UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
FOR
ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2008
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file no.:
001-33078
Exterran Partners,
L.P.
(Exact name of Registrant as
Specified in its Charter)
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Delaware
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22-3935108
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(State or Other Jurisdiction
of
Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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16666 Northchase Drive, Houston, Texas
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77060
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(Address of Principal Executive
Offices)
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(Zip Code)
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(281) 836-7000
(Registrants telephone number, including area code)
Securities
Registered Pursuant to Section 12(b) of the Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Units representing limited partner interests
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NASDAQ Global Market
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Securities
Registered Pursuant to Section 12(g) of the Act:
None
Title of Class:
Indicate by check mark if the registrant is a well-known
seasoned issuer (as defined in Rule 405 of the Securities
Act). Yes
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No
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Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15 (d) of the
Securities Exchange
Act. Yes
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No
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Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes
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No
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Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of the registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K.
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Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated
filer
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Smaller reporting
company
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(Do not check if a smaller reporting
company)
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes
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No
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The aggregate market value of common units held by
non-affiliates of the registrant (treating directors and
executive officers of the registrants general partner and
holders of 10% or more of the common units outstanding, for this
purpose, as if they were affiliates of the registrant) as of
June 30, 2008, the last business day of the
registrants most recently completed second fiscal quarter
was $169,683,429. This calculation does not reflect a
determination that such persons are affiliates for any other
purpose.
As of February 20, 2009, there were 12,773,069 common units
and 6,325,000 subordinated units outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE: NONE
PART I
DISCLOSURE
REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements
intended to qualify for the safe harbors from liability
established by the Private Securities Litigation Reform Act of
1995. All statements other than statements of historical fact
contained in this report are forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act
of 1934 (the Exchange Act), including, without
limitation, statements regarding our business growth strategy
and projected costs; future financial position; the sufficiency
of available cash flows to fund continuing operations; the
sufficiency of available cash flows to make cash distributions;
the expected amount of our capital expenditures; future revenue,
gross margin and other financial or operational measures related
to our business; the future value of our equipment; plans and
objectives of our management for our future operations; and any
potential contribution of additional assets from Exterran
Holdings, Inc. (individually, and together with its wholly-owned
subsidiaries, Exterran Holdings) to us. You can
identify many of these statements by looking for words such as
believes, expects, intends,
projects, anticipates,
estimates, continues or similar words or
the negative thereof.
Such forward-looking statements included in this report are
subject to various risks and uncertainties that could cause
actual results to differ materially from those anticipated as of
the date of this report. Although we believe that the
expectations reflected in these forward-looking statements are
based on reasonable assumptions, no assurance can be given that
these expectations will prove to be correct.
The forward-looking statements included in this report are also
affected by the risk factors described below in Part I,
Item 1A (Risk Factors) and Part II,
Item 7 (Managements Discussion and Analysis of
Financial Condition and Results of Operations) of this
report and those set forth from time to time in our filings with
the Securities and Exchange Commission (SEC), which
are available through our Investor Relations link at
www.exterran.com
and through the SECs
Electronic Data Gathering and Retrieval System
(EDGAR) at
www.sec.gov
. Important
factors that could cause our actual results to differ materially
from the expectations reflected in these forward-looking
statements include, among other things:
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conditions in the oil and gas industry, including a sustained
decrease in the level of supply or demand for natural gas and
the impact on the price of natural gas, which could cause a
decline in the demand for our compression services;
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reduced profit margins or the loss of market share resulting
from competition or the introduction of competing technologies
by other companies;
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our dependence on Exterran Holdings to provide services,
including its ability to hire, train and retain key employees
and to timely and cost effectively obtain components necessary
to conduct our business;
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changes in economic or political conditions, including terrorism
and legislative changes;
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the inherent risks associated with our operations, such as
equipment defects, malfunctions and natural disasters;
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an Internal Revenue Service (IRS) challenge to our
valuation methodologies, which may result in a shift of income,
gains, losses
and/or
deductions between our general partner and our unitholders;
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the risk that counterparties will not perform their obligations
under our financial instruments;
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the creditworthiness of our customers;
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our ability to implement certain business and financial
objectives, such as:
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growing our asset base, particularly our fleet of compressors;
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integrating acquired businesses;
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generating sufficient cash;
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accessing the capital markets at an acceptable cost;
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purchase of additional contract operation contracts and
equipment from Exterran Holdings; and
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refinancing existing or incurring additional indebtedness to
fund our business;
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liability related to the use of our products and services;
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changes in governmental safety, health, environmental or other
regulations, which could require us to make significant
expenditures; and
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our level of indebtedness and ability to fund our business.
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All forward-looking statements included in this report are based
on information available to us on the date of this report.
Except as required by law, we undertake no obligation to
publicly update or revise any forward-looking statement, whether
as a result of new information, future events or otherwise. All
subsequent written and oral forward-looking statements
attributable to us or persons acting on our behalf are expressly
qualified in their entirety by the cautionary statements
contained throughout this report.
References to our, we and us
when used in this report refer to Exterran Partners, L.P.,
formerly known as Universal Compression Partners, L.P.
References to our predecessor, Universal Compression
Partners Predecessor, Exterran Partners Predecessor, or like
terms refer to the contract operations business relating to
natural gas compression that was provided in the United States
of America (U.S.) by Exterran, Inc., formerly known
as Universal Compression, Inc., prior to the date of our initial
public offering on October 20, 2006.
General
We are a publicly held Delaware limited partnership formed on
June 22, 2006 to acquire certain contract operations
customer service agreements and a compressor fleet used to
provide compression services under those agreements. In October
2006, we completed an initial public offering of approximately
6.3 million common units at a price of $21.00 per unit.
Our contract operations services include designing, sourcing,
owning, installing, operating, servicing, repairing and
maintaining equipment to provide compression to our customers.
Natural gas compression is a mechanical process whereby the
pressure of a volume of natural gas is increased to a desired
higher pressure for transportation from one point to another and
is essential to the production and transportation of natural
gas. We also monitor our customers compression services
requirements over time and, as necessary, modify the level of
services and related equipment we employ to address changing
operating conditions.
In July 2007, we acquired from Universal Compression Holdings,
Inc. (Universal) contract operations customer
service agreements with eight customers and a fleet of
approximately 720 compressor units used to provide compression
services under those agreements having a net book value of
$132.1 million, net of accumulated depreciation of
$37.5 million, and comprising approximately 282,000
horsepower, or 13% (by then available horsepower), of the
combined U.S. contract operations business relating to
natural gas compression of Universal and us (the July 2007
Contract Operations Acquisition). In connection with this
acquisition, we assumed $159.6 million in debt from
Universal and issued to Universal approximately 2.0 million
common units and approximately 82,000 general partner units.
Additionally, we issued approximately 2.0 million common
units for proceeds of $69.0 million (net of private
placement fees of $1.0 million) to institutional investors
in a private placement. We used the proceeds from the private
placement to repay the remainder of the debt assumed from
Universal.
In August 2007, we changed our name from Universal Compression
Partners, L.P. to Exterran Partners, L.P. concurrent with the
closing of the merger of Hanover Compressor Company
(Hanover) and Universal. In connection with the
merger, Universal and Hanover became wholly-owned subsidiaries
of Exterran Holdings, a new company formed in anticipation of
the merger, and Universal was merged with and into Exterran
Holdings. As of December 31, 2008, a 43% ownership interest
in us was held by public unitholders and Exterran Holdings owned
our remaining equity interests, including the general partner
interests and all of our incentive distribution rights.
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In July 2008, we acquired from Exterran Holdings contract
operations customer service agreements with 34 customers and a
fleet of approximately 620 compressor units used to provide
compression services under those agreements having a net book
value of $133.9 million, net of accumulated depreciation of
$16.5 million, and comprising approximately 254,000
horsepower, or 6% (by then available horsepower) of the combined
U.S. contract operations business of Exterran Holdings and
us (the July 2008 Contract Operations Acquisition).
In connection with this acquisition, we assumed
$175.3 million of debt from Exterran Holdings and issued to
Exterran Holdings wholly-owned subsidiaries approximately
2.4 million common units and approximately 49,000 general
partner units. Concurrent with the closing of the July 2008
Contract Operations Acquisition, we borrowed $117.5 million
under our term loan and $58.3 million under our revolving
credit facility, which together were used to repay the debt
assumed from Exterran Holdings in the acquisition and to pay
other costs incurred in the acquisition.
We are a party to an omnibus agreement with Exterran Holdings,
our general partner, and others (as amended, the Omnibus
Agreement), the terms of which include, among other things:
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certain agreements not to compete between Exterran Holdings and
its affiliates, on the one hand, and us and our affiliates, on
the other hand;
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Exterran Holdings obligation to provide all operational
staff, corporate staff and support services reasonably necessary
to operate our business and our obligation to reimburse Exterran
Holdings for the provision of such services, subject to certain
limitations and the cost caps discussed below;
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the terms under which we, Exterran Holdings, and our respective
affiliates may transfer compression equipment among one another
to meet our respective contract operations services
obligations; and
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the terms under which we may purchase newly-fabricated contract
operations equipment from Exterran Holdings affiliates.
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The Omnibus Agreement was amended in connection with the July
2008 Contract Operations Acquisition to increase the cap on our
reimbursement of selling, general, and administrative
(SG&A) expenses allocable from Exterran
Holdings to us based on such costs incurred by Exterran Holdings
on behalf of us from $4.75 million per quarter to
$6.0 million per quarter (after taking into account any
such costs that we incur and pay directly) and to increase the
cap on our reimbursement of cost of sales allocable from
Exterran Holdings to us based on such costs incurred by Exterran
Holdings on our behalf from $18.00 per operating horsepower per
quarter to $21.75 per operating horsepower per quarter (after
taking into account any such costs that we incur and pay
directly). This amendment also extended the date on which the
caps expire from December 31, 2008 to December 31,
2009. For further discussion of the Omnibus Agreement, please
see Note 5 to the Consolidated Financial Statements
included in Part II, Item 8 (Financial
Statements) of this report.
Since the Hanover and Universal merger, Exterran Holdings has
undertaken various internal restructuring transactions to
streamline its business and simplify its financial and tax
reporting. We believe that one of these internal restructuring
transactions, which occurred on May 31, 2008, represented a
sale or exchange of 50% or more of our capital and profits
interests and therefore resulted in a technical termination of
us for U.S. federal income tax purposes on such date. The
technical termination does not affect our consolidated financial
statements nor does it affect our classification as a
partnership or otherwise affect the nature or extent of our
qualifying income for U.S. federal income tax
purposes. However, our taxable year for all unitholders ended on
May 31, 2008 and resulted in a deferral of depreciation
deductions that were otherwise allowable in computing the
taxable income of our unitholders. We believe that the deferral
of depreciation deductions will result in increased taxable
income (or reduced taxable loss) to certain of our unitholders
in 2008.
Exterran Holdings intends for us to be the primary vehicle for
the growth of its U.S. contract operations business and
intends to offer us the opportunity to purchase the remainder of
its U.S. contract operations business over time, but is not
obligated to do so. Likewise, we are not required to purchase
any additional portions of such business. The consummation of
any future purchase of additional portions of that business and
the timing of any such purchase will depend upon, among other
things, our reaching an agreement with Exterran Holdings
regarding the terms of such purchase, which will require the
approval of the conflicts
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committee of the board of directors of our general partner, and
our ability to finance such purchase on acceptable terms.
Exterran Holdings does not currently intend to offer us the
opportunity to purchase its international contract operations,
aftermarket services and fabrication businesses. While the
timing of additional transfers of Exterran Holdings
U.S. contract operations business to us will depend on the
economic environment, including the availability to us of debt
and equity capital, we believe it is less likely currently than
it was a year ago that Exterran Holdings will offer portions of
its U.S. contract operations business to us unless there is
an improvement in economic conditions and overall costs of and
access to the capital markets.
Exterran Holdings is a global market leader in the full-service
natural gas compression business and a premier provider of
operations, maintenance, service and equipment for oil and
natural gas production, processing and transportation
applications, both in the U.S. and internationally. As
mentioned above, under the terms of the Omnibus Agreement,
Exterran Holdings supports our operations by providing us with
all operational and administrative support necessary to conduct
our business.
Exterran General Partner, L.P., our general partner, is an
indirect, wholly-owned subsidiary of Exterran Holdings and has
sole responsibility for conducting our business and for managing
our operations, which are conducted through our wholly-owned
limited liability company, EXLP Operating LLC. Because our
general partner is a limited partnership, its general partner,
Exterran GP LLC, conducts our business and operations, and the
board of directors and officers of Exterran GP LLC make
decisions on our behalf. All of those directors are elected by
Exterran Holdings.
Our general partner does not receive any management fee or other
compensation in connection with the management of our business,
but it is entitled to reimbursement of all direct and indirect
expenses incurred on our behalf subject to caps included in the
Omnibus Agreement. Exterran Holdings and our general partner are
also entitled to distributions on their limited partner interest
and general partner interest, respectively and, if specified
requirements are met, our general partner on its incentive
distribution rights. For the period covering January 1,
2008 through December 31, 2008, our general partner
received $0.6 million in distributions on its incentive
distribution rights. For further discussion of our cash
distribution policy, see Cash Distribution Policy
included in Part II, Item 5 (Market for the
Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities) of this report.
Unlike shareholders in a publicly traded corporation, our
unitholders are not entitled to elect our general partner, our
general partners general partner or its directors.
Natural
Gas Compression Industry Overview
Natural gas compression is a mechanical process whereby the
pressure of a volume of natural gas is increased to a desired
higher pressure for transportation from one point to another,
and is essential to the production and transportation of natural
gas. Compression is typically required several times during the
natural gas production and transportation cycle, including:
(i) at the wellhead; (ii) throughout gathering and
distribution systems; (iii) into and out of processing and
storage facilities; and (iv) along intrastate and
interstate pipelines.
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Wellhead and Gathering Systems
Natural gas
compression that is used to transport natural gas from the
wellhead through the gathering system is considered field
compression. Compression at the wellhead is utilized
because, at some point during the life of natural gas wells,
reservoir pressures typically fall below the line pressure of
the natural gas gathering or pipeline system used to transport
the natural gas to market. At that point, natural gas no longer
naturally flows into the pipeline. Compression is applied in
both field and gathering systems to boost the pressure levels of
the natural gas flowing from the well, allowing it to be
transported to market. Changes in pressure levels in natural gas
fields require periodic changes to the size
and/or
type
of
on-site
compression equipment. Additionally, compression is used to
reinject natural gas into producing oil wells to maintain
reservoir pressure and help lift liquids to the surface, which
is known as secondary oil recovery or natural gas lift
operations. Typically, these applications require low- to
mid-range horsepower compression equipment located at or near
the wellhead. Compression equipment is also used to increase the
efficiency of a low-capacity natural gas field by providing a
central compression point from which the natural gas can be
produced and injected into a pipeline for transmission to
facilities for further processing. In an effort to
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reduce costs for wellhead operators, operators of gathering
systems tend to keep the pressure of the gathering systems low.
As a result, more pressure, and therefore, more compression is
often needed to force the natural gas from the low pressure
gathering systems into the higher pressure pipelines that
transport large volumes of natural gas over long distances to
end-users.
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Pipeline Transportation Systems
Natural gas
compression that is used during the transportation of natural
gas from the gathering systems to storage or the end user is
considered pipeline compression. Compression is
staged along the pipeline to increase capacity and boost
pressure to overcome the friction and hydrostatic losses
inherent in normal operations. These pipeline applications
generally require larger horsepower compressors (1,000
horsepower and higher).
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Storage Facilities
Natural gas compression is
used in natural gas storage projects for injection and
withdrawals during the normal operational cycles of these
facilities.
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Processing Applications
Compressors may also
be used in combination with natural gas production and
processing equipment and to process natural gas into more
marketable energy sources. In addition, compression services are
used for compression applications in refineries and
petrochemical plants.
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Many natural gas producers, transporters and processors
outsource their compression services due to the benefits and
flexibility of contract compression. Changing well and pipeline
pressures and conditions over the life of a well often require
producers to reconfigure or replace their compressor units to
optimize the well production or gathering system efficiency.
We believe outsourcing compression operations to compression
service providers such as us offers customers:
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the ability to efficiently meet their changing compression needs
over time while limiting the underutilization of their existing
compression equipment;
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access to the compression service providers specialized
personnel and technical skills, including engineers and field
service and maintenance employees, which generally leads to
improved production rates
and/or
increased throughput;
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the ability to increase their profitability by transporting or
producing a higher volume of natural gas through decreased
compression downtime and reduced operating, maintenance and
equipment costs by allowing the compression service provider to
efficiently manage their compression needs; and
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the flexibility to deploy their capital on projects more
directly related to their primary business by reducing their
compression equipment and maintenance capital requirements.
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We believe the U.S. natural gas compression services
industry continues to have growth potential over time due to the
following factors, among others:
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aging producing natural gas fields will require more compression
to continue producing the same volume of natural gas; and
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increased production from unconventional sources, which include
tight sands, shales and coal beds, generally requires more
compression than production from conventional sources to produce
the same volume of natural gas.
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Contract
Operations Services Overview
We provide comprehensive contract operations services, which
include our provision at the customers location of our
personnel, equipment, tools, materials and supplies necessary to
provide the amount of natural gas compression for which the
customer has contracted. Based on the operating specifications
at the customers location and the customers unique
compression needs, these services include designing, sourcing,
owning, installing, operating, servicing, repairing and
maintaining equipment to provide compression and other services
to our customers. When providing contract operations services,
we work closely with a customers field service personnel
so that the compression services can be adjusted to efficiently
match changing characteristics of the producing formation and
the natural gas produced. We routinely repackage or reconfigure
a portion of
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our existing fleet to adapt to our customers compression
services needs. We utilize both slow and high speed
reciprocating compressors driven either by internal combustion
engines or electric motors. We also utilize rotary screw
compressors for specialized applications.
Our equipment is maintained in accordance with established
maintenance schedules. These maintenance procedures are updated
as technology changes and as Exterran Holdings develops new
techniques and procedures. In addition, because Exterran
Holdings field technicians provide maintenance on
substantially all of our contract operations equipment, they are
familiar with the condition of our equipment and can readily
identify potential problems. We expect that these maintenance
procedures will maximize equipment life and unit availability
and minimize avoidable downtime, as that has been our and
Exterran Holdings experience. Generally, each of our
compressor units undergoes a major overhaul once every three to
seven years, depending on the type and size of the unit. If a
unit requires maintenance or reconfiguration, we expect Exterran
Holdings maintenance personnel will service it as quickly
as possible to meet the needs of our customer.
We and our customers typically contract for our services on a
site-by-site
basis for a specific monthly rate that is adjusted only if we
fail to operate in accordance with the contract requirements. At
the end of the initial term, which is typically six months,
contract operations services generally continue on a
month-by-month
basis until terminated by either party with 30 days
advanced notice. Our customers generally are required to pay our
monthly fee even during periods of limited or disrupted natural
gas flows, which enhances the stability and predictability of
our cash flows. Additionally, because we do not take title to
the natural gas we compress, and because the natural gas we use
as fuel for our compressors is supplied by our customers, we
have limited direct exposure to commodity prices. See
General Terms of our Contract Operations Customer Service
Agreements, below, for a more detailed description.
We intend to continue to work with Exterran Holdings to manage
our respective U.S. fleets as one pool of compression
equipment from which we can each readily fulfill our respective
customers service needs. When one of Exterran
Holdings salespersons is advised of a new contract
operations services opportunity for us, he or she will obtain
relevant information concerning the project, including natural
gas flow, pressure and natural gas composition, and then he or
she will review both our fleet and the fleet of Exterran
Holdings for an available appropriate compressor unit. If an
appropriate compressor unit is not available in either our fleet
or the fleet of Exterran Holdings, we will, at times, offer
equipment built for that or similar applications. In the event
that a customer presents us with an opportunity to provide
contract operations services for a project with appropriate lead
time, we may choose to purchase newly-fabricated equipment from
Exterran Holdings or others to fulfill our customers
needs. Please read Part III, Item 13 (Certain
Relationships and Related Transactions and Director
Independence) of this report for additional information
regarding our ability to share or exchange compression equipment
with, or purchase equipment from, Exterran Holdings.
As of December 31, 2008, our fleet consisted of 2,489
compressors, as reflected in the following table:
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Total
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% of
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Number of
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Horsepower Range
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Horsepower
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Horsepower
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Units
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0-200
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132,864
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13
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%
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1,239
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201-500
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181,098
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18
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%
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600
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501-800
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107,906
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10
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%
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178
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801-1,100
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119,436
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12
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%
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123
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1,101-1,500
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410,368
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40
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%
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310
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1,501 and over
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74,452
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7
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%
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39
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Total
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1,026,124
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100
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%
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2,489
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Over the last several years, Exterran Holdings has undertaken
efforts to standardize its compressor fleet around major
components and key suppliers. Because our fleet consists of a
portion of Exterran Holdings former fleet, we, too,
benefit from these efforts. Standardization of our fleet:
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enables us to minimize our fleet operating costs and maintenance
capital requirements;
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facilitates low-cost compressor resizing; and
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allows us to develop improved technical proficiency in our
maintenance and overhaul operations, which enables us to achieve
high run-time rates while maintaining low operating costs.
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As mentioned above, pursuant to the Omnibus Agreement, Exterran
Holdings provides us with all operational staff, corporate staff
and support services necessary to run our business.
Business
Strategy
The key elements of our business strategy are described below:
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Leverage our relationship with Exterran
Holdings.
Our relationship with Exterran
Holdings provides us numerous revenue and cost advantages,
including the ability to access new and idle compression
equipment, deploy that equipment in most of the major natural
gas producing regions in the U.S. and provide maintenance
and operational support on a more cost effective basis than we
could without that relationship.
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Build our business organically by capitalizing on the
positive long-term fundamentals for the U.S. natural gas
compression industry.
We believe our ability
to efficiently meet our customers evolving compression
needs, our long-standing customer relationships and our large
compressor fleet will enable us to capitalize on what we believe
are long-term positive fundamentals for the U.S. natural
gas compression industry. These fundamentals include increased
unconventional natural gas production, which typically requires
significantly more compression than conventional production,
decreasing natural reservoir pressures and the continued need
for compression services.
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Grow our business through accretive
acquisitions.
We plan to grow over time
through accretive acquisitions of assets from Exterran Holdings,
third-party compression providers and natural gas transporters
or producers. Over the past three years, Universal and,
subsequent to the merger of Universal and Hanover, Exterran
Holdings contributed to us a portion of their U.S. contract
operations services business relating to natural gas compression
and Exterran Holdings intends to offer to us the remaining
portion of that business for purchase over time. We also believe
there are long-term opportunities to acquire compression
equipment from natural gas transporters or producers and in turn
offer them contract operations services as a cost-effective
alternative. While the timing of additional transfers of
Exterran Holdings U.S. contract operations business
to us will depend on the economic environment, including the
availability to us of debt and equity capital, we believe it is
less likely currently than it was a year ago that Exterran
Holdings will offer portions of its U.S. contract
operations business to us unless there is an improvement in
economic conditions and overall costs of and access to the
capital markets.
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Competitive
Strengths
We believe that we are well positioned to execute our primary
business strategy successfully because we have the following key
competitive strengths:
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Our relationship with Exterran
Holdings.
Our relationship with Exterran
Holdings and our access to its personnel, fabrication
operations, logistical capabilities, geographic scope and
operational efficiencies allow us to provide a full complement
of contract operations services while maintaining lower
operating costs than we could otherwise achieve. We and Exterran
Holdings intend to continue to manage our respective
U.S. compression fleets as one pool of compression
equipment from which we can more easily fulfill our respective
customers needs. This relationship also provides us an
advantage in pursuing compression opportunities throughout the
U.S. As of December 31, 2008, Exterran Holdings owned
approximately 3.4 million horsepower of compression
equipment, excluding the compression equipment owned by us, in
its U.S. contract operations business. We believe we will
benefit from Exterran Holdings intention to offer us the
opportunity to purchase that business over time. Exterran
Holdings also intends, but is not obligated, to offer us the
opportunity to purchase newly fabricated compression equipment.
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Stable fee-based cash flows.
We charge
a fixed monthly fee for our contract operations services that
our customers are generally required to pay, regardless of the
volume of natural gas we compress in that month. We believe this
fee structure reduces volatility and enhances our ability to
generate relatively stable, predictable cash flows.
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Large fleet in many major producing
regions.
Our large fleet and numerous
operating locations throughout the U.S. combined with our
ability, as a result of our relationship with Exterran Holdings,
to efficiently move equipment among producing regions, means
that we are not dependent on production activity in any
particular region.
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Oil and
Natural Gas Industry Cyclicality and Volatility
Our financial performance is generally less affected by the
short-term market cycles and oil and natural gas price
volatility than the financial performance of companies operating
in other sectors of the oilfield services industry because:
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compression is necessary for natural gas to be delivered from
the wellhead to end users;
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the need for compression services and equipment has grown over
time due to the increased production of natural gas, the natural
pressure decline of natural gas producing basins and the
increased percentage of natural gas production from
unconventional sources, which generally require more
compression; and
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our contract operations business is tied primarily to natural
gas production and consumption, which are generally less
cyclical in nature than exploration activities.
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Our large fleet and numerous operating locations throughout the
U.S. combined with our ability, as a result of our
relationship with Exterran Holdings, to access new and idle
compression equipment and efficiently move equipment among
producing regions, means that we are not dependent on production
activity in any particular region. Furthermore, while
compressors often must be specifically engineered or
reconfigured to allow us to tailor our contract compression
services to meet the unique demands of our customers, the
fundamental technology of such equipment has not been subject to
significant change.
Generally, our overall business activity and revenue increase as
the demand for natural gas increases. Demand for our compression
services is linked more directly to natural gas consumption and
production than to exploration activities, which limits our
direct exposure to commodity price risk. Because we do not take
title to the natural gas we compress, and because the natural
gas we use as fuel for our compressors is provided to us by our
customers, our direct exposure to commodity price risk is
further reduced.
Seasonal
Fluctuations
Neither our results of operations, nor those of our predecessor,
have historically reflected any material seasonal tendencies and
we do not believe that seasonal fluctuations will have a
material impact on us in the foreseeable future.
Customers
Our current customer base consists of companies who are engaged
in various aspects of the oil and natural gas industry,
including natural gas producers, processors, gatherers and
transporters. We have entered into strategic alliances with some
of our customers. These alliances are essentially preferred
vendor arrangements and give us preferential consideration for
the compression needs of these customers. In exchange, we
provide these customers with enhanced product availability,
product support and favorable pricing.
During the year ended December 31, 2008, Devon Energy
Corporation accounted for 13% of our total revenue.
8
Sales and
Marketing
Our marketing and client service functions are performed on a
coordinated basis by Exterran Holdings sales and field
service personnel. Salespeople and field service personnel
regularly visit our customers to ensure customer satisfaction,
to determine customer needs as to services currently being
provided and to ascertain potential future compression services
requirements. This ongoing communication allows us to quickly
identify and respond to customer requests.
General
Terms of our Contract Operations Customer Service
Agreements
The following discussion describes select material terms common
to our contract operations customer contracts. We enter into
separate service agreements with a given customer with respect
to each distinct site at which we will provide contract
operations services, which site-specific contract typically
incorporates by reference the terms and conditions of a master
agreement with that customer.
Term and Termination.
Our customers typically
contract for our services on a
site-by-site
basis. At the end of the initial term, which is typically six
months, contract operations services generally continue on a
month-to-month basis until terminated by either party with
30 days advanced notice.
Fees and Expenses.
Our customers pay a fixed
monthly fee for our compression services, the level of which
generally is based on expected natural gas volumes and pressures
associated with a specific application. Our customers generally
are required to pay our monthly fee even during periods of
limited or disrupted natural gas flows. We are typically
responsible for the costs and expenses associated with our
compression equipment, other than fuel gas, which is provided by
our customers.
Service Standards and Specifications.
We are
responsible for providing contract operations services in
accordance with the particular specifications of a job, as set
forth in the applicable contract. These are typically turn-key
service contracts under which we supply all service and support
and use our own compression equipment as necessary for a
particular application.
Title; Risk of Loss.
We own and retain title
to or have an exclusive possessory interest in all compression
equipment we use in connection with our provision of contract
operations services and we generally bear risk of loss for our
equipment to the extent not caused by gas conditions or our
customers acts or omissions
Insurance.
Both we and our customers are
required to carry general liability, workers compensation,
employers liability, automobile and excess liability
insurance.
Suppliers
Currently, our sole supplier of newly fabricated equipment is
Exterran Holdings. Under the Omnibus Agreement, we may purchase
equipment at a fixed margin over its fabrication costs. We may
also transfer compression equipment with Exterran Holdings.
Alternatively, we can purchase newly fabricated or already
existing compression equipment from third parties.
We rely on Exterran Holdings, who in turn relies on a limited
number of suppliers for some of the components used in our
products. We and Exterran Holdings believe alternative sources
of these components are generally available but at prices that
may not be as economically advantageous to us as those offered
by our existing suppliers. Neither we nor Exterran Holdings has
experienced any material supply problems to date, and we believe
relations with our suppliers are satisfactory.
Competition
The natural gas compression services business is highly
competitive. Overall, we experience considerable competition
from companies that may be able to more quickly adapt to changes
within our industry and changes in economic conditions as a
whole, more readily take advantage of available opportunities
and adopt more aggressive pricing policies. We believe that we
compete effectively on the basis of price, equipment
9
availability, customer service, flexibility in meeting customer
needs, quality and reliability of our compressors and related
services.
Compression services providers can achieve operating and cost
advantages through increased size and geographic scope. As the
number of compression applications and size of the compression
fleet increases, the number of required sales, administrative
and maintenance personnel does not increase proportionately,
resulting in operational efficiencies and potential cost
advantages. Additionally, broad geographic scope allows
compression service providers to more efficiently provide
services to all customers, particularly those with compression
applications in remote locations. We believe that our
relationship with Exterran Holdings allows us to access a large,
diverse fleet of compression equipment and a broad geographic
base of operations and related operational personnel that gives
us more flexibility in meeting our customers needs than
many of our competitors. We also believe that our relationship
with Exterran Holdings provides us with resources that allow us
to efficiently manage our customers compression services
needs.
Non-competition
Arrangement with Exterran Holdings
Under the Omnibus Agreement, subject to the provisions described
below, Exterran Holdings agreed not to offer or provide
compression services in the U.S. to our contract operations
services customers that are not also contract operations
services customers of Exterran Holdings. Compression services
are defined to include the provision of natural gas contract
compression services, but exclude fabrication of compression
equipment, sales of compression equipment or material, parts or
equipment that are components of compression equipment, leasing
of compression equipment without also providing related
compression equipment service and operating, maintenance,
service, repairs or overhauls of compression equipment owned by
third parties. In addition, under the Omnibus Agreement, we
agreed not to offer or provide compression services to Exterran
Holdings U.S. contract operations services customers
that are not also contract operations services customers of ours.
As a result of the merger between Hanover and Universal, at the
time of execution of the Omnibus Agreement, some of our
customers were also contract operations services customers of
Exterran Holdings, which we refer to as overlapping customers.
We and Exterran Holdings have agreed, subject to the exceptions
described below, not to provide contract operations services to
an overlapping customer at any site at which the other was
providing such services to an overlapping customer on the date
of the Omnibus Agreement, each being referred to as a
Partnership site or an Exterran site.
After the date of the Omnibus Agreement, if an overlapping
customer requests contract operations services at a Partnership
site or an Exterran site, whether in addition to or in the
replacement of the equipment existing at such site on the date
of the Omnibus Agreement, we will be entitled to provide
contract operations services if such overlapping customer is a
partnership overlapping customer, and Exterran Holdings will be
entitled to provide such contract operations services at other
locations if such overlapping customer is an Exterran
overlapping customer. Additionally, any additional contract
operations services provided to a partnership overlapping
customer will be provided by us and any additional services
provided to an Exterran overlapping customer will be provided by
Exterran Holdings.
Exterran Holdings also agreed that new customers for contract
compression services (neither our customers nor customers of
Exterran Holdings for U.S. contract compression services)
are for our account unless the new customer is unwilling to
contract with us or unwilling to do so under our form of
compression services agreement. If a new customer is unwilling
to enter into such an arrangement with us, then Exterran
Holdings may provide compression services to the new customer.
In the event that either we or Exterran Holdings enter into a
contract to provide compression services to a new customer,
either we or Exterran Holdings, as applicable, will receive the
protection of the applicable non-competition arrangements
described above in the same manner as if such new customer had
been a compression services customer of either us or Exterran
Holdings on the date of the Omnibus Agreement.
The non-competition arrangements described above do not apply to:
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our provision of contract compression services to a particular
Exterran Holdings customer or customers, with the approval of
Exterran Holdings;
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Exterran Holdings provision of contract compression
services to a particular customer or customers of ours, with the
approval of the conflicts committee of the board of directors of
our general partner;
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our purchase and ownership of not more than five percent of any
class of securities of any entity which provides contract
compression services to the contract compression services
customers of Exterran Holdings;
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Exterran Holdings purchase and ownership of not more than
five percent of any class of securities of any entity which
provides contract compression services to our contract
compression services customers;
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Exterran Holdings ownership of us;
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our acquisition, ownership and operation of any business that
provides contract compression services to Exterran
Holdings contract compression services customers if
Exterran Holdings has been offered the opportunity to purchase
the business for its fair market value from us and Exterran
Holdings declines to do so. However, if neither the Omnibus
Agreement nor the non-competition arrangements described above
have already terminated, we will agree not to provide contract
compression services to Exterran Holdings customers that
are also customers of the acquired business at the sites at
which Exterran Holdings is providing contract operations
services to them at the time of the acquisition;
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Exterran Holdings acquisition, ownership and operation of
any business that provides contract compression services to our
contract operations services customers if we have been offered
the opportunity to purchase the business for its fair market
value from Exterran Holdings and we decline to do so with the
concurrence of the conflicts committee of the board of directors
of our general partner. However, if neither the Omnibus
Agreement nor the non-competition arrangements described above
have already terminated, Exterran Holdings will agree not to
provide contract operations services to our customers that are
also customers of the acquired business at the sites at which we
are providing contract operations services to them at the time
of the acquisition; or
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a situation in which one of our customers (or its applicable
business) and a customer of Exterran Holdings (or its applicable
business) merge or are otherwise combined, in which case, each
of we and Exterran Holdings may continue to provide contract
operations services to the applicable combined entity or
business without being in violation of the non-competition
provisions, but Exterran Holdings and the conflicts committee of
the board of directors of our general partner must negotiate in
good faith to implement procedures or such other arrangements,
as necessary, to protect the value to each of Exterran Holdings
and us of the business of providing contract operations services
to each such customer or its applicable business, as applicable.
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Unless the Omnibus Agreement is terminated earlier due to a
change of control of our general partner or the removal or
withdrawal of our general partner, or from a change of control
of Exterran Holdings, the non-competition provisions of the
Omnibus Agreement will terminate on August 20, 2010 or on
the date on which a change of control of Exterran Holdings
occurs, whichever event occurs first. If a change of control of
Exterran Holdings occurs, and neither the Omnibus Agreement nor
the non-competition arrangements have already terminated,
Exterran Holdings will agree for the remaining term of the
non-competition arrangements not to provide contract operations
services to our customers at the sites at which we are providing
contract operations services to them at the time of the change
of control.
Environmental
and Other Regulations
Government
Regulation
Our operations are subject to stringent and complex
U.S. federal, state and local laws and regulations
governing the discharge of materials into the environment or
otherwise relating to the protection of human health and the
environment. Compliance with these environmental laws and
regulations may expose us to significant costs and liabilities
and cause us to incur significant capital expenditures in our
operations. Moreover, failure to comply with these laws and
regulations may result in the assessment of administrative,
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civil, and criminal penalties, imposition of remedial
obligations, and the issuance of injunctions delaying or
prohibiting operations. We believe that our operations are in
substantial compliance with applicable environmental and health
and safety laws and regulations and that continued compliance
with current requirements would not have a material adverse
effect on us. However, the clear trend in environmental
regulation is to place more restrictions on activities that may
affect the environment, and thus, any changes in these laws and
regulations that result in more stringent and costly waste
handling, storage, transport, disposal or remediation
requirements could have a material adverse effect on our results
of operations and financial position.
The primary U.S. federal environmental laws to which our
operations are subject include the Clean Air Act
(CAA) and regulations thereunder, which regulate air
emissions; the Clean Water Act (CWA) and regulations
thereunder, which regulate the discharge of pollutants in
industrial wastewater and storm water runoff; the Resource
Conservation and Recovery Act (RCRA) and regulations
thereunder, which regulate the management and disposal of solid
and hazardous waste; and the Comprehensive Environmental
Response, Compensation, and Liability Act (CERCLA)
and regulations thereunder, known more commonly as
Superfund, which imposes liability for the
remediation of releases of hazardous substances in the
environment. We are also subject to regulation under the
Occupational Safety and Health Act (OSHA) and
regulations thereunder, which regulate the protection of the
health and safety of workers. Analogous state and local laws and
regulations may also apply.
Air
Emissions
The CAA and analogous state laws and their implementing
regulations regulate emissions of air pollutants from various
sources, including natural gas compressors, and also impose
various monitoring and reporting requirements. Such laws and
regulations may require a facility to obtain pre-approval for
the construction or modification of certain projects or
facilities expected to produce air emissions or result in the
increase of existing air emissions, obtain and strictly comply
with air permits containing various emissions and operational
limitations, or utilize specific emission control technologies
to limit emissions. While our standard contract typically
provides that the customer will assume permitting
responsibilities and certain environmental risks related to site
operations, we have in some cases obtained air permits as the
owner and operator of the compressors.
The Environmental Protection Agency (EPA) adopted
new rules effective March 18, 2008 that establish more
stringent emission standards for new spark ignition natural gas
compressor engines. The new rules require increased emission
controls on certain new and reconstructed stationary
reciprocating engines that were excluded from previous
regulation. We do not expect these recently adopted rules to
have a material adverse effect on our operations or financial
condition. Nevertheless, we can provide no assurance that those
rules or any other new regulations requiring the installation of
more sophisticated emission control equipment would not have a
material adverse impact.
Climate
Change
Recent scientific studies have suggested that emissions of
certain gases, commonly referred to as greenhouse
gases and including carbon dioxide and methane, may be
contributing to warming of the Earths atmosphere. In
response to such studies, President Obama has expressed support
for, and it is anticipated that the U.S. Congress will
continue actively to consider, legislation to restrict or
further regulate emissions of greenhouse gases. In addition,
more than one-third of the states, either individually or
through multi-state regional initiatives, have begun
implementing measures to reduce emissions of greenhouse gases,
primarily through the planned development of emission
inventories or regional greenhouse gas cap and trade programs.
Depending on the particular program, we could be required to
purchase and surrender allowances for greenhouse gas emissions
resulting from our operations.
Also, as a result of the U.S. Supreme Courts decision
on April 2, 2007 in
Massachusetts, et al. v.
EPA
, the EPA may regulate greenhouse gas emissions from
mobile sources such as cars and trucks even if Congress does not
adopt new legislation specifically addressing emissions of
greenhouse gases. The Courts holding in
Massachusetts
that greenhouse gases including carbon dioxide fall under
the federal CAAs definition of air
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pollutant may also result in future regulation of carbon
dioxide and other greenhouse gas emissions from stationary
sources. In July 2008, the EPA released an Advance Notice
of Proposed Rulemaking regarding possible future
regulation of greenhouse gas emissions under the CAA, in
response to the Supreme Courts decision in
Massachusetts
. In the notice, the EPA evaluated the
potential regulation of greenhouse gases under the CAA and other
potential methods of regulating greenhouse gases. Although the
notice did not propose any specific, new regulatory requirements
for greenhouse gases, it indicates that federal regulation of
greenhouse gas emissions could occur in the near future even if
Congress does not adopt new legislation specifically addressing
emissions of greenhouse gases. Although it is not possible at
this time to predict how legislation that may be enacted or new
regulations that may be adopted to address greenhouse gas
emissions would impact our business, any such new federal,
regional or state restrictions on emissions of carbon dioxide or
other greenhouse gases that may be imposed in areas in which we
conduct business could result in increased compliance costs or
additional operating restrictions and could have a material
adverse effect on our business, financial condition, results of
operations and cash flows.
Water
Discharges
The CWA and analogous state laws and their implementing
regulations impose restrictions and strict controls with respect
to the discharge of pollutants into state waters or waters of
the U.S. The discharge of pollutants into regulated waters
is prohibited, except in accordance with the terms of a permit
issued by the EPA or an analogous state agency. In addition, the
Clean Water Act regulates storm water discharges associated with
industrial activities depending on a facilitys primary
standard industrial classification. Many of Exterran
Holdings facilities on which we may store inactive
compression units have applied for and obtained industrial
wastewater discharge permits as well as sought coverage under
local wastewater ordinances. In addition, many of those
facilities have filed notices of intent for coverage under
statewide storm water general permits and developed and
implemented storm water pollution prevention plans, as required.
U.S. federal laws also require development and
implementation of spill prevention, controls and countermeasure
plans, including appropriate containment berms and similar
structures to help prevent the contamination of navigable waters
in the event of a petroleum hydrocarbon tank spill, rupture or
leak at such facilities.
Waste
Management and Disposal
The RCRA and analogous state laws and their implementing
regulations govern the generation, transportation, treatment,
storage and disposal of hazardous and non-hazardous solid
wastes. During the course of our operations, we generate wastes
(including, but not limited to, used oil, antifreeze, filters,
sludges, paints, solvents and sandblast materials) in quantities
regulated under RCRA. The EPA and various state agencies have
limited the approved methods of disposal for these types of
wastes. CERCLA and analogous state laws and their implementing
regulations impose strict and, under certain conditions, joint
and several liability without regard to fault or the legality of
the original conduct on classes of persons who are considered to
be responsible for the release of a hazardous substance into the
environment. These persons include the current and past owner or
operator of the facility or disposal site where the release
occurred and any company that transported, disposed of, or
arranged for the transport or disposal of the hazardous
substances released at the site. Under CERCLA, such persons may
be subject to joint and several liability for the costs of
cleaning up the hazardous substances that have been released
into the environment, for damages to natural resources and for
the costs of certain health studies. In addition, where
contamination may be present, it is not uncommon for neighboring
landowners and other third parties to file claims for personal
injury, property damage and recovery of response costs allegedly
caused by hazardous substances or other pollutants released into
the environment.
While we do not own or lease any material facilities or
properties, we may use Exterran Holdings properties
pursuant to our Omnibus Agreement for the storage and possible
maintenance and repair of inactive compressor units. Many of
Exterran Holdings properties have been utilized for many
years, including some by third parties over whom we have no
control, in support of natural gas compression services or other
industrial operations. At certain of such sites, Exterran
Holdings is currently working with the prior owners who have
undertaken to monitor and cleanup contamination that occurred
prior to Exterran Holdings acquisition of these sites.
While we are not currently responsible for any remedial
activities at these properties
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we use pursuant to the Omnibus Agreement, there is always the
possibility that our future use of such properties, or of other
properties where we provide contract operations services, may
result in spills or releases of petroleum hydrocarbons, wastes,
or other regulated substances into the environment that may
cause us to become subject to remediation costs and liabilities
under CERCLA, RCRA or other environmental laws. We cannot
provide any assurance that the costs and liabilities associated
with the future imposition of such remedial obligations upon us
would not have a material adverse effect on our results of
operations or financial condition.
Occupational
Health and Safety
We are subject to the requirements of OSHA and comparable state
statutes. These laws and the implementing regulations strictly
govern the protection of the health and safety of employees. The
OSHA hazard communication standard, the EPA community
right-to-know regulations under Title III of CERCLA and
similar state statutes require that we organize
and/or
disclose information about hazardous materials used or produced
in our operations. We believe we are in substantial compliance
with these requirements and with other OSHA and comparable
requirements.
Indemnification
for Environmental Liabilities
Under the Omnibus Agreement, Exterran Holdings indemnifies us
for three years from the closing of our initial public offering
against certain potential environmental claims, losses and
expenses associated with the operation of our assets and
occurring before the closing date of our initial public
offering. Exterran Holdings maximum liability for this
indemnification obligation cannot exceed $5 million and
Exterran Holdings will not have any obligation under this
indemnification until our aggregate losses exceed $250,000.
Exterran Holdings will have no indemnification obligations with
respect to environmental claims made as a result of additions to
or modifications of environmental laws promulgated after the
closing date of our initial public offering. We have agreed to
indemnify Exterran Holdings against environmental liabilities
related to our assets to the extent Exterran Holdings is not
required to indemnify us.
Employees
and Labor Relations
We do not have any employees. Pursuant to the terms of the
Omnibus Agreement, we reimburse Exterran Holdings for the
allocated costs of its personnel who provide direct or indirect
support for our operations. At this time, none of those
employees are covered by collective bargaining arrangements.
Exterran Holdings considers its employee relations to be
satisfactory.
Available
Information
Our website address is
www.exterran.com
. Our
annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and amendments to those reports are available on our website,
without charge, as soon as reasonably practicable after they are
filed electronically with the SEC. Information contained on our
website is not incorporated by reference in this report or any
of our other securities filings. Paper copies of our filings are
also available, without charge, from Exterran Partners, L.P.,
16666 Northchase Drive, Houston, Texas 77060, Attention:
Investor Relations. Alternatively, the public may read and copy
any materials we file with the SEC at the SECs Public
Reference Room at 100 F Street, N.E.,
Washington, D.C. 20549. Information on the operation of the
Public Reference Room may be obtained by calling the SEC at
1-800-SEC-0330.
The SEC also maintains a website that contains reports, proxy
and information statements, and other information regarding
issuers who file electronically with the SEC. The SECs
website address is
www.sec.gov
.
Additionally, we make available free of charge on our website:
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the Code of Business Conduct and Ethics of Exterran GP
LLC; and
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the charters of the audit, conflicts and compensation committees
of Exterran GP LLC.
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As described in Part I (Disclosure Regarding
Forward-Looking Statements), this report contains
forward-looking statements regarding us, our business and our
industry. The risk factors described below, among others, could
cause our actual results to differ materially from the
expectations reflected in the forward-looking statements. If any
of the following risks were to occur, our business, financial
condition or results of operations could be materially and
adversely affected. In that case, we might not be able to pay
our current quarterly distribution on our common units or grow
such distributions and the trading price of our common units
could decline.
Risks
Related to Our Business
We may
not have sufficient cash from operations following the
establishment of cash reserves and payment of fees and expenses,
including cost reimbursements to our general partner, to enable
us to make cash distributions to holders of our common units and
subordinated units at our current distribution
rate.
We may not have sufficient available cash from operating surplus
each quarter to enable us to make cash distributions at our
current distribution rate. The amount of cash we can distribute
on our units principally depends upon the amount of cash we
generate from our operations, which will fluctuate from quarter
to quarter based on, among other things, the risks described in
this section.
In addition, the actual amount of cash we will have available
for distribution will depend on other factors, including:
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the level of capital expenditures we make;
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the cost of acquisitions;
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our debt service requirements and other liabilities;
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fluctuations in our working capital needs;
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our ability to refinance our debt in the future or borrow funds
and access capital markets;
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restrictions contained in our debt agreements; and
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the amount of cash reserves established by our general partner.
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The
global financial crisis may have an impact on our business and
financial condition in ways that we currently cannot
predict.
The continuing credit crisis and related turmoil in the global
financial system may have an impact on our business and our
financial condition. If any of our lenders become unable to
perform their obligations under our revolving credit facility,
our borrowing capacity under this facility would be reduced.
Inability to borrow additional amounts under our revolving
credit facility could limit our ability to fund our future
growth and operations.
The credit crisis could also have an impact on our remaining
interest rate swap agreements if other counterparties are unable
to perform their obligations under those agreements.
Our
inability to fund purchases of additional compression equipment
could adversely impact our results of operations and cash
available for distribution.
We may not be able to maintain or grow our asset and customer
base unless we have access to sufficient capital to purchase
additional compression equipment. Cash flow from our operations
and availability under our revolving credit facility may not
provide us with sufficient cash to fund our capital expenditure
requirements, including any funding requirements related to
acquisitions. Additionally, pursuant to our partnership
agreement, we intend to distribute all of our available
cash, as defined in the partnership agreement, to our
unitholders on a quarterly basis. Therefore, a significant
portion of our cash flow from operations will be used to fund
such distributions. As a result, we intend to fund our growth
capital
15
expenditures and acquisitions, including future acquisitions of
compression contracts and equipment from Exterran Holdings, with
external sources of capital including additional borrowings
under our credit agreement
and/or
public or private offerings of equity or debt. As a result of
the economic slowdown and the declines in both our unit price
and the availability of equity and debt capital, our ability to
grow our asset and customer base may be limited.
Failure to generate sufficient cash flow, together with the
absence of alternative sources of capital, could adversely
impact our results of operations and cash available for
distribution to our unitholders.
We
depend on a limited number of customers for a significant
portion of our revenue. The loss of any of these customers may
result in a decline in our revenue and cash available to pay
distributions to our unitholders.
We rely on a few of our customers for a disproportionate share
of our revenue. The loss of all or even a portion of the
contract operations services we provide to our largest
customers, as a result of competition or otherwise, could have a
material adverse effect on our business, results of operations,
financial condition and our ability to make cash distributions
to our unitholders.
We
depend on demand for and production of natural gas in the U.S.,
and a reduction in this demand or production could adversely
affect the demand or the prices we charge for our services which
could cause our revenue and cash available for distribution to
decrease.
Natural gas contract operations in the U.S. are
significantly dependent upon the demand for and production of
natural gas in the U.S. Demand may be affected by, among
other factors, natural gas prices, weather, demand for energy
and availability and price of alternative energy sources. A
reduction in U.S. demand could force us to reduce our
pricing substantially. Additionally, compression services for
our customers production from unconventional natural gas
sources such as tight sands, shales and coalbeds constitute an
increasing percentage of our business. Such unconventional
sources are generally less economically feasible to produce in
lower natural gas price environments. These factors could in
turn negatively impact the demand for our services. Any
prolonged, substantial reduction in the U.S. demand for
natural gas would, in all likelihood, depress the level of
production activity and result in a decline in the demand for
our contract operations services and products, which could
reduce our cash available for distribution.
The
erosion of the financial condition of our customers could
adversely affect our business.
Many of our customers finance their exploration and development
activities through cash flow from operations, the incurrence of
debt or the issuance of equity. During times when the oil or
natural gas markets weaken, our customers are more likely to
experience a downturn in their financial condition. Many of our
customers equity values have substantially declined in
recent months, and the capital markets have been unavailable as
a source of financing to these customers. The combination of a
reduction in cash flow resulting from declines in commodity
prices, a reduction in borrowing bases under reserve-based
credit facilities and the lack of availability of debt or equity
financing will result in a reduction in our customers
spending for our services in 2009. For example, our customers
could seek to preserve capital by canceling month-to-month
contracts or determining not to enter into any new natural gas
compression service contracts, thereby reducing demand for our
services. Reduced demand for our services could adversely affect
our business, financial condition, results of operations and
cash flows. In addition, in the event of the financial failure
of a customer, we could experience a loss associated with all or
a portion of our outstanding accounts receivable associated with
that customer.
