PARTNERS' CAPITAL | PARTNERS' CAPITAL A rollforward of the number of common limited partner, subordinated limited partner and general partner units follows. Common Subordinated General partner Total Units, January 1, 2013 24,412,427 24,409,850 996,320 49,818,597 Units issued to a subsidiary of Summit Investments in connection with the Bison Drop Down 1,553,849 — 31,711 1,585,560 Units issued to a subsidiary of Summit Investments in connection with the Mountaineer Acquisition 3,107,698 — 63,422 3,171,120 Net units issued under SMLP LTIP 5,892 — — 5,892 Units, January 1, 2014 29,079,866 24,409,850 1,091,453 54,581,169 Units issued in connection with the March Equity 2014 Offering 5,300,000 — 108,337 5,408,337 Net units issued under SMLP LTIP 46,647 — 861 47,508 Units, December 31, 2014 34,426,513 24,409,850 1,200,651 60,037,014 Units issued in connection with the May 2015 Equity Offering 7,475,000 — 152,551 7,627,551 Net units issued under SMLP LTIP 161,131 — 1,498 162,629 Units, December 31, 2015 42,062,644 24,409,850 1,354,700 67,827,194 Unit Offerings. In March 2014, we completed an underwritten public offering of 10,350,000 common units at a price of $38.75 per unit, of which 5,300,000 common units were offered by the Partnership and 5,050,000 common units were offered by a subsidiary of Summit Investments, pursuant to an effective shelf registration statement on Form S-3 previously filed with the SEC. Concurrently, our general partner made a capital contribution to maintain its 2% general partner interest in SMLP. We used the proceeds from the primary offering and the general partner capital contribution to fund a portion of the purchase of Red Rock Gathering. In September 2014, a subsidiary of Summit Investments completed an underwritten public offering of 4,347,826 SMLP common units pursuant to an effective shelf registration statement on Form S-3 previously filed with the SEC. We did not receive any proceeds from this offering. In May 2015, we completed an underwritten public offering of 6,500,000 common units at a price of $30.75 per unit pursuant to an effective shelf registration statement on Form S-3 previously filed with the SEC (the "May 2015 Equity Offering"). On May 22, 2015, the underwriters exercised in full their option to purchase an additional 975,000 common units from us at a price of $30.75 per unit. Concurrent with both transactions, our general partner made a capital contribution to us to maintain its 2% general partner interest. Subordination. The principal difference between our common units and subordinated units is that in any quarter during the subordination period, holders of the subordinated units are not entitled to receive any distribution of available cash until the common units have received the minimum quarterly distribution ("MQD," as defined below) plus any arrearages in the payment of the MQD from prior quarters. The subordination period ends on the first business day after we have earned and paid at least $1.60 (the MQD on an annualized basis) on each outstanding common unit and subordinated unit and the corresponding distribution on the general partner's 2.0% interest for each of three consecutive, non-overlapping four-quarter periods ending on or after December 31, 2015. The subordination period ended in conjunction with the February 2016 distribution payment in respect of the fourth quarter of 2015 and the then-outstanding subordinated units converted to common units on a one -for-one basis. Summit Investments' Equity in Contributed Subsidiaries. Summit Investments' equity in contributed subsidiaries represents its position in the net assets of Polar and Divide, Red Rock Gathering and Bison Midstream that have been acquired by SMLP. The balance also reflects net income attributable to Summit Investments for Polar and Divide, Red Rock Gathering and Bison Midstream for the periods beginning on their respective acquisition dates by Summit Investments and ending on the dates they were acquired by the Partnership. During the years ended December 31, 2015, 2014 and 2013, net income was attributed to Summit Investments for: • Polar and Divide for the period from February 16, 2013 to May 18, 2015; • Red Rock Gathering for the period from January 1, 2013 to March 18, 2014; and • Bison Midstream for the period from February 16, 2013 to June 4, 2013. Although included in partners' capital, any net income attributable to Summit Investments is excluded from the calculation of EPU. Polar and Divide Drop Down . On May 18, 2015, we acquired 100% of the membership interests in Polar Midstream and Epping from a subsidiary of Summit Investments. We paid total net cash consideration of $285.7 million in exchange for Summit Investments' $416.0 million net investment in Polar Midstream and Epping, including customary working capital and capital expenditures adjustments (see Note 15 for additional information). We recognized a capital contribution from Summit Investments for the difference between cash consideration paid and Summit Investments' net investment in Polar Midstream and Epping. The calculation of the capital contribution and its allocation to partners' capital follow (dollars in thousands). Summit Investments' net investment in Polar Midstream and Epping $ 416,044 Total net cash consideration paid to a subsidiary of Summit