EARNINGS PER LIMITED PARTNER UNIT AND DISTRIBUTIONS | NET INCOME/LOSS PER LIMITED PARTNER UNIT AND DISTRIBUTIONS Net Income/Loss Per Limited Partner Unit The following is a reconciliation of the net loss attributable to our limited partners and our limited partner units and the basic and diluted earnings per unit calculations for the three months ended March 31, 2015 and 2014 (in thousands, except unit and per unit data): Three Months Ended March 31, 2015 2014 Net loss $ (13,905 ) $ (1,289 ) Series A Preferred Unit fair value adjustment (1) — 33 Series A Preferred Unit in-kind distribution — (534 ) General partner Unit in-kind distribution (76 ) — Net loss attributable to Holdings (3,154 ) — Net loss attributable to partners $ (10,827 ) $ (1,790 ) General partner's interest (2) (239 ) (26 ) Class B Convertible limited partner interest (2) (3,119 ) — Limited partners' interest (2) Common (4,936 ) (1,045 ) Subordinated (2,533 ) (719 ) (1) The valuation adjustment to maximum redemption value of the Series A Preferred Unit in-kind distribution decreased the net loss attributable to partners for the three months ended March 31, 2014. (2) General Partner's and limited partners’ interests are calculated based on the allocation of net losses for the period, net of the allocation of Series A Preferred Unit in-kind distributions, Series A Preferred Unit fair value adjustments and General Partner unit in-kind distributions. The Class B Convertible Unit interest is calculated based on the allocation of only net losses for the period. Three Months Ended March 31, Common Units 2015 2014 Interest in net loss $ (4,936 ) $ (1,045 ) Effect of dilutive units - numerator (1) — — Dilutive interest in net loss $ (4,936 ) $ (1,045 ) Weighted-average units - basic 23,800,943 18,285,220 Effect of dilutive units - denominator (1) — — Weighted-average units - dilutive 23,800,943 18,285,220 Basic and diluted net loss per common unit $ (0.21 ) $ (0.06 ) Three Months Ended March 31, Subordinated Units 2015 2014 Interest in net loss $ (2,533 ) $ (719 ) Effect of dilutive units - numerator (1) — — Dilutive interest in net loss $ (2,533 ) $ (719 ) Weighted-average units - basic 12,213,713 12,213,713 Effect of dilutive units - denominator (1) — — Weighted-average units - dilutive 12,213,713 12,213,713 Basic and diluted net loss per subordinated unit $ (0.21 ) $ (0.06 ) (1) Because we had a net loss for all periods for common units and the subordinated units, the effect of the dilutive units would be anti-dilutive to the per unit calculation. Therefore, the weighted average units outstanding are the same for basic and dilutive net loss per unit for those periods. The weighted average units that were not included in the computation of diluted per unit amounts were 2,081 and 140,100 for the three months ended March 31, 2015 and 2014, respectively. Our calculation of the number of weighted-average units outstanding includes the common units that have been awarded to our directors that are deferred under our Non-Employee Director Deferred Compensation Plan. All of our Series A Preferred Units were converted into common units on August 4, 2014 (see Note 8). Prior to conversion, our Series A Preferred Units were considered participating securities for purposes of the basic earnings per unit calculation during periods in which they received cash distributions. We were required to pay in-kind distributions to the Series A Preferred Units for the first four full quarters beginning the second quarter of 2013, and continued to pay these distributions until the Series A Preferred Units were converted into common units. Because the Series A Preferred Units received in-kind distributions, they have been excluded from the basic earnings per unit calculation for the three months ended March 31, 2014. Distributions Our agreement of limited partnership, which was amended and restated on August 4, 2014 in order to establish the Class B Convertible Units (as amended and restated, the “Partnership Agreement”), requires that within 45 days after the end of each quarter, we distribute all of our available cash to unitholders of record on the applicable record date, as determined by our General Partner. We intend to make a minimum quarterly distribution to the holders of our common units and subordinated units of $0.40 per unit, or $1.60 on an annualized basis, to the extent we have sufficient cash from our operations after the establishment of cash reserves and the payment of costs and expenses, including reimbursements of expenses to our General Partner. However, there is