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EXLP > SEC Filings for EXLP > Form 8-K/A on 15-Mar-2013All Recent SEC Filings

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Form 8-K/A for EXTERRAN PARTNERS, L.P.


15-Mar-2013

Financial Statements and Exhibits


Item 9.01. Financial Statements and Exhibits.

(a) Financial Statements of Business Acquired.

The Report of the Independent Registered Public Accounting Firm and the financial statements listed below are set forth starting on page 3 of this Form 8-K/A.

The audited combined statements of assets acquired and liabilities assumed as of December 31, 2012 and 2011 for the Proposed 2013 Contract Operations Acquisition and the related audited combined statements of revenues and direct operating expenses for the years ended December 31, 2012 and 2011.

(b) Pro Forma Financial Information.

The unaudited pro forma consolidated balance sheet and the unaudited pro forma consolidated statements of operations of the Partnership as of and for the year ended December 31, 2012 are set forth starting on page 9 of this Form 8-K/A.

(d) Exhibits.

Exhibit No. Description

23.1 Consent of Deloitte & Touche LLP


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Partners of Exterran Partners L.P.,

Houston, TX

We have audited the accompanying combined statements of assets acquired and liabilities assumed by Exterran Partners, L.P. and subsidiaries (the "Partnership"), including certain contract operations customer service agreements and compression equipment (the "Contract Operations Net Assets") proposed to be acquired by the Partnership pursuant to the Contribution, Conveyance and Assumption Agreement between Exterran Holdings, Inc., the Partnership and certain of their respective subsidiaries dated March 7, 2013 (the "Contract Operations Acquisition Agreement"), as of December 31, 2012 and 2011, and the related combined statements of revenues and direct operating expenses for the years ended December 31, 2012 and 2011 (the "Proposed 2013 Contract Operations Acquisition Financial Statements"). These statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these statements based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Contract Operations Net Assets are not required to have, nor were we engaged to perform, an audit of internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Contract Operations Net Assets internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

The accompanying combined statements related to the Proposed 2013 Contract Operations Acquisition Financial Statements were prepared to present the assets acquired and liabilities assumed and revenues and direct operating expenses of assets acquired by the Partnership pursuant to the Contract Operations Acquisition Agreement described in Note 1, and are not intended to be a complete presentation of the results of operations associated with the Contract Operations Net Assets.

In our opinion, such combined financial statements present fairly, in all material respects, the assets acquired and liabilities assumed by the Partnership as of December 31, 2012 and 2011, pursuant to the Contract Operations Acquisition Agreement described in Note 1, and the related revenues and direct operating expenses for the years ended December 31, 2012 and 2011 in conformity with accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP
Houston, TX
March 15, 2013


                 PROPOSED 2013 CONTRACT OPERATIONS ACQUISITION

         COMBINED STATEMENTS OF ASSETS ACQUIRED AND LIABILITIES ASSUMED

                                 (In thousands)



                                             December 31,
                                           2012        2011
                ASSETS

Property, plant and equipment            $ 257,044   $ 224,821
Accumulated depreciation                   (95,788 )   (75,806 )
Net property, plant and equipment          161,256     149,015
Intangible and other assets, net             3,242       3,731
Total assets acquired                    $ 164,498   $ 152,746

             LIABILITIES

Commitments and contingencies (Note 3)
Total liabilities assumed                $       -   $       -

The accompanying notes are an integral part of these combined financial statements.


                 PROPOSED 2013 CONTRACT OPERATIONS ACQUISITION

         COMBINED STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES

                                 (In thousands)



                                                               Years Ended December 31,
                                                                2012             2011

Revenues                                                    $      47,817    $      38,468

Direct operating expenses:
Cost of sales (excluding depreciation and amortization)            19,776           17,898
Depreciation and amortization                                      13,167           11,525
Selling, general and administrative                                 2,757            2,497
Total direct operating expenses                                    35,700           31,920
Excess of revenues over direct operating expenses           $      12,117    $       6,548

The accompanying notes are an integral part of these combined financial statements.


PROPOSED 2013 CONTRACT OPERATIONS ACQUISITION

NOTES TO COMBINED STATEMENTS OF ASSETS ACQUIRED

AND LIABILITIES ASSUMED AND

COMBINED STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES

1. Overview and Basis of Presentation

Overview

Pursuant to a Contribution, Conveyance and Assumption Agreement, dated March 7, 2013, between Exterran Partners, L.P. ("we," "us" or "our"), Exterran Holdings, Inc. (individually and together with its subsidiaries, "Exterran Holdings") and certain of our respective subsidiaries (the "Agreement"), we agreed to acquire from certain subsidiaries of Exterran Holdings certain contract operations customer service agreements with 50 customers, a fleet of compressor units used to provide compression services under those agreements comprising approximately 253,000 horsepower and a fleet of compressor units comprising approximately 100,000 horsepower that we leased on an intercompany basis from Exterran Holdings (the "Proposed 2013 Contract Operations Acquisition"). In exchange, we agreed to issue approximately 7.1 million common units and approximately 145,000 general partner units to Exterran Holdings. The Proposed 2013 Contract Operations Acquisition is subject to regulatory approval and other closing conditions and is expected to close in March or April 2013.

