Table of Contents

Exhibit 99.4

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

Page

Audited Historical Consolidated Financial Statements as of December 31, 2018 and 2019 and for the Years Ended December 31, 2017, 2018, and 2019

 

 

Report of Independent Registered Public Accounting Firm 

F-2

Consolidated Balance Sheets 

F-5

Consolidated Statements of Operations and Comprehensive Income  

F-6

Consolidated Statements of Partners’ Capital and Stockholders’ Equity 

F-7

Consolidated Statements of Cash Flows 

F-8

Notes to Consolidated Financial Statements 

F-9

 

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors or

Antero Midstream Corporation:

 

Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying consolidated balance sheets of Antero Midstream Corporation and subsidiaries (the Company) as of December 31, 2018 and 2019, the related consolidated statements of operations and comprehensive income, partners’ capital and stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting within Item 9A Controls and Procedures. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding

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prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Evaluation of lease classification for ongoing modifications to the gathering and compression assets

As discussed in Note 7 to the consolidated financial statements, the Company determined that the gathering and compression agreement with Antero Resources is an operating lease.  The Company continues to expand its gathering and compression system to serve its customer and, as a result, the minimum volume commitments and the lease payments increase for the expanded system.  The increases in volume commitments and lease payments are modifications of the arrangement that require reconsideration of the lease classification.

We identified the evaluation of lease classification for ongoing modifications to the gathering and compression assets as a critical audit matter. The evaluation of lease classification for these modified leases, including evaluating economic life as a key estimate, required significant judgment.

The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s process for identifying lease modifications and determining lease classification for those modifications, including controls related to the review and approval of the Company’s lease modifications and the Company’s review of the lease classification. We evaluated the Company’s accounting memoranda and other documentation underlying the accounting conclusions reached, including application of relevant accounting guidance in regards to the modification accounting and subsequent lease classification. We evaluated the economic life used in the determination of lease classification. We evaluated fixed assets that are placed in service for new minimum volume commitments which would require reassessment of the lease.

Evaluation of the initial measurement of property and equipment and customer relationships acquired in the Antero Midstream Partners LP business combination

As discussed in Note 3 to the consolidated financial statements, on March 12, 2019, the Company acquired Antero Midstream Partners LP in a business combination. As a result of the transaction, the Company recognized property and equipment of $3,371,427 thousand and customer relationships intangible assets of $1,567,000 thousand.

We identified the evaluation of the initial measurement of property and equipment and the customer relationships acquired in the Antero Midstream Partners LP business combination as a critical audit matter. There was a high degree of subjectivity in evaluating the key assumptions used to calculate the acquisition date fair value of the property and equipment and the customer relationships intangible assets. The Company used the indirect cost and market approaches to value the property and equipment. The key assumptions included the inflationary trend and the useful lives of the underlying assets for the indirect cost method and comparable price per acre for the market approach. The Company used a discounted cash flow to value the customer relationships for which the key assumptions included forecasted revenue and the discount rate.

The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s business combination process, including controls related to the selection of the key assumptions used to determine the acquisition date fair value of property and equipment and customer relationships intangible assets. For the customer relationships intangible assets we evaluated the Company’s forecasts of revenues based on the Company’s

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budgets and the Antero Midstream Partners LP historical performance. In addition, we involved valuation professionals with specialized skills and knowledge who assisted in:

·

Evaluating the approaches used to value the respective assets;

·

Evaluating the inflationary trends, useful lives, and recent transactions based on publicly available information related to the estimated values for the property and equipment;

·

Independently developing range of estimates of the fair value of the property and equipment and comparing it to the Company’s estimated fair values for the property and equipment;

·

Evaluating the Company’s discount rate applied in the valuation of the customer relationships intangible assets by comparing the Company’s inputs to publicly available data, the implied rate of return on the transaction, and the return on other acquired assets; and

·

Testing the estimate of the customer relationships intangible assets fair value using the Company’s cash flow assumptions and discount rate, and evaluated the result with the Company’s fair value estimate.

 

/s/ KPMG LLP

We have served as the Company’s auditor since 2016.

Denver, Colorado

February 12, 2020

 

 

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ANTERO MIDSTREAM CORPORATION

Consolidated Balance Sheets

December 31, 2018 and 2019

(In thousands)

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

    

2018

    

2019

 

Assets

Current assets:

 

 

 

 

  

 

 

Cash and cash equivalents

 

$

2,822

 

 

1,235

 

Accounts receivable–Antero Resources

 

 

 —

 

 

101,029

 

Accounts receivable–third party

 

 

 —

 

 

4,574

 

Other current assets

 

 

87

 

 

1,720

 

Total current assets

 

 

2,909

 

 

108,558

 

Property and equipment, net

 

 

 —

 

 

3,273,410

 

Investments in unconsolidated affiliates

 

 

43,492

 

 

709,639

 

Deferred tax asset

 

 

1,304

 

 

103,231

 

Customer relationships

 

 

 —

 

 

1,498,119

 

Goodwill

 

 

 —

 

 

575,461

 

Other assets, net

 

 

 —

 

 

14,460

 

Total assets

 

$

47,705

 

 

6,282,878

 

 

 

 

 

 

 

 

 

Liabilities and Equity

Current liabilities:

 

 

 

 

 

 

 

Accounts payable–Antero Resources

 

$

731

 

 

3,146

 

Accounts payable–third party

 

 

28

 

 

6,645

 

Accrued liabilities

 

 

407

 

 

104,188

 

Contingent acquisition consideration

 

 

 —

 

 

125,000

 

Taxes payable

 

 

15,678

 

 

 —

 

Other current liabilities

 

 

 —

 

 

3,105

 

Total current liabilities

 

 

16,844

 

 

242,084

 

Long-term liabilities:

 

 

 

 

 

 

 

Long-term debt

 

 

 —

 

 

2,892,249

 

Other

 

 

 —

 

 

5,131

 

Total liabilities

 

 

16,844

 

 

3,139,464

 

 

 

 

 

 

 

 

 

Partners' Capital and Stockholders' Equity:

 

 

 

 

 

 

 

Common shareholders—186,219 shares issued and outstanding at December 31, 2018; none issued and outstanding at December 31, 2019

 

 

(41,969)

 

 

 —

 

IDR LLC Series B units (66 units vested at December 31, 2018; none issued and outstanding at
December 31, 2019)

 

 

72,830

 

 

 —

 

Preferred stock, $0.01 par value: none authorized or issued at December 31, 2018; 100,000 authorized at December 31, 2019

 

 

 

 

 

 

 

Series A non-voting perpetual preferred stock; none designated, issued or outstanding at
December 31, 2018; 12 designated and 10 issued and outstanding at December 31, 2019

 

 

 —

 

 

 —

 

Common stock, $0.01 par value; none authorized, issued or outstanding at December 31, 2018; 2,000,000 authorized and 484,042 issued and outstanding at December 31, 2019

 

 

 —

 

 

4,840

 

Additional paid-in capital

 

 

 —

 

 

3,480,139

 

Accumulated loss

 

 

 —

 

 

(341,565)

 

Total partners' capital and stockholders' equity

 

 

30,861

 

 

3,143,414

 

Total liabilities and partners' capital and stockholders' equity

 

$

47,705

 

 

6,282,878

 

 

See accompanying notes to consolidated financial statements.

 

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ANTERO MIDSTREAM CORPORATION

Consolidated Statements of Operations and Comprehensive Income

Years Ended December 31, 2017,  2018, and 2019

(In thousands, except per unit amounts)

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

 

2017

    

2018

    

2019

 

Revenue:

 

 

 

 

 

 

 

 

 

Gathering and compression–Antero Resources

$

 —

 

 

 —

 

 

543,538

 

Water handling–Antero Resources

 

 —

 

 

 —

 

 

306,010

 

Water handling–third party

 

 —

 

 

 —

 

 

50

 

Amortization of customer relationships

 

 —

 

 

 —

 

 

(57,010)

 

Total revenue

 

 —

 

 

 —

 

 

792,588

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Direct operating

 

 —

 

 

 —

 

 

195,818

 

General and administrative (including $34,933,  $35,111 and $73,517 of equity-based compensation in 2017, 2018 and 2019, respectively)

 

41,134

 

 

43,851

 

 

118,113

 

Facility idling

 

 —

 

 

 —

 

 

11,401

 

Impairment of property and equipment

 

 —

 

 

 —

 

 

409,739

 

Impairment of goodwill

 

 —

 

 

 —

 

 

340,350

 

Impairment of customer relationships

 

 —

 

 

 —

 

 

11,871

 

Depreciation

 

 —

 

 

 —

 

 

95,526

 

Accretion and change in fair value of contingent acquisition consideration

 

 —

 

 

 —

 

 

8,076

 

Accretion of asset retirement obligations

 

 —

 

 

 —

 

 

187

 

Total operating expenses

 

41,134

 

 

43,851

 

 

1,191,081

 

Operating loss

 

(41,134)

 

 

(43,851)

 

 

(398,493)

 

Interest expense, net

 

 —

 

 

(136)

 

 

(110,402)

 

Equity in earnings of unconsolidated affiliates

 

69,720

 

 

142,906

 

 

51,315

 

Income (loss) before income taxes

 

28,586

 

 

98,919

 

 

(457,580)

 

Provision for income tax benefit (expense)

 

(26,261)

 

 

(32,311)

 

 

102,466

 

Net income (loss) and comprehensive income (loss)

$

2,325

 

 

66,608

 

 

(355,114)

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share–basic and diluted

$

0.03

 

 

0.33

 

 

(0.80)

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

186,176

 

 

186,203

 

 

442,640

 

Diluted

 

186,176

 

 

186,203

 

 

442,640

 

 

See accompanying notes to consolidated financial statements. 

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ANTERO MIDSTREAM CORPORATION

Consolidated Statements of Partners’ Capital and Stockholders’ Equity

Years Ended December 31, 2017,  2018, and 2019

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Antero

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

Resources

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

Midstream

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Representing

 

Management

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Limited

 

LLC

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Partner

 

Members'

 

Series B

 

Paid-In

 

Preferred

 

Accumulated

 

Total

 

 

 

Shares

 

Amount

 

Interests

 

Equity

 

Unitholders

 

Capital

 

Stock

 

Loss

 

Equity

 

Balance at December 31, 2016

 

 

 —

 

$

 —

 

 

 —

 

 

10,269

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

10,269

 

Pre-IPO net loss and comprehensive loss

 

 

 —

 

 

 —

 

 

 —

 

 

(4,939)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(4,939)

 

Pre-IPO equity-based compensation

 

 

 —

 

 

 —

 

 

 —

 

 

10,237

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

10,237

 

Conversion of Antero Resources Midstream Management LLC to a limited partnership

 

 

 —

 

 

 —

 

 

15,567

 

 

(15,567)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Post-IPO net income and comprehensive income

 

 

 —

 

 

 —

 

 

6,480

 

 

 —

 

 

784

 

 

 —

 

 

 —

 

 

 —

 

 

7,264

 

Post-IPO equity-based compensation

 

 

 —

 

 

 —

 

 

24,696

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

24,696

 

Distributions to Antero Resources Investment LLC

 

 

 —

 

 

 —

 

 

(15,908)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(15,908)

 

Distributions to shareholders

 

 

 —

 

 

 —

 

 

(16,011)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(16,011)

 

Vesting of Series B units

 