no guarantee that we will pay the minimum quarterly distribution on our units in any quarter. Beginning with the third quarter of 2014, until such time that we have a distributable cash flow divided by cash distributions ratio (“Distributable Cash Flow Ratio”) of at least 1.0, Holdings, the holder of all of our subordinated units, waived the right to receive distributions on any subordinated units that would cause the Distributable Cash Flow Ratio to be less than 1.0. With respect to the fourth quarter of 2014, Holdings also waived the requirement that any distribution owed to it for that quarter be paid within 45 days of the end of the quarter, provided that the distribution was paid before or in conjunction with the filing of our 2014 Annual Report on Form 10-K. We paid a distribution of $0.28 per unit on our 12,213,713 subordinated units in conjunction with the filing of our 2014 Annual Report on Form 10-K. Paid In-Kind Distributions Series A Preferred Units. During the second quarter of 2013, we raised $40.0 million of equity through issuances of 1,715,000 Series A Preferred Units and an additional General Partner contribution to satisfy the requirements of our Previous Credit Facility (as defined in Note 6) (see Notes 6 and 8). Under the terms of our Partnership Agreement, we were required to pay the holders of our Series A Preferred Units quarterly distributions of in-kind Series A Preferred Units for the first four full quarters following the issuance of the units and continuing thereafter until the board of directors of our General Partner determined to begin paying quarterly distributions in cash. In-kind distributions were in the form of Series A Preferred Units at a rate of $0.40 per outstanding Series A Preferred Unit per quarter (or 7% per year of the per unit purchase price). Cash distributions were required to equal the greater of $0.40 per unit per quarter or the quarterly distribution paid with respect to each common unit. In accordance with the Partnership Agreement, our General Partner received a corresponding distribution of in-kind general partner units to maintain its 2.0% interest in us. In connection with the Holdings Transaction (see Notes 1 and 2), all holders of the Series A Preferred Units elected to convert their Series A Preferred Units into 2,015,638 common units based on a 110% exchange ratio. The following table represents the paid in-kind (“PIK”) distribution declared in 2014 through August 4, 2014, the date on which all outstanding Series A Preferred Units were converted to common units (in thousands, except per unit and in-kind distribution units): Payment Date Attributable to the Quarter Ended (1) Per Unit Distribution In-Kind Series A In-Kind Series A Distributions (2) In-Kind Unit to General Partner In-Kind General Partner Distribution Value (2) 2014 May 15, 2014 March 31, 2014 $ 0.40 31,513 $ 534 643 $ 11 (1) As a result of the conversion, the Series A Preferred Unit holders (and the corresponding General Partner units) ceased receiving PIK distributions effective with the quarter ended June 30, 2014, but received a cash distribution on the converted common units. (2) The fair value was calculated as required, based on the common unit price at the quarter end date for the period attributable to the distribution, multiplied by the number of units distributed. Class B Convertible Units. In connection with the Contribution and the TexStar Rich Gas System Transaction, on August 4, 2014, we established our Class B Convertible Units. As of March 31, 2015, the Class B Convertible Units consist of 15,149,636 of such units including the additional Class B Convertible Units issued in-kind as a distribution (“Class B PIK Units”). The Class B Convertible Units are not participating securities for purposes of the earnings per unit calculation. Commencing with the quarter ended September 30, 2014 and until converted, as long as certain requirements are met, the holders of the Class B Convertible Units will receive quarterly distributions in an amount equal to $0.3257 per unit. These distributions will be paid quarterly in Class B PIK Units within 45 days after the end of each quarter. Our General Partner was entitled, and has exercised its right, to retain its 2.0% general partner interest in us in connection with the original issuance of 14,633,000 Class B Convertible Units. In connection with future distributions of Class B PIK Units, the General Partner is entitled to a corresponding distribution to maintain its 2.0% general partner interest in us. The Class B Convertible Units have the