The accompanying combined statements of assets acquired and liabilities assumed and statements of revenues and direct operating expenses for the Proposed 2013 Contract Operations Acquisition include revenue and direct operating expenses related to contract operations customer service agreements and compression equipment that we intend to acquire from Exterran Holdings.

Basis of Presentation

The accompanying combined statements of assets acquired and liabilities assumed and statements of revenues and direct operating expenses related to the Proposed 2013 Contract Operations Acquisition have been prepared for the purpose of complying with the rules and regulations of the U.S. Securities and Exchange Commission. Statements of assets acquired and liabilities assumed and statements of revenues and direct operating expenses have been included in this report in lieu of full financial statements because the preparation of full financial statements was determined to be impracticable as it would have required significant assumptions that cannot be substantiated. The Proposed 2013 Contract Operations Acquisition was not operated as a separate business unit or legal entity of Exterran Holdings, but was an integrated part of Exterran Holdings' consolidated operations.

The accompanying combined statements have been derived from the historical records of Exterran Holdings to present combined statements of assets acquired and liabilities assumed and revenues and direct operating expenses related to the Proposed 2013 Contract Operations Acquisition in accordance with accounting principles generally accepted in the U.S. ("GAAP"). In the opinion of management, the accompanying combined statements contain all adjustments considered necessary to fairly present the assets acquired, liabilities assumed, revenues and direct operating expenses related to the Proposed 2013 Contract Operations Acquisition. These combined statements are not intended to be a complete presentation of the financial position or results of operations for the Proposed 2013 Contract Operations Acquisition. The historical operating results of the Proposed 2013 Contract Operations Acquisition may not be indicative of future results due to changes in the business.

The combined statements of assets acquired and liabilities assumed include the compression equipment being acquired in the Proposed 2013 Contract Operations Acquisition, as well as the intangible assets and amortization related to the intangible assets associated with the Proposed 2013 Contract Operations Acquisition. Compression equipment includes the cost and accumulated depreciation of equipment which was in service as of the end of the periods presented attributable to Exterran Holdings' contract operations customer service agreements that will be transferred in connection with the Proposed 2013 Contract Operations Acquisition. The combined statements of revenues and direct operating expenses related to the Proposed 2013 Contract Operations Acquisition include the revenues and direct expenses of units that were in service during the periods presented attributable to Exterran Holdings' contract operations customer service agreements that will be transferred in connection with the Proposed 2013 Contract Operations Acquisition. These statements include depreciation expense related to the equipment used to provide service under these customer service agreements in the Proposed 2013 Contract Operations Acquisition during the periods presented. Certain expense items not directly associated with the customer service agreements, such as income taxes and corporate overhead (see Note 2) were excluded from the statements of revenues and direct operating expenses. The allocation of such costs was not historically made and therefore would be made at the discretion of management and would not necessarily be indicative of what such costs actually would have been had the specific assets been operated as a stand-alone entity.


All cash flow requirements of the Proposed 2013 Contract Operations Acquisition were funded by Exterran Holdings, and cash management functions were not performed at the Proposed 2013 Contract Operations Acquisition level. Therefore, a statement of cash flows, including cash flows from operating, investing and financing activities, is not presented as the Proposed 2013 Contract Operations Acquisition did not maintain a separate cash balance.

2. Summary of Significant Accounting Policies

Use of Estimates in the Financial Statements

The preparation of the Proposed 2013 Contract Operations Acquisition combined statements of assets acquired and liabilities assumed and combined statements of revenues and direct operating expenses requires management to make estimates and assumptions that affect the reported amounts therein as well as the disclosures of contingent assets and liabilities. Because of the inherent uncertainties in this process, actual future results could differ from those expected at the reporting date. Management believes that the estimates and assumptions used are reasonable.

Revenue Recognition

Revenue from contract operations is recorded when earned, which generally occurs monthly when service is provided under our customer contracts.

