UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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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,
2009
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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
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15 (d) of the
Act. Yes o No þ
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 þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes o No o
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. þ
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 þ
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Non-accelerated
filer o
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Smaller reporting company o
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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 o No þ
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 5% or more of the common units outstanding, for this
purpose, as if they were affiliates of the registrant) as of
June 30, 2009, the last business day of the
registrants most recently completed second fiscal quarter
was $71,291,935. This calculation does not reflect a
determination that such persons are affiliates for any other
purpose.
As of February 12, 2010, there were 17,539,570 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. All
statements other than statements of historical fact contained in
this report are forward-looking statements, 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.
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 financial condition 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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purchasing additional contract operations 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 provision of our 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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1
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. We
completed our initial public offering in October 2006. As of
December 31, 2009, public unitholders held a 34% ownership
interest in us and Exterran Holdings owned our remaining equity
interests, including the general partner interests and all of
our incentive distribution rights.
Our contract operations services include designing, sourcing,
owning, installing, operating, servicing, repairing and
maintaining equipment to provide natural gas 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) for approximately
$233.0 million. In connection with this 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 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.
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) for approximately $247.0 million. In
connection with this acquisition, 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
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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 November 2009, we acquired from Exterran Holdings contract
operations customer service agreements with 18 customers and a
fleet of approximately 900 compressor units used to provide
compression services under those agreements having a net book
value of $137.2 million, net of accumulated depreciation of
$47.2 million, and comprising approximately 270,000
horsepower, or approximately 6% (by then available horsepower)
of the combined U.S. contract operations business of
Exterran Holdings and us (the November 2009 Contract
Operations Acquisition) for approximately
$144.0 million. In connection with this acquisition, we
assumed $57.2 million of debt from Exterran Holdings and
issued to Exterran Holdings approximately 4.7 million
common units and approximately 97,000 general partner units. In
connection with the November 2009 Contract Operations
Acquisition, we entered into a new $150 million
asset-backed securitization facility (the 2009 ABS
Facility), a portion of which was 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 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; 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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In connection with the closing of the November 2009 Contract
Operations Acquisition, we amended and restated the Omnibus
Agreement to, among other things, increase the cap on the amount
we must reimburse Exterran Holdings for selling, general and
administrative (SG&A) expenses it incurs on our
behalf from $6.0 million per quarter to $7.6 million
per quarter (after taking into account any such costs that we
incur and pay directly) and to extend the duration of the cap on
our reimbursement of SG&A expenses and cost of sales for an
additional year such that the caps will now terminate on
December 31, 2010. The amount of the cost of sales cap
remained unchanged at $21.75 per operating horsepower per
quarter (after taking into account any such costs that we incur
and pay directly) on our reimbursement of cost of sales Exterran
Holdings incurs on our behalf. 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.
Exterran Holdings intends for us to be the primary long-term
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 Exterran GP LLC, the general partner of
our general partner. The timing of such transactions would also
depend on, among other things, market and economic conditions
and the availability to us of debt and equity capital. Future
contributions of assets to us upon consummation of transactions
with Exterran Holdings may increase or decrease our operating
performance, financial position and liquidity.
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
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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, which we
sometimes refer to as our board of directors and our officers,
respectively, 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 is entitled to
distributions on its incentive distribution rights. For the
period covering January 1, 2009 through December 31,
2009, our general partner received $1.1 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.
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. 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 did not affect our consolidated financial
statements nor did 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 resulted in increased taxable income (or reduced
taxable loss) to certain of our unitholders in 2008.
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-
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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.
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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, such as tight
sands, shales and coalbeds.
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Contract
Operations Services Overview
We provide comprehensive contract operations services, which
include our provision at the customers location of the
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 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.
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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,
minimize avoidable downtime and lower the overall maintenance
expenditures over the equipment life 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 contract
operations services on a
site-by-site
basis for a specific monthly rate that is generally adjusted
only if we fail to operate in accordance with the contract
requirements. At the end of an initial minimum term, which is
typically between six and twelve months, contract operations
services generally continue 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 allocable to 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 and appropriate compressor unit. 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, 2009, our fleet consisted of 3,401
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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193,173
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15
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%
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1,771
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201-500
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249,233
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%
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850
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501-800
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127,482
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%
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208
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801-1,100
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155,917
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12
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%
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163
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1,101-1,500
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460,337
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%
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347
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1,501 and over
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118,069
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9
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%
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62
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Total
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1,304,211
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100
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%
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3,401
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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
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 fundamentals for the U.S. natural gas
compression industry. These fundamentals include increased
unconventional natural gas production, decreasing natural
reservoir pressures, significant natural gas resources in the
U.S. 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. Since our initial public offering, Universal and,
subsequent to the merger of Universal and Hanover, Exterran
Holdings have sold 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. 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 and the
approval of the conflicts committee of Exterran GP LLCs
board of directors. The timing of such transactions would also
depend on, among other things, market and economic conditions
and the availability to us of debt and equity capital.
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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, 2009, Exterran Holdings owned
approximately 2.9 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; 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
Our results of operations have not historically reflected any
material seasonal tendencies and we currently 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 that are engaged
in various aspects of the oil and natural gas industry,
including natural gas producers, processors, gatherers,
transporters and storage providers. 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, 2009, Devon Energy
Corporation accounted for 11% of our total revenue. None of our
other customers individually accounted for 10% or more of our
total revenue for the year ended December 31, 2009.
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.
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General
Terms of our Contract Operations Customer Service
Agreements
The following discussion describes select material terms common
to our contract operations service agreements. 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 contract operations services on a
site-by-site
basis. At the end of an initial minimum term, which is typically
between six and twelve months, contract operations services
generally continue until terminated by either party with
30 days advanced notice.
Fees and Expenses. Our customers pay a fixed
monthly fee for our contract operations 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 used to provide the contract
operations services, 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 to provide the contract
operations services 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 used to provide the contract operations services and
we generally bear risk of loss for such equipment to the extent
not caused by gas conditions, our customers acts or
omissions or the failure or collapse of the customers
over-water job site upon which we provide the contract
operations services.
Insurance. Typically, both we and our
customers are required to carry general liability, workers
compensation, employers liability, automobile and excess
liability insurance. Exterran Holdings insures our property and
operations and is 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 Exterran
Holdings absorbs under its insurance arrangements for these
risks.
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. 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
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
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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 our board of directors;
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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 our board of
directors. 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
our board of directors 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 November 10, 2012 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 protection of the environment and to
occupational health and safety. 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. Failure to comply with these
laws and regulations may result in the assessment of
administrative, civil and criminal penalties, imposition of
investigatory and 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,
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emission 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. Our standard contract operations contract
typically provides that the customer will assume permitting
responsibilities and certain environmental risks related to site
operations.
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 rules to have a material
adverse effect on our operations or financial condition. In
March 2009, the EPA formally proposed new regulations under the
CAA to control emissions of hazardous air pollutants from
existing stationary reciprocal internal combustion engines. The
rule, when finalized by the EPA, may require us to undertake
significant expenditures, including expenditures for purchasing
and installing emissions control equipment such as oxidation
catalysts or non-selective catalytic reduction equipment,
imposing more stringent maintenance practices, and implementing
additional monitoring practices on a potentially significant
percentage of our natural gas compressor engine fleet. At this
point, we cannot predict the final regulatory requirements or
the cost to comply with such requirements. The comment period on
the proposed regulation ended on June 3, 2009 and the EPA
has signed a consent decree requiring it to promulgate a final
rule no later than August 10, 2010. Under the proposal,
compliance will be required by three years from the effective
date of the final rule. This proposed rule, when finalized, and
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 and ability to make cash distributions to our
unitholders.
Climate
Change
The U.S. Congress is considering new legislation to
restrict or regulate emissions of greenhouse gases, such as
carbon dioxide and methane, that are understood to contribute to
global warming. The American Clean Energy and Security Act of
2009 could, if enacted by the full Congress, require greenhouse
gas emissions reductions by covered sources of as much as 17%
from 2005 levels by 2020 and by as much as 83% by 2050. In
addition, almost half of the states, either individually or
through multi-state regional initiatives, have begun to address
greenhouse gas emissions, primarily through the planned
development of emission inventories or regional greenhouse gas
cap and trade programs. Although most of the state-level
initiatives have to date been focused on large sources of
greenhouse gas emissions, such as electric power plants, it is
possible that smaller sources such as our gas-fired compressors
could become subject to greenhouse gas-related regulation.
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Depending on the particular program, we could be required to
control emissions or 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 new motor vehicles, even if Congress does
not adopt new legislation specifically addressing emissions of
greenhouse gases. The Court held in Massachusetts v. EPA
that greenhouse gases including carbon dioxide fall under
the CAAs definition of air pollutant. In July
2008, on the basis of this decision, the EPA released an
Advance Notice of Proposed Rulemaking regarding
possible future regulation of greenhouse gas emissions under the
CAA. In the notice, the EPA evaluated the potential regulation
of greenhouse gases under several different provisions of the
CAA, but did not propose any specific new regulatory
requirements for greenhouse gases. The notice and three other
recent regulatory developments, described below, along with
recent statements by the Administrator of the EPA, suggest that
the EPA is beginning to pursue a path toward the regulation of
greenhouse gas emissions under its existing CAA authority.
First, in September 2009, the EPA adopted a new rule requiring
approximately 13,000 facilities comprising a substantial
percentage of annual U.S. greenhouse gas emissions to
inventory their emissions starting in 2010 and to report those
emissions to the EPA beginning in 2011. That rule, at least for
now, does not apply to oil and gas systems. Second, on
December 15, 2009, the EPA officially published its
finalized determination that emissions of carbon dioxide,
methane and other greenhouse gases present an endangerment to
human health and the environment because emissions of such gases
are, according to the EPA, contributing to warming of the
earths atmosphere and other climatic changes. These
findings by the EPA pave the way for the agency to adopt and
implement regulations that would restrict emissions of
greenhouse gases under existing provisions of the CAA. Third,
the EPA in late September 2009 proposed a rule that would
provide for the tailored application of the agencys major
air permitting programs to facilities that annually emit over
25,000 tons of greenhouse gases, such as large industrial
facilities of the type covered by the inventory rule described
above.
Although it is not currently possible to predict how any such
proposed or future greenhouse gas legislation or regulation by
Congress, the states, or multi-state regions will impact our
business, any legislation or regulation of greenhouse gas
emissions that may be imposed in areas in which we conduct
business could result in increased compliance costs or
additional operating restrictions or reduced demand for our
services, and could have a material adverse effect on our
business financial condition, results of operations and ability
to make cash distributions to our unitholders.
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
CWA 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
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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 current and past owners and operators 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 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 has agreed to
indemnify us, for a three-year period following the applicable
acquisition date, against certain potential environmental
claims, losses and expenses associated with the ownership and
operation of the assets we acquire from Exterran Holdings that
occur before that acquisition date. Exterran Holdings
maximum liability for this and its other indemnification
obligations under the Omnibus Agreement 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 such acquisition date. We have agreed to
indemnify Exterran Holdings against environmental liabilities
occurring on or after the applicable acquisition date 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.
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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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15
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
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, 2009, we had $117.5 million of
long-term debt outstanding under our term loan,
$285.0 million outstanding, with $30.0 million
available, under our revolving credit facility, and
$30.0 million outstanding, with $120.0 million
available, under the 2009 ABS Facility. Any borrowings under our
credit facilities 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 credit
facilities 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. All amounts outstanding
under the senior secured credit agreement mature in October
2011, and all amounts outstanding under our 2009 ABS Facility
are payable in July 2013. We may not be able to refinance this
debt in whole or in part, and may not be able to refinance this
debt on reasonable terms. 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 senior secured credit facility may impair our ability to
operate our business.
Our senior secured 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 (as defined in
the credit agreement) to EBITDA of not greater than 5.0 to 1.0.
As of December 31, 2009, we maintained a 5.2 to 1.0 EBITDA
to Total Interest Expense ratio and a 4.0 to 1.0 Total Debt to
EBITDA ratio. Our senior secured credit facility allows for our
Total Debt to EBITDA ratio to be increased from 5.0 to 1.0 to
5.5 to 1.0 during a quarter when an acquisition closes meeting
certain thresholds and for the following two quarters after the
acquisition closes. Therefore, because the November 2009
Contract Operations Acquisition closed in the fourth quarter of
2009, the maximum allowed ratio of Total Debt to EBITDA was
increased from 5.0 to 1.0 to 5.5 to 1.0 for the period from
December 31, 2009 through June 30, 2010. After
June 30, 2010, our required Total Debt to EBITDA ratio will
revert to 5.0 to 1.0. As of December 31, 2009, we were in
compliance with all financial covenants under our credit
agreement.
If we continue to experience a deterioration in the demand for
our services, and we are unable to consummate further
acquisitions from Exterran Holdings, amend our senior secured
credit facility or restructure our debt, we estimate that we
could be in violation of the maximum Total Debt to EBITDA
covenant ratio contained in our senior secured credit facility
during 2010. In addition, if we experience a material adverse
effect on our assets, liabilities, financial condition,
business, operations or prospects that, taken as a whole,
impacted our ability to perform our obligations under our credit
agreement, this could lead to a default under our credit
agreement. The breach of any of our covenants could result in a
default under our credit agreement which could cause our
indebtedness under our credit agreement to become due and
payable. If the repayment
16
obligations on any of our indebtedness were to be so
accelerated, we may not be able to repay the debt or refinance
the debt on acceptable terms, and our financial position would
be materially adversely affected.
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
economic slowdown may have an impact on our business and
financial condition in ways that we currently cannot
predict.
The continuing challenges in the global economy and financial
markets may have an impact on our business and our financial
condition. If any of our lenders become unable to perform their
obligations under our credit facilities, our borrowing capacity
under these facilities would be reduced. Inability to borrow
additional amounts under our credit facilities could limit our
ability to fund our future growth and operations. These
challenges could also have an impact on our remaining interest
rate swap agreements if our counterparties are unable to perform
their obligations under those agreements.
The caps on our obligations to reimburse Exterran Holdings
for costs of sales and SG&A costs relating to our business
expire on December 31, 2010
Under the Omnibus Agreement, Exterran Holdings has agreed that,
for a period that will terminate on December 31, 2010, 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 SG&A costs allocated to us
will be capped (after taking into account any such costs we
incur and pay directly). At December 31, 2009, cost of
sales were capped at $21.75 per operating horsepower per quarter
and SG&A costs were capped at $7.6 million per
quarter. During the years ended December 31, 2009 and 2008,
our cost of sales exceeded this cap by $7.2 million and
$12.5 million, respectively. For the years ended
December 31, 2009 and 2008, our SG&A expense exceeded
the cap provided in the Omnibus Agreement by $0.6 million
and $0.1 million, respectively. The expiration of these
caps could reduce the amount of distributable cash flow
available to unitholders and impair our ability to maintain or
increase our distributions.
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 credit facilities may not provide us
with sufficient cash to fund our capital expenditure
requirements,
17
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 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 facilities
and/or
public or private offerings of equity or debt. Our ability to
grow our asset and customer base could be impacted by any limits
on our ability to access equity and debt capital.
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 adversely affect our business and 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. Some of these
unconventional sources are less economic to produce in lower
natural gas price environments. Further, some of these
unconventional sources may not require as much compression or
require compression as early in the production life-cycle of an
unconventional field or well as has been experienced
historically in conventional and other unconventional natural
gas sources. 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, which could
have a material adverse effect on our business, results of
operations, financial condition and our ability to make cash
distributions to our unitholders.
In addition, we review our long-lived assets for impairment when
events or changes in circumstances indicate the carrying value
may not be recoverable. Goodwill is tested for impairment at
least annually. A decline in demand for oil and natural gas or
prices for those commodities, or instability in the
U.S. energy markets could cause a further reduction in
demand for our services and result in a reduction of our
estimates of future cash flows and growth rates in our business.
These events could cause us to record additional impairments of
long-lived assets. For example, during the year ended
December 31, 2009, we recorded a fleet impairment of
$3.2 million. The impairment of our goodwill, intangible
assets or other long-lived assets could have a material adverse
effect on our results of operations.
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. A reduction
in borrowing bases under reserve-based credit facilities and the
lack of availability of debt or equity financing could result in
a reduction in our customers spending for our services.
For example, our customers could seek to preserve
18
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 on 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 further reduction in
demand for our services and a further 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 has
limited, and will continue to limit in the near term, our
ability to maintain or improve our horsepower utilization and
revenues. Some of our customers may continue to replace our
compression equipment and services with equipment they own or
with competitor owned equipment and may continue to rationalize
their amount of compression horsepower. In addition, some of our
customers or prospective customers may purchase their own
compression equipment in lieu of using our contract operations
services. For example, our total operating horsepower decreased,
excluding the impact of the November 2009 Contract Operations
Acquisition, by approximately 12% from December 31, 2008 to
December 31, 2009, and we expect further horsepower
declines during 2010. Further reduction in demand for our
services, or further 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 competitive pressures 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. 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. 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. 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 maintain or 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 maintain or 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 maintain or 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.
