5. Earnings Per Unit

Earnings in excess of distributions are allocated to the limited partners based on their respective ownership interests. Payments made to our unitholders are determined in relation to actual distributions declared and are not based on the net income allocations used in the calculation of earnings per unit.

Diluted earnings per unit includes the effects of potentially dilutive units of our common units that consist of unvested phantom units. These units are non-participating securities due to the forfeitable nature of their associated distribution equivalent rights, prior to vesting. We do not consider these units in the two-class method when calculating earnings per unit. Basic and diluted earnings per unit applicable to subordinated limited partners are the same because there were no potentially dilutive subordinated units outstanding.

In accordance with our partnership agreement, Western's subordinated units converted to common units once we met specified distribution targets and successfully complete other tests set forth in our Second Amended and Restated Agreement of Limited Partnership ("Second A&R Partnership Agreement"). On March 2, 2017, the requirements for the conversion of all subordinated units into common units were satisfied under the partnership agreement. As a result, the 22,811,000 subordinated units held by Western converted into common units on a one-for-one basis and thereafter participated on terms equal with all other common units in distributions of available cash. The conversion of the subordinated units did not impact the amount of cash distributions paid by us or the total number of outstanding units. Refer to Note 10, Equity, for further information.

In addition to the common and subordinated units, we have identified the general partner interest, incentive distribution rights and distributions associated with the TexNew Mex Units as participating securities and use the two-class method when calculating earnings per unit applicable to limited partners that is based on the weighted-average number of common units outstanding during the period. We make incentive distribution payments to our General Partner when our per unit distribution amount exceeds the target distribution. During the three months ended March 31, 2017 and 2016, we made incentive distribution right payments to our General Partner of $2.1 million and $0.8 million, respectively. Refer to Note 10, Equity, for further information regarding incentive distribution rights.

To the extent there is sufficient available cash from operating surplus under the Second A&R Partnership Agreement, the holder of the TexNew Mex Units will be entitled to receive a distribution equal to 80% of the excess of TexNew Mex Shared Segment Distributable Cash Flow over the TexNew Mex Base Amount (as such terms are defined in the Second A&R Partnership Agreement). To the extent the holder of a TexNew Mex Unit is entitled to such a distribution, that distribution will be preferential to all other unit holder distributions. During the three months ended March 31, 2017 and 2016, the TexNew Mex unitholders were not entitled to any distributions. Refer to Note 10, Equity, for further information.

The calculation of net income per unit for the three months ended March 31, 2017 and 2016, respectively, is as follows:



	Three Months Ended
	March 31,
	2017			2016
	(In thousands, except per unit data)
Net income	$	19,886		$	5,757
Net loss attributable to General Partner (1)	—			(8,250		)
Net income attributable to limited partners	19,886			14,007
General Partner distributions	(2,147		)	(761		)
Limited partners' distributions on common units	(16,657		)	(9,595		)
Limited partners' distributions on subordinated units	(9,979		)	(8,954		)
Distributions greater than earnings	$	(8,897	)	$	(5,303	)

General Partners' earnings:
Distributions	$	2,147		$	761
Net loss attributable to General Partner (1)	—			(8,250		)
Total General Partners' earnings (loss)	$	2,147		$	(7,489	)

Limited partners' earnings on common units:
Distributions	$	16,657		$	9,595
Allocation of distributions greater than earnings	(6,675		)	(2,743		)
Total limited partners' earnings on common units	$	9,982		$	6,852

Limited partners' earnings on subordinated units (2):
Distributions	$	9,979		$	8,954
Allocation of distributions greater than earnings	(2,222		)	(2,560		)
Total limited partners' earnings on subordinated units	$	7,757		$	6,394

Weighted-average limited partner units outstanding:
Common units - basic	45,681			24,448
Common units - diluted	45,688			24,454
Subordinated units - basic and diluted	15,207			22,811

Net income per limited partner unit:
Common - basic	$	0.22		$	0.28
Common - diluted	0.22			0.28
Subordinated - basic and diluted	0.51			0.28


(1)	We apply the two-class method to calculate earnings per unit and allocate the results of operations of the St. Paul Park Logistics Assets prior to the St. Paul Park Logistics Transaction entirely to our general partner. The limited partners had no rights to the results of operations before the acquisition.


(2)	On March 2, 2017, the 22,811,000 subordinated units held by Western converted into common units on a one-for-one basis and thereafter participated on terms equal with all other common units in distributions of available cash. Distributions greater than earnings were allocated to the subordinated units through March 2, 2017.