Net Income per Limited Partner Unit and Cash Distributions | Net Income per Limited Partner Unit and Cash Distributions The Partnership’s net income is allocated to the limited partners, including subordinated unitholders, in accordance with their respective ownership percentages, and when applicable, giving effect to the incentive distribution rights held by GP Holdings. The allocation of undistributed earnings, or net income in excess of distributions, to the incentive distribution rights is limited to cash available for distribution for the period. The Partnership’s net income allocable to the limited partners is allocated between common and subordinated unitholders by applying the provisions of the Partnership’s partnership agreement that govern actual cash distributions as if all earnings for the period had been distributed. Any common units issued during the period are included on a weighted-average basis for the days in which they were outstanding. Diluted net income per limited partner unit reflects the potential dilution that could occur if securities or agreements to issue common units, such as awards under the Rice Midstream Partners LP 2014 Long-Term Incentive Plan (the “LTIP”), were exercised, settled or converted into common units. When it is determined that potential common units should be included in diluted net income per limited partner unit calculation, the impact is reflected by applying the treasury stock method. The following table presents Partnership’s calculation of net income per limited partner unit for common and subordinated limited partner units. Three Months Ended September 30, Nine Months Ended September 30, (in thousands, except unit data) 2017 2016 2017 2016 Net income $ 51,454 $ 24,989 $ 133,129 $ 87,351 Less: General partner interest in net income attributable to incentive distribution rights 1,949 427 4,779 540 Limited partner net income $ 49,505 $ 24,562 $ 128,350 $ 86,811 Net income allocable to common units $ 35,591 $ 15,862 $ 92,270 $ 53,199 Net income allocable to subordinated units 13,914 8,700 36,080 33,612 Limited partner net income $ 49,505 $ 24,562 $ 128,350 $ 86,811 Weighted-average limited partner units outstanding - basic: Common units 73,549,485 52,419,942 73,533,198 46,376,896 Subordinated units 28,753,623 28,753,623 28,753,623 28,753,623 Total 102,303,108 81,173,565 102,286,821 75,130,519 Weighted-average limited partner units outstanding - diluted: Common units (1) 73,549,706 52,641,582 73,544,516 46,637,415 Subordinated units 28,753,623 28,753,623 28,753,623 28,753,623 Total 102,303,329 81,395,205 102,298,139 75,391,038 Net income per limited partner unit - basic: Common units $ 0.48 $ 0.30 $ 1.25 $ 1.15 Subordinated units 0.48 0.30 1.25 1.17 Total $ 0.48 $ 0.30 $ 1.25 $ 1.16 Net income per limited partner unit - diluted: Common units $ 0.48 $ 0.30 $ 1.25 $ 1.14 Subordinated units (2) 0.48 0.30 1.25 1.17 Total $ 0.48 $ 0.30 $ 1.25 $ 1.15 Cash distributions declared per limited partner unit: (3) Common units $ 0.2814 $ 0.2370 $ 0.8133 $ 0.6705 Subordinated units 0.2814 0.2370 0.8133 0.6705 Total $ 0.2814 $ 0.2370 $ 0.8133 $ 0.6705 (1) Diluted weighted-average limited partner common units includes the effect of 221 and 11,318 units for the three and nine months ended September 30, 2017 , respectively, and 221,640 and 260,519 units for the three and nine months ended September 30, 2016 , respectively, in each case related to the LTIP. (2) Basic and diluted income per limited partner unit is presented as if all earnings for the period had been distributed. While it appears that more income is allocated to the subordinated unitholders than the common unitholders for the nine months ended September 30, 2016, our partnership agreement prevents us from making a distribution to the subordinated unitholders in excess of those to the common unitholders. (3) See below for further discussion of cash distributions declared for the period presented. Within 60 days after the end of each quarter, it is the Partnership’s intent to distribute to the holders of common and subordinated units on a quarterly basis the minimum quarterly distribution of $0.1875 per unit (or $0.75 on an annualized basis) to the extent it has sufficient cash after the establishment of cash reserves and the payment of its expenses, including payments to its general partner and affiliates. Subordinated Units GP Holdings owns all of the Partnership’s subordinated units. The principal difference between the Partnership’s common units and subordinated units is that, for any quarter during the “subordination period,” holders of the subordinated units will not be entitled to receive any distribution from operating surplus until the common units have received the minimum quarterly distribution for such quarter plus any arrearages in the payment of the minimum quarterly distribution from prior quarters. Subordinated units will not accrue arrearages. When the subordination period ends, each outstanding subordinated unit will convert into one common unit, which will then participate pro rata with the other common units in distributions. Incentive Distribution Rights All of the incentive distribution rights are held by GP Holdings. Incentive distribution rights represent the right to receive increasing percentages ( 15% , 25% and 50% ) of quarterly distributions from operating surplus after the minimum quarterly distribution and the target distribution levels (described below) have been achieved. For any quarter in which the Partnership has distributed cash from operating surplus to the common and subordinated unitholders in an amount equal to the minimum distribution, then the Partnership will distribute any additional available cash from operating surplus for that quarter among the unitholders and the incentive distribution rights holders in the following manner: Marginal Percentage Interest in Distributions Total Quarterly Distribution Per Unit Unitholders Incentive Distribution Rights Holders Minimum Quarterly Distribution $0.1875 100% —% First Target Distribution above $0.1875 up to $0.2156 100% —% Second Target Distribution above $0.2156 up to $0.2344 85% 15% Third Target Distribution above $0.2344 up to $0.2813 75% 25% Thereafter above $0.2813 50% 50% On August 17, 2017 , a cash distribution of $0.2711 per common and subordinated unit was paid to the Partnership’s unitholders related to the second quarter of 2017. On October 20, 2017 , the Board of Directors of the Partnership’s general partner declared a cash distribution to the Partnership’s unitholders for the second quarter of 2017 of $0.2814 per common and subordinated unit. The cash distribution will be paid on November 16, 2017 to unitholders of record at the close of business on November 7, 2017 . Also on November 16, 2017 , a cash distribution of $1.9 million will be made to GP Holdings related to its incentive distribution rights in the Partnership based upon the level of distributions paid per common and subordinated unit. |