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
November 10, 2012, 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.
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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 maintain or increase distributions to
our unitholders.
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 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 our board of directors)
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 facilities include
covenants that may limit our ability to finance 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 maintain or increase distributions to our unitholders
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, or the inability to renew a substantial portion of
our compression services contracts at comparable service rates,
would adversely impact our results of operations and cash
available for distribution and could require us to record
additional asset impairments. This would have a material adverse
effect upon our business, results of operations, financial
condition and our ability to make cash distributions to our
unitholders.
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.
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. We may not be able to purchase
newly fabricated or idle
21
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
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.
New
proposed regulations under the Clean Air Act, if implemented,
could result in increased compliance costs.
In March 2009, the EPA formally proposed new regulations under
the CAA to control emissions of hazardous air pollutants from
existing stationary reciprocal internal combustion engines. The
rule, when finalized by the EPA, may require us to undertake
significant expenditures, including expenditures for purchasing
and installing emissions control equipment such as oxidation
catalysts or non-selective catalytic reduction equipment,
imposing more stringent maintenance practices, and implementing
additional monitoring practices on a potentially significant
percentage of our natural gas compressor engine fleet. At this
point, we cannot predict the final regulatory requirements or
the cost to comply with such requirements. The comment period on
the proposed regulation ended on June 3, 2009, and the EPA
has signed a consent decree requiring it to promulgate a final
rule no later than August 10, 2010. Under the proposal,
compliance will be required by three years from the effective
date of the final rule. This proposed rule, when finalized, and
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 and ability to make cash distributions to our
unitholders.
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 regulations, including laws and regulations regarding
the discharge of materials into the environment, emission
controls and other
22
environmental protection and occupational health and safety
concerns. Environmental laws and regulations may, in certain
circumstances, impose strict liability for environmental
contamination, which may render 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 imposition of
administrative, civil and criminal penalties and the issuance of
injunctions delaying or prohibiting operations.
We may need to apply for or amend facility permits or licenses
from time to time with respect to storm water or wastewater
discharges, waste handling, or air emissions relating to
manufacturing activities or equipment operations, which subjects
us to new or revised permitting conditions that may be onerous
or costly to comply with. In addition, certain of our customer
service arrangements may require us to operate, on behalf of a
specific customer, petroleum storage units such as underground
tanks or pipelines and other regulated units, all of which may
impose additional compliance and permitting obligations.
We conduct operations at numerous facilities in a wide variety
of locations across the continental U.S. The operations at
many of these facilities require U.S. federal, state or
local environmental permits or other authorizations.
Additionally, natural gas compressors at many of our
customers facilities require individual air permits or
general authorizations to operate under various air regulatory
programs established by rule or regulation. These permits and
authorizations frequently contain numerous compliance
requirements, including monitoring and reporting obligations and
operational restrictions, such as emission limits. Given the
large number of facilities in which we operate, and the numerous
environmental permits and other authorizations that are
applicable to our operations, we may occasionally identify or be
notified of technical violations of certain requirements
existing in various permits or other authorizations.
Occasionally, we have been assessed penalties for our
non-compliance, and we could be subject to such penalties in the
future.
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.
The U.S. Congress is considering new legislation to
restrict or regulate emissions of greenhouse gases, such as
carbon dioxide and methane, that are understood to contribute to
global warming. For example, the American Clean Energy and
Security Act of 2009 could, if enacted by the full Congress,
require greenhouse gas emissions reductions by covered sources
of as much as 17% from 2005 levels by 2020 and by as much as 83%
by 2050. In addition, almost half of the states, either
individually or through multi-state regional initiatives, have
begun to address greenhouse gas emissions, primarily through the
planned development of emission inventories or regional
greenhouse gas cap and trade programs. Although most of the
state-level initiatives have to date been focused on large
sources of greenhouse gas emissions, such as electric power
plants, it is possible that smaller sources such as our
gas-fired compressors could become subject to greenhouse
gas-related regulation. Depending on the particular program, we
could be required to control emissions or to purchase and
surrender allowances for greenhouse gas emissions resulting from
our operations.
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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 new motor vehicles, even if Congress does
not adopt new legislation specifically addressing emissions of
greenhouse gases. The Court held in Massachusetts v. EPA
that greenhouse gases including carbon dioxide fall under
the CAAs definition of air pollutant. In July
2008, on the basis of this decision, the EPA released an
Advance Notice of Proposed Rulemaking regarding
possible future regulation of greenhouse gas emissions under the
CAA. In the notice, the EPA evaluated the potential regulation
of greenhouse gases under several different provisions of the
CAA, but did not propose any specific new regulatory
requirements for greenhouse gases. The notice and three other
recent regulatory developments, described below, along with
recent statements by the Administrator of the EPA, suggest that
the EPA is beginning to pursue a path toward the regulation of
greenhouse gas emissions under its existing CAA authority.
First, in September 2009, the EPA adopted a new rule requiring
approximately 13,000 facilities comprising a substantial
percentage of annual U.S. greenhouse gas emissions to
inventory their emissions starting in 2010 and to report those
emissions to the EPA beginning in 2011. That rule, at least for
now, does not apply to oil and gas systems. Second, on
December 15, 2009, the EPA officially published its
finalized determination that emissions of carbon dioxide,
methane and other greenhouse gases present an endangerment to
human health and the environment because emissions of such gases
are, according to the EPA, contributing to warming of the
earths atmosphere and other climatic changes. These
findings by the EPA pave the way for the agency to adopt and
implement regulations that would restrict emissions of
greenhouse gases under existing provisions of the CAA. Third,
the EPA in late September 2009 proposed a rule that would
provide for the tailored application of the agencys major
air permitting programs to facilities that annually emit over
25,000 tons of greenhouse gases, such as large industrial
facilities of the type covered by the inventory rule described
above.
Although it is not currently possible to predict how any such
proposed or future greenhouse gas legislation or regulation by
Congress, the states or multi-state regions will impact our
business, any legislation or regulation of greenhouse gas
emissions that may be imposed in areas in which we conduct
business could result in increased compliance costs or
additional operating restrictions or reduced demand for our
services, and could have a material adverse effect on our
business, financial condition, results of operations and ability
to make cash distributions to our unitholders.
We do
not insure against all potential losses and could be seriously
harmed by unexpected liabilities.
Our 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 risks; however,
the insurance it carries may not be adequate to cover our claims
or losses. Exterran Holdings currently has minimal insurance on
our offshore assets. In addition, Exterran Holdings is
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 it absorbs under its
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.
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. One of
our general partners directors is a director 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,
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and us and our unitholders, on the other hand. In resolving
these conflicts of interest, our general partner may 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 our board of directors 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. Our board of directors 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
662/3%
of all outstanding units voting together as a single class is
required to remove the general partner. As of December 31,
2009, our general partner and its affiliates owned 65% 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 our board of
directors, 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, 2009, Exterran Holdings and its affiliates
held 6,325,000 subordinated units and 9,167,994 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, 2009, our
general partner and its affiliates owned 65% 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
28
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, our
ability to issue additional equity or incur debt to make
acquisitions or for other purposes, and our ability to make
distributions to our unitholders.
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, our ability to issue additional equity or incur
debt to make acquisitions or for other purposes and our ability
to make distributions to our unitholders.
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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 are 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 unitholders 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.
If we
were subjected to 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 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 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.
The
tax treatment of publicly traded partnerships or an investment
in our common units could be subject to potential legislative,
judicial or administrative changes and differing
interpretations, possibly on a retroactive basis.
The present U.S. federal income tax treatment of publicly
traded partnerships, including us, or an investment in our
common units may be modified by administrative, legislative or
judicial interpretation at any time. For example, judicial
interpretations of the U.S. federal income tax laws may
have a direct or indirect impact on our status as a partnership
and, in some instances, a courts conclusions may heighten
the risk of a challenge regarding our status as a partnership.
Moreover, members of Congress have considered substantive
changes to
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the existing U.S. federal income tax laws that would have
affected publicly traded partnerships. Any modification to the
U.S. federal income tax laws and interpretations thereof
may or may not be applied retroactively. Although the
legislation considered would not have appeared to affect our tax
treatment as a partnership, we are unable to predict whether any
of these changes, or other proposals, will be reconsidered or
will ultimately be enacted. Any such changes or differing
judicial interpretations of existing laws 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.
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
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.
Due to a number of factors, including our inability to 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.
31
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 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. For purposes of determining whether the 50% threshold
has been met, multiple sales of the same unit will count only
once. 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 Schedules K-1) 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 also result in more than twelve months of our taxable
income or loss
32
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. The IRS has announced
recently that it plans to issue guidance regarding the treatment
of constructive terminations of publicly traded partnerships
such as us. Any such guidance may change the application of the
rules discussed above and may affect the treatment of a
unitholder.
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, Ohio,
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.
|
|
ITEM 1B.
|
Unresolved
Staff Comments
|
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, 2009.
33
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 12, 2010, the closing
price of a common unit was $21.45. At the close of business on
February 12, 2010, based upon information received from our
transfer agent and brokers and nominees, we had 12 registered
common unitholders and approximately 4,230 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, 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
|
|
Year Ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
13.73
|
|
|
$
|
10.63
|
|
|
$
|
0.4625
|
|
Second Quarter
|
|
$
|
15.54
|
|
|
$
|
11.79
|
|
|
$
|
0.4625
|
|
Third Quarter
|
|
$
|
19.30
|
|
|
$
|
13.25
|
|
|
$
|
0.4625
|
|
Fourth Quarter
|
|
$
|
23.22
|
|
|
$
|
15.56
|
|
|
$
|
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
facilities.
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.
34
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;
|
|
|
|
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;
|
35
|
|
|
|
|
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, 98% to all common and subordinated unitholders,
pro rata, and 2% to our general partner, until each unit has
received a distribution of $0.4025;
|
|
|
|
fifth, 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;
|
|
|
|
sixth, 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.
|
36
|
|
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,
2009, 2008, 2007 and 2006 and for the years ended
December 31, 2009, 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,
as well as the selected historical financial data for the period
from January 1, 2006 through October 19, 2006 and the
nine months ended December 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.
37
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. Amounts below are in thousands, except per
unit amounts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exterran Partners, L.P.
|
|
|
Exterran Partners Predecessor
|
|
|
|
|
|
|
|
|
|
|
|
|
June 22, 2006
|
|
|
January 1, 2006
|
|
|
Nine Months
|
|
|
|
|
|
|
|
|
|
|
|
|
through
|
|
|
through
|
|
|
Ended
|
|
|
|
Years Ended December 31,
|
|
|
December 31,
|
|
|
October 19,
|
|
|
December 31,
|
|
|
|
2009(1)
|
|
|
2008(1)
|
|
|
2007(1)
|
|
|
2006(1)(2)
|
|
|
2006
|
|
|
2005
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
181,729
|
|
|
$
|
163,712
|
|
|
$
|
107,675
|
|
|
$
|
13,465
|
|
|
$
|
317,973
|
|
|
$
|
248,414
|
|
Gross margin(3)
|
|
|
98,249
|
|
|
|
90,149
|
|
|
|
61,609
|
|
|
|
8,194
|
|
|
|
199,573
|
|
|
|
158,214
|
|
Depreciation and amortization
|
|
|
36,452
|
|
|
|
27,053
|
|
|
|
16,570
|
|
|
|
2,108
|
|
|
|
61,317
|
|
|
|
52,595
|
|
Fleet impairment(4)
|
|
|
3,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expense
|
|
|
24,226
|
|
|
|
16,085
|
|
|
|
13,730
|
|
|
|
1,566
|
|
|
|
30,584
|
|
|
|
20,395
|
|
Interest expense
|
|
|
20,303
|
|
|
|
18,039
|
|
|
|
11,658
|
|
|
|
1,815
|
|
|
|
|
|
|
|
|
|
Other (income) expense, net
|
|
|
(1,208
|
)
|
|
|
(1,430
|
)
|
|
|
(22
|
)
|
|
|
|
|
|
|
(298
|
)
|
|
|
1,220
|
|
Income tax expense
|
|
|
541
|
|
|
|
555
|
|
|
|
272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
14,784
|
|
|
|
29,847
|
|
|
|
19,401
|
|
|
|
2,705
|
|
|
|
107,970
|
|
|
|
84,004
|
|
Weighted average common units outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
13,461
|
|
|
|
11,369
|
|
|
|
8,279
|
|
|
|
2,405
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
13,477
|
|
|
|
11,414
|
|
|
|
8,377
|
|
|
|
2,406
|
|
|
|
|
|
|
|
|
|
Weighted average subordinated units outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
6,325
|
|
|
|
6,325
|
|
|
|
6,325
|
|
|
|
2,405
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
6,325
|
|
|
|
6,325
|
|
|
|
6,325
|
|
|
|
2,405
|
|
|
|
|
|
|
|
|
|
Earnings per common unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.68
|
|
|
$
|
1.62
|
|
|
$
|
1.30
|
|
|
$
|
0.55
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.68
|
|
|
$
|
1.61
|
|
|
$
|
1.29
|
|
|
$
|
0.55
|
|
|
|
|
|
|
|
|
|
Earnings per subordinated unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.68
|
|
|
$
|
1.62
|
|
|
$
|
1.30
|
|
|
$
|
0.55
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.68
|
|
|
$
|
1.61
|
|
|
$
|
1.29
|
|
|
$
|
0.55
|
|
|
|
|
|
|
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expansion(5)
|
|
$
|
5,308
|
|
|
$
|
13,983
|
|
|
$
|
25,283
|
|
|
$
|
26
|
|
|
$
|
72,009
|
|
|
$
|
33,550
|
|
Maintenance(6)
|
|
|
12,585
|
|
|
|
9,451
|
|
|
|
7,079
|
|
|
|
306
|
|
|
|
31,626
|
|
|
|
28,057
|
|
Cash flows provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
55,936
|
|
|
$
|
43,268
|
|
|
$
|
34,520
|
|
|
$
|
2,788
|
|
|
$
|
151,236
|
|
|
$
|
135,207
|
|
Investing activities
|
|
|
(7,422
|
)
|
|
|
(21,320
|
)
|
|
|
(32,362
|
)
|
|
|
(332
|
)
|
|
|
(94,757
|
)
|
|
|
(53,829
|
)
|
Financing activities
|
|
|
(51,555
|
)
|
|
|
(21,539
|
)
|
|
|
(1,753
|
)
|
|
|
(26
|
)
|
|
|
(56,479
|
)
|
|
|
(81,378
|
)
|
Cash distribution paid per limited partner unit
|
|
$
|
1.85
|
|
|
$
|
1.74
|
|
|
$
|
1.38
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exterran Partners
|
|
|
|
Exterran Partners, L.P
|
|
|
Predecessor
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
203
|
|
|
$
|
3,244
|
|
|
$
|
2,835
|
|
|
$
|
2,430
|
|
|
$
|
|
|
Working capital(7)
|
|
|
4,094
|
|
|
|
22,284
|
|
|
|
108
|
|
|
|
5,162
|
|
|
|
16,058
|
|
Total assets
|
|
|
717,226
|
|
|
|
599,944
|
|
|
|
386,088
|
|
|
|
203,661
|
|
|
|
1,275,922
|
|
Total debt
|
|
|
432,500
|
|
|
|
398,750
|
|
|
|
217,000
|
|
|
|
125,000
|
|
|
|
|
|
Partners capital/net parent equity
|
|
|
258,308
|
|
|
|
175,468
|
|
|
|
145,159
|
|
|
|
69,457
|
|
|
|
1,268,938
|
|
|
|
|
(1) |
|
In October 2006 and July 2007 we acquired from Universal, and in
July 2008 and November 2009 we acquired from Exterran Holdings,
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 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
direct 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, a non-GAAP financial measure, is defined,
reconciled to net income and discussed further in
Non-GAAP Financial Measure below. |
|
(4) |
|
As a result of a decline in market conditions and operating
horsepower during 2009, we reviewed the idle compression fleet
used in our business for units that are not of the type,
configuration, make or model that are cost efficient to maintain
and operate. As a result of that review, we determined that
56 units representing approximately 8,900 horsepower would
be retired from the fleet. We performed a cash flow analysis of
the expected proceeds from the disposition of these units to
determine the fair value of the fleet assets we will no longer
utilize in our operations. The net book value of these assets
exceeded the fair value by $3.2 million and was recorded as
a long-lived asset impairment. The impairment is recorded in
Fleet impairment expense in the consolidated statements of
operations. |
|
(5) |
|
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. |
|
(6) |
|
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. |
|
(7) |
|
Working capital is defined as current assets minus current
liabilities. |
39
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 management as it represents the
results of revenue and cost of sales (excluding depreciation and
amortization expense), which are key components of our
operations. We believe gross margin is important because it
focuses on the current 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
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 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exterran Partners, L.P.
|
|
|
Exterran Partners Predecessor
|
|
|
|
|
|
|
|
|
|
|
|
|
June 22, 2006
|
|
|
January 1, 2006
|
|
|
Nine Months
|
|
|
|
|
|
|
|
|
|
|
|
|
through
|
|
|
through
|
|
|
Ended
|
|
|
|
Years Ended December 31,
|
|
|
December 31,
|
|
|
October 19,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006(1)
|
|
|
2006
|
|
|
2005
|
|
|
Net income
|
|
$
|
14,784
|
|
|
$
|
29,847
|
|
|
$
|
19,401
|
|
|
$
|
2,705
|
|
|
$
|
107,970
|
|
|
$
|
84,004
|
|
Depreciation and amortization
|
|
|
36,452
|
|
|
|
27,053
|
|
|
|
16,570
|
|
|
|
2,108
|
|
|
|
61,317
|
|
|
|
52,595
|
|
Fleet impairment
|
|
|
3,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
24,226
|
|
|
|
16,085
|
|
|
|
13,730
|
|
|
|
1,566
|
|
|
|
30,584
|
|
|
|
20,395
|
|
Interest expense
|
|
|
20,303
|
|
|
|
18,039
|
|
|
|
11,658
|
|
|
|
1,815
|
|
|
|
|
|
|
|
|
|
Other (income) expense, net
|
|
|
(1,208
|
)
|
|
|
(1,430
|
)
|
|
|
(22
|
)
|
|
|
|
|
|
|
(298
|
)
|
|
|
1,220
|
|
Income tax expense
|
|
|
541
|
|
|
|
555
|
|
|
|
272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
$
|
98,249
|
|
|
$
|
90,149
|
|
|
$
|
61,609
|
|
|
$
|
8,194
|
|
|
$
|
199,573
|
|
|
$
|
158,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Exterran Partners, L.P. was formed on June 22, 2006 but did
not commence operations until October 20, 2006. |
40
|
|
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, the
notes thereto, 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), in 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 contract
operations 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 an initial minimum term, which is typically between six
and twelve months, contract operations services generally
continue 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 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 demand for, and future pricing of,
oil and natural gas products as well as their estimates of
risk-adjusted costs to find, develop and produce reserves.
