Note 11—Equity

Partnership Equity

The Partnership’s equity consists of a 0.1% general partner interest and a 99.9% limited partner interest, which consists of common units. Prior to August 2014, the Partnership’s limited partner interest also included subordinated units. The subordination period ended in August 2014, at which time all remaining subordinated units were converted into common units on a one-for-one basis. Our general partner is not obligated to make any additional capital contributions or to guarantee or pay any of our debts and obligations.

Common Units Issued in Business Combination

During the three months ended June 30, 2015, we issued 386,383 common units as consideration for a water solutions facility acquisition.

Our Distribution Policy

Our general partner has adopted a cash distribution policy that requires us to pay a quarterly distribution to unitholders as of the record date to the extent we have sufficient cash from operations after establishment of cash reserves and payment of fees and expenses, including payments to the general partner and its affiliates, referred to as “available cash.” The general partner will also receive, in addition to distributions on its 0.1% general partner interest, additional distributions based on the level of distributions to the limited partners. These distributions are referred to as “incentive distributions” or “IDRs.” Our general partner currently holds the IDRs, but may transfer these rights separately from its general partner interest, subject to restrictions in our partnership agreement.

The following table illustrates the percentage allocations of available cash from operating surplus between our unitholders and our general partner based on the specified target distribution levels. The amounts set forth under “Marginal Percentage Interest In Distributions” are the percentage interests of our general partner and our unitholders in any available cash from operating surplus we distribute up to and including the corresponding amount in the column “Total Quarterly Distribution Per Unit,” until available cash from operating surplus we distribute reaches the next target distribution level, if any. The percentage interests shown for our unitholders and our general partner for the minimum quarterly distribution are also applicable to quarterly distribution amounts that are less than the minimum quarterly distribution. The percentage interests set forth below for our general partner include its 0.1% general partner interest, and assume that our general partner has contributed any additional capital necessary to maintain its 0.1% general partner interest and has not transferred its IDRs.

							Marginal Percentage Interest In
	Total Quarterly						Distributions
	Distribution Per Unit						Unitholders		General Partner
Minimum quarterly distribution					$	0.337500	99.9	%	0.1	%
First target distribution	above	$	0.337500	up to	$	0.388125	99.9	%	0.1	%
Second target distribution	above	$	0.388125	up to	$	0.421875	86.9	%	13.1	%
Third target distribution	above	$	0.421875	up to	$	0.506250	76.9	%	23.1	%
Thereafter	above	$	0.506250				51.9	%	48.1	%

During the three months ended June 30, 2015, we distributed a total of $73.1 million ($0.6250 per common and general partner notional unit) to our unitholders of record on May 5, 2015, which included an incentive distribution of $13.4 million to our general partner. In July 2015, we declared a distribution of $0.6325 per common unit, to be paid on August 14, 2015 to unitholders of record on August 3, 2015. This distribution is expected to be $81.7 million in total, including amounts to be paid on common and general partner notional units and the amount to be paid on IDRs.

TLP’s Distribution Policy

TLP’s partnership agreement requires it to pay a quarterly distribution to unitholders as of the record date to the extent TLP has sufficient cash from operations after establishment of cash reserves and payment of fees and expenses, including payments to TLP’s general partner and its affiliates, referred to as “available cash.” TLP’s general partner will also receive, in addition to distributions on its 2.0% general partner interest, additional distributions based on the level of distributions to the limited partners. These distributions are referred to as “incentive distributions” or “IDRs.” TLP’s general partner currently holds the IDRs, but may transfer these rights separately from its general partner interest, subject to restrictions in TLP’s partnership agreement.

The following table illustrates the percentage allocations of available cash from operating surplus between TLP’s unitholders and TLP’s general partner based on the specified target distribution levels. The amounts set forth under “Marginal Percentage Interest In Distributions” are the percentage interests of TLP’s general partner and TLP’s unitholders in any available cash from operating surplus TLP distributes up to and including the corresponding amount in the column “Total Quarterly Distribution Per Unit,” until available cash from operating surplus TLP distributes reaches the next target distribution level, if any. The percentage interests shown for TLP’s unitholders and TLP’s general partner for the minimum quarterly distribution are also applicable to quarterly distribution amounts that are less than the minimum quarterly distribution. The percentage interests set forth below for TLP’s general partner include its 2.0% general partner interest, and assume that TLP’s general partner has contributed any additional capital necessary to maintain its 2.0% general partner interest and has not transferred its IDRs.

