Equity and Partners' Capital | 4. EQUITY AND PARTNERS’ CAPITAL Equity offerings. Pursuant to the Partnership’s registration statement filed with the SEC in August 2014 authorizing the issuance of up to an aggregate of $500.0 million of common units (“$500.0 million COP”), during the year ended December 31, 2015, the Partnership issued 873,525 common units, at an average price of $66.61 , generating proceeds of $57.4 million (net of $0.8 million for the underwriting discount and other offering expenses). Net proceeds were used for general partnership purposes, including funding capital expenditures. Gross proceeds generated during the year ended December 31, 2015, were $58.2 million . Commissions paid during the year ended December 31, 2015, were $0.6 million . The Partnership issued no common units under the $500.0 million COP during the three months ended March 31, 2016 . 4. EQUITY AND PARTNERS’ CAPITAL (CONTINUED) Class C units. In connection with the closing of the DBM acquisition in November 2014, the Partnership issued 10,913,853 Class C units to AMH at a price of $68.72 per unit, generating proceeds of $750.0 million , pursuant to the Unit Purchase Agreement (“UPA”) with Anadarko and AMH. All outstanding Class C units will convert into common units on a one-for-one basis on December 31, 2017, unless the Partnership elects to convert such units earlier or Anadarko extends the conversion date. The Class C units were issued to partially fund the acquisition of DBM, and the UPA contains an optional redemption feature that provides the Partnership the ability to redeem up to $150.0 million of the Class C units within 10 days of the receipt of cash proceeds from an entity that is not an affiliate of the Partnership or AMH, if these cash proceeds were in relation to (i) the assets of DBM, (ii) the equity interests in DBM or (iii) the equity interests in a subsidiary of the Partnership that owns a majority of the outstanding equity interests in DBM. As of March 31, 2016 , no such proceeds had been received, and no Class C units had been redeemed. The Class C units were issued at a discount to the then-current market price of the common units into which they are convertible. This discount, totaling $34.8 million , represents a beneficial conversion feature, and at issuance, it was reflected as an increase in common unitholders’ capital and a decrease in Class C unitholder capital to reflect the fair value of the Class C units at issuance. The beneficial conversion feature is considered a non-cash distribution that will be recognized from the date of issuance through the date of conversion, resulting in an increase in Class C unitholder capital and a decrease in common unitholders’ capital as amortized. The beneficial conversion feature is amortized assuming a conversion date of December 31, 2017, using the effective yield method. The impact of the beneficial conversion feature amortization is also included in the calculation of earnings per unit. Series A Preferred units. In connection with the closing of the Springfield acquisition on March 14, 2016, the Partnership completed the issuance and sale of 14,030,611 Series A Preferred units to private investors for a cash purchase price of $32.00 per unit, generating proceeds of $440.0 million (net of fees and expenses, including a 2.0% transaction fee paid to the private investors). In April 2016, the Partnership issued an additional 7,892,220 Series A Preferred units pursuant to the full exercise of an option granted in connection with the initial issuance. The Series A Preferred unitholders may convert the Series A Preferred units into common units on a one -for-one basis at any time after the second anniversary of the issuance date, in whole or in part, subject to certain conversion thresholds. Similarly, the Partnership may convert the Series A Preferred units at any time after the third anniversary of the issuance date, in whole or in part, if the closing price of the Partnership’s common units is greater than $48.00 per common unit for 20 of the 30 preceding trading days, and subject to other certain conversion thresholds. In addition, upon certain events involving a change of control, the Series A Preferred unitholders may elect on an individual basis, subject to certain conditions, to (i) convert their Series A Preferred units to common units at the then applicable conversion rate, (ii) if the Partnership is not the surviving entity (or if the Partnership is the surviving entity, but its common units will cease to be listed), require the Partnership to use commercially reasonable efforts to cause the surviving entity in any such transaction to issue a substantially equivalent security (or convert into common units based on a specified formula, if the Partnership is unable to cause such substantially equivalent securities to be issued), (iii) if the Partnership is the surviving entity, continue to hold their Series A Preferred units, or (iv) require the Partnership to redeem the Series A Preferred units at a price per Series A Preferred unit of $32.32 , plus accrued and unpaid distributions to be paid in cash or common units at the discretion of the Partnership. The Series A Preferred unitholders will vote on an as-converted basis with the Partnership’s common unitholders and will have certain other class voting rights with respect to any amendment to the partnership agreement that would adversely affect any rights, preferences or privileges of the Series A Preferred unitholders. Also in connection with the issuance of the Series A Preferred units, the Partnership entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with the Series A Preferred unit purchasers relating to the registered resale of the common units representing limited partner interests in the Partnership issuable upon conversion of the Series A Preferred units. Pursuant to the Registration Rights Agreement, the Partnership is required to use its commercially reasonable efforts to file and maintain a registration statement for the resale of the converted Series A Preferred units, with such registration statement to become effective no later than March 2018. 