same rights, preferences and privileges, and are subject to the same duties and obligations, as our common units, with certain exceptions. See Note 9. The following table presents the PIK distribution earned on the Class B Convertible Units for periods after issuance on August 4, 2014 through March 31, 2015 (in thousands, except per unit and in-kind distribution units): Payment Date Attributable to the Quarter Ended Per Unit Distribution In-Kind Class B Convertible Unit In-Kind Class B Convertible Distributions (1) In-Kind Unit to General Partner In-Kind General Partner Distribution Value (1) 2015 May 14, 2015 March 31, 2015 $ 0.3257 265,118 $ 3,712 5,410 $ 76 2014 February 13, 2015 December 31, 2014 $ 0.3257 260,558 $ 4,143 5,318 $ 85 November 14, 2014 September 30, 2014 $ 0.3257 256,078 $ 5,467 5,226 $ 112 (1) The fair value was calculated as required, based on the common unit price at the quarter end date for the period attributable to the distribution, multiplied by the number of units distributed. Cash Distributions The following table represents our distributions declared for the quarterly periods beginning in 2014 through the three months ended March 31, 2015 (in thousands, except per unit data): Distributions Attributable to the Per Unit Limited Partners Payment Date Quarter Ended Distribution Common Subordinated General Partner Total 2015 May 14, 2015 March 31, 2015 $ 0.40 $ 9,520 $ — $ 418 $ 9,938 2014 February 13, 2015 December 31, 2014 0.40 (1) 9,520 3,432 (2) 416 13,368 November 14, 2014 September 30, 2014 0.40 (1) 9,520 — 413 9,933 August 14, 2014 June 30, 2014 0.40 9,399 4,886 290 14,575 May 15, 2014 March 31, 2014 0.40 8,586 4,886 290 13,762 (1) The common unit distribution in the table above includes the distribution payment to the Series A Preferred unitholders for their Series A Preferred Units converted into common units or to the units that vested as part of our LTIP (as defined in Note 11) as a result of the Holdings Transaction (see Notes 1, 8 and 11). (2) Holdings waived the requirement that any distribution owed to it for the fourth quarter be paid within 45 days of the end of the quarter. We paid a distribution of $0.28 per unit on our 12,213,713 subordinated units in conjunction with the filing of our 2014 Annual Report on Form 10-K. | EARNINGS PER LIMITED PARTNER UNIT AND DISTRIBUTIONS Earnings Per Unit of the Partnership The following is a reconciliation of net loss attributable to limited partners and the limited partner units used in the basic and diluted earnings per unit calculations for the years ended December 31, 2014, 2013 and 2012 (in thousands, except per unit data): Year Ended December 31, 2014 (1) Year Ended December 31, 2013 Year Ended December 31, 2012 Net loss $ (37,731 ) $ (15,970 ) $ (4,488 ) Series A Preferred Unit fair value adjustment (2) (4,596 ) (37 ) — Series A Preferred Unit in-kind distribution (534 ) (1,633 ) — General partner Unit in-kind distribution (207 ) — — Net loss from January 1, 2012 through November 6, 2012 — — 260 Net loss attributable to Holdings (6,409 ) — — Net loss attributable to partners $ (36,659 ) $ (17,640 ) $ (4,228 ) General partner's interest (3) (693 ) (319 ) — Limited partners' Class B Convertible interest (3) (7,436 ) — — Limited partners' interest (2) Common (20,175 ) (8,683 ) (2,072 ) Subordinated (8,355 ) (8,638 ) (2,071 ) ____________________________________________________________________________ ( 1) We calculate historical earnings per unit with retrospective earnings or losses of a transferred business before the date of the 2015 Holdings acquisition allocated entirely to the General Partner. The previously reported earnings per unit of the limited partners did not change as a result of the 2015 Holdings acquisition. (2) The valuation adjustment to maximum redemption value of the Series A Preferred Unit in-kind distribution increased the net loss attributable to partners for the years ended December 31, 2014 and 2013 in the calculation of earnings per unit (See Note 11) . (3) G eneral Partner's and limited partners’ interests are calculated based on the allocation of net losses for the period, net of the allocation of Series A Preferred Unit in-kind distributions, Series A Preferred Unit fair value adjustments and General Partner unit in-kind distributions. The Class B Convertible Unit interest is calculated based on the allocation of only net losses for the period. Common Units Year Ended December 31, 2014 Year Ended December 31, 2013 Year Ended December 31, 2012 Interest in net loss $ (20,175 ) $ (8,683 ) $ (2,072 ) Effect of