Net Income Per Common Unit

9 Months Ended

Sep. 30, 2019

We calculate basic and diluted net income per common unit by dividing net income attributable to PAA (after deducting amounts allocated to preferred unitholders and participating securities) by the basic and diluted weighted average number of common units outstanding during the period. Participating securities include LTIP awards that have vested DERs, which entitle the grantee to a cash payment equal to the cash distribution paid on our outstanding common units.

The diluted weighted average number of common units is computed based on the weighted average number of common units plus the effect of potentially dilutive securities outstanding during the period, which include (i) our Series A preferred units and (ii) our equity-indexed compensation plan awards. When applying the if-converted method prescribed by FASB guidance, the possible conversion of our Series A preferred units was excluded from the calculation of diluted net income per common unit for the nine months ended September 30, 2018 as the effect was antidilutive. Our equity-indexed compensation plan awards that contemplate the issuance of common units are considered dilutive unless (i) they become vested only upon the satisfaction of a performance condition and (ii) that performance condition has yet to be satisfied. Equity-indexed compensation plan awards that were deemed to be dilutive during the three and nine months ended September 30, 2019 and 2018 were reduced by a hypothetical common unit repurchase based on the remaining unamortized fair value, as prescribed by the treasury stock method in guidance issued by the FASB. See Note 17 to our Consolidated Financial Statements included in Part IV of our 2018 Annual Report on Form 10-K for a complete discussion of our equity-indexed compensation plan awards.

The following table sets forth the computation of basic and diluted net income per common unit (in millions, except per unit data):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Basic Net Income per Common Unit
Net income attributable to PAA	$	449		$	710		$	1,865		$	1,099
Distributions to Series A preferred unitholders	(37		)	(37		)	(112		)	(112		)
Distributions to Series B preferred unitholders	(12		)	(12		)	(37		)	(37		)
Distributions to participating securities	(1		)	(1		)	(2		)	(2		)
Other	—			(2		)	(4		)	(2		)
Net income allocated to common unitholders ⁽¹⁾	$	399		$	658		$	1,710		$	946

Basic weighted average common units outstanding	728			726			727			726

Basic net income per common unit	$	0.55		$	0.91		$	2.35		$	1.30

Diluted Net Income per Common Unit
Net income attributable to PAA	$	449		$	710		$	1,865		$	1,099
Distributions to Series A preferred unitholders	—			—			—			(112		)
Distributions to Series B preferred unitholders	(12		)	(12		)	(37		)	(37		)
Distributions to participating securities	(1		)	(1		)	(2		)	(2		)
Other	—			—			—			(1		)
Net income allocated to common unitholders ⁽¹⁾	$	436		$	697		$	1,826		$	947

Basic weighted average common units outstanding	728			726			727			726
Effect of dilutive securities:
Series A preferred units	71			71			71			—
Equity-indexed compensation plan awards	1			2			2			2
Diluted weighted average common units outstanding	800			799			800			728

Diluted net income per common unit	$	0.55		$	0.87		$	2.28		$	1.30

⁽¹⁾

We calculate net income allocated to common unitholders based on the distributions pertaining to the current period’s net income (whether paid in cash or in-kind). After adjusting for the appropriate period’s distributions, the remaining undistributed earnings or excess distributions over earnings, if any, are allocated to common unitholders and participating securities in accordance with the contractual terms of our partnership agreement in effect for the period and as further prescribed under the two-class method.