Property, Plant and Equipment

Property, plant and equipment is carried at cost. Depreciation for financial reporting purposes is computed on the straight-line basis using estimated useful lives. For compression equipment, depreciation begins with the first compression service. The estimated useful lives for compression equipment as of December 31, 2012 were 15 to 30 years. Maintenance and repairs are charged to expense as incurred. Overhauls and major improvements that increase the value or extend the life of compressor units are capitalized and depreciated over the estimated useful life of up to seven years. Included in depreciation expense is $3.8 million and $3.5 million for the years ended December 31, 2012 and 2011, respectively, of depreciation expense on compression equipment that we leased on an intercompany basis from Exterran Holdings.

Long-Lived Assets

We review for impairment of our long-lived assets, including property, plant and equipment and identifiable intangibles that are being amortized, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss exists when estimated undiscounted cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. The impairment loss recognized represents the excess of the asset's carrying value as compared to its estimated fair value. Identifiable intangibles are amortized over the assets' estimated useful lives.

Intangible Assets

The amounts of finite life intangible assets reflected in the combined statements of assets acquired and liabilities assumed of the Proposed 2013 Contract Operations Acquisition represent an allocation of the historical cost finite life intangible assets of Exterran Holdings' North America contract operations segment. The amounts allocated were based on the determination of fair value of net assets transferred to us to the total fair value of Exterran Holdings' North America contract operations segment.

The amount of finite life intangible assets included in the Proposed 2013 Contract Operations Acquisition is comprised of $5.5 million, excluding accumulated amortization at December 31, 2012 of $2.3 million, associated with customer relationships. These intangible assets are being amortized through 2024, based on the present value of expected income to be realized from these assets.


Cost of Sales (Excluding Depreciation and Amortization)

Cost of sales (excluding depreciation and amortization) includes all variable and fixed costs associated with providing contract operations services, including direct labor, benefits cost, parts cost, unit freight cost, lubricant cost, field supply cost and ad valorem taxes. Included in cost of sales is $0.5 million and $0.6 million for the years ended December 31, 2012 and 2011, respectively, of ad valorem tax on compression equipment that we leased on an intercompany basis from Exterran Holdings.

Selling, General and Administrative

Selling, general and administrative ("SG&A") expenses include only those costs directly associated with producing contract operations revenues, including fleet management and selling and marketing costs. The amount of SG&A expenses included in the combined statements of revenues and direct operating expenses of the Proposed 2013 Contract Operations Acquisition reflects an allocation of those costs incurred by Exterran Holdings based on a percentage of revenue and horsepower.

3. Commitments and Contingencies

The Texas Legislature enacted changes related to the appraisal of natural gas compressors for ad valorem taxes by expanding the definitions of "Heavy Equipment Dealer" and "Heavy Equipment." Under the revised statute, we and Exterran Holdings believe that the natural gas compressors to be acquired in the Proposed 2013 Contract Operations Acquisition are Heavy Equipment and are, therefore, required to file the 2012 property tax renditions under this new methodology. As a result of filing the natural gas compressors as Heavy Equipment in Texas counties, a number of Appraisal Review Boards have denied our and Exterran Holdings' position and we and Exterran Holdings are currently filing petitions for review in district courts.

As a result of the new methodology, the ad valorem tax expense of the Proposed 2013 Contract Operations Acquisition (which is reflected on the Proposed 2013 Contract Operations Acquisition combined statements of revenues and direct operating expenses as a component of cost of sales (excluding depreciation and amortization expense)) includes a benefit of $0.9 million, of which approximately $0.2 million has been agreed to by a number of Appraisal Review Boards, for the year ended December 31, 2012.

In addition to federal and state income taxes, the assets being acquired in the Proposed 2013 Contract Operations Acquisition are subject to a number of state and local taxes that are not income-based. Many of these taxes are subject to audit by the taxing authorities, and therefore, it is possible that an audit could result in additional tax payments. Such additional tax payments resulting from an audit are accrued for when it is determined that a liability is probable and can be reasonably estimated. We do not believe that such payments would be material to the Proposed 2013 Contract Operations Acquisition's consolidated financial position but cannot provide assurance that the resolution of an audit would not be material to its results of operations or cash flows for the period in which the resolution occurs.


EXTERRAN PARTNERS, L.P.

UNAUDITED PRO FORMA FINANCIAL STATEMENTS

INTRODUCTION

The following are the unaudited pro forma consolidated financial statements of Exterran Partners, L.P. ("we," "us" or "our") as of and for the year ended December 31, 2012. The unaudited pro forma consolidated balance sheet assumes that our proposed acquisition of certain contract operations customer service agreements and compression equipment (together the "Proposed Assets") of the U.S. natural gas contract operations business of Exterran Holdings, Inc. (individually and together with its subsidiaries, "Exterran Holdings") and the other related transactions, as described below (the "Proposed 2013 Contract Operations Acquisition"), occurred as of December 31, 2012. The unaudited pro forma consolidated statement of operations for the year ended December 31, 2012 assumes that the Proposed 2013 Contract Operations Acquisition and our acquisition in March 2012 of certain contract operations customer service agreements and compression and processing equipment from Exterran Holdings (the "March 2012 Contract Operations Acquisition") occurred on January 1, 2012. These transaction adjustments are presented in the notes to the unaudited pro forma financial statements.