dilutive units - numerator (1) — — — Dilutive interest in net loss $ (20,175 ) $ (8,683 ) $ (2,072 ) Weighted-average units - basic 21,641,635 12,224,997 12,213,713 Effect of dilutive units - denominator (1) — — — Weighted-average units - dilutive 21,641,635 12,224,997 12,213,713 Basic and diluted net loss per common unit $ (0.93 ) $ (0.71 ) $ (0.17 ) Subordinated Units Year Ended December 31, 2014 Year Ended December 31, 2013 Year Ended December 31, 2012 Interest in net loss $ (8,355 ) $ (8,638 ) $ (2,071 ) Effect of dilutive units - numerator (1) — — — Dilutive interest in net loss $ (8,355 ) $ (8,638 ) $ (2,071 ) Weighted-average units - basic 12,213,713 12,213,713 12,213,713 Effect of dilutive units - denominator (1) — — — Weighted-average units - dilutive 12,213,713 12,213,713 12,213,713 Basic and diluted net loss per subordinated unit $ (0.68 ) $ (0.71 ) $ (0.17 ) ____________________________________________________________________________ (1) Because we had a net loss for all periods for common units and the subordinated units, the effect of the dilutive units would be anti-dilutive to the per unit calculation. Therefore, the weighted average units outstanding are the same for basic and dilutive net loss per unit for those periods. The weighted average units that were not included in the computation of diluted per unit amounts were 184,417 and 10,092 and unvested awards granted under our LTIP for the year ended December 31, 2014 and 2013, respectively, and 1,213,257 Series A Preferred Units for the year ended December 31, 2013. Our calculation of the number of weighted-average units outstanding includes the common units that have been awarded to our directors that are deferred under our Non-Employee Director Deferred Compensation Plan. All of our Series A Preferred Units were converted into common units on August 4, 2014 (See Note 11). Prior to conversion, our Series A Preferred Units were considered participating securities for purposes of the basic earnings per unit calculation during periods in which they received cash distributions. We were required to pay in-kind distributions to the Series A Preferred Units for the first four full quarters beginning the second quarter of 2013, and continued to pay these distributions until the Series A Preferred Units were converted into common units. Because the Series A Preferred Units received in-kind distributions, they have been excluded from the basic earnings per unit calculation for the year ended December 31, 2014. Distributions Our agreement of limited partnership, which was amended and restated on August 4, 2014 in order to establish the Class B Convertible Units (as amended and restated, the “Partnership Agreement”), requires that within 45 days after the end of each quarter, we distribute all of our available cash to unitholders of record on the applicable record date, as determined by our General Partner. We intend to make a minimum quarterly distribution to the holders of our common units and subordinated units of $0.40 per unit, or $1.60 on an annualized basis, to the extent we have sufficient cash from our operations after the establishment of cash reserves and the payment of costs and expenses, including reimbursements of expenses to our General Partner. However, there is no guarantee that we will pay the minimum quarterly distribution on our units in any quarter. Beginning with the third quarter of 2014, until such time that we have a distributable cash flow divided by cash distributions ratio (“Distributable Cash Flow Ratio”) of at least 1.0 , Holdings, the holder of all of our subordinated units, has waived the right to receive distributions on any subordinated units that would cause the Distributable Cash Flow Ratio to be less than 1.0 . With respect to the fourth quarter of 2014, Holdings also waived the requirement that any distribution owed to it for that quarter be paid within 45 days of the end of the quarter, provided that the distribution is paid before or in conjunction with the filing of this Form 10-K. Our General Partner is currently entitled to 2.0% of all distributions that we make prior to our liquidation. Our General Partner has the right, but not the obligation, to contribute a proportionate amount of capital to us to maintain its current general partner interest. Our General Partner's initial 2.0% interest in our distributions will be reduced if we issue additional limited partner units in the future and our General Partner does not contribute a proportionate amount of capital to us to maintain its 2.0% general partner interest. Our