Although we believe our business is typically less impacted by
commodity prices than certain other oil and natural gas service
providers, changes in natural gas exploration and production
spending will normally result in changes in demand for our
services.
Natural gas consumption in the U.S. for the twelve months
ended November 30, 2009 decreased by approximately 2%
compared to the twelve months ended November 30, 2008.
Total natural gas consumption in the U.S. is projected by
the Energy Information Administration (EIA) to
increase by 0.4% in both 2010 and 2011, and is expected to
increase by an average of 0.7% per year until 2030. For 2008,
the U.S. accounted for an estimated annual production of
approximately 21 trillion cubic feet of natural gas. The EIA
expects total U.S. marketed natural gas production to
decline by 3.8% in 2010. The EIA estimates that the U.S.s
natural gas production level will be approximately 23 trillion
cubic feet in calendar year 2030.
We believe the contract compression services industry in the
U.S. will continue to have potential 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
|
|
|
|
increased production from unconventional sources, such as tight
sands, shales and coalbeds.
|
41
Our
Performance Trends and Outlook
Our results of operations depend upon the level of activity in
the U.S. energy market. Oil and natural gas prices and the
level of drilling and exploration activity can be volatile. For
example, oil and natural gas exploration and development
activity and the number of well completions typically decline
when there is a significant reduction in oil and natural gas
prices or significant instability in energy markets. We believe
the decrease in 2009 activity levels in the energy industry in
the U.S. as compared to 2008 may continue to
negatively impact the level of spending by our customers and,
therefore, our business activity for the near term.
Our revenue, earnings and financial position are affected by,
among other things, (i) market conditions that impact
demand and pricing for natural gas compression, (ii) our
customers decisions to utilize our services rather than
purchase equipment or utilize our competitors services,
and (iii) 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; we cannot be certain
that these contracts will be renewed after the end of the
initial contractual term, and any such nonrenewal, or renewal at
a reduced rate, could adversely impact our results of operations
and cash available for distribution.
Given the current economic environment in the U.S. and
anticipated impact of lower spending by customers, we expect a
further reduction in demand for our services. We believe that
the current economic environment and the available supply of
idle and underutilized compression equipment owned by our
customers and competitors will continue to negatively impact our
ability to improve our horsepower utilization and revenues in
the near term (excluding the impact of potential transfers of
additional contract operations customer contracts and equipment
from Exterran Holdings to us). In addition, 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, 2009 of approximately $1.8 million and
$1.0 million, respectively.
Our level of capital spending depends on the demand for our
services and the equipment we require to render those services
to our customers. While the contract operations services
business has historically experienced more stable demand than
that for certain other energy service products and services, our
total operating horsepower decreased, excluding the impact of
the November 2009 Contract Operations Acquisition, by
approximately 12% from December 31, 2008 to
December 31, 2009, and we expect further horsepower
declines during 2010.
Pursuant to the Omnibus Agreement between us and Exterran
Holdings, our obligation to reimburse Exterran Holdings for cost
of sales and SG&A expenses is capped through
December 31, 2010 (see Note 5 to the Financial
Statements). During the years ended December 31, 2009 and
2008, our cost of sales exceeded this cap by $7.2 million
and $12.5 million, respectively. During the years ended
December 31, 2009 and 2008, our SG&A expense exceeded
this cap by $0.6 million and $0.1 million,
respectively.
Exterran Holdings intends for us to be the primary long-term
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 Exterran
GP LLCs board of directors. The timing of such
transactions would also depend on, among other things, market
and economic conditions and the availability to us of debt and
equity capital. 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 of performance trends and outlook
excludes any future potential transfers of additional contract
operations customer contracts and equipment from Exterran
Holdings to us.
42
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.
Compression Fleet Utilization. Our ability to
increase our revenues is dependent in large part on our ability
to increase our utilization of our idle fleet. We believe that
the current economic environment and the available supply of
idle and underutilized compression equipment owned by our
customers and competitors will continue to negatively impact our
ability to improve our horsepower utilization and revenues in
the near term. Our total operating horsepower decreased by
approximately 12% from December 31, 2008 to
December 31, 2009, excluding the horsepower acquired in the
November 2009 Contracts Operations Acquisition, and we expect
further horsepower declines into 2010. We believe the decrease
in utilization and revenues has been the result of reduced
commodity prices and energy activity, an excess supply of gas
compression equipment in the industry, and the rationalization
of compression equipment by our customers that has included
replacing outsourced compression units with customer-owned
equipment and downsizing compression units where excess
horsepower capacity existed.
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. 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 our board of directors. The timing of
such transactions would also depend on, among other things,
market and economic conditions and the availability to us of
debt and equity capital. Future contributions of assets to us
upon consummation of transactions with Exterran Holdings may
increase or decrease our operating performance, financial
position and liquidity.
Labor. We have no employees. Exterran Holdings
provides all operational staff, corporate staff and support
services necessary to run our business. We believe Exterran
Holdings ability to hire, train and retain qualified
personnel continues to be a challenge. 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.
Operating
Highlights
The following table summarizes total available horsepower, total
operating horsepower, average operating horsepower, and
horsepower utilization percentages.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Total Available Horsepower (at period end)
|
|
|
1,304,211
|
|
|
|
1,026,124
|
|
|
|
722,557
|
|
Total Operating Horsepower (at period end)
|
|
|
1,049,904
|
|
|
|
909,288
|
|
|
|
668,540
|
|
Average Operating Horsepower
|
|
|
877,729
|
|
|
|
754,181
|
|
|
|
496,250
|
|
Horsepower utilization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Spot (at period end)
|
|
|
81
|
%
|
|
|
89
|
%
|
|
|
93
|
%
|
Average
|
|
|
82
|
%
|
|
|
90
|
%
|
|
|
95
|
%
|
43
Financial
Results of Operations
Year
ended December 31, 2009 compared to year ended
December 31, 2008
The following table summarizes our revenue, gross margin, gross
margin percentage, expenses and net income (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Revenue
|
|
$
|
181,729
|
|
|
$
|
163,712
|
|
Gross margin(1)
|
|
|
98,249
|
|
|
|
90,149
|
|
Gross margin percentage
|
|
|
54
|
%
|
|
|
55
|
%
|
Expenses:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
36,452
|
|
|
$
|
27,053
|
|
Fleet impairment
|
|
|
3,151
|
|
|
|
|
|
Selling, general and administrative
|
|
|
24,226
|
|
|
|
16,085
|
|
Interest expense
|
|
|
20,303
|
|
|
|
18,039
|
|
Other (income) expense, net
|
|
|
(1,208
|
)
|
|
|
(1,430
|
)
|
Income tax expense
|
|
|
541
|
|
|
|
555
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
14,784
|
|
|
$
|
29,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
For a reconciliation of gross margin to net income, its most
directly comparable financial measure, calculated and presented
in accordance with GAAP, please read Part II, Item 6
(Selected Financial Data
Non-GAAP Financial Measure) of this report. |
Revenue. Average monthly operating horsepower
was 877,729 and 754,181 for the years ended December 31,
2009 and 2008, respectively. The increase in revenue and average
monthly operating horsepower was primarily due to the inclusion
of the results from the assets acquired in the November 2009 and
July 2008 Contract Operations Acquisitions. The inclusion of the
results from the assets acquired in the November 2009 and
July 2008 Contract Operations Acquisitions accounted for
approximately $7.6 million and $58.3 million,
respectively, of the increase in revenue, partially offset by an
8% decrease in average operating horsepower utilization and a
decrease of 5% in revenue per average operating horsepower due
to lower pricing, for the year ended December 31, 2009
compared to the year ended December 31, 2008. The decrease
in horsepower utilization and pricing was due to deterioration
in the economic climate and natural gas energy conditions in the
U.S.
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,
2009 compared to the year ended December 31, 2008 was
primarily due to the inclusion of the results from the assets
acquired in the November 2009 and July 2008 Contract
Operations Acquisitions, partially offset by a decrease in
horsepower utilization and lower pricing for the year ended
December 31, 2009 compared to the year ended
December 31, 2008.
Depreciation and Amortization. The increase in
depreciation and amortization expense was primarily due to the
additional depreciation on compression equipment additions,
including the assets acquired in the November 2009 and July
2008 Contract Operations Acquisitions.
Fleet Impairment. As a result of a decline in
market conditions and operating horsepower during 2009, we
reviewed the idle compression assets used in our business for
units that are not of the type, configuration, make or model
that are cost efficient to maintain and operate. As a result of
that review, we determined that 56 units representing
approximately 8,900 horsepower would be retired from the fleet.
We performed a cash flow analysis of the expected proceeds from
the disposition of these units to determine the fair value of
the fleet assets we will no longer utilize in our operations.
The net book value of these assets
44
exceeded the fair value by $3.2 million and the difference
was recorded as a long-lived asset impairment. The impairment is
recorded in Fleet impairment expense in the consolidated
statements of operations.
SG&A. SG&A expenses are primarily
comprised of an allocation of expenses, including costs for
personnel support and related expenditures, from Exterran
Holdings. The increase in SG&A expense was primarily due to
the impact of re-measuring the fair value of our phantom units
and increased costs associated with the increase in revenues
after the November 2009 and July 2008 Contract Operations
Acquisitions. SG&A expenses represented 13% and 10% of
revenues for the years ended December 31, 2009 and 2008,
respectively. The increase 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. We recorded $0.2 million in SG&A expense
related to the re- measurement of fair value of the phantom
units for the year ended December 31, 2009 and we recorded
a reduction to SG&A expense of $3.9 million related to
the re-measurement of fair value of the unit options and phantom
units for the year ended December 31, 2008. 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 for the year ended December 31, 2009
resulting from the additional debt incurred for the
November 2009 and July 2008 Contract Operations
Acquisitions. This increase was partially offset by a decrease
in our weighted average effective interest rate, including the
impact of interest rate swaps, to 4.7% for the year ended
December 31, 2009, from 5.6% for the year ended
December 31, 2008.
Other (Income) Expense, Net. The change in
other (income) expense, net was due to a $2.0 million gain
on the sale of used compression equipment during the year ended
December 31, 2009 compared to a $1.4 million gain on
the sale of used compression equipment during the year ended
December 31, 2008. The year ended December 31, 2009
also included $0.8 million of transaction costs associated
with the November 2009 Contract Operations Acquisition.
Income Tax Expense. Income tax expense
primarily reflects taxes recorded under the Texas margins tax
and the Michigan Business Tax. The decrease in income tax
expense for the year ended December 31, 2009 was primarily
due to a decrease in our revenue earned within the state of
Texas.
Year
ended December 31, 2008 compared to year ended
December 31, 2007
The following table summarizes our revenue, gross margin, gross
margin percentage, expenses and net income (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Revenue
|
|
$
|
163,712
|
|
|
$
|
107,675
|
|
Gross margin
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
Revenue. Average monthly operating horsepower
was 754,181 and 496,250 for the years ended December 31,
2008 and 2007, respectively. The increase in revenue and average
monthly operating horsepower was primarily
45
due to the inclusion of the assets acquired in the July 2008 and
July 2007 Contract Operations Acquisitions. The inclusion of the
results from the assets acquired in the July 2008 and July 2007
Contract Operations Acquisitions accounted for 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 2008 and July 2007 Contract Operations
Acquisitions.
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 compression equipment additions,
including the assets acquired in the July 2008 and July 2007
Contract Operations Acquisitions.
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 2008 and
July 2007 Contract Operations Acquisitions. 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 2008 and July 2007 Contract Operations Acquisitions.
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.
Liquidity
and Capital Resources
The following table summarizes our sources and uses of cash for
the years ended December 31, 2009 and 2008, and our cash
and working capital as of the end of such periods (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
55,936
|
|
|
$
|
43,268
|
|
Investing activities
|
|
|
(7,422
|
)
|
|
|
(21,320
|
)
|
Financing activities
|
|
|
(51,555
|
)
|
|
|
(21,539
|
)
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
$
|
(3,041
|
)
|
|
$
|
409
|
|
|
|
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Cash and cash equivalents
|
|
$
|
203
|
|
|
$
|
3,244
|
|
Working capital
|
|
|
4,094
|
|
|
|
22,284
|
|
Operating Activities. The increase in net cash
provided by operating activities was primarily the result of
additional cash generated from increased collections of accounts
receivable, trade for the year ended December 31, 2009
compared to the year ended December 31, 2008.
Investing Activities. The decrease in cash
used in investing activities during the year ended
December 31, 2009 compared to the year ended
December 31, 2008 was primarily attributable to a decrease
in amounts due from affiliates and a decrease in capital
expenditures in the year ended December 31, 2009 compared
to the year ended December 31, 2008. Capital expenditures
for the year ended December 31, 2009 were
$17.9 million, consisting of $5.3 million for fleet
growth capital and $12.6 million for compressor maintenance
activities. Included in our fleet growth capital expenditures
for the year ended December 31, 2009 were new compression
equipment purchases of $3.1 million from Exterran Holdings.
Financing Activities. The increase in cash
used in financing activities during the year ended
December 31, 2009 compared to the year ended
December 31, 2008 was primarily the result of an increase
in net repayments under our debt facilities, partially offset by
an increase in amounts due to affiliates, net in the year ended
December 31, 2009 compared to the year ended
December 31, 2008.
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.
|
We currently plan to spend approximately $20 million to
$25 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 facilities 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 facilities, 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 our 2009 ABS 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. 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. Additionally, our ability to utilize the
issuance of equity securities as a source of expansion capital
is currently limited by our credit agreement, which requires us
to use the cash proceeds from any equity offering first to repay
our $117.5 million term loan facility in full.
47
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 for each unit. There are no
limitations in our partnership agreement or in the terms of our
credit facilities on our ability to issue additional units,
including units ranking senior to our common units.
Long-term Debt. We, as guarantor, and EXLP
Operating LLC, our wholly-owned subsidiary, are parties to a
senior secured credit agreement that provides for a five-year,
$315 million revolving credit facility that matures in
October 2011.
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 cash 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, 2009, we had approximately
$285.0 million outstanding and $30.0 million available
under our revolving credit facility and $117.5 million of
long-term debt outstanding under the term loan. All amounts
under the revolving credit facility and term loan mature in
October 2011.
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. At December 31, 2009, all amounts
outstanding were LIBOR loans and the applicable margin was
1.75%. The weighted average interest rate on the outstanding
balance at December 31, 2009, excluding the effect of
interest rate swaps, was 2.1%.