The
currently available supply of compression equipment owned by our
customers and competitors could cause a reduction in demand for
our products and services and a reduction in our
pricing.
We believe there currently exists a greater supply of idle and
underutilized compression equipment owned by our customers and
competitors in North America than in recent years, which will
limit our ability to improve our horsepower utilization and
increase revenues in the near term. Any sustained reduction in
demand for our
16
services, or sustained or significant reduction in our pricing
for our services, could have a material adverse effect on our
business, financial condition, results of operations and ability
to make cash distributions to our unitholders.
Our
agreement not to compete with Exterran Holdings limits our
ability to grow.
We have entered into an Omnibus Agreement with Exterran
Holdings, and several of its subsidiaries. The Omnibus Agreement
includes certain agreements not to compete between us and our
affiliates, on the one hand, and Exterran Holdings and its
affiliates, on the other hand. This agreement not to compete
with Exterran Holdings limits our ability to grow.
We
face significant competition that may cause us to lose market
share and harm our financial performance.
Our industry is highly competitive and there are low barriers to
entry. In addition, some of our competitors are large national
and multinational companies that provide contract operations,
aftermarket services and support and fabrication services to
third parties, and some of these competitors have greater
financial and other resources than we do. Our ability to renew
or replace existing contracts with our customers at rates
sufficient to maintain current revenue and cash flows could be
adversely affected by the activities of our competitors and our
customers. If our competitors substantially increase the
resources they devote to the development and marketing of
competitive services or substantially decrease the price at
which they offer their services, we may not be able to compete
effectively. Some of these competitors may expand or fabricate
new compression units that would create additional competition
for the services we provide to our customers. In addition, our
customers that are significant producers of natural gas may
purchase their own compression equipment in lieu of using our
contract operations services. Any of these competitive pressures
could have a material adverse effect on our business, results of
operations, financial condition and ability to make cash
distributions to our unitholders.
We may
not be able to grow our cash flows if we do not expand our
business, which could limit our ability to increase
distributions to our unitholders.
Our goal to continue to grow the per unit distribution on our
units is dependent upon our ability to expand our business. Our
future growth will depend upon a number of factors, some of
which we cannot control. These factors include our ability to:
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acquire additional U.S. contract operations services
business from Exterran Holdings;
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consummate accretive acquisitions;
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enter into contracts for new services with our existing
customers or new customers; and
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obtain required financing for our existing and new operations.
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A deficiency in any of these factors could adversely affect our
ability to achieve growth in the level of our cash flows or
realize benefits from acquisitions.
If we
do not make acquisitions on economically acceptable terms, our
future growth and our ability to increase distributions to our
unitholders will be limited.
Our ability to grow depends, in part, on our ability to make
accretive acquisitions. If we are unable to make these accretive
acquisitions either because we are: (i) unable to identify
attractive acquisition candidates or negotiate acceptable
purchase contracts with them, (ii) unable to obtain
financing for these acquisitions on economically acceptable
terms, or (iii) outbid by competitors, then our future
growth and ability to increase distributions would be limited.
Furthermore, even if we make acquisitions that we believe will
be accretive, these acquisitions may nevertheless result in a
decrease in the cash generated from operations per unit.
17
Any acquisition involves potential risks, including, among other
things:
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an inability to integrate successfully the businesses we acquire;
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the assumption of unknown liabilities;
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limitations on rights to indemnity from the seller;
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mistaken assumptions about the cash generated or anticipated to
be generated by the business acquired or the overall costs of
equity or debt;
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the diversion of managements and employees attention
from other business concerns;
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unforeseen operating difficulties; and
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customer or key employee losses at the acquired businesses.
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If we consummate any future acquisitions, our capitalization and
results of operations may change significantly, and unitholders
will not have the opportunity to evaluate the economic,
financial and other relevant information that we will consider
in determining the application of our future funds and other
resources. In addition, competition from other buyers could
reduce our acquisition opportunities or cause us to pay a higher
price than we might otherwise pay.
Exterran
Holdings continues to own and operate a substantial U.S.
contract compression business, competition from which could
adversely impact our results of operations and cash available
for distribution.
Exterran Holdings and its affiliates other than us are
prohibited from competing directly or indirectly with us with
respect to certain of our existing customers and certain
locations where we currently conduct business, and with respect
to any new contract compression customer that approaches either
Exterran Holdings or ourselves, until the earliest to occur of
August 20, 2010, a change of control of Exterran Holdings
or our general partner, or the removal or withdrawal of our
general partner. Otherwise, Exterran Holdings is not prohibited
from owning assets or engaging in businesses that compete
directly or indirectly with us. Exterran Holdings will continue
to own and operate a U.S. contract operations business,
including natural gas compression, that is substantially larger
than ours and continues to engage in international contract
operations, fabrication and aftermarket service activities.
Exterran Holdings is a large, established participant in the
contract operations business, and has significantly greater
resources, including idle compression equipment, operating
personnel, fabrication operations, vendor relationships and
experience, than we have, which factors may make it more
difficult for us to compete with it with respect to commercial
activities as well as for acquisition candidates. Exterran
Holdings and its affiliates may acquire, fabricate or dispose of
additional natural gas compression or other assets in the future
without any obligation to offer us the opportunity to purchase
any of those assets. As a result, competition from Exterran
Holdings could adversely impact our results of operations and
cash available for distribution.
We may
be unable to grow through acquisitions of the remainder of
Exterran Holdings U.S. contract operations business, which
could limit our ability to increase our cash available for
distribution.
Exterran Holdings is under no obligation to offer us the
opportunity to purchase the remainder of its U.S. contract
operations business, and its board of directors owes fiduciary
duties to the stockholders of Exterran Holdings, and not our
unitholders, in making any decision to offer us this
opportunity. Likewise, we are not required to purchase any
additional portions of such business.
The consummation of any such purchases will depend upon, among
other things, Exterran Holdings ability to continue to
convert its existing compression agreements to a new form of
service agreement, our reaching an agreement with Exterran
Holdings regarding the terms of such purchases (which will
require the approval of the conflicts committee of the board of
directors of our general partner) and our ability to finance
such purchases on acceptable terms. Additionally, Exterran
Holdings may be limited in its ability to consummate sales of
additional portions of such business to us by the terms of its
existing or future credit facilities or indentures.
Additionally, our credit facility includes covenants that may
limit our ability to finance
18
acquisitions. If a sale of any additional portion of Exterran
Holdings U.S. contract operations business would be
restricted or prohibited by such covenants, we or Exterran
Holdings may be required to seek waivers of such provisions or
refinance those debt instruments in order to consummate a sale,
neither of which may be accomplished timely, if at all. If we
are unable to grow through additional acquisitions of the
remainder of Exterran Holdings U.S. contract
operations business, our ability to increase our cash available
for distribution may be limited.
Many
of our compression services contracts with customers have short
initial terms, and we cannot be sure that such contracts will be
renewed after the end of the initial contractual term, which
could adversely impact our results of operations and cash
available for distribution.
The length of our compression services contracts with customers
varies based on operating conditions and customer needs. In most
cases, under currently prevailing compression services rates,
our initial contract terms are not long enough to enable us to
fully recoup the cost of acquiring the equipment we use to
provide compression services. We cannot be sure that a
substantial number of these customers will continue to renew
their contracts, that we will be able to enter into new
compression services contracts with new customers or that any
renewals will be at comparable service rates. The inability to
renew a substantial portion of our compression services
contracts would adversely impact our results of operations and
cash available for distribution.
Our
ability to manage and grow our business effectively may be
adversely affected if Exterran Holdings loses management or
operational personnel.
All of our officers are also officers or employees of Exterran
Holdings. Additionally, we do not have any of our own employees,
but rather rely on Exterran Holdings employees to operate
our business. We believe that Exterran Holdings ability to
hire, train and retain qualified personnel will continue to be
challenging and important as we grow. When general industry
conditions are good, the supply of experienced operational,
fabrication and field personnel, in particular, decreases as
other energy and manufacturing companies needs for the
same personnel increases. Our ability to grow and to continue
our current level of service to our customers will be adversely
impacted if Exterran Holdings is unable to successfully hire,
train and retain these important personnel.
If we
are unable to purchase compression equipment from Exterran
Holdings or others, we may not be able to retain existing
customers or compete for new customers, which could have a
material adverse effect on our business, results of operations,
financial condition and ability to make cash distributions to
our unitholders.
There is substantial competition for the purchase of compression
equipment, and we have a limited supply of idle units. Exterran
Holdings is under no obligation to offer or sell to us newly
fabricated or idle compression equipment and may choose not to
do so timely or at all. Further, Exterran Holdings could
experience substantial demand for the compression equipment it
owns or fabricates for its U.S. and international contract
operations services businesses as well as from third-party
customers. Similarly, we may not be able to purchase newly
fabricated or idle compression equipment from third-party
producers or marketers of such equipment or from our
competitors. If we are unable to purchase compression equipment
on a timely basis to meet the demands of our customers, our
existing customers may terminate their contractual relationships
with us, or we may not be able to compete for business from new
customers, either of which could have a material adverse effect
on our business, results of operations, financial condition and
ability to make cash distributions to our unitholders.
Our
operating costs per horsepower may be subject to more
variability than those of our predecessor. This variability may
have an adverse impact on our ability to make cash distributions
to our unitholders.
Because we own a substantially smaller fleet of compressors than
our predecessor, our operating costs per horsepower may be
subject to more variability than those of our predecessor. This
additional variability in our operating costs per horsepower may
result from, among other things, the fact that repair costs
associated with
19
our compressors that experience unanticipated downtime will be
allocated over our smaller fleet of compressors. The cap on our
obligation to reimburse Exterran Holdings for any cost of sales
that it incurs in the operation of our business contained in the
Omnibus Agreement will terminate on December 31, 2009.
Additionally, Exterran Holdings could condition any future sales
of portions of its compression business to us on our agreement
(which would require the approval of the conflicts committee of
the board of directors of our general partner) to an increase or
early termination of the cap. Our cost of sales has exceeded
this cap each quarter since we completed our initial public
offering in October 2006. On July 30, 2008, in connection
with the July 2008 Contract Operation Acquisition, the cap was
increased from $18.00 per operating horsepower to $21.75 per
operating horsepower. Any increase in our operating costs at a
time when the cap is increased or no longer in effect could have
an adverse impact on our ability to make cash distributions to
our unitholders.
Our
reliance on Exterran Holdings as an operator of our assets and
our limited ability to control certain costs could have a
material adverse effect on our business, results of operations,
financial condition and ability to make cash distributions to
our unitholders.
Pursuant to the Omnibus Agreement between us and Exterran
Holdings, Exterran Holdings provides us with all administrative
and operational services, including without limitation all
operations, marketing, maintenance and repair, periodic
overhauls of compression equipment, inventory management, legal,
accounting, treasury, insurance administration and claims
processing, risk management, health, safety and environmental,
information technology, human resources, credit, payroll,
internal audit, taxes and engineering services necessary to run
our business. Our operational success and ability to execute our
growth strategy depends significantly upon Exterran
Holdings satisfactory operation of our assets and
performance of these services. Our reliance on Exterran Holdings
as an operator of our assets and our resulting limited ability
to control certain costs could have a material adverse effect on
our business, results of operations, financial condition and
ability to make cash distributions to our unitholders.
We
indirectly depend on particular suppliers and are vulnerable to
product shortages and price increases, which could have a
negative impact on our results of operations.
Some of the components used in our compressors are obtained by
Exterran Holdings from a single source or a limited group of
suppliers. Exterran Holdings reliance on these suppliers
involves several risks, including price increases, inferior
component quality and a potential inability to obtain an
adequate supply of required components in a timely manner.
Exterran Holdings does not have long-term contracts with these
sources, and its partial or complete loss of certain of these
sources could have a negative impact on our results of
operations and could damage our customer relationships. Further,
since any increase in component prices for compression equipment
fabricated by Exterran Holdings for us will be passed on to us,
a significant increase in the price of one or more of these
components could have a negative impact on our results of
operations.
We are
subject to substantial environmental regulation, and changes in
these regulations could increase our costs or
liabilities.
We are subject to stringent and complex federal, state and local
laws and regulatory standards, including laws and regulations
regarding the discharge of materials into the environment,
emission controls and other environmental protection and
occupational health and safety concerns. Environmental laws and
regulations may, in certain circumstances, impose strict
liability for environmental contamination, rendering us liable
for remediation costs, natural resource damages and other
damages as a result of our conduct that was lawful at the time
it occurred or the conduct of, or conditions caused by, prior
owners or operators or other third parties. In addition, where
contamination may be present, it is not uncommon for neighboring
land owners and other third parties to file claims for personal
injury, property damage and recovery of response costs.
Remediation costs and other damages arising as a result of
environmental laws and regulations, and costs associated with
new information, changes in existing environmental laws and
regulations or the adoption of new environmental laws and
regulations could be substantial and could negatively impact our
financial condition or results of operations. Moreover, failure
to comply with these environmental laws and regulations may
result in the
20
imposition of administrative, civil and criminal penalties and
the issuance of injunctions delaying or prohibiting operations.
The EPA adopted new rules effective March 18, 2008 that
establish more stringent emission standards for new spark
ignition natural gas compressor engines. The new rules require
increased emission controls on certain new and reconstructed
stationary reciprocating engines that were excluded from
previous regulation. Those rules or any other new regulations
requiring the installation of more sophisticated emission
control equipment could have a material adverse impact on our
business, financial condition, results of operations or cash
flows.
We routinely deal with natural gas, oil and other petroleum
products. Hydrocarbons or other hazardous substances or wastes
may have been disposed or released on, under or from properties
used by us to provide contract operations services or inactive
compression storage or on or under other locations where such
substances or wastes have been taken for disposal. These
properties may be subject to investigatory, remediation and
monitoring requirements under federal, state and local
environmental laws and regulations.
The modification or interpretation of existing environmental
laws or regulations, the more vigorous enforcement of existing
environmental laws or regulations, or the adoption of new
environmental laws or regulations may also negatively impact oil
and natural gas exploration and production, gathering and
pipeline companies, which in turn could have a negative impact
on us.
Climate
change legislation and regulatory initiatives could result in
increased compliance costs.
Recent scientific studies have suggested that emissions of
certain gases, commonly referred to as greenhouse
gases and including carbon dioxide and methane, may be
contributing to warming of the Earths atmosphere. In
response to such studies, President Obama has expressed support
for, and it is anticipated that the U.S. Congress will
continue actively to consider, legislation to restrict or
further regulate emissions of greenhouse gases. In addition,
more than one-third of the states, either individually or
through multi-state regional initiatives, have begun
implementing measures to reduce emissions of greenhouse gases,
primarily through the planned development of emissions
inventories or regional greenhouse gas cap and trade programs.
Depending on the particular program, we could be required to
purchase and surrender allowances for greenhouse gas emissions
resulting from our operations.
Also, as a result of the U.S. Supreme Courts decision
on April 2, 2007 in
Massachusetts, et al. v.
EPA
, the EPA may regulate greenhouse gas emissions from
mobile sources such as cars and trucks even if Congress does not
adopt new legislation specifically addressing emissions of
greenhouse gases. The Courts holding in
Massachusetts
that greenhouse gases including carbon dioxide fall under
the federal CAAs definition of air pollutant
may also result in future regulation of carbon dioxide and other
greenhouse gas emissions from stationary sources. In July 2008,
the EPA released an Advance Notice of Proposed
Rulemaking regarding possible future regulation of
greenhouse gas emissions under the CAA, in response to the
Supreme Courts decision in
Massachusetts
. In the
notice, the EPA evaluated the potential regulation of greenhouse
gases under the CAA and other potential methods of regulating
greenhouse gases. Although the notice did not propose any
specific, new regulatory requirements for greenhouse gases, it
indicates that federal regulation of greenhouse gas emissions
could occur in the near future even if Congress does not adopt
new legislation specifically addressing emissions of greenhouse
gases. Although it is not possible at this time to predict how
legislation that may be enacted or new regulations that may be
adopted to address greenhouse gas emissions would impact our
business, any such new federal, state or local restrictions on
emissions of carbon dioxide or other greenhouse gases that may
be imposed in areas in which we conduct business could result in
increased compliance costs or additional operating restrictions
and could have a material adverse effect on our business,
financial condition, results of operations and cash flows.
We do
not insure against all potential losses and could be seriously
harmed by unexpected liabilities.
Natural gas service operations are subject to inherent risks
such as equipment defects, malfunction and failures and natural
disasters that can result in uncontrollable flows of natural gas
or well fluids, fires and explosions. These risks could expose
us to substantial liability for personal injury, death, property
damage, pollution and other environmental damages. Exterran
Holdings insures our property and operations against many of
these
21
risks; however, the insurance it carries may not be adequate to
cover our claims or losses. We currently have no insurance on
our offshore assets. In addition, we are substantially
self-insured for workers compensation, employers
liability, property, auto liability, general liability and
employee group health claims in view of the relatively high
per-incident deductibles we absorb under our insurance
arrangements for these risks. Further, insurance covering the
risks we face or in the amounts we desire may not be available
in the future or, if available, the premiums may not be
commercially justifiable. If we were to incur substantial
liability and such damages were not covered by insurance or were
in excess of policy limits, or if we were to incur liability at
a time when we are not able to obtain liability insurance, our
business, results of operations and financial condition could be
negatively impacted.
A
substantial portion of our cash flow must be used to service our
debt obligations, and future interest rate increases could
reduce the amount of our cash available for
distribution.
As of December 31, 2008, we had $117.5 million of
long-term debt outstanding under our term loan and
$281.3 million outstanding, with $33.7 available under our
revolving credit facility. All amounts outstanding under the
senior secured credit agreement mature in October 2011. Any
borrowings under our senior secured credit agreement will bear
interest at floating rates. We have effectively fixed a portion
of the floating rate debt through the use of interest rate
swaps. Borrowings under our term loan and revolving credit
facility are subject to the same credit agreement covenants
except for an additional term loan covenant requiring mandatory
prepayment from net cash proceeds of any future equity
offerings, on a dollar-for-dollar basis. Changes in economic
conditions could result in higher interest rates, thereby
increasing our interest expense and reducing our funds available
for capital investment, operations or distributions to our
unitholders. Additionally, the interest rates on any of our
future credit facilities and debt offerings could be higher than
current levels, causing our financing costs to increase
accordingly.
Covenants
in our credit facility may adversely affect our ability to
operate our business and to make distributions to our
unitholders.
Our credit facility includes covenants limiting our ability to
make distributions, incur indebtedness, grant liens, merge, make
loans, acquisitions, investments or dispositions and engage in
transactions with affiliates. We must maintain various
consolidated financial ratios, including a ratio of EBITDA (as
defined in the credit agreement) to Total Interest Expense (as
defined in the credit agreement) of not less than 2.5 to 1.0,
and a ratio of total debt to EBITDA of not greater than 5.0 to
1.0. Additionally, our obligations under the revolving credit
facility are secured by substantially all of our assets and all
assets of our subsidiaries. These covenants may restrict our
ability to expand or to pursue our business strategies. Our
ability to comply with certain provisions of the credit facility
may be affected by changes in our operating and financial
performance, changes in business conditions, financial markets
or our results of operations, adverse regulatory developments or
other events beyond our control. The breach of any of those
covenants could result in a default under our credit facility,
which could cause those debt obligations to become due and
payable. If any of our indebtedness were to be accelerated, we
may not be able to repay or refinance it.
Risks
Inherent in an Investment in Our Common Units
Exterran
Holdings controls our general partner, which has sole
responsibility for conducting our business and managing our
operations. Exterran Holdings has conflicts of interest, which
may permit it to favor its own interests to our
unitholders detriment.
Exterran Holdings owns and controls our general partner. Some of
our general partners directors are directors of Exterran
Holdings and all of our executive officers are officers of
Exterran Holdings. Therefore, conflicts of interest may arise
between Exterran Holdings and its affiliates, including our
general partner, on the one hand, and us and our unitholders, on
the other hand. In resolving these conflicts of interest, our
general partner may
22
favor its own interests and the interests of its affiliates over
the interests of our unitholders. These conflicts include, among
others, the following situations:
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neither our partnership agreement nor any other agreement
requires Exterran Holdings to pursue a business strategy that
favors us. Exterran Holdings directors and officers have a
fiduciary duty to make these decisions in the best interests of
the owners of Exterran Holdings, which may be contrary to our
interests;
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our general partner controls the interpretation and enforcement
of contractual obligations between us and our affiliates, on the
one hand, and Exterran Holdings, on the other hand, including
provisions governing administrative services, acquisitions and
transfers of compression equipment and non-competition
provisions;
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our general partner controls whether we agree to acquire
additional contract operations customers or assets from Exterran
Holdings that are offered to us by Exterran Holdings and the
terms of such acquisitions;
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our general partner is allowed to take into account the
interests of parties other than us, such as Exterran Holdings
and its affiliates, in resolving conflicts of interest;
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other than as provided in our Omnibus Agreement with Exterran
Holdings, Exterran Holdings and its affiliates are not limited
in their ability to compete with us. Exterran Holdings will
continue to engage in U.S. and international contract
operations services as well as third-party sales coupled with
aftermarket service contracts and may, in certain circumstances,
compete with us with respect to any future acquisition
opportunities;
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Exterran Holdings U.S. and international contract
compression services businesses and its third-party equipment
customers may compete with us for newly fabricated and idle
compression equipment and Exterran Holdings is under no
obligation to offer equipment to us for purchase or use;
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all of the officers and employees of Exterran Holdings who
provide services to us also will devote significant time to the
business of Exterran Holdings, and will be compensated by
Exterran Holdings for the services rendered to it;
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our general partner has limited its liability and reduced its
fiduciary duties, and has also restricted the remedies available
to our unitholders for actions that, without the limitations,
might constitute breaches of fiduciary duty;
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our general partner determines the amount and timing of asset
purchases and sales, borrowings, issuance of additional
partnership securities and reserves, each of which can affect
the amount of cash that is distributed to unitholders;
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our general partner determines the amount and timing of any
capital expenditures and whether a capital expenditure is a
maintenance capital expenditure, which reduces operating
surplus, or an expansion capital expenditure, which does not
reduce operating surplus. This determination can affect the
amount of cash that is distributed to our unitholders and the
ability of the subordinated units to convert to common units;
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our general partner determines which costs incurred by it and
its affiliates are reimbursable by us and Exterran Holdings
determines the allocation of shared overhead expenses;
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our partnership agreement does not restrict our general partner
from causing us to pay it or its affiliates for any services
rendered to us or entering into additional contractual
arrangements with any of these entities on our behalf;
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our general partner intends to limit its liability regarding our
contractual and other obligations and, in some circumstances, is
entitled to be indemnified by us;
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our general partner may exercise its limited right to call and
purchase common units if it and its affiliates own more than 80%
of the common units; and
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our general partner decides whether to retain separate counsel,
accountants or others to perform services for us.
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Cost
reimbursements due to our general partner and its affiliates for
services provided, which are determined by our general partner,
are substantial and reduce our cash available for distribution
to our unitholders.
Pursuant to the Omnibus Agreement we entered into with Exterran
Holdings, our general partner, and others, Exterran Holdings
receives reimbursement for the payment of operating expenses
related to our operations and for the provision of various
general and administrative services for our benefit. Payments
for these services are substantial and reduce the amount of cash
available for distribution to unitholders. In addition, under
Delaware partnership law, our general partner has unlimited
liability for our obligations, such as our debts and
environmental liabilities, except for our contractual
obligations that are expressly made without recourse to our
general partner. To the extent our general partner incurs
obligations on our behalf, we are obligated to reimburse or
indemnify it. If we are unable or unwilling to reimburse or
indemnify our general partner, our general partner may take
actions to cause us to make payments of these obligations and
liabilities. Any such payments could reduce the amount of cash
otherwise available for distribution to our unitholders.
Our
partnership agreement limits our general partners
fiduciary duties to holders of our common units and subordinated
units and restricts the remedies available to holders of our
common units and subordinated units for actions taken by our
general partner that might otherwise constitute breaches of
fiduciary duty.
Our partnership agreement contains provisions that reduce the
fiduciary standards to which our general partner would otherwise
be held by state fiduciary duty laws. For example, our
partnership agreement:
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permits our general partner to make a number of decisions in its
individual capacity, as opposed to in its capacity as our
general partner. This entitles our general partner to consider
only the interests and factors that it desires, and it has no
duty or obligation to give any consideration to any interest of,
or factors affecting, us, our affiliates or any limited partner.
Examples include the exercise of its limited call right, the
exercise of its rights to transfer or vote the units it owns,
the exercise of its registration rights and its determination
whether or not to consent to any merger or consolidation of the
partnership or amendment to the partnership agreement;
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provides that our general partner will not have any liability to
us or our unitholders for decisions made in its capacity as a
general partner so long as it acted in good faith, meaning it
believed the decision was in the best interests of our
partnership;
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generally provides that affiliated transactions and resolutions
of conflicts of interest not approved by the conflicts committee
of the board of directors of our general partner acting in good
faith and not involving a vote of unitholders must be on terms
no less favorable to us than those generally being provided to
or available from unrelated third parties or must be fair
and reasonable to us, as determined by our general partner
in good faith and that, in determining whether a transaction or
resolution is fair and reasonable, our general
partner may consider the totality of the relationships between
the parties involved, including other transactions that may be
particularly advantageous or beneficial to us;
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provides that our general partner and its officers and directors
will not be liable for monetary damages to us, our limited
partners or assignees for any acts or omissions unless there has
been a final and non-appealable judgment entered by a court of
competent jurisdiction determining that the general partner or
those other persons acted in bad faith or engaged in fraud or
willful misconduct or, in the case of a criminal matter, acted
with knowledge that the conduct was criminal; and
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provides that in resolving conflicts of interest, it will be
presumed that in making its decision the general partner acted
in good faith, and in any proceeding brought by or on behalf of
any limited partner or us, the person bringing or prosecuting
such proceeding will have the burden of overcoming such
presumption.
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Holders
of our common units have limited voting rights and are not
entitled to elect our general partner or its general
partners directors, which could reduce the price at which
the common units will trade.
Unlike the holders of common stock in a corporation, unitholders
have only limited voting rights on matters affecting our
business and, therefore, limited ability to influence
managements decisions regarding our business. Unitholders
do not elect our general partner or its general partners
board of directors, and have no right to elect our general
partner or its general partners board of directors on an
annual or other continuing basis. The board of directors of our
general partner is chosen by its sole member, a subsidiary of
Exterran Holdings. Furthermore, if the unitholders are
dissatisfied with the performance of our general partner, they
have little ability to remove our general partner. As a result
of these limitations, the price at which the common units trade
could be diminished because of the absence or reduction of a
takeover premium in the trading price.
Even
if holders of our common units are dissatisfied, they cannot
currently remove our general partner without its
consent.
The unitholders are unable to remove our general partner without
its consent because our general partner and its affiliates own
sufficient units to be able to prevent its removal. The vote of
the holders of at least
66
2
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3
%
of all outstanding units voting together as a single class is
required to remove the general partner. As of December 31,
2008, our general partner and its affiliates owned 56% of our
aggregate outstanding common and subordinated units. Also, if
our general partner is removed without cause during the
subordination period and units held by our general partner and
its affiliates are not voted in favor of that removal, all
remaining subordinated units will automatically convert into
common units and any existing arrearages on our common units
will be extinguished. A removal of our general partner under
these circumstances would adversely affect our common units by
prematurely eliminating their distribution and liquidation
preference over our subordinated units, which would otherwise
have continued until we had met certain distribution and
performance tests. Cause is narrowly defined to mean that a
court of competent jurisdiction has entered a final,
non-appealable judgment finding the general partner liable for
actual fraud or willful or wanton misconduct in its capacity as
our general partner. Cause does not include most cases of
charges of poor management of the business, so the removal of
the general partner because of the unitholders
dissatisfaction with our general partners performance in
managing our partnership will most likely result in the
termination of the subordination period and conversion of all
subordinated units to common units.
Control
of our general partner may be transferred to a third party
without unitholder consent.
Our general partner, which is indirectly wholly owned by
Exterran Holdings, may transfer its general partner interest to
a third party in a merger, or in a sale of all or substantially
all of its assets without the consent of the unitholders.
Furthermore, our partnership agreement does not restrict the
ability of Exterran Holdings, the owner of our general partner,
from transferring all or a portion of its ownership interest in
our general partner to a third party. The new owners of our
general partner would then be in a position to replace the board
of directors and officers of our general partners general
partner with its own choices and thereby influence the decisions
taken by the board of directors and officers.
We may
issue additional units without unitholder approval, which would
dilute our unitholders existing ownership
interests.
Our partnership agreement does not limit the number of
additional limited partner interests that we may issue at any
time without the approval of our unitholders. The issuance by us
of additional common units or other equity securities of equal
or senior rank will have the following effects:
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our unitholders proportionate ownership interest in us
will decrease;
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the amount of cash available for distribution on each unit may
decrease;
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because a lower percentage of total outstanding units will be
subordinated units, the risk that a shortfall in the payment of
the minimum quarterly distribution will be borne by our common
unitholders will increase;
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the ratio of taxable income to distributions may increase;
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the relative voting strength of each previously outstanding unit
may be diminished; and
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the market price of the common units may decline.
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Our
partnership agreement restricts the voting rights of unitholders
owning 20% or more of our common units, other than our general
partner and its affiliates, including Exterran
Holdings.
Unitholders voting rights are further restricted by the
partnership agreement provision providing that any units held by
a person that owns 20% or more of any class of units then
outstanding, other than our general partner, its affiliates,
including Exterran Holdings, their transferees and persons who
acquired such units with the prior approval of the board of
directors of our general partner, cannot vote on any matter. Our
partnership agreement also contains provisions limiting the
ability of unitholders to call meetings or to acquire
information about our operations, as well as other provisions.
Affiliates
of our general partner may sell common or subordinated units in
the public or private markets, which sales could have an adverse
impact on the trading price of the common units.
At December 31, 2008, Exterran Holdings and its affiliates
held 6,325,000 subordinated units and 4,428,067 common units.
All of the subordinated units will convert into common units at
the end of the subordination period and some or all may convert
earlier. The sale of these subordinated units or common units in
the public or private markets could have an adverse impact on
the price of the common units or on any trading market that may
develop.
Our
general partner has a limited call right that may require
unitholders to sell their units at an undesirable time or
price.
If at any time our general partner and its affiliates own more
than 80% of the common units, our general partner will have the
right, but not the obligation, which it may assign to any of its
affiliates or to us, to acquire all, but not less than all, of
the common units held by unaffiliated persons at a price not
less than their then-current market price. As a result,
unitholders may be required to sell their common units at an
undesirable time or price and may not receive any return on
their investment. Unitholders may also incur a tax liability
upon a sale of their units. At December 31, 2008, our
general partner and its affiliates owned 56% of our aggregate
outstanding common and subordinated units, including all of our
subordinated units.
Unitholder
liability may not be limited if a court finds that unitholder
action constitutes control of our business.
A general partner of a partnership generally has unlimited
liability for the obligations of the partnership, except for
those contractual obligations of the partnership that are
expressly made without recourse to the general partner. Our
partnership is organized under Delaware law and we conduct
business in a number of other states. The limitations on the
liability of holders of limited partner interests for the
obligations of a limited partnership have not been clearly
established in some of the other states in which we do business.
Unitholders could be liable for any and all of our obligations
as if they were a general partner if:
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a court or government agency determined that we were conducting
business in a state but had not complied with that particular
states partnership statute; or
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a unitholders right to act with other unitholders to
remove or replace the general partner, to approve some
amendments to our partnership agreement or to take other actions
under our partnership agreement constitutes control
of our business.
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Unitholders
may have liability to repay distributions that were wrongfully
distributed to them.
Under certain circumstances, unitholders may have to repay
amounts wrongfully returned or distributed to them. Under
Section 17-607
of the Delaware Revised Uniform Limited Partnership Act, we may
not make a distribution to our unitholders if the distribution
would cause our liabilities to exceed the fair value of our
assets. Delaware law provides that for a period of three years
from the date of the impermissible distribution, limited
partners who received the distribution and who knew at the time
of the distribution that it violated Delaware law will be liable
to the limited partnership for the distribution amount.
Substituted limited partners are liable for the obligations of
the assignor to make contributions to the partnership that are
known to the substituted limited partner at the time it became a
limited partner and for unknown obligations if the liabilities
could be determined from the partnership agreement. Liabilities
to partners on account of their partnership interest and
liabilities that are non-recourse to the partnership are not
counted for purposes of determining whether a distribution is
permitted.
Our
common units have a limited trading volume compared to other
units representing limited partner interests.
Our common units are traded publicly on the NASDAQ Global Select
Market under the symbol EXLP. However, daily trading
volumes for our common units are, and may continue to be,
relatively small compared to many other units representing
limited partner interests quoted on the NASDAQ. The price of our
common units may, therefore, be volatile.
The market price of our common units may also be influenced by
many factors, some of which are beyond our control, including:
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our quarterly distributions;
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our quarterly or annual earnings or those of other companies or
partnerships in our industry;
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changes in commodity prices;
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changes in demand for natural gas in the U.S.;
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loss of a large customer;
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announcements by us or our competitors of significant contracts
or acquisitions;
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changes in accounting standards, policies, guidance,
interpretations or principles;
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tax legislation;
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general economic conditions;
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the failure of securities analysts to cover our common units or
changes in financial estimates by analysts;
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future sales of our common units; and
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the other factors described in these Risk Factors.
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Increases
in interest rates could adversely impact our unit price and our
ability to issue additional equity or incur debt to make
acquisitions or for other purposes.
As with other yield-oriented securities, our unit price is
impacted by the level of our cash distributions and implied
distribution yield. The distribution yield is often used by
investors to compare and rank related yield-oriented securities
for investment decision-making purposes. Therefore, changes in
interest rates, either positive or negative, may affect the
yield requirements of investors who invest in our units, and a
rising interest rate environment could have an adverse impact on
our unit price and our ability to issue additional equity or
incur debt to make acquisitions or for other purposes.
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Tax Risks
to Common Unitholders
Our
tax treatment depends on our status as a partnership for federal
income tax purposes. If the IRS were to treat us as a
corporation for federal income tax purposes, then our cash
available for distribution to you would be substantially
reduced.
The anticipated after-tax economic benefit of an investment in
our common units depends largely on our being treated as a
partnership for federal income tax purposes. We have not
requested, and do not plan to request, a ruling from the IRS on
this or any other tax matter affecting us.
Despite the fact that we are a limited partnership under
Delaware law, it is possible in certain circumstances for a
partnership such as ours to be treated as a corporation for
federal income tax purposes. Although we do not believe based
upon our current operations that we will be treated as a
corporation, a change in our business (or a change in current
law) could cause us to be treated as a corporation for federal
income tax purposes or otherwise subject us to taxation as an
entity.
If we were treated as a corporation for federal income tax
purposes, we would pay federal income tax on our taxable income
at the corporate tax rate, which is currently a maximum of 35%,
and would likely pay state income tax at varying rates.
Distributions to unit holders would generally be taxed again as
corporate distributions, and no income, gains, losses or
deductions would flow through to you. Because a tax would be
imposed upon us as a corporation, our cash available for
distribution to you would be substantially reduced. Therefore,
treatment of us as a corporation would result in a material
reduction in the anticipated cash flow and after-tax return to
the unitholders, likely causing a substantial reduction in the
value of our common units.
Current law may change so as to cause us to be treated as a
corporation for federal income tax purposes or otherwise subject
us to entity-level taxation. At the federal level, members of
Congress have in the past considered substantive changes to the
existing U.S. tax laws that, if passed, would have affected
certain publicly traded partnerships. Although we do not believe
this previously considered legislation would have affected our
tax treatment, we are unable to predict whether this or similar
proposals will ultimately be enacted. Moreover, any modification
to the federal income tax laws and interpretations thereof may
or may not be applied retroactively. Any such changes could
negatively impact the value of an investment in our common
units. Our partnership agreement provides that if a law is
enacted or existing law is modified or interpreted in a manner
that subjects us to taxation as a corporation or otherwise
subjects us to additional entity-level taxation, the minimum
quarterly distribution amount and the target distribution
amounts may be adjusted to reflect the impact of that law on us.
If we
were subjected to an additional entity-level taxation by
individual states, it would reduce our cash available for
distribution to you.
Changes in current state law may subject us to additional
entity-level taxation by individual states. Because of
widespread state budget deficits and other reasons, several
states are evaluating ways to subject partnerships to
entity-level taxation through the imposition of state income,
franchise and other forms of taxation. Currently we are subject
to income and franchise taxes in several states. Imposition of
such taxes on us will reduce the cash available for distribution
to our unitholders. Our partnership agreement provides that if a
law is enacted or existing law is modified or interpreted in a
manner that subjects us to additional amounts of entity-level
taxation, the minimum quarterly distribution amount and the
target distribution amounts may be adjusted to reflect the
impact of that law on us.
If the
IRS contests the federal income tax positions we take, the
market for our common units may be adversely affected, and the
costs of any IRS contest will reduce our cash available for
distribution to you.
We have not requested a ruling from the IRS with respect to our
treatment as a partnership for federal income tax purposes or
any other matter affecting us. The IRS may adopt positions that
differ from the positions we take. It may be necessary to resort
to administrative or court proceedings to sustain, and a court
may not agree with, some or all of the positions we take. Any
contest with the IRS may materially and adversely impact the
market for our common units and the price at which they trade.
In addition, our costs of any contest with the
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IRS will result in a reduction in cash available for
distribution to our unitholders and thus will be borne
indirectly by our unitholders and our general partner.
You
will be required to pay taxes on your share of our income even
if you do not receive any cash distributions from
us.
Because our unitholders will be treated as partners to whom we
will allocate taxable income, which could be different in amount
than the cash we distribute, you will be required to pay any
federal income taxes and, in some cases, state and local income
taxes on your share of our taxable income even if you receive no
cash distributions from us. You may not receive cash
distributions from us equal to your share of our taxable income
or even equal to the actual tax liability that results from that
income.
Tax
gain or loss on the disposition of our common units could be
more or less than expected.
If you sell your common units, you will recognize a gain or loss
equal to the difference between the amount realized and your tax
basis in those common units. Because distributions in excess of
your allocable share of our net taxable income decrease your tax
basis in your common units, the amount, if any, of such prior
excess distributions with respect to the common units you sell
will, in effect, become taxable income to you if you sell such
common units at a price greater than your tax basis in those
common units, even if the price you receive is less than your
original cost. Furthermore, a substantial portion of the amount
realized, whether or not representing gain, may be taxed as
ordinary income due to potential recapture items, including
depreciation recapture. In addition, because the amount realized
includes a unitholders share of our nonrecourse
liabilities, if you sell your units, you may incur a tax
liability in excess of the amount of cash you receive from the
sale.
Tax-exempt
entities and
non-U.S.
persons face unique tax issues from owning our common units that
may result in adverse tax consequences to them.
Investment in common units by tax-exempt entities, such as
employee benefit plans and individual retirement accounts
(IRAs), and
non-U.S. persons
raises issues unique to them. For example, virtually all of our
income allocated to organizations that are exempt from federal
income tax, including IRAs and other retirement plans, will be
unrelated business taxable income and will be taxable to them.
Distributions to
non-U.S. persons
will be reduced by withholding taxes imposed at the highest
applicable effective tax rate, and
non-U.S. persons
will be required to file U.S. federal tax returns and pay
tax on their share of our taxable income. If you are a
tax-exempt entity or a
non-U.S. person,
you should consult your tax advisor before investing in our
common units.
We
will treat each purchaser of our common units as having the same
tax benefits without regard to the actual common units
purchased. The IRS may challenge this treatment, which could
adversely affect the value of the common units.
Because we cannot match transferors and transferees of common
units and because of other reasons, we have adopted depreciation
and amortization positions that may not conform to all aspects
of existing Treasury Regulations. A successful IRS challenge to
those positions could adversely affect the amount of tax
benefits available to you. It also could affect the timing of
these tax benefits or the amount of gain from the sale of common
units and could have a negative impact on the value of our
common units or result in audit adjustments to your tax returns.
We
prorate our items of income, gain, loss and deduction between
transferors and transferees of our units each month based upon
the ownership of our units on the first day of each month,
instead of on the basis of the date a particular unit is
transferred. The IRS may challenge this treatment, and, if
successful, we would be required to change the allocation of
items of income, gain, loss and deduction among our
unitholders.
We prorate our items of income, gain, loss and deduction between
transferors and transferees of our units each month based upon
the ownership of our units on the first day of each month,
instead of on the basis of the
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date a particular unit is transferred. The use of this proration
method may not be permitted under existing Treasury regulations.
If the IRS were to successfully challenge this method or new
Treasury Regulations were issued, we could be required to change
the allocation of items of income, gain, loss and deduction
among our unitholders.
A
unitholder whose units are loaned to a short seller
to cover a short sale of units may be considered as having
disposed of those units. If so, he would no longer be treated
for tax purposes as a partner with respect to those units during
the period of the loan and may recognize gain or loss from the
disposition.
Because a unitholder whose units are loaned to a short
seller to cover a short sale of units may be considered as
having disposed of the loaned units, he may no longer be treated
for tax purposes as a partner with respect to those units during
the period of the loan to the short seller and the unitholder
may recognize gain or loss from such disposition. Moreover,
during the period of the loan to the short seller, any of our
income, gain, loss or deduction with respect to those units may
not be reportable by the unitholder and any cash distributions
received by the unitholder as to those units could be fully
taxable as ordinary income.
We
have adopted certain valuation methodologies that could result
in a shift of income, gain, loss and deduction between the
general partner and the unitholders. The IRS may successfully
challenge this treatment, which could adversely affect the value
of the common units.
When we issue additional units or engage in certain other
transactions, we determine the fair market value of our assets
and allocate any unrealized gain or loss attributable to our
assets to the capital accounts of our unitholders and our
general partner. Our methodology may be viewed as understating
the value of our assets. In that case, there may be a shift of
income, gain, loss and deduction between certain unitholders and
the general partner, which may be unfavorable to such
unitholders. Moreover, under our valuation methods, subsequent
purchasers of common units may have a greater portion of their
Internal Revenue Code Section 743(b) adjustment allocated
to our tangible assets and a lesser portion allocated to our
intangible assets. The IRS may challenge our valuation methods,
or our allocation of the Section 743(b) adjustment
attributable to our tangible and intangible assets, and
allocations of income, gain, loss and deduction between the
general partner and certain of our unitholders.
A successful IRS challenge to these methods or allocations could
adversely affect the amount of taxable income or loss being
allocated to our unitholders. It also could affect the amount of
gain from our unitholders sale of common units and could
have a negative impact on the value of the common units or
result in audit adjustments to our unitholders tax returns
without the benefit of additional deductions.
The
sale or exchange of 50% or more of our capital and profits
interests during any twelve-month period will result in the
termination of our partnership for federal income tax
purposes.
We will be considered to have terminated for federal income tax
purposes if there is a sale or exchange of 50% or more of the
total interests in our capital and profits within a twelve-month
period. Our termination would, among other things, result in the
closing of our taxable year for all unitholders, which would
result in us filing two tax returns (and our unitholders
receiving two
Schedule K-1s)
for one fiscal year. Our termination could also result in a
deferral of depreciation deductions allowable in computing our
taxable income. In the case of a unitholder reporting on a
taxable year other than a fiscal year ending December 31,
the closing of our taxable year may result in more than twelve
months of our taxable income or loss being includable in his
taxable income for the year of termination. Our termination
currently would not affect our classification as a partnership
for federal income tax purposes, but instead, we would be
treated as a new partnership for tax purposes. If treated as a
new partnership, we must make new tax elections and could be
subject to penalties if we are unable to determine that a
termination occurred.
Since the merger, Exterran Holdings has undertaken various
internal restructuring transactions to streamline its business
and simplify its financial and tax reporting. We believe that
one of these internal restructuring transactions, which occurred
on May 31, 2008, represented a sale or exchange of 50% or
more of our capital and profits interests and therefore resulted
in a technical termination of us for U.S. federal income
tax
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purposes on such date. Our taxable year for all unitholders
ended on May 31, 2008 and resulted in a deferral of
depreciation deductions that were otherwise allowable in
computing the taxable income of our unitholders. We believe that
the deferral of depreciation deductions will result in increased
taxable income (or reduced taxable loss) to certain of our
unitholders in 2008.
As a
result of investing in our common units, you may become subject
to foreign, state and local taxes and return filing requirements
in jurisdictions where we operate or own or acquire
property.
In addition to federal income taxes, you may be subject to other
taxes, including foreign, state and local taxes, unincorporated
business taxes and estate, inheritance or intangible taxes that
are imposed by the various jurisdictions in which we do business
or own or acquire property now or in the future, even if you do
not live in any of those jurisdictions. You will likely be
required to file foreign, state and local income tax returns and
pay state and local income taxes in some or all of these
jurisdictions. Further, you may be subject to penalties for
failure to comply with those requirements. We conduct business
and/or
own
assets in the states of Alabama, Arkansas, Arizona, California,
Colorado, Kansas, Kentucky, Louisiana, Michigan, Mississippi,
Montana, Nebraska, New Mexico, New York, North Dakota, Oklahoma,
Pennsylvania, South Dakota, Tennessee, Texas, Utah, Virginia,
West Virginia, and Wyoming. Each of these states, other than
Texas, South Dakota and Wyoming, currently imposes a
personal income tax on individuals. A majority of these states
impose an income tax on corporations and other entities that may
be unitholders. As we make acquisitions or expand our business,
we may conduct business or own assets in additional states that
impose a personal income tax or that impose entity level taxes
to which certain unitholders could be subject. It is your
responsibility to file all U.S. federal, foreign, state and
local tax returns applicable to you in your particular
circumstances.
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ITEM 1B.
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Unresolved
Staff Comments
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None.
Our corporate office is located at 16666 Northchase Drive,
Houston, Texas 77060. We do not own or lease any facilities or
properties. Pursuant to our Omnibus Agreement, we reimburse
Exterran Holdings for the cost of our pro rata portion of the
properties we utilize in connection with its U.S. contract
operations business and our business.
|
|
ITEM 3.
|
Legal
Proceedings
|
In the ordinary course of business we are involved in various
pending or threatened legal actions. While management is unable
to predict the ultimate outcome of these actions, it believes
that any ultimate liability arising from these actions will not
have a material adverse effect on our consolidated financial
position, results of operations or cash flows; however, because
of the inherent uncertainty of litigation, we cannot provide
assurance that the resolution of any particular claim or
proceeding to which we are a party will not have a material
adverse effect on our financial position, results of operations
or cash flows for the period in which the resolution occurs.
|
|
ITEM 4.
|
Submission
of Matters to a Vote of Security Holders
|
There were no matters submitted to a vote of security holders
during the quarter ended December 31, 2008.
31
PART II
|
|
ITEM 5.
|
Market
For Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Our common units trade on the NASDAQ Global Market under the
symbol EXLP. On February 20, 2009, the closing price
of a common unit was $13.05. At the close of business on
February 20, 2009, based upon information received from our
transfer agent and brokers and nominees, we had
13 registered common unitholders and approximately 1,800
street name holders. We have also issued 6,325,000 subordinated
units, for which there is no established public trading market.
The subordinated units are held by Exterran Holdings. Exterran
Holdings receives a quarterly distribution on these units only
after sufficient funds have been paid to the common unitholders.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
|
|
|
Distribution
|
|
|
|
Price Range
|
|
|
per Common
|
|
|
|
High
|
|
|
Low
|
|
|
Unit(1)
|
|
|
Year Ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
31.72
|
|
|
$
|
25.45
|
|
|
$
|
0.3500
|
|
Second Quarter
|
|
$
|
38.44
|
|
|
$
|
30.00
|
|
|
$
|
0.3500
|
|
Third Quarter
|
|
$
|
40.38
|
|
|
$
|
29.03
|
|
|
$
|
0.4000
|
|
Fourth Quarter
|
|
$
|
36.00
|
|
|
$
|
28.33
|
|
|
$
|
0.4250
|
|
Year Ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
34.50
|
|
|
$
|
28.26
|
|
|
$
|
0.4250
|
|
Second Quarter
|
|
$
|
34.30
|
|
|
$
|
27.02
|
|
|
$
|
0.4250
|
|
Third Quarter
|
|
$
|
31.57
|
|
|
$
|
13.57
|
|
|
$
|
0.4625
|
|
Fourth Quarter
|
|
$
|
17.10
|
|
|
$
|
8.09
|
|
|
$
|
0.4625
|
|
|
|
|
(1)
|
|
Cash distributions declared for one quarter are paid in the
following calendar quarter.
|
For disclosures regarding securities authorized for issuance
under equity compensation plans, see Part III, Item 12
(Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters) of this report.
Cash
Distribution Policy
Within 45 days after the end of each quarter, we will
distribute all of our available cash (as defined in our
partnership agreement) to unitholders of record on the
applicable record date. However, there is no guarantee that we
will pay any specific distribution level on the units in any
quarter. Even if our cash distribution policy is not modified or
revoked, the amount of distributions paid under our policy and
the decision to make any distribution is determined by our
general partner, taking into consideration the terms of our
partnership agreement. We will be prohibited from making any
distributions to unitholders if doing so would cause an event of
default, or an event of default exists, under our credit
agreement.
Exterran Holdings owns 6,325,000 subordinated units. During the
subordination period, the common units have the right to receive
distributions of available cash from operating surplus in an
amount equal to the minimum quarterly distribution of $0.35 per
quarter, plus any arrearages in the payment of the minimum
quarterly distribution on the common units from prior quarters,
before any distributions of available cash from operating
surplus may be made on the subordinated units. These units are
deemed subordinated units because for a period of
time, referred to as the subordination period, the subordinated
units are not entitled to receive any distributions until the
common units have received the minimum quarterly distribution
and any arrearages from prior quarters. Furthermore, no
arrearages will be paid on the subordinated units. The practical
effect of the subordinated units is to increase the likelihood
that during the subordination period there will be available
cash to be distributed on the common units.