General Partner also currently holds incentive distribution rights that entitle it to receive increasing percentages, up to a maximum of 50% , of the cash we distribute from operating surplus in excess of $0.46 per unit per quarter. The maximum distribution of 50% includes distributions paid to our General Partner on its 2.0% general partner interest and assumes that our General Partner maintains its general partner interest at 2.0% . The maximum distribution of 50% does not include any distributions that our General Partner may receive on any limited partner units that it owns. Cash Distributions The following table represents our distribution declared for the quarter ended December 31, 2014 and distributions paid for the previous periods (in thousands, except per unit data): Distributions Attributable to the Per Unit Limited Partners Payment Date Quarter Ended Distribution Common Subordinated General Partner Total 2014 February 13, 2015 December 31, 2014 $ 0.40 (1) $ 9,520 $ 3,432 (3) $ 416 $ 13,368 November 14, 2014 September 30, 2014 0.40 (1) 9,520 — 413 9,933 August 14, 2014 June 30, 2014 0.40 9,399 4,886 290 14,575 May 15, 2014 March 31, 2014 0.40 8,586 4,886 290 13,762 2013 February 14, 2014 December 31, 2013 0.40 8,581 4,885 289 13,755 November 14, 2013 September 30, 2013 0.40 4,888 4,885 214 9,987 August 14, 2013 June 30, 2013 0.40 4,890 4,886 210 9,986 May 15, 2013 March 31, 2013 0.40 4,888 4,886 199 9,973 2012 February 14, 2013 December 31, 2012 0.24 (2) 2,931 2,931 120 5,982 ____________________________________________________________________________ (1) The common unit distribution in the table above includes the distribution payment to the Series A Preferred unitholders for their Series A Preferred Units converted into common units or to the units that vested as part of our LTIP (as defined below) as a result of the Holdings Transaction (See Notes 1, 11 and 14). (2) Per unit distribution of $0.24 corresponds to the minimum quarterly distribution of $0.40 per unit, or $1.60 on an annualized basis, pro-rated for the portion of the quarter following the closing of our IPO on November 7, 2012. (3) Holdings waived the requirement that any distribution owed to it for the fourth quarter be paid within 45 days of the end of the quarter. We expect to pay a distribution of $0.28 on 12,213,713 of our Subordinated Units in conjunction with the filing of this Form 10-K. In accordance with our 2012 long-term incentive plan ("LTIP"), we paid the distribution equivalent rights to holders of LTIP units that vested during year ended December 31, 2014 (See Note 14). On November 14, 2013, we paid an aggregate distribution of $63.8 thousand to the holders of the vested phantom units. Paid In-Kind Distributions During the second quarter of 2013, we raised $40.0 million of equity through issuances of 1,715,000 Series A Preferred Units and an additional General Partner contribution to satisfy the requirements of our Previous Credit Facility (as defined in Note 8) (See Notes 8 and 11). Under the terms of our Partnership Agreement, we were required to pay the holders of our Series A Preferred Units quarterly distributions of in-kind Series A Preferred Units for the first four full quarters following the issuance of the units and continuing thereafter until the board of directors of our General Partner determined to begin paying quarterly distributions in cash. In-kind distributions were in the form of Series A Preferred Units at a rate of $0.40 per outstanding Series A Preferred Unit per quarter (or 7% per year of the per unit purchase price). Cash distributions were required to equal the greater of $0.40 per unit per quarter or the quarterly distribution paid with respect to each common unit. In accordance with the Partnership Agreement, our General Partner received a corresponding distribution of in-kind general partner units to maintain its 2.0% interest in us. In connection with the Holdings Transaction (see Notes 1 and 3), all holders of the Series A Preferred Units elected to convert their Series A Preferred Units into 2,015,638 common units based on a 110% exchange ratio. The following table represents the paid in-kind (“PIK”) distribution from the date of our IPO through August 4, 2014, the date on which all outstanding Series A Preferred Units were converted to common units (in thousands, except per unit and in-kind distribution units): Payment Date Attributable to the Quarter Ended (1) Per Unit Distribution In-Kind Series A Holders In-Kind Series A Distributions (2) In-Kind Unit to General Partner In-Kind General