Investments 285,677 Excess of acquired carrying value over consideration paid $ 130,367 Allocation of capital contribution: General partner interest $ 2,607 Common limited partner interest 80,079 Subordinated limited partner interest 47,681 Partners' capital contribution – excess of acquired carrying value over consideration paid $ 130,367 Red Rock Drop Down . On March 18, 2014, we acquired 100% of the membership interests in Red Rock Gathering from a subsidiary of Summit Investments. We paid total net cash consideration of $307.9 million (including working capital adjustments accrued in December 2014 and cash settled in February 2015) in exchange for Summit Investments' $241.8 million net investment in Red Rock Gathering. As a result of the excess of the purchase price over acquired carrying value of Red Rock Gathering, SMLP recognized a capital distribution to Summit Investments. The calculation of the capital distribution and its allocation to partners' capital follow (dollars in thousands). Summit Investments' net investment in Red Rock Gathering $ 241,817 Total net cash consideration paid to a subsidiary of Summit Investments 307,941 Excess of consideration paid over acquired carrying value $ (66,124 ) Allocation of capital distribution: General partner interest $ (1,323 ) Common limited partner interest (37,910 ) Subordinated limited partner interest (26,891 ) Partners' capital distribution – excess of consideration paid over acquired carrying value $ (66,124 ) Bison Drop Down . On June 4, 2013, a subsidiary of Summit Investments entered into a purchase and sale agreement with SMLP whereby SMLP acquired the Bison Gas Gathering system. In exchange for its $305.4 million net investment in Bison Midstream, SMLP paid Summit Investments and the general partner total cash and unit consideration of $248.9 million . As a result of the contribution of net assets in excess of consideration, SMLP recognized a capital contribution from Summit Investments. The calculation of the capital contribution and its allocation to partners' capital follow (dollars in thousands). Summit Investments' net investment in Bison Midstream $ 305,449 Aggregate cash paid to Summit Investments $ 200,000 Issuance of 1,553,849 SMLP common units to Summit Investments 47,936 Issuance of 31,711 SMLP general partner units to the general partner 978 Total consideration paid to a subsidiary of Summit Investments 248,914 Excess of acquired carrying value over consideration paid $ 56,535 Allocation of capital contribution: General partner interest $ 1,131 Common limited partner interest 28,558 Subordinated limited partner interest 26,846 Partners' capital contribution – excess of acquired carrying value over consideration paid $ 56,535 The number of units issued to Summit Investments and the general partner in connection with the Bison Drop Down was calculated based on an assumed equity issuance of $50.0 million and the five -day volume-weighted-average price as of June 3, 2013 of $31.53 per unit. The units were then valued as of June 4, 2013 (the date of closing) using the June 4, 2013 closing price of SMLP's units of $30.85 . The general partner interest allocation was calculated based on a 2% general partner interest in the contribution of assets in excess of consideration given by SMLP to Summit Investments. Common and subordinated limited partner interests allocations were calculated as their respective percentages of total limited partner capital applied to the balance of the contribution by Summit Investments after giving effect to the general partner allocation. Mountaineer Acquisition. We completed the acquisition of Mountaineer Midstream on June 21, 2013. The purchase price of $210.0 million was funded with $110.0 million of borrowings under SMLP’s revolving credit facility and the issuance for cash of $100.0 million of SMLP common units and general partner interests to a subsidiary of Summit Investments and the general partner. The allocation and valuation of units issued to partially fund the Mountaineer Acquisition follow (dollars in thousands). Issuance of 3,107,698 SMLP common units to Summit Investments $ 98,000 Issuance of 63,422 SMLP general partner units to the general partner 2,000 Issuance of units in connection with the Mountaineer Acquisition $ 100,000 Pursuant to a unit purchase agreement, the number of units issued to Summit Investments and the general partner in connection with the Mountaineer Acquisition was calculated based on an assumed equity issuance of $100.0 million and the five -day volume-weighted-average price as of June 3, 2013 of $31.53 per unit. Cash Distribution Policy Our cash distribution policy, as expressed in our partnership agreement, may not be modified or repealed without amending our partnership agreement. Our partnership agreement requires that we distribute all of our available cash (as defined below) within 45 days after the end of each quarter to unitholders of record on the applicable record date. Our policy is to distribute to our unitholders an amount of cash each quarter that is equal to or greater than the MQD stated in our partnership agreement. General Partner Interest. Our general partner is 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 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. Minimum Quarterly Distribution. Our