to our general partner, common unit holders and participating securities according to distributions pertaining to the current period’s net income and participation rights in undistributed earnings.  Under this method, all earnings are allocated to our general partner, common unit holders and participating securities based on their respective rights to receive distributions, regardless of whether those earnings would actually be distributed during a particular period from an economic or practical perspective.

 

The Partnership calculates basic and diluted net income per limited partner unit by dividing net income attributable to Plains, after deducting the amount allocated to the general partner’s interest, incentive distribution rights (“IDRs”) and participating securities, by the basic and diluted weighted-average number of limited partner units outstanding during the period.  Participating securities include LTIP awards that have vested distribution equivalent rights (“DERs”), which entitle the grantee to a cash payment equal to the cash distribution paid on our outstanding common units.

 

Diluted net income per limited partner unit is computed based on the weighted average number of units plus the effect of dilutive potential units outstanding during the period using the two-class method.  Our LTIP awards that contemplate the issuance of common units are considered dilutive unless (i) vesting occurs only upon the satisfaction of a performance condition and (ii) that performance condition has yet to be satisfied.  LTIP awards that are deemed to be dilutive are reduced by a hypothetical unit repurchase based on the remaining unamortized fair value, as prescribed by the treasury stock method in guidance issued by the FASB.  See Note 10 to our Consolidated Financial Statements included in Part IV of our 2011 Annual Report on Form 10-K for a complete discussion of our LTIP awards including specific discussion regarding DERs.

 

The following table sets forth the computation of basic and diluted earnings per limited partner unit for the three and six months ended June 30, 2012 and 2011 (amounts in millions, except per unit data):

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

Basic Net Income per Limited Partner Unit

 

 

 

 

 

 

 

 

 

Net income attributable to Plains

 

$

378

 

$

225

 

$

609

 

$

408

 

Less: General partner’s incentive distribution (1)

 

(69

)

(52

)

(134

)

(103

)

Less: General partner 2% ownership (1)

 

(6

)

(3

)

(10

)

(6

)

Net income available to limited partners

 

303

 

170

 

465

 

299

 

Less: Undistributed earnings allocated and distributions to participating securities (1)

 

(2

)

—

 

(3

)

—

 

Net income available to limited partners in accordance with application of the two-class method for MLPs

 

$

301

 

$

170

 

$

462

 

$

299

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average number of limited partner units outstanding

 

162

 

149

 

159

 

146

 

 

 

 

 

 

 

 

 

 

 

Basic net income per limited partner unit

 

$

1.86

 

$

1.14

 

$

2.90

 

$

2.04

 

 

 

 

 

 

 

 

 

 

 

Diluted Net Income per Limited Partner Unit

 

 

 

 

 

 

 

 

 

Net income attributable to Plains

 

$

378

 

$

225

 

$

609

 

$

408

 

Less: General partner’s incentive distribution (1)

 

(69

)

(52

)

(134

)

(103

)

Less: General partner 2% ownership (1)

 

(6

)

(3

)

(10

)

(6

)

Net income available to limited partners

 

303

 

170

 

465

 

299

 

Less: Undistributed earnings allocated and distributions to participating securities (1)

 

(1

)

—

 

(2

)

—

 

Net income available to limited partners in accordance with application of the two-class method for MLPs

 

$

302

 

$

170

 

$

463

 

$

299

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average number of limited partner units outstanding

 

162

 

149

 

159

 

146

 

Effect of dilutive securities: Weighted average LTIP units

 

1

 

1

 

2

 

1

 

Diluted weighted average number of limited partner units outstanding

 

163

 

150

 

161

 

147

 

 

 

 

 

 

 

 

 

 

 

Diluted net income per limited partner unit

 

$

1.85

 

$

1.13

 

$

2.88

 

$

2.03

 

 

(1)                         We calculate net income available to limited partners based on the distributions pertaining to the current period’s net income.  After adjusting for 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 participating securities in accordance with the contractual terms of the partnership agreement and as further prescribed under the two-class method.

 

The terms of our Partnership Agreement limit the general partner’s incentive distribution to the amount of Available Cash, which as defined in the Partnership Agreement is net of reserves deemed appropriate.  As such, IDRs are not allocated undistributed earnings or distributions in excess of earnings for EPU calculation purposes.  If, however, undistributed earnings were allocated to our IDRs beyond amounts distributable to them under the terms of the Partnership Agreement, both basic and diluted earnings per limited partner unit would decrease by $0.38 per unit for the three months ended June 30, 2012 and by $0.37 per unit for the six months ended June 30, 2012.  Similarly, both basic and diluted earnings per limited partner unit would decrease by $0.08 per unit for the three months ended June 30, 2011 and by $0.02 per unit for the six months ended June 30, 2011.