 

 —

 

 

 —

 

 

(34,690)

 

 

 —

 

 

34,690

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Balance at December 31, 2017

 

 

 —

 

 

 —

 

 

(19,866)

 

 

 —

 

 

35,474

 

 

 —

 

 

 —

 

 

 —

 

 

15,608

 

Net income and comprehensive income

 

 

 —

 

 

 —

 

 

61,372

 

 

 —

 

 

5,236

 

 

 —

 

 

 —

 

 

 —

 

 

66,608

 

Equity-based compensation

 

 

 —

 

 

 —

 

 

35,111

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

35,111

 

Distributions to shareholders

 

 

 —

 

 

 —

 

 

(84,166)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(84,166)

 

Distributions to Series B unitholders

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(2,300)

 

 

 —

 

 

 —

 

 

 —

 

 

(2,300)

 

Vesting of Series B units

 

 

 —

 

 

 —

 

 

(34,420)

 

 

 —

 

 

34,420

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Balance at December 31, 2018

 

 

 —

 

 

 —

 

 

(41,969)

 

 

 —

 

 

72,830

 

 

 —

 

 

 —

 

 

 —

 

 

30,861

 

Distributions to unitholders

 

 

 —

 

 

 —

 

 

(30,543)

 

 

 —

 

 

(3,720)

 

 

 —

 

 

 —

 

 

 —

 

 

(34,263)

 

Net (loss) and comprehensive (loss) pre-acquisition

 

 

 —

 

 

 —

 

 

(13,549)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(13,549)

 

Equity-based compensation pre-acquisition

 

 

 —

 

 

 —

 

 

7,034

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

7,034

 

Exchange of common shares for shares of common stock and cash consideration paid

 

 

506,641

 

 

5,066

 

 

79,027

 

 

 —

 

 

(69,110)

 

 

4,002,898

 

 

 —

 

 

 —

 

 

4,017,881

 

Issuance of Series A non-voting perpetual preferred stock

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Dividends to stockholders

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(461,934)

 

 

 —

 

 

 —

 

 

(461,934)

 

Equity-based compensation post-acquisition

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

66,483

 

 

 —

 

 

 —

 

 

66,483

 

Issuance of common stock upon vesting of equity-based compensation awards, net of common stock withheld for income taxes

 

 

297

 

 

 3

 

 

 —

 

 

 —

 

 

 —

 

 

(2,018)

 

 

 —

 

 

 —

 

 

(2,015)

 

Repurchases and retirement of common stock

 

 

(22,896)

 

 

(229)

 

 

 —

 

 

 —

 

 

 —

 

 

(125,290)

 

 

 —

 

 

 —

 

 

(125,519)

 

Net loss and comprehensive loss post-acquisition

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(341,565)

 

 

(341,565)

 

Balance at December 31, 2019

 

 

484,042

 

$

4,840

 

 

 —

 

 

 —

 

 

 —

 

 

3,480,139

 

 

 —

 

 

(341,565)

 

 

3,143,414

 

 

See accompanying notes to consolidated financial statements.

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Table of Contents

ANTERO MIDSTREAM CORPORATION

Consolidated Statements of Cash Flows

Years Ended December 31, 2017,  2018, and 2019

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

 

    

2017

    

2018

    

2019

 

Cash flows provided by (used in) operating activities:

 

 

 

 

 

 

 

  

 

 

Net income (loss)

 

$

2,325

 

 

66,608

 

 

(355,114)

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

 

Distributions from Antero Midstream Partners LP, prior to the Transactions

 

 

53,491

 

 

123,186

 

 

43,492

 

Depreciation

 

 

 —

 

 

 —

 

 

95,526

 

Accretion and change in fair value of contingent acquisition consideration

 

 

 —

 

 

 —

 

 

8,263

 

Impairment

 

 

 —

 

 

 —

 

 

761,960

 

Deferred income tax benefit

 

 

 —

 

 

(1,304)

 

 

(101,927)

 

Equity-based compensation

 

 

34,933

 

 

35,111

 

 

73,517

 

Equity in earnings of unconsolidated affiliates

 

 

(69,720)

 

 

(142,906)

 

 

(51,315)

 

Distributions from unconsolidated affiliates

 

 

 —

 

 

 —

 

 

64,320

 

Amortization of customer relationships

 

 

 —

 

 

 —

 

 

57,010

 

Amortization of deferred financing costs

 

 

 —

 

 

148

 

 

3,183

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

 

 

Accounts receivable–Antero Resources

 

 

 —

 

 

 —

 

 

42,484

 

Accounts receivable–third party

 

 

 —

 

 

 —

 

 

185

 

Other current assets

 

 

 —

 

 

(5)

 

 

(335)

 

Accounts payable–Antero Resources

 

 

57

 

 

674

 

 

(2,103)

 

Accounts payable–third party

 

 

 —

 

 

28

 

 

(9,762)

 

Accrued liabilities

 

 

(190)

 

 

171

 

 

8,681

 

Income taxes payable

 

 

7,184

 

 

1,820

 

 

(15,678)

 

Net cash provided by operating activities

 

 

28,080

 

 

83,531

 

 

622,387

 

Cash flows used in investing activities:

 

 

 

 

 

 

 

 

 

 

Additions to gathering systems and facilities

 

 

 —

 

 

 —

 

 

(267,383)

 

Additions to water handling systems

 

 

 —

 

 

 —

 

 

(124,607)

 

Investments in unconsolidated affiliates

 

 

 —

 

 

 —

 

 

(154,359)

 

Cash received on acquisition of Antero Midstream Partners LP

 

 

 —

 

 

 —

 

 

619,532

 

Cash consideration paid to Antero Midstream Partners LP unitholders

 

 

 —

 

 

 —

 

 

(598,709)