32
The subordination period will extend until the first day of any
quarter beginning after September 30, 2011 that each of the
following tests are met:
|
|
|
|
|
distributions of available cash from operating surplus on each
of the outstanding common units, subordinated units and general
partner units equaled or exceeded the minimum quarterly
distribution for each of the three consecutive, non-overlapping
four-quarter periods immediately preceding that date;
|
|
|
|
the adjusted operating surplus (as defined in our
partnership agreement) generated during each of the three
consecutive, non-overlapping four-quarter periods immediately
preceding that date equaled or exceeded the sum of the minimum
quarterly distributions on all of the outstanding common units,
subordinated units and general partner units during those
periods on a fully diluted basis; and
|
|
|
|
there are no arrearages in payment of the minimum quarterly
distribution on the common units.
|
When the subordination period expires, each outstanding
subordinated unit will convert into one common unit and will
then participate pro rata with the other common units in
distributions of available cash. In addition, if the unitholders
remove our general partner other than for cause and units held
by the general partner and its affiliates are not voted in favor
of such removal:
|
|
|
|
|
the subordination period will end and each subordinated unit
will immediately convert into one common unit;
|
|
|
|
any existing arrearages in payment of the minimum quarterly
distribution on the common units will be extinguished; and
|
|
|
|
the general partner will have the right to convert its general
partner units and its incentive distribution rights into common
units or to receive cash in exchange for those interests.
|
If the tests for ending the subordination period are satisfied
for any three consecutive four-quarter periods ending on or
after September 30, 2009, 25% of the subordinated units
will convert into common units on a one-for-one basis.
Similarly, if those tests are also satisfied for any three
consecutive four-quarter periods ending on or after
September 30, 2010, an additional 25% of the subordinated
units (measured as if the first 25% of the subordinated units
had not previously converted to common units) will convert into
common units on a one-for-one basis. The second early conversion
of subordinated units may not occur, however, until at least one
year following the end of the period for the first early
conversion of subordinated units.
In addition, the subordination period will automatically
terminate on the first day of any quarter beginning on
September 30, 2008, if each of the following tests is met:
|
|
|
|
|
distributions of available cash from operating surplus on each
of the outstanding common units, subordinated units and general
partner units equaled or exceeded $2.10 (150% of the annualized
minimum quarterly distribution on such common units,
subordinated units and general partner units) for any
four-quarter period immediately preceding that date;
|
|
|
|
the adjusted operating surplus (as defined in our
partnership agreement) generated during any four-quarter period
immediately preceding that date equaled or exceeded the sum of a
distribution of $2.10 (150% of the annualized minimum quarterly
distribution) on all of the outstanding common units,
subordinated units and general partner units on a fully diluted
basis; and
|
|
|
|
there are no arrearages in payment of the minimum quarterly
distribution on the common units.
|
We will make distributions of available cash (as defined in our
partnership agreement) from operating surplus for any quarter
during any subordination period in the following manner:
|
|
|
|
|
first
, 98% to the common unitholders, pro rata, and 2% to
our general partner, until we distribute for each outstanding
common unit an amount equal to the minimum quarterly
distribution for that quarter;
|
33
|
|
|
|
|
second
, 98% to the common unitholders, pro rata, and 2%
to our general partner, until we distribute for each outstanding
common unit an amount equal to any arrearages in payment of the
minimum quarterly distribution on the common units for any prior
quarters during the subordination period;
|
|
|
|
third
, 98% to the subordinated unitholders, pro rata, and
2% to our general partner, until we distribute for each
subordinated unit an amount equal to the minimum quarterly
distribution for that quarter;
|
|
|
|
fourth
, 85% to all common and subordinated unitholders,
pro rata, and 15% to our general partner, until each unit has
received a distribution of $0.4375;
|
|
|
|
fifth
, 75% to all common and subordinated unitholders,
pro rata, and 25% to our general partner, until each unit has
received a total of $0.525; and
|
|
|
|
thereafter
, 50% to all common and subordinated
unitholders, pro rata, and 50% to our general partner.
|
34
|
|
ITEM 6.
|
Selected
Financial Data
|
SELECTED
HISTORICAL FINANCIAL DATA
EXTERRAN PARTNERS, L.P.
The following table shows selected historical consolidated
financial data of Exterran Partners, L.P. and of Exterran
Partners Predecessor, our predecessor, for the periods and as of
the dates presented. While we were formed in June 2006, we did
not commence operations until October 20, 2006. Because our
operations only represent a portion of the business of our
predecessor and other factors, our results of operations are not
comparable to our predecessors historical results.
In December 2005, Universal changed its fiscal year end from
March 31 to December 31, effective in 2005. As a result,
the selected historical financial data below for our predecessor
includes the nine-month period ended December 31, 2005.
The selected historical financial data as of December 31,
2008, 2007 and 2006 and for the years ended December 31,
2008 and 2007 and the period from June 22, 2006 through
December 31, 2006 have been derived from our audited
consolidated financial statements. The selected historical
financial data as of December 31, 2005 and March 31,
2005, as well as the selected historical financial data for the
period from January 1, 2006 through October 19, 2006,
the nine months ended December 31, 2005 and the twelve
months ended March 31, 2005 have been derived from the
audited combined financial statements of our predecessor. The
following information should be read together with
Managements Discussion and Analysis of Financial Condition
and Results of Operations and the Financial Statements which are
contained in this report.
35
The following table includes the non-GAAP financial measure
gross margin. For a definition of gross margin and a
reconciliation of gross margin to its most directly comparable
financial measure calculated and presented in accordance with
GAAP, please read Non-GAAP Financial
Measure below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exterran Partners, L.P.
|
|
|
Exterran Partners Predecessor
|
|
|
|
|
|
|
|
|
|
June 22, 2006
|
|
|
January 1, 2006
|
|
|
Nine Months
|
|
|
Twelve Months
|
|
|
|
Years Ended
|
|
|
through
|
|
|
through
|
|
|
Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
October 19,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2008(1)
|
|
|
2007(1)
|
|
|
2006(1)(2)
|
|
|
2006
|
|
|
2005
|
|
|
2005
|
|
|
|
(In thousands, except per unit amounts)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
163,712
|
|
|
$
|
107,675
|
|
|
$
|
13,465
|
|
|
$
|
317,973
|
|
|
$
|
248,414
|
|
|
$
|
296,239
|
|
Gross margin(3)
|
|
|
90,149
|
|
|
|
61,609
|
|
|
|
8,194
|
|
|
|
199,573
|
|
|
|
158,214
|
|
|
|
184,090
|
|
Depreciation and amortization
|
|
|
27,053
|
|
|
|
16,570
|
|
|
|
2,108
|
|
|
|
61,317
|
|
|
|
52,595
|
|
|
|
62,920
|
|
Selling, general and administrative expense
|
|
|
16,085
|
|
|
|
13,730
|
|
|
|
1,566
|
|
|
|
30,584
|
|
|
|
20,395
|
|
|
|
23,544
|
|
Interest expense
|
|
|
18,039
|
|
|
|
11,658
|
|
|
|
1,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expense, net
|
|
|
(1,430
|
)
|
|
|
(22
|
)
|
|
|
|
|
|
|
(298
|
)
|
|
|
1,220
|
|
|
|
(344
|
)
|
Income tax expense
|
|
|
555
|
|
|
|
272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
29,847
|
|
|
|
19,401
|
|
|
|
2,705
|
|
|
|
107,970
|
|
|
|
84,004
|
|
|
|
97,970
|
|
Weighted average common units outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
11,369
|
|
|
|
8,279
|
|
|
|
2,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
11,427
|
|
|
|
8,377
|
|
|
|
2,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average subordinated units outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
6,325
|
|
|
|
6,325
|
|
|
|
2,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
6,325
|
|
|
|
6,325
|
|
|
|
2,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.62
|
|
|
$
|
1.30
|
|
|
$
|
0.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
1.61
|
|
|
$
|
1.29
|
|
|
$
|
0.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per subordinated unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.62
|
|
|
$
|
1.30
|
|
|
$
|
0.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
1.61
|
|
|
$
|
1.29
|
|
|
$
|
0.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expansion(4)
|
|
$
|
13,983
|
|
|
$
|
25,283
|
|
|
$
|
26
|
|
|
$
|
72,009
|
|
|
$
|
33,550
|
|
|
$
|
46,637
|
|
Maintenance(5)
|
|
|
9,451
|
|
|
|
7,079
|
|
|
|
306
|
|
|
|
31,626
|
|
|
|
28,057
|
|
|
|
35,745
|
|
Cash flows provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
43,268
|
|
|
$
|
34,520
|
|
|
$
|
2,788
|
|
|
$
|
151,236
|
|
|
$
|
135,207
|
|
|
$
|
158,464
|
|
Investing activities
|
|
|
(21,320
|
)
|
|
|
(32,362
|
)
|
|
|
(332
|
)
|
|
|
(94,757
|
)
|
|
|
(53,829
|
)
|
|
|
(68,582
|
)
|
Financing activities
|
|
|
(21,539
|
)
|
|
|
(1,753
|
)
|
|
|
(26
|
)
|
|
|
(56,479
|
)
|
|
|
(81,378
|
)
|
|
|
(89,882
|
)
|
Cash distribution paid per limited partner unit
|
|
$
|
1.74
|
|
|
$
|
1.38
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exterran Partners, L.P.
|
|
|
Exterran Partners Predecessor
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,244
|
|
|
$
|
2,835
|
|
|
$
|
2,430
|
|
|
$
|
|
|
|
$
|
|
|
Working capital(6)
|
|
|
22,284
|
|
|
|
108
|
|
|
|
5,162
|
|
|
|
16,058
|
|
|
|
14,038
|
|
Total assets
|
|
|
599,944
|
|
|
|
386,088
|
|
|
|
203,661
|
|
|
|
1,275,922
|
|
|
|
1,296,318
|
|
Total debt
|
|
|
398,750
|
|
|
|
217,000
|
|
|
|
125,000
|
|
|
|
|
|
|
|
|
|
Partners capital/net parent equity
|
|
|
175,468
|
|
|
|
145,159
|
|
|
|
69,457
|
|
|
|
1,268,938
|
|
|
|
1,290,289
|
|
|
|
|
(1)
|
|
In October 2006, July 2007 and July 2008, we acquired from
Universal and Exterran Holdings, respectively, contract
operations customer service agreements and a fleet of compressor
units used to provide compression services under those
agreements. An acquisition of a business from an entity under
common control is generally accounted for under GAAP by the
acquirer with retroactive application as if the acquisition date
was the beginning of the earliest period included in the
financial statements. Retroactive effect to both of these
acquisitions was impracticable because such retrospective
application would have required significant assumptions in a
prior period that can not be substantiated. Accordingly, our
financial statements include the assets acquired, liabilities
assumed, revenues and operating expenses associated with the
acquisitions beginning on the date of such acquisition.
|
|
(2)
|
|
Exterran Partners, L.P. was formed on June 22, 2006 but did
not commence operations until October 20, 2006.
|
|
(3)
|
|
Gross margin is defined, reconciled to net income and discussed
further below in this report.
|
|
(4)
|
|
Expansion capital expenditures are capital expenditures made to
expand or to replace partially or fully depreciated assets or to
expand the operating capacity or revenue of existing or new
assets, whether through construction, acquisition or
modification.
|
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(5)
|
|
Maintenance capital expenditures are capital expenditures made
to maintain the existing operating capacity of our assets and
related cash flows further extending the useful lives of the
assets.
|
|
(6)
|
|
Working capital is defined as current assets minus current
liabilities.
|
NON-GAAP FINANCIAL
MEASURE
We and our predecessor define gross margin as total revenue less
cost of sales (excluding depreciation and amortization expense).
Gross margin is included as a supplemental disclosure because it
is a primary measure used by our and our predecessors
management as it represents the results of revenue and cost of
sales (excluding depreciation and amortization expense), which
are key components of our and our predecessors operations.
We believe gross margin is important because it focuses on the
current operating performance of our operations and excludes the
impact of the prior historical costs of the assets acquired or
constructed that are utilized in those operations, the indirect
costs associated with our SG&A activities, the impact of
our financing methods and income tax expense. Depreciation and
amortization expense may not accurately reflect the costs
required to maintain and replenish the operational usage of our
assets and therefore may not portray the costs from current
operating activity. As an indicator of our and our
predecessors operating performance, gross margin should
not be considered an alternative to, or more meaningful than,
net income as determined in accordance with GAAP. Our and our
predecessors gross margin may not be comparable to a
similarly titled measure of another company because other
entities may not calculate gross margin in the same manner.
Gross margin has certain material limitations associated with
its use as compared to net income. These limitations are
primarily due to the exclusion of interest expense, depreciation
and amortization expense and SG&A expense. Each of these
excluded expenses is material to our consolidated results of
operations. Because we intend to finance a portion of our
operations through borrowings, interest expense is a necessary
element of our costs and our ability to generate revenue.
Additionally, because we use capital assets, depreciation
37
expense is a necessary element of our costs and our ability to
generate revenue, and SG&A expenses are necessary costs to
support our operations and required corporate activities. To
compensate for these limitations, management uses this non-GAAP
measure as a supplemental measure to other GAAP results to
provide a more complete understanding of our performance.
The following table reconciles our net income to our gross
margin:
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Exterran Partners, L.P.
|
|
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Exterran Partners Predecessor
|
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June 22, 2006
|
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January 1, 2006
|
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Nine Months
|
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Twelve Months
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through
|
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|
through
|
|
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Ended
|
|
|
Ended
|
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|
Years Ended December 31,
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December 31,
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October 19,
|
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December 31,
|
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March 31,
|
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2008
|
|
|
2007
|
|
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2006(1)
|
|
|
2006
|
|
|
2005
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Net income
|
|
$
|
29,847
|
|
|
$
|
19,401
|
|
|
$
|
2,705
|
|
|
$
|
107,970
|
|
|
$
|
84,004
|
|
|
$
|
97,970
|
|
Depreciation and amortization
|
|
|
27,053
|
|
|
|
16,570
|
|
|
|
2,108
|
|
|
|
61,317
|
|
|
|
52,595
|
|
|
|
62,920
|
|
Selling, general and administrative
|
|
|
16,085
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|
|
13,730
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|
|
|
1,566
|
|
|
|
30,584
|
|
|
|
20,395
|
|
|
|
23,544
|
|
Interest expense
|
|
|
18,039
|
|
|
|
11,658
|
|
|
|
1,815
|
|
|
|
|
|
|
|
|
|
|
|
|
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Other (income) expense, net
|
|
|
(1,430
|
)
|
|
|
(22
|
)
|
|
|
|
|
|
|
(298
|
)
|
|
|
1,220
|
|
|
|
(344
|
)
|
Income tax expense
|
|
|
555
|
|
|
|
272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
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|
|
|
|
|
|
|
|
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|
|
Gross margin
|
|
$
|
90,149
|
|
|
$
|
61,609
|
|
|
$
|
8,194
|
|
|
$
|
199,573
|
|
|
$
|
158,214
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|
|
$
|
184,090
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|
|
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(1)
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Exterran Partners, L.P. was formed on June 22, 2006 but did
not commence operations until October 20, 2006.
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38
|
|
ITEM 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The following discussion and analysis of our financial
condition and results of operations should be read in
conjunction with our consolidated financial statements, and
notes thereto, and our predecessors combined financial
statements, and notes thereto included elsewhere in this report,
and the other financial information appearing elsewhere in this
report. The following discussion includes forward-looking
statements that involve certain risks and uncertainties. See
Part I (Disclosure Regarding Forward-Looking
Statements) and Part I, Item 1A (Risk
Factors), of this report.
Overview
We are a Delaware limited partnership formed in June 2006 to
provide natural gas contract operations services to customers
throughout the U.S. We completed an initial public offering
in October 2006. Our contract operations services include
designing, sourcing, owning, installing, operating, servicing,
repairing and maintaining equipment to provide natural gas
compression to our customers. While we were formed in
June 2006, we did not commence operations until
October 20, 2006.
We and our customers typically contract for our services on a
site-by-site
basis for a specific monthly rate that is adjusted only if we
fail to operate in accordance with the contract terms. At the
end of the initial term, which is typically six months, contract
operations services generally continue on a
month-by-month
basis until terminated by either party with 30 days
advanced notice. Our customers generally are required to pay our
monthly fee even during periods of limited or disrupted natural
gas flows, which enhances the stability and predictability of
our cash flows. See General Terms of Our Contract
Operations Customer Service Agreements, in Part I,
Item 1 (Business) of this report, for a more
detailed description.
Generally, our overall business activity and revenue increase as
the demand for natural gas increases. Demand for our compression
services is linked more directly to natural gas consumption and
production than to exploration activities, which limits our
direct exposure to commodity price risk. Because we do not take
title to the natural gas we compress, and because the natural
gas we use as fuel for our compressors is provided to us by our
customers, our direct exposure to commodity price risk is
further reduced.
Industry
Conditions and Trends
Our business environment and its corresponding operating results
are affected by the level of energy industry spending for the
exploration, development and production of natural gas reserves.
Spending by natural gas exploration and production companies is
dependent upon these companies forecasts regarding the
expected future supply and future demand for oil and natural gas
products and their estimates of risk-adjusted costs to find,
develop and produce reserves. Although we believe our business
is less impacted by commodity prices than certain other oil and
gas service providers, changes in natural gas exploration and
production spending will normally result in increased or
decreased demand for our products and services.
Natural gas consumption in the U.S. for the twelve months
ended November 30, 2008 increased by approximately 2% over
the twelve months ended November 30, 2007 and is expected
to increase by 0.7% per year until 2030, according to the
U.S. Energy Information Administration (EIA).
According to the EIA, the U.S. accounted for an estimated
annual production of approximately 19 trillion cubic feet of
natural gas in calendar year 2007. Industry sources estimate
that the U.S. natural gas production level will be
approximately 20 trillion cubic feet in calendar year 2030. As
of January 1, 2008, the U.S. natural gas reserves were
estimated at 211 trillion cubic feet.
The natural gas compression services industry has experienced a
significant increase in the demand for its products and services
from the early 1990s, and we believe the contract compression
services industry in the U.S. will continue to have growth
opportunities due to the following factors, among others:
|
|
|
|
|
aging producing natural gas fields will require more compression
to continue producing the same volume of natural gas; and
|
39
|
|
|
|
|
increased production from unconventional sources, which include
tight sands, shales and coal beds, generally requires more
compression than production from conventional sources to produce
the same volume of natural gas.
|
Our
Performance Trends and Outlook
Given the current economic environment in the U.S. and
anticipated impact of lower natural gas prices and capital
spending by customers, we expect lower overall activity levels
in 2009 than in 2008. In addition, we believe that the available
supply of idle and underutilized compression equipment owned by
our customers and competitors will limit our ability to improve
our horsepower utilization and revenues in the near term.
Because we initially purchased only contracted equipment from
Exterran Holdings, we anticipate that the average utilization of
our contract operations fleet will decrease over time as some
units become idle due to the termination of contract operations
service agreements. A 1% decrease in average utilization of our
contract operations fleet would result in a decrease in our
revenue and gross margin (defined as revenue less cost of sales,
excluding depreciation and amortization expense) for the year
ended December 31, 2008 of approximately $1.6 million
and $0.9 million, respectively.
Currently, we believe the recent decline in commodity prices and
the impact of uncertain credit and capital market conditions
resulting from the global financial crisis will negatively
impact the level of capital spending by our customers in 2009 in
comparison to 2008 levels. The effects of lower capital spending
by our customers are expected to negatively impact demand for
our services. Although we are not able at this time to predict
the final impact of the current financial market and industry
conditions on our businesses in 2009, we believe that, although
demand for our services is expected to be lower in 2009 than
2008, we are well positioned from a competitive perspective to
take advantage of opportunities that may become available during
this period of uncertainty. We will continue to evaluate the
impact of these trends on our business as the market and
industry environment continue to evolve.
Our revenue, earnings and financial position are affected by,
among other things, (i) market conditions that impact
demand for compression, (ii) our customers decisions
to utilize our services rather than purchase equipment or
utilize our competitors services, (iii) our
customers decisions regarding whether to renew service
agreements with us, and (iv) the timing and consummation of
acquisitions of additional contract operations customer
contracts and equipment from Exterran Holdings. In particular,
many of our contracts with customers have short initial terms,
and we cannot be certain that such contracts will be renewed
after the end of the initial contractual term; any such
nonrenewal could adversely impact our results of operations and
cash available for distribution. Our level of capital spending
depends on the demand for our services and the equipment we
require to render those services to our customers. For further
information regarding material uncertainties to which our
business is exposed, see Risk Factors included in this report.
Pursuant to the Omnibus Agreement between us and Exterran
Holdings, our obligation to reimburse Exterran Holdings for any
costs of sales is capped through December 31, 2009 (see
Note 5 to the Financial Statements). During the years ended
December 31, 2008 and 2007, our costs of sales exceeded
this cap.
Exterran Holdings intends for us to be the primary growth
vehicle for its U.S. contract operations business and
intends to offer us the opportunity to purchase the remainder of
its U.S. contract operations business over time, but is not
obligated to do so. Likewise, we are not required to purchase
any additional portions of such business. The consummation of
any future purchase of additional portions of that business and
the timing of any such purchase will depend upon, among other
things, our reaching an agreement with Exterran Holdings
regarding the terms of such purchase, which will require the
approval of the conflicts committee of the board of directors of
our general partner, and our ability to finance such purchase on
acceptable terms. While the timing of additional transfers of
Exterran Holdings U.S. contract operations business
to us will depend on the economic environment, including the
availability to us of debt and equity capital, we believe it is
less likely currently than it was a year ago that Exterran
Holdings will offer portions of its U.S. contract
operations business to us unless there is an improvement in
economic conditions and overall costs of and access to the
capital markets. Future contributions of assets to us upon
consummation of transactions with Exterran Holdings may increase
or decrease our operating performance, financial position and
liquidity. This discussion
40
of performance trends and outlook excludes any future potential
transfers of additional contract operations customer contracts
and equipment from Exterran Holdings to us.
Certain
Key Challenges and Uncertainties
Market conditions in the natural gas industry and competition in
the natural gas compression industry represent key challenges
and uncertainties. In addition to those, we believe the
following represent some of the key challenges and uncertainties
we will face in the near future.
Labor.
We have no employees. Exterran Holdings
provides all operational staff, corporate staff and support
services necessary to run our business. As Exterran Holdings
continues to grow both in the U.S. and internationally, we
believe its ability to hire, train and retain qualified
personnel continues to be challenging and important. In
particular, the supply of experienced operational, engineering
and field personnel continues to be tight and demand for such
personnel remains strong. Although Exterran Holdings has been
able to satisfy personnel needs in these positions thus far,
retaining these employees has been a challenge. To increase
retention of qualified operating personnel, Exterran Holdings
has instituted programs that enhance skills and provide on-going
training. Our ability to continue to make quarterly
distributions will depend in part on Exterran Holdings
success in hiring, training and retaining these employees.
Compression Fleet Utilization.
Our ability to
increase our revenues in our contract operations business is
dependent in part on our ability to increase our operating
horsepower. We believe that the available supply of idle or
underutilized compression equipment owned by our customers and
competitors will limit our ability to improve our horsepower
utilization and revenues in the near term. In addition, over the
course of the last several years, the utilization of our small-
and mid-range horsepower compressors has decreased due to lower
demand for those units by our customers and increased
competition with respect to those units. We believe that the
lower customer demand has been driven by our lack of investment
in new smaller horsepower compressors coupled with a replacement
of such compressors with larger horsepower compressors as
producers attempt to improve economics by maintaining lower
pressures in gathering lines. We also believe that the increase
in competition for these units has been driven by the low
barriers to entry, including relatively low capital costs,
associated with providing contract compression services with
smaller horsepower compressors. While we believe the demand for
smaller horsepower compressor units will increase over time due
to the favorable fundamentals of the compression industry,
utilization declines could have an adverse effect on our future
business.
Managing Operating Costs in an Uncertain Economic
Environment.
Given the global recession and its
uncertain impact on 2009 activity levels, the matching of our
costs and capacity to business levels will be challenging.
Decline in Commodity Prices and Global Financial
Crisis.
Currently, we believe the recent decline
in commodity prices and the impact of uncertain credit and
capital market conditions resulting from the global financial
crisis will negatively impact the level of capital spending by
our customers in 2009 in comparison to 2008 levels. The effects
of lower capital spending by our customers are expected to
negatively impact demand for our services. Although we are not
able at this time to predict the final impact of the current
financial market and industry conditions on our businesses in
2009, we believe that, although demand for our services is
expected to be lower in 2009 than 2008, we are well positioned
from a competitive perspective to take advantage of
opportunities that may become available during this period of
uncertainty. We will continue to evaluate the impact of these
trends on our business as the market and industry environment
continue to evolve.
Additional Purchases of Exterran Holdings Contract
Operations Business By Us.
We plan to grow over
time through accretive acquisitions of assets from Exterran
Holdings, third-party compression providers and natural gas
transporters or producers. While the timing of transfers of
Exterran Holdings U.S. contract operations business
to us will depend on the economic environment, including the
availability to us of debt and equity capital, we believe it is
less likely currently than it was a year ago that Exterran
Holdings will offer portions of its U.S. contract
operations business to us unless there is an improvement in
economic conditions and overall costs of and access to the
capital markets. Future contributions of assets to us upon
consummation of
41
transactions with Exterran Holdings may increase or decrease our
operating performance, financial position and liquidity.
Operating
Highlights
The following table summarizes total available horsepower,
average operating horsepower, and horsepower utilization
percentages. We were formed in June 2006, but did not commence
operations until October 20, 2006. As a result, operating
data is shown for us for the period in 2006 during which we had
operations.
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|
|
|
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|
|
Exterran Partners
|
|
|
|
Exterran Partners, L.P.
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
October 20,
|
|
|
January 1,
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2006
|
|
|
|
Years Ended
|
|
|
through
|
|
|
through
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
October 19,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
Total Available Horsepower (at period end)
|
|
|
1,026,124
|
|
|
|
722,557
|
|
|
|
343,010
|
|
|
|
2,024,213
|
|
Total Operating Horsepower (at period end)
|
|
|
909,288
|
|
|
|
668,540
|
|
|
|
332,284
|
|
|
|
1,801,550
|
|
Average Operating Horsepower
|
|
|
846,455
|
|
|
|
496,250
|
|
|
|
330,276
|
|
|
|
1,797,479
|
|
Horsepower utilization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spot (at period end)
|
|
|
89
|
%
|
|
|
93
|
%
|
|
|
97
|
%
|
|
|
89
|
%
|
Average
|
|
|
90
|
%
|
|
|
95
|
%
|
|
|
99
|
%
|
|
|
91
|
%
|
Financial
Results of Operations
Year
ended December 31, 2008 compared to year ended December 31,
2007 Exterran Partners, L.P.
The following table summarizes our revenue, gross margin, gross
margin percentage, expenses and net income for the periods
presented:
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|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Revenue
|
|
$
|
163,712
|
|
|
$
|
107,675
|
|
Gross margin(1)
|
|
|
90,149
|
|
|
|
61,609
|
|
Gross margin percentage
|
|
|
55
|
%
|
|
|
57
|
%
|
Expenses:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
27,053
|
|
|
$
|
16,570
|
|
Selling, general and administrative
|
|
|
16,085
|
|
|
|
13,730
|
|
Interest expense
|
|
|
18,039
|
|
|
|
11,658
|
|
Other (income) expense, net
|
|
|
(1,430
|
)
|
|
|
(22
|
)
|
Income tax expense
|
|
|
555
|
|
|
|
272
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
29,847
|
|
|
$
|
19,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
For a reconciliation of gross margin to its most directly
comparable financial measure calculated and presented in
accordance with GAAP, please read Part II, Item 6
(Selected Historical Financial Data
Non-GAAP Financial Measure) of this report.
|
Revenue.
Average monthly operating horsepower
was 846,455 and 496,250 for the years ended December 31,
2008 and 2007, respectively. The increase in revenue and average
monthly operating horsepower was primarily due to the inclusion
of the assets acquired in the July 2007 Contract Operations
Acquisition and the July 2008 Contract Operations Acquisition.
The inclusion of the results from the assets acquired in the
July 2007 Contract Operations Acquisition and the July 2008
Contract Operations Acquisition accounted for
42
approximately $54.6 million of the increase in revenue for
the year ended December 31, 2008 compared to the year ended
December 31, 2007.
Gross Margin.
The increase in gross margin
(defined as revenue less cost of sales, excluding depreciation
and amortization expense) for the year ended December 31,
2008 compared to the year ended December 31, 2007 was
primarily due to the inclusion of the results from the assets
acquired in the July 2007 Contract Operations Acquisition and
the July 2008 Contract Operations Acquisition.
Gross Margin Percentage.
Gross margin
percentage (defined as gross margin as a percentage of revenue)
was 55% and 57% for the years ended December 31, 2008 and
2007, respectively. The decrease in gross margin percentage was
primarily due to increased repair and maintenance costs,
partially offset by savings that began to be realized from the
synergies of the merger between Hanover and Universal.
Depreciation and Amortization.
The increase in
depreciation and amortization expense was primarily due to the
additional depreciation on the assets acquired in the July 2007
Contract Operations Acquisition and the July 2008 Contract
Operations Acquisition.
SG&A.
SG&A expenses are primarily
comprised of an allocation of expenses, including costs for
personnel support and related expenditures, from Exterran
Holdings and, prior to the merger, Universal. The increase in
SG&A expense was primarily due to the increased costs
associated with the increase in revenues after the July 2007
Contract Operations Acquisition and the July 2008 Contract
Operations Acquisition. SG&A expenses represented 10% and
13% of revenues for the years ended December 31, 2008 and
2007, respectively. The decrease in SG&A expense as a
percentage of revenue was primarily due to the difference in the
impact of the re-measurement of fair value of our unit options
and phantom units, which reduced SG&A expense by
$3.9 million and increased SG&A expense by
$1.8 million for the years ended December 31, 2008 and
2007, respectively. We have granted unit options and phantom
units to individuals who are not our employees, but who are
employees of Exterran Holdings and its subsidiaries that provide
services to us. Because we grant unit options and phantom units
to non-employees, we are required to re-measure the fair value
of the unit options and certain phantom units each period and to
record a cumulative adjustment of the expense previously
recognized.
Interest expense.
The increase in interest
expense was primarily due to a higher average balance of
long-term debt in the current year that was incurred to fund the
July 2007 Contract Operations Acquisition and the July 2008
Contract Operations Acquisition.
Other (Income) Expense, Net.
The increase in
other (income) expense, net, was due to a $1.4 million gain
on the sale of used compression equipment during the year ended
December 31, 2008.
Income Tax Expense.
Income tax expense
primarily reflects taxes recorded under the Texas margins tax.
The increase in income tax expense was primarily due to an
increase in our revenue earned within the state of Texas.
43
Year
ended December 31, 2007 compared to the period from June 22,
2006 through December 31, 2006 Exterran Partners,
L.P.
The following table summarizes our revenue, gross margin, gross
margin percentage, expenses and net income for the periods
presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 22, 2006
|
|
|
|
Year Ended
|
|
|
through
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006(1)
|
|
|
|
(Dollars in thousands)
|
|
|
Revenue
|
|
$
|
107,675
|
|
|
$
|
13,465
|
|
Gross margin(2)
|
|
|
61,609
|
|
|
|
8,194
|
|
Gross margin percentage
|
|
|
57
|
%
|
|
|
61
|
%
|
Expenses:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
16,570
|
|
|
$
|
2,108
|
|
Selling, general and administrative
|
|
|
13,730
|
|
|
|
1,566
|
|
Interest expense
|
|
|
11,658
|
|
|
|
1,815
|
|
Other (income) expense, net
|
|
|
(22
|
)
|
|
|
|
|
Income tax expense
|
|
|
272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
19,401
|
|
|
$
|
2,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Exterran Partners, L.P. was formed on June 22, 2006 but did
not commence operations until October 20, 2006.
|
|
(2)
|
|
For a reconciliation of gross margin to its most directly
comparable financial measure calculated and presented in
accordance with GAAP, please read Selected Historical Financial
Data Non-GAAP Financial Measure included in
this report.
|
Revenue.
The increase in revenue and average
monthly operating horsepower for the year ended
December 31, 2007 was primarily due to twelve months of
operating activity for the year ended December 31, 2007
compared to 73 days of operating activity for the period
from June 22, 2006 to December 31, 2006, and the
inclusion in 2007 of the assets acquired in the July 2007
Contract Operations Acquisition. The inclusion of the results
from the assets acquired in the July 2007 Contract Operations
Acquisition accounted for approximately $31.4 million of
the increase in revenue for the year ended December 31,
2007 compared to the period from October 20, 2006 through
December 31, 2006.
Gross Margin.
The increase in gross margin for
the year ended December 31, 2007 was primarily due to
twelve months of operating activity for the year ended
December 31, 2007 compared to 73 days of operating
activity for the period from June 22, 2006 to
December 31, 2006, and the inclusion in 2007 of the assets
acquired in the July 2007 Contract Operations Acquisition.
Gross Margin Percentage.
Gross margin
percentage was 57% and 61% for the year ended December 31,
2007 and the period from June 22, 2006 through
December 31, 2006, respectively. The decrease in gross
margin percentage was primarily due to increased repair and
maintenance costs.
Depreciation.
The increase in depreciation
expense was primarily due to twelve months of operating activity
for the year ended December 31, 2007 compared to
73 days of operating activity for the period from
June 22, 2006 to December 31, 2006, and the inclusion
in 2007 of the assets acquired in the July 2007 Contract
Operations Acquisition.
SG&A.
SG&A expenses are primarily
comprised of an allocation of expenses from Exterran Holdings
and Universal, including costs for personnel support and related
expenditures. The increase in SG&A expenses was primarily
due to twelve months of operating activity for the year ended
December 31, 2007 compared to 73 days of operating
activity for the period from June 22, 2006 to
December 31, 2006, and the impact of re-measurement of fair
value of units options granted to non-employees. We have granted
unit options to
44
individuals who are not our employees, but who were employees of
Universal that provided services to us. Further, in the future
we may grant options to employees of Exterran Holdings who
provide services to us. Because we grant unit options to
non-employees, we are required to re-measure the fair value of
the unit options each period and to record a cumulative
adjustment of the expense previously recognized. The cumulative
effect recognized in SG&A expenses as a result of the
re-measurement of fair value of the unit options was an expense
of $1.8 million and $0.2 million for the year ended
December 31, 2007 and for the period from June 22,
2006 through December 31, 2006, respectively. SG&A
expenses represented 13% and 12% of revenues for the year ended
December 31, 2007 and the period from June 22, 2006
through December 31, 2006, respectively.
Interest expense.
The increase in interest
expense was primarily due to a higher average balance of
long-term debt in the year ended December 31, 2007 to fund
the July 2007 Contract Operations Acquisition and due to a full
year of activity for the year ended December 31, 2007
compared to 73 days of operating activity for the period
from June 22, 2006 to December 31, 2006.
Income Tax Expense.
Income tax expense
reflects taxes recorded under the Texas margins tax. The
increase in income tax expense was due to the Texas margins tax
not being effective in the period from June 22, 2006
through December 31, 2006.
The
period from January 1, 2006 through October 19, 2006
Exterran Partners Predecessor
The following table summarizes the revenue, gross margin, gross
margin percentage, expenses and net income of our predecessor
for the period presented:
|
|
|
|
|
|
|
January 1, 2006
|
|
|
|
through
|
|
|
|
October 19,
|
|
|
|
2006
|
|
|
|
(Dollars in
|
|
|
|
thousands)
|
|
|
Revenue
|
|
$
|
317,973
|
|
Gross margin(1)
|
|
|
199,573
|
|
Gross margin percentage
|
|
|
63
|
%
|
Expenses:
|
|
|
|
|
Depreciation
|
|
$
|
61,317
|
|
Selling, general and administrative
|
|
|
30,584
|
|
Other (income) expense, net
|
|
|
(298
|
)
|
|
|
|
|
|
Net income
|
|
$
|
107,970
|
|
|
|
|
|
|
|
|
|
(1)
|
|
For a reconciliation of gross margin to its most directly
comparable financial measure calculated and presented in
accordance with GAAP, please read Selected Historical Financial
Data Non-GAAP Financial Measure included in
this report.
|
Revenue.
Average monthly operating horsepower
was 1,797,479 for the period from January 1, 2006 through
October 19, 2006.
Gross Margin.
Gross margin, a non-GAAP
financial measure, is reconciled to net income, its most
directly comparable financial measure calculated and presented
in accordance with GAAP in Selected Historical Financial
Data Non-GAAP Financial Measure included in
this report.
SG&A.
SG&A expenses represented 10%
of revenues for the period from January 1, 2006 through
October 19, 2006.
Depreciation.
Depreciation expense is related
to our predecessors contract operations fleet and was
$61.3 million for the period from January 1, 2006
through October 19, 2006.
45
Liquidity
and Capital Resources
We have established our own bank accounts, but Exterran
Holdings personnel will continue to manage our cash and
investments.
The following table summarizes our sources and uses of cash for
the years ended December 31, 2008 and 2007, and our cash
and working capital as of the end of such periods:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
43,268
|
|
|
$
|
34,520
|
|
Investing activities
|
|
|
(21,320
|
)
|
|
|
(32,362
|
)
|
Financing activities
|
|
|
(21,539
|
)
|
|
|
(1,753
|
)
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
$
|
409
|
|
|
$
|
405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Cash and cash equivalents
|
|
$
|
3,244
|
|
|
$
|
2,835
|
|
Working capital
|
|
|
22,284
|
|
|
|
108
|
|
Operating Activities.
The increase in net cash
provided by operating activities for the year ended
December 31, 2008 compared to the year ended
December 31, 2007 was primarily the result of additional
earnings generated from increased business after the July 2007
Contract Operations Acquisition and the July 2008 Contract
Operations Acquisition, partially offset by an increase in
accounts receivable.
Investing Activities.
The decrease in cash
used in investing activities during the year ended
December 31, 2008 compared to the year ended
December 31, 2007 was primarily attributable to decreased
capital expenditures and proceeds from the sale of used
compression equipment of $8.6 million in the current
period. Capital expenditures for the year ended
December 31, 2008 were $23.4 million, consisting of
$14.0 million for fleet additions and $9.4 million for
compressor maintenance activities. Included in our capital
expenditures for the year ended December 31, 2008 were new
compression equipment purchases of $9.8 million from
Exterran Holdings.
Financing Activities.
The increase in cash
used in financing activities during the year ended
December 31, 2008 compared to the year ended
December 31, 2007 was primarily the result of
$69.0 million of net proceeds from a private placement of
common units in 2007, a decrease in the amounts due to
affiliates, net and an increase in distributions to our
unitholders in 2008. These increases were partially offset by
higher net repayments of borrowings in the prior year period.
Capital Requirements.
The natural gas
compression business is capital intensive, requiring significant
investment to maintain and upgrade existing operations. Our
capital spending is dependent on the demand for our services and
the availability of the type of compression equipment required
for us to render those services to our customers. Our capital
requirements have consisted primarily of, and we anticipate that
our capital requirements will continue to consist of, the
following:
|
|
|
|
|
maintenance capital expenditures, which are capital expenditures
made to maintain the existing operating capacity of our assets
and related cash flows further extending the useful lives of the
assets; and
|
|
|
|
expansion capital expenditures, which are capital expenditures
made to expand or to replace partially or fully depreciated
assets or to expand the operating capacity or revenue generating
capabilities of existing or new assets, whether through
construction, acquisition or modification.
|
46
We currently plan to spend approximately $35 million to
$40 million in net capital expenditures during 2009
including (1) $15 million to $20 million on fleet
equipment additions and (2) approximately $20 million
on equipment maintenance capital.
In addition, our capital requirements include funding
distributions to our unitholders. We anticipate such
distributions will be funded through cash provided by operating
activities and borrowings under our credit facility and that we
have the ability to generate adequate amounts of cash to meet
our short-term and long-term needs. Given our objective of
long-term growth through acquisitions, expansion capital
expenditure projects and other internal growth projects, we
anticipate that over time we will continue to invest capital to
grow and acquire assets. We will actively consider a variety of
assets for potential acquisitions and expansion projects. We
expect to fund future capital expenditures with borrowings under
our credit facility, the issuance of additional partnership
units, and future debt offerings as appropriate, given market
conditions. The timing of future capital expenditures will be
based on the economic environment, including the availability of
debt and equity capital.
Our Ability to Grow Depends on Our Ability to Access External
Expansion Capital
. We expect that we will rely
primarily upon external financing sources, including our
revolving credit facility and the issuance of debt and equity
securities, rather than cash reserves established by our general
partner to fund our acquisitions and expansion capital
expenditures. As a result of the credit crisis and the economic
slowdown, our ability to access the capital markets may be
restricted at a time when we would like, or need, to do so,
which could have an impact on our ability to grow. We expect
that we will distribute all of our available cash to our
unitholders. Available cash is reduced by cash reserves
established by our general partner to provide for the proper
conduct of our business, including future capital expenditures.
To the extent we are unable to finance growth externally and we
are unwilling to establish cash reserves to fund future
acquisitions, our cash distribution policy will significantly
impair our ability to grow. Because we distribute all of our
available cash, we may not grow as quickly as businesses that
reinvest their available cash to expand ongoing operations. To
the extent we issue additional units in connection with any
acquisitions or expansion capital expenditures, the payment of
distributions on those additional units may increase the risk
that we will be unable to maintain or increase our per unit
distribution level, which in turn may impact the available cash
that we have to distribute on each unit. There are no
limitations in our partnership agreement or in the terms of our
revolving credit facility on our ability to issue additional
units, including units ranking senior to the common units.
Credit and Financial Industry Environment.
The
continuing credit crisis and related turmoil in the global
financial system may have an impact on our business and our
financial condition. If any lender under our revolving credit
facility is not able to perform its obligations under our
revolving credit facility, our borrowing capacity under this
facility would be reduced by such lenders pro rata portion
of the unfunded commitments.
The financial crisis could also have an impact on our remaining
interest rate swap agreements if the counterparties are unable
to perform their obligations under those agreements. At
December 31, 2008, the combined liability related to our
outstanding swap agreements was $17.7 million and was all
in favor of our counterparties.
Long- term Debt.
In May 2008, we entered into
an amendment to our senior secured credit facility that
increased the aggregate commitments under that facility to
provide for a $117.5 million term loan facility that
matures in October 2011. Concurrent with the closing of the July
2008 Contract Operations Acquisition, the $117.5 million
term loan was funded and $58.3 million was drawn on our
revolving credit facility, which together were used to repay the
debt assumed from Exterran Holdings in the acquisition and to
pay other costs incurred in the acquisition. The
$117.5 million term loan is
non-amortizing
but must be repaid with the net proceeds from any future equity
offerings until paid in full. Subject to certain conditions, at
our request, and with the approval of the lenders, the aggregate
commitments under the senior secured credit facility may be
increased by an additional $17.5 million. This amount will
be increased on a dollar-for-dollar basis with each repayment
under the term loan facility.
As of December 31, 2008, we had approximately
$281.3 million outstanding and $33.7 million available
under our revolving credit facility. All amounts under the
revolving credit facility mature in October 2011.
47
Our senior secured credit facility contains various covenants
with which we must comply, including restrictions on the use of
proceeds from borrowings and limitations on our ability to:
incur additional debt or sell assets, make certain investments
and acquisitions, grant liens and pay dividends and
distributions. We must maintain various consolidated financial
ratios, including a ratio of EBITDA (as defined in the credit
agreement) to Total Interest Expense (as defined in the credit
agreement) of not less than 2.5 to 1.0, and a ratio of total
debt to EBITDA of not greater than 5.0 to 1.0. As of
December 31, 2008, we were in compliance with all our
financial covenants.
Distributions to Unitholders.
Our partnership
agreement requires us to distribute all of our available
cash quarterly. Under the partnership agreement, available
cash is defined generally to mean, for each fiscal quarter,
(i) our cash on hand at the end of the quarter in excess of
the amount of reserves our general partner determines is
necessary or appropriate to provide for the conduct of our
business, to comply with applicable law, any of our debt
instruments or other agreements or to provide for future
distributions to our unitholders for any one or more of the
upcoming four quarters, plus, (ii) if our general partner
so determines, all or a portion of our cash on hand on the date
of determination of available cash for the quarter.
On January 29, 2009, the board of directors of Exterran GP
LLC approved a cash distribution of $0.4625 per limited partner
unit, or approximately $9.3 million, including
distributions to our general partner on its incentive
distribution rights. The distribution covers the time period
from October 1, 2008 through December 31, 2008. The
record date for this distribution was February 9, 2009 and
payment was made on February 13, 2009.
Contractual Obligations.
The following table
summarizes our cash contractual obligations as of
December 31, 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
Total
|
|
|
2009
|
|
|
2010-2011
|
|
|
2012-2013
|
|
|
Thereafter
|
|
|
Long-term debt(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving credit facility
|
|
$
|
281,250
|
|
|
$
|
|
|
|
$
|
281,250
|
|
|
$
|
|
|
|
$
|
|
|
Term loan
|
|
|
117,500
|
|
|
|
|
|
|
|
117,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
398,750
|
|
|
|
|
|
|
|
398,750
|
|
|
|
|
|
|
|
|
|
Estimated interest payments(2)
|
|
|
57,578
|
|
|
|
20,322
|
|
|
|
37,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
456,328
|
|
|
$
|
20,322
|
|
|
$
|
436,006
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Amounts represent the expected cash payments for principal on
our total debt and do not include any deferred issuance costs or
fair market valuation of our debt. For more information on our
long-term debt, see Note 6 to the Financial Statements.
|
|
(2)
|
|
Interest amounts calculated using the interest rates in effect
as of December 31, 2008, including the effect of our
interest rate swap agreements.
|
Off-Balance Sheet Arrangements.
We have no
material off-balance sheet arrangements.
Critical
Accounting Estimates
Our discussion and analysis of our financial condition and
results of operations is based upon our consolidated financial
statements and our predecessors combined financial
statements. These financial statements were prepared in
conformity with accounting principles generally accepted in the
U.S. As such, we are required to make certain estimates,
judgments and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements
and the reported amounts of revenue and expenses during the
periods presented. We base our estimates on historical
experience, available information and various other assumptions
we believe to be reasonable under the circumstances. On an
on-going basis, we evaluate our estimates; however, actual
results may differ from these estimates under different
assumptions or conditions. The
48
accounting policies that we believe require managements
most difficult, subjective or complex judgments and are the most
critical to our reporting of results of operations and financial
condition are as follows:
Allowances
and Reserves
We maintain allowances for doubtful accounts for estimated
losses resulting from the inability of our customers to make
required payments. The determination of the collectibility of
amounts due from our customers requires us to use estimates and
make judgments regarding future events and trends, including
monitoring our customers payment history and current
credit worthiness to determine that collectibility is reasonably
assured, as well as consideration of the overall business
climate in which our customers operate. Inherently, these
uncertainties require us to make judgments and estimates
regarding our customers ability to pay amounts due us in
order to determine the appropriate amount of valuation
allowances required for doubtful accounts. We review the
adequacy of our allowance for doubtful accounts quarterly. We
determine the allowance needed based on historical write-off
experience and by evaluating significant balances aged greater
than 90 days individually for collectibility. Account
balances are charged off against the allowance after all means
of collection have been exhausted and the potential for recovery
is considered remote. During 2008, 2007 and 2006, we recorded
bad debt expense of approximately $0.2 million,
$0.1 million and zero, respectively. A five percent change
in the allowance for doubtful accounts would have had an impact
on income before income taxes of approximately $12,000 in 2008.
Depreciation
Property, plant and equipment are carried at cost. Depreciation
for financial reporting purposes is computed on the
straight-line basis using estimated useful lives and salvage
values. The assumptions and judgments we use in determining the
estimated useful lives and salvage values of our property, plant
and equipment reflect both historical experience and
expectations regarding future use of our assets. The use of
different estimates, assumptions and judgments in the
establishment of property, plant and equipment accounting
policies, especially those involving the useful lives, would
likely result in significantly different net book values of our
assets and results of operations.
Business
Combinations and Goodwill
Goodwill and intangible assets acquired in connection with
business combinations represent the excess of consideration over
the fair value of tangible net assets acquired. Certain
assumptions and estimates are employed in determining the fair
value of assets acquired and liabilities assumed.
We perform an impairment test for goodwill assets annually or
earlier if indicators of potential impairment exist. Our
goodwill impairment test involves a comparison of the fair value
of our reporting unit with its carrying value. We determine the
fair value of our reporting units using a combination of the
expected present value of future cash flows and a market
approach. Each approach is weighted 50% in determining our
calculated fair value. The present value of future cash flows is
estimated using our most recent forecast and the weighted
average cost of capital. The market approach uses a market
multiple on the reporting units earnings before interest,
tax, depreciation and amortization. Changes in forecasts, cost
of capital and market multiples could affect the estimated fair
value of our reporting units and result in a goodwill impairment
charge in a future period.
Long-Lived
Assets
Long-lived assets, which includes property and equipment and
identifiable intangibles, comprise a significant amount of our
total assets. In accordance with Statement of Financial
Accounting Standards (SFAS) No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets, long-lived assets to be held and used by us are
reviewed to determine whether any events or changes in
circumstances indicate the carrying amount of the asset may not
be recoverable. The determination that the carrying amount of an
asset may not be recoverable requires us to make judgments
regarding long-term forecasts of future revenues and costs
related to the assets subject to review. These forecasts are
uncertain as they require significant assumptions
49
about future market conditions. Significant and unanticipated
changes to these assumptions could require a provision for
impairment in a future period. Given the nature of these
evaluations and their application to specific assets and
specific times, it is not possible to reasonably quantify the
impact of changes in these assumptions. 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. When necessary, an impairment loss is
recognized and represents the excess of the assets
carrying value as compared to its estimated fair value and is
charged to the period in which the impairment occurred.
Self-Insurance
Exterran Holdings insures our property and operations and
allocates certain insurance costs to us. Exterran Holdings is
self-insured up to certain levels for general liability, vehicle
liability, group medical and for workers compensation
claims. We regularly review estimates of reported and unreported
claims and provide for losses based on claims filed and an
estimate for significant claims incurred but not reported.
Although we believe the insurance costs allocated to us are
adequate, it is reasonably possible our estimates of these
liabilities will change over the near term as circumstances
develop. In addition, we currently have no insurance on our
offshore assets.
Recent
Accounting Pronouncements
See Note 2 to our Financial Statements.
|
|
ITEM 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Variable
Rate Debt
We are exposed to market risk due to variable interest rates
under our financing arrangements.
As of December 31, 2008, after taking into consideration
interest rate swaps, we had approximately $193.8 million of
outstanding indebtedness that was effectively subject to
floating interest rates. A 1.0% increase in interest rates would
result in an annual increase in our interest expense of
approximately $1.9 million.
Interest
Rate Swap Arrangements
To manage our interest rate exposure, we enter into interest
rate swap agreements that are recorded at fair value in our
consolidated financial statements. We do not use derivative
financial instruments for trading or other speculative purposes.
A change in the underlying interest rates may also result in a
change in their recorded value.
