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EXLP > SEC Filings for EXLP > Form 8-K/A on 21-Mar-2014All Recent SEC Filings

Show all filings for EXTERRAN PARTNERS, L.P.

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


21-Mar-2014

Financial Statements and Exhibits


Item 9.01. Financial Statements and Exhibits.

(a) Financial Statements of Business Acquired.

The Independent Auditor's Report and the financial statements listed below are set forth starting on page 3 of this Form 8-K/A.

The audited statement of assets acquired and liabilities assumed as of December 31, 2013 for the Proposed MidCon Acquisition and the related audited statement of revenues and direct operating expenses for the year ended December 31, 2013.

(b) Pro Forma Financial Information.

The unaudited pro forma consolidated balance sheet and the unaudited pro forma consolidated statement of operations of the Partnership as of and for the year ended December 31, 2013 are set forth starting on page 9 of this Form 8-K/A.

(d) Exhibits.

Exhibit No. Description

23.1 Consent of PricewaterhouseCoopers LLP


Independent Auditor's Report

To the Member of MidCon Compression, L.L.C.:

We have audited the accompanying statement of assets acquired and liabilities assumed as of December 31, 2013 and the related statement of revenues and direct operating expenses for the year ended December 31, 2013 of the business proposed to be acquired (the "Proposed MidCon Acquisition") by Exterran Partners, L.P. and subsidiaries (the "Partnership") pursuant to the Purchase and Sale Agreement between EXLP Operating LLC, a direct wholly-owned subsidiary of the Partnership, and MidCon Compression, L.L.C. dated February 27, 2014 (the "MidCon Compressor Acquisition Agreement").

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express an opinion on the financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to management's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Proposed MidCon Acquisition's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the assets acquired and liabilities assumed that are proposed to be acquired by the Partnership at December 31, 2013, pursuant to the MidCon Compressor Acquisition Agreement described in Note 1, and the related statement of revenues and direct operating expenses for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Emphasis of Matter

The accompanying statements were prepared to present the assets acquired and liabilities assumed and revenues and direct operating expenses of the business that is proposed to be acquired by the Partnership pursuant to the MidCon Compressor Acquisition Agreement for purposes of complying with the rules and regulations of the Securities and Exchange Commission as described in Note 1, and are not intended to be a complete presentation of the results of operations associated with the assets acquired and liabilities assumed.

/s/ PricewaterhouseCoopers LLP

Tulsa, Oklahoma

March 21, 2014


PROPOSED MIDCON ACQUISITION

STATEMENT OF ASSETS ACQUIRED AND LIABILITIES ASSUMED

(In thousands)

December 31, 2013
                ASSETS

Compression equipment, at cost           $           172,929
Accumulated depreciation                             (21,839 )
Compression equipment, net                           151,090
Total assets acquired                    $           151,090

             LIABILITIES

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

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


                          PROPOSED MIDCON ACQUISITION

              STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES

                                 (In thousands)



                                                        Year Ended
                                                     December 31, 2013

Revenues                                            $            84,762

Direct operating expenses:
Cost of sales (excluding depreciation)                           51,480
Depreciation                                                      9,657
Selling, general and administrative                                 935
Total direct operating expenses                                  62,072
Excess of revenues over direct operating expenses   $            22,690

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


PROPOSED MIDCON ACQUISITION

NOTES TO STATEMENT OF ASSETS ACQUIRED AND LIABILITIES ASSUMED AND STATEMENT OF
REVENUES AND DIRECT OPERATING EXPENSES

1. Overview and Basis of Presentation

Overview

MidCon Compression, L.L.C. ("MidCon") entered into a Purchase and Sale Agreement, dated as of February 27, 2014, between MidCon and EXLP Operating LLC, a directly wholly-owned subsidiary of Exterran Partners, L.P. (together with EXLP Operating LLC and its other subsidiaries, the "Partnership"). The provisions of the Purchase and Sale Agreement provide that the Partnership will acquire for cash of $360.5 million, subject to certain adjustments, assets related to the provision of compression services to a single customer, including compression equipment, a tract of real property and the facility located thereon, a fleet of vehicles, personal property and parts inventory. In addition, an affiliate of the Partnership intends to hire certain employees of MidCon who are directly involved in revenue-producing activities of the acquired business.

The Partnership has agreed with Exterran Energy Solutions, L.P. ("EESLP"), the indirect parent company of the Partnership and a wholly-owned subsidiary of Exterran Holdings, Inc., that at the closing of the acquisition, the Partnership will direct MidCon to sell approximately $9.4 million of the assets to be acquired in the acquisition, including a tract of real property and the facility located thereon, a fleet of vehicles, personal property and parts inventory, to EESLP. The assets to be acquired by the Partnership pursuant to the Purchase and Sale Agreement between the Partnership and MidCon, and that exclude those assets assigned and sold to EESLP by MidCon, are comprised of compression equipment and will be hereafter referred to as the Proposed MidCon Acquisition or the "business to be acquired".