 

Change in other assets

 

 

 —

 

 

 —

 

 

901

 

Change in other liabilities

 

 

 —

 

 

 —

 

 

(1,050)

 

Net cash used in investing activities

 

 

 —

 

 

 —

 

 

(525,675)

 

Cash flows provided by (used in) financing activities:

 

 

 

 

 

 

 

 

 

 

Distributions to Antero Resources Investment LLC

 

 

(15,691)

 

 

 —

 

 

 —

 

Distributions to unitholders and dividends to stockholders

 

 

(16,011)

 

 

(84,166)

 

 

(492,103)

 

Distributions to Series B unitholders

 

 

 —

 

 

(2,300)

 

 

(3,720)

 

Distributions to preferred stockholders

 

 

 —

 

 

 —

 

 

(374)

 

Repurchases of common stock

 

 

 —

 

 

 —

 

 

(125,519)

 

Issuance of senior notes

 

 

 —

 

 

 —

 

 

650,000

 

Payments of deferred financing costs

 

 

 —

 

 

(230)

 

 

(8,894)

 

Payments on bank credit facilities, net

 

 

 —

 

 

 —

 

 

(115,500)

 

Employee tax withholding for settlement of equity compensation awards

 

 

 —

 

 

 —

 

 

(2,015)

 

Other

 

 

 —

 

 

 —

 

 

(174)

 

Net cash used in financing activities

 

 

(31,702)

 

 

(86,696)

 

 

(98,299)

 

Net decrease in cash and cash equivalents

 

 

(3,622)

 

 

(3,165)

 

 

(1,587)

 

Cash and cash equivalents, beginning of period

 

 

9,609

 

 

5,987

 

 

2,822

 

Cash and cash equivalents, end of period

 

$

5,987

 

 

2,822

 

 

1,235

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

 

 

Cash paid during the period for interest

 

$

 —

 

 

 3

 

 

83,016

 

Cash paid during the period for income taxes

 

$

19,077

 

 

31,795

 

 

16,079

 

Decrease in accrued capital expenditures and accounts payable for property and equipment

 

$

 —

 

 

 —

 

 

(6,215)

 

 

See accompanying notes to consolidated financial statements. 

 

F-8

Table of Contents

ANTERO MIDSTREAM CORPORATION

Notes to Consolidated Financial Statements

Years Ended December 31, 2016, 2017, and 2018

(1)  Business and Organization

Antero Midstream Corporation was originally formed as Antero Resources Midstream Management LLC in 2013 to become the general partner of Antero Midstream Partners LP (“Antero Midstream Partners”).  On May 4, 2017, Antero Resources Midstream Management LLC converted from a limited liability company to a limited partnership under the laws of the State of Delaware and changed its name to Antero Midstream GP LP (“AMGP”) in connection with its initial public offering.  On March 12, 2019, pursuant to the Simplification Agreement, dated as of October 9, 2018, by and among AMGP, Antero Midstream Partners and certain of their affiliates (the “Simplification Agreement”), (i) AMGP was converted from a limited partnership to a corporation under the laws of the State of Delaware and changed its name to Antero Midstream Corporation (the “Conversion”), (ii) an indirect, wholly owned subsidiary of Antero Midstream Corporation was merged with and into Antero Midstream Partners, with Antero Midstream Partners surviving the merger as an indirect, wholly owned subsidiary of Antero Midstream Corporation (the “Merger”), and (iii) Antero Midstream Corporation exchanged (the “Series B Exchange” and, together with the Conversion, the Merger and the other transactions pursuant to by the Simplification Agreement, the “Transactions”) each issued and outstanding Series B Unit (the “Series B Units”) representing a membership interest in Antero IDR Holdings LLC (“IDR Holdings”) for 176.0041 shares of its common stock, par value $0.01 per share (“AMC common stock”).  As a result of the Transactions, Antero Midstream Partners is now a wholly owned subsidiary of Antero Midstream Corporation and former shareholders of AMGP, unitholders of Antero Midstream Partners, including Antero Resources Corporation (“Antero Resources”), and holders of Series B Units now own AMC common stock.  Unless the context otherwise requires, references to the “Company,” “we,” “us” or “our” refer to (i) for the period prior to March 13, 2019, AMGP and its consolidated subsidiaries, which did not include Antero Midstream Partners and its subsidiaries, and (ii) for the period beginning on March 13, 2019, Antero Midstream Corporation and its consolidated subsidiaries, including Antero Midstream Partners and its subsidiaries Antero Midstream LLC, Antero Water LLC (“Antero Water”), Antero Treatment LLC and Antero Midstream Finance Corporation (“Finance Corp”).  

We are a growth-oriented midstream company formed to own, operate and develop midstream energy infrastructure primarily to service Antero Resources and its production and completion activity in the Appalachian Basin’s Marcellus Shale and Utica Shale located in West Virginia and Ohio.  Our assets consist of gathering pipelines, compressor stations, interests in processing and fractionation plants, and water handling assets.  The Company, through Antero Midstream Partners and its affiliates, provides midstream services to Antero Resources under long-term contracts. 

The Company’s gathering and compression assets comprise of high and low pressure gathering pipelines, compressor stations, and processing and fractionation plants that collect and process natural gas and NGLs from Antero Resources’ wells in West Virginia and Ohio.  The Company’s water handling assets include two independent systems that deliver fresh water from sources including the Ohio River, local reservoirs and several regional waterways. 

The Company, through Antero Midstream Partners, also has a 15% equity interest in the gathering system of Stonewall Gas Gathering LLC (“Stonewall”) and a 50% equity interest in a joint venture to develop processing and fractionation assets with MarkWest Energy Partners, L.P. (“MarkWest”), a wholly owned subsidiary of MPLX, LP (“MPLX”) (the “Joint Venture”).  See Note 16—Investments in Unconsolidated Affiliates.