The term loan bears interest at a base rate or LIBOR, at our
option, plus an applicable margin. At December 31, 2009,
all amounts outstanding were LIBOR loans and the applicable
margin was 2.25%. 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, 2009, excluding
the effect of interest rate swaps, was 2.5%.
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 (as
defined in the credit agreement) to EBITDA of not greater than
5.0 to 1.0. Our senior secured credit facility allows for our
Total Debt to EBITDA ratio to be increased from 5.0 to 1.0 to
5.5 to 1.0 during a quarter when an acquisition closes meeting
certain thresholds and for the following two quarters after the
acquisition closes. Therefore, due to the November 2009 Contract
Operations Acquisition closing in the fourth quarter of 2009,
the maximum allowed ratio of Total Debt to EBITDA was increased
from 5.0 to 1.0 to 5.5 to 1.0 for the period from
December 31, 2009 through June 30, 2010. After
June 30, 2010, our required Total Debt to EBITDA ratio will
go back to 5.0 to 1.0. As of December 31, 2009, we
maintained a 5.2 to 1.0
48
EBITDA to Total Interest Expense ratio and a 4.0 to 1.0 Total
Debt to EBITDA ratio. If we continue to experience a
deterioration in the demand for our services, and we are unable
to consummate further acquisitions from Exterran Holdings, amend
our senior secured credit facility or restructure our debt, we
estimate that we could be in violation of the maximum Total Debt
to EBITDA covenant ratio contained in our senior secured credit
facility during 2010. In addition, if we experience a material
adverse effect on our assets, liabilities, financial condition,
business, operations or prospects that, taken as a whole,
impacted our ability to perform our obligations under our credit
agreement, this could lead to a default under our credit
agreement. As of December 31, 2009, we were in compliance
with all financial covenants under the credit agreement.
In connection with the November 2009 Contract Operations
Acquisition, we entered into the 2009 ABS Facility, a portion of
which was used to fund the November 2009 Contract Operations
Acquisition. The 2009 ABS Facility notes are revolving in nature
and are payable in July 2013. Interest and fees payable to the
noteholders will accrue on these notes at a variable rate
consisting of an applicable margin of 3.5% plus, at our option,
either LIBOR or a base rate. The weighted average interest rate
on the outstanding balance of the 2009 ABS Facility at
December 31, 2009, excluding the effect of interest rate
swaps, was 3.8%. Repayment of the 2009 ABS Facility notes has
been secured by a pledge of all of the assets of EXLP ABS 2009
consisting primarily of specified compression services contracts
and a fleet of natural gas compressor units. The amount
outstanding at any time is limited to the lower of (i) 75%
of the value of the natural gas compression equipment owned by
EXLP ABS 2009 (as defined in the agreement), (ii) 4.0 times
free cash flow or (iii) the amount calculated under an
interest coverage test. Additionally, the senior secured credit
facilitys credit agreement limits the amount we can borrow
under the 2009 ABS Facility to two times our EBITDA (as defined
in the credit agreement). As of December 31, 2009, we had
$30.0 million outstanding, with $120.0 million of
availability, under the 2009 ABS Facility.
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, 2010, our board of directors approved a cash
distribution of $0.4625 per limited partner unit, or
approximately $11.6 million, including distributions to our
general partner on its incentive distribution rights. The
distribution covers the time period from October 1, 2009
through December 31, 2009. The record date for this
distribution was February 9, 2010 and payment was made on
February 12, 2010.
Contractual Obligations. The following table
summarizes our cash contractual obligations as of
December 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
Total
|
|
|
2010
|
|
|
2011-2012
|
|
|
2013-2014
|
|
|
Thereafter
|
|
|
Long-term debt(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving credit facility
|
|
$
|
285,000
|
|
|
$
|
|
|
|
$
|
285,000
|
|
|
$
|
|
|
|
$
|
|
|
Term loan facility
|
|
|
117,500
|
|
|
|
|
|
|
|
117,500
|
|
|
|
|
|
|
|
|
|
Asset-backed securitization facility
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
432,500
|
|
|
|
|
|
|
|
402,500
|
|
|
|
30,000
|
|
|
|
|
|
Estimated interest payments(2)
|
|
|
41,042
|
|
|
|
21,304
|
|
|
|
19,076
|
|
|
|
662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
473,542
|
|
|
$
|
21,304
|
|
|
$
|
421,576
|
|
|
$
|
30,662
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 7 to the Financial Statements. |
49
|
|
|
(2) |
|
Interest amounts calculated using the interest rates in effect
as of December 31, 2009, including the effect of our
interest rate swap agreements. |
Effects of Inflation. Our revenues and results
of operations have not been materially impacted by inflation in
the past three fiscal years.
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. 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 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 2009, 2008 and 2007, we recorded
bad debt expense of approximately $0.6 million,
$0.2 million and $0.1 million, respectively. A five
percent change in the allowance for doubtful accounts would have
had an impact on income before income taxes of approximately
$31,000 in 2009.
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
50
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. Significant estimates for each reporting unit
included in our impairment analysis are our cash flow forecasts,
our estimate of the markets weighted average cost of
capital and market multiples. 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. The fair value of our reporting unit
as of December 31, 2009 exceeded its book value by a
significant margin.
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 the Financial Accounting
Standards Board (FASB) Accounting Standards
Codification (ASC) 360, Property, Plant and
Equipment, 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 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 minimal 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, 2009, after taking into consideration
interest rate swaps, we had approximately $177.5 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 $1.8 million.
For further information regarding our use of interest rate swap
agreements to manage our exposure to interest rate fluctuations
on a portion of our debt obligations, see Notes 10 and 11
to the Financial Statements.
|
|
ITEM 8.
|
Financial
Statements and Supplementary Data
|
Our consolidated financial statements included in this report
beginning on
page F-1
are incorporated herein by reference.
51
|
|
ITEM 9.
|
Changes
in and Disagreements With Accountants on Accounting and
Financial Disclosure
|
None.
|
|
ITEM 9A.
|
Controls
and Procedures
|
Managements
Evaluation of Disclosure Controls and Procedures
As required by
Rule 13a-15(b)
under the Securities Exchange Act of 1934 (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
Rules 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
Rules 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, 2009.
The effectiveness of internal control over financial reporting
as of December 31, 2009, 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, 2009, 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, 2009, 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, 2009 of
the Partnership and our report dated February 25, 2010
expressed an unqualified opinion on those financial statements
and financial statement schedule.
/s/ DELOITTE &
TOUCHE LLP
Houston, Texas
February 25, 2010
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 Rule 5615(a)(4) 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, G. Stephen
Finley and Edmund P. Segner, III 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 nine times and
took action by unanimous written consent on three occasions
during 2009. During 2009, 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 four times during 2009, consists of Messrs. Crump
(chair), Finley and Segner. The board of directors has
determined that each of Messrs. Crump, Finley and Segner is
an audit committee financial expert as defined in
Item 407(d)(5)(ii) of SEC
Regulation S-K,
and that each is independent within the meaning of
the applicable NASDAQ rules. 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 five times during 2009, consists of
Messrs. Crump, Finley (chair) and Segner. 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 ten times during 2009, consists of Messrs. Crump
(chair), Finley and Segner. 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, during 2009.
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 also
will 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.
The following table shows information regarding the current
directors and executive officers of Exterran GP LLC:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position with Exterran GP LLC
|
|
Ernie L. Danner
|
|
|
55
|
|
|
President, Chief Executive Officer and Chairman of the Board
|
David S. Miller
|
|
|
46
|
|
|
Vice President, Chief Financial Officer and Director
|
J. Michael Anderson
|
|
|
47
|
|
|
Senior Vice President and Director
|
D. Bradley Childers
|
|
|
45
|
|
|
Senior Vice President and Director
|
Daniel K. Schlanger
|
|
|
36
|
|
|
Senior Vice President and Director
|
Donald C. Wayne
|
|
|
43
|
|
|
Senior Vice President and General Counsel
|
Kenneth R. Bickett
|
|
|
48
|
|
|
Vice President, Finance and Accounting
|
James G. Crump
|
|
|
69
|
|
|
Director
|
G. Stephen Finley
|
|
|
59
|
|
|
Director
|
Edmund P. Segner, III
|
|
|
56
|
|
|
Director
|
Ernie L. Danner. Mr. Danner was
elected President and Chief Executive Officer and Chairman of
the Board of Exterran GP LLC in July 2009, having served as
President since October 2008. Mr. Danner served as a
55
director of Exterran GP LLC from October 2006 through May 2008
and rejoined the board in October 2008. Mr. Danner was also
elected President and Chief Executive Officer of Exterran
Holdings in July 2009, having served as President and Chief
Operating Officer since 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 and serves as an officer
and director of certain other Exterran Holdings majority-owned
subsidiaries. Mr. Danner holds a B.A. and an MBA in
Accounting from Rice University.
Mr. Danners day to day leadership as our Chief
Executive Officer and his role in forming the Partnership
provide him with an intimate knowledge of our Partnership,
including its strategies, operations and markets, and his
outside board service brings experience with related sectors of
the energy industry. Mr. Danners business judgment,
management experience and leadership skills are highly valuable
in assessing our business strategies and accompanying risks.
David S. Miller. Mr. Miller was
elected Vice President and Chief Financial Officer and as a
director of Exterran GP LLC in March 2009. Prior to that,
Mr. Miller served as Chief Operating Officer of JMI Realty,
a private real estate investment and development company, from
October 2005 to January 2009. From April 2002 to September 2005,
Mr. Miller was a partner with SP Securities LLC, a private
investment banking firm. Prior to joining SP Securities LLC,
Mr. Miller served in positions of increasing responsibility
with the Energy Investment Banking department of Merrill
Lynch & Co, Inc. (a financial management and advisory
firm) from May 1993 to March 2002, including as Vice President
beginning in 1996 and as Director beginning in 1999.
Mr. Miller holds a B.S. in finance from Southern Methodist
University and an MBA from Northwestern University J.L. Kellogg
Graduate School of Management.
Through his role as our Chief Financial Officer, Mr. Miller
brings extensive knowledge of our Partnership, including its
capital structure and financing requirements. Mr. Miller
also brings valuable financial expertise, including extensive
experience with capital markets transactions, knowledge of the
energy industry and familiarity with the natural gas compression
industry from his prior role as an investment banker.
Kenneth R. Bickett. Mr. Bickett
was elected Vice President, Finance and Accounting of Exterran
GP LLC in April 2009, having served as Vice President and
Corporate Controller of Exterran GP LLC since June 2006. He also
serves as Vice President, Finance and Accounting 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. Mr. Bickett is a Certified Public Accountant
and holds a B.S. in accounting from the University of Kentucky.
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, Chief Financial Officer
and Chief of Staff of Exterran Holdings. Prior to the merger of
Hanover and Universal, Mr. Anderson 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. (a financial services company), where he specialized in
merger and acquisitions advisory
56
services. Mr. Anderson also serves as an officer and
director of certain other Exterran Holdings majority-owned
subsidiaries. Mr. Anderson holds a BBA in finance from
Texas Tech University and an MBA in finance from The Wharton
School of the University of Pennsylvania.
Through his role as Exterran Holdings Chief Financial
Officer and his involvement in our formation, Mr. Anderson
brings extensive knowledge of our Partnership, including its
capital structure and financing requirements. Mr. Anderson
also brings valuable financial expertise, including extensive
experience with capital markets transactions and knowledge of
the energy industry from his prior role as an investment banker.
D. Bradley
Childers. Mr. Childers was elected
Senior Vice President of Exterran GP LLC in June 2006 and as a
director of Exterran GP LLC in May 2008. 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. Mr. Childers holds a
B.A. from Claremont McKenna College and a J.D. from the
University of Southern California.
As President, North America of Exterran Energy Solutions, L.P.,
Mr. Childers has intimate knowledge of our contract
compression operations as well as a unique understanding of
market factors and operational challenges and opportunities.
Also, through his prior role as General Counsel of Exterran
Holdings predecessor, Mr. Childers is familiar with a
full range of company and board functions.
Daniel K. Schlanger. Mr. Schlanger
has served as Senior Vice President of Exterran GP LLC since
June 2006, and has served as a director of Exterran GP LLC since
October 2006. From June 2006 to March 2009, he also served as
Chief Financial Officer of Exterran GP LLC. He also currently
serves as Senior Vice President, Operations Services of Exterran
Holdings and Exterran Energy Solutions, L.P. 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 of certain other Exterran Holdings majority-owned
subsidiaries. Mr. Schlanger holds a B.S. in Economics from
the University of Pennsylvania.
In his position as Senior Vice President, Operations Services of
Exterran Holdings, Mr. Schlanger has unique insight into
our operational challenges and opportunities. Also, through his
prior role as our Chief Financial Officer and previously as an
investment banker who provided advice regarding the structuring
of our Partnership, Mr. Schlanger brings extensive
knowledge of our Partnership, including its capital structure
and financing requirements. Mr. Schlanger also brings
financial expertise, including experience with capital markets
transactions, knowledge of the energy industry and familiarity
with master limited partnerships from his prior role as an
investment banker.
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. Mr. Wayne holds a
B.A. from Tufts University and a J.D. and an MBA from Washington
University (St. Louis).
57
James G. Crump. Mr. Crump was
appointed as a director of Exterran GP LLC in October 2006.
Mr. Crump began his career at PricewaterhouseCoopers in
1962 and became a partner in 1974. From 1977 until the merger of
Price Waterhouse and Coopers Lybrand in 1998, Mr. Crump
held numerous management and leadership roles. From 1998 until
his retirement in 2001, Mr. Crump served 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 chairman
of the audit committee and a member of the conflicts committee
of the board of directors of Copano Energy, L.L.C. (a natural
gas gathering and processing company). Mr. Crump holds a
B.A. in accounting from Lamar University.
With a nearly
40-year
career focused on providing independent public accounting
services to the energy industry, Mr. Crump contributes a
broad-based understanding of the oil and gas industry and of
complex accounting and financial matters. Mr. Crumps
service on the audit and conflicts committees of the board of
directors of another energy services company further enhances
his qualifications to serve as a member of our board.
G. Stephen 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, 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 as Chairman of the Audit
Committee and as a member of the Compensation Committee 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 and global provider of 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). Mr. Finley is a
Certified Public Accountant and holds a B.S. from Indiana State
University.
Mr. Finley contributes extensive financial acumen and an
understanding of the oil and gas services industry, including
oilfield services companies, through his 24 years of
service with Baker Hughes, including seven years as Chief
Financial Officer. Mr. Finleys service on the audit
and compensation committees of the board of directors of another
energy services company further enhances his qualifications to
serve as a member of our board. Mr. Finley also possesses
important relationships with senior management of oil and gas
companies and oilfield service companies throughout the world.
Edmund P.
Segner, III. Mr. Segner was elected
a director of Exterran GP LLC in May 2009. Mr. Segner is a
Professor in the Practice of Engineering Management in the
Department of Civil and Environmental Engineering at Rice
University (Houston). In November 2008, Mr. Segner retired
from EOG Resources, Inc. (EOG), a publicly traded independent
oil and gas exploration and production company. Among the
positions he held at EOG was President and Chief of Staff and
Director from 1999 to 2007. During the period March 2003 through
June 2007, he also served as the principal financial officer.
Mr. Segner served on the board of directors of Universal
Compression Holdings, Inc. from 2000 to 2002. He is currently
chairman of the Audit Committee of Seahawk Drilling, Inc. (an
owner and operator of offshore oil and gas platforms and a
provider of deep water contract drilling services to the oil and
natural gas exploration industry) and serves on the Audit and
Compensation Committees of Bill Barrett Corporation (a company
engaged in exploration and development of natural gas and oil
reserves in the Rocky Mountain region of the United States).
Mr. Segner is a member of the Society of Petroleum
Engineers and currently serves as a member of the board or as a
trustee for several non-profit organizations. Mr. Segner is
a Certified Public Accountant and holds a B.S. in civil
engineering from Rice University and an M.A. in economics from
the University of Houston.
Mr. Segner brings technical experience and financial acumen
to our board. Having served in a senior management position for
an oil and gas company, Mr. Segner also possesses a
thorough understanding of the energy industry and operational
challenges unique to this industry. In addition, as a former
president of a public company and as a director of other public
companies, Mr. Segner has valuable experience with other
functions pertinent to our board, including compensation,
financing matters and the evaluation of acquisition
opportunities.
58
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ITEM 11.
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Executive
Compensation
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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 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 2007, 2008 and 2009 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). We sometimes refer herein to Exterran GP
LLCs management and executive officers as our
management and our executive officers,
respectively.