The following table summarizes, by individual hedge instrument,
our interest rate swaps as of December 31, 2008 (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of
|
|
|
|
|
|
|
|
|
|
|
|
Swap at
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
Notional
|
|
|
2008
|
|
Fixed Rate to be Paid
|
|
|
Maturity Date
|
|
Floating Rate to be Received
|
|
Amount
|
|
|
Asset (Liability)
|
|
|
|
5.275
|
%
|
|
December 1, 2011
|
|
Three Month LIBOR
|
|
$
|
125,000
|
|
|
$
|
(10,925
|
)
|
|
5.343
|
%
|
|
October 20, 2011
|
|
Three Month LIBOR
|
|
|
40,000
|
|
|
|
(3,401
|
)
|
|
5.315
|
%
|
|
October 20, 2011
|
|
Three Month LIBOR
|
|
|
40,000
|
|
|
|
(3,361
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
205,000
|
|
|
$
|
(17,687
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
We have designated these swaps as cash flow hedging instruments
pursuant to the criteria of SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities, so that any change in their fair values is
recognized as a component of comprehensive income and is
included in accumulated other comprehensive income to the extent
that the hedge is effective. The swap terms substantially
coincide with the hedged item and are expected to offset changes
in expected cash flows due to fluctuations in the variable rate,
and therefore we currently do not expect a significant amount of
ineffectiveness on these hedges. We perform quarterly
calculations to determine if the swap agreements are still
effective and to calculate any ineffectiveness. For the year
ended December 31, 2008, there was no ineffectiveness. For
the year ended December 31, 2007, we recorded approximately
$36,000 of ineffectiveness. This amount was recorded as a
reduction to interest expense.
|
|
ITEM 8.
|
Financial
Statements and Supplementary Data
|
Our consolidated financial statements and the combined financial
statements of our predecessor included in this report beginning
on
page F-1
are incorporated herein by reference.
|
|
ITEM 9.
|
Changes
in and Disagreements With Accountants on Accounting and
Financial Disclosure
|
None.
51
|
|
ITEM 9A.
|
Controls
and Procedures
|
Managements
Evaluation of Disclosure Controls and Procedures
As required by
Rule 13a-15(b)
under the Exchange Act, the management of Exterran GP LLC, the
general partner of our general partner, including the Chief
Executive Officer and Chief Financial Officer, evaluated as of
the end of the period covered by this report, the effectiveness
of our disclosure controls and procedures as defined in Exchange
Act
Rule 13a-15(e).
Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and
procedures, as of the end of the period covered by this report,
were effective for the purpose of ensuring that information
required to be disclosed by us in this report is recorded,
processed, summarized and reported within the time periods
specified by the rules and forms under the Exchange Act and is
accumulated and communicated to management, including the Chief
Executive Officer and Chief Financial Officer, as appropriate,
to allow timely decisions regarding required disclosures.
Managements
Annual Report on Internal Control Over Financial
Reporting
As required by Exchange Act
Rule 13a-15(c)
and
15d-15(c),
the management of Exterran GP LLC, the general partner of our
general partner, including the Chief Executive Officer and Chief
Financial Officer, is responsible for establishing and
maintaining adequate internal control over financial reporting.
Management conducted an evaluation of the effectiveness of
internal control over financial reporting based on the Internal
Control Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Because
of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness as 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.
Based on the results of managements evaluation described
above, management concluded that our internal control over
financial reporting was effective as of December 31, 2008.
The effectiveness of internal control over financial reporting
as of December 31, 2008, was audited by
Deloitte & Touche, LLP, an independent registered
public accounting firm, as stated in its report found on the
following page of this report.
Changes
in Internal Control over Financial Reporting
There were no changes in our internal control over financial
reporting during the last fiscal quarter that materially
affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
|
|
ITEM 9B.
|
Other
Information
|
None.
52
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners of
Exterran Partners, L.P.
Houston, Texas
We have audited the internal control over financial reporting of
Exterran Partners, L.P. and subsidiaries (the
Partnership) as of December 31, 2008, based on
the criteria established in
Internal Control
Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Partnerships
management is responsible 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
Managements Annual Report
on Internal Control Over Financial Reporting.
Our
responsibility is to express an opinion on the
Partnerships internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the 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 effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel 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 companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) 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 (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Partnership maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2008, based on the criteria established in
Internal Control Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements and financial statement
schedule as of and for the year ended December 31, 2008 of
the Partnership and our report dated February 26, 2009
expressed an unqualified opinion on those financial statements
and financial statement schedule.
Houston, Texas
February 26, 2009
53
PART III
|
|
ITEM 10.
|
Directors,
Executive Officers and Corporate Governance
|
Board of
Directors
Because our general partner is a limited partnership, its
general partner, Exterran GP LLC, conducts our operations and
activities. Our general partner is not elected by our
unitholders and is not subject to re-election on a regular basis
in the future. The directors of Exterran GP LLC oversee our
operations. Unitholders are not entitled to elect the directors
of Exterran GP LLC or directly or indirectly participate in our
management or operation. As a result, we do not hold annual
unitholder meetings. Our general partner owes a fiduciary duty
to our unitholders. Our general partner is liable, as general
partner, for all of our debts (to the extent not paid from our
assets), except for indebtedness or other obligations that are
made expressly non-recourse to it. Our general partner therefore
may cause us to incur indebtedness or other obligations that are
non-recourse to it.
Pursuant to Section 4360 of the NASDAQ Stock Market
(NASDAQ) Marketplace Rules, NASDAQ does not require
a listed limited partnership like us to have a majority of
independent directors on the board of directors of Exterran GP
LLC or to establish a compensation committee or a nominating
committee. Exterran GP LLC has eight directors. The board of
directors has determined that three of its eight
directors James G. Crump, George S. Finley and Mark
A. McCollum are independent directors
within the meaning of applicable NASDAQ rules and
Rule 10A-3
of the Exchange Act. In determining the independence of each
director, Exterran GP LLC has adopted standards that incorporate
the NASDAQ and Exchange Act standards.
Exterran GP LLCs board of directors has standing audit,
compensation and conflicts committees. The written charter for
each of these committees is available on our website at
www.exterran.com. We will also provide a copy of any of our
committee charters to any of our unitholders without charge upon
written request to Investor Relations, 16666 Northchase Drive,
Houston, Texas 77060.
Exterran GP LLCs board of directors met seven times and
took action by unanimous written consent on two occasions during
2008. During 2008, each member of the board of directors
attended at least 75% of the aggregate number of meetings of the
board of directors and any committee of the board of directors
on which such director served.
Exterran GP LLCs directors hold office until the earlier
of their death, resignation, removal or disqualification or
until their successors have been elected and qualified. Officers
serve at the discretion of the board of directors. There are no
family relationships among any of Exterran GP LLCs
directors or executive officers, and there are no arrangements
or understandings between any of the directors or executive
officers and any other persons pursuant to which a director or
officer was selected as such.
Audit Committee.
The audit committee, which
met six times during 2008, consists of Messrs. Crump
(chair), Finley and McCollum. The board of directors has
determined that each of Messrs. Crump, Finley and McCollum
is an audit committee financial expert as defined in
Item 407(d)(ii) of SEC
Regulation S-K.
The audit committee assists the board of directors of Exterran
GP LLC in its oversight of the integrity of our financial
statements and our compliance with legal and regulatory
requirements and corporate policies and controls. The audit
committee has the sole authority to retain and terminate our
independent registered public accounting firm, approve all
auditing services and related fees and the terms thereof and
pre-approve any non-audit services to be rendered by our
independent registered public accounting firm. The audit
committee is also responsible for confirming the independence
and objectivity of our independent registered public accounting
firm. Our independent registered public accounting firm is given
unrestricted access to the audit committee.
Compensation Committee.
The compensation
committee, which met four times during 2008, consists of
Messrs. Crump, Finley (chair) and McCollum. The purpose of
the compensation committee is to discharge the board of
directors responsibilities relating to compensation of
Exterran GP LLCs executives, to produce an annual report
relating to the CD&A (as defined below) for inclusion in
our Annual Report on
Form 10-K,
in accordance with the rules and regulations of the SEC, and to
oversee the development and implementation of our compensation
programs. The function of the compensation committee is
discussed in greater detail in
54
Part III, Item 11 (Executive
Compensation Compensation Discussion &
Analysis Partnership Compensation Committee
Structure and Responsibilities) of this report.
Conflicts Committee.
The conflicts committee,
which met 11 times during 2008, consists of
Messrs. Crump (chair), Finley and McCollum. The purpose of
the conflicts committee is to carry out the duties of the
committee as set forth in our Partnership Agreement and the
Omnibus Agreement, and any other duties delegated by the board
of directors of Exterran GP LLC that it believes may involve a
conflict of interest. Any matters approved by the conflicts
committee will be conclusively deemed to be fair and reasonable
to us, approved by all of our partners and not a breach by our
general partner of any duties it may owe us or our unitholders.
Section 16(a)
Beneficial Ownership Reporting Compliance
Under Section 16(a) of the Exchange Act, directors,
officers and beneficial owners of 10 percent or more of our
common units (Reporting Persons) are required to
report to the SEC on a timely basis the initiation of their
status as a Reporting Person and any changes with respect to
their beneficial ownership of our common units. Based solely on
a review of Forms 3, 4 and 5 (and any amendments thereto)
furnished to us, we have concluded that no Reporting Persons
were delinquent with respect to their reporting obligations as
set forth in Section 16(a) of the Exchange Act except as
follows: (a) EXH MLP LLC did not timely report its
acquisition of our common units on July 30, 2008, although
this acquisition was reported by us in a current report on
Form 8-K,
filed with the SEC on August 5, 2008, and (b) Exterran
Holdings did not timely report its beneficial ownership of our
common units on August 20, 2007 in connection with the
merger between Hanover and Universal, pursuant to which Exterran
Holdings became the indirect beneficial owner of a majority of
our outstanding equity interests, including the general partner
interests, although this acquisition was reported by us in a
current report on
Form 8-K,
filed with the SEC on August 24, 2007.
Code of
Ethics
Exterran GP LLC has adopted a Code of Business Conduct and
Ethics (the Code) that applies to Exterran GP LLC
and its subsidiaries and affiliates, including us, and to all of
its and their employees, officers and directors. A copy of the
Code is available on our website at www.exterran.com. We will
also provide a copy of the Code to any of our unitholders
without charge upon written request to Investor Relations, 16666
Northchase Drive, Houston, Texas 77060.
Directors
and Executive Officers
All of the executive officers of Exterran GP LLC, who are listed
below, allocate their time between managing our business and
affairs and the business and affairs of Exterran Holdings. The
executive officers of Exterran GP LLC may face a conflict
regarding the allocation of their time between our business and
the other business interests of Exterran Holdings. Exterran
Holdings seeks to cause the executive officers to devote as much
time to the management of our business and affairs as is
necessary for the proper conduct of our business and affairs. We
also utilize a significant number of other employees of Exterran
Holdings and its affiliates to operate our business and provide
us with general and administrative services.
55
The following table shows information regarding the current
directors and executive officers of Exterran GP LLC:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position with Exterran GP LLC
|
|
Stephen A. Snider
|
|
|
61
|
|
|
Chief Executive Officer and Chairman of the Board of Directors
|
Ernie L. Danner
|
|
|
54
|
|
|
President, Chief Operating Officer and Director
|
Daniel K. Schlanger
|
|
|
35
|
|
|
Senior Vice President, Chief Financial Officer and Director
|
J. Michael Anderson
|
|
|
46
|
|
|
Senior Vice President and Director
|
D. Bradley Childers
|
|
|
44
|
|
|
Senior Vice President and Director
|
Donald C. Wayne
|
|
|
42
|
|
|
Senior Vice President and General Counsel
|
Kenneth R. Bickett
|
|
|
47
|
|
|
Vice President and Corporate Controller
|
James G. Crump
|
|
|
68
|
|
|
Director
|
Mark A. McCollum
|
|
|
49
|
|
|
Director
|
George S. Finley
|
|
|
58
|
|
|
Director
|
Stephen A. Snider.
Mr. Snider was
appointed as a director of Exterran GP LLC in June 2006 and
Chief Executive Officer in October 2006, having also served as
President from October 2006 to October 2008. Mr. Snider
also currently serves as Chief Executive Officer and Director of
Exterran Holdings. Prior to the merger of Hanover and Universal,
Mr. Snider served as President and director of Universal,
positions he held since Universals acquisition of
Tidewater Compression Services, Inc. in 1998, and as Chairman of
the Board, a position he held since April 2006. He has over
30 years of experience in senior management of operating
companies, and also serves as a director of Energen Corporation
(a diversified energy company focusing on natural gas
distribution and oil and gas exploration and production).
Mr. Snider serves on the board of directors of the Memorial
Hermann Hospital System and as an officer and director of
certain majority-owned subsidiaries of Exterran Holdings.
Ernie L. Danner.
Mr. Danner served
as a director of Exterran GP LLC from October 2006 through May
2008; he was elected President of Exterran GP LLC in October
2008 and rejoined the board at that time. Mr. Danner was
also elected President and Chief Operating Officer of Exterran
Holdings in October 2008. Prior to the merger of Hanover and
Universal, Mr. Danner had been a member of Universals
board of directors since Universals acquisition of
Tidewater Compression Services, Inc. in 1998. Mr. Danner
served in various positions of increasing responsibility at
Universal from 1998 until 2007, including as an Executive Vice
President of Universal from February 1998 to 2007 and Chief
Operating Officer from July 2006 to August 2007. Prior to
joining Universal, Mr. Danner served as Chief Financial
Officer and Senior Vice President of MidCon Corp. (an interstate
pipeline company and a wholly-owned subsidiary of Occidental
Petroleum Corporation). Mr. Danner is also a director of
Exterran Holdings, Inc., Copano Energy, LLC (a natural gas
gathering and processing company) and Anchor Drilling Fluids,
Inc. (a privately held company providing drilling fluid services
to exploration and production companies). He also serves on the
Board of Trustees of the John Cooper School in The Woodlands,
Texas. Mr. Danner also serves as an officer and director of
certain other Exterran Holdings majority-owned subsidiaries.
Daniel K. Schlanger.
Mr. Schlanger
was elected Senior Vice President and Chief Financial Officer of
Exterran GP LLC in June 2006, and was appointed as a director of
Exterran GP LLC in October 2006. He also currently serves as
Senior Vice President of Exterran Holdings. Prior to the merger
of Hanover and Universal, Mr. Schlanger served as Vice
President Corporate Development of Universal. From
August 1996 through May 2006, Mr. Schlanger was employed as
an investment banker with Merrill Lynch & Co. where he
focused on the energy sector. Mr. Schlanger also serves as
an officer and director of certain other Exterran Holdings
majority-owned subsidiaries.
J. Michael
Anderson.
Mr. Anderson was elected
Senior Vice President of Exterran GP LLC in June 2006, and was
appointed as a director of Exterran GP LLC in October 2006. He
also serves as Senior Vice President and Chief Financial Officer
of Exterran Holdings. Prior to the merger of Hanover and
Universal, Mr. Anderson
56
was Senior Vice President and Chief Financial Officer of
Universal, a position he assumed in March 2003.
Mr. Anderson held various positions with Azurix Corp. (a
water and wastewater utility and services company), primarily as
the companys Chief Financial Officer and later as Chairman
and Chief Executive Officer. Prior to that time, he spent ten
years in the Global Investment Banking Group of J.P. Morgan
Chase & Co., where he specialized in merger and
acquisitions advisory services. Mr. Anderson also serves as
an officer and director of certain other Exterran Holdings
majority-owned subsidiaries.
D. Bradley
Childers.
Mr. Childers was elected
Senior Vice President of Exterran GP LLC in June 2006. He also
serves as Senior Vice President of Exterran Holdings and as
President, North America of Exterran Energy Solutions, L.P.
Prior to the merger of Hanover and Universal, Mr. Childers
was Senior Vice President of Universal and President of the
International Division of Universal Compression, Inc.,
Universals wholly-owned subsidiary, positions he held
since July 2006. Previously, he served as Senior Vice President,
Business Development, General Counsel and Secretary of Universal
beginning in April 2005 and as the Senior Vice President,
General Counsel and Secretary of Universal beginning in
September 2002. Prior to joining Universal, he held various
positions with Occidental Petroleum Corporation and its
subsidiaries (an international oil and gas exploration and
production company), from 1994 to 2002, including as Vice
President, Business Development at Occidental Oil and Gas
Corporation, and as a corporate counsel. Mr. Childers also
serves as an officer and director of certain other Exterran
Holdings majority-owned subsidiaries.
Donald C. Wayne.
Mr. Wayne was
elected Senior Vice President and General Counsel of Exterran GP
LLC in May 2008, having served as Vice President, General
Counsel and Secretary since August 2006. He also serves as
Senior Vice President, General Counsel and Secretary of Exterran
Holdings. Prior to the merger of Hanover and Universal,
Mr. Wayne served as Vice President, General Counsel and
Secretary of Universal, a position he assumed upon joining
Universal Compression Holdings in August 2006. Prior to joining
Universal, he served as Vice President, General Counsel and
Corporate Secretary of U.S. Concrete, Inc. (a producer of
ready-mixed concrete and concrete-related products) from 1999 to
August 2006. Prior to joining U.S. Concrete in 1999,
Mr. Wayne served as an attorney with the law firm of Akin,
Gump, Strauss, Hauer & Feld, L.L.P. Mr. Wayne
also serves as an officer and director of certain other Exterran
Holdings majority-owned subsidiaries.
Kenneth R. Bickett.
Mr. Bickett
was elected Vice President and Corporate Controller of Exterran
GP LLC in June 2006. He also serves as Vice President and
Corporate Controller of Exterran Holdings. Prior to the merger
of Hanover and Universal, Mr. Bickett served as Vice
President, Accounting and Corporate Controller of Universal, a
position he held since joining Universal in July 2005. Prior to
joining Universal, he served as Vice President and Assistant
Controller for Reliant Energy, Inc. (an electricity and energy
services provider). Prior to joining Reliant Energy in 2002,
Mr. Bickett was employed by Azurix Corp. (a water and
wastewater utility and services company) since 1998, where he
most recently served as Vice President and Controller.
Mr. Bickett also serves as an officer of certain other
Exterran Holdings majority-owned subsidiaries.
James G. Crump.
Mr. Crump was
appointed as a director of Exterran GP LLC in October 2006.
Mr. Crump worked as an accountant at PricewaterhouseCoopers
and its predecessors from 1962 until his retirement in 2001,
including in numerous management and leadership roles such as
Global Energy and Mining Cluster Leader, as a member of the
U.S. Management Committee and the Global Management
Committee and as Houston Office Managing Partner. Mr. Crump
also serves as a director of Copano Energy, L.L.C. (a natural
gas gathering and processing company).
Mark A McCollum.
Mr. McCollum was
appointed as a director of Exterran GP LLC in October 2006.
Mr. McCollum has served as Executive Vice President and
Chief Financial Officer of Halliburton Company (an energy
services company, including well construction, well completion
and enhancement, and reservoir engineering) since December 2007
and served as Senior Vice President and Chief Accounting Officer
since August 2003. Previously, Mr. McCollum served as
Senior Vice President and Chief Financial Officer of Tenneco
Automotive, Inc. (a supplier of ride control, emissions control
and elastomer products) from April 1998 to August 2003.
George S. Finley.
Mr. Finley was
elected as a director of Exterran GP LLC in November 2006.
Mr. Finley served in various positions of increasing
responsibility at Baker Hughes Incorporated (a provider of
drilling,
57
formation evaluation, completion and production products and
services to the worldwide oil and gas industry), from 1982 until
his retirement in 2006, including as Senior Vice
President Finance and Administration and Chief
Financial Officer from April 1999 through April 2006.
Mr. Finley currently serves on the audit and compensation
committees of the board of directors of Newpark Resources, Inc.
(a provider of integrated site, environmental and drilling fluid
services to the oil and gas exploration and production
industry). He also serves on the board of Total Safety U.S.,
Inc. (a privately held company that provides integrated safety
strategies and solutions for hazardous environments). From June
2006 to June 2008, Mr. Finley served on the board of Ocean
Rig ASA (a Norway-based drilling contractor).
|
|
ITEM 11.
|
Executive
Compensation
|
Compensation
Discussion and Analysis
This compensation discussion and analysis
(CD&A) is intended to provide information about
our compensation objectives and policies for our principal
executive officer, principal financial officer and the three
other most highly compensated executive officers that places in
perspective the information contained in the tables that follow
this discussion. This CD&A begins with a description of our
relationship with Exterran Holdings with respect to the
allocation and reimbursement of compensation expenses and is
followed by a general description of Exterran Holdings and
our compensation programs and specific information regarding
their various components. Immediately following the CD&A is
the Compensation Committee Report and the compensation tables
describing compensation paid in 2006, 2007 and 2008 and
outstanding equity awards held by executives. We have also
provided information concerning pension benefits and change of
control agreements.
Overview
As is commonly the case for many publicly traded limited
partnerships, we have no employees. Under the terms of our
Partnership Agreement, we are ultimately managed by Exterran GP
LLC, the general partner of Exterran General Partner, L.P., our
general partner (which we may refer to as our general partner or
Exterran GP LLC). Prior to August 20, 2007, Exterran GP LLC
and Exterran General Partner, L.P. were affiliates of Universal.
After August 20, 2007, and in connection with the merger
transaction between Hanover and Universal, Exterran GP LLC and
Exterran General Partner, L.P. became affiliates of Exterran
Holdings.
The executive officers and employees providing services to us
were retained and compensated by Universal or its affiliates
prior to August 20, 2007 and Exterran Holdings or its
affiliates after August 20, 2007. We sometimes refer herein
to Exterran GP LLCs management and executive officers as
our management and our executive
officers, respectively.
We have included compensation information in the tabular
disclosure following this CD&A for the following
individuals, each of whom is a current executive officer of
Exterran GP LLC:
|
|
|
|
|
Stephen A. Snider
, Chief Executive Officer of each of
Exterran GP LLC and Exterran Holdings;
|
|
|
|
Daniel K. Schlanger
, Senior Vice President and Chief
Financial Officer of Exterran GP LLC and Senior Vice President
of Exterran Holdings;
|
|
|
|
J. Michael Anderson
, Senior Vice President of Exterran GP
LLC and Senior Vice President and Chief Financial Officer of
Exterran Holdings;
|
|
|
|
D. Bradley Childers
, Senior Vice President of Exterran GP
LLC and Exterran Holdings; and
|
|
|
|
Donald C. Wayne
, Senior Vice President and General
Counsel of Exterran GP LLC and Senior Vice President, General
Counsel and Secretary of Exterran Holdings.
|
We refer to Messrs. Snider, Schlanger, Anderson, Childers
and Wayne as our Named Executive Officers.
58
Compensation
Expense Allocations
Allocation
Methodology
Under the terms of the Omnibus Agreement, most costs associated
with Exterran Holdings (or for periods prior to the
merger, Universals) provision of services to us, including
compensation of our Named Executive Officers, are allocated to
us on a monthly basis in the manner that our general partner
deems reasonable. During 2008, those allocations were generally
made using a two step process:
|
|
|
|
|
First,
Exterran Holdings allocates an appropriate portion
of its total selling, general and administrative expenses among
its business segments, including to the U.S. portion of its
North America contract operations segment, based on revenue.
|
|
|
|
Second,
Exterran Holdings allocates a portion of the
selling, general and administrative expenses initially allocated
to the U.S. portion of Exterran Holdings North
America contract operations segment to us on a pro rata basis
based upon the ratio of our total compression equipment
horsepower to the sum of Exterran Holdings total
U.S. compression equipment horsepower and our total
compression equipment horsepower.
|
In accordance with the terms of the Omnibus Agreement, for the
portion of 2008 prior to completion of the July 2008 Contract
Operations Acquisition, the amount for which we were obligated
to reimburse Exterran Holdings for selling, general and
administrative expenses allocated to us, including compensation
costs, could not exceed $4.75 million per quarter, after
taking into account any such costs we incur and pay directly
(the SG&A Cap). In connection with the July
2008 Contract Operations Acquisition, the SG&A Cap under
the terms of the Omnibus Agreement was increased to
$6.0 million per quarter. The reimbursement of compensation
costs allocated by Exterran Holdings to us for the compensation
of our Named Executive Officers (which excludes the non-cash
costs related to our phantom unit and unit option awards) is
subject to the SG&A Cap.
See Part III, Item 13 (Certain Relationships and
Related Transactions, and Director Independence) of this
report for additional discussion of relationships and
transactions we have with Exterran Holdings and the terms of the
Omnibus Agreement.
2008
Executive Compensation Allocations
During the year ended December 31, 2008, the following
percentages of Exterran Holdings compensation expenses
incurred to provide the Named Executive Officers total
compensation, including salary, Exterran Holdings stock
and option awards, our phantom unit and option awards,
non-equity incentive plan compensation and other benefits, were
allocated to us by Exterran Holdings:
|
|
|
|
|
|
|
Percent of Named
|
|
|
|
Executive Officers
|
|
|
|
Total Compensation
|
|
|
|
in 2008 Allocated
|
|
|
|
to the Partnership
|
|
Named Executive Officer
|
|
(%)
|
|
|
Stephen A. Snider
|
|
|
4.4
|
|
Daniel K. Schlanger
|
|
|
3.6
|
|
J. Michael Anderson
|
|
|
3.4
|
|
D. Bradley Childers
|
|
|
7.4
|
|
Donald C. Wayne
|
|
|
3.7
|
|
Partnership
Compensation Committee Structure and
Responsibilities
The purpose of the compensation committee of Exterran GP
LLCs board of directors, which we refer to as our
compensation committee, is to discharge the board of
directors responsibilities relating to the compensation of
Exterran GP LLCs executives, to produce an annual report
relating to this CD&A for inclusion in our Annual Report on
Form 10-K,
in accordance with the rules and regulations of the SEC, and to
oversee the development and implementation of our compensation
programs. Our compensation committee is
59
comprised entirely of directors who are not officers or
employees of us or Exterran GP LLC and whom the board of
directors has determined to be independent directors
within the meaning of applicable NASDAQ rules. The current
members of our compensation committee are Messrs. Finley
(chair), Crump and McCollum.
As described above, because our Named Executive Officers are all
also officers of Exterran Holdings and generally spend a
majority of their time working on matters for Exterran Holdings
rather than us, the compensation structure for the Named
Executive Officers was established by the compensation committee
of the board of directors of Exterran Holdings (the
Exterran Holdings compensation committee).
Accordingly, the primary responsibilities of our compensation
committee are to:
|
|
|
|
|
in consultation with Exterran GP LLCs senior management,
establish our general compensation philosophy and oversee the
development and implementation of our compensation programs;
|
|
|
|
review and approve the manner in which Exterran Holdings
compensation expense applicable to our Named Executive Officers
is allocated to us;
|
|
|
|
review and approve compensation programs applicable to Exterran
GP LLCs independent directors; and
|
|
|
|
make recommendations to the board of directors with respect to
our incentive compensation plans and equity-based plans,
including the Exterran Partners, L.P. Long-Term Incentive Plan
(the Partnership Plan), oversee activities of the
individuals and committees responsible for administering these
plans and discharge any responsibilities imposed on our
compensation committee by any of these plans.
|
During 2008, our compensation committee approved the allocation
of compensation expense from Exterran Holdings to us and
determined the number of, and manner in which, equity
compensation awards of our limited partner units were made to
Exterran GP LLCs independent directors and executives.
Compensation
Philosophy and Objectives
The Exterran Holdings compensation committee and our
compensation committee believe that compensation programs play a
vital role in attracting and retaining people with the level of
expertise and experience needed to help achieve the business
objectives that ultimately drive both short- and long-term
success and equityholder value. To attract, retain and motivate
an effective management team, the Exterran Holdings compensation
committee has guided management in developing a compensation
program linking pay and performance in a manner consistent with
Exterran Holdings and our corporate values. These values
include the recognition of the importance of retaining talented
employees and fostering an entrepreneurial spirit within an
environment of well-reasoned risk-taking to achieve consistent
growth, profitability and return for Exterran Holdings
stockholders and our unitholders.
Exterran Holdings and our philosophy is to provide total
compensation to our management that is competitive with that of
companies similar in size to Exterran Holdings across a variety
of industries and within the oilfield services sector by
targeting cash compensation at the 50th percentile of those
groups and by targeting equity compensation at the 50th to
75th percentile of those groups, as further described below
in the section entitled How the Exterran
Holdings Compensation Committee Determines Executive
Compensation. The combination of these target percentiles
positions our executives compensation competitively
relative to the market.
Exterran Holdings and we also emphasize at-risk compensation as
an important component of our overall compensation philosophy.
More than half of our Named Executive Officers
compensation for 2008 was at risk. This is
consistent with Exterran Holdings and our emphasis on a
pay for performance philosophy and is intended to focus
executives and key employees on our short-term goal of
profitability as well as our long-term strategic goals of
sustained growth and enhanced equityholder value.
During 2008, Exterran Holdings experienced an increased level of
competition in the marketplace for highly qualified personnel
due to a shortage of talent available within the oilfield
services industry. The hiring and retention of experienced
managers and individuals with the technical skills necessary for
Exterran Holdings and our successful operation became a
key focus of senior management and the Exterran Holdings
60
compensation committee, and compensation practices during 2008
reflected an effort to attract and retain those individuals with
the skills and experience necessary to generate improved
operating results and long-term equityholder value. With the
deterioration of the financial markets in late 2008, retention
issues became less significant and the Exterran Holdings
compensation committee focused on developing a compensation
program for 2009 that would continue to further the compensation
philosophies described in this section and take into account the
recent uncertainty and volatility in the financial and energy
markets.
Elements
of Compensation
Exterran Holdings and our executive compensation programs
were managed from a total rewards perspective, with
consideration given to each of the following components:
|
|
|
|
|
base salary;
|
|
|
|
annual performance-based incentives;
|
|
|
|
Exterran Holdings long-term incentives;
|
|
|
|
our long-term incentives; and
|
|
|
|
other compensation and benefit programs.
|
In addition to base salaries and annual incentive bonuses, our
executive officers are provided and share in the cost of
customary health and welfare benefits to the same extent as
active employees of Exterran Holdings, and are eligible to
participate in the Exterran 401(k) Plan and the Exterran
Employee Stock Purchase Plan. In addition, our executive
officers are also eligible to participate in the Exterran
Deferred Compensation Plan. Certain of our executive officers,
including our Named Executive Officers, are eligible for the
Medical Expense Reimbursement Plan (MERP), as
further described below. Certain of our executive officers,
including our Named Executive Officers, have been provided with
change of control arrangements, as further described below.
Information on the compensation paid to our Named Executive
Officers can be found in tabular format in the Summary
Compensation Table for 2008 following this CD&A.
Role
of the Compensation Consultant
The chairman of the Exterran Holdings compensation committee,
with the committees authorization, entered into an
agreement for Towers Perrin LLC to act as an independent
third-party consultant to the committee. Towers Perrin has been
directed by the Exterran Holdings compensation committee to:
|
|
|
|
|
provide a competitive review of executive compensation,
including base salary, annual incentives, long-term incentives
and total direct compensation, in the marketplace (including
data from Exterran Holdings peer group as selected by the
Exterran Holdings compensation committee and identified below
under the section entitled How the Exterran Holdings
Compensation Committee Determines Executive Compensation),
the oilfield services industry and publicly traded companies
across industries);
|
|
|
|
model estimated long-term incentive awards for executives,
directors and other eligible employees under various stock price
scenarios and mixes of long-term incentive mechanisms; and
|
|
|
|
provide the Exterran Holdings compensation committee and
management with information on how trends, new rules,
regulations and laws impact executive and director compensation
practice and administration.
|
The scope of Towers Perrins compensation review includes
an analysis of competitive factors in the marketplace and
further takes into consideration Exterran Holdings
financial plans, strategic direction, organizational structure
and compensation philosophy.
61
Role
of Our Executive Officers in Compensation
Decisions
The most significant aspects of Exterran Holdings and our
managements, including Exterran Holdings and our
Chief Executive Officers, role in the compensation-setting
process are:
|
|
|
|
|
recommending compensation programs, compensation policies,
compensation levels and incentive opportunities that are
consistent with Exterran Holdings and our business
strategies;
|
|
|
|
compiling, preparing and distributing materials for review and
consideration by the Exterran Holdings compensation committee
and our compensation committee;
|
|
|
|
recommending corporate performance goals on which
performance-based compensation will be based; and
|
|
|
|
assisting in the evaluation of employee performance.
|
Exterran Holdings and our Chief Executive Officer annually
reviews the performance of each of his direct reporting
officers. His recommendations with respect to salary
adjustments, annual cash incentives and equity awards are based
on these performance reviews and are then presented to the
Exterran Holdings compensation committee for consideration. The
Exterran Holdings compensation committee determines the
compensation of our executive officers in its discretion, taking
into account the recommendations of Exterran Holdings and
our Chief Executive Officer and other data and materials made
available to the committee.
How
the Exterran Holdings Compensation Committee Determines
Executive Compensation
In determining the appropriate levels of compensation, including
total direct compensation and its principal components, for our
executive officers, the Exterran Holdings compensation committee
reviewed general industry (as defined below) and oilfield
services-specific data and analyses provided by Towers Perrin,
as well as data contained in the proxy statements of the
oilfield services companies selected for Exterran Holdings
peer group. In this section we describe how the Exterran
Holdings compensation committee determines executive
compensation, including the role of each of these three sets of
external data.
Towers Perrin provided the Exterran Holdings compensation
committee with comparative compensation data from companies
across a variety of industries (which we refer to as the
general industry), totaling in excess of
750 companies, which was then regressed for companies with
annual revenue of approximately $3 billion. In addition,
the Exterran Holdings compensation committee considered survey
data from the oilfield services industry provided by Towers
Perrin. This data included the following 15 companies with
a median revenue of $2.3 billion: Atwood Oceanics, Inc.,
Baker Hughes Incorporated, Bristow Group Inc., Cameron
International Corporation, Diamond Offshore Drilling, Inc.,
ENSCO International Incorporated, Global Industries, Ltd.,
Halliburton Company, Helmerich & Payne, Inc., Noble
Corporation, Oil States International, Inc., Pride
International, Inc., Rowan Companies, Inc., Schlumberger Limited
and Transocean Inc. The Exterran Holdings compensation committee
used this data both to consider overall trends in executive
compensation and to target executive cash compensation at the
50th percentile and long-term incentive compensation at the
50th to 75th percentile. Actual cash and long-term
incentive compensation during 2008 for our Named Executive
Officers as a group approximated the median of the survey data
evaluated by the Exterran Holdings compensation committee.
The Exterran Holdings compensation committee believes the
combination of this general industry data and oilfield services
data provides a broad-based view of executive compensation
across multiple industry segments based on similar company size
and executive compensation practices. This provides valuable
information for structuring an executive compensation program
that is generally competitive, allows the Exterran Holdings
compensation committee to identify a target compensation range
and appropriately position executive compensation within that
target range, as indicated above, and provides the data
necessary to support individual compensation decisions for
comparable positions in the general and oilfield services
industries.
The Exterran Holdings compensation committee also uses executive
compensation data published in the proxy statements of Exterran
Holdings peer group as an additional source of information
in assessing whether the executive compensation program is
appropriately positioned and competitive based on Exterran
Holdings
62
industry and size. In addition, since the Exterran Holdings and
we compete with the peer group for managers with oilfield
services experience and talent, this data is used to determine
if the compensation program provides an adequate retention
feature. For 2008, the Exterran Holdings compensation committee
identified Exterran Holdings peer group as consisting of
the following companies:
|
|
|
|
|
BJ Services Company
|
|
|
|
Cameron International Corporation
|
|
|
|
FMC Technologies, Inc.
|
|
|
|
Grant Prideco, Inc.
|
|
|
|
Natco Group Inc.
|
|
|
|
National Oilwell Varco, Inc.
|
|
|
|
Smith International, Inc.
|
For 2009, the Exterran Holdings compensation committee
determined to use an expanded peer group because it believes
that a greater diversity of oilfield services companies will
provide a more enhanced overview of executive compensation. The
2009 peer group, which follows, was selected so that Exterran
Holdings is positioned at the median in terms of revenue for the
year ended December 31, 2007. This peer group includes
companies with a larger range of revenues and with both domestic
and international operations, and reflects more completely those
companies with which Exterran Holdings competes for technical
and managerial talent.
|
|
|
|
|
Baker Hughes Incorporated
|
|
|
|
BJ Services Company
|
|
|
|
Cameron International Corporation
|
|
|
|
Chicago Bridge & Iron Company N.V.
|
|
|
|
Complete Production Services, Inc.
|
|
|
|
Dresser-Rand Group Inc.
|
|
|
|
FMC Technologies, Inc.
|
|
|
|
Gardner Denver, Inc.
|
|
|
|
Key Energy Services, Inc.
|
|
|
|
McDermott International, Inc.
|
|
|
|
Natco Group Inc.
|
|
|
|
National Oilwell Varco, Inc.
|
|
|
|
Noble Corporation
|
|
|
|
Oil States International, Inc.
|
|
|
|
Patterson-UTI Energy, Inc.
|
|
|
|
Pride International, Inc.
|
|
|
|
Rowan Companies, Inc.
|
|
|
|
Smith International, Inc.
|
|
|
|
Superior Energy Services, Inc.
|
|
|
|
Weatherford International Ltd.
|
63
In addition to its review of competitive market data relative to
the general industry, oilfield services industry and the peer
group, on a periodic basis, the Exterran Holdings compensation
committee reviews each executive officers current and past
total compensation, including a three year look-back at base
salary, short-term incentive pay, the value of long-term
incentives and payouts in the event of a termination following a
change of control. In its most recent review of executive
compensation, in February 2009, the Exterran Holdings
compensation committee considered Exterran Holdings
relative performance under rapidly changing market conditions,
and, taking into account the recommendations of our Chief
Executive Officer with respect to each executive officer other
than himself (as described above), it focused on each executive
officers performance within that officers scope of
responsibilities, Exterran Holdings strategic initiatives
and that officers ability to contribute to those
initiatives, and his future potential and experience, with no
specific weighting assigned to any of these factors.
Each of the compensation components provided to executive
officers and key employees is further described below.
Base
Salaries
2008
. The Exterran Holdings compensation committee
and our compensation committee have determined that, to attract
and retain sufficient talent, base pay generally should be set
near the median of that for companies similar in size to
Exterran Holdings in the general industry and the oilfield
services industry, as described above. In addition to
considering market comparisons in making salary decisions, the
Exterran Holdings compensation committee exercises judgment and
discretion based upon each executives level of
responsibility, individual skills, experience in the
executives current role, the executives expected
future role, performance, and external factors involving
competitive positioning and general economic conditions. No
specific formula is applied to determine the weighting of each
of these factors. Performance evaluations are conducted during
the first quarter of each year and the resulting adjustments in
base salaries generally are effective shortly thereafter.
In February 2008, the Exterran Holdings compensation committee
approved adjustments, effective in April 2008, to the annual
base salaries of our Named Executive Officers, which took into
account the factors described above in the context of a larger
organization after the merger of Universal and Hanover in August
2007 and each executives level of increased responsibility
within the larger organization.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of
|
|
|
|
|
|
|
|
|
Increase
|
|
|
New
|
|
|
|
|
|
Over 2007
|
|
|
Base
|
|
|
|
|
|
Base Salary
|
|
|
Salary
|
|
Officer
|
|
Title with Exterran GP LLC
|
|
($)
|
|
|
($)
|
|
|
Stephen A. Snider
|
|
Chief Executive Officer(1)
|
|
|
28,000
|
|
|
|
600,000
|
|
Daniel K. Schlanger
|
|
Senior Vice President and Chief Financial Officer
|
|
|
24,000
|
|
|
|
300,000
|
|
J. Michael Anderson
|
|
Senior Vice President
|
|
|
33,000
|
|
|
|
355,000
|
|
D. Bradley Childers
|
|
Senior Vice President
|
|
|
28,000
|
|
|
|
340,000
|
|
Donald C. Wayne
|
|
Senior Vice President and General Counsel
|
|
|
25,000
|
|
|
|
285,000
|
|
|
|
|
(1)
|
|
Mr. Sniders title was President and Chief Executive
Officer when these salary adjustments were made in April 2008.
He ceased serving as President in October 2008, concurrent with
Mr. Danners assumption of the role of President and
Chief Operating Officer.
|
2009
. In late 2008, management and the Exterran
Holdings compensation committee considered the level of
uncertainty in the oil and gas industry created by the financial
crisis. In January 2009, management and the Exterran Holdings
compensation committee suspended 2009 merit increases in base
salary for Exterran Holdings employees, including our
Named Executive Officers, and indicated that decision would be
re-evaluated based on a mid-year review of Exterran
Holdings performance relative to Exterran Holdings
business plan.
64
Annual
Performance-Based Incentive Compensation
2008
. In January 2008, the Exterran Holdings
compensation committee adopted the Exterran Annual Performance
Pay Plan (the APPP) to provide the short-term
incentive compensation element of Exterran Holdings total
direct compensation program. Under the APPP, each Named
Executive Officer was eligible to receive an annual cash award
based on Exterran Holdings level of achievement of
specified performance objectives established by the Exterran
Holdings compensation committee for fiscal year 2008, as well as
the individual Named Executive Officers performance
assessment, determined primarily through his performance
evaluation for that year. The amount of a Named Executive
Officers award under the APPP for 2008 was to be
calculated by multiplying (i) a target percentage of his
base salary by (ii) the level of Exterran Holdings
achievement of the applicable corporate performance measures
(ranging from 0% to 200% of the target performance level) by
(iii) his individual performance coefficient (ranging from
0% to 125%) for the year.
In determining the target 2008 bonus opportunity for each Named
Executive Officer, the Exterran Holdings compensation committee
considered his relative responsibility, his role in continuing
Exterran Holdings and our integration subsequent to the
August 2007 merger of Hanover and Universal and his potential
impact on the achievement of Exterran Holdings performance
goals. Those bonus targets, expressed as a percentage of each
Named Executive Officers base salary for 2008, were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Bonus
|
|
|
2008 Bonus
|
|
|
|
|
|
Target
|
|
|
Target
|
|
Executive Officer:
|
|
Title with Exterran GP LLC:
|
|
(%)
|
|
|
($)
|
|
|
Stephen A. Snider
|
|
Chief Executive Officer
|
|
|
100
|
|
|
|
600,000
|
|
Daniel K. Schlanger
|
|
Senior Vice President & Chief Financial Officer
|
|
|
50
|
|
|
|
150,000
|
|
J. Michael Anderson
|
|
Senior Vice President
|
|
|
70
|
|
|
|
248,500
|
|
D. Bradley Childers
|
|
Senior Vice President
|
|
|
70
|
|
|
|
238,000
|
|
Donald C. Wayne
|
|
Senior Vice President and General Counsel
|
|
|
50
|
|
|
|
142,500
|
|
For each 2008 company performance measure for Exterran
Holdings, there were three possible levels of attainment:
threshold (50% of objective), target (100% of objective) and
maximum (200% of objective). No awards were made for any
performance measure for which the threshold was not met; awards
were prorated for performance between the threshold and maximum
levels.
The following table shows the corporate measures under the APPP
adopted by the Exterran Holdings compensation committee, and the
results achieved under those measures, for the year ended
December 31, 2008 (dollars in millions; horsepower in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
|
|
|
Computed
|
|
Incentive Measure
|
|
%
|
|
|
50%
|
|
|
100%
|
|
|
200%
|
|
|
Results
|
|
|
Payout
|
|
|
Corporate TRIR(1)
|
|
|
10
|
%
|
|
|
1.35
|
|
|
|
1.20
|
|
|
|
1.00
|
|
|
|
1.05
|
|
|
|
175
|
%
|
Corporate EBITDA(2)
|
|
|
40
|
%
|
|
$
|
815
|
|
|
$
|
903
|
|
|
$
|
1,000
|
|
|
$
|
754
|
|
|
|
0
|
%
|
Cumulative Merger Synergies
|
|
|
20
|
%
|
|
$
|
50
|
|
|
$
|
66
|
|
|
$
|
86
|
|
|
$
|
77
|
|
|
|
155
|
%
|
North America Contracted HP Growth(3)
|
|
|
|
|
|
|
(100
|
)
|
|
|
110
|
|
|
|
210
|
|
|
|
(185
|
)
|
|
|
0
|
%
|
and/or
|
|
|
30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Bookings(4)
|
|
|
|
|
|
$
|
500
|
|
|
$
|
700
|
|
|
$
|
900
|
|
|
$
|
647
|
|
|
|
88
|
%
|
|
|
|
(1)
|
|
Refers to the incident rate for both recordable injuries and
lost time accidents for all Exterran Holdings employees
worldwide.
|
|
(2)
|
|
Corporate EBITDA is defined for purposes of the APPP as Exterran
Holdings net income plus income taxes, interest expense
(including debt extinguishment costs and gain or loss on
termination of interest rate swaps), depreciation and
amortization expense, foreign currency gains or losses,
impairment charges, merger and integration expenses, minority
interest, excluding non-recurring items, and extraordinary gains
or losses.
|
65
|
|
|
(3)
|
|
Refers to growth in Exterran Holdings U.S. working
horsepower from year to year. The weighting for this measure is
30% for North America regional employees and 15% for corporate
employees of Exterran Holdings.
|
|
(4)
|
|
Refers to bookings made outside the United States and Canada
related to product sales and new contract operations projects.
The weighting for this measure is 30% for Latin America and
Eastern Hemisphere regional employees and 15% for corporate
employees of Exterran Holdings.
|
Based on Exterran Holdings performance as of
December 31, 2008, the payout as computed under the APPP
for each Named Executive Officer would have been approximately
62% of his 2008 bonus target. In its discretion, the Exterran
Holdings compensation committee made adjustments to the
weightings of the incentive measures to better reflect the
relative importance of each of these measures in 2008. As a
result of these adjustments, the payout for each Named Executive
Officer was reduced to approximately 59% of his 2008 bonus
target. Finally, the Exterran Holdings compensation committee
considered whether to make an individual adjustment to each
Named Executive Officers 2008 APPP award based on a
subjective review of each executive officers performance
within his scope of responsibilities and, taking into account
the recommendations of Exterran Holdings and our Chief
Executive Officer with respect to each executive officer other
than himself, as described above, determined not to make any
individual adjustment. The following payout amounts were
approved by the Exterran Holdings compensation committee and
were applied to our Named Executive Officers as indicated:
|
|
|
|
|
|
|
2008
|
|
Executive Officer
|
|
Bonus ($)
|
|
|
Stephen A. Snider
|
|
|
352,800
|
|
Daniel K. Schlanger
|
|
|
88,200
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J. Michael Anderson
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146,100
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D. Bradley Childers
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139,900
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Donald C. Wayne
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83,800
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In February 2009, the Exterran Holdings compensation committee
approved annual performance-based incentive awards under the
APPP, which we expect will be paid in mid-March 2009, as set
forth in the Grants of Plan-Based Awards for 2008 table
following this CD&A.
2009
. In February 2009, the Exterran Holdings
compensation committee adopted a short-term incentive program
(the Incentive Program) to provide the short-term
incentive compensation element of Exterran Holdings and
our total direct compensation program for this year. Under the
Incentive Program, which replaces the APPP for 2009, each Named
Executive Officer will be eligible to receive an annual cash
award based on the Exterran Holdings compensation
committees assessment of Exterran Holdings
performance for 2009 relative to key business activities and key
business indicators listed below, as well as one or more of the
following items that the Exterran Holdings compensation
committee may choose to consider, in its discretion:
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Exterran Holdings performance relative to its business
plan;
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existing or anticipated financial, economic and industry
conditions; and
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such other factors or criteria as the Exterran Holdings
compensation committee, in its discretion, deems appropriate.
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The Exterran Holdings key business activities and key business
indicators relate to the following in 2009:
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Employee training and development;
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Efficient management of Exterran Holdings idle assets;
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Financial and equityholder returns;
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Project management; and
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Safety.
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The Exterran Holdings compensation committee intends to award
performance-based short-term incentive compensation for 2009
under the Incentive Program based on the committees
assessment, with input from management, of Exterran
Holdings performance based on the criteria listed above,
as well as each executive officers individual contribution
toward those criteria. No specific weighting will be assigned to
any particular Exterran Holdings performance or individual level
of contribution, and, with respect to a performance-based award
to be made to a particular executive officer, no specific
weighting will be made as between Exterran Holdings
performance and individual contribution.
Each executive officers target bonus payment under the
Incentive Program will be a specified percentage of that
individuals base salary, and each executive officers
actual bonus payment may be paid out at a level of 0% to 200% of
target bonus, based on Exterran Holdings performance, as
may be adjusted based on individual performance, in each case
based on the Exterran Holdings compensation committees
determination, in its discretion and with input from management,
of the level of attainment of applicable Exterran Holdings and
individual performance. The Exterran Holdings compensation
committee considered the relative responsibility of each
executive officer and his potential impact on the achievement of
Exterran Holdings performance criteria, in determining the
target 2009 bonus opportunity for each of the Named Executive
Officers (expressed as a percentage of each Named Executive
Officers base salary for 2009), which is as follows:
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2009 Bonus
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Target
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Executive Officer
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Title with Exterran GP LLC
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(%)
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Stephen A. Snider
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Chief Executive Officer
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100
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(1)
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Daniel K. Schlanger
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Senior Vice President and Chief Financial Officer
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60
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J. Michael Anderson
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Senior Vice President
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D. Bradley Childers
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Senior Vice President
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70
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Donald C. Wayne
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Senior Vice President and General Counsel
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50
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(1)
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Mr. Sniders actual payout under the Incentive Program
for 2009 will be prorated for the period from January 1,
2009 through the date of his planned retirement.
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We anticipate that awards under the Incentive Program for the
year ending December 31, 2009 will be determined and paid
in the first quarter of 2010.
We have not disclosed target levels with respect to the key
business activities and indicators described above because we
believe such disclosure would provide third parties with
information that would cause Exterran Holdings and us
competitive harm. In particular, the target performance levels
for the key business activities and indicators are based on
Exterran Holdings strategic business plan and reflect
confidential business information. These targets are derived
from internal analyses and projections of Exterran
Holdings and our performance, reflecting Exterran
Holdings and our business strategy for the current year.
Because these targets were developed strictly for internal
planning purposes and their disclosure would provide our
competitors, customers and other third parties with significant
insights regarding our confidential planning process and
strategies that could cause us substantial competitive harm, we
do not disclose these targets publicly. Also, the Exterran
Holdings compensation committee has reserved the right to modify
the target levels of one or more of these criteria in its
discretion based on internal and external developments during
the course of 2009.
The target levels with respect to the key business activities
and indicators described above generally reflect levels that the
Exterran Holdings compensation committee considers sufficiently
aggressive but achievable based on the underlying operating
assumptions. The Exterran Holdings compensation committee
believes that these targets were set at levels such that
achievement of the target levels will require significant effort
on the part of our executive officers and that payment of the
maximum amounts would reflect results substantially in excess of
expectations. The Exterran Holdings compensation committee
believes that Exterran Holdings performance goals for 2009
generally are similar to those set for 2008 in terms of the
difficulty of achievability at target levels. As described
above, two of Exterran Holdings performance goals for 2008
(Consolidated EBITDA and North America Contracted Horsepower
Growth) were not achieved at threshold
67
levels, and one performance goal (International Bookings) was
achieved above threshold but below target level.