The Company’s corporate headquarters are located in Denver, Colorado.

(2)  Summary of Significant Accounting Policies

(a)Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).  In the opinion of management, these consolidated statements include all adjustments (consisting of normal and recurring accruals) considered necessary for a fair presentation of the Company’s financial position as of December 31, 2018 and 2019, and the results of the Company’s operations and its cash flows for the years ended December 31, 2017,  2018 and 2019.  The Company has no items of other comprehensive income (loss); therefore, net income (loss) is equal to comprehensive income (loss).

F-9

Table of Contents

ANTERO MIDSTREAM CORPORATION

Notes to Consolidated Financial Statements (Continued)

Years Ended December 31, 2017, 2018, and 2019

Certain costs of doing business incurred and charged to the Company by Antero Resources have been reflected in the accompanying consolidated financial statements.  These costs include general and administrative expenses provided to the Company by Antero Resources in exchange for:

business services, such as payroll, accounts payable and facilities management;

corporate services, such as finance and accounting, legal, human resources, investor relations and public and regulatory policy; and

employee compensation, including equity‑based compensation.

Transactions between the Company and Antero Resources have been identified in the consolidated financial statements (see Note 6—Transactions with Affiliates).

(b)Principles of Consolidation

The accompanying consolidated financial statements include (i) for the period prior to March 13, 2019, the accounts of AMGP and its consolidated subsidiaries, which did not include Antero Midstream Partners and its subsidiaries, and (ii) for the period beginning on March 13, 2019, the accounts of Antero Midstream Corporation and its consolidated subsidiaries, including Antero Midstream Partners and its subsidiaries, which were acquired in the Transactions.  See Note 3—Business Combination.  All significant intercompany accounts and transactions have been eliminated in the Company’s consolidated financial statements.

Prior to the Transactions on March 12, 2019, AMGP had determined that Antero Midstream Partners was a variable interest entity (“VIE”) for which AMGP was not the primary beneficiary and therefore did not consolidate.  AMGP concluded that Antero Resources was the primary beneficiary of Antero Midstream Partners and Antero Resources consolidated its financial results.  Antero Resources was the primary beneficiary based on its power to direct the activities that most significantly impacted Antero Midstream Partners’ economic performance and its obligations to absorb losses or receive benefits of Antero Midstream Partners that would be significant to Antero Midstream Partners.  Antero Resources owned approximately 53% of the outstanding limited partner interests in Antero Midstream Partners prior to the Transactions and its officers and management group also acted as management of Antero Midstream Partners.  AMGP did not own any limited partnership interests in Antero Midstream Partners and had no capital interests in Antero Midstream Partners.  AMGP did not provide financial support to Antero Midstream Partners.

AMGP’s ownership of the non-economic general partner interest in Antero Midstream Partners prior to the Transactions provided AMGP with significant influence over Antero Midstream Partners, but not control over the decisions that most significantly impacted the economic performance of Antero Midstream Partners.  AMGP’s indirect ownership of the IDRs of Antero Midstream Partners prior to the Transactions entitled AMGP to receive cash distributions from Antero Midstream Partners when distributions exceeded certain target amounts.  AMGP’s ownership of these interests prior to the Transactions did not require AMGP to provide financial support to Antero Midstream Partners.  AMGP obtained these interests upon its formation for no consideration.  Therefore, AMGP had no cost basis and classified its investment in Antero Midstream Partners as a long term investment.  Prior to the Transactions, AMGP’s share of Antero Midstream Partner’s earnings were a result of AMGP’s ownership of the IDRs was accounted for using the equity method of accounting.  AMGP recognized distributions earned from Antero Midstream Partners as “Equity in earnings of unconsolidated affiliates” on its statement of operations in the period in which they were earned and were allocated to AMGP’s capital account.  AMGP’s long-term interest in the IDRs on the balance sheet was recorded in “Investment in unconsolidated affiliates.”  The ownership of the general partner interests and IDRs did not provide AMGP with any claim to the assets of Antero Midstream Partners other than the balance in its Antero Midstream Partners capital account.  Income related to the IDRs was recognized as earned and increased AMGP’s capital account and equity investment.  When these distributions were paid to AMGP, they reduced its capital account and its equity investment in Antero Midstream Partners. 

Investments in entities for which the Company exercises significant influence, but not control, are accounted for under the equity method.  The Company’s judgment regarding the level of influence over its equity investments includes considering key factors such as Antero Midstream’s ownership interest, representation on the board of directors, and participation in the policy-making decisions of equity method investees.  Such investments are included in Investments in unconsolidated affiliates on the Company’s consolidated balance sheets.  Income from investees that are accounted for under the equity method is included in Equity in earnings

F-10

Table of Contents

ANTERO MIDSTREAM CORPORATION

Notes to Consolidated Financial Statements (Continued)

Years Ended December 31, 2017, 2018, and 2019

of unconsolidated affiliates on the Company’s consolidated statements of operations and cash flows.  When the Company records its proportionate share of net income, it increases equity income in the statements of operations and comprehensive income (loss) and the carrying value of that investment on the Company’s balance sheet.  When a distribution is received, it is recorded as a reduction to the carrying value of that investment on the balance sheet.

The Company accounts for distributions received from equity method investees under the “nature of the distribution” approach.  Under this approach, distributions received from equity method investees are classified on the basis of the nature of the activity or activities of the investee that generated the distribution as either a return on investment (classified as cash inflows from operating activities) or a return of investment (classified as cash inflows from investing activities).