This Compensation Discussion and Analysis
(CD&A) provides information about the
compensation objectives and policies for the chief executive
officer, chief financial officer and other most highly
compensated executive officers of Exterran GP LLC, including
Mr. Snider, whose employment concluded in June 2009 (our
Named Executive Officers). This CD&A provides
additional context for the numbers presented in the compensation
tables that follow this discussion. For calendar year 2009, the
following individuals comprised our Named Executive Officers
(titles are as of December 31, 2009):
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Ernie L. Danner, President and Chief Executive Officer of
Exterran GP LLC and Exterran Holdings
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Stephen A. Snider, former Chief Executive Officer of
Exterran GP LLC and Exterran Holdings
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David S. Miller, Vice President and Chief Financial
Officer of Exterran GP LLC and Vice President of Exterran
Holdings
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J. Michael Anderson, Senior Vice President of Exterran GP
LLC and Senior Vice President, Chief Financial Officer and Chief
of Staff of Exterran Holdings
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D. Bradley Childers, Senior Vice President of Exterran GP
LLC and Exterran Holdings
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Daniel K. Schlanger, Senior Vice President of Exterran GP
LLC and Senior Vice President, Operations Services of Exterran
Holdings and former Chief Financial Officer of Exterran GP LLC
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Executive
Management Changes in 2009
On March 4, 2009, the board of directors of Exterran GP LLC
appointed David S. Miller as our Vice President and Chief
Financial Officer. Daniel K. Schlanger, who assumed new
responsibilities with Exterran Holdings and retained his title
as Senior Vice President, ceased serving as our Chief Financial
Officer upon Mr. Millers appointment to that position.
On June 30, 2009, in accordance with his previously
announced plans for retirement, Stephen A. Snider resigned as
Chief Executive Officer. Mr. Danner, who rejoined Exterran
GP LLC as President and Chief Operating Officer in October 2008,
was named President and Chief Executive Officer on June 30,
2009, concurrent with Mr. Sniders retirement, in
conjunction with a previously announced management succession
plan.
59
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 2009, those allocations were generally
made using a two step process:
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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.
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Second, Exterran Holdings allocates to us a prorated
portion of the selling, general and administrative expenses
initially allocated to the U.S. portion of Exterran
Holdings North America contract operations segment 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.
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In accordance with the terms of the Omnibus Agreement, for the
portion of 2009 prior to completion of the November 2009
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 $6.0 million per
quarter, after taking into account any such costs we incur and
pay directly (the SG&A Cap). In connection with
the November 2009 Contract Operations Acquisition, the SG&A
Cap under the terms of the Omnibus Agreement was increased to
$7.6 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.
2009
Executive Compensation Allocations
During the year ended December 31, 2009, 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:
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Percent of Named
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Executive Officers
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Total Compensation
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in 2009 Allocated
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to the Partnership
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Officer
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(%)
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Ernie L. Danner
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6.0
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Stephen A. Snider
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6.0
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David S. Miller
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6.0
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J. Michael Anderson
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6.0
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D. Bradley Childers
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12.3
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Daniel K. Schlanger
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6.0
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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
60
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 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 Segner.
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:
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in consultation with Exterran GP LLCs senior management,
establish our general compensation philosophy and oversee the
development and implementation of our compensation programs;
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review and approve the manner in which Exterran Holdings
compensation expense applicable to our Named Executive Officers
is allocated to us;
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review and approve compensation programs applicable to Exterran
GP LLCs independent directors; and
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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.
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During 2009, 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 stockholder 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 and operating
principles, including integrity, teamwork, accountability and
customer service, 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 Our Compensation
Committee Determines Executive Compensation. The
combination of these target percentiles is intended to position
our executives compensation competitively relative to the
market.
Our emphasis on at-risk, variable compensation is an important
component of our overall compensation philosophy. More than half
of our Named Executive Officers compensation for 2009 was
at risk. Cash bonuses based on yearly performance
are intended to focus executives and key employees on our
short-term goals of profitability and operational improvements.
Equity awards, the value of which is based on future
performance, are intended to focus executives and key employees
on our long-term strategic goals of sustained profitability and
growth. The Exterran Holdings compensation committee and our
compensation committee believe that at-risk
compensation helps to align managements interest with that
of our equityholders.
61
Due to the deterioration of the financial markets in late 2008,
the Exterran Holdings compensation committee became focused on
developing a compensation program for 2009 that would continue
to further the compensation philosophies described in this
section as well as take into consideration the uncertainty and
volatility in the financial and energy markets and the resulting
impact on Exterran Holdings and us. In light of the decrease in
activity levels in the energy industry, as compared to 2008,
that negatively impacted Exterran Holdings and our
business activity levels, management elected to take actions to
help reduce selling, general and administrative costs and
enhance cash flow generation. To this end, management
implemented a reduction in workforce and suspended 2009 merit
increases in base salary and, for a minimum period of one year,
also suspended the company match for Exterran Holdings
401(k) and deferred compensation plans. To help retain employees
and the ability to attract key management talent, the Exterran
Holdings compensation committee continued to focus on
performance-based short-term and long-term incentive
compensation.
In its most recent review of executive compensation, in February
2010, the Exterran Holdings compensation committee considered
Exterran Holdings and our relative performance under
rapidly changing market conditions, and, taking into account the
recommendations of the Chief Executive Officer with respect to
each executive officer of Exterran Holdings other than himself
(as described below), it focused on each executive
officers performance within that officers scope of
responsibilities, Exterran Holdings and our strategic
initiatives and that officers ability to contribute to
those initiatives, and his experience and future potential, with
no specific weighting assigned to any of these factors. In this
context, the Exterran Holdings compensation committee made the
compensation decisions discussed below in the section entitled
Elements of Compensation.
How
the Exterran Holdings Compensation Committee Determines
Executive Compensation
Role of
Executive Officers in Compensation Decisions
The most significant aspects of Exterran Holdings and our
managements, including the Chief Executive Officers,
role in the compensation-setting process are:
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recommending compensation programs, compensation policies,
compensation levels and incentive opportunities that are
consistent with Exterran Holdings and our business
strategies;
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compiling, preparing and distributing materials for review and
consideration by the Exterran Holdings compensation committee
and our compensation committee, including market data;
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recommending Exterran Holdings performance goals on which
performance-based compensation will be based; and
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assisting in the evaluation of employee performance.
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Exterran Holdings and our Chief Executive Officer annually
reviews the performance of each of the executive 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 Exterran
Holdings executive officers in its discretion, taking into
account the recommendations of Exterran Holdings and the
Chief Executive Officer and other data and materials made
available to the committee.
Because Mr. Miller is not an executive officer of Exterran
Holdings, the Exterran Holdings compensation committee does not
review his performance or determine his compensation.
Mr. Millers performance is reviewed and his
compensation is set by Exterran Holdings Chief Executive
Officer and Chief Financial Officer in a manner consistent with
the compensation philosophy and objectives described above. Our
compensation committee also reviews Mr. Millers
compensation and approves all grants of Exterran Partners equity
awards to him.
62
Role of
the Compensation Consultant
Towers Watson (formerly Towers Perrin), an independent
third-party consultant, has been engaged by the Exterran
Holdings compensation committee to:
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provide a competitive review of executive compensation,
including base salary, annual incentives, long-term incentives
and total direct compensation, in the marketplace, the oilfield
services industry and publicly traded companies across
industries;
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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
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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.
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The scope of Towers Watsons compensation review includes
an analysis of competitive factors in the marketplace and
further takes into consideration Exterran Holdings size,
strategic direction, organizational structure and compensation
philosophy.
Establishing
Competitive Pay Levels
In determining the appropriate levels of compensation, including
total direct compensation and its principal components, for its
executive officers, the Exterran Holdings compensation committee
reviewed general industry (as defined below) and oilfield
services-specific data and analyses provided by Towers Watson,
as well as data contained in the proxy statements of the
oilfield services companies selected for Exterran Holdings
peer group (which data we refer to collectively as
comparative compensation data).
Towers Watson 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
Watson. This data included the following 15 companies with
a median revenue of approximately $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, because it believes this to be an
appropriate range both to maintain our competitiveness in the
market for managerial talent and to align executive compensation
with stockholder interests.
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 companies similar in
size to Exterran Holdings 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 reviews from
time to time executive compensation data published in the proxy
statements of Exterran Holdings peer group (as described
below) as an additional source of information in assessing
whether the executive compensation program is appropriately
positioned and competitive based on Exterran Holdings
industry and size.
For 2009, the Exterran Holdings compensation committee changed
the peer group from seven companies to the 20 listed below. This
expanded peer group included companies with a larger range of
revenues and with
63
both domestic and international operations, many of whom are
Exterran Holdings competitors for managerial talent. The
Exterran Holdings compensation committee believed that a greater
diversity of oilfield services companies would provide an
enhanced overview of compensation and reflects more completely
those companies with which Exterran Holdings competes for
technical and managerial talent.
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Baker Hughes Incorporated
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Natco Group Inc
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BJ Services Company
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National Oilwell Varco, Inc
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Cameron International Corporation
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Noble Corporation
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Chicago Bridge & Iron Company N.V.
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Oil States International, Inc.
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Complete Production Services, Inc.
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Patterson-UTI Energy, Inc.
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Dresser-Rand Group Inc.
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Pride International, Inc.
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FMC Technologies, Inc.
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Rowan Companies, Inc.
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Gardner Denver, Inc.
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Smith International, Inc.
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Key Energy Services, Inc.
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Superior Energy Services, Inc.
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McDermott International, Inc.
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Weatherford International Ltd.
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In addition to its review of comparative compensation data, 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.
Each of the compensation components provided to executive
officers and key employees is further described below.
Elements
of Compensation
Exterran Holdings and our executive compensation programs
are managed from a total rewards perspective, with
consideration given to each of the following components:
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base salary;
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annual performance-based incentives;
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long-term incentives; and
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other compensation and benefit programs.
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The total compensation paid to our Named Executive Officers in
2009, excluding other benefit programs and perquisites, and
excluding those officers who were no longer employed at
December 31, 2009, was comprised approximately of 30% base
salary, 15% annual cash bonus and 55% long-term incentives
(based on the grant-date fair value of the awards), as shown
below.
Average
NEO Compensation Mix
64
The composition of the total compensation package illustrates
Exterran Holdings and our emphasis on variable
compensation. Exterran Holdings and we believe our emphasis on
long-term incentives encourages our executives to act
strategically to ensure our sustainable long-term performance
and to support our goal of enhancing long-term equityholder
value.
In addition, our Named Executive Officers are eligible to
participate in Exterran Holdings various retirement
savings plans, standard employee benefit plans and standard
employee health and welfare benefits, 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 2009, below.
Base
Salaries
The Exterran Holdings compensation committee has 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 the comparative compensation data 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, internal pay
equity and external factors involving competitive positioning
and general economic conditions. No specific formula is applied
to determine the weight of each of these factors. Performance
evaluations are conducted annually and the resulting adjustments
in base salaries generally are effective following the first
quarter of each year.
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 as a result, the 2009 annual base salaries of our
Named Executive Officers remained the same as those for 2008,
and were as follows:
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2009
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Base
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Salary
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Officer
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Title
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($)
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Ernie L. Danner
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President and Chief Executive Officer(1)
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450,000
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Stephen A. Snider
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Former Chief Executive Officer
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600,000
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David S. Miller
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Vice President and Chief Financial Officer
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245,000
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(2)
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J. Michael Anderson
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Senior Vice President
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355,000
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D. Bradley Childers
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Senior Vice President
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340,000
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Daniel K. Schlanger
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Senior Vice President
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300,000
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(1) |
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Mr. Danner was President and Chief Operating Officer when
these salary determinations were made. He was named President
and Chief Executive Officer on June 30, 2009, concurrent
with Mr. Sniders retirement, with no increase in base
salary. |
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(2) |
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Mr. Millers salary was set upon the commencement of
his employment with Exterran Holdings in February 2009. |
Annual
Performance-Based Incentive Compensation
In February 2009, the Exterran Holdings compensation committee
adopted a short-term incentive program (the 2009 Incentive
Program) to provide the short-term incentive compensation
element of Exterran Holdings total direct compensation
program for this year. Under the 2009 Incentive Program, each
executive officer was eligible to receive an annual cash award
based on the Exterran Holdings compensation committees
assessment of Exterran Holdings performance for 2009
relative to certain key business activities and indicators, as
well as each executive officers individual contribution
toward those criteria.
65
In determining the target 2009 bonus opportunity for each Named
Executive Officer other than Mr. Miller, the Exterran
Holdings compensation committee considered his relative
responsibility and his potential impact on the achievement of
the performance criteria. In determining Mr. Millers
target 2009 bonus opportunity, Exterran Holdings Chief
Executive Officer and Chief Financial Officer considered his
relative responsibility and his potential impact on the
achievement of the performance criteria. Those bonus targets,
expressed as a percentage of each Named Executive Officers
base salary for 2009, were as follows:
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2009 Bonus
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2009 Bonus
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Target
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Target
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Executive Officer
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Title
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(% of base salary)
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($)
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Ernie L. Danner
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President and Chief Executive Officer
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90
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405,000
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(1)
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Stephen A. Snider
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Former Chief Executive Officer
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100
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300,000
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(2)
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David S. Miller
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Vice President and Chief Financial Officer
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42
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102,900
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J. Michael Anderson
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Senior Vice President
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70
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248,500
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D. Bradley Childers
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Senior Vice President
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70
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238,000
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Daniel K. Schlanger
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Senior Vice President
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60
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180,000
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(1) |
|
Mr. Danners target bonus under the 2009 Incentive
Program was set at (i) 80% for the period from
January 1, 2009 through June 30, 2009, during which he
served as Exterran Holdings and our president and chief
operating officer, and (ii) 100% for the period from
July 1, 2009, when he assumed his new duties as Exterran
Holdings and our chief executive officer, through
December 31, 2009. |
|
(2) |
|
This amount reflects a proration of Mr. Sniders bonus
target under the 2009 Incentive Program for the period from
January 1, 2009 through the date of his retirement on
June 30, 2009. |
Under the 2009 Incentive Program, each Named Executive Officer
was eligible to receive an annual cash award, at a level of 0%
to 200% of his target bonus, based on Exterran Holdings
performance for 2009 relative to the key business activities and
indicators listed below, as 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 Company and individual performance, as well as one or
more of the following items that the Exterran Holdings
compensation committee could 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, deemed appropriate.
|
The Exterran Holdings compensation committee initially
determined the key business activities and indicators would
relate to the following:
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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.
|
In setting the key business activities and indicators for 2009,
the Exterran Holdings compensation committee 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. During the second quarter of 2009,
the Venezuelan state-owned oil company assumed control over
substantially all of Exterran Holdings assets and
operations in Venezuela. As a result, the Exterran Holdings
compensation committee exercised its discretion to revise
certain
66
financial and stockholder returns target levels during 2009, as
shown in the table below. Also during 2009, management reviewed
idle compression assets used in Exterran Holdings contract
operations segment that were not cost efficient to maintain and
operate and retired those assets from the fleet, and the
Exterran Holdings compensation committee exercised its
discretion to make this target more difficult to achieve by
lowering the idle horsepower allowed under this target level, as
shown in the table below. In addition, in consideration of
challenging market conditions during 2009 and the measures
Exterran Holdings took in response, including a workforce
reduction, suspension of merit increases in base salary and
suspension of benefits under certain of Exterran Holdings
employee benefit plans, management determined to temporarily
defer the employee training and development activities to 2010.
Further, although generation of free cash flow was already an
element of Exterran Holdings business plan for 2009, as a
result of continuing deterioration of energy and economic
conditions during the year, management and the Compensation
Committee determined to place a much greater emphasis on this
during the second half of 2009 and increased the importance of
this factor. These adjustments to the key business activities
and indicators were intended to align incentive award payments
more closely with the developing goals of the underlying
business.
The following table shows the key business activities and
indicators under the 2009 Incentive Program, as revised by the
Exterran Holdings compensation committee in its discretion, and
the results achieved under those activities and indicators, for
the year ended December 31, 2009.
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Key Business Activities and Indicators
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2009 Target Level
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2009 Result
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Generation of free cash flow(1)
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$156 million
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$209 million
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Efficient management of idle assets:
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Idle horsepower at year-end(2)
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<1.3 million
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1.7 million
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Service gross margin per HP(3)
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³$11.00
per month
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$10.56
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Financial and stockholder returns:
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Exterran Holdings recurring earnings per share
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³$1.01
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(4)
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$1.02
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Exterran Holdings recurring return on tangible equity(5)
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³4.4
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%(4)
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4.2
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%
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Exterran Holdings stockholder returns
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>S&P 500
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(22
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)%(6)
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>XNG
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(43
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)%(7)
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>OSX
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(60
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)%(8)
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Exterran Partners unitholder returns
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>AMZ
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46
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%(9)
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Reduction in working capital from continuing operations
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³$50
million
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$131 million
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Project management:
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International bookings(10)
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>$500 million
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$775 million
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Key project management(11)
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Safety:
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Total recordable incident rate(12)
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£1.0
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0.79
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Global preventable vehicle incidents
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<300
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240
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(1) |
|
Refers to cash provided by Exterran Holdings operating
activities less cash used in investing activities (primarily
capital expenditures less proceeds from asset sales) and cash
distributions to our non-controlling partners. |
|
(2) |
|
Refers to aggregate non-operating compression horsepower in
Exterran Holdings North America and international fleet as
of December 31, 2009. In early 2009, the Exterran Holdings
compensation committee set Exterran Holdings 2009 target
level for idle horsepower at less than 1.5 million.