							Marginal Percentage Interest In
	Total Quarterly						Distributions
	Distribution Per Unit						Unitholders		General Partner
Minimum quarterly distribution					$	0.40	98	%	2	%
First target distribution	above	$	0.40	up to	$	0.44	98	%	2	%
Second target distribution	above	$	0.44	up to	$	0.50	85	%	15	%
Third target distribution	above	$	0.50	up to	$	0.60	75	%	25	%
Thereafter	above	$	0.60				50	%	50	%

During the three months ended June 30, 2015, TLP declared and paid a distribution of $0.6650 per unit. We received a total of $4.0 million from this distribution on our general partner interest, IDRs, and limited partner interest. The noncontrolling interest owners received a total of $8.6 million from this distribution. In July 2015, TLP declared a distribution of $0.6650 per unit, which was paid on August 7, 2015. We received a total of $4.0 million from this distribution on our general partner interest, IDRs, and limited partner interest. The noncontrolling interest owners received a total of $8.6 million from this distribution.

Equity-Based Incentive Compensation

Our general partner has adopted a long-term incentive plan (“LTIP”), which allows for the issuance of equity-based incentive compensation. Our general partner has granted certain restricted units to employees and directors, which vest in tranches, subject to the continued service of the recipients. The awards may also vest in the event of a change in control, at the discretion of the board of directors. No distributions accrue to or are paid on the restricted units during the vesting period.

The restricted units include awards that vest contingent on the continued service of the recipients through the vesting date (the “Service Awards”). The restricted units also include awards that are contingent both on the continued service of the recipients through the vesting date and also on the performance of our common units relative to other entities in the Alerian MLP Index (the “Index”) over specified periods of time (the “Performance Awards”).

The following table summarizes the Service Award activity during the three months ended June 30, 2015:

Unvested Service Award units at March 31, 2015		2,260,400
Units granted		308,823

Unvested Service Award units at June 30, 2015		2,569,223

The scheduled vesting of our Service Award units is summarized below:

Year Ending March 31,		Number of Units
2016 (nine months)		847,441
2017		846,141
2018		772,141
Thereafter		103,500

Unvested Service Award units at June 30, 2015		2,569,223

On July 1, 2015, 798,441 of the Service Award units vested. Of these units, recipients elected for us to withhold 252,307 common units for employee taxes, valued at $7.6 million. We issued the remaining 546,134 common units, valued at $16.5 million.

We record the expense for the first tranche of each Service Award on a straight-line basis over the period beginning with the grant date of the awards and ending with the vesting date of the tranche. We record the expense for succeeding tranches over the period beginning with the vesting date of the previous tranche and ending with the vesting date of the tranche. At each balance sheet date, we adjust the cumulative expense recorded using the estimated fair value of the awards at the balance sheet date. We calculate the fair value of the awards using the closing price of our common units on the New York Stock Exchange on the balance sheet date, adjusted to reflect the fact that the holders of the unvested units are not entitled to distributions during the vesting period. We estimate the impact of the lack of distribution rights during the vesting period using the value of the most recent distribution and assumptions that a market participant might make about future distribution growth.

We recorded expense related to Service Award units of $18.5 million and $7.9 million during the three months ended June 30, 2015 and 2014, respectively. We estimate that the future expense we will record on the unvested Service Award units at June 30, 2015 will be as follows (in thousands), after taking into consideration an estimate of forfeitures of approximately 173,000 units. For purposes of this calculation, we used the closing price of our common units on June 30, 2015, which was $30.33.

Year Ending March 31,
2016 (nine months)	$	18,373
2017	21,211
2018	6,853
2019	1,399
2020	189

Total	$	48,025

The following table is a rollforward of the liability related to the Service Award units, which is reported within accrued expenses and other payables in our condensed consolidated balance sheets (in thousands):

Balance at March 31, 2015	$	6,154
Expense recorded	18,503

Balance at June 30, 2015	$	24,657

The weighted-average fair value of the Service Award units at June 30, 2015 was $27.40 per common unit, which was calculated as the closing price of our common units on June 30, 2015, adjusted to reflect the fact that the restricted units are not entitled to distributions during the vesting period. The impact of the lack of distribution rights during the vesting period was estimated using the value of the most recent distribution and assumptions that a market participant might make about future distribution growth.