4. EQUITY AND PARTNERS’ CAPITAL (CONTINUED) The Series A Preferred units from the initial issuance were issued at a discount to the then-current market price of the common units into which they are convertible. This discount, totaling $21.7 million , represents a beneficial conversion feature, and on the date the Preferred Unit Purchase Agreement was signed (the “commitment date”), it was reflected as an increase in common unitholders’ capital and a decrease in Series A Preferred unitholders’ capital to reflect the fair value of the Series A Preferred units on the commitment date. The beneficial conversion feature is considered a non-cash distribution that will be recognized from the issuance date through the date of earliest conversion, resulting in an increase in Series A Preferred unitholders’ capital and a decrease in common unitholders’ capital as amortized. The beneficial conversion feature is amortized assuming a conversion date of March 14, 2018, using the effective yield method. The impact of the beneficial conversion feature will also be included in the calculation of earnings per unit. Partnership interests. The Partnership’s common units are listed on the New York Stock Exchange under the symbol “WES.” The following table summarizes the common, Class C, Series A Preferred and general partner units issued during the three months ended March 31, 2016 : Common Units Class C Units Series A Preferred Units General Partner Units Total Balance at December 31, 2015 128,576,965 11,411,862 — 2,583,068 142,571,895 PIK Class C units — 323,584 — — 323,584 Springfield acquisition 2,089,602 — 14,030,611 — 16,120,213 Balance at March 31, 2016 130,666,567 11,735,446 14,030,611 2,583,068 159,015,692 Holdings of Partnership equity. As of March 31, 2016 , WGP held 50,132,046 common units, representing a 31.5% limited partner interest in the Partnership, and, through its ownership of the general partner, WGP indirectly held 2,583,068 general partner units, representing a 1.6% general partner interest in the Partnership, and 100% of the IDRs. As of March 31, 2016 , other subsidiaries of Anadarko held 2,011,380 common units and 11,735,446 Class C units, representing an aggregate 8.7% limited partner interest in the Partnership. As of March 31, 2016 , the public held 78,523,141 common units, representing a 49.4% limited partner interest in the Partnership and private investors held 14,030,611 Series A Preferred units, representing an 8.8% limited partner interest in the Partnership. Net income (loss) per unit for common units. Net income (loss) attributable to Western Gas Partners, LP earned on and subsequent to the date of the acquisition of the Partnership assets, net of distributions on the Series A Preferred units and amortization of the Series A Preferred unit beneficial conversion feature (see Series A Preferred units above), is allocated to the general partner, the common unitholders and the Class C unitholder, in accordance with their respective weighted-average ownership percentages (exclusive of the Series A Preferred unit limited partnership interest) and, when applicable, giving effect to incentive distributions allocable to the general partner. The allocable limited partners’ interest in net income (loss) is also net of amortization of the beneficial conversion feature related to the Class C units (see Class C units above) and is allocated between the common and Class C unitholders by applying the provisions of the partnership agreement that govern actual cash distributions and capital account allocations, as if all earnings for the period had been distributed. Net income (loss) attributable to the Partnership assets acquired from Anadarko for periods prior to the Partnership’s acquisition of the Partnership assets is not allocated to the limited partners for purposes of calculating net income (loss) per common unit. 4. EQUITY AND PARTNERS’ CAPITAL (CONTINUED) Basic net income (loss) per common unit is calculated by dividing the limited partners’ interest in net income (loss) attributable to common unitholders by the weighted-average number of common units outstanding during the period. The common units issued in connection with acquisitions and equity offerings are included on a weighted-average basis for periods they were outstanding. The Series A Preferred units are not considered a participating security as they only have distribution rights up to the specified per-unit quarterly distribution and have no rights to the Partnership’s undistributed earnings. Because the Class C units participate in distributions with common units according to a predetermined formula (see Note 3 ), they are considered a participating security and are included in the computation of earnings per unit pursuant to the two-class method. The Class C unit participation right results in a non-contingent transfer of value each time the Partnership declares a distribution. Diluted net income (loss) per common unit is calculated by dividing the sum of (i) the limited partners’ interest in net income (loss) attributable to common units adjusted for distributions on the Series A Preferred units and a reallocation of the limited partners’ interest in net income (loss) assuming conversion of the Series A Preferred units into common units, and (ii) the limited partners’ interest in net income (loss) allocable to the Class C units as a participating security, by the sum of the weighted-average number of common units outstanding plus the dilutive effect of (i) the weighted-average number of outstanding Class C units and (ii) the weighted-average number of common units outstanding assuming conversion of the Series A Preferred units. The following table illustrates the Partnership’s calculation of net income (loss) per unit for common units: Three Months Ended thousands except per-unit amounts 2016 2015 Net income (loss) attributable to Western Gas Partners, LP $ 116,060 $ (156,493 ) Pre-acquisition net (income) loss allocated to Anadarko (11,326 ) (25,039 ) Series A Preferred units interest in net (income) loss (1) (2,329 ) — General partner interest in net (income) loss (55,400 ) (37,177 ) Common and Class C limited partners’ interest in net income (loss) $ 47,005 $ (218,709 ) Net income (loss) allocable to common units (1) $ 39,562 $ (205,258 ) Net income (loss) allocable to Class C units (1) 7,443 (13,451 ) Common and Class C limited partners’ interest in net income (loss) $ 47,005 $ (218,709 ) Net income (loss) per unit Common units – basic and diluted (2) $ 0.31 $ (1.61 ) Weighted-average units outstanding Common units – basic and diluted 128,990 127,736 Excluded due to anti-dilutive effect: Class C units 11,590 10,938 Series A Preferred units assuming conversion to common units 2,775 — (1) Adjusted to reflect amortization of the beneficial conversion feature. (2) The impact of Class C units and the conversion of Series A Preferred units would be anti-dilutive. |