However, during 2009, management reviewed idle compression
assets used in Exterran Holdings contract operations
segment that were not cost efficient to maintain and operate and
retired those assets from the fleet, and the Exterran Holdings
compensation committee exercised its discretion to lower the
idle horsepower allowed under this target level to less than
1.3 million. |
|
(3) |
|
Refers to gross margin from Exterran Holdings contract
operations and after-market services, divided by Exterran
Holdings total horsepower. |
67
|
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(4) |
|
In early 2009, the Exterran Holdings compensation committee set
Exterran Holdings 2009 target levels for earnings per
share and returns on tangible equity at $1.56 and 5.6%,
respectively. However, during the second quarter of 2009, the
Venezuelan state-owned oil company assumed control over
substantially all of Exterran Holdings assets and
operations in Venezuela, and the Exterran Holdings compensation
committee exercised its discretion to revise these target levels
as shown above. |
|
(5) |
|
Refers to recurring net income, divided by total equity less
intangible assets. |
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(6) |
|
Refers to the difference between the percentage increase, from
December 31, 2008 through December 31, 2009, of
Exterran Holdings stock price, 1%, and the percentage
increase of the S&P 500, 23%, for the same period. |
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(7) |
|
Refers to the difference between the percentage increase, from
December 31, 2008 through December 31, 2009, of
Exterran Holdings stock price, 1%, and the percentage
increase of the Amex Natural Gas Index, 44%, for the same period. |
|
(8) |
|
Refers to the difference between the percentage increase, from
December 31, 2008 through December 31, 2009, of
Exterran Holdings stock price, 1%, and the percentage
increase of the Philadelphia Stock Exchange Oil Service Sector,
61%, for the same period. |
|
(9) |
|
Refers to the difference between the total return (adjusted for
distributions), from December 31, 2008 through
December 31, 2009, of our common unit price, 122%, and the
total return of the Alerian MLP Index, 76%, for the same period. |
|
(10) |
|
Refers to Exterran Holdings bookings, excluding Exterran
Holdings Belleli Energy operations, made outside the
United States and Canada related to product sales and new
contract operations projects. |
|
(11) |
|
Exterran Holdings has not disclosed target levels or results
with respect to key project management because it believes such
disclosure would provide third parties with information that
would cause it competitive harm. Because these targets were
developed strictly for internal planning purposes and their
disclosure would provide Exterran Holdings competitors,
customers and other third parties with significant insights
regarding Exterran Holdings confidential planning process
and strategies that could cause Exterran Holdings substantial
competitive harm, Exterran Holdings does not disclose these
targets publicly. The Exterran Holdings compensation committee
believes that this performance measure was set at a level such
that achievement of the target levels would be difficult in 2009. |
|
(12) |
|
Refers to the incident rate for both recordable injuries and
lost time accidents for all Exterran Holdings employees
worldwide. |
The Exterran Holdings compensation committee awarded
performance-based short-term incentive compensation for 2009
under the 2009 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 weight was assigned to any
particular company performance indicator or individual level of
contribution, and, with respect to a performance-based award to
be made to a particular executive officer, no specific weight
was made as between Exterran Holdings performance and
individual contribution.
In determining the payout amounts under the 2009 Incentive
Program for each of the executive officers, the Exterran
Holdings compensation committee also considered Exterran
Holdings relative performance under rapidly changing
market conditions together with its desire to achieve a measure
of internal pay equity among the executive officers and, taking
into consideration the recommendations of our Chief Executive
Officer with respect to each executive officer other than
himself, as described above, it focused on the executives
teamwork, individual leadership and individual contributions to
Exterran Holdings performance. While no specific weight
was assigned to any particular Exterran Holdings performance
indicator, the Exterran Holdings compensation committee did
focus in particular on the importance, given the economic
environment in 2009, of the generation of free cash flow and
Exterran Holdings significant progress on this performance
measure in the latter half of 2009. In determining the payout
amount under the 2009 Incentive Program for Mr. Miller,
Exterran Holdings Chief Executive Officer and Chief
Financial Officer considered Exterran Holdings and our
relative performance under rapidly changing market conditions,
with a focus on his individual leadership and individual
contributions to Exterran Holdings and our performance.
The following payout amounts under the
68
2009 Incentive Program were approved by the Exterran Holdings
compensation committee (Exterran Holdings Chief Executive
Officer and Chief Financial Officer in the case of
Mr. Miller) and were applied to our Named Executive
Officers as indicated:
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2009
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Executive Officer
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Bonus ($)
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Ernie L. Danner
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303,750
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Stephen A. Snider
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120,000
|
(1)
|
David S. Miller
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70,000
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J. Michael Anderson
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175,000
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D. Bradley Childers
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165,000
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Daniel K. Schlanger
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155,000
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|
(1) |
|
Under the 2009 Incentive Program, Mr. Snider had the option
to elect to be paid his award either upon his retirement or in
March 2010 concurrently with the payment of awards to our other
Named Executive Officers. Because Mr. Snider elected to be
paid his award upon his retirement, the Exterran Holdings
compensation committee approved his award under the 2009
Incentive Program in August 2009 based upon a mid-year review of
Exterran Holdings performance relative to the key business
activities and indicators then under consideration, prior to the
adjustments in key business activities and indicators discussed
above. |
In February 2010, the Exterran Holdings compensation committee
determined to award Mr. Schlanger a discretionary cash
bonus in consideration for his individual contribution as the
Partnerships Chief Financial Officer from its inception to
March 2009. This cash bonus, in the amount of $67,500, was
awarded outside the 2009 Incentive Program and is in addition to
his award under the 2009 Incentive Program shown in the table
above.
Long-Term
Incentive Compensation
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 strategic objectives and
long-term financial and operational performance. The Exterran
Holdings compensation committee believes that:
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|
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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
|
|
|
|
grants of Exterran Holdings restricted stock and
restricted stock units 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.
|
The Exterran Holdings compensation committee and our
compensation committee believe that:
|
|
|
|
|
grants of our phantom units with tandem distribution equivalent
rights (DERs) serve to emphasize our growth
objectives. Such grants were made from the Exterran Partners,
L.P. Long-Term Incentive Plan (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.
|
Equity awards are 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 approval by
the applicable compensation committee or board of directors.
Awards generally vest at the rate of one-third per year over a
three-year period of employment and, in the case of full value
awards, over a minimum period of three years.
69
The Exterran Holdings compensation committee has also delegated
limited authority to a committee of Exterran Holdings
board of directors, which is currently comprised of our Chief
Executive Officer, to grant off-cycle Exterran Holdings equity
awards, with the following restrictions:
|
|
|
|
|
Equity grants are limited to an aggregate value of
$1.0 million per quarter;
|
|
|
|
The value of equity that can be awarded to any one individual is
limited to $200,000, based on the grant date fair market value;
|
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|
|
Full value awards will vest over a minimum of three years;
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|
No grants will be made to a Section 16 officer;
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No grants will be made retroactively; and
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|
All grants are required to be regularly reported to the
Compensation Committee.
|
During 2009, an aggregate of 60,944 stock options and
19,141 shares of restricted stock, which did not exceed the
limits discussed above, was granted to Exterran Holdings
employees pursuant to this delegation of authority by the
Exterran Holdings compensation committee.
Based on the philosophy discussed above, the Exterran Holdings
compensation committee established the mix of long-term
incentive awards (LTI Awards) for 2009 for the
executive officers generally to consist of 45% Exterran Holdings
restricted stock or restricted stock units, 45% Exterran
Holdings stock options and 10% Exterran Partners phantom units,
or a combination of the foregoing to certain other key
employees. To emphasize our growth objectives and
Mr. Millers role as our Chief Financial Officer,
Mr. Millers LTI Award for 2009 was set generally to
consist of approximately 50% Exterran Holdings stock options and
50% Exterran Partners phantom units. Please see the Summary
Compensation Table for 2009 and the Grants of Plan-Based Awards
for 2009 table below for more information regarding the LTI
Awards granted to our Named Executive Officers in 2009.
As previously disclosed, in its discretion and in contemplation
of Mr. Sniders planned retirement as Exterran
Holdings and our Chief Executive Officer in June 2009, and
in recognition of his 18 years of service to Exterran
Holdings, the Exterran Holdings compensation committee in March
2009 adopted award agreements for Mr. Snider that provided
that, upon his retirement, (a) the outstanding unvested
options and restricted shares granted in 2009 vested in full and
(b) the exercise term of each option granted in 2009 is
seven years from the date of grant. Also in connection with
Mr. Sniders 2009 LTI Award, our compensation
committee adopted a separate award agreement for Mr. Snider
that provides that each outstanding phantom unit granted in 2009
vested in full upon Mr. Sniders retirement date.
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. From January 1, 2009
through June 30, 2009, Exterran Holdings matched 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 6% of the
employees annual eligible compensation. Effective
July 1, 2009, in light of rapidly changing market
conditions, Exterran Holdings suspended its matching
contributions under the 401(k) Plan for a one-year period,
following which it will determine whether to reinstate the
company match.
The employee directs how contributions to the 401(k) Plan are
invested. Employees vest in Exterran Holdings matching
contributions after two years of service. The Exterran 401(k)
Plan includes a sunset provision which requires that employees
divest their Plan account of Exterran Holdings common
stock by December 31, 2010.
70
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 certain of 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 that 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, 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 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
common stock if the distribution is made prior to
January 1, 2011.
Effective July 1, 2009, in light of rapidly changing market
conditions, Exterran Holdings suspended its matching
contributions under the Deferred Compensation Plan for a
one-year period, following which it will determine whether to
reinstate such contributions.
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. From January 1, 2009 through June 30, 2009,
employees who elected to participate in the
71
ESPP could purchase a share of Exterran Holdings common
stock at the lesser of (i) 85% of the fair market value of
a share of common stock on the offering date or (ii) 85% of
the fair market value of a share of common stock on the purchase
date. Effective July 1, 2009, in light of challenging
market conditions, the Exterran Holdings compensation committee
determined that employees who elect to participate in the ESPP
can purchase a share of Exterran Holdings common stock at
the lesser of (i) 95% of the fair market value of a share
of common stock on the offering date or (ii) 95% of the
fair market value of a share of common stock on the purchase
date. Offering periods consist of three-month 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 has
been authorized and reserved for issuance under the ESPP. At
December 31, 2009, 367,398 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 (as amended, 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 options to purchase Exterran Holdings common stock,
restricted stock of Exterran Holdings, restricted stock units,
stock appreciation rights and performance awards to employees of
Exterran Holdings and its subsidiaries and directors of Exterran
Holdings. A maximum of 6,750,000 shares of Exterran
Holdings common stock is available for issuance under the
Stock Incentive Plan. The Stock Incentive Plan was approved by
Universals and Hanovers stockholders in connection
with their approval of the merger of the two companies that took
place on August 20, 2007.
Exterran
Partners Long-Term Incentive Plan
The Partnership Plan, which is administered by our compensation
committee, provides incentive compensation awards based on the
value of our common units to management, directors, employees
and consultants of Exterran Holdings, us and our respective
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 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.
Medical
Expense Reimbursement Plan
The Medical Expense Reimbursement Plan (MERP) is a
plan made available to certain of Exterran Holdings
executive officers that supplements the standard medical and
dental benefit plans available to Exterran Holdings
employees. During 2009, 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.
Perquisites
Exterran Holdings made what it believes were limited use of
perquisites during 2009. A taxable benefit of tax preparation
and planning services was made available to certain executive
officers. The health care and insurance coverage provided to
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 Exterran
Holdings executive officers during 2009. In addition,
pursuant to an agreement entered into with Universal in 2001,
Mr. Snider and his spouse will continue to participate at
no cost in Exterran Holdings
72
medical benefit plan following his retirement. The Exterran
Holdings compensation committee established a policy in early
2009 that tax
gross-ups
would no longer be provided on income attributable to change of
control agreements entered into in the future or on executive or
director perquisites.
Change
of Control Arrangements
Change of
Control Provisions in Equity Plans
The Stock Incentive Plan and the Partnership Plan provide for
accelerated vesting of outstanding equity awards 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
Holdings Change of Control Agreements
Exterran Holdings has entered into change of control agreements
with each of Messrs. Danner, Anderson, Childers and
Schlanger (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 are designed to promote continuity of management in
the event of a change of control.
The Exterran change of control agreements generally provide that
if the executive is terminated within 18 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. Danner), 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.
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 any unit retention guidelines
applicable to equity-based awards granted to directors or
executive officers. As of February 12, 2010, the Named
Executive Officers (other than Mr. Snider) collectively
held 137,667 common units and 46,208 phantom units
with DERs.
Compensation
Deduction Limitations
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.
73
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 discussions, 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
G. Stephen Finley, Chair
James G. Crump
Edmund P. Segner, III
74
Information
Regarding Executive Compensation
Summary
Compensation Table for 2009
The following table sets forth certain information with respect
to compensation paid during 2007, 2008 and 2009 to each of our
Named Executive Officers. 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.