(c)  Revenue Recognition

The Company, through Antero Midstream Partners and its affiliates, provides gathering and compression and water handling services under fee-based contracts primarily based on throughput or at cost plus a margin.  Certain of these contracts contain operating leases of the Company’s assets under GAAP.  Under these arrangements, the Company receives fees for gathering gas products, compression services, and water handling services.  The revenue the Company earns from these arrangements is directly related to (1) in the case of natural gas gathering and compression, the volumes of metered natural gas that it gathers, compresses, and delivers to natural gas compression sites or other transmission delivery points, (2) in the case of fresh water services, the quantities of fresh water delivered to its customers for use in their well completion operations, (3) in the case of wastewater treatment services performed by the Company prior to idling of the Clearwater Facility (as defined below) in September 2019, the quantities of wastewater treated for our customers, (4) in the case of wastewater services provided by third parties, the third-party costs the Company incurs plus 3%, or (5) in the case of flowback and produced water performed by the Company, a cost of service fee based on the costs incurred by the Company. The Company recognizes revenue when it satisfies a performance obligation by delivering a service to a customer or the use of leased assets to a customer.  See Note 7—Revenue for the Company’s required disclosures under Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers.  The Company includes lease revenue within revenues by service.

(d)Use of Estimates

The preparation of the consolidated financial statements and notes in conformity with GAAP requires that management formulate estimates and assumptions that affect revenues, expenses, assets, liabilities and the disclosure of contingent liabilities.  Items subject to estimates and assumptions include the useful lives of property and equipment, the valuation of assets and liabilities acquired from Antero Midstream Partners, as well as the valuation of accrued liabilities, among others.  Although management believes these estimates are reasonable, actual results could differ from these estimates.

(e)Cash and Cash Equivalents

The Company considers all liquid investments purchased with an initial maturity of three months or less to be cash equivalents.  The carrying value of cash and cash equivalents approximates fair value due to the short-term nature of these instruments. 

(f)Property and Equipment

Property and equipment primarily consists of gathering pipelines, compressor stations and the wastewater treatment facility and related landfill (collectively, the “Clearwater Facility”) used for the disposal of salt therefrom and fresh water delivery pipelines and facilities stated at historical cost less accumulated depreciation, amortization and impairment.  The Company capitalizes construction-related direct labor and material costs.  Maintenance and repair costs are expensed as incurred.

Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives and salvage values of assets.  The depreciation of fixed assets recorded under operating lease agreements is included in depreciation expense.  Uncertainties that may impact these estimates of useful lives include, among others, changes in laws and regulations relating to environmental matters, including air and water quality, restoration and abandonment requirements, economic conditions, and supply and demand for the Company’s services in the areas in which it operates.  When assets are placed into service, management

F-11

Table of Contents

ANTERO MIDSTREAM CORPORATION

Notes to Consolidated Financial Statements (Continued)

Years Ended December 31, 2017, 2018, and 2019

makes estimates with respect to useful lives and salvage values that management believes are reasonable. 

Amortization of landfill airspace consists of the amortization of landfill capital costs, including those that have been incurred and capitalized and estimated future costs for landfill development and construction, as well as the amortization of asset retirement costs arising from landfill final capping, closure, and post-closure obligations.  Amortization expense is recorded on a units-of-consumption basis, applying cost as a rate per-cubic yard.  The rate per-cubic yard is calculated by dividing each component of the amortizable basis of the landfill by the number of cubic yards needed to fill the corresponding asset’s airspace.  Landfill capital costs and closure and post-closure asset retirement costs are generally incurred to support the operation of the landfill over its entire operating life and are, therefore, amortized on a per-cubic yard basis using a landfill’s total airspace capacity.  Estimates of disposal capacity and future development costs are created using input from independent engineers and internal technical teams and are reviewed at least annually.

The Company evaluates its long‑lived assets for impairment when events or changes in circumstances indicate that the related carrying values of the assets may not be recoverable.  Generally, the basis for making such assessments is undiscounted future cash flow projections for the assets being assessed.  If the carrying values of the assets are deemed not recoverable, the carrying values are reduced to the estimated fair values, which are based on discounted future cash flows using assumptions as to revenues, costs, and discount rates typical of third-party market participants, which is a Level 3 fair value measurement.  The Company recognized an impairment with respect to the Clearwater Facility during the year ended December 31, 2019.  See Note 4—Clearwater Facility Impairment. 

(g)Asset Retirement Obligations

The Company’s asset retirement obligations include its obligation to close, maintain, and monitor landfill cells and support facilities.  After the entire landfill reaches capacity and is certified closed, the Company must continue to maintain and monitor the landfill for a post-closure period, which generally extends for 30 years.  The Company records the fair value of its landfill retirement obligations as a liability in the period in which the regulatory obligation to retire a specific asset is triggered.  For the Company’s individual landfill cells, the required closure and post-closure obligations under the terms of its permits and its intended operation of the landfill cell are triggered and recorded when the cell is placed into service and salt is initially disposed in the landfill cell.  The fair value is based on the total estimated costs to close the landfill cell and perform post-closure activities once the landfill cell has reached capacity and is no longer accepting salt.  Retirement obligations are increased each year to reflect the passage of time by accreting the balance at the weighted average credit-adjusted risk-free rate that is used to calculate the recorded liability, with accretion charged to direct costs.  Actual cash expenditures to perform closure and post-closure activities reduce the retirement obligation liabilities as incurred.  After initial measurement, asset retirement obligations are adjusted at the end of each period to reflect changes, if any, in the estimated future cash flows underlying the obligation.  Landfill retirement assets are capitalized as the related retirement obligations are incurred, and are amortized on a units-of-consumption basis as the disposal capacity is consumed.