Partner Distribution Value (2) 2014 May 15, 2014 March 31, 2014 $ 0.40 31,513 $ 534 643 $ 11 2013 February 14, 2014 December 31, 2013 $ 0.40 30,971 $ 558 632 $ 11 November 14, 2013 September 30, 2013 0.40 30,439 511 621 10 August 14, 2013 June 30, 2013 0.35 (3) 22,276 512 454 10 August 14, 2013 June 30, 2013 0.20 (4) 2,199 51 45 1 ____________________________________________________________________________ (1) As a result of the conversion, the Series A Preferred Unit holders (and the corresponding General Partner units) did not receive a PIK distribution for the quarters ended June 30, 2014 or September 30, 2014, but received a cash distribution on the converted common units. (2) The fair value was calculated as required, based on the common unit price at the quarter end date for the period attributable to the distribution, multiplied by the number of units distributed. (3) Per unit distribution of $0.35 corresponds to the minimum quarterly distribution of $0.40 per unit, or $1.60 on an annualized basis, pro-rated for the portion of the quarter following the issuance of 1,466,325 Series A Preferred Units and 29,925 general partner units on April 12, 2013. (4) Per unit distribution of $0.20 corresponds to the minimum quarterly distribution of $0.40 per unit, or $1.60 on an annualized basis, pro-rated for the portion of the quarter following the issuance of 248,675 Series A Preferred Units and 5,075 general partner units on May 15, 2013. Class B Convertible Units. In connection with the Contribution, on August 4, 2014, we established our Class B Convertible Units. The Class B Convertible Units consist of 14,633,000 of such units plus any additional Class B Convertible Units issued in-kind as a distribution (“Class B PIK Units”). The Class B Convertible Units are not participating securities for purposes of the earnings per unit calculation. Commencing with the quarter ended September 30, 2014 and until converted, as long as certain requirements are met, the holders of the Class B Convertible Units will receive quarterly distributions in an amount equal to $0.3257 per unit. These distributions will be paid quarterly in Class B PIK Units within 45 days after the end of each quarter. Our General Partner was entitled, and has exercised its right, to retain its 2.0% general partner interest in us in connection with the original issuance of Class B Convertible Units. In connection with future distributions of Class B PIK Units, the General Partner is entitled to a corresponding distribution to maintain its 2.0% general partner interest in us. The Class B Convertible Units have the same rights, preferences and privileges, and are subject to the same duties and obligations, as our common units, with certain exceptions. See Note 12. The following table represents the PIK distribution earned on the Class B Convertible Units for periods after August 4, 2014 and ended December 31, 2014 (in thousands, except per unit and in-kind distribution units): Payment Date Attributable to the Quarter Ended Per Unit Distribution In-Kind Class B Convertible Unit In-Kind Class B Convertible Distributions (1) In-Kind Unit to General Partner In-Kind General Partner Distribution Value (1) 2014 February 13, 2015 December 31, 2014 $ 0.3257 260,558 $ 4,143 5,318 $ 85 November 14, 2014 September 30, 2014 $ 0.3257 256,078 $ 5,467 5,226 $ 112 ____________________________________________________________________________ (1) The fair value was calculated as required, based on the common unit price at the quarter end date for the period attributable to the distribution, multiplied by the number of units distributed. Earnings Per Common Unit of Southcross Energy LLC A reconciliation of basic and diluted earnings per unit related to the Southcross Energy LLC common units is included in our consolidated statements of operations. Southcross Energy LLC calculated earnings per common unit by first deducting the amount of cumulative returns on both the Redeemable Preferred and Preferred units from net income (loss), and dividing this amount by the weighted average number of vested common units (including both the vested Class A common units and Class B units). For periods presented in which Southcross Energy LLC units were outstanding, no unvested common units were included in the computation of the diluted per unit amount because all would have been antidilutive to the net loss per common unit holder. The amount of unvested common units that were not included in the computation of diluted per unit amounts were 143,220 units for the period ended November 6, 2012. |