Long-Term
Incentive Compensation
2008
. The Exterran Holdings compensation committee,
our compensation committee and management believe that Exterran
Holdings and our executive officers and key employees of
Exterran Holdings should have an ongoing stake in Exterran
Holdings and our success and that these individuals should
have a meaningful portion of their total compensation tied to
the achievement of Exterran Holdings and our strategic
objectives and long-term financial and operational performance.
In considering the makeup of the long-term incentive awards
(LTI Awards) for 2008, the Exterran Holdings
compensation committee also considered the need to enhance
retention of executives and key employees in light of the
vesting of those individuals pre-2007 equity awards upon
the August 2007 merger of Hanover and Universal. Based on this
review, the Exterran Holdings compensation committee established
the mix of 2008 long-term incentive awards for our executive
officers generally to consist of 45% Exterran Holdings
restricted stock, 45% Exterran Holdings stock options and 10%
Exterran Partners phantom units with tandem distribution
equivalent rights (DERs), or a combination of the
foregoing to certain other key employees. Our compensation
committee concurred with this determination and awarded the
grants of phantom units with DERs as shown in the Grants of
Plan-Based Awards for 2008 table, below. Approximately 50% to
60% of the aggregate amounts of the 2008 LTI Awards to our Named
Executive Officers reflects the intent of the Exterran Holdings
compensation committee (and our compensation committee with
respect to awards of phantom units with DERs) to strengthen the
equity-based incentive compensation element for our Named
Executive Officers in light of the accelerated vesting of
certain of their outstanding incentive-based equity awards in
connection with the merger. The Exterran Holdings compensation
committee believes that:
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grants of Exterran Holdings stock options provide an
incentive to its key employees and executive officers to work
toward its long-term performance goals, as the benefit will
increase only if and to the extent that the value of Exterran
Holdings common stock increases; and
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grants of Exterran Holdings restricted stock not only
provide an incentive to its key employees and executive officers
to work toward long-term performance goals, but also serve as a
retention tool.
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The Exterran Holdings compensation committee and our
compensation committee believe that:
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grants of our phantom units with tandem DERs serve to emphasize
our growth objectives. Such grants were made from the
Partnership Plan, which is solely administered by our
compensation committee. DERs are the right to receive cash
distributions that are provided to all common unitholders,
subject to the same vesting restrictions and risk of forfeiture
applicable to the underlying grant.
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2009
. The Exterran Holdings compensation committee
and our compensation committee expect to include LTI Awards as a
component of Exterran Holdings and our 2009 compensation
program, with such awards granted during the first quarter of
the year. Any award of equity is considered effective, and a
value is assigned based on the closing market price of Exterran
Holdings common stock or our common units, as applicable,
on the date of compensation committee or board approval.
Other
Compensation Programs
401(k)
Retirement and Savings Plan
The Exterran 401(k) Plan provides employees, including our Named
Executive Officers, the opportunity to defer up to 25% of their
eligible salary, up to the Internal Revenue Service
(IRS) maximum deferral amount, on a pre-tax basis.
This is accomplished through contributions to an account
maintained by an independent trustee. We match 100% of an
employees contribution to a maximum of 1% of the
employees annual eligible compensation, plus 50% of an
employees contribution from 2% to a maximum of 5% of the
employees annual eligible compensation. The employee
directs how contributions to the Exterran 401(k) Plan are
invested. Employees vest in Exterran Holdings matching
contributions after two years of service.
68
Employees
Supplemental Savings Plan
Prior to the merger, Universal sponsored an Employees
Supplemental Savings Plan (the ESSP) through which
employees with an annual base salary of $100,000 or more,
including the Named Executive Officers, could defer up to 25% of
their eligible salary on a pre-tax basis. The ESSP is a
nonqualified, deferred compensation plan and participation was
voluntary. Participants could also defer up to 100% of their
incentive bonus in 25% increments. Universals policy was
to provide matching contributions to the ESSP in the form of
Universal common stock. Deferrals from bonuses were not eligible
for the match. The match limits of 3% and 4.5% (based on company
tenure) were aggregate amounts and included both the Universal
401(k) Plan and the ESSP match amounts. The ESSP was designed in
part to provide a mechanism to restore qualified plan benefits
that were reduced as a result of limitations imposed under the
Internal Revenue Code of 1986, as amended (the
Code). It also enabled deferral of compensation that
would otherwise be treated as excess employee remuneration by
Universal within the meaning of Section 162(m) of the Code.
Effective January 1, 2008, the ESSP was amended to
(i) change the plan sponsor to Exterran Holdings,
(ii) freeze the ESSP with respect to new participation and
contributions as of December 31, 2007 and (iii) fully
vest the accounts of active participants as of that date. The
ESSP is intended to be a grandfathered plan for
purposes of Section 409A of the Code.
Deferred
Compensation Plan
Under the Exterran Deferred Compensation Plan (the
Deferred Compensation Plan), key management and
highly compensated employees selected by Exterran Holdings
compensation committee, including our Named Executive Officers,
may (i) defer receipt of their compensation, including up
to 100% of their salaries and up to 100% of their bonuses, and
(ii) be credited with company contributions that are
designed to serve as a
make-up
for
the portion of the employer-matching contribution that cannot be
made under the Exterran 401(k) Plan due to qualified plan limits
under the Code. Exterran Holdings may, but has no obligation to,
make discretionary contributions on behalf of a participant, in
such form and amount as the Exterran Holdings compensation
committee deems appropriate, in its sole discretion.
Participant elections with respect to deferrals of compensation
and distributions generally must be made in the year preceding
that in which the compensation is earned, except that the
Exterran Holdings compensation committee may permit a newly
eligible participant to make deferral elections up to
30 days after he or she first becomes eligible to
participate in the Deferred Compensation Plan. The Deferred
Compensation Plan is an unfunded plan for state and
federal tax purposes, and participants have the rights of
unsecured creditors of Exterran Holdings with respect to their
Deferred Compensation Plan accounts.
Participants may elect to receive distributions of their
accounts while still employed by Exterran Holdings or upon the
participants separation from service or disability, each
as defined in the Deferred Compensation Plan, either in a lump
sum or in two to 10 annual installments. Distributions will be
made in cash, except that a participant may elect to have any
portion of his or her account that is deemed invested in
Exterran Holdings common stock distributed in shares of
Exterran Holdings common stock if the distribution is made
prior to January 1, 2011.
Employee
Stock Purchase Plan
The Exterran Holdings, Inc. Employee Stock Purchase Plan (the
ESPP) provides eligible employees of Exterran
Holdings, including our Named Executive Officers, an option to
purchase Exterran Holdings common stock through payroll
deductions and is designed to comply with Section 423 of
the Code. The Exterran Holdings compensation committee, which
administers the ESPP, has the discretion to set the purchase
price at 85% to 100% of the fair market value of a share of
Exterran Holdings common stock on one of the following
dates: (i) the offering date, (ii) the purchase date
or (iii) the offering date or the purchase date, whichever
is lower. The Exterran Holdings compensation committee has
determined that employees who elect to participate in the ESPP
will initially have an option to purchase a share of Exterran
Holdings common stock at the lesser of (i) 85% of the
fair market value of a share of Exterran Holdings common
stock on the offering date or (ii) 85% of the fair market
value of a share of Exterran Holdings common stock on the
69
purchase date. The initial offering period commenced on
October 1, 2007 and offering periods consist of
three-months periods, or such other periods as may be determined
from time to time by the Exterran Holdings compensation
committee. A total of 650,000 shares of Exterran
Holdings common stock have been authorized and reserved
for issuance under the ESPP. At December 31, 2008,
574,010 shares remained available for purchase under the
ESPP.
Amended
and Restated 2007 Stock Incentive Plan
The Exterran Holdings, Inc. Amended and Restated 2007 Stock
Incentive Plan (the Stock Incentive Plan) is
administered by the Exterran Holdings compensation committee and
authorizes the issuance of awards, at the discretion of the
Exterran Holdings compensation committee, of stock options,
restricted stock, restricted stock units, stock appreciation
rights and performance awards to employees of Exterran Holdings
and its subsidiaries and directors of Exterran Holdings. Up to a
maximum of 4,750,000 shares of Exterran Holdings
common stock is available for issuance under the Stock Incentive
Plan.
Medical
Expense Reimbursement Plan
The Medical Expense Reimbursement Plan (MERP) is a
plan made available to certain of our executive officers that
supplements the standard medical and dental benefit plans
available to all Exterran Holdings employees. During 2008,
the MERP provided for reimbursement, in an amount up to $10,000,
of certain out-of-pocket medical costs incurred by the executive
or his dependents that were not covered by Exterran
Holdings standard medical and dental plans.
Exterran
Partners Long-Term Incentive Plan
The Partnership Plan, which is administered by our compensation
committee, provides incentive compensation awards based on our
common units to management, directors, employees and consultants
of Exterran Holdings and its affiliates who perform services for
us and our subsidiaries. The Partnership Plan also enhances our
ability to attract and retain the services of individuals
essential for our growth and profitability and encourages them
to devote their best efforts to advancing our business. The
Partnership Plan is not subject to the allocation provisions of
the SG&A Cap.
The Partnership Plan provides for the grant of up to an
aggregate of 1,035,378 units, restricted units, phantom
units, unit options, unit awards or substitute awards and, with
respect to unit options and phantom units, the grant of DERs.
DERs are credited with an amount equal to any cash distributions
we make on common units during the period such phantom units are
outstanding and are payable upon vesting of the tandem phantom
units without interest. Since the inception of the Partnership
Plan, we have awarded only unit options and phantom units.
Perquisites
Exterran Holdings made what it believes were limited use of
perquisites during 2008. A taxable benefit of tax preparation
and planning services was made available to certain of our
executive officers. The health care and insurance coverage
provided to our executives was the same as that provided to all
active employees with the exception of the MERP, which provided
for additional medical, dental, and vision benefits to certain
of our executive officers during 2008. In addition, Exterran
Holdings has agreed that Mr. Snider and his spouse will be
entitled to continue to participate at no cost in Exterran
holdings medical benefit plan following his retirement,
provided he remains Exterran Holdings active employee
until the time of his retirement. The Exterran Holdings
compensation committee established a policy in early 2009 that
tax
gross-ups
will no longer be provided on income attributable to change of
control agreements entered into in the future or Exterran
Holdings executive or director perquisites.
Chief
Executive Officer Compensation
Base Salary.
In accordance with Exterran
Holdings overall philosophy and practice to provide
generally for 4% base salary increases from 2007 to 2008, and
based on a written performance evaluation conducted by
70
Exterran Holdings board of directors in February 2008, the
Exterran Holdings compensation committee increased
Mr. Sniders annual base salary by 4.8% to $600,000,
effective April 1, 2008. As described above in the section
entitled How the Exterran Holdings
Compensation Committee Determines Executive
Compensation Base Salaries, the Exterran
Holdings compensation committee determined to suspend annual
salary increases in 2009, including those for Mr. Snider
and the other executive officers.
Annual Performance-Based Incentive
Compensation.
In reviewing Mr. Sniders
performance during 2008, the Exterran Holdings compensation
committee considered his impact on continued merger integration
efforts and, in light of the expectation that Mr. Danner
will assume the role of Chief Executive Officer upon
Mr. Sniders planned retirement by June 30, 2009,
the Exterran Holdings compensation committee also considered
Mr. Sniders efforts to begin the transition of duties
to Mr. Danner in late 2008. Based on the foregoing factors
and in the sole discretion of the Exterran Holdings compensation
committee, it determined to make no individual adjustment with
respect to Mr. Sniders APPP award for 2008. As
described above in the section entitled How
the Exterran Holdings Compensation Committee Determines
Executive Compensation Annual Performance-Based
Incentive Compensation, the Exterran Holdings compensation
committee made adjustments to the weightings of the incentive
measures to better reflect the relative importance of each of
these measures in 2008, which resulted in a reduced payout to
Mr. Snider, from approximately 62% of his base salary to
approximately 59% of his base salary, of $352,800.
The Exterran Holdings compensation committee has determined that
Mr. Snider will participate in the Incentive Program for
2009, as discussed above in the section entitled
Annual Performance-Based Incentive
Compensation 2009, although the amount of his
award under the Incentive Program will be prorated for the
period from January 1, 2009 through the date of his planned
retirement by June 30, 2009 (the Employment
Period). Mr. Snider may elect to be paid his award
either upon his retirement or in March 2010 concurrently with
the payment of awards to the other Named Executive Officers.
With respect to Exterran Holdings performance, the amount
of Mr. Sniders award will be determined by the
Exterran Holdings compensation committee in its sole discretion,
based on the committees assessment of Exterran
Holdings performance for (i) the Employment Period,
if Mr. Snider elects to be paid his award upon his
retirement, or (ii) the year ending December 31, 2009,
if Mr. Snider elects to be paid his award in March 2010.
With respect to individual performance, the amount of
Mr. Sniders award will be determined by the Exterran
Holdings compensation committee in its sole discretion, based on
the committees evaluation of Mr. Sniders
individual performance during the Employment Period.
Long-Term Incentive Award.
The Exterran
Holdings compensation committee and our compensation committee
considered it in the best interests of Exterran Holdings and us,
and our respective equityholders, to emphasize long-term
incentives as a key component of Mr. Sniders total
compensation in 2008. To recognize the importance of
Mr. Sniders role in the continued successful
integration during 2008 of Hanover and Universal, the Exterran
Holdings compensation committee approved on March 4, 2008,
the following LTI Awards for Mr. Snider:
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A grant of 20,060 shares of Exterran Holdings
restricted stock, which represented approximately 45% of the
total grant date value of Mr. Sniders 2008 LTI Awards.
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A grant of 1,485 incentive stock options and 52,725 nonqualified
options to purchase Exterran Holdings common stock, which
collectively represented approximately 45% of the total grant
date value of Mr. Sniders 2008 LTI Awards.
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In addition, our compensation committee approved on
March 4, 2008 the following LTI Award for Mr. Snider
under the Partnership Plan:
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A grant of 9,310 phantom units with DERs, which represented
approximately 10% of the total grant date value of
Mr. Sniders 2008 LTI Awards. The phantom units are
payable in units or cash upon vesting. The tandem DERs are
payable in cash upon vesting.
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The size and type of awards provided to Mr. Snider, taken
together with the other elements of his compensation, were
determined by the Exterran Holdings compensation committee (and
our compensation committee, with respect to his award of phantom
units with DERs) to be appropriate and were designed to
71
encourage the achievement of Exterran Holdings and our
short and long-term business objectives, improved operating
results and growth in equityholder value and to ensure a greater
ownership stake in Exterran Holdings and us, thereby further
aligning Mr. Sniders interests with those of our
equityholders. In addition, 50% of the aggregate amounts of
these awards reflects the intent of the Exterran Holdings
compensation committee (and our compensation committee with
respect to awards of DERs) to strengthen the equity-based
incentive compensation element for Mr. Snider in light of
the accelerated vesting of certain of his outstanding
incentive-based equity awards in connection with the merger of
Hanover and Universal in 2007.
In contemplation of Mr. Sniders planned retirement as
Exterran Holdings and our Chief Executive Officer by
June 30, 2009, and in recognition of his 18 years of
service to Exterran Holdings, in October 2008 the Exterran
Holdings compensation committee approved amendments to each
agreement pursuant to which Mr. Snider was granted options,
restricted stock or Partnership unit appreciation rights
(collectively, the Exterran Award Agreements) under
the Universal Compression Holdings, Inc. Incentive Stock Option
Plan, the Universal Compression Holdings, Inc. Restricted Stock
Plan for Executive Officers and the Stock Incentive Plan. The
amendments provide that (a) each outstanding unvested
option and share of restricted stock granted under the Exterran
Award Agreements will vest in full upon Mr. Sniders
retirement date and (b) the exercise term of each option
and unit appreciation right granted under the Exterran Award
Agreements will be extended through its original term, as set
forth in the applicable plan or Exterran Award Agreement.
Also in October 2008, our compensation committee approved
amendments to each award agreement pursuant to which
Mr. Snider was granted unit options or phantom units with
DERs (collectively, the Partnership Award
Agreements) under the Partnership Plan. The amendments
provide that (a) each outstanding phantom unit granted
under the Partnership Award Agreements will vest in full upon
Mr. Sniders retirement date and (b) the exercise
term of each unit option granted under the Partnership Award
Agreements will be extended through its original term, as set
forth in the applicable Partnership Award Agreement.
As a result of these amendments, approximately $104,000 of
expense for stock and phantom unit awards and approximately
$472,000 of expense for option awards that would not otherwise
have been recognized in 2008 was recognized and included in the
Stock Awards and Option Awards columns, respectively, in the
Summary Compensation Table for 2008 following this CD&A.
Change
of Control Arrangements
Change of Control Provisions in Equity
Plans.
The Stock Incentive Plan provides for
accelerated vesting in the event of a change of control.
Change of Control Provisions in 401(k)
Plans.
The Exterran 401(k) Plan provides for
accelerated vesting of all company matching contributions in the
event of a change of control.
Exterran Change of Control
Agreements.
Exterran Holdings has entered into
change of control agreements with each of our Named Executive
Officers (the Exterran change of control
agreements). The Exterran Holdings compensation committee
considers the provision of change of control agreements for
executive officers to be a customary part of executive
compensation and, therefore, necessary to attracting and
retaining executive talent. The Exterran change of control
agreements provide for continued employment of the applicable
executive for a period of time following a qualifying change of
control and are designed to ensure continuity of management in
such event.
The Exterran change of control agreements generally provide that
if the executive is terminated within 12 months after a
change of control occurs, or if during that period the executive
terminates his employment for good reason, as
defined in the agreements, he will be entitled to a payment
equal to a multiple of two times the executives annual
base salary and target bonus (three times base salary and bonus,
in the case of Mr. Snider), will be provided health and
welfare benefits for a number of years equaling the payment
multiple, and will receive certain other forms of remuneration.
A more specific description of the terms of the Exterran change
of control agreements, together with an estimate of the payouts
in connection with such agreements, assuming a change of control
and qualifying termination, is provided in the
section entitled Named Executive Officer
Compensation Payments and Potential Payments upon
Change of Control, below.
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Unit
Ownership Requirements
Exterran GP LLC does not have any policy or guidelines that
require specified ownership of our common units by its directors
or executive officers or unit retention guidelines applicable to
equity-based awards granted to directors or executive officers.
As of February 20, 2009, the Named Executive Officers held
341,428 unit options and 27,000 phantom units with
DERs that have been granted as compensation and
125,000 common units.
Accounting
Implications and Compensation Deduction
Limitations
We accounted for the equity compensation expense for Exterran GP
LLCs executive officers under Statement of Financial
Accounting Standards No. 123R, Share-Based
Payment (SFAS 123R), which requires us to
estimate and record an expense for each award of equity
compensation over the vesting period of the award. Accounting
rules also require us to record cash compensation as an expense
at the time the obligation was incurred.
As we are a partnership and not a corporation taxable as such
for U.S. federal income tax purposes, we are not subject to
the executive compensation tax deductible limitations of
Section 162(m) of the Code. However, as Exterran Holdings
owns a majority of our outstanding equity securities, our
compensation committee is mindful of the impact that
Section 162(m) may have on compensatory deductions passed
through to Exterran Holdings.
Conclusion
We believe that Exterran Holdings and our executive
compensation programs for 2008 were:
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appropriate in amount;
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appropriately allocated to us;
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appropriately applied to our Named Executive Officers; and
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necessary to retain the executive officers who are essential to
our continued development and success, to compensate those
executive officers for their contributions and to enhance
unitholders value.
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Compensation
Committee Report
The compensation committee of the Exterran GP LLC board of
directors has reviewed and discussed the Compensation Discussion
and Analysis required by Item 402(b) of
Regulation S-K
with management and, based on such review and discussion, the
compensation committee recommended to the board of directors
that the Compensation Discussion and Analysis be included in
this Annual Report on
Form 10-K.
The Compensation Committee
George S. Finley, Chairman
James G. Crump
Mark A. McCollum
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Named
Executive Officer Compensation
Summary
Compensation Table for 2008
The following table summarizes the full amount of compensation
and related benefits provided for the Named Executive Officers
for the years ended December 31, 2008 and 2007, and the
period from October 20, 2006 through December 31, 2006.
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Non-Equity
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Incentive
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Stock
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Option
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Plan
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All Other
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Salary
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Bonus
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Awards
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Awards
|
|
Compensation
|
|
Compensation
|
|
Total
|
Name and Position
|
|
Year
|
|
($)
|
|
($)(1)
|
|
($)(2)
|
|
($)(3)
|
|
($)(4)
|
|
($)(5)
|
|
($)(6)
|
|
Stephen A. Snider,
Chief Executive Officer(7)
|
|
|
2008
|
|
|
|
592,710
|
|
|
|
|
|
|
|
1,072,071
|
|
|
|
1,026,014
|
|
|
|
352,800
|
|
|
|
71,694
|
|
|
|
3,115,289
|
|
|
|
|
2007
|
|
|
|
550,000
|
|
|
|
|
|
|
|
989,646
|
(8)
|
|
|
2,523,597
|
(8)
|
|
|
350,000
|
|
|
|
44,486
|
|
|
|
4,457,729
|
|
|
|
|
2006
|
|
|
|
525,000
|
|
|
|
|
|
|
|
240,120
|
|
|
|
1,018,793
|
|
|
|
285,000
|
|
|
|
40,214
|
|
|
|
2,109,127
|
|
Daniel K. Schlanger,
Senior Vice President and Chief Financial Officer
|
|
|
2008
|
|
|
|
293,788
|
|
|
|
125,000
|
|
|
|
275,378
|
|
|
|
259,900
|
|
|
|
88,200
|
|
|
|
21,926
|
|
|
|
1,064,192
|
|
|
|
|
2007
|
|
|
|
265,192
|
|
|
|
|
|
|
|
328,498
|
(8)
|
|
|
159,976
|
(8)
|
|
|
150,000
|
|
|
|
7,346
|
|
|
|
911,012
|
|
|
|
|
2006
|
(9)
|
|
|
155,942
|
|
|
|
|
|
|
|
31,519
|
|
|
|
15,800
|
|
|
|
58,000
|
|
|
|
|
|
|
|
261,261
|
|
J. Michael Anderson,
Senior Vice President
|
|
|
2008
|
|
|
|
346,367
|
|
|
|
160,000
|
|
|
|
413,323
|
|
|
|
169,461
|
|
|
|
146,100
|
|
|
|
36,275
|
|
|
|
1,271,526
|
|
|
|
|
2007
|
|
|
|
309,808
|
|
|
|
|
|
|
|
792,408
|
(8)
|
|
|
728,535
|
(8)
|
|
|
200,000
|
|
|
|
18,081
|
|
|
|
2,048,832
|
|
|
|
|
2006
|
|
|
|
302,500
|
|
|
|
|
|
|
|
242,807
|
|
|
|
347,654
|
|
|
|
115,000
|
|
|
|
16,701
|
|
|
|
1,024,662
|
|
D. Bradley Childers,
Senior Vice President
|
|
|
2008
|
|
|
|
320,701
|
|
|
|
160,000
|
|
|
|
398,677
|
|
|
|
208,851
|
|
|
|
139,900
|
|
|
|
48,390
|
|
|
|
1,276,519
|
|
|
|
|
2007
|
|
|
|
300,000
|
|
|
|
|
|
|
|
736,095
|
(8)
|
|
|
640,334
|
(8)
|
|
|
200,000
|
|
|
|
25,489
|
|
|
|
1,901,918
|
|
|
|
|
2006
|
|
|
|
287,500
|
|
|
|
|
|
|
|
210,687
|
|
|
|
312,135
|
|
|
|
115,000
|
|
|
|
19,158
|
|
|
|
944,480
|
|
Donald C. Wayne,
Senior Vice President and General Counsel
|
|
|
2008
|
|
|
|
278,518
|
|
|
|
125,000
|
|
|
|
212,948
|
|
|
|
140,361
|
|
|
|
83,800
|
|
|
|
44,032
|
|
|
|
884,659
|
|
|
|
|
2007
|
|
|
|
250,000
|
|
|
|
|
|
|
|
318,930
|
(8)
|
|
|
74,301
|
(8)
|
|
|
100,000
|
|
|
|
11,112
|
|
|
|
754,343
|
|
|
|
|
2006
|
(10)
|
|
|
86,538
|
|
|
|
|
|
|
|
20,003
|
|
|
|
1,057
|
|
|
|
58,000
|
|
|
|
2,308
|
|
|
|
167,906
|
|
|
|
|
(1)
|
|
After the proposed merger between Hanover and Universal was
announced, during the first quarter of 2007, the boards of
directors of Hanover and Universal approved the adoption of
retention plans that were intended to provide select employees,
including certain of our Named Executive Officers, with an
incentive to continue employment in light of the pending merger
between the two companies. The amounts included in this column
represent the cash payment of retention bonuses on
April 30, 2008 under the Universal Retention Bonus Plan.
|
|
(2)
|
|
The amounts included in this column represent the compensation
cost of (a) restricted shares of Exterran Holdings
common stock, awarded and recognized by Exterran Holdings, and
(b) phantom units with DERs, awarded and recognized by us,
in each case as described in SFAS No. 123R. For a
discussion of valuation assumptions, see Note 8 to our
consolidated financial statements included elsewhere in this
report and Note 16 to the consolidated financial statements
within Exterran Holdings
Form 10-K
for the year ended December 31, 2008. Please see the Grants
of Plan-Based Awards for 2008 table below for more information
regarding equity-based awards granted in 2008.
|
|
(3)
|
|
The amounts included in this column represent the compensation
cost of (a) options to purchase Exterran Holdings
common stock, awarded and recognized by Exterran Holdings,
(b) options to purchase our common units, awarded and
recognized by us, and (c) unit appreciation rights with
respect to our common units, awarded and recognized by Exterran
Holdings, in each case as described in SFAS No. 123R.
For a discussion of valuation assumptions, see Note 8 to
our consolidated financial statements included elsewhere in this
report and Note 16 to the consolidated financial statements
within Exterran Holdings
Form 10-K
for the year ended December 31, 2008. Please see the Grants
of Plan-Based Awards for 2008 table below for more information
regarding equity-based awards granted in 2008.
|
|
(4)
|
|
The amounts included in this column represent the following cash
awards: (a) amounts earned under the APPP, which covered
the compensation measurement and performance year ended
December 31, 2008, and are expected to be paid during the
first quarter of 2009, (b) amounts earned under
Universals 2007
|
74
|
|
|
|
|
Officer Incentive Plan, which covered the compensation
measurement and performance year ended December 31, 2007,
and were paid during the first quarter of 2008, and
(c) amounts earned under Universals 2006 Officer
Incentive Plan, which covered the compensation measurement and
performance year ended December 31, 2006, and were paid
during the first quarter of 2007.
|
|
(5)
|
|
The amounts shown in this column for the year ended
December 31, 2008 are attributable to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
Tax
|
|
|
|
|
|
|
|
|
|
|
Compensation
|
|
|
|
Preparation
|
|
|
|
|
|
|
|
|
401(k) Plan
|
|
Plan
|
|
Executive
|
|
and
|
|
|
|
|
|
|
|
|
Matching
|
|
Matching
|
|
Medical
|
|
Planning
|
|
|
|
|
|
|
|
|
Contribution
|
|
Contribution
|
|
Coverage
|
|
Services
|
|
Other
|
|
Total
|
|
|
Name
|
|
($)(a)
|
|
($)(b)
|
|
($)(c)
|
|
($)
|
|
($)
|
|
($)
|
|
|
|
Stephen A. Snider
|
|
|
8,050
|
|
|
|
22,186
|
|
|
|
6,402
|
|
|
|
18,900
|
|
|
|
16,156
|
(d)
|
|
|
71,694
|
|
|
|
|
|
Daniel K. Schlanger
|
|
|
6,942
|
|
|
|
8,582
|
|
|
|
6,402
|
|
|
|
|
|
|
|
|
|
|
|
21,926
|
|
|
|
|
|
J. Michael Anderson
|
|
|
8,050
|
|
|
|
2,431
|
|
|
|
6,402
|
|
|
|
|
|
|
|
19,392
|
(e)
|
|
|
36,275
|
|
|
|
|
|
D. Bradley Childers
|
|
|
3,269
|
|
|
|
15,367
|
|
|
|
6,402
|
|
|
|
5,500
|
|
|
|
17,852
|
(f)
|
|
|
48,390
|
|
|
|
|
|
Donald C. Wayne
|
|
|
7,066
|
|
|
|
6,173
|
|
|
|
6,402
|
|
|
|
7,700
|
|
|
|
16,691
|
(g)
|
|
|
44,032
|
|
|
|
|
|
|
|
|
(a)
|
|
Executives could contribute up to 25% of their salary to the
Exterran 401(k) Plan. During 2008, Exterran Holdings matched
100% of each executives contribution to a maximum of 1% of
the executives annual eligible compensation, plus 50% of
each executives contribution from 2% to a maximum of 5% of
the executives annual eligible compensation. Both
individual and matching contributions are subject to limits
established by the IRS.
|
|
(b)
|
|
Eligible executive officers could contribute up to 100% of their
base pay and bonus to the Deferred Compensation Plan, which
Exterran Holdings matched for 2008 to a maximum of 3.5% of the
executives annual eligible compensation, less Exterran
Holdings matching contributions to the executives
401(k) account.
|
|
(c)
|
|
Represents premiums paid by Exterran Holdings for medical
coverage under the MERP.
|
|
(d)
|
|
Includes $16,156 for reimbursement by Exterran Holdings of
spousal expenses in connection with travel to Exterran
Holdings Board and committee meetings held, and
manufacturing facility tours conducted, in Dubai, UAE during
2008, and related tax
gross-ups.
|
|
(e)
|
|
Includes $1,930 for reimbursement by Exterran Holdings for an
annual physical exam and $17,462 for reimbursement by Exterran
Holdings of spousal expenses in connection with travel to
Exterran Holdings Board and committee meetings held, and
manufacturing facility tours conducted, in Dubai, UAE during
2008, and related tax
gross-ups.
|
|
(f)
|
|
Includes $17,852 for reimbursement by Exterran Holdings of
spousal expenses in connection with travel to Exterran
Holdings Board and committee meetings held, and
manufacturing facility tours conducted, in Dubai, UAE during
2008, and related tax
gross-ups.
|
|
(g)
|
|
Includes $2,095 for reimbursement by Exterran Holdings for an
annual physical exam and $14,596 for reimbursement by Exterran
Holdings of spousal expenses in connection with travel to
Exterran Holdings Board and committee meetings held, and
manufacturing facility tours conducted, in Dubai, UAE during
2008, and related tax
gross-ups.
|
|
|
|
(6)
|
|
The amounts included in this column represent the aggregate
compensation provided to each Named Executive Officer by
Exterran Holdings and us; a portion of the amount provided by
Exterran Holdings is allocated to us as set forth in
Compensation Expense Allocations, above.
|
|
(7)
|
|
For additional information regarding Mr. Sniders 2008
compensation, please see the section entitled Chief
Executive Officer Compensation in the CD&A, above.
|
|
(8)
|
|
These amounts include shares of Exterran Holdings
restricted stock and options to acquire Exterran Holdings
common stock that immediately vested on August 20, 2007,
the effective date of the merger, awarded by Universal prior to
the merger under the Universal Incentive Stock Option Plan and
the Universal Restricted Stock Plan for Executive Officers.
|
75
|
|
|
(9)
|
|
The amounts shown for 2006 reflect compensation awarded to
Mr. Schlanger for the period from May 31, 2006, when
he joined Exterran GP LLC and Universal, through
December 31, 2006.
|
|
(10)
|
|
The amounts shown for 2006 reflect compensation awarded to
Mr. Wayne for the period from August 28, 2006, when he
joined Exterran GP LLC and Universal, through December 31,
2006.
|
Grants
of Plan-Based Awards for 2008
The following table provides additional information about stock
and option awards and non-equity incentive plan awards granted
to the Named Executive Officers by Exterran Holdings and us
during the year ended December 31, 2008. The numbers
presented are the full amounts received by each Named Executive
Officer and have not been adjusted to reflect the amount that
was allocated to us.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Option
|
|
|
|
Grant Date
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
Awards:
|
|
Exercise
|
|
Fair
|
|
|
|
|
Estimated Possible Payouts
|
|
Number of
|
|
Number of
|
|
or Base
|
|
Value of
|
|
|
|
|
Under Non-Equity
|
|
Shares of
|
|
Securities
|
|
Price of
|
|
Stock and
|
|
|
|
|
Incentive Plan Awards(1)
|
|
Stock or
|
|
Underlying
|
|
Option
|
|
Option
|
|
|
Grant
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Units
|
|
Options
|
|
Awards
|
|
Awards
|
Name
|
|
Date
|
|
($)
|
|
($)
|
|
($)
|
|
(#)
|
|
(#)
|
|
($/SH)
|
|
($)(2)
|
(a)
|
|
(b)
|
|
(c)
|
|
(d)
|
|
(e)
|
|
(f)
|
|
(g)
|
|
(h)
|
|
(i)
|
|
Stephen A. Snider
|
|
|
|
|
|
|
300,000
|
|
|
|
600,000
|
|
|
|
1,200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/04/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,060
|
(3)
|
|
|
|
|
|
|
|
|
|
|
1,350,038
|
|
|
|
|
3/04/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,210
|
(4)
|
|
|
67.30
|
|
|
|
1,023,485
|
|
|
|
|
3/04/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,310
|
(5)
|
|
|
|
|
|
|
|
|
|
|
299,968
|
|
Daniel K. Schlanger
|
|
|
|
|
|
|
75,000
|
|
|
|
150,000
|
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/04/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,020
|
(3)
|
|
|
|
|
|
|
|
|
|
|
539,746
|
|
|
|
|
3/04/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,690
|
(4)
|
|
|
67.30
|
|
|
|
409,507
|
|
|
|
|
3/04/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,720
|
(5)
|
|
|
|
|
|
|
|
|
|
|
119,858
|
|
J. Michael Anderson
|
|
|
|
|
|
|
124,250
|
|
|
|
248,500
|
|
|
|
497,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/04/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,040
|
(3)
|
|
|
|
|
|
|
|
|
|
|
810,292
|
|
|
|
|
3/04/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,530
|
(4)
|
|
|
67.30
|
|
|
|
614,166
|
|
|
|
|
3/04/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,590
|
(5)
|
|
|
|
|
|
|
|
|
|
|
180,110
|
|
D. Bradley Childers
|
|
|
|
|
|
|
119,000
|
|
|
|
238,000
|
|
|
|
476,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/04/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,370
|
(3)
|
|
|
|
|
|
|
|
|
|
|
765,201
|
|
|
|
|
3/04/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,720
|
(4)
|
|
|
67.30
|
|
|
|
579,994
|
|
|
|
|
3/04/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,280
|
(5)
|
|
|
|
|
|
|
|
|
|
|
170,122
|
|
Donald C. Wayne
|
|
|
|
|
|
|
71,250
|
|
|
|
142,500
|
|
|
|
285,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/04/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,690
|
(3)
|
|
|
|
|
|
|
|
|
|
|
450,237
|
|
|
|
|
3/04/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,070
|
(4)
|
|
|
67.30
|
|
|
|
341,162
|
|
|
|
|
3/04/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,100
|
(5)
|
|
|
|
|
|
|
|
|
|
|
99,882
|
|
|
|
|
(1)
|
|
The amounts in these columns reflect the range of potential
payouts under the APPP. The actual payouts under the plan have
been determined and are reflected in the Summary Compensation
Table for 2008 above. The performance measures used in
determining the payouts under the plan are described in the
CD&A above.
|
|
(2)
|
|
The value of restricted stock and stock option awards on the
grant date is based on SFAS 123R.
|
|
(3)
|
|
Restricted stock awards were granted by Exterran Holdings on
March 4, 2008 under the Stock Incentive Plan and vest on
each anniversary date of grant at the rate of one-third per year
over a three-year period (except for those of Mr. Snider,
which will vest on his planned retirement from Exterran Holdings
and us by June 30, 2009), subject to accelerated vesting in
the event of a change of control.
|
|
(4)
|
|
Stock options to purchase Exterran Holdings common stock
were granted by Exterran Holdings on March 4, 2008 under
the Stock Incentive Plan and vest on each anniversary date of
grant at the rate of one-third per year over a three-year period
(except for those of Mr. Snider, which will vest on his
planned retirement from Exterran Holdings and us by
June 30, 2009), subject to accelerated vesting in the event
of a change of control.
|
76
|
|
|
(5)
|
|
Phantom units with tandem DERs were granted by us on
March 4, 2008 under the Partnership Plan and vest on each
anniversary date of grant at the rate of one-third per year over
a three-year period (except for those of Mr. Snider, which
will vest on his planned retirement from Exterran Holdings and
us by June 30, 2009), subject to accelerated vesting in the
event of a change of control.
|
Outstanding
Equity Awards at Fiscal Year-End for 2008
The following table includes equity awards under Exterran
Holdings and our long-term incentive plans. Unless
specifically identified in the footnotes below, the awards are
granted under the applicable Exterran Holdings long-term
incentive plan. The numbers presented are the full amounts
received by each Named Executive Officer and have not been
adjusted to reflect the amount that was allocated to us.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
Option Awards
|
|
|
|
Value of
|
|
|
Number of
|
|
Number of
|
|
|
|
|
|
Number of
|
|
Shares or
|
|
|
Securities
|
|
Securities
|
|
|
|
|
|
Shares or
|
|
Units of
|
|
|
Underlying
|
|
Underlying
|
|
|
|
|
|
Units of
|
|
Stock
|
|
|
Unexercised
|
|
Unexercised
|
|
Option
|
|
|
|
Stock That
|
|
That
|
|
|
Options
|
|
Options
|
|
Exercise
|
|
Option
|
|
Have Not
|
|
Have Not
|
|
|
(#)
|
|
(#)
|
|
Price
|
|
Expiration
|
|
Vested
|
|
Vested
|
Name
|
|
Exercisable
|
|
Unexercisable
|
|
($)
|
|
Date
|
|
(#)
|
|
($)
|
(a)
|
|
(b)
|
|
(c)
|
|
(d)
|
|
(e)
|
|
(f)
|
|
(g)
|
|
Stephen A. Snider
|
|
|
145,306
|
|
|
|
|
|
|
|
21.30
|
|
|
|
2/19/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
130,000
|
|
|
|
|
|
|
|
43.39
|
|
|
|
3/3/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
|
|
|
|
|
38.15
|
|
|
|
3/9/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
97,024
|
|
|
|
|
|
|
|
33.60
|
|
|
|
4/20/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
31,675
|
|
|
|
|
|
|
|
30.07
|
|
|
|
4/30/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
90,523
|
|
|
|
|
|
|
|
31.65
|
|
|
|
12/11/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
12,883
|
|
|
|
25,768
|
(1)
|
|
|
75.27
|
|
|
|
6/12/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85,714
|
(2)
|
|
|
25.94
|
|
|
|
12/31/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85,714
|
(3)
|
|
|
25.94
|
|
|
|
12/31/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,210
|
(4)
|
|
|
67.30
|
|
|
|
3/04/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,282
|
|
|
|
730,206
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,310
|
(6)
|
|
|
104,551
|
(7)
|
Daniel K. Schlanger
|
|
|
2,415
|
|
|
|
4,832
|
(1)
|
|
|
75.27
|
|
|
|
6/12/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,714
|
(2)
|
|
|
25.94
|
|
|
|
12/31/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,714
|
(3)
|
|
|
25.94
|
|
|
|
12/31/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,143
|
(2)
|
|
|
21.00
|
|
|
|
12/31/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,690
|
(4)
|
|
|
67.30
|
|
|
|
3/04/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,687
|
|
|
|
227,633
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,720
|
(6)
|
|
|
41,776
|
(7)
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
Option Awards
|
|
|
|
Value of
|
|
|
Number of
|
|
Number of
|
|
|
|
|
|
Number of
|
|
Shares or
|
|
|
Securities
|
|
Securities
|
|
|
|
|
|
Shares or
|
|
Units of
|
|
|
Underlying
|
|
Underlying
|
|
|
|
|
|
Units of
|
|
Stock
|
|
|
Unexercised
|
|
Unexercised
|
|
Option
|
|
|
|
Stock That
|
|
That
|
|
|
Options
|
|
Options
|
|
Exercise
|
|
Option
|
|
Have Not
|
|
Have Not
|
|
|
(#)
|
|
(#)
|
|
Price
|
|
Expiration
|
|
Vested
|
|
Vested
|
Name
|
|
Exercisable
|
|
Unexercisable
|
|
($)
|
|
Date
|
|
(#)
|
|
($)
|
(a)
|
|
(b)
|
|
(c)
|
|
(d)
|
|
(e)
|
|
(f)
|
|
(g)
|
|
J. Michael Anderson
|
|
|
20,000
|
|
|
|
|
|
|
|
43.39
|
|
|
|
3/3/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
17,000
|
|
|
|
|
|
|
|
38.15
|
|
|
|
3/9/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
67,660
|
|
|
|
|
|
|
|
17.30
|
|
|
|
3/31/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
17,340
|
|
|
|
|
|
|
|
17.30
|
|
|
|
3/31/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
16,675
|
|
|
|
|
|
|
|
30.07
|
|
|
|
4/30/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
3,325
|
|
|
|
|
|
|
|
30.07
|
|
|
|
4/30/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
3,623
|
|
|
|
7,248
|
(1)
|
|
|
75.27
|
|
|
|
6/12/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,286
|
(2)
|
|
|
25.94
|
|
|
|
12/31/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,286
|
(3)
|
|
|
25.94
|
|
|
|
12/31/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,530
|
(4)
|
|
|
67.30
|
|
|
|
3/04/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,040
|
|
|
|
341,652
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,590
|
(6)
|
|
|
62,776
|
(7)
|
D. Bradley Childers
|
|
|
20,000
|
|
|
|
|
|
|
|
43.39
|
|
|
|
3/3/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
17,000
|
|
|
|
|
|
|
|
38.15
|
|
|
|
3/9/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
19,016
|
|
|
|
|
|
|
|
16.71
|
|
|
|
3/10/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
5,984
|
|
|
|
|
|
|
|
16.71
|
|
|
|
3/10/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
16,675
|
|
|
|
|
|
|
|
30.07
|
|
|
|
4/30/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
3,325
|
|
|
|
|
|
|
|
30.07
|
|
|
|
4/30/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
24,238
|
|
|
|
|
|
|
|
19.03
|
|
|
|
9/3/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
14,182
|
|
|
|
|
|
|
|
19.03
|
|
|
|
9/3/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
3,623
|
|
|
|
7,248
|
(1)
|
|
|
75.27
|
|
|
|
6/12/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,857
|
(2)
|
|
|
25.94
|
|
|
|
12/31/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,857
|
(3)
|
|
|
25.94
|
|
|
|
12/31/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,720
|
(4)
|
|
|
67.30
|
|
|
|
3/04/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,370
|
|
|
|
327,381
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,280
|
(6)
|
|
|
59,294
|
(7)
|
Donald C. Wayne
|
|
|
1,610
|
|
|
|
3,221
|
(1)
|
|
|
75.27
|
|
|
|
6/12/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,714
|
(2)
|
|
|
25.94
|
|
|
|
12/31/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,714
|
(3)
|
|
|
25.94
|
|
|
|
12/31/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,070
|
(4)
|
|
|
67.30
|
|
|
|
3/04/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,468
|
|
|
|
95,096
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,100
|
(6)
|
|
|
34,813
|
(7)
|
|
|
|
(1)
|
|
Options to purchase Exterran Holdings common stock,
awarded under the Universal Compression Holdings, Inc. Incentive
Stock Option Plan, vest on each anniversary date of grant at the
rate of one-third per year over a three-year period (except for
those of Mr. Snider, which will vest on his planned
retirement from Exterran Holdings and us by June 30,
2009) and have a term of ten years following the date of
grant.
|
78
|
|
|
(2)
|
|
Options to purchase Exterran Partners common units,
awarded under the Partnership Plan, that vested on
January 1, 2009.
|
|
(3)
|
|
Unit appreciation rights payable in cash by Exterran Holdings
that vested on January 1, 2009.
|
|
(4)
|
|
Options to purchase Exterran Holdings common stock,
awarded under the Stock Incentive Plan, vest on each anniversary
date of grant at the rate of one-third per year over a
three-year period (except for those of Mr. Snider, which
will vest on his planned retirement from Exterran Holdings and
us by June 30, 2009) and have a term of seven years
following the date of grant.
|
|
(5)
|
|
Based on the closing price of Exterran Holdings common
stock as of December 31, 2008 ($21.30).
|
|
(6)
|
|
Represents a grant of phantom units with tandem DERs under the
Partnership Plan that vest on each anniversary date of grant at
the rate of one-third per year over a three-year period (except
for those of Mr. Snider, which will vest on his planned
retirement from Exterran Holdings and us by June 30, 2009).
|
|
(7)
|
|
Based on the market closing price of our common units on
December 31, 2008 ($11.23).
|
Option
Exercises and Stock Vested for 2008
The following table provides additional information about the
value realized by the Named Executive Officers on option award
exercises and stock award vesting during the year ended
December 31, 2008. The value realized upon vesting
represents the total value to each Named Executive Officer and
does not represent the amount allocated to us.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
Number of
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
Shares
|
|
|
Value
|
|
|
of Shares
|
|
|
Value
|
|
|
|
Acquired on
|
|
|
Realized on
|
|
|
Acquired
|
|
|
Realized on
|
|
|
|
Exercise
|
|
|
Exercise
|
|
|
on Vesting
|
|
|
Vesting
|
|
Name
|
|
(#)
|
|
|
($)(1)
|
|
|
(#)
|
|
|
($)(2)
|
|
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
Stephen A. Snider
|
|
|
29,015
|
|
|
|
1,453,506
|
|
|
|
7,111
|
|
|
|
502,819
|
|
Daniel K. Schlanger
|
|
|
|
|
|
|
|
|
|
|
1,333
|
|
|
|
94,256
|
|
J. Michael Anderson
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
|
|
141,420
|
|
D. Bradley Childers
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
|
|
141,420
|
|
Donald C. Wayne
|
|
|
|
|
|
|
|
|
|
|
889
|
|
|
|
62,861
|
|
|
|
|
(1)
|
|
Represents the aggregate dollar value realized upon the exercise
of options to purchase Exterran Holdings common stock.
|
|
(2)
|
|
Represents the number of shares vested multiplied by the closing
market price of a share of Exterran Holdings common stock
on the date of vesting ($70.71).
|
Nonqualified
Deferred Compensation for 2008
The following table summarizes the Named Executive
Officers compensation under Exterran Holdings
nonqualified deferred compensation plans for the year ended
December 31, 2008. The numbers presented are the full
amounts received by each Named Executive Officer and have not
been adjusted to reflect the amount that was allocated to us.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Aggregate
|
|
|
|
|
|
Aggregate
|
|
|
|
Executive
|
|
|
Contributions in
|
|
|
Earnings (Losses)
|
|
|
Aggregate
|
|
|
Balance at
|
|
|
|
Contributions in
|
|
|
Last Fiscal
|
|
|
in Last
|
|
|
Withdrawals/
|
|
|
Last Fiscal
|
|
|
|
Last Fiscal Year
|
|
|
Year
|
|
|
Fiscal Year
|
|
|
Distributions
|
|
|
Year-End
|
|
Name
|
|
($)(1)
|
|
|
($)(2)
|
|
|
($)(3)
|
|
|
($)(4)
|
|
|
($)(5)
|
|
|
Stephen A. Snider
|
|
|
35,548
|
|
|
|
22,186
|
|
|
|
(1,100,693
|
)
|
|
|
30,628
|
|
|
|
1,599,516
|
|
Daniel K. Schlanger
|
|
|
37,500
|
|
|
|
8,582
|
|
|
|
(6,370
|
)
|
|
|
|
|
|
|
39,712
|
|
J. Michael Anderson
|
|
|
|
|
|
|
2,431
|
|
|
|
(77,232
|
)
|
|
|
|
|
|
|
101,953
|
|
D. Bradley Childers
|
|
|
19,948
|
|
|
|
15,367
|
|
|
|
(54,630
|
)
|
|
|
|
|
|
|
91,444
|
|
Donald C. Wayne
|
|
|
25,000
|
|
|
|
6,173
|
|
|
|
(4,247
|
)
|
|
|
|
|
|
|
26,926
|
|
79
|
|
|
(1)
|
|
Amounts shown represent contributions made by each Named
Executive Officer to the Deferred Compensation Plan during 2008.
|
|
(2)
|
|
Amounts shown represent matching contributions to each Named
Executive Officers Deferred Compensation Plan account
earned in 2008 but paid in the first quarter of 2009; these
amounts are also shown under All Other Compensation
in the Summary Compensation Table for 2008, above.
|
|
(3)
|
|
Amounts shown represent losses accrued under Exterran
Holdings nonqualified deferred compensation plans,
considering historical balances and Named Executive Officer and
Exterran Holdings matching contributions during 2008.
|
|
(4)
|
|
Amounts shown represent aggregate withdrawals by or
distributions to each Named Executive Officer during 2008.
|
|
(5)
|
|
Amounts shown represent the aggregate nonqualified deferred
compensation plan balance for each Named Executive Officer at
December 31, 2008, plus matching contributions earned in
2008 but paid in 2009.
|
Payments
and Potential Payments upon Change of Control
Exterran Holdings and Exterran GP LLC have decided, as a policy
matter, not to offer employment agreements to their executive
officers. Certain of our executive officers, including each of
the Named Executive Officers, have entered into a change of
control agreement with Exterran Holdings. Exterran Holdings
designed the change of control agreements to retain its
executives and provide continuity of management in the event of
any actual or potential change of control of Exterran Holdings.