During April 2015, our general partner granted Performance Award units to certain employees. The maximum number of units that could vest on these Performance Awards for each vesting tranche is summarized below:

		Maximum Performance
Vesting Date		Award Units
July 1, 2015		682,382
July 1, 2016		680,382
July 1, 2017		672,382

Total		2,035,146

The number of Performance Award units that will vest is contingent on the performance of our common units relative to the performance of the other entities in the Index. Performance will be calculated based on the return on our common units (including changes in the market price of the common units and distributions paid during the performance period) relative to the returns on the common units of the other entities in the Index. Performance will be measured over the following periods:

Vesting Date of Tranche		Performance Period for Tranche
July 1, 2015		July 1, 2012 through June 30, 2015
July 1, 2016		July 1, 2013 through June 30, 2016
July 1, 2017		July 1, 2014 through June 30, 2017

The percentage of the maximum Performance Award units that will vest will depend on the percentage of entities in the Index that NGL outperforms, as summarized in the table below:

Percentage of Entities in the			Percentage of Maximum
Index that NGL Outperforms			Performance Award Units to Vest
Less than 50%			0%
50% - 75%			25–50%
75% - 90%			50%–100%
Greater than 90%			100%

During the July 1, 2012 through June 30, 2015 performance period, the return on our common units exceeded the return on 83% of our peer companies in the Index. As a result, the July 1, 2015 tranche of the Performance Awards vested at 76% of the maximum number of awards, and 518,426 common units vested on July 1, 2015. Of these units, recipients elected for us to withhold 205,045 common units for employee taxes, valued at $6.2 million. We issued the remaining 313,381 common units, valued at $9.4 million, on July 1, 2015.

We record the expense for each of the tranches of the Performance Awards on a straight-line basis over the period beginning with the grant date and ending with the vesting date of the tranche. At each balance sheet date, we adjust the cumulative expense recorded using the estimated fair value of the awards at the balance sheet date. We calculate the fair value of the awards using a Monte Carlo simulation. The estimated fair value at June 30, 2015 for each vesting tranche, and the expense recorded during the three months ended June 30, 2015, is summarized below (in thousands):

	Fair Value of		Life-to-Date
Vesting Date	Unvested Awards		Expense Recorded
July 1, 2015	$	15,708	$	15,469
July 1, 2016	10,543		1,720
July 1, 2017	6,931		602

Total	$	33,182	$	17,791

We estimate that the future expense we will record on the unvested Performance Award units at June 30, 2015 will be as follows (in thousands), after taking into consideration an estimate of forfeitures. For purposes of this calculation, we used the June 30, 2015 fair value of the Performance Awards.

Year Ending March 31,
2016 (nine months)	$	8,902
2017	5,131
2018	747

Total	$	14,780

The following table is a rollforward of the liability related to the Performance Award units, which is reported within accrued expenses and other payables in our condensed consolidated balance sheets (in thousands):

Balance at March 31, 2015	$	—
Expense recorded	17,791

Balance at June 30, 2015	$	17,791

The number of common units that may be delivered pursuant to awards under the LTIP is limited to 10% of the issued and outstanding common units. The maximum number of units deliverable under the plan automatically increases to 10% of the issued and outstanding common units immediately after each issuance of common units, unless the plan administrator determines to increase the maximum number of units deliverable by a lesser amount. Units withheld to satisfy tax withholding obligations are not considered to be delivered under the LTIP. In addition, when an award is forfeited, canceled, exercised, paid or otherwise terminates or expires without the delivery of units, the units subject to such award are again available for new awards under the LTIP. At June 30, 2015, approximately 4.8 million common units remain available for issuance under the LTIP.

In August 2015, certain bonuses that were recorded as liabilities on the June 30, 2015 condensed consolidated balance sheet were paid in common units. We issued 463,239 common units related to these bonuses (before consideration of common units withheld for employee taxes).