Acquisitions | Acquisitions On November 4, 2015, the Partnership entered into the Purchase Agreement by and between the Partnership and Rice Energy, pursuant to which the Partnership acquired the Water Assets and the Option. In consideration for the acquisition of the Water Assets and the Option, the Partnership paid Rice Energy $200.0 million in cash plus an additional amount, if certain of the conveyed systems’ capacities increase by 5.0 MMgal/d on or prior to December 31, 2017, equal to $25.0 million less the capital expenditures expended by the Partnership to achieve such increase, in accordance with the terms of the Purchase Agreement. The Partnership funded the consideration with borrowings under the Partnership’s revolving credit facility. The acquisition of the Water Assets is accounted for as a combination of entities under common control. The historical condensed combined statements of operations of the Partnership for the three and nine months ended September 30, 2015 and 2014 have been retrospectively recast to include the historical results of the Water Assets, as presented below: (Unaudited) Three Months Ended September 30, 2015 (in thousands) Previously Reported Water Assets As Recast Operating revenues: Affiliate $ 15,578 $ 8,369 $ 23,947 Third-party 4,564 1,564 6,128 Total operating revenues 20,142 9,933 30,075 Operating expenses: Direct operating expense 1,727 2,694 4,421 General and administrative expense 2,828 1,309 4,137 Incentive unit income — (75 ) (75 ) Equity compensation expense 961 144 1,105 Depreciation expense 1,597 2,820 4,417 Amortization of intangible assets 407 — 407 Other operating income (347 ) — (347 ) Total operating expenses 7,173 6,892 14,065 Operating income 12,969 3,041 16,010 Other income 2 — 2 Interest expense (557 ) (257 ) (814 ) Amortization of deferred financing costs (144 ) — (144 ) Income before income taxes 12,270 2,784 15,054 Income tax expense — (1,794 ) (1,794 ) Net income $ 12,270 $ 990 $ 13,260 (Unaudited) Three Months Ended September 30, 2014 (in thousands) Previously Reported Water Assets As Recast Operating revenues: Affiliate $ 68 $ — $ 68 Third-party 1,552 — 1,552 Total operating revenues 1,620 — 1,620 Operating expenses: Direct operating expense 1,495 110 1,605 General and administrative expense 1,115 386 1,501 Incentive unit expense 5,878 109 5,987 Equity compensation expense 260 13 273 Depreciation expense 955 195 1,150 Amortization of intangible assets 408 — 408 Total operating expenses 10,111 813 10,924 Operating loss (8,491 ) (813 ) (9,304 ) Interest expense (2,744 ) (402 ) (3,146 ) Loss before income taxes (11,235 ) (1,215 ) (12,450 ) Income tax benefit 2,119 448 2,567 Net loss from continuing operations (9,116 ) (767 ) (9,883 ) Discontinued operations, net of tax (1,630 ) 1,630 — Net loss $ (10,746 ) $ 863 $ (9,883 ) (Unaudited) Nine Months Ended September 30, 2015 (in thousands) Previously Reported Water Assets As Recast Operating revenues: Affiliate $ 44,745 $ 27,544 $ 72,289 Third-party 11,294 1,563 12,857 Total operating revenues 56,039 29,107 85,146 Operating expenses: Direct operating expense 3,985 6,043 10,028 General and administrative expense 7,344 2,978 10,322 Incentive unit expense — 1,048 1,048 Equity compensation expense 2,960 356 3,316 Depreciation expense 4,531 5,923 10,454 Amortization of intangible assets 1,223 — 1,223 Other operating expense 492 — 492 Total operating expenses 20,535 16,348 36,883 Operating income 35,504 12,759 48,263 Other income 6 5 11 Interest expense (1,408 ) (662 ) (2,070 ) Amortization of deferred financing costs (432 ) — (432 ) Income before income taxes 33,670 12,102 45,772 Income tax expense — (5,796 ) (5,796 ) Net income $ 33,670 $ 6,306 $ 39,976 (Unaudited) Nine Months Ended September 30, 2014 (in thousands) Previously Reported Water Assets As Recast Operating revenues: Affiliate $ 237 $ — $ 237 Third-party 2,842 — 2,842 Total operating revenues 3,079 — 3,079 Operating expenses: Direct operating expense 2,863 557 3,420 General and administrative expense 7,791 941 8,732 Incentive unit expense 10,526 1,265 11,791 Equity compensation expense 378 28 406 Depreciation expense 1,851 761 2,612 Amortization of intangible assets 748 — 748 Total operating expenses 24,157 3,552 27,709 Operating loss (21,078 ) (3,552 ) (24,630 ) Interest expense (10,502 ) (1,246 ) (11,748 ) Loss before income taxes (31,580 ) (4,798 ) (36,378 ) Income tax benefit 8,531 1,454 9,985 Net loss from continuing operations (23,049 ) (3,344 ) (26,393 ) Discontinued operations, net of tax (3,036 ) 3,036 — Net loss $ (26,085 ) $ (308 ) $ (26,393 ) The historical condensed combined balance sheets of the Partnership as of September 30, 2015 and December 31, 2014 have been retrospectively recast to include the historical results of the Water Assets, as presented below. (Unaudited) September 30, 2015 (in thousands) Previously Reported Water Assets As Recast Assets Current assets: Cash $ 18,961 $ 4,921 $ 23,882 Accounts receivable 7,229 1,919 9,148 Accounts receivable - affiliate 4,592 (4,162 ) 430 Deposits, prepaid expenses and other 271 327 598 Total current assets 31,053 3,005 34,058 Property and equipment, net 408,074 137,574 545,648 Deferred financing costs, net 2,462 — 2,462 Goodwill 39,142 — 39,142 Intangible assets, net 46,568 — 46,568 Total assets $ 527,299 $ 140,579 $ 667,878 Liabilities and partners’ capital Current liabilities: Accounts payable 25,278 3,585 28,863 Accrued capital expenditures 21,974 13,141 35,115 Other accrued liabilities 1,106 436 1,542 Total current liabilities 48,358 17,162 65,520 Long-term liabilities: Long term debt 72,000 — 72,000 Deferred tax liabilities — 7,699 7,699 Other long-term liabilities 62 2,232 2,294 Total liabilities 120,420 27,093 147,513 Partners’ capital 406,879 — 406,879 Parent net equity — 113,486 113,486 Total liabilities and partners’ capital $ 527,299 $ 140,579 $ 667,878 December 31, 2014 (in thousands) Previously Reported Water Assets As Recast Assets Current assets: Cash $ 26,832 $ 2 $ 26,834 Accounts receivable 297 — 297 Accounts receivable - affiliate 2,049 — 2,049 Prepaid expenses and other 32 — 32 Deposits 201 — 201 Total current assets 29,411 2 29,413 Property and equipment, net 280,077 43,794 323,871 Deferred financing costs, net 2,874 — 2,874 Goodwill 39,142 — 39,142 Intangible assets, net 47,791 — 47,791 Total assets $ 399,295 $ 43,796 $ 443,091 Liabilities and partners’ capital Current liabilities: Accounts payable 109 — 109 Accrued capital expenditures 4,103 3,399 7,502 Payable to affiliate 156 — 156 Other accrued liabilities 1,577 — 1,577 Total current liabilities 5,945 3,399 9,344 Long-term liabilities: Deferred tax liabilities — 1,903 1,903 Asset retirement obligations — 1,900 1,900 Total liabilities 5,945 7,202 13,147 Partners ’ capital: 393,350 — 393,350 Parent net equity — 36,594 36,594 Total liabilities and partners’ capital $ 399,295 $ 43,796 $ 443,091 |