The fleet of compressor units used to provide compression services for the business to be acquired comprises approximately 440,000 horsepower. Approximately 230,000 horsepower of the compressor units to be acquired are currently under lease by MidCon but will be acquired by MidCon prior to closing of the acquisition. The Partnership is not acquiring the contracts between MidCon and its customer related to the business to be acquired but has entered into a contract with the customer that will be effective with the closing of the acquisition and that will provide for substantially the same rates that MidCon had under its agreements with the customer during the historical period presented in the statement of revenues and direct operating expenses.

The accompanying statement of assets acquired and liabilities assumed and statement of revenues and direct operating expenses for the Proposed MidCon Acquisition include revenue and direct operating expenses of the business to be acquired and the compression equipment that the Partnership intends to acquire from MidCon.

Basis of Presentation

The accompanying statement of assets acquired and liabilities assumed and statement of revenues and direct operating expenses related to the Proposed MidCon Acquisition have been prepared for the purpose of complying with the rules and regulations of the United States ("U.S.") Securities and Exchange Commission ("SEC"). The SEC stated they would not object to the presentation of audited statements of assets acquired and liabilities assumed and revenues and direct operating expenses in satisfaction of Rule 3-05 of Regulation S-X. The Proposed MidCon Acquisition was not operated as a separate business unit or legal entity of MidCon, but rather was an integrated part of MidCon's and its affiliates' consolidated operations.

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

The statement of assets acquired and liabilities assumed includes the compression equipment that was owned and used by MidCon to provide services for the business to be acquired during the historical period presented but excludes the compression equipment that was leased by MidCon during the period that will also be acquired by the Partnership in the Proposed MidCon Acquisition. It also excludes


the vehicles, facility and inventory that are to be acquired by EESLP and other assets that will not be acquired by either the Partnership or EESLP pursuant to the Purchase and Sale Agreement such as certain facilities, accounts receivable, accounts payable and other accrued liabilities.

The statement of revenues and direct operating expenses related to the Proposed MidCon Acquisition includes the revenues and direct expenses of compressor units that were in service during the period presented attributable to the business to be acquired. Cost of sales includes the lease expense for compression equipment that MidCon leased from a third-party company. The statement also includes depreciation expense related to the compression equipment owned by MidCon and used to provide services for the business to be acquired during the period presented. Certain expense items not directly associated with the business to be acquired, such as certain general and administrative expenses, interest expense, income taxes and corporate overhead (see Note 2), were excluded from the statement 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 MidCon Acquisition were funded by MidCon and its affiliates, and cash management functions were not performed at the Proposed MidCon Acquisition level. Therefore, a statement of cash flows, including cash flows from operating, investing and financing activities, is not presented as the Proposed MidCon 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 MidCon Acquisition statement of assets acquired and liabilities assumed and statement 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 recognized when earned, which occurs monthly when service is provided under our customer contracts.

Compression Equipment

Compression equipment is carried at cost. Depreciation for financial reporting purposes is computed on the straight-line basis using estimated useful lives. Depreciation begins with the first compression service. The estimated useful life for compression equipment as of December 31, 2013 was 20 years. Maintenance and repairs are charged to expense as incurred. Major improvements that increase the value or extend the life of compressor units are capitalized and depreciated over the estimated useful life of two to ten years.

Long-Lived Assets

Long-lived assets are reviewed for impairment 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. If an impairment loss exists, a loss is recognized for the difference between the carrying amount and the fair value of the asset. Fair value of the asset is measured using market prices or, in the absence of market prices, based on an estimate of discounted cash flows.

Cost of Sales (Excluding Depreciation)

Cost of sales (excluding depreciation) includes all variable and fixed costs associated with providing contract operations services, including direct labor, benefits cost, cost of leased compressor units, parts cost, unit freight cost, lubricant cost, field supply cost and ad valorem taxes. The statement of revenues and direct operating expenses includes $23.0 million in cost of sales incurred by MidCon for costs such as direct labor and benefits that were allocated based on a percentage of revenue.


Selling, General and Administrative

Selling, general and administrative ("SG&A") expenses include only those costs directly associated with producing contract operations revenues. The amount of SG&A expenses included in the statement of revenues and direct operating expenses includes costs such as direct labor and benefits that were allocated based on a percentage of revenue.

3. Commitments and Contingencies

The assets to be acquired in the Proposed MidCon 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. Management does not believe that such payments would be material to the Proposed MidCon Acquisition's financial position.