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|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
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Non-Equity
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
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Incentive
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|
|
|
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|
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|
|
|
|
|
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Stock
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Option
|
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Plan
|
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All Other
|
|
|
|
|
|
|
|
|
|
Salary
|
|
|
Bonus
|
|
|
Awards
|
|
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Awards
|
|
|
Compensation
|
|
|
Compensation
|
|
|
Total
|
|
Name and Position
|
|
Year
|
|
|
($)
|
|
|
($)(1)
|
|
|
($)(2)
|
|
|
($)(3)
|
|
|
($)(4)
|
|
|
($)(5)
|
|
|
($)
|
|
|
Ernie L. Danner,
|
|
|
2009
|
|
|
|
450,000
|
|
|
|
|
|
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|
550,003
|
|
|
|
434,615
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|
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303,750
|
|
|
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19,511
|
|
|
|
1,757,879
|
|
President and
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|
|
2008
|
(6)
|
|
|
91,778
|
|
|
|
|
|
|
|
|
|
|
|
729,744
|
|
|
|
52,900
|
|
|
|
1,865,832
|
|
|
|
2,740,254
|
|
Chief Executive Officer
|
|
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2007
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(6)
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|
|
241,673
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|
|
|
|
|
|
|
150,038
|
|
|
|
33,460
|
|
|
|
|
|
|
|
35,226
|
|
|
|
460,397
|
|
Stephen A. Snider,
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|
2009
|
|
|
|
334,664
|
|
|
|
|
|
|
|
687,500
|
|
|
|
543,269
|
|
|
|
120,000
|
(7)
|
|
|
97,994
|
|
|
|
1,783,427
|
|
Former Chief
|
|
|
2008
|
|
|
|
592,710
|
|
|
|
|
|
|
|
1,650,006
|
|
|
|
1,023,485
|
|
|
|
352,800
|
|
|
|
71,694
|
|
|
|
3,690,695
|
|
Executive Officer
|
|
|
2007
|
|
|
|
550,000
|
|
|
|
|
|
|
|
1,605,628
|
|
|
|
1,248,814
|
|
|
|
350,000
|
|
|
|
44,486
|
|
|
|
3,798,928
|
|
David S. Miller
|
|
|
2009
|
(8)
|
|
|
226,163
|
|
|
|
|
|
|
|
125,005
|
|
|
|
94,910
|
|
|
|
70,000
|
|
|
|
59,687
|
|
|
|
575,765
|
|
Vice President and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J. Michael Anderson,
|
|
|
2009
|
|
|
|
355,000
|
|
|
|
|
|
|
|
440,003
|
|
|
|
347,695
|
|
|
|
175,000
|
|
|
|
17,161
|
|
|
|
1,334,859
|
|
Senior Vice President,
|
|
|
2008
|
|
|
|
346,367
|
|
|
|
160,000
|
|
|
|
990,402
|
|
|
|
614,166
|
|
|
|
146,100
|
|
|
|
36,275
|
|
|
|
2,293,310
|
|
Chief Financial Officer
|
|
|
2007
|
|
|
|
309,808
|
|
|
|
|
|
|
|
451,590
|
|
|
|
351,242
|
|
|
|
200,000
|
|
|
|
18,081
|
|
|
|
1,330,721
|
|
and Chief of Staff
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D. Bradley Childers,
|
|
|
2009
|
|
|
|
340,000
|
|
|
|
|
|
|
|
385,009
|
|
|
|
304,233
|
|
|
|
165,000
|
|
|
|
21,211
|
|
|
|
1,215,453
|
|
Senior Vice President
|
|
|
2008
|
|
|
|
320,701
|
|
|
|
160,000
|
|
|
|
935,323
|
|
|
|
579,994
|
|
|
|
139,900
|
|
|
|
48,390
|
|
|
|
2,184,308
|
|
|
|
|
2007
|
|
|
|
300,000
|
|
|
|
|
|
|
|
451,590
|
|
|
|
351,242
|
|
|
|
200,000
|
|
|
|
25,489
|
|
|
|
1,328,321
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|
Daniel K. Schlanger,
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2009
|
|
|
|
300,000
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|
|
|
67,500
|
(9)
|
|
|
275,009
|
|
|
|
217,307
|
|
|
|
155,000
|
|
|
|
13,709
|
|
|
|
1,028,525
|
|
Senior Vice President
|
|
|
2008
|
|
|
|
293,788
|
|
|
|
125,000
|
|
|
|
659,604
|
|
|
|
409,507
|
|
|
|
88,200
|
|
|
|
21,926
|
|
|
|
1,598,025
|
|
and former Chief
|
|
|
2007
|
|
|
|
265,192
|
|
|
|
|
|
|
|
301,060
|
|
|
|
234,151
|
|
|
|
150,000
|
|
|
|
7,346
|
|
|
|
957,749
|
|
Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
After the proposed merger of 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
for 2008 represent the cash payment of retention bonuses on
April 30, 2008 under the Universal Retention Bonus Plan for
Messrs. Anderson, Childers and Schlanger. |
|
(2) |
|
The amounts included in this column represent the grant date
fair value 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 calculated in accordance with
ASC 718, Stock Compensation
(ASC 718). For a discussion of valuation
assumptions, see Note 9 to our consolidated financial
statements included elsewhere in this report and see
Note 16 to the consolidated financial statements within
Exterran Holdings
Form 10-K
for the year ended December 31, 2009. Please see the Grants
of Plan-Based Awards for 2009 table below for more information
regarding equity-based awards granted in 2009. |
|
(3) |
|
The amounts included in this column represent the grant date
fair value of (a) options to purchase Exterran
Holdings common stock, (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 calculated in
accordance with ASC 718. For a discussion of valuation
assumptions, see Note 9 to our consolidated financial
statements included elsewhere in this report and see
Note 16 to the consolidated financial statements within
Exterran Holdings
Form 10-K
for the year ended December 31, 2009. Please see the Grants
of Plan-Based Awards for 2009 table below for more information
regarding equity-based awards granted in 2009. |
75
|
|
|
(4) |
|
The amounts included in this column for 2009 represent cash
payments under the 2009 Incentive Program, which covered the
compensation measurement and performance year ended
December 31, 2009, and are expected to be paid during the
first quarter of 2010. |
|
|
|
The amounts included in this column for 2008 represent cash
payments made under the Exterran Annual Performance Pay Plan,
which covered the compensation measurement and performance year
ended December 31, 2008, and were paid during the first
quarter of 2009. |
|
|
|
The amounts included in this column for 2007 represent cash
payments under Universals 2007 Officer Incentive Plan,
which covered the compensation measurement and performance
review year ended December 31, 2007, and were paid during
the first quarter of 2008. |
|
(5) |
|
The amounts shown in this column for the year ended
December 31, 2009 are attributable to the following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preparation
|
|
|
|
|
|
|
|
|
|
|
|
|
401(k) Plan
|
|
|
Executive
|
|
|
and
|
|
|
|
|
|
|
|
|
|
|
|
|
Matching
|
|
|
Medical
|
|
|
Planning
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution
|
|
|
Coverage
|
|
|
Services
|
|
|
DERs
|
|
|
Other
|
|
|
Total
|
|
Name
|
|
($)(a)
|
|
|
($)(b)
|
|
|
($)
|
|
|
($)(c)
|
|
|
($)
|
|
|
($)
|
|
|
Ernie L. Danner
|
|
|
2,546
|
|
|
|
6,402
|
|
|
|
8,600
|
|
|
|
|
|
|
|
1,963
|
(d)
|
|
|
19,511
|
|
Stephen A. Snider
|
|
|
7,834
|
|
|
|
6,402
|
|
|
|
9,400
|
|
|
|
24,358
|
|
|
|
50,000
|
(e)
|
|
|
97,994
|
|
David S. Miller
|
|
|
2,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,049
|
(f)
|
|
|
59,687
|
|
J. Michael Anderson
|
|
|
6,250
|
|
|
|
6,402
|
|
|
|
1,200
|
|
|
|
3,309
|
|
|
|
|
|
|
|
17,161
|
|
D. Bradley Childers
|
|
|
7,185
|
|
|
|
6,402
|
|
|
|
4,500
|
|
|
|
3,124
|
|
|
|
|
|
|
|
21,211
|
|
Daniel K. Schlanger
|
|
|
5,106
|
|
|
|
6,402
|
|
|
|
|
|
|
|
2,201
|
|
|
|
|
|
|
|
13,709
|
|
|
|
|
(a) |
|
Executives could contribute up to 25% (subject to limits
established by the IRS) of their salary to the Exterran 401(k)
Plan. |
|
(b) |
|
Represents premiums paid for medical coverage under the MERP. |
|
(c) |
|
Represents a cash payment pursuant to DERs payable upon vesting
of our phantom units. |
|
(d) |
|
Represents reimbursement for an annual physical exam. |
|
(e) |
|
Represents payments made to Mr. Snider for consulting
services provided to Exterran Holdings from July 1, 2009
through December 31, 2009, pursuant to the Consulting
Agreement Exterran Holdings entered into with him on May 4,
2009. |
|
(f) |
|
Represents reimbursement for relocation expenses. |
|
|
|
(6) |
|
Mr. Danner was employed by Universal until August 20,
2007, the date of the merger, at which time his employment
ceased; thus, the 2007 amounts shown for him represent his
compensation for the period from January 1, 2007 through
that date. Mr. Danner became employed by Exterran Holdings
in October 2008; thus, the 2008 amounts shown for him represent
his compensation for the period from October 8, 2008
through December 31, 2008. |
|
(7) |
|
Mr. Sniders target payout under the 2009 Incentive
Program was prorated for the period from January 1, 2009
through the date of his retirement on June 30, 2009, as
discussed above in the section entitled Compensation
Discussion and Analysis Elements of
Compensation Annual Performance-Based Incentive
Compensation. |
|
(8) |
|
Mr. Millers employment with us began on
February 2, 2009; thus, the amounts shown for him for 2009
represent his compensation from that date through
December 31, 2009. |
|
(9) |
|
The amount shown represents Mr. Schlangers
discretionary bonus discussed above under Compensation
Discussion and Analysis Elements of
Compensation Annual Performance-Based Incentive
Compensation. |
76
Grants
of Plan-Based Awards for 2009
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, 2009. 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.
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
Ernie L. Danner(3)
|
|
|
|
|
|
|
0
|
|
|
|
405,000
|
|
|
|
810,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/04/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,881
|
(4)
|
|
|
|
|
|
|
|
|
|
|
449,999
|
|
|
|
|
3/04/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,548
|
(5)
|
|
|
16.14
|
|
|
|
434,615
|
|
|
|
|
3/04/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,584
|
(6)
|
|
|
|
|
|
|
|
|
|
|
100,004
|
|
Stephen A. Snider(7)
|
|
|
|
|
|
|
0
|
|
|
|
300,000
|
|
|
|
600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/04/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,851
|
(4)
|
|
|
|
|
|
|
|
|
|
|
562,495
|
|
|
|
|
3/04/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93,185
|
(5)
|
|
|
16.14
|
|
|
|
543,269
|
|
|
|
|
3/04/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,730
|
(6)
|
|
|
|
|
|
|
|
|
|
|
125,005
|
|
David S. Miller
|
|
|
|
|
|
|
0
|
|
|
|
102,900
|
|
|
|
205,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/02/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,089
|
(5)
|
|
|
22.15
|
|
|
|
94,910
|
|
|
|
|
3/04/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,730
|
(6)
|
|
|
|
|
|
|
|
|
|
|
125,005
|
|
J. Michael Anderson
|
|
|
|
|
|
|
0
|
|
|
|
248,500
|
|
|
|
497,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/04/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,305
|
(4)
|
|
|
|
|
|
|
|
|
|
|
360,003
|
|
|
|
|
3/04/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,639
|
(5)
|
|
|
16.14
|
|
|
|
347,695
|
|
|
|
|
3/04/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,867
|
(6)
|
|
|
|
|
|
|
|
|
|
|
80,001
|
|
D. Bradley Childers
|
|
|
|
|
|
|
0
|
|
|
|
238,000
|
|
|
|
476,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/04/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,517
|
(4)
|
|
|
|
|
|
|
|
|
|
|
315,004
|
|
|
|
|
3/04/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,184
|
(5)
|
|
|
16.14
|
|
|
|
304,233
|
|
|
|
|
3/04/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,009
|
(6)
|
|
|
|
|
|
|
|
|
|
|
70,005
|
|
Daniel K. Schlanger
|
|
|
|
|
|
|
0
|
|
|
|
180,000
|
|
|
|
360,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/04/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,941
|
(4)
|
|
|
|
|
|
|
|
|
|
|
225,008
|
|
|
|
|
3/04/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,274
|
(5)
|
|
|
16.14
|
|
|
|
217,307
|
|
|
|
|
3/04/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,292
|
(6)
|
|
|
|
|
|
|
|
|
|
|
50,002
|
|
|
|
|
(1) |
|
The amounts in these columns reflect the range of potential
payouts under the 2009 Incentive Program. The actual payouts
under the plan were approved and are expected to be paid during
the first quarter of 2010, as reflected in the Summary
Compensation Table for 2009, above. |
|
(2) |
|
The value of restricted stock and stock option awards on the
grant date is calculated in accordance with ASC 718. |
|
(3) |
|
The amounts shown for Mr. Danner in columns (c), (d)
and (e) of this table reflect the range of his potential
payout under the 2009 Incentive Program, set at (i) 80% for
the period from January 1, 2009 through June 30, 2009,
during which he served as our President and Chief Operating
Officer, and (ii) 100% for the period from July 1,
2009, when he assumed his new duties as our Chief Executive
Officer, through December 31, 2009. |
|
(4) |
|
Exterran Holdings restricted stock awards were granted 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 vested upon his
retirement on June 30, 2009), subject to accelerated
vesting in the event of a change of control. |
|
(5) |
|
Options to purchase Exterran Holdings common stock were
granted 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
vested upon his retirement on June 30, 2009), subject to
accelerated vesting in the event of a change of control. |
77
|
|
|
(6) |
|
Consists of phantom units with tandem DERs granted under the
Partnership Plan and vesting 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 vested upon his
retirement on June 30, 2009), subject to accelerated
vesting in the event of a change of control. |
|
(7) |
|
The amounts shown for Mr. Snider in columns (c),
(d) and (e) of this table reflect the range of his
potential payout under the 2009 Incentive Program, prorated for
the period from January 1, 2009 through the date of his
retirement on June 30, 2009. |
Outstanding
Equity Awards at Fiscal Year-End for 2009
The following table provides information regarding equity awards
and equity-based awards granted by Universal, Exterran Holdings
and us that were outstanding at December 31, 2009. 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)
|
|
|
Ernie L. Danner
|
|
|
21,675
|
|
|
|
|
|
|
|
30.07
|
|
|
|
4/30/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
22,000
|
|
|
|
|
|
|
|
38.15
|
|
|
|
3/09/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
43.39
|
|
|
|
3/03/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
64,286
|
(1)
|
|
|
|
|
|
|
25.94
|
|
|
|
12/31/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
64,286
|
(2)
|
|
|
|
|
|
|
25.94
|
|
|
|
12/31/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
34,406
|
|
|
|
68,811
|
(3)
|
|
|
23.63
|
|
|
|
10/08/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,548
|
(3)
|
|
|
16.14
|
|
|
|
3/04/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,881
|
(4)
|
|
|
598,047
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,584
|
(6)
|
|
|
190,736
|
(7)
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
38,651
|
(8)
|
|
|
|
|
|
|
75.27
|
|
|
|
6/12/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
85,714
|
(1)
|
|
|
|
|
|
|
25.94
|
|
|
|
12/31/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
85,714
|
(2)
|
|
|
|
|
|
|
25.94
|
|
|
|
12/31/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
54,210
|
(3)
|
|
|
|
|
|
|
67.30
|
|
|
|
3/04/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
93,185
|
(3)
|
|
|
|
|
|
|
16.14
|
|
|
|
3/04/2016
|
|
|
|
|
|
|
|
|
|
David S. Miller
|
|
|
15,089
|
|
|
|
|
|
|
|
22.15
|
|
|
|
2/02/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,730
|
(6)
|
|
|
238,421
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
7,247
|
|
|
|
3,624
|
(8)
|
|
|
75.27
|
|
|
|
6/12/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
64,286
|
(1)
|
|
|
|
|
|
|
25.94
|
|
|
|
12/31/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
64,286
|
(2)
|
|
|
|
|
|
|
25.94
|
|
|
|
12/31/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
10,844
|
|
|
|
21,686
|
(3)
|
|
|
67.30
|
|
|
|
3/04/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,639
|
(3)
|
|
|
16.14
|
|
|
|
3/04/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,331
|
(4)
|
|
|
693,500
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,593
|
(6)
|
|
|
235,376
|
(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
|
|
|
|
|
|
|
|
|
|
|
|
|
7,247
|
|
|
|
3,624
|
(8)
|
|
|
75.27
|
|
|
|
6/12/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
42,857
|
(1)
|
|
|
|
|
|
|
25.94
|
|
|
|
12/31/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
42,857
|
(2)
|
|
|
|
|
|
|
25.94
|
|
|
|
12/31/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
10,240
|
|
|
|
20,480
|
(3)
|
|
|
67.30
|
|
|
|
3/04/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,184
|
(3)
|
|
|
16.14
|
|
|
|
3/04/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,097
|
(4)
|
|
|
624,131
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,529
|
(6)
|
|
|
211,734
|
(7)
|
Daniel K. Schlanger
|
|
|
4,831
|
|
|
|
2,416
|
(8)
|
|
|
75.27
|
|
|
|
6/12/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
10,714
|
(1)
|
|
|
|
|
|
|
25.94
|
|
|
|
12/31/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
10,714
|
(2)
|
|
|
|
|
|
|
25.94
|
|
|
|
12/31/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
107,143
|
(1)
|
|
|
|
|
|
|
21.00
|
|
|
|
12/31/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
7,230
|
|
|
|
14,460
|
(3)
|
|
|
67.30
|
|
|
|
3/04/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,274
|
(3)
|
|
|
16.14
|
|
|
|
3/04/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,621
|
(4)
|
|
|
442,320
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,772
|
(6)
|
|
|
150,474
|
(7)
|
|
|
|
(1) |
|
Represents options to purchase our common units, awarded under
the Partnership Plan, that vested in a lump sum on
January 1, 2009, and terminated on December 31, 2009. |
|
(2) |
|
Represents unit appreciation rights payable in cash by Exterran
Holdings that vested in a lump sum on January 1, 2009, and
terminated on December 31, 2009. |
|
(3) |
|
Represents options to purchase Exterran Holdings common
stock awarded under the Stock Incentive Plan that vest on each
anniversary date of grant at the rate of one-third per year over
a three-year period, with a term of seven years following the
date of grant. |
79
|
|
|
(4) |
|
Represents Exterran Holdings restricted stock awarded under the
Stock Incentive Plan and the Universal Restricted Stock Plan
that vest on each anniversary date of grant at the rate of
one-third per year over a three-year period. |
|
(5) |
|
Based on the market closing price of Exterran Holdings
common stock on December 31, 2009 of $21.45 per share. |
|
(6) |
|
Represents 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. |
|
(7) |
|
Based on the market closing price of our common units on
December 31, 2009 of $22.22 per common unit. |
|
(8) |
|
Represents options to purchase Exterran Holdings common
stock, awarded under the Universal Incentive Stock Option Plan,
that vest on each anniversary date of grant at the rate of
one-third per year over a three-year period, with a term of
10 years following the date of grant. |
Option
Exercises and Stock Vested for 2009
The following table provides additional information about the
value realized by the Named Executive Officers on stock option
exercises and stock award vesting during the year ended
December 31, 2009. No stock options were exercised by the
Named Executive Officers during the year ended December 31,
2009. The value realized upon vesting represents the total value
to each Named Executive Officer and does not represent the
amount allocated to us.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
|
|
|
of Shares
|
|
|
Value
|
|
|
|
|
|
|
Acquired
|
|
|
Realized on
|
|
|
|
|
|
|
on Vesting
|
|
|
Vesting
|
|
|
|
|
Name
|
|
(#)
|
|
|
($)
|
|
|
|
|
(a)
|
|
(d)
|
|
|
(e)
|
|
|
|
|
|
Ernie L. Danner
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen A. Snider
|
|
|
89,173
|
|
|
|
1,394,024
|
(1)
|
|
|
|
|
David S. Miller
|
|
|
|
|
|
|
|
|
|
|
|
|
J. Michael Anderson
|
|
|
7,878
|
|
|
|
122,922
|
(2)
|
|
|
|
|
D. Bradley Childers
|
|
|
7,550
|
|
|
|
118,095
|
(3)
|
|
|
|
|
Daniel K. Schlanger
|
|
|
5,247
|
|
|
|
81,878
|
(4)
|
|
|
|
|
|
|
|
(1) |
|
The value of vested shares reported for Mr. Snider is
attributable to vesting of the following awards: |
|
|
|
7,111 restricted shares of Exterran Holdings
common stock at $18.21 $129,491
|
|
|
|
3,104 Partnership phantom units with tandem DERs at
$11.65 $36,162 |
|
|
|
6,687 restricted shares of Exterran Holdings
common stock at $16.14 $107,928 |
|
|
|
16,936 Partnership phantom units with tandem DERs at
$13.75 $232,871 (in connection with
Mr. Sniders retirement on June 30, 2009) |
|
|
|
55,335 restricted shares of Exterran Holdings
common stock at $16.04 $887,573 (in connection with
Mr. Sniders retirement on June 30, 2009) |
|
(2) |
|
The value of vested shares reported for Mr. Anderson is
attributable to vesting of the following awards: |
|
|
|
2,000 restricted shares of Exterran Holdings
common stock at $18.21 $36,420 |
|
|
|
1,864 Partnership phantom units with tandem DERs at
$11.65 $21,716 |
|
|
|
4,014 restricted shares of Exterran Holdings
common stock at $16.14 $64,786 |
|
(3) |
|
The value of vested shares reported for Mr. Childers is
attributable to vesting of the following awards: |
|
|
|
2,000 restricted shares of Exterran Holdings
common stock at $18.21 $36,420 |
|
|
|
1,760 Partnership phantom units with tandem DERs at
$11.65 $20,504 |
|
|
|
3,790 restricted shares of Exterran Holdings
common stock $16.14 $61,171 |
80
|
|
|
(4) |
|
The value of vested shares reported for Mr. Schlanger is
attributable to vesting of the following awards: |
|
|
|
1,333 restricted shares of Exterran Holdings
common stock at $18.21 $24,274 |
|
|
|
1,240 Partnership phantom units with tandem DERs at
$11.65 $14,446 |
|
|
|
2,674 restricted shares of Exterran Holdings
common stock at $16.14 $43,158 |
Nonqualified
Deferred Compensation for 2009
The following table summarizes the Named Executive
Officers compensation under Exterran Holdings
nonqualified deferred compensation plans for the year ended
December 31, 2009. The numbers presented are the full
amounts received by each Named Executive Officer and have not
been adjusted to reflect the amount that was allocated to us.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
|
|
Aggregate
|
|
|
|
Executive
|
|
|
Earnings (Losses)
|
|
|
Aggregate
|
|
|
Balance at
|
|
|
|
Contributions in
|
|
|
in Last
|
|
|
Withdrawals/
|
|
|
Last Fiscal
|
|
|
|
Last Fiscal Year
|
|
|
Fiscal Year
|
|
|
Distributions
|
|
|
Year-End
|
|
Name
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
Ernie L. Danner
|
|
|
112,500
|
|
|
|
23,538
|
|
|
|
|
|
|
|
136,038
|
|
Stephen A. Snider
|
|
|
40,553
|
|
|
|
619,242
|
|
|
|
899,255
|
|
|
|
1,360,059
|
|
David S. Miller
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J. Michael Anderson
|
|
|
|
|
|
|
33,997
|
|
|
|
|
|
|
|
135,950
|
|
D. Bradley Childers
|
|
|
|
|
|
|
34,415
|
|
|
|
|
|
|
|
125,859
|
|
Daniel K. Schlanger
|
|
|
|
|
|
|
8,032
|
|
|
|
|
|
|
|
47,744
|
|
Payments
and Potential Payments upon Change of Control
We and Exterran Holdings have decided, as a policy matter, not
to offer employment agreements to our executive officers.