The pro forma financial statements reflect the following transactions:

As related to the Proposed 2013 Contract Operations Acquisition:

our acquisition of the Proposed Assets from Exterran Holdings; and

our issuance of approximately 7.1 million common units and approximately 145,000 general partner units to Exterran Holdings.

As related to the March 2012 Contract Operations Acquisition for the period from January 1, 2012 through March 7, 2012:

our acquisition in March 2012 of certain contract operations customer service agreements, compression equipment and a natural gas processing plant from Exterran Holdings;

our assumption of $105.4 million of Exterran Holdings' long-term debt; and

our payment of $77.4 million in cash to Exterran Holdings.

The unaudited pro forma consolidated balance sheet and unaudited pro forma consolidated statement of operations were derived by adjusting our historical financial statements. The adjustments are based on currently available information and certain estimates and assumptions and, therefore, the actual adjustments may differ from the pro forma adjustments. However, management believes that the adjustments provide a reasonable basis for presenting the significant effects of the transactions. The unaudited pro forma consolidated financial statements do not purport to present our financial position or results of operations had the Proposed 2013 Contract Operations Acquisition actually been completed as of the dates indicated. Moreover, the statements do not project our financial position or results of operations for any future date or period.


                            EXTERRAN PARTNERS, L.P.

                 UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

                               December 31, 2012

                                 (In thousands)



                                                         Proposed 2013
                                        Exterran           Contract                              Exterran
                                     Partners, L.P.       Operations                          Partners, L.P.
                                       Historical         Acquisition       Adjustments         Pro Forma
             ASSETS

Current assets:
Cash and cash equivalents           $            142    $             -    $           -     $            142
Accounts receivable, trade, net
of allowance                                  38,084                  -                -               38,084
Total current assets                          38,226                  -                -               38,226
Property, plant and equipment              1,468,910            257,044                -            1,725,954
Accumulated depreciation                    (491,615 )          (95,788 )              -             (587,403 )
Net property, plant and
equipment                                    977,295            161,256                -            1,138,551
Goodwill                                     124,019                  -                -              124,019
Intangible and other assets, net              23,996              3,242                -               27,238
Total assets                        $      1,163,536    $       164,498    $           -     $      1,328,034

   LIABILITIES AND PARTNERS'
            CAPITAL

Current liabilities:
Accrued liabilities                 $          9,621    $             -    $           -     $          9,621
Accrued interest                               1,473                  -                -                1,473
Due to affiliates, net                        21,598                  -                -               21,598
Current portion of interest rate
swaps                                          3,873                  -                -                3,873
Total current liabilities                     36,565                  -                -               36,565
Long-term debt                               680,500                  -                -              680,500
Interest rate swaps                            6,043                  -                -                6,043
Other long-term liabilities                      543                  -                -                  543
Deferred income taxes                            885                  -                -                  885
Total liabilities                            724,536                  -                -              724,536
Partners' capital:
Common units                                 436,587                  -          161,224 (A)          597,811
General partner units                         13,490                  -            3,274 (A)           16,764
Accumulated other comprehensive
loss                                         (10,094 )                -                -              (10,094 )
Treasury units                                  (983 )                -                -                 (983 )
Total partners' capital                      439,000                  -          164,498              603,498
Total liabilities and partners'
capital                             $      1,163,536    $             -    $     164,498     $      1,328,034

The accompanying notes are an integral part of these unaudited pro forma consolidated financial statements.


                            EXTERRAN PARTNERS, L.P.

            UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

                      For the year ended December 31, 2012

                      (In thousands, except per unit data)



                                                                                                              Carve-off for
                                                                                                              Non-Acquired
                                                       March 2012       Proposed 2013                          Business of
                                      Exterran          Contract          Contract                              Customers           Exterran
                                   Partners, L.P.      Operations        Operations                             Partially        Partners, L.P.
                                     Historical        Acquisition       Acquisition       Adjustments          Acquired           Pro Forma
Revenue:
Revenue - third parties           $        386,731    $       8,476    $        47,817    $           -      $          (806 )  $        442,218
Revenue - affiliates                           762                -                  -             (206 )(B)               -                 556
Total revenue                              387,493            8,476             47,817             (206 )               (806 )           442,774

Costs and expenses:
Cost of sales (excluding
depreciation and amortization
expense) - affiliates                      183,160            2,988             19,776             (206 )(B)            (245 )           200,209
                                                                                                 (5,264 )(C)
. . .
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