Each such agreement provides that if, during the one-year period
following a change of control, the executives employment
is terminated other than for cause, death or disability, or the
executive terminates for good reason, then the executive will
receive a lump sum in cash within 60 days after the date of
termination (provided, however, that to the extent the executive
is a specified employee for purposes of Section 409A of the
Code, payment of amounts subject to Section 409A will be
delayed for six months from the date of termination) the
following:
|
|
|
|
|
an amount equal to the total of the executives earned but
unpaid base salary through the date of termination, plus the
executives target annual incentive bonus that would be
payable to the executive for that year prorated to the date of
termination, plus any earned but unpaid annual bonus for the
prior year, plus any portion of the executives earned but
unused vacation pay for that year;
|
|
|
|
an amount equal to two times (three times in the case of
Mr. Snider) the sum of the executives current annual
base salary and the target annual incentive bonus award that
would be payable to the executive for that year;
|
|
|
|
an amount equal to two times (three times in the case of
Mr. Snider) the executives basic and matching
contributions credited to the executive under the Exterran
401(k) Plan and any other deferred compensation plan during the
12-month
period immediately preceding the month of the executives
date of termination, such amount being grossed up so that the
amount the executive actually receives after payment of any
federal or state taxes equals the amount described above;
|
|
|
|
any amount previously deferred, or earned but not paid, by the
executive under the incentive and nonqualified deferred
compensation plans or programs as of the date of termination;
|
|
|
|
for a period of two years (three years in the case of
Mr. Snider) following the executives date of
termination, Exterran Holdings will provide company medical and
welfare benefits to the executive
and/or
the
executives family equal to those benefits that would have
been provided to such executive if the executives
employment had not been terminated; however, under the terms of
a separate agreement with Mr. Snider, Exterran Holdings has
agreed that he and his spouse will be entitled to continue to
participate at no cost in its medical benefit plan following his
retirement, provided he remains Exterran Holdings active
employee until the time of his retirement;
|
|
|
|
all stock options, restricted stock, restricted stock units or
other stock-based awards, and all common units, unit
appreciation rights, unit awards or other unit-based awards and
all cash-based incentive awards held by the executive that are
not vested, will vest; and
|
80
|
|
|
|
|
in the event that any payment or distribution Exterran Holdings
makes to or for the benefit of the executive would be subject to
a federal excise tax, the executive is entitled to receive an
additional
gross-up
payment.
|
All payments to a Named Executive Officer under the change of
control agreements would be made in exchange for a commitment
from the executive to not (1) disclose any confidential
information concerning Exterran Holdings during the two-year
period (a three-year period in the case of Mr. Snider)
following the termination of the executives employment,
(2) employ or seek to employ any key employee of Exterran
Holdings or solicit or encourage such key employee to terminate
his or her employment with Exterran Holdings during the two-year
period (a three-year period in the case of Mr. Snider)
following the termination of the executives employment and
(3) engage in a competitive business for a period of two
years (three years in the case of Mr. Snider) following the
executives termination.
Additionally, the Partnership Plan provides that, upon a change
of control (defined in the Partnership Plan to include
(1) any person or group, other than
affiliates, becoming the beneficial owner of 50% or more of the
voting power of the outstanding equity interests of Exterran
Holdings or the Partnership, (2) a person other than
Exterran Holdings, Exterran GP LLC or one of their affiliates
becoming the general partner of the Partnership or (3) the
sale or other disposition of all or substantially all of the
assets of Exterran Holdings, Exterran GP LLC or the
Partnership), all awards of phantom units (including the related
DERs) and unit options automatically vest and become payable or
exercisable, as the case may be. The Partnership Plan does not
require that the recipient of awards under the Partnership Plan
have his or her employment with Exterran Holdings or Exterran GP
LLC terminate following such change of control in order for
automatic vesting to occur. This single trigger
feature was incorporated into the Partnership Plan and the
awards under the Partnership Plan because it was consistent with
the long-term incentive plans of other publicly-traded
partnerships, reflecting their relatively unique situations as
controlled publicly-traded entities with few of their own
officers or employees.
Assuming the occurrence of a triggering event under the change
of control agreements and the Partnership Plan on
December 31, 2008, and assuming an Exterran Holdings stock
value of $21.30 per share and a Partnership common unit value of
$11.23 per unit (the December 31, 2008 closing prices,
respectively), Exterran Holdings and we estimate that the Named
Executive Officers would receive the following benefits
(excluding any tax
gross-ups
as
provided in certain of the change of control agreements):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partnership
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
|
|
|
Unit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Awards and
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Salary
|
|
|
|
|
|
and
|
|
|
Unit
|
|
|
Benefits
|
|
|
|
|
|
|
Current Year
|
|
|
and Target
|
|
|
Stock
|
|
|
Phantom
|
|
|
Appreciation
|
|
|
and
|
|
|
|
|
|
|
Target Bonus
|
|
|
Bonus
|
|
|
Options
|
|
|
Units
|
|
|
Rights
|
|
|
Perquisites
|
|
|
Total
|
|
Name
|
|
($)
|
|
|
($)(1)
|
|
|
($)(2)
|
|
|
($)(3)
|
|
|
($)(4)
|
|
|
($)(5)
|
|
|
($)
|
|
|
Stephen A. Snider
|
|
|
600,000
|
|
|
|
3,600,000
|
|
|
|
|
|
|
|
846,977
|
|
|
|
|
|
|
|
190,737
|
|
|
|
5,237,714
|
|
Daniel K. Schlanger
|
|
|
150,000
|
|
|
|
900,000
|
|
|
|
|
|
|
|
274,291
|
|
|
|
|
|
|
|
67,650
|
|
|
|
1,391,941
|
|
J. Michael Anderson
|
|
|
248,500
|
|
|
|
1,207,000
|
|
|
|
|
|
|
|
411,765
|
|
|
|
|
|
|
|
78,396
|
|
|
|
1,945,661
|
|
D. Bradley Childers
|
|
|
238,000
|
|
|
|
1,156,000
|
|
|
|
|
|
|
|
393,605
|
|
|
|
|
|
|
|
76,610
|
|
|
|
1,864,215
|
|
Donald C. Wayne
|
|
|
142,500
|
|
|
|
855,000
|
|
|
|
|
|
|
|
219,250
|
|
|
|
|
|
|
|
66,076
|
|
|
|
1,282,826
|
|
|
|
|
(1)
|
|
The amounts included in this column are calculated by adding
each Named Executive Officers current base salary and
target bonus and multiplying that sum by two (three in the case
of Mr. Snider), as specified in each Named Executive
Officers change of control agreement.
|
|
(2)
|
|
The amounts included in this column represent the value of
options to purchase Exterran Holdings common stock. All
stock options become fully vested upon a change of control. The
number of options currently unvested and outstanding at year end
for each Named Executive Officer is provided in column
(c) of the Outstanding Equity Awards at Fiscal Year-End for
2008 table above, and the value of such awards has been
calculated using the market closing price on December 31,
2008.
|
|
(3)
|
|
The amounts included in this column represent the value of
Exterran Holdings restricted stock and our phantom units
(including the related DERs). Upon a change of control, all
restricted shares and phantom
|
81
|
|
|
|
|
units will fully vest and the restrictions will lapse. The
number of restricted shares and phantom units that are unvested
and outstanding at year end for each Named Executive Officer is
provided in column (f) of the Outstanding Equity Awards at
Fiscal Year-End for 2008 table above, and the value of such
awards has been calculated using the market closing prices of
Exterran Holdings common stock ($21.30) and our common
units ($11.23), respectively, on December 31, 2008, with
the DERs accumulated through December 31, 2008 added to the
phantom unit values.
|
|
(4)
|
|
The amounts included in this column represent the value of
(a) options to purchase our common units and (b) unit
appreciation rights (related to our common units) payable by
Exterran Holdings. The number of unit options and unit
appreciation rights unvested and outstanding at year end for
each Named Executive Officer is provided in column (c) of
the Outstanding Equity Awards at Fiscal Year-End for 2008 table
above, and the value of such awards has been calculated using
the market closing prices of Exterran Holdings common
stock ($21.30) and our common units ($11.23), respectively, on
December 31, 2008.
|
|
(5)
|
|
The amounts included in this column represent each Named
Executive Officers right to the reimbursement of COBRA
premiums, 401(k) match and Deferred Compensation Plan matching
contributions for a two-year period (a three-year period in the
case of Mr. Snider).
|
Director
Compensation
Retainers
and Fees
Only the independent members of Exterran GP LLCs board of
directors receive compensation for their service as directors.
Messrs. Snider, Schlanger, Anderson, Childers and Danner,
who are executive officers of Exterran GP LLC, serve on the
board of directors but receive no compensation for such service.
Exterran GP LLCs board of directors has implemented a
program of cash and equity compensation for its independent
directors, consisting of:
|
|
|
|
|
an annual retainer of $35,000;
|
|
|
|
annual phantom unit compensation of $40,000 pursuant to the
Partnership Plan;
|
|
|
|
an annual retainer fee for the chairs of the audit committee,
conflicts committee and compensation committee of $10,000,
$5,000 and $5,000, respectively;
|
|
|
|
a fee per board of directors meeting of $1,500 if attended in
person or $500 if attended telephonically; and
|
|
|
|
a fee per committee meeting of (a) $1,500, whether attended
in person or telephonically, for each committee member who is a
chairperson, and (b) $1,500 if attended in person or $500
if attended telephonically, for each committee member who is a
non-chairperson.
|
In addition, each director is reimbursed for his reasonable
out-of-pocket expenses in connection with attending meetings of
the board of directors or committees. Each director will be
fully indemnified by us for actions associated with serving as a
director to the fullest extent permitted under Delaware law.
Equity-Based
Compensation
Independent directors are annually awarded phantom units under
the Partnership Plan. A phantom unit is a notional unit that
entitles the grantee to receive a common unit upon the vesting
of the phantom unit or, in the discretion of our compensation
committee, the cash equivalent to the value of a common unit.
Phantom units awarded to independent directors are granted with
tandem distribution equivalent rights, which are credited with
an amount equal to any cash distributions we make on common
units during the period such phantom units are outstanding and
are payable upon vesting of the tandem phantom units without
interest.
82
During the year ended December 31, 2008, the directors of
Exterran GP LLC earned compensation as set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or
|
|
|
|
|
|
|
|
|
|
Paid in Cash
|
|
|
Stock Awards
|
|
|
Total
|
|
Director
|
|
($)(1)
|
|
|
($)(2)
|
|
|
($)
|
|
|
James G. Crump
|
|
|
76,212
|
|
|
|
40,203
|
|
|
|
116,415
|
|
George S. Finley
|
|
|
60,712
|
|
|
|
36,535
|
|
|
|
97,247
|
|
Mark A. McCollum
|
|
|
53,712
|
|
|
|
40,203
|
|
|
|
93,915
|
|
|
|
|
(1)
|
|
Amounts shown represent fees earned by the directors for the
twelve months ended December 31, 2008.
|
|
(2)
|
|
Amounts shown represent the compensation cost we recognized in
2008 related to awards of phantom units, as described in
SFAS No. 123R. For a discussion of valuation
assumptions, see Note 8 to our consolidated financial
statements included elsewhere in this report.
|
Compensation
Committee Interlocks and Insider Participation
Messrs. Finley (chair), Crump and McCollum served on our
compensation committee during 2008. There were no compensation
committee interlocks or insider participation during 2008.
|
|
ITEM 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
Securities
Authorized for Issuance Under Equity Compensation
Plans
The following table sets forth information as of
December 31, 2008, with respect to the compensation plans
under which our common units are authorized for issuance,
aggregated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c)
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
Remaining Available for
|
|
|
|
(a)
|
|
|
(b)
|
|
|
Future Issuance Under
|
|
|
|
Number of Securities to be
|
|
|
Weighted-Average
|
|
|
Equity Compensation
|
|
|
|
Issued Upon Exercise of
|
|
|
Exercise Price of
|
|
|
Plans (Excluding
|
|
|
|
Outstanding Options,
|
|
|
Outstanding Options,
|
|
|
Securities Reflected in
|
|
|
|
Warrants and Rights
|
|
|
Warrants and Rights
|
|
|
Column (a))
|
|
Plan Category
|
|
(#)
|
|
|
($)
|
|
|
(#)
|
|
|
Equity compensation plans approved by security holders
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
Equity compensation plans not approved by security holders(1)
|
|
|
637,957
|
|
|
|
23.77
|
|
|
|
397,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
637,957
|
|
|
|
23.77
|
|
|
|
397,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes phantom unit grants to Messrs. Crump, McCollum and
Finley in the amounts of 6,305, 6,305 and 5,912, respectively,
and aggregate phantom unit grants to senior officers and other
employees in the amount of 38,720. Excluding phantom unit
grants, the responses are as follows: (a) 580,715,
(b) $24.60 and (c) 454,663. For more information about
our Long-Term Incentive Plan, which did not require approval by
our unitholders, refer to Item 11 (Executive
Compensation Compensation Discussion and
Analysis Compensation Policy Components
Long-Term Incentives Exterran Partners Long-Term
Incentives) of this report.
|
83
Security
Ownership of Certain Beneficial Owners
The following table sets forth information as of
February 20, 2009, with respect to persons known to us to
be the beneficial owners of more than five percent of our
outstanding limited partner units. Beneficial ownership is
determined in accordance with the rules of the SEC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
|
|
Aggregate
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
Subordinated
|
|
|
|
|
|
Percent of
|
|
|
|
Units
|
|
|
Percent of
|
|
|
Units
|
|
|
Percent of
|
|
|
Total Units
|
|
Name and Address of
|
|
Beneficially
|
|
|
Common
|
|
|
Beneficially
|
|
|
Subordinated
|
|
|
Beneficially
|
|
Beneficial Owner
|
|
Owned
|
|
|
Units(1)
|
|
|
Owned
|
|
|
Units(2)
|
|
|
Owned(3)
|
|
|
Kayne Anderson Capital Advisors, L.P.
and Richard A. Kayne(4)
1800 Avenue of the Stars,
Second Floor
Los Angeles, CA 90067
|
|
|
1,750,484
|
|
|
|
13.7
|
%
|
|
|
|
|
|
|
|
|
|
|
9.2
|
%
|
Wells Fargo & Company(5)
420 Montgomery, Street
San Francisco, CA 94163
|
|
|
729,062
|
|
|
|
5.7
|
%
|
|
|
|
|
|
|
|
|
|
|
3.8
|
%
|
Exterran Holdings, Inc.
16666 Northchase Drive
Houston, TX 77060
|
|
|
4,428,067
|
|
|
|
34.7
|
%
|
|
|
6,325,000
|
|
|
|
100
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%
|
|
|
56.3
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%
|
|
|
|
(1)
|
|
Reflects the common units beneficially owned as a percentage of
12,773,069 common units outstanding.
|
|
(2)
|
|
Reflects the subordinated units beneficially owned as a
percentage of 6,325,000 subordinated units outstanding.
|
|
(3)
|
|
As a percentage of the total limited partner interest. When
taking into consideration the 2% general partner interest, the
percentages reflected in this column are 9.0%, 3.7% and 57.3%
(including the general partner interest), respectively.
|
|
(4)
|
|
Based solely on a review of the Schedule 13G/A jointly
filed by Kayne Anderson Capital Advisors, L.P. and Richard A.
Kayne on February 13, 2009.
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|
(5)
|
|
Based solely on a review of the Schedule 13G filed by Wells
Fargo & Company on January 29, 2009.
|
84
Security
Ownership of Management
The following table sets forth information as of
February 20, 2009, with respect to our common units
beneficially owned by Exterran GP LLCs directors, Named
Executive Officers and all of our current directors and
executive officers as a group. Each beneficial owner has sole
voting and investment power with respect to all the units
attributed to him. The address for each executive officer and
director listed below is
c/o Exterran
GP LLC, 16666 Northchase Drive, Houston, Texas 77060.
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|
|
|
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|
|
|
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|
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|
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|
Units
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Owned
|
|
|
Unit
|
|
|
Phantom
|
|
|
Total
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|
|
Percent of
|
|
Name of Beneficial Owner
|
|
Directly
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|
|
Options(1)
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|
|
Units(2)
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|
Ownership
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|
|
Class
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|
|
Stephen A. Snider
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|
|
100,000
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85,714
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|
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3,104
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|
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|
188,818
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1.5
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%
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Ernie L. Danner
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|
|
112,968
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|
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|
64,286
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1,864
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177,254
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|
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1.4
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%
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Daniel K. Schlanger
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12,500
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117,857
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1,240
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131,597
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|
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1.0
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%
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J. Michael Anderson
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10,000
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64,286
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|
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1,864
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|
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76,150
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*
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|
Donald C. Wayne
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2,500
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10,714
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1,034
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|
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14,248
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|
|
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*
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|
D. Bradley Childers
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42,857
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|
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1,760
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|
|
|
44,617
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|
|
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*
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|
James G. Crump
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2,000
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2,000
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*
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|
Mark A. McCollum
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2,000
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2,000
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*
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|
George S. Finley
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1,607
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1,607
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|
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*
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|
All directors and executive officers as a group (10 persons)
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670,698
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|
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5.1
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%
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|
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*
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|
Less than 1%.
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(1)
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|
Units that can be acquired immediately or within 60 days of
February 20, 2009 through the exercise of unit options.
With the exception of 107,143 unit options held by
Mr. Schlanger, which have an exercise price of $21.00, all
other unit options have an exercise price of $25.94. The market
closing price of our common units on February 20, 2009 was
$13.05.
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(2)
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Phantom units that vest within 60 days of February 20,
2009.
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85
|
|
ITEM 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
Transactions
with Related Persons
Distributions
and Payments to Our General Partner and its
Affiliates
As of December 31, 2008, Exterran and its subsidiaries own
6,325,000 subordinated units and 4,428,067 common units, which
together constitute a 56% limited partner interest in our
aggregate outstanding common and subordinated units, and 389,642
general partner units, which constitute the entire 2% general
partner interest, resulting collectively in a 57% effective
ownership interest in us. Exterran Holdings is, therefore, a
related person relative to us under SEC regulations,
and we believe that Exterran Holdings has and will have a direct
and indirect material interest in its various transactions with
us.
The following summarizes the distributions and payments made or
to be made by us to our general partner and its affiliates in
connection with the formation, ongoing operation and any
liquidation of Exterran Partners, L.P. These distributions and
payments were determined by and among affiliated entities and,
consequently, were not the result of arms-length
negotiations.
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|
Operational Stage
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|
|
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|
|
Distributions of available cash to our general partner and its
affiliates
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|
We will generally make cash distributions 98% to our unitholders
on a pro rata basis, including our general partner and its
affiliates, as the holders of 6,325,000 subordinated units and
4,428,067 common units, and 2% to our general partner. In
addition, if distributions exceed the minimum quarterly
distribution and other higher target distribution levels, then
our general partner is entitled to increasing percentages of the
distributions, up to 50% of the distributions above the highest
target distribution level.
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|
For the year ended December 31, 2008, our general partner and
its affiliates received aggregate distributions of approximately
$1.1 million on their general partner units, including
distributions on our general partners incentive
distribution rights, $5.6 million on their common units and
$11.0 million on their subordinated units. On February 13, 2009,
our general partner and its affiliates received a quarterly
distribution with respect to the period from October 1, 2008 to
December 31, 2008, of approximately $0.4 million on their
general partner units, including distributions on our general
partners incentive distribution rights, $2.0 million on
their common units and $2.9 million on their subordinated units.
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|
Payments to our general partner and its affiliates
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|
Subject to certain caps, we reimburse Exterran Holdings and its
affiliates for the payment of all direct and indirect expenses
incurred on our behalf. For further information regarding the
reimbursement of these expenses, please read
Omnibus Agreement below.
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|
Withdrawal or removal of our general partner
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|
If our general partner withdraws or is removed, its general
partner interest and its incentive distribution rights will
either be sold to the new general partner for cash or converted
into common units, in each case for an amount equal to the fair
market value of those interests.
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|
Liquidation Stage
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Liquidation
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|
Upon our liquidation, the partners, including our general
partner, will be entitled to receive liquidating distributions
according to their respective capital account balances.
|
Pursuant to the terms of our Omnibus Agreement (as described
below), we reimburse Exterran Holdings for (1) allocated
expenses of operational personnel who perform services for our
benefit, (2) direct costs incurred
86
with operating and maintaining our assets and (3) allocated
SG&A expenses. Our general partner does not receive any
management fee or other compensation for its management of us.
Our general partner and its affiliates are reimbursed for all
expenses incurred on our behalf, including the compensation of
employees of Exterran Holdings that perform services on our
behalf. These expenses include all expenses necessary or
appropriate to the conduct of our business and that are
allocable to us. Our partnership agreement provides that our
general partner will determine in good faith the expenses that
are allocable to us. Except as provided in the Omnibus
Agreement, there is no cap on the amount that may be paid or
reimbursed to our general partner or its affiliates for
compensation or expenses incurred on our behalf.
July
2008 Contract Operations Acquisition
In connection with the July 2008 Contract Operations
Acquisition, we acquired from Exterran Holdings contract
operations customer service agreements with 34 customers and a
fleet of approximately 620 compressor units used to provide
compression services under those agreements having a net book
value of $133.9 million, net of accumulated depreciation of
$16.5 million, and comprising approximately 254,000
horsepower, or 6% (by then available horsepower) of the combined
U.S. contract operations business of Exterran Holdings and
us. In exchange, we assumed $175.3 million of debt from
Exterran Holdings and issued to Exterran Holdings approximately
2.4 million common units and approximately 49,000 general
partner units. Concurrent with the closing of the July 2008
Contract Operations Acquisition, we borrowed $117.5 million
under our term loan and $58.3 million under our revolving
credit facility, which together were used to repay the debt
assumed from Exterran Holdings in the acquisition and to pay
other costs incurred in the acquisition.
Omnibus
Agreement
We are party to an Omnibus Agreement with Exterran Holdings, our
general partner, and others, the terms of which are described
below. The Omnibus Agreement (other than the indemnification
obligations described below under
Indemnification for Environmental and Related
Liabilities) will terminate upon a change of control of
our general partner or the removal or withdrawal of our general
partner, and certain provisions will terminate upon a change of
control of Exterran Holdings.
Non-competition
Under the Omnibus Agreement, subject to the provisions described
below, Exterran Holdings agreed not to offer or provide
compression services in the U.S. to our contract operations
services customers that are not also contract operations service
customers of Exterran Holdings. Compression services are defined
to include the provision of natural gas contract compression
services, but exclude fabrication of compression equipment,
sales of compression equipment or material, parts or equipment
that are components of compression equipment, leasing of
compression equipment without also providing related compression
equipment service and operating, maintenance, service, repairs
or overhauls of compression equipment owned by third parties. In
addition, under the Omnibus Agreement, we agreed not to offer or
provide compression services to Exterran Holdings
U.S. contract operations services customers that are not
also contract operations service customers of ours.
As a result of the merger between Hanover and Universal, at the
time of execution of the Omnibus Agreement with Exterran
Holdings, some of our customers were also contract operations
services customers of Exterran Holdings, which we refer to as
overlapping customers. We and Exterran Holdings have agreed,
subject to the exceptions described below, not to provide
contract operations services to an overlapping customer at any
site at which the other was providing such services to an
overlapping customer on the date of execution of the Omnibus
Agreement, each being referred to as a Partnership
site or Exterran site. After the date of the
agreement, if an overlapping customer requests contract
operations services at a Partnership site or an Exterran site,
whether in addition to or in the replacement of the equipment
existing at such site on the date of the agreement, we will be
entitled to provide contract operations services if such
overlapping customer is a previously specified customer of ours
(a partnership overlapping customer), and Exterran
Holdings will be entitled to provide such contract operations
services if such overlapping customer is a previously specified
customer of Exterran Holdings (an Exterran overlapping
customer). Additionally, any additional contract
87
operations services provided to a partnership overlapping
customer will be provided by us and any additional services
provided to an Exterran overlapping customer will be provided by
Exterran Holdings.
Exterran Holdings also agreed that new customers for contract
compression services (neither our customers nor customers of
Exterran Holdings for U.S. contract compression services)
are for our account unless the new customer is unwilling to
contract with us or unwilling to do so under our form of
compression services agreement. If a new customer is unwilling
to enter into such an arrangement with us, then Exterran
Holdings may provide compression services to the new customer.
In the event that either we or Exterran Holdings enter into a
contract to provide compression services to a new customer,
either we or Exterran Holdings, as applicable, will receive the
protection of the applicable non-competition arrangements
described above in the same manner as if such new customer had
been a compression services customer of either us or Exterran
Holdings at the time of entry into the Omnibus Agreement.
The non-competition arrangements described above do not apply to:
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|
|
|
|
our provision of contract compression services to a particular
Exterran Holdings customer or customers, with the approval of
Exterran Holdings;
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|
|
|
Exterran Holdings provision of contract compression
services to a particular customer or customers of ours, with the
approval of the conflicts committee of the board of directors of
the general partner;
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|
|
|
our purchase and ownership of not more than five percent of any
class of securities of any entity which provides contract
compression services to the contract compression services
customers of Exterran Holdings;
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|
|
|
Exterran Holdings purchase and ownership of not more than
five percent of any class of securities of any entity which
provides contract compression services to our contract
compression services customers;
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|
|
|
Exterran Holdings ownership of us;
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|
|
|
our acquisition, ownership and operation of any business that
provides contract compression services to Exterran
Holdings contract compression services customers if
Exterran Holdings has been offered the opportunity to purchase
the business for its fair market value from us and Exterran
Holdings declines to do so. However, if neither the Omnibus
Agreement nor the non-competition arrangements described above
have already terminated, we will agree not to provide contract
compression services to Exterran Holdings customers that
are also customers of the acquired business at the sites at
which Exterran Holdings is providing contract operations
services to them at the time of the acquisition;
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|
|
Exterran Holdings acquisition, ownership and operation of
any business that provides contract compression services to our
contract operations services customers if we have been offered
the opportunity to purchase the business for its fair market
value from Exterran Holdings and we decline to do so with the
concurrence of the conflicts committee of the board of directors
of the general partner. However, if neither the Omnibus
Agreement nor the non-competition arrangements described above
have already terminated, Exterran Holdings will agree not to
provide contract operations services to our customers that are
also customers of the acquired business at the sites at which we
are providing contract operations services to them at the time
of the acquisition; or
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|
|
|
a situation in which one of our customers (or its applicable
business) and a customer of Exterran Holdings (or its applicable
business) merge or are otherwise combined, in which case, each
of we and Exterran Holdings may continue to provide contract
operations services to the applicable combined entity or
business without being in violation of the non-competition
provisions, but Exterran Holdings and the conflicts committee of
the board of directors of the general partner must negotiate in
good faith to implement procedures or such other arrangements,
as necessary, to protect the value to each of Exterran Holdings
and us of the business of providing contract operations services
to each such customer or its applicable business, as applicable.
|
88
Unless the Omnibus Agreement is terminated earlier due to a
change of control of our general partner or the removal or
withdrawal of our general partner, or from a change of control
of Exterran Holdings, the non-competition provisions of the
Omnibus Agreement will terminate on August 20, 2010 or on
the date on which a change of control of Exterran Holdings
occurs, whichever event occurs first. If a change of control of
Exterran Holdings occurs, and neither the Omnibus Agreement nor
the non-competition arrangements have already terminated,
Exterran Holdings will agree for the remaining term of the
non-competition arrangements not to provide contract operations
services to our customers at the sites at which we are providing
contract operations services to them at the time of the change
of control.
Indemnification
for Environmental and Related Liabilities
Under the Omnibus Agreement, Exterran Holdings has agreed to
indemnify us until October 20, 2009 against certain
potential environmental claims, losses and expenses associated
with the operation of our assets and occurring before the
closing date of the initial public offering. Exterran
Holdings maximum liability for this indemnification
obligation will not exceed $5 million and Exterran Holdings
will not have any obligation under this indemnification until
our aggregate losses exceed $250,000. Exterran Holdings will
have no indemnification obligations with respect to
environmental claims made as a result of additions to or
modifications of environmental laws promulgated after the
closing date of the initial public offering. We have agreed to
indemnify Exterran Holdings against environmental liabilities
related to our assets to the extent Exterran Holdings is not
required to indemnify us.
Additionally, Exterran Holdings will indemnify us for losses
attributable to title defects, retained assets and income taxes
attributable to pre-closing operations. We will indemnify
Exterran Holdings for all losses attributable to the
post-closing operations of the assets contributed to us, to the
extent not subject to Exterran Holdings indemnification
obligations. For the year ended December 31, 2008, there
were no requests for indemnification by either party.
Purchase
of New Compression Equipment from Exterran Holdings
Pursuant to the Omnibus Agreement, we are permitted to purchase
newly fabricated compression equipment from Exterran Holdings or
its affiliates at Exterran Holdings cost to fabricate such
equipment plus a fixed margin of 10%, which may be modified with
the approval of Exterran Holdings and the conflicts committee of
the board of directors of the general partner. During the year
ended December 31, 2008, we purchased $9.8 million of
new compression equipment from Exterran Holdings.
Transfer
of Compression Equipment with Exterran Holdings
Pursuant to the Omnibus Agreement, in the event that Exterran
Holdings determines in good faith that there exists a need on
the part of Exterran Holdings contract operations services
business or on our part to transfer compression equipment
between Exterran Holdings and us so as to fulfill the
compression services obligations of either of Exterran Holdings
or us, such equipment may be so transferred if it will not cause
us to breach any existing contracts or to suffer a loss of
revenue under an existing compression services contract or incur
any unreimbursed costs.
In consideration for such transfer of compression equipment, the
transferee will either (1) transfer to the transferor
compression equipment equal in value to the appraised value of
the compression equipment transferred to it; (2) agree to
lease such compression equipment from the transferor; or
(3) pay the transferor an amount in cash equal to the
appraised value of the compression equipment transferred
to it.
Unless the Omnibus Agreement is terminated earlier as discussed
above, the transfer of compression equipment provisions
described above will terminate in October 2009.
For the year ended December 31, 2008, we had revenues of
$1.4 million from Exterran Holdings related to the lease of
our compression equipment. For the year ended December 31,
2008, we had cost of sales of $8.1 million with Exterran
Holdings related to the lease of compression equipment.
89
Reimbursement
of Operating and SG&A Expense
Exterran Holdings provides all operational staff, corporate
staff and support services reasonably necessary to run our
business. The services provided by Exterran Holdings may
include, without limitation, operations, marketing, maintenance
and repair, periodic overhauls of compression equipment,
inventory management, legal, accounting, treasury, insurance
administration and claims processing, risk management, health,
safety and environmental, information technology, human
resources, credit, payroll, internal audit, taxes, facilities
management, investor relations, enterprise resource planning
(ERP) system, training, executive, sales, business
development and engineering.
Costs incurred by Exterran Holdings directly attributable to us
are charged to us in full. Costs incurred by Exterran Holdings
that are indirectly attributable to us and Exterran
Holdings other operations are allocated among us and
Exterran Holdings other operations. The allocation
methodologies vary based on the nature of the charge and
include, among other things, revenue and horsepower. We believe
that the allocation methodologies used to allocate indirect
costs to us are reasonable. Included in our SG&A expense
for the year ended December 31, 2008 is $16.3 million
of indirect costs incurred by Exterran Holdings.
Exterran Holdings has agreed that, for a period that will
terminate on December 31, 2009, our obligation to reimburse
Exterran Holdings for (1) any cost of sales that it incurs
in the operation of our business will be capped at an amount
equal to $21.75 per operating horsepower per quarter (after
taking into account any such costs that we incur and pay
directly); and (2) any SG&A costs allocated to us will
be capped at $6.0 million per quarter (after taking into
account any such costs that we incur and pay directly). These
caps may be subject to increases in connection with expansions
of our operations through the acquisition or construction of new
assets or businesses.
For the year ended December 31, 2008, our cost of sales
exceeded the cap by $12.5 million, and our SG&A
expenses exceeded the cap by $0.1 million. The excess
amount over the cap is being accounted for as a capital
contribution.
Indemnification
of Directors and Officers
Under our partnership agreement, in most circumstances, we will
indemnify the following persons, to the fullest extent permitted
by law, from and against all losses, claims, damages or similar
events:
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|
|
our general partner;
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|
|
any departing general partner;
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|
|
any person who is or was an affiliate of a general partner or
any departing general partner;
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|
|
|
any person who is or was a director, officer, member, partner,
fiduciary or trustee of any entity set forth in the preceding
three bullet points;
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|
|
any person who is or was serving as director, officer, member,
partner, fiduciary or trustee of another person at the request
of our general partner or any departing general partner; and
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|
|
|
any person designated by our general partner.
|
Any indemnification under these provisions will only be made out
of our assets. Unless it otherwise agrees, our general partner
will not be personally liable for, or have any obligation to
contribute or lend funds or assets to us to enable us to
effectuate, indemnification. We may purchase insurance against
liabilities asserted against and expenses incurred by persons
for our activities, regardless of whether we would have the
power to indemnify the person against liabilities under our
partnership agreement.
Review,
Approval or Ratification of Transactions with Related
Persons
The related person transactions in which we engaged in 2008 were
typically of a recurring, ordinary course nature and were
previously made known to the board of directors of the general
partner and generally were of the sort contemplated by the
Omnibus Agreement. While we do not have formal, specified
policies or
90
procedures for the review, approval or ratification of
transactions required to be reported under paragraph (a) of
Regulation S-K
Item 404, as related person transactions may result in
potential conflicts of interest among management and board-level
decision makers, our partnership agreement does set forth
procedures that the board of directors of the general partner
may utilize in connection with resolutions of potential
conflicts of interest, including the referral of such matters to
an independent conflicts committee for its review and approval
or disapproval of such matters.
In connection with our initial public offering, the board of
directors of the general partner established a conflicts
committee to carry out certain duties set forth in our
partnership agreement and the Omnibus Agreement, and to carry
out any other duties delegated by the general partners
board of directors that involve or relate to conflicts of
interests between us and Exterran Holdings, including its
operating subsidiaries.
The conflicts committee is charged with acting on an informed
basis, in good faith and with an honest belief that any action
taken by the conflicts committee is in our best interests. In
taking any such action, including the resolution of any conflict
of interest, the conflicts committee is authorized to consider
any factors the conflicts committee determines in its sole
discretion to be relevant, reasonable or appropriate under the
circumstances.
Director
Independence
Please see Part III, Item 10 (Directors,
Executive Officers and Corporate Governance Board
of Directors) of this report for a discussion of director
independence matters.
|
|
ITEM 14.
|
Principal
Accountant Fees and Services
|
During the years ended December 31, 2008 and 2007, fees for
professional services rendered by our independent registered
public accounting firm, Deloitte & Touche LLP, were
billed to Exterran Holdings and then charged to us. The services
rendered during both the years ended December 31, 2008 and
2007 were for the audit of our annual financial statements and
work related to registration statements and were approximately
$0.2 million. All of the fees during each of the periods
were Audit Fees, and none of those fees constituted
Audit-Related Fees, Tax Fees or
All other fees, in each case, as such terms are
defined by the SEC.
In considering the nature of the services provided by
Deloitte & Touche LLP, the audit committee determined
that such services are compatible with the provision of
independent audit services. The audit committee discussed these
services with the independent auditor and Exterran GP LLC
management to determine that they are permitted under the rules
and regulations concerning auditor independence promulgated by
the SEC to implement the Sarbanes-Oxley Act of 2002, as well as
the American Institute of Certified Public Accountants.
The services performed by the independent registered public
accounting firm during 2008 and 2007 were approved in advance by
the audit committee of Exterran GP LLC. Any requests for audit,
audit-related, tax and other services to be performed by
Deloitte & Touche LLP must be submitted to Exterran GP
LLCs audit committee for pre-approval. Normally,
pre-approval is provided at regularly scheduled meetings.
However, the authority to grant pre-approval between meetings,
as necessary, has been delegated to the audit committee chair,
or, in the absence or unavailability of the chair, one of the
other members. Any such pre-approval must be reviewed at the
next regularly scheduled audit committee meeting.
91
PART IV
|
|
ITEM 15.
|
Exhibits
and Financial Statement Schedules
|
(a)
The following documents are filed as part of this
Report:
1.
Financial Statements
The financial
statements of Exterran Partners, L.P. and Exterran Partners
Predecessor listed in the accompanying Index to Consolidated
Financial Statements on
page F-1
are filed as part of this annual report and such Index to
Consolidated Financial Statements is incorporated herein by
reference.
(b)
Exhibits
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
2
|
.1
|
|
Contribution, Conveyance and Assumption Agreement, dated
June 25, 2008, by and among Exterran Holdings, Inc.,
Hanover Compressor Company, Hanover Compression General
Holdings, LLC, Exterran Energy Solutions, L.P., Exterran ABS
2007 LLC, Exterran ABS Leasing 2007 LLC, EES Leasing LLC, EXH GP
LP LLC, Exterran GP LLC, EXH MLP LP LLC, Exterran General
Partner, L.P., EXLP Operating LLC, EXLP Leasing LLC and Exterran
Partners, L.P., incorporated by reference to Exhibit 2.1 to
the Registrants Current Report on
Form 8-K
filed on June 26, 2008
|
|
3
|
.1
|
|
Certificate of Limited Partnership of Universal Compression
Partners, L.P., incorporated by reference to Exhibit 3.1 to
the Registrants Registration Statement on
Form S-1
filed on June 27, 2006
|
|
3
|
.2
|
|
Certificate of Amendment to Certificate of Limited Partnership
of Universal Compression Partners, L.P. (now Exterran Partners,
L.P.), dated as of August 20, 2007, incorporated by
reference to Exhibit 3.1 to the Registrants Current
Report on
Form 8-K
filed on August 24, 2007
|
|
3
|
.3
|
|
First Amended and Restated Agreement of Limited Partnership of
Exterran Partners, L.P., as amended, incorporated by reference
to Exhibit 3.3 to the Registrants Quarterly Report on
form 10-Q
for the quarter ended March 31, 2008
|
|
3
|
.4
|
|
Certificate of Partnership of UCO General Partner, LP,
incorporated by reference to Exhibit 3.3 to the
Registrants Registration Statement on
Form S-1
filed on June 27, 2006
|
|
3
|
.5
|
|
Amended and Restated Limited Partnership Agreement of UCO
General Partner, LP, incorporated by reference to
Exhibit 3.2 to the Registrants Current Report on
Form 8-K
filed on October 26, 2006
|
|
3
|
.6
|
|
Certificate of Formation of UCO GP, LLC, incorporated by
reference to Exhibit 3.5 to the Registrants
Registration Statement on
Form S-1
filed June 27, 2006
|
|
3
|
.7
|
|
Amended and Restated Limited Liability Company Agreement of UCO
GP, LLC, incorporated by reference to Exhibit 3.3 to the
Registrants Current Report on
Form 8-K
filed on October 26, 2006
|
|
10
|
.1
|
|
Omnibus Agreement, dated October 20, 2006, by and among
Universal Compression Partners, L.P. (now Exterran Partners,
L.P.), UC Operating Partnership, L.P., UCO GP, LLC, UCO General
Partner, LP, Universal Compression, Inc., Universal Compression
Holdings, Inc. and UCLP OLP GP LLC, incorporated by reference to
Exhibit 10.3 to the Registrants Current Report on
Form 8-K
filed on October 26, 2006
|
|
10
|
.2
|
|
First Amendment to Omnibus Agreement, dated July 9, 2007,
by and among Universal Compression Partners, L.P. (now Exterran
Partners, L.P.), Universal Compression Holdings, Inc., Universal
Compression, Inc., UCO GP, LLC, UCO General Partner, LP and UCLP
Operating LLC, incorporated by reference to Exhibit 10.1 to
the Registrants Current Report on
Form 8-K
filed on July 11, 2007
|
|
10
|
.3
|
|
First Amended and Restated Omnibus Agreement, dated
August 20, 2007, by and among Exterran Holdings, Exterran,
Inc. (formerly known as Universal Compression, Inc.), UCO GP,
LLC, UCO General Partner, LP, EXLP Operating LLC (formerly known
as UCLP Operating LLC) and Exterran Energy Solutions, L.P.
(portions of this exhibit have been omitted and filed separately
with the Securities and Exchange Commission pursuant to a
confidential treatment request under
Rule 24b-2
of the Securities Exchange Act of 1934, as amended),
incorporated by reference to Exhibit 10.3 to the
Registrants Quarterly Report on
Form 10-Q
filed on November 6, 2007
|
92
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
10
|
.4
|
|
Amendment No. 1, dated as of July 30, 2008, to First
Amended and Restated Omnibus Agreement, dated as of
August 20, 2007, by and among Exterran Holdings, Inc.,
Exterran Energy Solutions, L.P., Exterran GP LLC, Exterran
General Partner, L.P., EXLP Operating LLC and Exterran Partners,
L.P., incorporated by reference to Exhibit 10.1 of the
Registrants Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2008
|
|
10
|
.5
|
|
Amended and Restated Contribution Conveyance and Assumption
Agreement, dated July 6, 2007, by and among Universal
Compression Partners, L.P. (now Exterran Partners, L.P.),
Universal Compression, Inc., UCO Compression 2005 LLC, UCI
Leasing LLC, UCO GP, LLC, UCI GP LP LLC, UCO General Partner,
LP, UCI MLP LP LLC, UCLP Operating LLC and UCLP Leasing LLC.,
incorporated by reference to Exhibit 2.1 to the
Registrants Current Report on
Form 8-K
filed on July 11, 2007
|
|
10
|
.6
|
|
Senior Secured Credit Agreement, dated October 20, 2006, by
and among UC Operating Partnership, L.P., as Borrower, Universal
Compression Partners, L.P. (now Exterran Partners, L.P.), as
Guarantor, Wachovia Bank, National Association, as
Administrative Agent, Deutsche Banc Trust Company Americas,
as Syndication Agent, Fortis Capital Corp and Wells Fargo Bank,
National Association, as Co-Documentation Agents and the other
lenders signatory thereto, incorporated by reference to
Exhibit 10.1 to the Registrants Current Report on
Form 8-K
filed on October 26, 2006
|
|
10
|
.7
|
|
Guaranty Agreement dated as of October 20, 2006 made by
Universal Compression Partners, L.P. (now Exterran Partners,
L.P.) as Guarantor, UCLP OLP GP LLC, as Guarantor and UCLP
Leasing, L.P., as Guarantor and each of the other Guarantors in
favor of Wachovia Bank, National Association, as Administrative
Agent, incorporated by reference to Exhibit 10.7 to the
Registrants Annual Report on
Form 10-K
filed on March 30, 2007
|
|
10
|
.8
|
|
Collateral Agreement dated as of October 20, 2006 made by
UC Operating Partnership, L.P., UCLP OLP GP LLC, Universal
Compression Partners, L.P. (now Exterran Partners, L.P.) and
UCLP Leasing, L.P. in favor of Wachovia Bank, National
Association, as US Administrative Agent, incorporated by
reference to Exhibit 10.8 to the Registrants Annual
Report on
Form 10-K
filed on March 30, 2007
|
|
10
|
.9
|
|
First Amendment to Loan Documents, dated May 8, 2008, by
and among EXLP Operating LLC, as Borrower, Exterran Partners,
L.P., as Guarantor, EXLP Leasing LLC, as Guarantor, Wachovia
Bank, National Association, as Administrative Agent and the
other lenders party thereto, incorporated by reference to
Exhibit 10.2 to the Registrants Quarterly Report on
form 10-Q
for the quarter ended March 31, 2008
|
|
10
|
.10
|
|
Registration Rights Agreement dated July 9, 2007, by and
among Universal Compression Partners, L.P. (now Exterran
Partners, L.P.), Kayne Anderson Energy Total Return Fund, Inc.
and each party listed as signatory thereto, incorporated by
reference to Exhibit 10.3 to the Registrants
Quarterly Report on
Form 10-Q
filed on August 7, 2007
|
|
10
|
.11
|
|
Common Unit Purchase Agreement dated June 19, 2007,
incorporated by reference to Exhibit 10.1 to the
Registrants Current Report on
Form 8-K
filed on June 25, 2007
|
|
10
|
.12
|
|
Universal Compression Partners, L.P. Long-Term Incentive Plan,
incorporated by reference to Exhibit 10.2 to Amendment
No. 3 to the Registrants Registration Statement on
Form S-1
filed October 4, 2006
|
|
10
|
.13
|
|
First Amendment to Exterran Partners, L.P. Long-Term Incentive
Plan, incorporated by reference to Exhibit 10.1 to the
Registrants Current Report on
Form 8-K
filed February 29, 2008
|
|
10
|
.14
|
|
Second Amendment to Exterran Partners, L.P. Long-Term Incentive
Plan, incorporated by reference to Exhibit 10.1 to the
Registrants Current Report on
Form 8-K
filed October 30, 2008
|
|
10
|
.15*
|
|
Third Amendment to Exterran Partners, L.P. Long-Term Incentive
Plan
|
|
10
|
.16
|
|
Form of Grant of Phantom Units, incorporated by reference to
Exhibit 10.5 to Amendment No. 3 to the
Registrants Registration Statement on
Form S-1
filed October 4, 2006
|
|
10
|
.17
|
|
Form of Grant of Options, incorporated by reference to
Exhibit 10.4 to Amendment No. 3 to the
Registrants Registration Statement on
Form S-1
filed October 4, 2006
|
93
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
10
|
.18*
|
|
Form of Amendment to Grant of Options
|
|
10
|
.19
|
|
Form of Amendment No. 2 to Grant of Options, incorporated
by reference to Exhibit 10.2 to the Registrants
Current Report on
Form 8-K
filed October 30, 2008
|
|
10
|
.20*
|
|
Form of Amendment No. 3 to Grant of Options
|
|
10
|
.21*
|
|
First Amendment to Grant of Phantom Units for Stephen A. Snider
|
|
10
|
.22*
|
|
Third Amendment to Grant of Options for Stephen A. Snider
|
|
21
|
.1*
|
|
List of Subsidiaries of Exterran Partners, L.P.
|
|
23
|
.1*
|
|
Consent of Deloitte & Touche LLP
|
|
24
|
.1*
|
|
Power of Attorney (included on signature page)
|
|
31
|
.1*
|
|
Certification of the Chief Executive Officer of Exterran GP LLC
(as general partner of the general partner of Exterran Partners,
L.P.) pursuant to
Rule 13a-14
under the Securities Exchange Act of 1934
|
|
31
|
.2*
|
|
Certification of the Chief Financial Officer of Exterran GP LLC
(as general partner of the general partner of Exterran Partners,
L.P.) pursuant to
Rule 13a-14
under the Securities Exchange Act of 1934
|
|
32
|
.1*
|
|
Certification of the Chief Executive Officer of Exterran GP LLC
(as general partner of the general partner of Exterran Partners,
L.P.) pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
32
|
.2*
|
|
Certification of the Chief Financial Officer of Exterran GP LLC
(as general partner of the general partner of Exterran Partners,
L.P.) pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
Management contract or compensatory plan or arrangement.
|
|
*
|
|
Filed herewith.
|
94
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
EXTERRAN PARTNERS, L.P. FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
|
|
|
F-8
|
|
|
|
|
F-36
|
|
EXTERRAN PARTNERS PREDECESSOR COMBINED FINANCIAL
STATEMENTS
|
|
|
|
|
|
|
|
F-28
|
|
|
|
|
F-29
|
|
|
|
|
F-30
|
|
|
|
|
F-31
|
|
|
|
|
F-36
|
|
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners of
Exterran Partners, L.P.
