Equity

9 Months Ended

Sep. 30, 2015

Equity Offerings

Issuance for Acquisitions. In 2014, we issued 1,964,957 of common units to satisfy the equity portion of the consideration paid in the CEU Acquisition, the MCCS Acquisition, and the Services Acquisition. See Note 2 "Acquisitions" for additional discussion of these transactions.

Equity Offering. In April 2014, we completed a public offering of 3,450,000 of our common units at a price of $23.25 per unit. We received net proceeds of approximately $76.2 million from this offering, after deducting underwriting discounts of $3.6 million and offering costs of $0.3 million. We used $5.0 million of the net proceeds from this offering to repay indebtedness outstanding under our credit facility. The remaining proceeds were used to fund the cash portion of the Services Acquisition, for related acquisition costs, and for general corporate purposes.

On May 8, 2015, we completed a public offering of $44.0 million of our Series A Preferred Units at a price of $25.00 per unit. We also granted the underwriters a 30-day overallotment option to purchase up to an additional 264,000 Series A Preferred Units. On June 5, 2015, the underwriters partially exercised the overallotment option and we issued an additional 170,000 Series A Preferred Units for approximately $4.0 million in additional proceeds. See Note 9 "Cumulative Convertible Preferred Units" for further discussion of our Series A Preferred Units.

Distributions

Distributions are declared and distributed within 45 days following the end of each quarter. Quarterly distributions to unitholders of record, including holders of common, subordinated and general partner units applicable to the nine months ended September 30, 2015 and 2014, are shown in the following table (in thousands, except per unit amounts):



Distributions	Declaration Date	Payable Date	Distribution per Unit		Common Units		Subordinated Units		General Partner Units (1)		Total
2015
First Quarter	May 8, 2015	May 15, 2015	$	0.20	$	3,312	$	—	$	—	$	3,312
Second Quarter	N/A	N/A	$	—	$	—	$	—	$	—	$	—
Third Quarter	N/A	N/A	$	—	$	—	$	—	$	—	$	—

2014
First Quarter	April 21, 2014	May 15, 2014	$	0.580	$	7,852	$	1,279	$	90	$	9,221
Second Quarter	July 21, 2014	August 15, 2014	$	0.585	$	9,025	$	1,290	$	91	$	10,406
Third Quarter	October 21, 2014	November 14, 2014	$	0.585	$	9,454	$	1,290	$	91	$	10,835

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(1)	In April 2015, all 155,102 General Partner units were canceled and converted to common units. See additional discussion in Note 11 "Related Party Transactions."

Our partnership agreement provides for certain incentive distributions to the general partner to the extent that the quarterly distributions exceed certain targets. These incentive distributions will result in the general partner receiving a higher proportionate share of earnings than the proportionate share of earnings allocated to the holders of common units and subordinated units. No such incentive distributions were made to our general partner as quarterly distributions that were declared, if any, by the board of directors for the first three quarters of 2015 and 2014 did not exceed the specified targets.

We made distributions per common unit of $0.20 in the first quarter of 2015 which were below the minimum quarterly distribution ("MQD") established by our partnership agreement. Subordinated units are not entitled to receive distributions until the common units receive an amount equal to the MQD and the cumulative arrearages of approximately $22.7 million at September 30, 2015. The subordination period ends on the first business day after all units have received the MQD for each of four consecutive quarters ending on or after December 31, 2015, or as otherwise provided for under the partnership agreement. In July 2015, we suspended common unit distributions.

See Note 9 "Cumulative Convertible Preferred Units" for a discussion of distributions on our Series A Preferred Units.

Noncontrolling Interest

As part of the MCE Acquisition, certain former owners of MCE retained 100 Class B Units in MCE. The MCE partnership agreement provides that the Class B Units have the right to receive an increasing percentage (15%, 25% and 50%) of quarterly distributions of available cash from operating surplus after the minimum quarterly distribution and the target distribution levels have been achieved based on the results of MCES and MCCS. Target distribution levels are adjusted, as applicable and in accordance with the MCE partnership agreement, under certain circumstances. As these Class B Units are not held by the Partnership, they are presented as noncontrolling interest in the accompanying unaudited condensed consolidated financial statements. Any distribution to the Class B Units will be recognized in the period earned and recorded as a reduction to net income attributable to the Partnership.

As a result of the MCCS Acquisition, the specified target distribution levels for the allocations of MCE's available cash from operating surplus between the Class A unitholders and the Class B unitholders were adjusted for the contribution of MCCS to MCE by the Partnership as provided for in the MCE partnership agreement. The following table illustrates the allocations of MCE's available cash from operating surplus between the Class A unitholders and the Class B unitholders based on the specified target distribution levels, as adjusted based on the MCCS Acquisition.



				Marginal Percentage Interest in Distributions
	Total Quarterly Distributions per MCE Unit			MCE Class A Unitholders (the Partnership)	MCE Class B Unitholders
Minimum Quarterly Distribution	$16,116			100%	—%
First Target Distribution	$18,533	to	$20,144	85%	15%
Second Target Distribution	$20,145	to	$24,173	75%	25%
Third Target Distribution and Thereafter	$24,174	and above		50%	50%

No distributions were due to the MCE Class B unitholders for the first nine months of 2015. Based on MCE's distribution amounts, the MCE Class B unitholders were entitled to distributions of approximately $0.2 million for the three months ended September 30, 2014. No distributions were due to the MCE Class B unitholders for the first or second quarter of 2014.

Equity Compensation

We may grant awards of the Partnership's common units to employees under the Partnership's Long-Term Incentive Plan ("LTIP") or Fair Market Value Purchase Plan ("FMVPP"). In the first quarter of 2015, we granted 242,753 common units under the LTIP. Of these common units granted, 219,439 vested immediately or had accelerated vesting, which resulted in $1.5 million of equity-based compensation expense and is included in the accompanying unaudited condensed consolidated statement of operations for the nine months ended September 30, 2015.

Phantom Units. In conjunction with the Services Acquisition, the Partnership granted 432,038 phantom units, which represent the right to receive common units or cash equal to the value of the associated common units, to employees of EFS and RPS under the FMVPP. The phantom units vest over a period not to exceed 2 years. Although the phantom unit grants may be settled in either common units or cash at the holder's election, the settlement of the phantom units upon vesting will be made from a transfer or sale of the associated common units that were issued to an escrow account, reflected as contra equity on the accompanying unaudited condensed consolidated balance sheets, in conjunction with the Services Acquisition. As a result, the 401,171 phantom units valued at $10.1 million with a service requirement were measured at fair market value of the Partnership’s common units on the grant date and are being expensed over the vesting period in accordance with accounting guidance for equity compensation. During the nine months ended September 30, 2015, the vesting of certain phantom unit awards was accelerated resulting in $1.2 million of expense.

For the three and nine months ended September 30, 2015, the Partnership recorded total equity-based compensation expense of $0.9 million and $5.3 million, respectively, compared to $1.3 million and $1.9 million for the same periods in 2014. Equity-based compensation expense for the 2015 periods includes amounts related to awards granted in the second half of 2014 and first quarter of 2015, including amounts for awards in which vesting was accelerated.

- Definition

The entire disclosure for shareholders' equity comprised of portions attributable to the parent entity and noncontrolling interest, including other comprehensive income. Includes, but is not limited to, balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings, accumulated balance for each classification of other comprehensive income and amount of comprehensive income.

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+ Details

New Source Energy Partners L.P. 10-Q