Net Income per Limited Partner Unit and Cash Distributions | Net Income per Limited Partner Unit and Cash Distributions The Partnership’s net income is allocated to the limited partners, including subordinated unitholders, in accordance with their respective ownership percentages and, when applicable, giving effect to the incentive distribution rights held by GP Holdings. The allocation of undistributed earnings, or net income in excess of distributions, to the incentive distribution rights is limited to cash available for distribution for the period. The Partnership’s net income allocable to the limited partners is allocated between common and subordinated unitholders by applying the provisions of the Partnership’s partnership agreement that govern actual cash distributions as if all earnings for the period had been distributed. Any common units issued during the period are included on a weighted-average basis for the days in which they were outstanding. Net income attributable to the Water Assets for the periods prior to their acquisition was not allocated to the limited partners for purposes of calculating net income per limited partner unit as these results are not attributable to limited partners of the Partnership. Diluted net income per limited partner unit reflects the potential dilution that could occur if securities or agreements to issue common units, such as awards under the LTIP, were exercised, settled or converted into common units. When it is determined that potential common units should be included in diluted net income per limited partner unit calculation, the impact is reflected by applying the treasury stock method. The following table presents Partnership’s calculation of net income per limited partner unit for common and subordinated limited partner units. Three Months Ended June 30, Six Months Ended June 30, (in thousands, except unit data) 2016 2015 2016 2015 Net income $ 27,936 $ 13,790 $ 62,362 $ 26,714 Less: Pre-acquisition net income allocated to general partner (1) — 1,458 — 5,314 Less: General partner interest in net income attributable to incentive distribution rights 113 — 113 — Limited partner net income $ 27,823 $ 12,332 $ 62,249 $ 21,400 Net income allocable to common units $ 16,870 $ 6,166 $ 37,338 $ 10,700 Net income allocable to subordinated units 10,953 6,166 24,911 10,700 Limited partner net income $ 27,823 $ 12,332 $ 62,249 $ 21,400 Weighted-average limited partner units outstanding - basic: Common units 44,480,590 28,753,623 43,322,170 28,753,623 Subordinated units 28,753,623 28,753,623 28,753,623 28,753,623 Total 73,234,213 57,507,246 72,075,793 57,507,246 Weighted-average limited partner units outstanding - diluted: Common units (2) 44,809,466 28,806,680 43,608,573 28,788,271 Subordinated units 28,753,623 28,753,623 28,753,623 28,753,623 Total 73,563,089 57,560,303 72,362,196 57,541,894 Net income per limited partner unit - basic: Common units $ 0.38 $ 0.21 $ 0.86 $ 0.37 Subordinated units 0.38 0.21 0.87 0.37 Total $ 0.38 $ 0.21 $ 0.86 $ 0.37 Net income per limited partner unit - diluted: Common units $ 0.38 $ 0.21 $ 0.86 $ 0.37 Subordinated units (3) 0.38 0.21 0.87 0.37 Total $ 0.38 $ 0.21 $ 0.86 $ 0.37 Cash distributions declared per limited partner unit: (4) Common units $ 0.2235 $ 0.1905 $ 0.4335 $ 0.3780 Subordinated units 0.2235 0.1905 0.4335 0.3780 Total $ 0.2235 $ 0.1905 $ 0.4335 $ 0.3780 (1) Pre-acquisition net income allocated to the general partner relates to operations of the Water Assets for the period prior to their acquisition. (2) Diluted weighted-average limited partner common units includes the effect of 328,875 and 286,403 units for the three and six months ended June 30, 2016 , respectively, and 53,057 and 34,648 units for the three and six months ended June 30, 2015 , respectively, in each case related to phantom units. (3) Diluted income per limited partner unit is presented as if all earnings for the period had been distributed, and while it appears that more income is allocated to the subordinated unit holders than the common unitholders based on the dilution of the common units from the LTIP for the six months ended June 30, 2016, our partnership agreement prevents us from making a distribution to the subordinated unitholders in excess of those to the common unitholders. (4) See below for further discussion of cash distributions declared for the period presented. Subordinated Units GP Holdings owns all of the Partnership’s subordinated units. The principal difference between the Partnership’s common units and subordinated units is that, for any quarter during the “subordination period,” holders of the subordinated units will not be entitled to receive any distribution from operating surplus until the common units have received the minimum quarterly distribution for such quarter plus any arrearages in the payment of the minimum quarterly distribution from prior quarters. Subordinated units will not accrue arrearages. When the subordination period ends, each outstanding subordinated unit will convert into one common unit, which will then participate pro rata with the other common units in distributions. Incentive Distribution Rights All of the incentive distribution rights are held by GP Holdings. Incentive distribution rights represent the right to receive increasing percentages ( 15% , 25% and 50% ) of quarterly distributions from operating surplus after the minimum quarterly distribution and the target distribution levels (described below) have been achieved. For any quarter in which the Partnership has distributed cash from operating surplus to the common and subordinated unitholders in an amount equal to the minimum distribution, then the Partnership will distribute any additional available cash from operating surplus for that quarter among the unitholders and the incentive distribution rights holders in the following manner: Marginal Percentage Interest in Distributions Total Quarterly Distribution Per Unit Unitholders Incentive Distribution Rights Holders Minimum Quarterly Distribution $0.1875 100% —% First Target Distribution above $0.1875 up to $0.2156 100% —% Second Target Distribution above $0.2156 up to $0.2344 85% 15% Third Target Distribution above $0.2344 up to $0.2813 75% 25% Thereafter above $0.2813 50% 50% On May 12, 2016 , a cash distribution of $0.2100 per common and subordinated unit was paid to the Partnership’s unitholders related to the first quarter of 2016. On July 22, 2016 , the Board of Directors of the Partnership’s general partner declared a cash distribution to the Partnership’s unitholders for the second quarter of 2016 of $0.2235 per common and subordinated unit. The cash distribution will be paid on August 11, 2016 to unitholders of record at the close of business on August 2, 2016 . Also on August 11, 2016 , a cash distribution of $0.1 million will be made to GP Holdings related to its incentive distribution rights in the Partnership based upon the achievement of the second target distribution. |