Houston, Texas
We have audited the accompanying consolidated balance sheets of
Exterran Partners, L.P. and subsidiaries (the
Partnership) as of December 31, 2008 and 2007,
and the related consolidated statements of operations,
comprehensive income, partners capital, and cash flows for
each of the two years in the period ended December 31, 2008
and the period from June 22, 2006 through December 31,
2006. Our audits also included the financial statement schedule
for each of the two years in the period ended December 31,
2008 and the period from June 22, 2006 to December 31,
2006 listed in the Index at Item 15. These financial
statements and financial statement schedule are the
responsibility of the Partnerships management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the 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. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes 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.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of the
Partnership at December 31, 2008 and 2007, and the results
of their operations and their cash flows for each of the two
years in the period ended December 31, 2008 and the period
from June 22, 2006 through December 31, 2006, in
conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, such financial
statement schedule when considered in relation to the basic
consolidated financial statements taken as a whole, present
fairly, in all material respects, the information set forth
therein.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Partnerships internal control over financial reporting as
of December 31, 2008, based on the criteria established in
Internal Control Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated February 26, 2009
expressed an unqualified opinion on the Partnerships
internal control over financial reporting.
|
|
|
|
|
/s/ DELOITTE &
TOUCHE LLP
|
Houston, Texas
February 26, 2009
F-2
EXTERRAN
PARTNERS, L.P.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except for unit amounts)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,244
|
|
|
$
|
2,835
|
|
Accounts receivable, trade, net of allowance of $230 and $86,
respectively
|
|
|
25,958
|
|
|
|
13,434
|
|
Due from affiliates, net
|
|
|
6,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
35,647
|
|
|
|
16,269
|
|
Compression equipment
|
|
|
566,286
|
|
|
|
393,906
|
|
Accumulated depreciation
|
|
|
(131,973
|
)
|
|
|
(92,938
|
)
|
|
|
|
|
|
|
|
|
|
Net compression equipment
|
|
|
434,313
|
|
|
|
300,968
|
|
Goodwill
|
|
|
124,019
|
|
|
|
67,152
|
|
Intangibles and other assets, net
|
|
|
5,965
|
|
|
|
1,699
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
599,944
|
|
|
$
|
386,088
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND PARTNERS CAPITAL
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable, trade
|
|
$
|
297
|
|
|
$
|
481
|
|
Due to affiliates, net
|
|
|
|
|
|
|
8,377
|
|
Accrued liabilities
|
|
|
5,703
|
|
|
|
1,991
|
|
Accrued interest
|
|
|
1,880
|
|
|
|
3,142
|
|
Current portion of interest rate swaps
|
|
|
5,483
|
|
|
|
2,170
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
13,363
|
|
|
|
16,161
|
|
Long-term debt
|
|
|
398,750
|
|
|
|
217,000
|
|
Interest rate swaps
|
|
|
12,204
|
|
|
|
7,768
|
|
Other long-term liabilities
|
|
|
159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
424,476
|
|
|
|
240,929
|
|
Commitments and contingencies (Note 12)
|
|
|
|
|
|
|
|
|
Partners capital:
|
|
|
|
|
|
|
|
|
Limited partner units:
|
|
|
|
|
|
|
|
|
Common units, 12,767,462 and 10,353,790 issued and outstanding,
respectively
|
|
|
221,090
|
|
|
|
197,903
|
|
Subordinated units, 6,325,000 issued and outstanding
|
|
|
(35,518
|
)
|
|
|
(49,411
|
)
|
General partner units, 2% interest with 389,642 and 340,383
equivalent units issued and outstanding, respectively
|
|
|
6,805
|
|
|
|
5,827
|
|
Accumulated other comprehensive loss
|
|
|
(16,909
|
)
|
|
|
(9,160
|
)
|
|
|
|
|
|
|
|
|
|
Total partners capital
|
|
|
175,468
|
|
|
|
145,159
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and partners capital
|
|
$
|
599,944
|
|
|
$
|
386,088
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
EXTERRAN
PARTNERS, L.P.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
June 22, 2006
|
|
|
|
|
|
|
|
|
|
through
|
|
|
|
Years Ended December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except per
|
|
|
|
unit amounts)
|
|
|
Revenue
|
|
$
|
163,712
|
|
|
$
|
107,675
|
|
|
$
|
13,465
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (excluding depreciation and amortization)
|
|
|
73,563
|
|
|
|
46,066
|
|
|
|
5,271
|
|
Depreciation and amortization
|
|
|
27,053
|
|
|
|
16,570
|
|
|
|
2,108
|
|
Selling, general and administrative
|
|
|
16,085
|
|
|
|
13,730
|
|
|
|
1,566
|
|
Interest expense
|
|
|
18,039
|
|
|
|
11,658
|
|
|
|
1,815
|
|
Other (income) expense, net
|
|
|
(1,430
|
)
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
133,310
|
|
|
|
88,002
|
|
|
|
10,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
30,402
|
|
|
|
19,673
|
|
|
|
2,705
|
|
Income tax expense
|
|
|
555
|
|
|
|
272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
29,847
|
|
|
$
|
19,401
|
|
|
$
|
2,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General partner interest in net income
|
|
$
|
1,206
|
|
|
$
|
447
|
|
|
$
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common units interest in net income
|
|
$
|
18,403
|
|
|
$
|
10,745
|
|
|
$
|
1,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated units interest in net income
|
|
$
|
10,238
|
|
|
$
|
8,209
|
|
|
$
|
1,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common units outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
11,369
|
|
|
|
8,279
|
|
|
|
2,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
11,427
|
|
|
|
8,377
|
|
|
|
2,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average subordinated units outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
6,325
|
|
|
|
6,325
|
|
|
|
2,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
6,325
|
|
|
|
6,325
|
|
|
|
2,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.62
|
|
|
$
|
1.30
|
|
|
$
|
0.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
1.61
|
|
|
$
|
1.29
|
|
|
$
|
0.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per subordinated unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.62
|
|
|
$
|
1.30
|
|
|
$
|
0.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
1.61
|
|
|
$
|
1.29
|
|
|
$
|
0.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
EXTERRAN
PARTNERS, L.P.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
June 22, 2006
|
|
|
|
Years Ended
|
|
|
through
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Net income
|
|
$
|
29,847
|
|
|
$
|
19,401
|
|
|
$
|
2,705
|
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps loss
|
|
|
(7,749
|
)
|
|
|
(8,447
|
)
|
|
|
(713
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
22,098
|
|
|
$
|
10,954
|
|
|
$
|
1,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
EXTERRAN
PARTNERS, L.P.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Partners Capital
|
|
|
Other
|
|
|
|
|
|
|
Common Units
|
|
|
Subordinated Units
|
|
|
General Partner Units
|
|
|
Comprehensive
|
|
|
|
|
|
|
$
|
|
|
Units
|
|
|
$
|
|
|
Units
|
|
|
$
|
|
|
Units
|
|
|
Loss
|
|
|
Total
|
|
|
|
(In thousands, except unit amounts)
|
|
|
|
|
|
Balance, June 22, 2006
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
Proceeds from initial public offering, net of underwriters
discounts and offering expenses
|
|
|
120,693
|
|
|
|
6,325,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120,693
|
|
Issuance of units to Universal Compression Holdings, Inc. for a
portion of its U.S. contract operations business
|
|
|
16,199
|
|
|
|
825,000
|
|
|
|
(59,298
|
)
|
|
|
6,325,000
|
|
|
|
5,421
|
|
|
|
258,163
|
|
|
|
|
|
|
|
(37,678
|
)
|
Redemption of common units from Universal Compression Holdings,
Inc.
|
|
|
(16,199
|
)
|
|
|
(825,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,199
|
)
|
Contribution of capital
|
|
|
|
|
|
|
|
|
|
|
505
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
526
|
|
Unit based compensation expense
|
|
|
123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
123
|
|
Interest rate swap loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(713
|
)
|
|
|
(713
|
)
|
Net income
|
|
|
1,326
|
|
|
|
|
|
|
|
1,325
|
|
|
|
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
2,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006
|
|
$
|
122,142
|
|
|
|
6,325,000
|
|
|
$
|
(57,468
|
)
|
|
|
6,325,000
|
|
|
$
|
5,496
|
|
|
|
258,163
|
|
|
$
|
(713
|
)
|
|
$
|
69,457
|
|
Proceeds from private placement, net of private placement
expenses
|
|
|
68,982
|
|
|
|
2,014,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,982
|
|
Issuance of units to Universal Compression Holdings, Inc. for a
portion of its U.S. contract operations business
|
|
|
2,626
|
|
|
|
2,014,395
|
|
|
|
|
|
|
|
|
|
|
|
46
|
|
|
|
82,220
|
|
|
|
|
|
|
|
2,672
|
|
Contribution of capital
|
|
|
1,727
|
|
|
|
|
|
|
|
11,151
|
|
|
|
|
|
|
|
350
|
|
|
|
|
|
|
|
|
|
|
|
13,228
|
|
Excess of purchase price of equipment over Exterran
Holdings cost of equipment
|
|
|
(261
|
)
|
|
|
|
|
|
|
(2,093
|
)
|
|
|
|
|
|
|
(96
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,450
|
)
|
Cash distributions
|
|
|
(11,737
|
)
|
|
|
|
|
|
|
(8,715
|
)
|
|
|
|
|
|
|
(416
|
)
|
|
|
|
|
|
|
|
|
|
|
(20,868
|
)
|
Unit based compensation expense
|
|
|
3,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,184
|
|
Interest rate swaps loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,447
|
)
|
|
|
(8,447
|
)
|
Net income
|
|
|
11,240
|
|
|
|
|
|
|
|
7,714
|
|
|
|
|
|
|
|
447
|
|
|
|
|
|
|
|
|
|
|
|
19,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
$
|
197,903
|
|
|
|
10,353,790
|
|
|
$
|
(49,411
|
)
|
|
|
6,325,000
|
|
|
$
|
5,827
|
|
|
|
340,383
|
|
|
$
|
(9,160
|
)
|
|
$
|
145,159
|
|
Issuance of units to Exterran Holdings, Inc. for a portion of
its U.S. contract operations business
|
|
|
19,207
|
|
|
|
2,413,672
|
|
|
|
115
|
|
|
|
|
|
|
|
397
|
|
|
|
49,259
|
|
|
|
|
|
|
|
19,719
|
|
Contribution of capital
|
|
|
8,276
|
|
|
|
|
|
|
|
15,200
|
|
|
|
|
|
|
|
485
|
|
|
|
|
|
|
|
|
|
|
|
23,961
|
|
Excess of purchase price of equipment over Exterran
Holdings cost of equipment
|
|
|
(278
|
)
|
|
|
|
|
|
|
(671
|
)
|
|
|
|
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
(987
|
)
|
Cash distributions
|
|
|
(20,131
|
)
|
|
|
|
|
|
|
(10,989
|
)
|
|
|
|
|
|
|
(1,072
|
)
|
|
|
|
|
|
|
|
|
|
|
(32,192
|
)
|
Unit based compensation expense (income)
|
|
|
(2,290
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,290
|
)
|
Interest rate swap loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,749
|
)
|
|
|
(7,749
|
)
|
Net income
|
|
|
18,403
|
|
|
|
|
|
|
|
10,238
|
|
|
|
|
|
|
|
1,206
|
|
|
|
|
|
|
|
|
|
|
|
29,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
$
|
221,090
|
|
|
|
12,767,462
|
|
|
$
|
(35,518
|
)
|
|
|
6,325,000
|
|
|
$
|
6,805
|
|
|
|
389,642
|
|
|
$
|
(16,909
|
)
|
|
$
|
175,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
EXTERRAN
PARTNERS, L.P.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
June 22, 2006
|
|
|
|
Years Ended
|
|
|
through
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
29,847
|
|
|
$
|
19,401
|
|
|
$
|
2,705
|
|
Adjustments to reconcile net income to cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
27,053
|
|
|
|
16,570
|
|
|
|
2,108
|
|
Amortization of debt issuance cost
|
|
|
285
|
|
|
|
238
|
|
|
|
44
|
|
Amortization of fair value of acquired interest rate swaps
|
|
|
187
|
|
|
|
162
|
|
|
|
|
|
Unit based compensation expense (income)
|
|
|
(2,090
|
)
|
|
|
3,184
|
|
|
|
123
|
|
Gain on sale of compression equipment
|
|
|
(1,435
|
)
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, trade
|
|
|
(12,524
|
)
|
|
|
(7,758
|
)
|
|
|
(10,408
|
)
|
Other assets
|
|
|
25
|
|
|
|
(25
|
)
|
|
|
|
|
Accounts payable, trade
|
|
|
(419
|
)
|
|
|
(1,553
|
)
|
|
|
7,372
|
|
Other liabilities
|
|
|
2,339
|
|
|
|
4,301
|
|
|
|
844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
43,268
|
|
|
|
34,520
|
|
|
|
2,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(23,434
|
)
|
|
|
(32,362
|
)
|
|
|
(332
|
)
|
Proceeds from the sale of compression equipment
|
|
|
8,559
|
|
|
|
|
|
|
|
|
|
Increase in amounts due from affiliates, net
|
|
|
(6,445
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(21,320
|
)
|
|
|
(32,362
|
)
|
|
|
(332
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under revolving credit facility
|
|
|
74,250
|
|
|
|
105,800
|
|
|
|
125,000
|
|
Repayments under revolving credit facility
|
|
|
(185,325
|
)
|
|
|
(173,400
|
)
|
|
|
(228,400
|
)
|
Borrowings under term loan facility
|
|
|
117,500
|
|
|
|
|
|
|
|
|
|
Distributions to unitholders
|
|
|
(32,192
|
)
|
|
|
(20,868
|
)
|
|
|
|
|
Net proceeds from issuance of common units
|
|
|
|
|
|
|
68,982
|
|
|
|
120,693
|
|
Repurchase of common units from affiliate
|
|
|
|
|
|
|
|
|
|
|
(16,199
|
)
|
Capital contribution from limited and general partner
|
|
|
12,600
|
|
|
|
8,901
|
|
|
|
|
|
(Increase) decrease in amounts due to affiliates, net
|
|
|
(8,063
|
)
|
|
|
9,016
|
|
|
|
|
|
Debt issuance costs
|
|
|
(309
|
)
|
|
|
(184
|
)
|
|
|
(1,120
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(21,539
|
)
|
|
|
(1,753
|
)
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
409
|
|
|
|
405
|
|
|
|
2,430
|
|
Cash and cash equivalents at beginning of period
|
|
|
2,835
|
|
|
|
2,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
3,244
|
|
|
$
|
2,835
|
|
|
$
|
2,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
19,301
|
|
|
$
|
8,951
|
|
|
$
|
1,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for taxes
|
|
$
|
275
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract operations equipment acquired, net
|
|
$
|
133,907
|
|
|
$
|
135,183
|
|
|
$
|
154,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash capital contribution from limited and general partner
|
|
$
|
11,361
|
|
|
$
|
4,327
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill allocated in acquisitions
|
|
$
|
56,867
|
|
|
$
|
30,603
|
|
|
$
|
36,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets allocated in acquisition
|
|
$
|
4,592
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt assumed in acquisitions
|
|
$
|
175,325
|
|
|
$
|
159,600
|
|
|
$
|
228,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common and subordinated units issued to limited partner
|
|
$
|
19,522
|
|
|
$
|
2,626
|
|
|
$
|
43,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General partner units issued to general partner
|
|
$
|
398
|
|
|
$
|
46
|
|
|
$
|
5,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
EXTERRAN
PARTNERS, L.P.
|
|
1.
|
Basis of
Presentation and Summary of Significant Accounting
Policies
|
Organization
We are a publicly held Delaware limited partnership formed on
June 22, 2006 to acquire certain contract operations
customer service agreements and a compressor fleet used to
provide compression services under those agreements from our
predecessor, Exterran Partners Predecessor (the
Predecessor), formerly referred to as Universal
Compression Partners Predecessor. The Predecessors
operations were owned by Universal Compression Holdings, Inc.
and its subsidiaries (Universal).
On August 20, 2007, we changed our name from Universal
Compression Partners, L.P. to Exterran Partners, L.P. concurrent
with the closing of the merger of Hanover Compressor Company
(Hanover) and Universal. In connection with the
merger, Universal and Hanover became wholly-owned subsidiaries
of Exterran Holdings, Inc. (individually, and together
with its wholly-owned subsidiaries Exterran
Holdings), a new company formed in anticipation of the
merger, and Universal was merged with and into Exterran Holdings.
Exterran General Partner, L.P. is our general partner and an
indirect wholly-owned subsidiary of Exterran Holdings. As
Exterran General Partner, L.P. is a limited partnership, its
general partner, Exterran GP LLC, conducts our business and
operations, and the board of directors and officers of Exterran
GP LLC make decisions on our behalf.
Because we were formed on June 22, 2006, the 2006
Consolidated Statement of Operations, Consolidated Statement of
Partners Capital, Consolidated Statement of Comprehensive
Income and the Consolidated Statement of Cash Flows are
presented for the period from June 22, 2006 through
December 31, 2006. However, we did not conduct any
operations until the completion of our initial public offering
on October 20, 2006. Therefore, our results of operations
for the period from June 22, 2006 through December 31,
2006 only reflect operations beginning on October 20, 2006.
Financial statements and notes for Exterran Partners Predecessor
can be found beginning on
page F-29.
Nature
of Operations
Natural gas compression is a mechanical process whereby the
pressure of a volume of natural gas is increased to a desired
higher pressure for transportation from one point to another,
and is essential to the production and transportation of natural
gas. Compression is typically required several times during the
natural gas production and transportation cycle, including:
(i) at the wellhead; (ii) throughout gathering and
distribution systems; (iii) into and out of processing and
storage facilities; and (iv) along intrastate and
interstate pipelines.
Principles
of Consolidation
The accompanying consolidated financial statements include us
and our subsidiaries. All intercompany accounts and transactions
have been eliminated in consolidation.
Use of
Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amount
of assets, liabilities, revenues and expenses, 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.
Cash
and Cash Equivalents
We consider all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
F-8
EXTERRAN
PARTNERS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Revenue
Recognition
Revenue from contract operations is recorded when earned, which
generally occurs monthly at the time the monthly service is
provided to customers in accordance with the contracts.
Concentration
of Credit Risk
Financial instruments that potentially subject us to
concentrations of credit risk consist of cash and cash
equivalents and trade accounts receivable. We believe that the
credit risk in cash investments that we have with financial
institutions is minimal. Trade accounts receivable are due from
companies of varying size engaged principally in oil and natural
gas activities throughout the world. We review the financial
condition of customers prior to extending credit and generally
do not obtain collateral for trade receivables. Payment terms
are on a short-term basis and in accordance with industry
practice. We consider this credit risk to be limited due to
these companies financial resources, the nature of
products and the services we provide them and the terms of our
contract operations service contracts.
We maintain allowances for doubtful accounts for estimated
losses resulting from the inability of our customers to make
required payments. The determination of the collectibility of
amounts due from our customers requires us to use estimates and
make judgments regarding future events and trends, including
monitoring our customers payment history and current
credit worthiness to determine that collectibility is reasonably
assured, as well as consideration of the overall business
climate in which our customers operate. Inherently, these
uncertainties require us to make judgments and estimates
regarding our customers ability to pay amounts due us in
order to determine the appropriate amount of valuation
allowances required for doubtful accounts. We review the
adequacy of our allowance for doubtful accounts quarterly. We
determine the allowance needed based on historical write-off
experience and by evaluating significant balances aged greater
than 90 days individually for collectibility. Account
balances are charged off against the allowance after all means
of collection have been exhausted and the potential for recovery
is considered remote. During 2008 and 2007, our bad debt expense
was $0.2 million and $0.1 million, respectively.
During 2008, Devon Energy Corporation accounted for 13% of our
total revenue.
Property
and Equipment
Property 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 as of December 31, 2008 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 contract compressor units are capitalized and
depreciated over the estimated useful life of up to
7.5 years.
Depreciation expense for 2008 and 2007 was $26.8 million
and $16.6 million, respectively.
Property and equipment is reviewed for impairment whenever
events or circumstances indicate that the carrying amount of an
asset may not be recoverable based upon undiscounted cash flows.
Any impairment losses are measured based upon the excess of the
carrying value over the fair value.
Goodwill
and Intangible Assets
Goodwill recorded by us in connection with the July 2007
Contract Operation Acquisition, as defined in Note 3, of
$30.7 million was an allocation of Universals
goodwill related to its U.S. Contract Operations segment.
The amount allocated was based on the fair value of the net
assets of Universals U.S. Contract Operations segment
that were transferred to us to the total fair value of the net
assets of Universals U.S. Contract Operations segment.
F-9
EXTERRAN
PARTNERS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In connection with the July 2008 Contract Operations
Acquisition, as defined in Note 3, we were allocated
historical cost goodwill and finite life intangible assets of
Exterran Holdings North America contract operations
segment. The amounts allocated were based on the ratio of fair
value of the net assets transferred to us to the total fair
value of Exterran Holdings North America contract
operations segment. The amount of goodwill allocated to us in
the July 2008 Contract Operations Acquisition was
$56.8 million. The amount of finite life intangible assets
included in the July 2008 Contract Operations Acquisition is
comprised of $3.5 million associated with customer
relationships and $1.1 million associated with customer
contracts. These intangible assets are being amortized through
2024 and 2016, respectively, based on the present value of
expected income to be realized from these assets. At
December 31, 2008, accumulated amortization of customer
relationships and customer contracts was approximately $40,000
and $0.2 million, respectively.
We perform an impairment test for goodwill annually, or more
often if indicators of potential impairment exist. Our goodwill
impairment test involves a comparison of our reporting
units fair value with its carrying value. The fair value
is determined using discounted cash flows and a market-related
valuation model. Certain estimates and judgments are required in
the application of the fair value models. In the fourth quarter
of 2008, we performed our annual impairment analysis in
accordance with the Financial Accounting Standards Boards
(FASB) Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other
Intangible Assets, (SFAS No. 142)
and determined that no impairment had occurred. If for any
reason the fair value of our goodwill or that of our reporting
unit declines below the carrying value in the future, we may
incur charges for the impairment.
Due
To/From Affiliates, Net
We have receivables and payables with Exterran Holdings. A valid
right of offset exists related to the receivables and payables
with these affiliates and as a result, we present such amounts
on a net basis on the balance sheet. A corresponding
reclassification to the December 31, 2007 balance sheet has
been made to provide for a consistent presentation of such
balances.
The transactions reflected in due to/from affiliates, net
primarily consist of centralized cash management activities
between us and Exterran Holdings. Because these balances are
treated as short-term borrowings between us and Exterran
Holdings, serve as a financing and cash management tool to meet
our short-term operating needs, are large, turn over quickly and
are payable on demand, we present borrowings and repayments with
our affiliates on a net basis within the consolidated statements
of cash flows. Net receivables from our affiliate are considered
advances and changes are presented as investing activities in
the consolidated statements of cash flows. Net payables due to
our affiliate are considered borrowings and changes are
presented as financing activities in the consolidated statements
of cash flows.
Unit-Based
Compensation
Effective June 22, 2006, we adopted
SFAS No. 123R, Share-Based Payment, which
requires that compensation cost relating to share-based payment
transactions be recognized in the financial statements. That
cost is measured based on the fair value of the equity or
liability instruments issued.
Income
Taxes
As a partnership, all income, gains, losses, expenses,
deductions and tax credits generated by us generally flow
through to our unitholders. However, some states impose an
entity-level income tax on partnerships, including us. For 2008
and 2007, we recorded income tax expense of approximately
$0.6 million and $0.3 million, respectively, related
to state income taxes.
F-10
EXTERRAN
PARTNERS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Segment
Reporting
SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, established standards
for entities to report information about the operating segments
and geographic areas in which they operate. We only operate in
one segment and all of our operations are located in the U.S.
Fair
Value of Financial Instruments
Our financial instruments consist of trade receivables and
payables, interest rate swaps and long-term debt. At
December 31, 2007, the estimated values of such financial
instruments approximated their carrying values as reflected in
our consolidated balance sheets. At December 31, 2008, the
estimated fair values of such financial instruments, except for
debt, approximated their carrying values as reflected in our
consolidated balance sheets. As a result of the current credit
environment, we believe that the fair value of our debt does not
approximate its carrying value as of December 31, 2008 due
to the applicable margin on our debt being below market rate as
of this date. The fair value of our debt has been estimated
based on debt transactions that occurred near December 31,
2008. A summary of the fair value and carrying value of our debt
as of December 31, 2008 and 2007 is shown in the table
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
As of December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
Long-term debt
|
|
$
|
398,750
|
|
|
$
|
366,476
|
|
|
$
|
217,000
|
|
|
$
|
217,000
|
|
Hedging
and Uses of Derivative Instruments
We use derivative financial instruments to minimize the risks
and/or
costs
associated with financial activities by managing our exposure to
interest rate fluctuations on a portion of our debt obligations.
We do not use derivative financial instruments for trading or
other speculative purposes. We record interest rate swaps on the
balance sheet as either derivative assets or derivative
liabilities measured at their fair value. Fair value for our
derivatives was estimated using a combination of the market and
income approach. Changes in the fair value of the swaps
designated as cash flow hedges are deferred in accumulated other
comprehensive loss, net of tax, to the extent the contracts are
effective as hedges until settlement of the underlying hedged
transaction. To qualify for hedge accounting treatment, we must
formally document, designate and assess the effectiveness of the
transactions. If the necessary correlation ceases to exist or if
physical delivery of the hedged item becomes improbable, we
would discontinue hedge accounting and apply mark-to-market
accounting. Amounts paid or received from interest rate swap
agreements are charged or credited to interest expense and
matched with the cash flows and interest expense of the debt
being hedged, resulting in an adjustment to the effective
interest rate.
Earnings
Per Common and Subordinated Unit
The computations of earnings per common unit and earnings per
subordinated unit are based on the weighted average number of
common and subordinated units, respectively, outstanding during
the applicable period. When computing earnings per common unit
and earnings per subordinated unit, if there are any incentive
distribution rights in the period the calculations relate to,
the amount of the incentive distribution rights is deducted from
net income and allocated to the general partner. The remaining
amount of net income, after deducting the incentive distribution
rights, is allocated between the general partner, common units
and the subordinated units based on the percentage of total
units owned by each group. Basic earnings per common and
subordinated unit are determined by dividing net income
applicable to the common units and subordinated units,
respectively, after deducting the amount allocated to the
general partner interest (including any incentive
F-11
EXTERRAN
PARTNERS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
distribution), by the weighted average number of outstanding
common and subordinated units, respectively, during the period.
Our subordinated units meet the definition of a participating
security and therefore we are required to use the two-class
method in the computation of basic earnings per unit. Under the
two-class method, earnings per unit is calculated as if all of
the earnings for the period were distributed under the terms of
the partnership agreement, regardless of whether our general
partner has discretion over the amount of distributions to be
made in any particular period. This allocation of net income
does not impact our total net income or financial results;
however, in periods in which aggregate net income exceeds
distributions for the year, our general partner could be
allocated additional incentive distributions, for purposes of
our earnings per unit calculation. This could have the impact of
reducing net income per common and subordinated unit. However,
we make distributions on the basis of available cash, as defined
in our partnership agreement, and determine the actual incentive
distributions allocable to our general partner based on actual
distributions.
The only potentially dilutive securities issued by us are unit
options and phantom units, neither of which requires an
adjustment to the amount of net income used for dilutive
earnings per unit purposes. The dilutive effects of unit options
and phantom units to our earnings per common unit for 2008 and
2007 were 44,583 and 98,362 units, respectively. For 2008,
591,429 unit options and 3,825 phantom units were excluded
from the calculation of diluted earnings per common and
subordinated unit because they were anti-dilutive. For 2007,
zero unit options and phantom units were excluded from the
calculation of diluted earnings per common and subordinated unit
because they were anti-dilutive.
Reclassifications
Certain amounts in the prior financial statements have been
reclassified to conform to the 2008 financial statement
classification. These reclassifications have no impact on our
consolidated results of operations, cash flows or financial
position.
|
|
2.
|
Recent
Accounting Pronouncements
|
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS No. 157), which defines fair value,
establishes a framework for measuring fair value in accordance
with GAAP and expands disclosures about fair value measurements.
SFAS No. 157 is effective for fiscal years beginning
after November 15, 2007; however, in February 2008, the
FASB issued a FASB Staff Position that defers the effective date
to fiscal years beginning after November 15, 2008 for all
nonfinancial assets and liabilities, except those that are
recognized or disclosed in the financial statements at fair
value on at least an annual basis. We adopted the required
undeferred provisions of SFAS No. 157 on
January 1, 2008, and the adoption of SFAS No. 157
did not have a material impact on our consolidated financial
statements. We do not expect the adoption of the deferred
provisions of SFAS No. 157 will have a material impact
on our consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities (SFAS No. 159).
SFAS No. 159 provided entities the one-time election
to measure financial instruments and certain other assets and
liabilities at fair value on an
instrument-by-instrument
basis under a fair value option. SFAS No. 159 is
effective for financial statements as of the beginning of the
first fiscal year that begins after November 15, 2007. Its
provisions may be applied to an earlier period only if the
following conditions are met: (i) the decision to adopt is
made after the issuance of SFAS No. 159 but within
120 days after the first day of the fiscal year of
adoption, and no financial statements, including footnotes, for
any interim period of the adoption year have yet been issued and
(ii) the requirements of SFAS No. 157 are adopted
concurrently with or prior to the adoption of
SFAS No. 159. We adopted SFAS No. 159 on
January 1, 2008, and the adoption of SFAS No. 159
did not impact our consolidated financial statements.
F-12
EXTERRAN
PARTNERS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations
(SFAS No. 141(R)).
SFAS No. 141(R) replaces SFAS No. 141 and
requires that all assets, liabilities, contingent consideration,
contingencies and in-process research and development costs of
an acquired business be recorded at fair value at the
acquisition date; that acquisition costs generally be expensed
as incurred; that restructuring costs generally be expensed in
periods subsequent to the acquisition date; and that changes in
accounting for deferred tax asset valuation allowances and
acquired income tax uncertainties after the measurement period
impact income tax expense. SFAS No. 141(R) is
effective for business combinations for which the acquisition
date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008, with an
exception for the accounting for valuation allowances on
deferred taxes and acquired tax contingencies associated with
acquisitions. SFAS No. 141(R) amends
SFAS No. 109, Accounting For Income Taxes,
such that adjustments made to valuation allowances on deferred
taxes and acquired tax contingencies associated with
acquisitions that closed prior to the effective date of
SFAS No. 141(R) would also apply the provisions of
SFAS No. 141(R). We do not expect the adoption of
SFAS No. 141(R) will have a material impact on our
consolidated financial statements, although we are not able to
predict its impact on future potential acquisitions.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements, an Amendment of ARB No. 51
(SFAS No. 160). SFAS No. 160
changes the accounting and reporting for minority interests such
that minority interests will be recharacterized as
noncontrolling interests and will be required to be reported as
a component of equity, and requires that purchases or sales of
equity interests that do not result in a change in control be
accounted for as equity transactions and, upon a loss of
control, requires the interest sold, as well as any interest
retained, to be recorded at fair value, with any gain or loss
recognized in earnings. SFAS No. 160 is effective for
fiscal years beginning on or after December 15, 2008, with
early adoption prohibited. We do not expect the adoption of
SFAS No. 160 will have a material impact on our
consolidated financial statements.
In March 2008, the FASBs Emerging Issues Task Force
reached a consensus on Issue
07-04,
Application of the Two-Class Method Under FASB
Statement No. 128, Earnings per Share, to Master Limited
Partnerships
(EITF 07-04).
EITF 07-04
provides guidance on the accounting treatment of cash
distributions in excess of earnings and earnings in excess of
cash distributions.
EITF 07-04
concluded that when earnings are in excess of cash
distributions, current-period earnings should be reduced by the
amount of distributions to the general partner, limited partners
and the incentive distribution rights holder determined in
accordance with the contractual terms of the partnership
agreement. The remaining undistributed earnings should be
allocated to the general partner, limited partners and the
incentive distribution rights holder using the distribution
waterfall for available cash. When cash distributions are in
excess of earnings, the excess should be allocated to the
general partner and limited partners on the basis of their
respective sharing of losses. The excess will also be allocated
to the incentive distribution rights holder if the incentive
distribution rights holder has a contractual obligation to share
in losses on a basis that is objectively determinable.
EITF 07-04
is effective for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years, and should
be applied retrospectively for all financial statements
presented. We are currently evaluating the impact that the
adoption of
EITF 07-04
will have on our consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133
(SFAS No. 161). This new standard requires
enhanced disclosures for derivative instruments, including those
used in hedging activities. SFAS No. 161 is effective
for fiscal years beginning on or after November 15, 2008.
We do not expect the adoption of SFAS No. 161 will
have a material impact on our consolidated financial statements.
In April 2008, the FASB issued FASB Staff Position
No. 142-3,
Determination of the Useful Life of Intangible
Assets (FSP
FAS 142-3),
which amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under
F-13
EXTERRAN
PARTNERS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
SFAS No. 142. The intent of FSP
FAS 142-3
is to improve the consistency between the useful life of a
recognized intangible asset under SFAS No. 142 and the
period of expected cash flows used to measure the fair value of
the asset under SFAS No. 141(R), in accordance with
GAAP. FSP
FAS 142-3
requires an entity to disclose information for a recognized
intangible asset that enables users of the financial statements
to assess the extent to which the expected future cash flows
associated with the asset are affected by the entitys
intent
and/or
ability to renew or extend the arrangement. FSP
FAS 142-3
is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods
within those fiscal years. We do not expect the adoption of FSP
FAS 142-3
will have a material impact on our consolidated financial
statements.
|
|
3.
|
July 2007
and July 2008 Contract Operations Acquisitions
|
In July 2007, we acquired from Universal contract operations
customer service agreements with eight customers and a fleet of
approximately 720 compressor units used to provide compression
services under those agreements having a net book value of
$132.1 million, net of accumulated depreciation of
$37.5 million, and comprising approximately 280,000
horsepower, or 13% (by then available horsepower) of the
combined U.S. contract operations business relating to
natural gas compression of Universal and us (the July 2007
Contract Operations Acquisition). The acquisition also
included the allocation of $30.7 million of goodwill
associated with the acquired business. Goodwill recorded by us
in connection with the July 2007 Contract Operations Acquisition
of $30.7 million was an allocation of Universals
goodwill related to its U.S. contract operations segment.
The amount allocated was based on the fair value of the net
assets of Universals U.S. contract operations segment
that were transferred to us compared to the total fair value of
the net assets of Universals U.S. contract
operations segment.
In connection with the July 2007 Contract Operations
Acquisition, we assumed $159.6 million in debt from
Universal and issued to Universals wholly-owned
subsidiaries approximately 2.0 million common units and
approximately 82,000 general partner units. Additionally, we
issued approximately 2.0 million common units for proceeds
of $69.0 million (net of private placement fees of
$1.0 million) to institutional investors in a private
placement. We used the proceeds from the private placement to
repay a portion of the debt assumed from Universal.
Additionally, in connection with the July 2007 Contract
Operations Acquisition, we expanded our revolving credit
facility from $225 million to $315 million and
borrowed an additional $90 million under that facility,
which we used, along with available cash, to repay the remainder
of the debt assumed from Universal in conjunction with this
acquisition.
In July 2008, we acquired from Exterran Holdings contract
operations customer service agreements with 34 customers
and a fleet of approximately 620 compressor units used to
provide compression services under those agreements having a net
book value of $133.9 million, net of accumulated
depreciation of $16.5 million, and comprising approximately
254,000 horsepower, or 6% (by then available horsepower) of the
combined U.S. contract operations business of Exterran
Holdings and us (the July 2008 Contract Operations
Acquisition). In connection with this acquisition, we
assumed $175.3 million of debt from Exterran Holdings and
issued to Exterran Holdings wholly-owned subsidiaries
approximately 2.4 million common units and approximately
49,000 general partner units. Concurrent with the closing of the
July 2008 Contract Operations Acquisition, we borrowed
$117.5 million under our term loan (see
Note 6) and $58.3 million under our revolving
credit facility, which together were used to repay the debt
assumed from Exterran Holdings in the acquisition and to pay
other costs incurred in the acquisition.
In connection with this acquisition, we were allocated
$56.9 million historical cost goodwill and
$4.6 million finite life intangible assets of Exterran
Holdings North America contract operations segment. The
amounts allocated were based on the ratio of fair value of the
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 July
2008 Contract Operations Acquisition is comprised of
$3.5 million associated with
F-14
EXTERRAN
PARTNERS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
customer relationships and $1.1 million associated with
customer contracts. These intangible assets are being amortized
through 2024 and 2016, respectively, based on the present value
of expected income to be realized from these assets.
An acquisition of a business from an entity under common control
is generally accounted for under GAAP by the acquirer with
retroactive application as if the acquisition date was the
beginning of the earliest period included in the financial
statements. Retroactive effect to the July 2007 Contract
Operations Acquisition and the July 2008 Contract Operations
Acquisition was impracticable because such retroactive
application would have required significant assumptions in a
prior period that can not be substantiated. Accordingly, our
financial statements include the assets acquired, liabilities
assumed, revenues and operating expenses associated with each
acquisition beginning on the date of such acquisition. However,
the preparation of pro forma financial information allows for
certain assumptions that do not meet the standards of financial
statements prepared in accordance with GAAP.
Unaudited
Pro Forma Financial Information
Pro forma financial information for 2008 and 2007 has been
included to give effect to the significant expansion of our
compressor fleet and service contracts as the result of the July
2007 and July 2008 Contract Operations Acquisitions. The
transactions are presented in the pro forma financial
information as though the transactions had occurred as of
January 1, 2007.
The unaudited pro forma financial information for 2008 and 2007
reflects the following transactions:
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the contribution of customer contracts and equipment used to
provide compression services under those contracts transferred
in the July 2007 Contract Operations Acquisition from Universal
to us and the contribution of customer contracts and equipment
used to provide compression services under those contracts
transferred in the July 2008 Contract Operations Acquisition
from Exterran Holdings to us;
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our assumption of $159.6 million and $175.3 million of
Universals debt and Exterran Holdings debt,
respectively;
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the issuance of our common units in a private placement, payment
of private placement fees and use of the proceeds received from
the private placement to repay a portion of the debt assumed
from Universal;
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the issuance of our common units and general partner units to
Universals wholly-owned subsidiaries and Exterran
Holdings wholly-owned subsidiaries; and
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our borrowing of $117.5 million under our term loan and
$148.3 million under our revolving credit facility and use
of those proceeds to repay the debt assumed from Universal and
Exterran Holdings.
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Unaudited pro forma financial information for the period from
June 22, 2006 through December 31, 2006 assumes that
the contribution of the assets and the assumption of the
long-term debt in the July 2007 Contract Compression
Acquisition, our initial public offering and the other related
transactions, as described below, occurred as of January 1,
2006.
The unaudited pro forma financial information for the period
from June 22, 2006 through December 31, 2006 reflects
the following transactions:
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the contribution of the assets in the July 2007 Contract
Compression Acquisition from Universal to us;
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our assumption of $159.6 million of Universals
revolving debt;
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the issuance of our common units in a private placement, payment
of estimated private placement fees and use of the proceeds
received from the private placement to repay the remainder of
the debt assumed from Universal;
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F-15
EXTERRAN
PARTNERS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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additional borrowings of $90 million under our amended
revolving credit facility and use of those proceeds to retire a
portion of the debt assumed from Universal and not repaid with
the proceeds from the private placement; and
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our initial public offering and the formation transactions
related to us.
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The unaudited pro forma financial information below is presented
for informational purposes only and is not necessarily
indicative of the results of operations that would have occurred
had the transaction been consummated at the beginning of the
period presented, nor is it necessarily indicative of future
results. The unaudited pro forma consolidated financial
information was derived by adjusting our historical financial
statements.
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June 22, 2006
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through
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Years Ended December 31,
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December 31,
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2008
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2007
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2006
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(In thousands, except per
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unit amounts)
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Total revenues
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$
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193,586
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$
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181,424
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$
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113,766
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Net income
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$
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34,797
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$
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31,369
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$
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28,631
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Basic income per common and subordinated unit
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$
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1.76
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$
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1.56
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$
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1.62
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Diluted income per common and subordinated unit
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$
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1.76
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$
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1.55
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$
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1.62
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Pro forma net income per limited partner unit is determined by
dividing the pro forma net income that would have been allocated
to the common and subordinated unitholders by the weighted
average number of common and subordinated units expected to be
outstanding after the completion of the transactions included in
the pro forma consolidated financial statements. All units were
assumed to have been outstanding since the beginning of the
periods presented. Pursuant to the partnership agreement, to the
extent that the quarterly distributions exceed certain targets,
the general partner is entitled to receive certain incentive
distributions that will result in more net income
proportionately being allocated to the general partner than to
the holders of common and subordinated units. The pro forma net
earnings per unit calculations reflect pro forma incentive
distributions to the general partner, including an increase in
net income allocable to the limited partners of approximately
$0.2 million for the 2008, and a reduction of net income
allocable to the limited partners of approximately
$1.0 million and $1.1 million for 2007 and the period
from June 22, 2006 through December 31, 2006,
respectively, which includes the amount of additional incentive
distributions that would have occurred if the excess of net
earnings over actual distributions for the period had been
distributed.
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4.
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Merger
Between Universal and Hanover
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On August 20, 2007, Universal and Hanover completed their
merger transaction. In connection with the merger, Universal and
Hanover became wholly-owned subsidiaries of Exterran Holdings,
and Universal then merged with and into Exterran Holdings. As a
result of the merger, Exterran Holdings became the indirect
owner of our general partner, which as of December 31,
2008, owned 389,642 general partner units, representing a 2%
general partner interest, and all the incentive distribution
rights in us. In addition, as of December 31, 2008,
Exterran Holdings owned 4,428,067 common units and 6,325,000
subordinated units, representing a 57% total ownership interest
in us.
F-16
EXTERRAN
PARTNERS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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5.
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Related
Party Transactions
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We are a party to an omnibus agreement with Exterran Holdings
and others (as amended and restated, the Omnibus
Agreement), the terms of which include, among other things:
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certain agreements not to compete between Exterran Holdings and
its affiliates, on the one hand, and us and our affiliates, on
the other hand;
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Exterran Holdings obligation to provide all operational
staff, corporate staff and support services reasonably necessary
to operate our business and our obligation to reimburse Exterran
Holdings for the provision of such services, subject to certain
limitations and the cost caps discussed below;
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the terms under which we, Exterran Holdings, and our respective
affiliates may transfer compression equipment among one another
to meet our respective contract operations services obligations;
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the terms under which we may purchase newly-fabricated contract
operations equipment from Exterran Holdings affiliates;
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Exterran Holdings grant of a license of certain
intellectual property to us, including our logo; and
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Exterran Holdings obligation to indemnify us for certain
liabilities and our obligation to indemnify Exterran Holdings
for certain liabilities.
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The Omnibus Agreement will terminate upon a change of control of
our general partner or the removal or withdrawal of our general
partner, and certain provisions of the Omnibus Agreement will
terminate upon a change of control of Exterran Holdings.
Non-competition
Under the Omnibus Agreement, subject to the provisions described
below, Exterran Holdings agreed not to offer or provide
compression services in the U.S. to our contract operations
services customers that are not also contract operations
services customers of Exterran Holdings. Compression services
are defined to include the provision of natural gas contract
compression services, but exclude fabrication of compression
equipment, sales of compression equipment or material, parts or
equipment that are components of compression equipment, leasing
of compression equipment without also providing related
compression equipment service and operating, maintenance,
service, repairs or overhauls of compression equipment owned by
third parties. In addition, under the Omnibus Agreement, we
agreed not to offer or provide compression services to Exterran
Holdings U.S. contract operations services customers
that are not also contract operations services customers of ours.
As a result of the merger between Hanover and Universal, at the
time of execution of the Omnibus Agreement with Exterran
Holdings, some of our customers were also contract operations
services customers of Exterran Holdings, which we refer to as
overlapping customers. We and Exterran Holdings have agreed,
subject to the exceptions described below, not to provide
contract operations services to an overlapping customer at any
site at which the other was providing such services to an
overlapping customer on the date of the Omnibus Agreement, each
being referred to as a Partnership site or an
Exterran site. After the date of the Omnibus
Agreement, if an overlapping customer requests contract
operations services at a Partnership site or an Exterran site,
whether in addition to or in the replacement of the equipment
existing at such site on the date of the Omnibus Agreement, we
will be entitled to provide contract operations services if such
overlapping customer is a partnership overlapping customer, and
Exterran Holdings will be entitled to provide such contract
operations services at other locations if such overlapping
customer is an Exterran overlapping customer. Additionally, any
additional contract operations services provided to a
partnership overlapping customer will be provided by us and any
additional services provided to an Exterran overlapping customer
will be provided by Exterran Holdings.
F-17
EXTERRAN
PARTNERS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Exterran Holdings also agreed that new customers for contract
compression services (neither our customers nor customers of
Exterran Holdings for U.S. contract compression services)
are for our account unless the new customer is unwilling to
contract with us or unwilling to do so under our form of
compression services agreement. If a new customer is unwilling
to enter into such an arrangement with us, then Exterran
Holdings may provide compression services to the new customer.
In the event that either we or Exterran Holdings enter into a
contract to provide compression services to a new customer,
either we or Exterran Holdings, as applicable, will receive the
protection of the applicable non-competition arrangements
described above in the same manner as if such new customer had
been a compression services customer of either us or Exterran
Holdings on the date of the Omnibus Agreement.
Unless the Omnibus Agreement is terminated earlier due to a
change of control of our general partner or the removal or
withdrawal of our general partner, or from a change of control
of Exterran Holdings, the non-competition provisions of the
Omnibus Agreement will terminate on August 20, 2010 or on
the date on which a change of control of Exterran Holdings
occurs, whichever event occurs first. If a change of control of
Exterran Holdings occurs, and neither the Omnibus Agreement nor
the non-competition arrangements have already terminated,
Exterran Holdings will agree for the remaining term of the
non-competition arrangements not to provide contract operations
services to our customers at the sites at which we are providing
contract operations services to them at the time of the change
of control.
Indemnification
for Environmental and Related Liabilities
Under the Omnibus Agreement, Exterran Holdings will indemnify us
until October 20, 2009 against certain potential
environmental claims, losses and expenses associated with the
operation of our assets and occurring before the closing date of
the initial public offering. Exterran Holdings maximum
liability for this indemnification obligation will not exceed
$5 million and Exterran Holdings will not have any
obligation under this indemnification until our aggregate losses
exceed $250,000. Exterran Holdings will have no indemnification
obligations with respect to environmental claims made as a
result of additions to or modifications of environmental laws
promulgated after the closing date of the initial public
offering. We have agreed to indemnify Exterran Holdings against
environmental liabilities related to our assets to the extent
Exterran Holdings is not required to indemnify us.
Additionally, Exterran Holdings will indemnify us for losses
attributable to title defects, retained assets and income taxes
attributable to pre-closing operations. We will indemnify
Exterran Holdings for all losses attributable to the
post-closing operations of the assets contributed to us, to the
extent not subject to Exterran Holdings indemnification
obligations. For 2008 and 2007, there were no requests for
indemnification by either party.
Purchase
of New Compression equipment from Exterran
Holdings
Pursuant to the Omnibus Agreement, we will be permitted to
purchase newly fabricated compression equipment from Exterran
Holdings or its affiliates at Exterran Holdings cost to
fabricate such equipment plus a fixed margin of 10%, which may
be modified with the approval of Exterran Holdings and the
conflicts committee of the board of directors of our general
partner. During 2008 and 2007, we purchased $9.8 million
and $27.0 million, respectively, of new compression
equipment from Exterran Holdings. Under accounting principles
generally accepted in the U.S., transfers of assets and
liabilities between entities under common control are to be
initially recorded on the books of the receiving entity at the
carrying value of the transferor. Any difference between
consideration given and the carrying value of the assets or
liabilities is treated as an equity distribution or
contribution. Transactions between us and Exterran Holdings and
its affiliates are transactions between entities under common
control. As a result, the equipment purchased during 2008 and
2007 was recorded in our consolidated balance sheet as property,
plant and equipment of $8.8 million and $24.5 million,
respectively, which represents the carrying value of the
Exterran Holdings affiliates that sold it
F-18
EXTERRAN
PARTNERS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
to us, and as a distribution of equity of $1.0 million and
$2.5 million, respectively, which represents the fixed
margin we paid above the carrying value in accordance with the
Omnibus Agreement. During 2008 and 2007, Exterran Holdings
contributed $11.1 million and $3.5 million,
respectively, related to the completion of overhauls on
compression equipment that were exchanged with us or contributed
to us and were in progress on the date of exchange or
contribution.
Transfer
of Compression Equipment with Exterran Holdings
Pursuant to the Omnibus Agreement, in the event that Exterran
Holdings determines in good faith that there exists a need on
the part of Exterran Holdings contract operations services
business or on our part to transfer compression equipment
between Exterran Holdings and us so as to fulfill either of our
compression services obligations, such equipment may be so
transferred if it will not cause us to breach any existing
contracts or to suffer a loss of revenue under an existing
compression services contract or incur any unreimbursed costs.
During 2008, pursuant to the terms of the Omnibus Agreement, we
transferred ownership of 119 compressor units, totaling
approximately 57,100 horsepower with a net book value of
approximately $29.2 million to Exterran Holdings. In
exchange, Exterran Holdings transferred ownership to us of 279
compressor units totaling approximately 63,200 horsepower with a
net book value of approximately $29.4 million. No customer
contracts were included in the transfers. Under the terms of the
Omnibus Agreement, such transfers must be of equal appraised
value, as defined in the Omnibus Agreement, with any difference
being settled in cash. As a result, we paid a nominal amount to
Exterran Holdings in connection with the transfers. We recorded
the compressor units received at the historical book basis of
Exterran Holdings. The units we received from Exterran Holdings
were being utilized to provide services to our customers on the
date of the transfers and, prior to the transfers, had been
leased by us from Exterran Holdings. The units we transferred to
Exterran Holdings were being utilized to provide services to
customers of Exterran Holdings on the date of the transfers, and
prior to the transfers had been leased by Exterran Holdings from
us.
Unless the Omnibus Agreement is terminated earlier as discussed
above, the transfer of compression equipment provisions of the
Omnibus Agreement described above will terminate on
August 20, 2010.
Lease
of Equipment Between Exterran Holdings and Us
Pursuant to the Omnibus Agreement, in the event that Exterran
Holdings determines in good faith that there exists a need on
the part of Exterran Holdings contract operations services
business or on our part to lease compression equipment between
Exterran Holdings and us so as to fulfill the compression
services obligations of either Exterran Holdings or us, such
equipment may be leased if it will not cause us to breach any
existing compression services contracts or to suffer a loss of
revenue under an existing compression services contract or incur
any unreimbursed costs. At December 31, 2008, we had
equipment on lease to Exterran Holdings with an aggregate cost
and accumulated depreciation of $4.3 million and
$1.2 million, respectively.
For each of 2008 and 2007, we had revenues of $1.4 million
from Exterran Holdings related to the lease of our compression
equipment. For 2008 and 2007, we had cost of sales of
$8.1 million and $4.9 million, respectively, with
Exterran Holdings related to the lease of compression equipment.
Reimbursement
of Operating and General and Administrative
Expense
Exterran Holdings provides all operational staff, corporate
staff and support services reasonably necessary to run our
business. The services to be provided by Exterran Holdings may
include, without limitation, operations, marketing, maintenance
and repair, periodic overhauls of compression equipment,
inventory management, legal, accounting, treasury, insurance
administration and claims processing, risk management, health,
safety and environmental, information technology, human
resources, credit, payroll, internal audit,
F-19
EXTERRAN
PARTNERS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
taxes, facilities management, investor relations, enterprise
resource planning system, training, executive, sales, business
development and engineering.
We are charged costs incurred by Exterran Holdings directly
attributable to us. Costs incurred by Exterran Holdings that are
indirectly attributable to us and Exterran Holdings other
operations are allocated among Exterran Holdings other
operations and us. The allocation methodologies vary based on
the nature of the charge and include, among other things,
revenue and horsepower. We believe that the allocation
methodologies used to allocate indirect costs to us are
reasonable. Included in our SG&A expense for 2008 and 2007
are $16.3 million and $10.4 million, respectively, of
indirect costs incurred by Exterran Holdings.
Under the Omnibus Agreement, Exterran Holdings agreed that, for
a period that will terminate on December 31, 2009, our
obligation to reimburse Exterran Holdings for (i) any cost
of sales that it incurs in the operation of our business will be
capped (after taking into account any such costs we incur and
pay directly); and (ii) any selling, general and
administrative costs allocated to us will be capped (after
taking into account any such costs we incur and pay directly).
For the period from the closing of the initial public offering
through July 8, 2007, cost of sales were capped at $16.95
per operating horsepower per quarter. From July 9, 2007
through July 29, 2008, cost of sales were capped at $18.00
per operating horsepower per quarter. From July 30, 2008
through December 31, 2008, cost of sales were capped at
$21.75 per operating horsepower per quarter. For the period from
the closing of the initial public offering through July 8,
2007, SG&A costs were capped at $2.5 million per
quarter. From July 9, 2007 through July 29, 2008,
SG&A costs were capped at $4.75 million per quarter.
From July 30, 2008 through December 31, 2008,
SG&A costs were capped at $6.0 million per quarter.
These caps may be subject to future increases in connection with
expansions of our operations through the acquisition or
construction of new assets or businesses.
For 2008 and 2007, our cost of sales exceeded the cap provided
in the Omnibus Agreement by $12.5 million and
$8.6 million, respectively. For 2008 and 2007, our
SG&A expenses exceeded the cap provided in the Omnibus
Agreement by $0.1 million and $0.3 million,
respectively. The excess amounts over the caps are included in
the consolidated statements of operations as cost of sales or
SG&A expense. The cash received for the amounts over the
caps has been accounted for as a capital contribution in our
consolidated balance sheets and statements of cash flows.
Long-term debt consisted of the following (in thousands):
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December 31,
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2008
|
|
|
2007
|
|
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Revolving credit facility due 2011
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|
$
|
281,250
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$
|
217,000
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Term loan facility due 2011
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117,500
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Long-term debt
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$
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398,750
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$
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217,000
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In October 2006, we, as guarantor, and EXLP Operating LLC, our
wholly-owned subsidiary, entered into a five-year senior secured
credit agreement. The revolving credit facility under the credit
agreement initially consisted of a five-year $225 million
revolving credit facility. We expanded our revolving credit
facility to $315 million in connection with the July 2007
Contract Operations Acquisition as described in Note 3.
Our revolving credit facility bears interest at a base rate, or
LIBOR, at our option, plus an applicable margin, as defined in
the credit agreement. The applicable margin, depending on our
leverage ratio, varies (i) in the case of LIBOR loans, from
1.0% to 2.0% or (ii) in the case of base rate loans, from
0.0% to 1.0%. The base rate is the higher of the U.S. Prime
Rate or the Federal Funds Rate plus 0.5%. At December 31,
2008, all amounts outstanding were LIBOR loans and the
applicable margin was 1.5%. The weighted average interest rate
on the outstanding balance at December 31, 2008, excluding
the effect of interest rate swaps, was 4.0%.