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, 2013. The unaudited pro forma consolidated balance sheet assumes that our proposed acquisition of compression equipment used to provide contract compression services to a single customer (the "Proposed Assets") of MidCon Compression, L.L.C. ("MidCon"), as described below (the "Proposed MidCon Acquisition"), occurred as of December 31, 2013. The unaudited pro forma consolidated statement of operations for the year ended December 31, 2013 assumes that the Proposed MidCon Acquisition and our acquisition in March 2013 of certain contract operations customer service agreements and compression equipment from Exterran Holdings, Inc. (the "March 2013 Contract Operations Acquisition") occurred on January 1, 2013. 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 MidCon Acquisition:

our acquisition of the Proposed Assets from MidCon;

our borrowing of $201.1 million under our revolving credit facility to fund a portion of the purchase price of the Proposed MidCon Acquisition; and

our issuance of common units to Exterran Holdings, Inc. (our indirect parent company) for proceeds of $150.0 million to fund a portion of the purchase price of the Proposed MidCon Acquisition.

As related to the March 2013 Contract Operations Acquisition:

our acquisition in March 2013 of certain contract operations customer service agreements and compression equipment from Exterran Holdings; and

our issuance of approximately 7.1 million common units and approximately 145,000 general partner units 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 MidCon Acquisition and the March 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, 2013

                                 (In thousands)



                                      Exterran Partners,      Proposed MidCon                         Exterran Partners, L.P.
                                       L.P. Historical          Acquisition        Adjustments               Pro Forma
              ASSETS

Current assets:
Cash and cash equivalents            $                182    $               -    $     201,060 (A)  $                     182
                                                                                        150,000 (B)
                                                                                       (351,060 )(C)
Accounts receivable, trade, net of
allowance                                          52,641                    -                -                         52,641
Due from affiliates, net                           10,548                    -                -                         10,548
Total current assets                               63,371                    -                -                         63,371
Property, plant and equipment                   1,794,545              172,929          136,394 (C)                  2,103,868
Accumulated depreciation                         (647,527 )            (21,839 )         21,839 (C)                   (647,527 )
Property, plant and equipment, net              1,147,018              151,090          158,233                      1,456,341
Goodwill                                          124,019                    -            2,957 (C)                    126,976
Intangible and other assets, net                   33,655                    -           38,780 (C)                     72,435
Total assets                         $          1,368,063    $         151,090    $     199,970      $               1,719,123

LIABILITIES AND PARTNERS' CAPITAL

Current liabilities:
Accrued liabilities                  $              7,255    $               -    $           -      $                   7,255
Accrued interest                                    5,940                    -                -                          5,940
Current portion of interest rate
swaps                                               3,374                    -                -                          3,374
Total current liabilities                          16,569                    -                -                         16,569
Long-term debt                                    757,955                    -          201,060 (A)                    959,015
Deferred income taxes                               1,132                    -                -                          1,132
Other long-term liabilities                           652                    -                -                            652
Total liabilities                                 776,308                    -          201,060                        977,368
Partners' capital:
Common units                                      578,493                    -          150,000 (B)                    728,493
General partner units                              16,780                    -                -                         16,780
Accumulated other comprehensive
loss                                               (2,353 )                  -                -                         (2,353 )
Treasury units                                     (1,165 )                  -                -                         (1,165 )
Total partners' capital                           591,755                    -          150,000                        741,755
Total liabilities and partners'
capital                              $          1,368,063    $               -    $     351,060      $               1,719,123

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, 2013

                      (In thousands, except per unit data)



                                                                                                        Carve-off for
                                                                                                        Non-Acquired
                                                   March 2013                                            Business of
                                  Exterran          Contract         Proposed                             Customers           Exterran
                               Partners, L.P.      Operations         MidCon                              Partially        Partners, L.P.
                                 Historical        Acquisition      Acquisition      Adjustments          Acquired           Pro Forma
Revenue:
Revenue - third parties       $        465,744    $      12,400    $      84,762    $           -      $             -    $        562,906
Revenue - affiliates                       449                -                -              (55 )(D)               -                 394
Total revenue                          466,193           12,400           84,762              (55 )                  -             563,300

Costs and expenses:
Cost of sales (excluding               202,045            4,130           51,480              (55 )(D)               -             239,988
depreciation and                                                                           (1,215 )(E)
amortization expense) -                                                                   (17,129 )(F)
affiliates                                                                                    732 (G)
Depreciation and
amortization                           103,711            3,827            9,657            6,992 (H)               (1 )           124,186
Long-lived asset
impairment                               5,350                -                -                -                    -               5,350
Selling, general and                    61,971              778              935              603 (I)              (10 )            71,207
administrative -                                                                            6,705 (I)
affiliates                                                                                    225 (J)
Interest expense                        37,068                -                -            4,232 (K)                -              41,300
Other (income) expense,
net                                     (9,481 )              -                -                -                    -              (9,481 )
Total costs and expenses               400,664            8,735           62,072            1,090                  (11 )           472,550
Income before income taxes              65,529            3,665           22,690           (1,145 )                 11              90,750
Income tax provision                     1,506                -                -              146 (L)               (1 )             2,062
                                                                                              411 (L)
Net income                    $         64,023    $       3,665    $      22,690    $      (1,702 )    $            12    $         88,688

. . .
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