partnership agreement generally requires that we 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. The amount of distributions paid under our policy is subject to fluctuations based on the amount of cash we generate from our business and the decision to make any distribution is determined by our general partner, taking into consideration the terms of our partnership agreement. Definition of Available Cash. Available cash generally means, for any quarter, all cash on hand at the end of that quarter: • less the amount of cash reserves established by our general partner at the date of determination of available cash for that quarter to: • provide for the proper conduct of our business (including reserves for our future capital expenditures and anticipated future debt service requirements); • comply with applicable law, any of our debt instruments or other agreements; or • provide funds for distributions to our unitholders and to our general partner for any one or more of the next four quarters (provided that our general partner may not establish cash reserves for distributions unless it determines that the establishment of reserves will not prevent us from distributing the minimum quarterly distribution on all common units and any cumulative arrearages on such common units for the current quarter); • plus, if our general partner so determines, all or any portion of the cash on hand on the date of determination of available cash for the quarter resulting from working capital borrowings made subsequent to the end of such quarter. Cash Distributions Paid and Declared. We paid the following per-unit distributions during the years ended December 31: Year ended December 31, 2015 2014 2013 Per-unit annual distributions to unitholders $ 2.270 $ 2.040 $ 1.725 On January 21, 2016, the board of directors of our general partner declared a distribution of $ 0.575 per unit for the quarterly period ended December 31, 2015. This distribution, which totaled $ 41.0 million , was paid on February 12, 2016 to unitholders of record at the close of business on February 5, 2016. As noted above, the payment of this distribution triggered the end of the subordination period and all of the then-outstanding subordinated units converted to common units on a one-for-one basis on February 16, 2016. We allocated the February 2016 distribution in accordance with the third target distribution level (see "Incentive Distribution Rights—Percentage Allocations of Available Cash" below for additional information.) Incentive Distribution Rights. Our general partner also currently holds IDRs that entitle it to receive increasing percentage allocations, up to a maximum of 50.0% (as set forth in the chart below), of the cash we distribute from operating surplus in excess of $0.46 per unit per quarter. The maximum distribution 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 does not include any distributions that our general partner may receive on any common or subordinated units that it owns. Percentage Allocations of Available Cash . The following table illustrates the percentage allocations of available cash between the unitholders and our general partner based on the specified target distribution levels. The amounts set forth in the column Marginal Percentage Interest in Distributions are the percentage interests of our general partner and the unitholders in any available cash we distribute up to and including the corresponding amount in the column Total Quarterly Distribution Per Unit Target Amount. 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 2.0% general partner interest and assume that our general partner has contributed any additional capital necessary to maintain its 2.0% general partner interest, our general partner has not transferred its IDRs and that there are no arrearages on common units. Total quarterly distribution per unit target amount Marginal percentage interest in distributions Unitholders General partner Minimum quarterly distribution $0.40 98.0% 2.0% First target distribution $0.40 up to $0.46 98.0% 2.0% Second target distribution above $0.46 up to $0.50 85.0% 15.0% Third target distribution above $0.50 up to $0.60 75.0% 25.0% Thereafter above $0.60 50.0% 50.0% We reached the second target distribution in connection with the distribution declared in respect of the fourth quarter of 2013. We reached the third target distribution in connection with the distribution declared in respect of the second quarter of 2014. Our payment of IDRs as reported in distributions to unitholders – general partner in the statement of partners' capital during the years ended December 31 follow. Year ended December 31, 2015 2014 2013 (In thousands) IDR payments $ 6,743 $ 2,326 $ — Our general partner was not entitled to receive IDR payments prior to the distribution declared and paid in respect of the fourth quarter of 2013 based on the amount of the distributions declared and paid per common and subordinated unit. For the purposes of calculating net income attributable to general partner, the financial impact of IDRs is recognized in respect of the quarter for which the distributions were declared. For the purposes of calculating distributions to unitholders in the statements of partners' capital and cash flows, IDR payments are recognized in the quarter in which they are paid. |