F-20
EXTERRAN
PARTNERS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In May 2008, we entered into an amendment to our senior secured
credit agreement that increased the aggregate commitments under
that agreement to provide for a $117.5 million term loan
facility. Concurrent with the closing of the July 2008 Contract
Operations Acquisition, the $117.5 million term loan was
funded (see Note 3). The $117.5 million term loan is
non-amortizing
but must be repaid with the net proceeds from any future equity
offerings until paid in full.
The term loan bears interest at a base rate or LIBOR, at our
option, plus an applicable margin. The applicable margin,
depending on our leverage ratio, varies (i) in the case of
LIBOR loans, from 1.5% to 2.5% or (ii) in the case of base
rate loans, from 0.5% to 1.5%.
At December 31, 2008, all amounts outstanding were LIBOR
loans and the applicable margin was 2.0%. Borrowings under the
term loan are subject to the same credit agreement covenants as
our revolving credit facility, except for an additional covenant
requiring mandatory prepayment of the term loan from net cash
proceeds of any future equity offerings, on a dollar-for-dollar
basis. The weighted average interest rate on the outstanding
balance of the term loan at December 31, 2008, excluding
the effect of interest rate swaps, was 2.5%.
As of December 31, 2008, we had $117.5 million of
long-term debt outstanding under the term loan and
$281.3 million outstanding, with $33.7 million
available, under our revolving credit facility. Subject to
certain conditions, at our request, and with the approval of the
lenders, the aggregate commitments under the senior secured
credit facility may be increased by an additional
$17.5 million. This amount will be increased on a
dollar-for-dollar basis with each repayment under the term loan
facility.
All amounts outstanding under the senior secured credit facility
mature in October 2011.
As of December 31, 2008, we were in compliance with all
financial covenants and have pledged assets with a carrying
value of $487.1 million as collateral for our credit
agreement.
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7.
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Partners
Equity, Allocations and Cash Distributions
|
Issuance
of Units
In October 2006, we completed an initial public offering of
approximately 6.3 million common units. Upon the closing of
our initial public offering, Universal and its subsidiaries
received an aggregate of approximately 6.3 million
subordinated units. In connection with the July 2007 Contract
Operations Acquisition, as described in Note 3, we sold
approximately 2.0 million common units in a private
placement and issued approximately 2.0 million common units
and approximately 82,000 general partner units to Universal. In
connection with the July 2008 Contract Operations Acquisition,
as described in Note 3, we issued approximately
2.4 million common units and approximately 49,000 general
partner units to Exterran Holdings.
As of December 31, 2008, Exterran Holdings owned 4,428,067
common units and 6,325,000 subordinated units, collectively
representing a 56% limited partner interest in us.
Units
Outstanding
Partners capital at December 31, 2008 consists of
12,767,462 common units outstanding, 6,325,000 subordinated
units held by Exterran Holdings, collectively representing a 98%
effective ownership interest in us, and 389,642 general partner
units representing a 2% general partner interest in us.
Common
Units
During the subordination period, the common units will have the
right to receive distributions of available cash (as defined in
the partnership agreement) from operating surplus in an amount
equal to the minimum quarterly distribution of $0.35 per
quarter, plus any arrearages in the payment of the minimum
quarterly
F-21
EXTERRAN
PARTNERS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
distribution on the common units from prior quarters, before any
distributions of available cash from operating surplus may be
made on the subordinated units. The purpose of the subordinated
units is to increase the likelihood that during the
subordination period there will be available cash to be
distributed on the common units. At our current stated rate of
distributions, the common units are not due any arrearages and
all subordinated units have received full distributions.
The common units have limited voting rights as set forth in our
partnership agreement.
Subordinated
Units
During the subordination period, the subordinated units have no
right to receive distributions of available cash from operating
surplus until the common units receive distributions of
available cash from operating surplus in an amount equal to the
minimum quarterly distribution of $0.35 per quarter, plus any
arrearages in the payment of the minimum quarterly distribution
on the common units from prior quarters. No arrearages will be
paid to subordinated units.
The subordinated units may convert to common units on a
one-for-one basis when certain conditions are met, which
conditions are set forth in our partnership agreement.
The subordinated units have limited voting rights as set forth
in our partnership agreement.
General
Partner Units
The general partner units have the same rights to receive
distributions of available cash from operating surplus as the
common units for each quarter. The general partner units also
have the right to receive incentive distributions of cash in
excess of the minimum quarterly distributions.
The general partner units have the management rights set forth
in our partnership agreement.
Cash
Distributions
We will make distributions of available cash (as defined in our
partnership agreement) from operating surplus for any quarter
during any subordination period in the following manner:
|
|
|
|
|
first
, 98% to the common unitholders, pro rata, and 2% to
our general partner, until we distribute for each outstanding
common unit an amount equal to the minimum quarterly
distribution for that quarter;
|
|
|
|
second
, 98% to the common unitholders, pro rata, and 2%
to our general partner, until we distribute for each outstanding
common unit an amount equal to any arrearages in payment of the
minimum quarterly distribution on the common units for any prior
quarters during the subordination period;
|
|
|
|
third
, 98% to the subordinated unitholders, pro rata, and
2% to our general partner, until we distribute for each
subordinated unit an amount equal to the minimum quarterly
distribution for that quarter;
|
|
|
|
fourth
, 85% to all common and subordinated unitholders,
pro rata, and 15% to our general partner, until each unit has
received a distribution of $0.4375;
|
|
|
|
fifth
, 75% to all common and subordinated unitholders,
pro rata, and 25% to our general partner, until each unit has
received a total of $0.525; and
|
|
|
|
thereafter
, 50% to all common and subordinated
unitholders, pro rata, and 50% to our general partner.
|
F-22
EXTERRAN
PARTNERS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes our distributions per unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution per
|
|
|
|
|
|
|
|
Limited Partner
|
|
|
|
Period Covering
|
|
Payment Date
|
|
Unit
|
|
|
Total Distribution
|
|
10/20/2006 12/31/2006
|
|
February 14, 2007
|
|
$
|
0.2780
|
(1)
|
|
$3.6 million
|
1/1/2007 3/31/2007
|
|
May 15, 2007
|
|
$
|
0.3500
|
|
|
$4.5 million
|
4/1/2007 6/30/2007
|
|
August 14, 2007
|
|
$
|
0.3500
|
|
|
$6.0 million
|
7/1/2007 9/30/2007
|
|
November 14, 2007
|
|
$
|
0.4000
|
|
|
$6.8 million
|
10/1/2007 12/31/2007
|
|
February 14, 2008
|
|
$
|
0.4250
|
|
|
$7.3 million(2)
|
1/1/2008 3/31/2008
|
|
May 14, 2008
|
|
$
|
0.4250
|
|
|
$7.3 million(2)
|
4/1/2008 6/30/2008
|
|
August 14, 2008
|
|
$
|
0.4250
|
|
|
$8.3 million(2)
|
7/1/2008 9/30/2008
|
|
November 14, 2008
|
|
$
|
0.4625
|
|
|
$9.3 million(2)
|
10/1/2008 12/31/2008
|
|
February 13, 2009
|
|
$
|
0.4625
|
|
|
$9.3 million(2)
|
|
|
|
(1)
|
|
Reflects the pro rata portion of the minimum quarterly
distribution rate of $0.35, covering the period from the closing
of the initial public offering on October 20, 2006 through
December 31, 2006.
|
|
(2)
|
|
Including distributions to our general partner on its incentive
distribution rights.
|
|
|
8.
|
Unit-Based
Compensation
|
Long-Term
Incentive Plan
We have a long-term incentive plan that was adopted by Exterran
GP LLC, the general partner of our general partner, in October
2006 for employees, directors and consultants of us, Exterran
Holdings or our respective affiliates. The long-term incentive
plan currently permits the grant of awards covering an aggregate
of 1,035,378 common units, common unit options, restricted units
and phantom units. The long-term incentive plan is administered
by the board of directors of Exterran GP LLC or a committee
thereof (the Plan Administrator).
Unit options will have an exercise price that is not less than
the fair market value of the units on the date of grant and will
become exercisable over a period determined by the Plan
Administrator. Phantom units are notional units that entitle the
grantee to receive a common unit upon the vesting of the phantom
unit or, at the discretion of the Plan Administrator, cash equal
to the fair value of a common unit.
In October 2008, our long-term incentive plan was amended to
allow us the option to settle any exercised unit options in a
cash payment equal to the fair market value of the number of
common units that we would otherwise issue upon exercise of such
unit option less the exercise price and any amounts required to
meet withholding requirements.
The following table presents the unit-based compensation expense
(income) included in our results of operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 22, 2006
|
|
|
|
|
|
|
|
|
|
through
|
|
|
|
Years Ended December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Unit options
|
|
$
|
(2,362
|
)
|
|
$
|
3,122
|
|
|
$
|
119
|
|
Phantom units
|
|
|
272
|
|
|
|
62
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unit-based compensation expense (income)(1)
|
|
$
|
(2,090
|
)
|
|
$
|
3,184
|
|
|
$
|
123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-23
EXTERRAN
PARTNERS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
(1)
|
|
Excludes the chargeback of unit-based compensation expense
(income) to Exterran Holdings of $(0.6) million and $1.3
million for 2008 and 2007, respectively, and approximately
$31,000 for the period from June 22, 2006 through
December 31, 2006.
|
We have granted unit options to individuals who are not our
employees, but who are employees of Exterran Holdings who
provide services to us. We have also granted phantom units to
directors of the general partner of our general partner and to
employees of Exterran Holdings. Because we grant unit options
and phantom units to non-employees, we are required to
re-measure the fair value of these unit options and phantom
units each period and record a cumulative adjustment of the
expense previously recognized. The cumulative effect recognized
in SG&A expense as a result of the re-measurement of fair
value of the unit options and phantom units was a reduction of
expense of $3.9 million for 2008 and an expense of
$1.8 million for 2007.
Unit
Options
As of December 31, 2008, we had 591,429 outstanding unit
options. The unit options vest on January 1, 2009 and as of
December 31, 2008, no unit options were exercisable.
The following table presents unit option activity for 2008
(remaining life in years, intrinsic value in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
Unit
|
|
|
Exercise
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
Life
|
|
|
Value
|
|
|
Unit options outstanding, December 31, 2007
|
|
|
593,572
|
|
|
$
|
23.76
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(2,143
|
)
|
|
|
21.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit options outstanding, December 31, 2008
|
|
|
591,429
|
|
|
$
|
23.77
|
|
|
|
1.0
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic value is the difference between the market value of
our units and the exercise price of each unit option multiplied
by the number of unit options outstanding for those unit options
where the market value exceeds their exercise price.
Phantom
Units
During the year ended December 31, 2008, we granted 44,310
phantom units to officers and directors of Exterran GP LLC and
certain employees of Exterran Holdings, which settle
33
1
/
3
%
on each of the first three anniversaries of the grant date. No
phantom units vested during the year ended December 31,
2008.
The following table presents phantom unit activity for 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant-Date
|
|
|
|
Phantom
|
|
|
Fair Value
|
|
|
|
Units
|
|
|
per Unit
|
|
|
Phantom units outstanding, December 31, 2007
|
|
|
9,432
|
|
|
$
|
25.87
|
|
Granted
|
|
|
44,310
|
|
|
|
32.22
|
|
Forfeited
|
|
|
(5,590
|
)
|
|
|
32.22
|
|
|
|
|
|
|
|
|
|
|
Phantom units outstanding, December 31, 2008
|
|
|
48,152
|
|
|
$
|
30.98
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008, $0.9 million of unrecognized
compensation cost related to non-vested phantom units is
expected to be recognized over the weighted-average period of
1.8 years.
F-24
EXTERRAN
PARTNERS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
9.
|
Accounting
for Interest Rate Swap Agreements
|
We use derivative financial instruments to minimize the risks
and/or
costs
associated with financial activities by managing our exposure to
interest rate fluctuations on a portion of our debt obligations.
We do not use derivative financial instruments for trading or
other speculative purposes. Cash flows from derivatives
designated as hedges are classified in our consolidated
statements of cash flows under the same category as the cash
flows from the underlying assets, liabilities or anticipated
transactions.
The following table summarizes, by individual hedge instrument,
our interest rate swaps as of December 31, 2008 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap at
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
Notional
|
|
|
2008
|
|
Fixed Rate to be Paid
|
|
Maturity Date
|
|
|
Floating Rate to be Received
|
|
|
Amount
|
|
|
Asset (Liability)
|
|
|
5.275%
|
|
|
December 1, 2011
|
|
|
|
Three Month LIBOR
|
|
|
$
|
125,000
|
|
|
$
|
(10,925
|
)
|
5.343%
|
|
|
October 20, 2011
|
|
|
|
Three Month LIBOR
|
|
|
|
40,000
|
|
|
|
(3,401
|
)
|
5.315%
|
|
|
October 20, 2011
|
|
|
|
Three Month LIBOR
|
|
|
|
40,000
|
|
|
|
(3,361
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
205,000
|
|
|
$
|
(17,687
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We designated these swaps as cash flow hedging instruments
pursuant to the criteria of SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities so that any change in their fair values is
recognized as a component of comprehensive income and is
included in accumulated other comprehensive income or loss to
the extent the hedge is effective. The swap terms substantially
coincide with the hedged item and are expected to offset changes
in expected cash flows due to fluctuations in the variable rate,
and therefore we currently do not expect a significant amount of
ineffectiveness on these hedges. We perform quarterly
calculations to determine if the swap agreements are still
effective and to calculate any ineffectiveness. For 2008, there
was no ineffectiveness. For 2007, we recorded approximately
$36,000 of ineffectiveness. This amount was recorded as a
reduction to interest expense.
The counterparties to our interest rate swap agreements are
major international financial institutions. We monitor the
credit quality of these financial institutions and do not expect
non-performance by any counterparty, although such
non-performance could have a material adverse effect on us.
|
|
10.
|
Fair
Value of Interest Rate Swaps
|
SFAS No. 157 establishes a single authoritative
definition of fair value, sets out a framework for measuring
fair value and requires additional disclosures about fair value
measurements. We have performed an analysis of our interest rate
swaps to determine the significance and character of all inputs
to our fair value determination. Based on this assessment, the
adoption of the required portions of this standard did not have
any material effect on our net asset value. However, the
adoption of the standard does require us to provide additional
disclosures about the inputs we use to develop the measurements
and the effect of certain measurements on changes in net assets
for the reportable periods as contained in our periodic filings.
SFAS No. 157 establishes a fair value hierarchy that
prioritizes the inputs to valuation techniques used to measure
fair value into the following three broad categories.
|
|
|
|
|
Level 1
Quoted unadjusted prices for
identical instruments in active markets to which we have access
at the date of measurement.
|
|
|
|
Level 2
Quoted prices for similar
instruments in active markets; quoted prices for identical or
similar instruments in markets that are not active; and
model-derived valuations in which all significant inputs and
significant value drivers are observable in active markets.
Level 2 inputs are those in markets for
|
F-25
EXTERRAN
PARTNERS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
which there are few transactions, the prices are not current,
little public information exists or prices vary substantially
over time or among brokered market makers.
|
|
|
|
|
|
Level 3
Model derived valuations in
which one or more significant inputs or significant value
drivers are unobservable. Unobservable inputs are those inputs
that reflect our own assumptions regarding how market
participants would price the asset or liability based on the
best available information.
|
The following table summarizes the valuation of our interest
rate swaps under SFAS No. 157 pricing levels as of
December 31, 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Market
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
Prices in Active
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
|
|
|
Markets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Interest rate swaps liability
|
|
$
|
(17,687
|
)
|
|
$
|
|
|
|
$
|
(17,687
|
)
|
|
$
|
|
|
Our interest rate swaps are recorded at fair value utilizing a
combination of the market and income approach to fair value. We
use discounted cash flows and market based methods to compare
similar interest rate swaps.
Exterran Holdings had an internal restructuring on May 31,
2008 which represented a sale or exchange of 50% or more of our
capital and profits interests and therefore resulted in a
technical termination of the Partnership for U.S. federal
income tax purposes on such date. The technical termination does
not affect our consolidated financial statements nor does it
affect our classification as a partnership or otherwise affect
the nature or extent of our qualifying income for
U.S. federal income tax purposes. Our taxable year for all
unitholders ended on May 31, 2008 and resulted in a
deferral of depreciation deductions that were otherwise
allowable in computing the taxable income of our unitholders. We
believe that the deferral of depreciation deductions will result
in increased taxable income (or reduced taxable loss) to certain
of our unitholders in 2008.
The following table reconciles net income, as reported, to our
U.S. federal partnership taxable income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 22, 2006
|
|
|
|
|
|
|
|
|
|
through
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Net income, as reported
|
|
$
|
29,847
|
|
|
$
|
19,401
|
|
|
$
|
2,705
|
|
Book/tax depreciation and amortization adjustment
|
|
|
(612
|
)
|
|
|
(17,544
|
)
|
|
|
(2,574
|
)
|
Book/tax adjustment for unit based compensation expense
|
|
|
(2,090
|
)
|
|
|
3,543
|
|
|
|
123
|
|
Other temporary differences
|
|
|
2,357
|
|
|
|
(1,410
|
)
|
|
|
|
|
Other permanent differences
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal partnership taxable income
|
|
$
|
29,514
|
|
|
$
|
3,990
|
|
|
$
|
254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following additional allocations and adjustments (which are
not reflected in the reconciliation because they do not affect
our total taxable income) may also affect the amount of taxable
income or loss allocated to a unitholder:
|
|
|
|
|
Internal Revenue Code (IRC) Section 704(c)
Allocations
: We make special allocations under
IRC Section 704(c) to eliminate the disparity between a
unitholders U.S. GAAP capital account (credited with
the fair market value of contributed property or the investment)
and tax capital account (credited with the investors tax
basis). The effect of such allocations will be to either
increase or decrease a unitholders share of depreciation,
amortization
and/or
gain
or loss on the sale of assets.
|
F-26
EXTERRAN
PARTNERS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
IRC Section 743(b) Basis
Adjustments:
Because we have made the election
provided for by IRC Section 754, we adjust each
unitholders basis in our assets (inside basis) pursuant to
IRC Section 743(b) to reflect their purchase price (outside
basis). The Section 743(b) adjustment belongs to a
particular unitholder and not to other unitholders. Basis
adjustments such as this give rise to income and deductions by
reference to the portion of each transferee unitholders
purchase price attributable to each of our assets. The effect of
such adjustments will be to either increase or decrease a
unitholders share of depreciation, amortization
and/or
gain
or loss on sale of assets.
|
|
|
|
Gross Income and Loss Allocations:
To maintain
the uniformity of the economic and tax characteristics of our
units, we will sometimes make a special allocation of income or
loss to a unitholder. Any such allocations of income or loss
will decrease or increase, respectively, our distributive
taxable income.
|
|
|
12.
|
Commitments
and Contingencies
|
In the ordinary course of business, we are involved in various
pending or threatened legal actions. In the opinion of
management, the amount of ultimate liability, if any, with
respect to these actions will not have a material adverse effect
on our consolidated financial position, results of operations or
cash flows; however, because of the inherent uncertainty of
litigation, we cannot provide assurance that the resolution of
any particular claim or proceeding to which we are a party will
not have a material adverse effect on our consolidated financial
position, results of operations or cash flows for the period in
which that resolution occurs.
|
|
13.
|
Selected
Quarterly Financial Data (Unaudited)
|
In the opinion of management, the summarized quarterly financial
data below (in thousands, except per unit amounts) contains all
appropriate adjustments, all of which are normally recurring
adjustments, considered necessary to present fairly our
financial position and the results of operations for the
respective periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
Revenue
|
|
$
|
35,267
|
|
|
$
|
34,999
|
|
|
$
|
44,390
|
|
|
$
|
49,056
|
|
Gross profit(1)
|
|
|
13,450
|
|
|
|
13,251
|
|
|
|
17,034
|
|
|
|
19,577
|
|
Net income
|
|
|
6,547
|
|
|
|
6,079
|
|
|
|
9,411
|
|
|
|
7,810
|
|
Earnings per common and subordinated unit basic
|
|
$
|
0.38
|
|
|
$
|
0.35
|
|
|
$
|
0.49
|
|
|
$
|
0.39
|
|
Earnings per common and subordinated unit diluted
|
|
$
|
0.38
|
|
|
$
|
0.35
|
|
|
$
|
0.49
|
|
|
$
|
0.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
Revenue
|
|
$
|
17,585
|
|
|
$
|
18,804
|
|
|
$
|
34,711
|
|
|
$
|
36,575
|
|
Gross profit(1)
|
|
|
7,296
|
|
|
|
7,774
|
|
|
|
14,565
|
|
|
|
15,404
|
|
Net income
|
|
|
2,343
|
|
|
|
2,264
|
|
|
|
7,482
|
|
|
|
7,312
|
|
Earnings per common and subordinated unit basic
|
|
$
|
0.18
|
|
|
$
|
0.18
|
|
|
$
|
0.45
|
|
|
$
|
0.43
|
|
Earnings per common and subordinated unit diluted
|
|
$
|
0.18
|
|
|
$
|
0.17
|
|
|
$
|
0.45
|
|
|
$
|
0.42
|
|
|
|
|
(1)
|
|
Gross profit is defined as revenue less cost of sales and direct
depreciation and amortization expense.
|
F-27
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners of
Exterran Partners, L.P.
Houston, Texas
We have audited the accompanying combined statement of
operations and comprehensive income and changes in net parent
equity and the combined statement of cash flows of Exterran
Partners Predecessor (formerly, Universal Compression Partners
Predecessor) (the Company) for the period from
January 1, 2006 to October 19, 2006. Our audit also
included the financial statement schedule for the period from
January 1, 2006 to October 19, 2006 listed in the
Index at Item 15. These financial statements and financial
statement schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule based on
our audit.
We conducted our audit in accordance with the 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 Company is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit 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 Companys 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 audit provides a reasonable basis for our opinion.
In our opinion, such combined financial statements present
fairly, in all material respects, the results of operations and
cash flows of Exterran Partners Predecessor for the period from
January 1, 2006 to October 19, 2006, in conformity
with accounting principles generally accepted in the United
States of America. Also, in our opinion, such combined financial
statement schedule, when considered in relation to the basic
combined financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
The accompanying combined financial statements have been
prepared from the separate records maintained by Universal
Compression Holdings, Inc. and may not necessarily be indicative
of the conditions that would have existed or the results of
operations if the Company had been operated as an unaffiliated
company. Portions of certain expenses represent allocations made
from and are applicable to Universal Compression Holdings, Inc.
as a whole.
/s/ DELOITTE &
TOUCHE LLP
Houston, TX
March 27, 2007
F-28
EXTERRAN
PARTNERS PREDECESSOR
CHANGES
IN NET PARENT EQUITY
|
|
|
|
|
|
|
January 1, through
|
|
|
|
October 19,
|
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Revenue
|
|
$
|
317,973
|
|
Cost of sales (excluding depreciation expense)
|
|
|
118,400
|
|
Depreciation
|
|
|
61,317
|
|
Selling, general and administrative expenses
|
|
|
30,584
|
|
Other (income) expense, net
|
|
|
(298
|
)
|
|
|
|
|
|
Net income and comprehensive income
|
|
$
|
107,970
|
|
|
|
|
|
|
Combined changes in net parent equity:
|
|
|
|
|
Balance at beginning of period
|
|
$
|
1,268,938
|
|
Net income
|
|
|
107,970
|
|
Net distribution to parent
|
|
|
(72,201
|
)
|
|
|
|
|
|
Balance at end of period
|
|
$
|
1,304,707
|
|
|
|
|
|
|
The accompanying notes are an integral part of these combined
financial statements.
F-29
EXTERRAN
PARTNERS PREDECESSOR
|
|
|
|
|
|
|
January 1, through
|
|
|
|
October 19,
|
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
Net income
|
|
$
|
107,970
|
|
Adjustments to reconcile net income to cash provided by
operating activities:
|
|
|
|
|
Depreciation
|
|
|
61,317
|
|
Gain on asset sales
|
|
|
(298
|
)
|
Increase in receivables
|
|
|
(28,478
|
)
|
Increase in accrued liabilities
|
|
|
10,725
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
151,236
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
Additions to property and equipment
|
|
|
(103,635
|
)
|
Proceeds from sale of property and equipment
|
|
|
8,878
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(94,757
|
)
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
Net distributions to parent
|
|
|
(56,479
|
)
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(56,479
|
)
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these combined
financial statements.
F-30
EXTERRAN
PARTNERS PREDECESSOR
|
|
1.
|
Basis of
Presentation and Summary of Significant Accounting
Policies
|
Organization
These notes apply to the unaudited combined statement of
operations and comprehensive income and combined statement of
cash flows of the natural gas contract operations business that
was provided in the United States of America (U.S.)
by Universal Compression Holdings, Inc. (along with its
subsidiaries, Universal) and its subsidiaries
(Exterran Partners Predecessor or the
Predecessor), formerly referred to as Universal
Compression Partners Predecessor.
In October 2006, a subsidiary of Universal, Universal
Compression Partners, L.P. (subsequently named Exterran
Partners, L.P. and along with its subsidiaries, the
Partnership), completed an initial public offering of
approximately 6.3 million common units representing limited
partner interests in the Partnership, at a price of $21.00 per
unit. As of the closing of the initial public offering,
Universal contributed to the Partnership a portion of the
Predecessors business comprising contract operations
services contracts with nine customers and a fleet of compressor
units used to provide compression services under those contracts
comprising approximately 330,000 horsepower, or approximately
17% (by available horsepower) of the Predecessors
business. On August 20, 2007, the Partnership changed its
name from Universal Compression Partners, L.P. to Exterran
Partners, L.P. concurrent with the closing of the merger of
Hanover Compressor Company (Hanover) and Universal.
In connection with the merger, Universal and Hanover became
wholly-owned subsidiaries of Exterran Holdings, Inc.
(Exterran Holdings), a new company formed in
anticipation of the merger, and Universal was merged with and
into Exterran Holdings. For financial reporting purposes, the
Predecessor is deemed to be the predecessor of the Partnership.
A subsidiary of Exterran Holdings is the general partner of the
Partnership.
Nature
of Operations
Natural gas compression is a mechanical process whereby the
pressure of a volume of natural gas at an existing pressure is
increased to a desired higher pressure for transportation from
one point to another, and is essential to the production and
transportation of natural gas. Compression is typically required
several times during the natural gas production and
transportation cycle, including: (i) at the wellhead;
(ii) throughout gathering and distribution systems;
(iii) into and out of processing and storage facilities;
and (iv) along intrastate and interstate pipelines.
Basis
of Presentation
The combined financial statements include the accounts of the
Predecessor and have been prepared in accordance with accounting
principles generally accepted in the Unites States. The combined
statement of operations includes all revenue and costs directly
attributable to the Predecessor. In addition, cost of sales
(excluding depreciation expense) and selling, general and
administrative expenses include costs incurred by Universal and
allocated to the Predecessor based on allocation factors that it
believes are reasonable. These costs include, among other
things, indirect field labor, vehicle fuel cost, vehicle and
field operations facilities repair and maintenance costs,
miscellaneous supplies cost and centralized corporate functions
such as legal, accounting, treasury, insurance administration
and claims processing, risk management, health, safety and
environmental, information technology, human resources, credit,
payroll, taxes and other corporate services and the use of
facilities that support these functions. These allocations may
not be necessarily indicative of the costs and expense that
would result if the Partnership was an independent entity.
F-31
EXTERRAN
PARTNERS PREDECESSOR
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
Use of
Estimates
In preparing the Predecessors financial statements in
conformity with accounting principles acceptable in the U.S.,
management makes estimates and assumptions that affect the
amounts reported in the financial statements and related
disclosures. Actual results may differ from these estimates.
Revenue
Recognition
Revenue is recognized by the Predecessor using the following
criteria: (i) persuasive evidence of an exchange
arrangement exists; (ii) delivery has occurred or services
have been rendered; (iii) the buyers price is fixed
or determinable; and (iv) collectibility is reasonably
assured.
Revenue from contract operations service is recorded when
earned, which generally occurs monthly at the time the monthly
service is provided to customers in accordance with the
contracts.
Concentration
of Credit Risk
Trade accounts receivable are due from companies of varying size
engaged in oil and natural gas activities in the U.S. The
Predecessor reviewed the financial condition of customers prior
to extending credit and periodically updated customer credit
information. Payment terms are on a short-term basis. No single
customer accounted for 10% or more of the Predecessors
revenue for the period January 1, 2006 through
October 19, 2006. For the period January 1, 2006
through October 19, 2006, the Predecessor wrote off bad
debts, net of recoveries totaling $0.2 million.
Property
and Equipment
Property and equipment are 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 as of October 19, 2006 were as
follows:
|
|
|
|
|
Compression equipment
|
|
|
15-30 years
|
|
Other properties and equipment
|
|
|
5 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
6.5 years.
Depreciation expense for the period January 1, 2006 through
October 19, 2006 was $61.3 million.
Property and equipment are reviewed for impairment whenever
events or circumstances indicate that the carrying amount of an
asset may not be recoverable based upon undiscounted cash flows.
Any impairment losses are measured based upon the excess of the
carrying value over the fair value.
Goodwill
Goodwill and intangible assets acquired in connection with
business combinations represent the excess of consideration over
the fair value of tangible net assets acquired. Certain
assumptions and estimates are employed in determining the fair
value of assets acquired and liabilities assumed, as well as in
determining the allocation of goodwill to the appropriate
reporting unit.
The Predecessor performs an impairment test for goodwill assets
annually or earlier if indicators of potential impairment exist.
The Predecessors goodwill impairment test involves a
comparison of the fair value of its reporting unit with its
carrying value. The fair value is determined using discounted
cash flows and other market-related valuation models. Certain
estimates and judgments are required in the application of the
fair value models. In February 2006, the Predecessor performed
an impairment analysis in accordance with the
F-32
EXTERRAN
PARTNERS PREDECESSOR
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
Financial Accounting Standards Board (FASB)
Statement of Financial Accounting Standards (SFAS)
No. 142, Goodwill and Other Intangible Assets,
and determined that no impairment had occurred. During the
period of January 1, 2006 through October 19, 2006, no
event occurred or circumstance changed that would more likely
than not reduce the fair value of its reporting unit below its
carrying value. As a result, an interim test for goodwill
impairment between the Predecessors annual test dates was
not performed.
Income
Taxes
The Predecessors operations were included in
Universals consolidated federal tax return. Following the
initial public offering of the Partnership, its operations were
treated as a partnership for federal tax purposes with each
partner being separately taxed on its share of taxable income.
As a result, income taxes have been excluded from these combined
financial statements.
Comprehensive
Income
The Predecessor had no items of other comprehensive income for
any period presented in the Combined Statement of Operations and
Comprehensive Income. As a result, net income and comprehensive
income are the same.
Segment
Reporting
SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, established standards
for entities to report information about the operating segments
and geographic areas in which they operate. The Predecessor only
operates in one segment and all of its operations are located in
the U.S.
Fair
Value of Financial Instruments
The Predecessors financial instruments consist of trade
receivables (which have carrying values that approximate fair
value due to their short-term nature).
Environmental
Liabilities
The costs to remediate and monitor environmental matters are
accrued when such liabilities are considered probable and a
reasonable estimate of such costs is determinable.
Non-cash
Financing and Investing Activities
Net distributions to parent on the Combined Statement of Cash
Flows for the period January 1, 2006 through
October 19, 2006 exclude certain non-cash transactions
related to net transfers of compression equipment from the
Predecessor and to other subsidiaries of Universal of
$15.7 million.
Reclassifications
Certain amounts in the Predecessors financial statements
have been reclassified to conform to the Partnerships
Statement of Operations classification included elsewhere in
this report. These reclassifications have no impact on the
Predecessors consolidated results of operations or cash
flows.
The Predecessors acquisitions were accounted for as
purchases. Goodwill has been recognized for the amount of the
excess of the purchase price over the fair value of the net
assets acquired and is accounted for in accordance with
SFAS No. 142.
F-33
EXTERRAN
PARTNERS PREDECESSOR
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
During February 2006, the Predecessor performed an impairment
analysis on its goodwill in accordance with
SFAS No. 142 and determined that no impairment had
occurred.
|
|
3.
|
Related
Party Transactions
|
The Predecessor had no employees. The employees supporting the
Predecessor were employees of Universal. Services provided by
Universal to the Predecessor included support of the contract
operations services provided by the Predecessor to its customers
utilizing equipment owned by the Predecessor, such as designing,
sourcing, installing, operating, servicing, repairing and
maintaining the equipment. Additionally, Universal provided to
the Predecessor centralized corporate functions such as legal,
accounting, treasury, insurance administration and claims
processing, risk management, health, safety and environmental,
information technology, human resources, credit, payroll, taxes
and other corporate services and the use of facilities that
support these functions. Cost incurred by Universal on behalf of
the Predecessor and that can be directly identified to the
Predecessor are included in the Predecessors results of
operations. Cost incurred by Universal that are indirectly
attributable to the Predecessor and Universals other
operations are allocated among the Predecessor and
Universals other operations. For the period
January 1, 2006 through October 19, 2006,
Universals defined contribution 401(k) plan and
employees supplemental savings plan expense allocated to
the Predecessor was $0.8 million. The allocation
methodologies vary based on the nature of the charge and
include, among other things, revenue, employee headcount and net
assets. Management believes that the allocation methodologies
used to allocate indirect cost to it are reasonable.
The Predecessor purchased new natural gas compression equipment
from Universal and other services related to existing equipment
that are capitalized such as overhauls and repackaging. In
addition, the Predecessor has transferred used and idle natural
gas compression equipment to subsidiaries of Universal. Such
transfers were recorded at historical cost and treated as a
decrease in net parent equity.
|
|
4.
|
Universal
Stock-Based Compensation
|
Universal granted stock options and restricted stock to
designated employees. Effective January 1, 2006, Universal
adopted SFAS No. 123R, Share-Based
Payment, which required that compensation cost relating to
share-based payment transactions be recognized in the financial
statements. That cost is measured based on the fair value of the
equity or liability instruments issued.
A portion of the stock-based compensation expense incurred by
Universal was an indirect cost allocated to the Predecessor
based on factors discussed in Note 3. Universal adopted
SFAS No. 123R utilizing the modified prospective
transition method. In the period January 1, 2006 through
October 19, 2006, the adoption of SFAS No. 123R
by Universal impacted the Predecessors results of
operation by increasing selling, general and administrative
expenses by $1.7 million as compared to the expense that
would have been recognized under the prior accounting method.
Stock-based compensation expense incurred by Universal and
allocated to the Predecessor for the period from January 1,
2006 through October 19, 2006 was $2.5 million.
|
|
5.
|
Commitments
and Contingencies
|
In the ordinary course of business, the Predecessor was involved
in various pending or threatened legal actions. In the opinion
of management, the amount of ultimate liability, if any, with
respect to these actions will not have a material adverse effect
on the Predecessors financial position, results of
operations or cash flows; however, because of the inherent
uncertainty of litigation, the Predecessor cannot provide
assurance that the resolution of any particular claim or
proceeding to which it is a party will not have a material
adverse effect on the Predecessors financial position,
results of operations or cash flows for the period in which that
resolution occurs.
F-34
EXTERRAN
PARTNERS PREDECESSOR
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
The Predecessor has no other commitments or contingent
liabilities, which, in the judgment of management, would result
in losses that would have a material adverse affect on the
Predecessors consolidated financial position, results of
operations or cash flows.
|
|
6.
|
Selected
Quarterly Financial Data (Unaudited)
|
In the opinion of management, the summarized quarterly financial
data below (in thousands) contains all appropriate adjustments,
all of which are normally recurring adjustments, considered
necessary to present fairly the financial position and the
results of operations of the Predecessor for the respective
periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
Nine Months Ended September 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
101,058
|
|
|
$
|
101,460
|
|
|
$
|
94,045
|
|
Gross profit(1)
|
|
|
44,339
|
|
|
|
43,928
|
|
|
|
40,171
|
|
Net income
|
|
|
33,936
|
|
|
|
34,949
|
|
|
|
31,947
|
|
|
|
|
(1)
|
|
Gross profit is defined as revenue less cost of sales and
depreciation expense.
|
F-35
EXTERRAN
PARTNERS, L.P.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
|
|
|
Balance at
|
|
|
|
Beginning
|
|
|
Costs and
|
|
|
|
|
|
End of
|
|
Item
|
|
of Period
|
|
|
Expenses(1)
|
|
|
Deductions(2)
|
|
|
Period
|
|
|
|
(In thousands)
|
|
|
Allowance for doubtful accounts deducted from accounts
receivable in the balance sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
$
|
86
|
|
|
$
|
159
|
|
|
$
|
(15
|
)
|
|
$
|
230
|
|
December 31, 2007
|
|
|
|
|
|
|
86
|
|
|
|
|
|
|
|
86
|
|
Period from June 22, 2006 through December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Amounts accrued for uncollectibility
|
|
(2)
|
|
Uncollectible accounts written off, net of recoveries
|
EXTERRAN
PARTNERS PREDECESSOR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
|
|
|
Balance at
|
|
|
|
Beginning
|
|
|
Costs and
|
|
|
|
|
|
End of
|
|
Item
|
|
of Period
|
|
|
Expenses(1)
|
|
|
Deductions(2)
|
|
|
Period
|
|
|
|
(In thousands)
|
|
|
Allowance for doubtful accounts deducted from accounts
receivable in the balance sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from January 1, 2006 through October 19, 2006
|
|
$
|
767
|
|
|
$
|
116
|
|
|
$
|
(184
|
)
|
|
$
|
699
|
|
|
|
|
(1)
|
|
Amounts accrued for uncollectibility
|
|
(2)
|
|
Uncollectible accounts written off, net of recoveries
|
F-36
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Exterran Partners, L.P.
By: Exterran General Partner, L.P.
its General Partner
By: Exterran GP LLC
its General Partner
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By:
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/s/
STEPHEN
A. SNIDER
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Stephen A. Snider
Chief Executive Officer
February 26, 2009
II-1
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Stephen A. Snider, Ernie
L. Danner, Daniel K. Schlanger, J. Michael Anderson and Donald
C. Wayne, and each of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution
and resubstitution for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this
Report, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and
Exchange Commission granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every
act and thing requisite and necessary to be done as fully to all
said attorneys-in-fact and agents, or any of them, may lawfully
do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities indicated on
February 26, 2009.
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Name
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Title
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/s/
STEPHEN
A. SNIDER
Stephen
A. Snider
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Chief Executive Officer and Chairman of the Board, Exterran GP
LLC, as General Partner of Exterran General Partner, L.P., as
General Partner of Exterran Partners, L.P.
(Principal Executive Officer)
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/s/
DANIEL
K. SCHLANGER
Daniel
K. Schlanger
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Senior Vice President, Chief Financial Officer and Director,
Exterran GP LLC, as General Partner of Exterran General Partner,
L.P., as General Partner of Exterran Partners, L.P.
(Principal Financial Officer)
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/s/
KENNETH
R. BICKETT
Kenneth
R. Bickett
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Vice President and Corporate Controller, Exterran GP LLC, as
General Partner of Exterran General Partner, L.P., as General
Partner of Exterran Partners, L.P.
(Principal Accounting Officer)
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/s/
J.
MICHAEL ANDERSON
J.
Michael Anderson
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Senior Vice President and Director, Exterran GP LLC, as General
Partner of Exterran General Partner, L.P., as General Partner of
Exterran Partners, L.P.
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/s/
ERNIE
L. DANNER
Ernie
L. Danner
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President, Chief Operating Officer and Director, Exterran GP
LLC, as General Partner of Exterran General Partner, L.P., as
General Partner of Exterran Partners, L.P.
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/s/
D.
BRADLEY CHILDERS
D.
Bradley Childers
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Senior Vice President and Director, Exterran GP LLC, as General
Partner of Exterran General Partner, L.P., as General Partner of
Exterran Partners, L.P.
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/s/
JAMES
G. CRUMP
James
G. Crump
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Director, Exterran GP LLC, as General Partner of Exterran
General Partner, L.P., as General Partner of Exterran Partners,
L.P.
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/s/
MARK
A. McCOLLUM
Mark
A. McCollum
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Director, Exterran GP LLC, as General Partner of Exterran
General Partner, L.P., as General Partner of Exterran Partners,
L.P.
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/s/
G.
STEPHEN FINLEY
G.
Stephen Finley
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Director, Exterran GP LLC As General Partner of Exterran General
Partner, L.P. As General Partner of Exterran Partners, L.P.
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II-2
EXHIBIT
INDEX
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Exhibit
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No.
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Description
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2
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.1
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Contribution, Conveyance and Assumption Agreement, dated June
25, 2008, by and among Exterran Holdings, Inc., Hanover
Compressor Company, Hanover Compression General Holdings, LLC,
Exterran Energy Solutions, L.P., Exterran ABS 2007 LLC, Exterran
ABS Leasing 2007 LLC, EES Leasing LLC, EXH GP LP LLC, Exterran
GP LLC, EXH MLP LP LLC, Exterran General Partner, L.P., EXLP
Operating LLC, EXLP Leasing LLC and Exterran Partners, L.P.,
incorporated by reference to Exhibit 2.1 to the
Registrants Current Report on Form 8-K filed on June 26,
2008
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3
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.1
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Certificate of Limited Partnership of Universal Compression
Partners, L.P., incorporated by reference to Exhibit 3.1 to the
Registrants Registration Statement on Form S-1 filed on
June 27, 2006
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3
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.2
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Certificate of Amendment to Certificate of Limited Partnership
of Universal Compression Partners, L.P. (now Exterran Partners,
L.P.), dated as of August 20, 2007, incorporated by reference to
Exhibit 3.1 to the Registrants Current Report on Form 8-K
filed on August 24, 2007
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3
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.3
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First Amended and Restated Agreement of Limited Partnership of
Exterran Partners, L.P., as amended, incorporated by reference
to Exhibit 3.3 to the Registrants Quarterly Report on
form 10-Q
for the quarter ended March 31, 2008
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3
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.4
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Certificate of Partnership of UCO General Partner, LP,
incorporated by reference to Exhibit 3.3 to the
Registrants Registration Statement on Form S-1 filed on
June 27, 2006
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3
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.5
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Amended and Restated Limited Partnership Agreement of UCO
General Partner, LP, incorporated by reference to Exhibit 3.2 to
the Registrants Current Report on Form 8-K filed on
October 26, 2006
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3
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.6
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Certificate of Formation of UCO GP, LLC, incorporated by
reference to Exhibit 3.5 to the Registrants Registration
Statement on Form S-1 filed June 27, 2006
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3
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.7
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Amended and Restated Limited Liability Company Agreement of UCO
GP, LLC, incorporated by reference to Exhibit 3.3 to the
Registrants Current Report on Form 8-K filed on October
26, 2006
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10
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.1
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Omnibus Agreement, dated October 20, 2006, by and among
Universal Compression Partners, L.P. (now Exterran Partners,
L.P.), UC Operating Partnership, L.P., UCO GP, LLC, UCO General
Partner, LP, Universal Compression, Inc., Universal Compression
Holdings, Inc. and UCLP OLP GP LLC, incorporated by reference to
Exhibit 10.3 to the Registrants Current Report on Form 8-K
filed on October 26, 2006
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10
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.2
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First Amendment to Omnibus Agreement, dated July 9, 2007, by and
among Universal Compression Partners, L.P. (now Exterran
Partners, L.P.), Universal Compression Holdings, Inc., Universal
Compression, Inc., UCO GP, LLC, UCO General Partner, LP and UCLP
Operating LLC, incorporated by reference to Exhibit 10.1 to the
Registrants Current Report on Form 8-K filed on July 11,
2007
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10
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.3
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First Amended and Restated Omnibus Agreement, dated August 20,
2007, by and among Exterran Holdings, Exterran, Inc. (formerly
known as Universal Compression, Inc.), UCO GP, LLC, UCO General
Partner, LP, EXLP Operating LLC (formerly known as UCLP
Operating LLC) and Exterran Energy Solutions, L.P. (portions of
this exhibit have been omitted and filed separately with the
Securities and Exchange Commission pursuant to a confidential
treatment request under Rule 24b-2 of the Securities Exchange
Act of 1934, as amended), incorporated by reference to Exhibit
10.3 to the Registrants Quarterly Report on Form 10-Q
filed on November 6, 2007
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10
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.4
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Amendment No. 1, dated as of July 30, 2008, to First Amended and
Restated Omnibus Agreement, dated as of August 20, 2007, by and
among Exterran Holdings, Inc., Exterran Energy Solutions, L.P.,
Exterran GP LLC, Exterran General Partner, L.P., EXLP Operating
LLC and Exterran Partners, L.P., incorporated by reference to
Exhibit 10.1 of the Registrants Quarterly Report on Form
10-Q for the quarter ended September 30, 2008
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Exhibit
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No.
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Description
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10
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.5
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Amended and Restated Contribution Conveyance and Assumption
Agreement, dated July 6, 2007, by and among Universal
Compression Partners, L.P. (now Exterran Partners, L.P.),
Universal Compression, Inc., UCO Compression 2005 LLC, UCI
Leasing LLC, UCO GP, LLC, UCI GP LP LLC, UCO General Partner,
LP, UCI MLP LP LLC, UCLP Operating LLC and UCLP Leasing LLC.,
incorporated by reference to Exhibit 2.1 to the
Registrants Current Report on Form 8-K filed on July 11,
2007
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10
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.6
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Senior Secured Credit Agreement, dated October 20, 2006, by and
among UC Operating Partnership, L.P., as Borrower, Universal
Compression Partners, L.P. (now Exterran Partners, L.P.), as
Guarantor, Wachovia Bank, National Association, as
Administrative Agent, Deutsche Banc Trust Company Americas, as
Syndication Agent, Fortis Capital Corp and Wells Fargo Bank,
National Association, as Co-Documentation Agents and the other
lenders signatory thereto, incorporated by reference to Exhibit
10.1 to the Registrants Current Report on Form 8-K filed
on October 26, 2006
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10
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.7
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Guaranty Agreement dated as of October 20, 2006 made by
Universal Compression Partners, L.P. (now Exterran Partners,
L.P.) as Guarantor, UCLP OLP GP LLC, as Guarantor and UCLP
Leasing, L.P., as Guarantor and each of the other Guarantors in
favor of Wachovia Bank, National Association, as Administrative
Agent, incorporated by reference to Exhibit 10.7 to the
Registrants Annual Report on Form 10-K filed on March 30,
2007
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10
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.8
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Collateral Agreement dated as of October 20, 2006 made by UC
Operating Partnership, L.P., UCLP OLP GP LLC, Universal
Compression Partners, L.P. (now Exterran Partners, L.P.) and
UCLP Leasing, L.P. in favor of Wachovia Bank, National
Association, as US Administrative Agent, incorporated by
reference to Exhibit 10.8 to the Registrants Annual Report
on Form 10-K filed on March 30, 2007
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10
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.9
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First Amendment to Loan Documents, dated May 8, 2008, by and
among EXLP Operating LLC, as Borrower, Exterran Partners, L.P.,
as Guarantor, EXLP Leasing LLC, as Guarantor, Wachovia Bank,
National Association, as Administrative Agent and the other
lenders party thereto, incorporated by reference to Exhibit 10.2
to the Registrants Quarterly Report on form 10-Q for the
quarter ended March 31, 2008
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10
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.10
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Registration Rights Agreement dated July 9, 2007, by and among
Universal Compression Partners, L.P. (now Exterran Partners,
L.P.), Kayne Anderson Energy Total Return Fund, Inc. and each
party listed as signatory thereto, incorporated by reference to
Exhibit 10.3 to the Registrants Quarterly Report on Form
10-Q filed on August 7, 2007
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10
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.11
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Common Unit Purchase Agreement dated June 19, 2007, incorporated
by reference to Exhibit 10.1 to the Registrants Current
Report on Form 8-K filed on June 25, 2007
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10
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.12
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Universal Compression Partners, L.P. Long-Term Incentive Plan,
incorporated by reference to Exhibit 10.2 to Amendment No. 3 to
the Registrants Registration Statement on Form S-1 filed
October 4, 2006
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10
|
.13
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First Amendment to Exterran Partners, L.P. Long-Term Incentive
Plan, incorporated by reference to Exhibit 10.1 to the
Registrants Current Report on Form 8-K filed February 29,
2008
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10
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.14
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Second Amendment to Exterran Partners, L.P. Long-Term Incentive
Plan, incorporated by reference to Exhibit 10.1 to the
Registrants Current Report on Form 8-K filed October 30,
2008
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10
|
.15*
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Third Amendment to Exterran Partners, L.P. Long-Term Incentive
Plan
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10
|
.16
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Form of Grant of Phantom Units, incorporated by reference to
Exhibit 10.5 to Amendment No. 3 to the Registrants
Registration Statement on Form S-1 filed October 4, 2006
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10
|
.17
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Form of Grant of Options, incorporated by reference to Exhibit
10.4 to Amendment No. 3 to the Registrants Registration
Statement on Form S-1 filed October 4, 2006
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10
|
.18*
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Form of Amendment to Grant of Options
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10
|
.19
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Form of Amendment No. 2 to Grant of Options, incorporated by
reference to Exhibit 10.2 to the Registrants Current
Report on Form 8-K filed October 30, 2008
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10
|
.20*
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Form of Amendment No. 3 to Grant of Options
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Exhibit
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No.
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|
Description
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10
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.21*
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First Amendment to Grant of Phantom Units for Stephen A. Snider
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10
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.22*
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Third Amendment to Grant of Options for Stephen A. Snider
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21
|
.1*
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List of Subsidiaries of Exterran Partners, L.P.
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23
|
.1*
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Consent of Deloitte & Touche LLP
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24
|
.1*
|
|
Power of Attorney (included on signature page)
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|
31
|
.1*
|
|
Certification of the Chief Executive Officer of Exterran GP LLC
(as general partner of the general partner of Exterran Partners,
L.P.) pursuant to Rule 13a-14 under the Securities Exchange Act
of 1934
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31
|
.2*
|
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Certification of the Chief Financial Officer of Exterran GP LLC
(as general partner of the general partner of Exterran Partners,
L.P.) pursuant to Rule 13a-14 under the Securities Exchange Act
of 1934
|
|
32
|
.1*
|
|
Certification of the Chief Executive Officer of Exterran GP LLC
(as general partner of the general partner of Exterran Partners,
L.P.) pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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32
|
.2*
|
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Certification of the Chief Financial Officer of Exterran GP LLC
(as general partner of the general partner of Exterran Partners,
L.P.) pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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Management contract or compensatory plan or arrangement.
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*
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Filed herewith.
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