Asset retirement obligations are recorded for fresh water impoundments and waste water pits when an abandonment date is identified.  The Company records the fair value of its freshwater impoundment and waste water pit retirement obligations as liabilities in the period in which the regulatory obligation to retire a specific asset is triggered.  The fair value is based on the total reclamation costs of the assets.  Retirement obligations are increased each year to reflect the passage of time by accreting the balance at the weighted average credit-adjusted risk-free rate that is used to calculate the recorded liability, with accretion charged to direct costs.  Actual cash expenditures to perform remediation activities reduce the retirement obligation liabilities as incurred.  After initial measurement, asset retirement obligations are adjusted at the end of each period to reflect changes, if any, in the estimated future cash flows underlying the obligation.  Fresh water impoundments and wastewater pit retirement assets are capitalized as the related retirement obligations are incurred, and are amortized on a straight-line basis until reclamation.

The Company is under no legal obligations, neither contractually nor under the doctrine of promissory estoppel, to restore or dismantle its gathering pipelines, compressor stations, water delivery pipelines and facilities,  flowback and produced water facilities and the wastewater treatment facility upon abandonment.  See Note 4—Clearwater Facility Impairment. 

F-12

Table of Contents

ANTERO MIDSTREAM CORPORATION

Notes to Consolidated Financial Statements (Continued)

Years Ended December 31, 2017, 2018, and 2019

(h)Litigation and Other Contingencies

A liability is recorded for a loss contingency when its occurrence is probable and damages can be reasonably estimated based on the anticipated most likely outcome or the minimum amount within a range of possible outcomes.  The Company regularly reviews contingencies to determine the adequacy of our accruals and related disclosures.  The ultimate amount of losses, if any, may differ from these estimates.

The Company accrues losses associated with environmental obligations when such losses are probable and can be reasonably estimated.  Accruals for estimated environmental losses are recognized no later than at the time a remediation feasibility study, or an evaluation of response options, is complete.  These accruals are adjusted as additional information becomes available or as circumstances change.  Future environmental expenditures are not discounted to their present value.  Recoveries of environmental costs from other parties are recorded separately as assets at their undiscounted value when receipt of such recoveries is probable.

As of December 31, 2018 and 2019, the Company had not recorded any liabilities for litigation, environmental, or other contingencies.

(i)Equity‑Based Compensation

The Company’s consolidated financial statements include equity-based compensation costs related to awards granted by its own plans, as in place before and after the Transactions, as well as costs allocated by Antero Resources for grants made prior to the Transactions.  Costs allocated from Antero Resources are offset to additional paid in capital on the consolidated balance sheet.  See Note 6—Transactions with Affiliates for additional information regarding Antero Resources’ allocation of expenses to the Company.  For awards granted under its own plan, the Company recognizes compensation cost related to all equity-based awards in the financial statements based on the estimated grant date fair value.  The Company is authorized to grant various types of equity-based compensation awards, including stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, dividend equivalent awards and other types of awards.  The grant date fair values are determined based on the type of award and may utilize market prices on the date of grant, Black-Scholes option-pricing model, Monte Carlo simulations or other acceptable valuation methodologies, as appropriate for the type of equity-based award.  Compensation cost is recognized ratably over the applicable vesting or service period.  Forfeitures are accounted for as they occur by reversing the expense previously recognized for awards that were forfeited during the period.   See Note 12—Equity-Based Compensation.

(j)Income Taxes

The Company recognizes deferred tax assets and liabilities for temporary differences resulting from net operating loss carryforwards for income tax purposes and the differences between the financial statement and tax basis of assets and liabilities.  The effect of changes in tax laws or tax rates is recognized in income during the period such changes are enacted.  Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized.  The Company regularly reviews its tax positions in each significant taxing jurisdiction during the process of evaluating its tax provision.  The Company makes adjustments to its tax provision when: (i) facts and circumstances regarding a tax position change, causing a change in management’s judgment regarding that tax position; and/or (ii) a tax position is effectively settled with a tax authority at a differing amount.

(k)Fair Value Measures

The Financial Accounting Standards Board (the “FASB”) ASC Topic 820, Fair Value Measurements and Disclosures, clarifies the definition of fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.  This guidance also relates to all nonfinancial assets and liabilities that are not recognized or disclosed on a recurring basis (e.g., the initial recognition of asset retirement obligations and impairments of long‑lived assets).  The fair value is the price that the Company estimates would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  A fair value hierarchy is used to prioritize inputs to valuation techniques used to estimate fair value.  An asset or liability subject to the fair value requirements is categorized within the hierarchy based on the lowest level of input that is significant to the fair value measurement.  The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.  The highest priority (Level 1) is

F-13

Table of Contents

ANTERO MIDSTREAM CORPORATION

Notes to Consolidated Financial Statements (Continued)

Years Ended December 31, 2017, 2018, and 2019

given to unadjusted quoted market prices in active markets for identical assets or liabilities, and the lowest priority (Level 3) is given to unobservable inputs.  Level 2 inputs are data, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly.

The carrying values on the consolidated balance sheet of the Company’s cash and cash equivalents, accounts receivable—Antero Resources, accounts receivable—third party, other current assets, accounts payable—Antero Resources, accounts payable—third party, accrued liabilities, other current liabilities, other liabilities and the Credit Facility (as defined in Note 10—Long-Term Debt) approximate fair values due to their short-term maturities.  The assets and liabilities of Antero Midstream Partners were recorded at fair value as of the acquisition date, March 12, 2019 (see Note 3—Business Combination).  Additionally, the Company uses certain fair valuation techniques in performing its annual goodwill impairment test described below.  

(l)Investments in Unconsolidated Affiliates

The Company uses the equity method to account for its investments in companies if the investment provides the Company with the ability to exercise significant influence over, but not control of, the operating and financial policies of the investee.  The Company’s consolidated net income includes the Company’s proportionate share of the net income or loss of such companies.  The Company’s judgment regarding the level of influence over each equity method investee includes considering key factors such as the Company’s ownership interest, representation on the board of directors and participation in policy-making decisions of the investee and material intercompany transactions.  See Note 16—Investments in Unconsolidated Affiliates.

(m)Business Combinations

The Company recognizes and measures the assets acquired and liabilities assumed in a business combination based on their estimated fair values at the acquisition date, with any remaining difference recorded as goodwill.  For acquisitions, management engages an independent valuation specialist, as applicable, to assist with the determination of fair value of the assets acquired, liabilities assumed, and goodwill, based on recognized business valuation methodologies.  If the initial accounting for the business combination is incomplete by the end of the reporting period in which the acquisition occurs, an estimate will be recorded.  Subsequent to the acquisition, and not later than one year from the acquisition date, the Company will record any material adjustments to the initial estimate based on new information obtained that would have existed as of the acquisition date.  An adjustment that arises from information obtained that did not exist as of the date of the acquisition will be recorded in the period of the adjustment.  Acquisition-related costs are expensed as incurred in connection with each business combination.  See Note 3—Business Combination.

(n)Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price over the estimated fair value of the net assets acquired in the acquisition of a business.  Goodwill is not amortized, but rather is tested for impairment annually in the fourth quarter and when events or changes in circumstances indicate that the fair value of a reporting unit with goodwill has been reduced below its carrying value.  The impairment test requires allocating goodwill and other assets and liabilities to reporting units.  The fair value of each reporting unit is determined and compared to the carrying value of the reporting unit.  The fair value is calculated using the expected present value of future cash flows method.  Significant assumptions used in the cash flow forecasts include future net operating margins, future volumes, discount rates and future capital requirements.  If the fair value of the reporting unit is less than the carrying value, including goodwill, the excess of the book value over the fair value of goodwill is charged to net income as an impairment expense. 

Amortization of intangible assets with definite lives is calculated using the straight-line method, which is reflective of the benefit pattern in which the estimated economic benefit is expected to be received over the estimated useful life of the intangible asset.  Intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the intangible asset may not be recoverable.  If the sum of the expected undiscounted future cash flows related to the asset is less than the carrying amount of the asset, an impairment loss is recognized based on the fair value of the asset.  See Note 4—Clearwater Facility Impairment and Note 5—Goodwill and Intangibles.

F-14

Table of Contents

ANTERO MIDSTREAM CORPORATION

Notes to Consolidated Financial Statements (Continued)

Years Ended December 31, 2017, 2018, and 2019

(o)Treasury Share Retirement

The Company periodically retires treasury shares acquired through share repurchases and returns those shares to the status of authorized but unissued.  When treasury shares are retired, the Company’s policy is to allocate the excess of the repurchase price over the par value of shares acquired first, to additional paid-in capital, and then to accumulated earnings.  The portion allocable to additional paid-in capital is determined by applying a percentage, determined by dividing the number of shares to be retired by the number of shares outstanding, to the balance of additional paid-in capital as of retirement.

(p)Recently Issued Accounting Standards

In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement: Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement,” which provides changes to certain fair value disclosure requirements.  This ASU is effective for annual reporting periods beginning after December 15, 2019 and interim periods within those annual periods, with early adoption permitted.  The adoption of this update is not expected to have a material impact on the Company’s consolidated financial statements.

F-15

Table of Contents

ANTERO MIDSTREAM CORPORATION

Notes to Consolidated Financial Statements (Continued)

Years Ended December 31, 2017, 2018, and 2019

(3)  Business Combination

On March 12, 2019, AMGP and Antero Midstream Partners completed the Transactions.  The Transactions have been accounted for using the acquisition method of accounting with Antero Midstream Corporation identified as the acquirer of Antero Midstream Partners. 

The components of the fair value of consideration transferred are as follows (in thousands):

 

 

 

 

 

Fair value of shares of AMC common stock issued(1)

 

$

4,017,881

 

Cash

 

 

598,709

 

Total fair value of consideration transferred

 

$

4,616,590

 


(1)

The fair value of each share of AMC common stock issued in connection with the Transactions was determined to be $12.54, the closing price of AMGP common shares on March 12, 2019.

 

The final purchase price allocation of the Transactions, and final adjustments thereto, are summarized in the table below.  The fair value of assets acquired and liabilities assumed at March 12, 2019 were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As Originally

 

 

 

 

 

As

 

 

 

 

Reported

 

 

Adjustments

 

 

Adjusted

 

Cash and cash equivalents

 

$

619,532

 

 

 —

 

 

619,532

 

Accounts receivable–Antero Resources

 

 

142,312

 

 

 —

 

 

142,312

 

Accounts receivable–third party

 

 

117

 

 

 —

 

 

117

 

Other current assets

 

 

1,150

 

 

 —

 

 

1,150

 

Property and equipment, net

 

 

3,639,148

 

 

(267,721)

 

 

3,371,427

 

Investments in unconsolidated affiliates

 

 

1,090,109

 

 

(521,824)

 

 

568,285

 

Customer relationships

 

 

558,000

 

 

1,009,000

 

 

1,567,000

 

Other assets, net

 

 

42,887

 

 

 —

 

 

42,887

 

Total assets acquired

 

 

6,093,255

 

 

219,455

 

 

6,312,710

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable–Antero Resources

 

 

3,316

 

 

 —

 

 

3,316

 

Accounts payable–third party

 

 

30,674

 

 

 —

 

 

30,674

 

Accrued liabilities

 

 

87,021

 

 

 —

 

 

87,021

 

Other current liabilities

 

 

537

 

 

 —

 

 

537

 

Long-term debt

 

 

2,364,935

 

 

 —

 

 

2,364,935

 

Contingent acquisition consideration

 

 

116,924

 

 

 —

 

 

116,924

 

Other liabilities

 

 

8,524

 

 

 —