Certain of our executive officers, including
Messrs. Danner, Anderson, Childers and Schlanger, have
entered into change of control agreements with Exterran
Holdings. Exterran Holdings designed the change of control
agreements to aid in the retention of its executives and promote
continuity of management in the event of any actual or potential
change of control. Each such agreement provides that if, during
the 18-month
period following a change of control (as that term is defined in
the change of control agreements), the executives
employment is terminated other than for cause, death or
disability, or the executive terminates his employment 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. Danner) 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. Danner) the total of the matching contributions that
would have been credited to the executive under the Exterran
401(k) Plan and any other deferred compensation plan had the
executive made the required amount of elective deferrals or
contributions during the
12-month
period immediately preceding the month of the executives
date of termination, such amount being grossed up (other than
with respect to Mr. Danner) so that the amount the
executive actually receives after payment of any federal or
state taxes equals the amount described above; under the terms
of his change of control agreement, Mr. Danner is not
entitled to any such
gross-up
amount;
|
81
|
|
|
|
|
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. Danner) following the executives date of
termination, we 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;
|
|
|
|
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
|
|
|
|
in the event that any payment or distribution we make to or for
the benefit of the executive would be subject to a federal
excise tax, the executive (other than Mr. Danner) is
entitled to receive an additional
gross-up
payment; under the terms of his change of control agreement,
Mr. Danner is not entitled to receive any additional
gross-up
payment.
|
All payments to a Named Executive Officer under the change of
control agreements are to be made in exchange for a commitment
from the executive to not (1) disclose Exterran
Holdings confidential information during the two-year
period (a three-year period in the case of Mr. Danner)
following the termination of the executives employment,
(2) employ or seek to employ any of Exterran Holdings
key employees or solicit or encourage any 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. Danner) following the termination of the
executives employment or (3) engage in a competitive
business for a period of two years (three years in the case of
Mr. Danner) following the executives termination.
Additionally, the Partnership Plan provides that, upon a change
of control (as defined in the Partnership Plan), 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 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 Exterran
change of control agreements and the Partnership Plan on
December 31, 2009, and assuming an Exterran Holdings common
stock value of $21.45 per share and a Partnership common unit
value of $22.22 per unit (the December 31, 2009 closing
prices, respectively), we estimate that the following Named
Executive Officers would receive the following benefits
(excluding any tax
gross-ups as
provided in the change of control agreements with
Messrs. Anderson, Childers and Schlanger;
Mr. Danners change of control agreement does not
provide for any such
gross-ups):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Salary
|
|
|
|
|
|
and
|
|
|
Benefits
|
|
|
|
|
|
|
2009
|
|
|
and Target
|
|
|
Stock
|
|
|
Phantom
|
|
|
and
|
|
|
|
|
|
|
Target Bonus
|
|
|
Bonus
|
|
|
Options
|
|
|
Units
|
|
|
Perquisites
|
|
|
Total
|
|
Name
|
|
($)
|
|
|
($)(1)
|
|
|
($)(2)
|
|
|
($)(3)
|
|
|
($)(4)
|
|
|
($)
|
|
|
Ernie L. Danner
|
|
|
405,000
|
|
|
|
2,565,000
|
|
|
|
395,850
|
|
|
|
800,694
|
|
|
|
82,062
|
|
|
|
4,248,606
|
|
J. Michael Anderson
|
|
|
248,500
|
|
|
|
1,207,000
|
|
|
|
316,683
|
|
|
|
950,187
|
|
|
|
54,900
|
|
|
|
2,777,270
|
|
D. Bradley Childers
|
|
|
238,000
|
|
|
|
1,156,000
|
|
|
|
277,097
|
|
|
|
855,334
|
|
|
|
54,708
|
|
|
|
2,581,139
|
|
Daniel K. Schlanger
|
|
|
180,000
|
|
|
|
960,000
|
|
|
|
197,925
|
|
|
|
606,591
|
|
|
|
55,524
|
|
|
|
2,000,040
|
|
|
|
|
(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. Danner), as specified in each Named Executive
Officers change of control agreement. |
82
|
|
|
(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
2009 table above, and the value of such awards has been
calculated using the market closing price of Exterran
Holdings common stock on December 31, 2009 ($21.45). |
|
(3) |
|
The amounts included in this column represent the value of
Exterran Holdings restricted stock and Partnership phantom
units (including the related DERs). Upon a change of control,
all restricted shares and phantom 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 2009 table
above, and the value of such awards has been calculated using
the market closing prices of Exterran Holdings common
stock ($21.45) and our common units ($22.22), respectively, on
December 31, 2009, with the DERs accumulated through
December 31, 2009 added to the phantom unit values. |
|
(4) |
|
The amounts included in this column represent each Named
Executive Officers right to the payment of medical benefit
premiums and the 401(k) Plan matching contributions for a
two-year period (a three-year period in the case of
Mr. Danner). |
Compensation
of Directors
Retainers
and Fees
Only the independent members of Exterran GP LLCs board of
directors receive compensation for their service as directors.
Messrs. Danner, Miller, Schlanger, Anderson and Childers,
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:
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an annual retainer of $35,000;
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annual phantom unit compensation of $40,000 pursuant to the
Partnership Plan;
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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;
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a fee per board of directors meeting of $1,500 if attended in
person or $500 if attended telephonically; and
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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 $500
if attended telephonically, for each committee member who is a
non-chairperson.
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In addition, each director is reimbursed for his reasonable
out-of-pocket expenses in connection with attending meetings of
the board of directors or committees. Each director will be
fully indemnified by us for actions associated with serving as a
director to the fullest extent permitted under Delaware law.
Equity-Based
Compensation
Independent directors are annually awarded phantom units under
the Partnership Plan. A phantom unit is a notional unit that
entitles the grantee to receive a common unit upon the vesting
of the phantom unit or, in the discretion of our compensation
committee, the cash equivalent to the value of a common unit.
Phantom units awarded to independent directors are granted with
tandem distribution equivalent rights (DERs), which
are credited with an amount equal to any cash distributions we
make on common units during the period such phantom units are
outstanding and are payable upon vesting of the tandem phantom
units without interest. The DERs are subject to the same vesting
restrictions and risk of forfeiture applicable to the underlying
grant.
83
During the year ended December 31, 2009, the non-employee
directors of Exterran GP LLC earned compensation as set forth
below:
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Fees Earned
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in Cash
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Unit Awards
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Total
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Name
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($)
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($)(1)
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($)
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James G. Crump
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84,000
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40,000
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124,000
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G. Stephen Finley
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67,500
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40,000
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107,500
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Mark A. McCollum(2)
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24,827
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24,827
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Edmund P. Segner(3)
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33,673
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56,768
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(4)
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90,441
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(1) |
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The amounts included in this column represent the grant date
fair value related to awards of phantom units, calculated in
accordance with ASC 718. |
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(2) |
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Mr. McCollum resigned as a director of Exterran GPLLC on
May 28, 2009, in conjunction with his election to the board
of directors of Exterran Holdings. |
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(3) |
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Mr. Segner was elected to the board of directors of
Exterran GP LLC on May 28, 2009. |
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(4) |
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Represents two awards granted in 2009, including a prorated
award on the date of Mr. Segners election to the
board of directors in May and the annual grant to directors in
October. |
Compensation
Committee Interlocks and Insider Participation
Messrs. Finley, Crump, McCollum and Segner served on our
compensation committee during 2009. There are no matters
relating to interlocks or insider participation that we are
required to report.
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ITEM 12.
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Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
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Securities
Authorized for Issuance Under Equity Compensation
Plans
The following table sets forth information as of
December 31, 2009, with respect to the compensation plans
under which our common units are authorized for issuance,
aggregated as follows:
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(c)
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Number of Securities
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Remaining Available for
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(a)
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(b)
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Future Issuance Under
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Number of Securities to be
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Weighted-Average
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Equity Compensation
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Issued Upon Exercise of
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Exercise Price of
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Plans (Excluding
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Outstanding Options,
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Outstanding Options,
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Securities Reflected in
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Warrants and Rights
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Warrants and Rights
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Column (a))
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Plan Category
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(#)
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($)
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(#)
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Equity compensation plans approved by security holders
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Equity compensation plans not approved by security holders(1)
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580,715
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(2)
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23.73
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337,389
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Total
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580,715
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23.73
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337,389
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(1) |
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For more information about our Long-Term Incentive Plan, which
did not require approval by our unitholders, please read
Item 11 (Executive Compensation
Compensation Discussion and Analysis Other
Compensation Programs Exterran Partners Long-Term
Incentive Plan) of this report. |
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(2) |
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Represents options to purchase our common units that vested in a
lump sum on January 1, 2009, and terminated unexercised on
December 31, 2009. In addition to the outstanding options,
as of December 31, 2009, there were 91,124 phantom units
outstanding which, upon vesting, are payable in common units or
cash, in the discretion of our compensation committee. |
84
Security
Ownership of Certain Beneficial Owners
The following table sets forth information as of
February 12, 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.
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Common
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Subordinated
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Percent of
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Units
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Percent of
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Units
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Percent of
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Total Units
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Name and Address of
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Beneficially
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Common
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Beneficially
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Subordinated
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Beneficially
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Beneficial Owner
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Owned
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Units(1)
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Owned
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Units(2)
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Owned(3)
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Kayne Anderson Capital Advisors, L.P.
and Richard A. Kayne(4)
1800 Avenue of the Stars,
Second Floor
Los Angeles, CA 90067
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2,289,751
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13.1
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%
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9.6
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%
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Exterran Holdings, Inc.
16666 Northchase Drive
Houston, TX 77060
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9,167,994
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52.3
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%
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6,325,000
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100
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%
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64.9
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%
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(1) |
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Reflects the common units beneficially owned as a percentage of
17,539,570 common units outstanding. |
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(2) |
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Reflects the subordinated units beneficially owned as a
percentage of 6,325,000 subordinated units outstanding. |
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(3) |
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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 9.4% and 65.6%
(including the general partner interest), respectively. |
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(4) |
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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 10, 2010. |
Security
Ownership of Management
The following table sets forth information as of
February 12, 2010, 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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Units
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Owned
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Phantom
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Total
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Percent of
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Name of Beneficial Owner
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Directly
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Units(1)
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Ownership
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Class
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Named Executive Officers
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Ernie L. Danner
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112,968
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2,862
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115,830
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*
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Stephen A. Snider
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114,313
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114,313
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*
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David S. Miller
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5,000
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3,577
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8,577
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*
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J. Michael Anderson
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7,570
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4,152
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11,722
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*
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D. Bradley Childers
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1,294
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3,763
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5,057
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*
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Daniel K. Schlanger
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10,835
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2,671
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13,506
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*
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Directors
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James G. Crump
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4,790
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4,790
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*
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G. Stephen Finley
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4,397
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4,397
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*
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Edmund P. Segner, III
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451
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451
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*
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All current directors and executive officers as a group
(10 persons)
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150,678
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19,706
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170,384
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1
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%
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|
* |
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Less than 1%. |
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(1) |
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Phantom units that vest within 60 days of February 12,
2010. |
85
|
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ITEM 13.
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Certain
Relationships and Related Transactions, and Director
Independence
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Transactions
with Related Persons
Distributions
and Payments to Our General Partner and its
Affiliates
As of December 31, 2009, Exterran and its subsidiaries
owned 6,325,000 subordinated units and 9,167,994 common units,
which together constitute 65% of the limited partner interest in
us, and 486,243 general partner units, which constitute the
entire 2% general partner 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 ongoing operation of Exterran Partners, L.P.
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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
9,167,994 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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During the year ended December 31, 2009, our general partner and
its affiliates received aggregate distributions of approximately
$1.7 million on their general partner units, including
distributions on our general partners incentive
distribution rights, $8.2 million on their common units and
$11.7 million on their subordinated units. On February 12, 2010,
our general partner and its affiliates received a quarterly
distribution with respect to the period from October 1, 2009 to
December 31, 2009, of approximately $0.5 million on their
general partner units, including distributions on our general
partners incentive distribution rights, $4.2 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.
|
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 in operating and
maintaining our business 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.
November
2009 Contract Operations Acquisition
In connection with the November 2009 Contract Operations
Acquisition, we acquired from Exterran Holdings contract
operations customer service agreements with 18 customers and a
fleet of approximately 900 compressor units used to provide
compression services under those agreements, comprising
approximately 270,000 horsepower, or 6% (by then available
horsepower) of the combined U.S. contract operations
business
86
of Exterran Holdings and us. In exchange, we assumed and repaid
$57.2 million of debt from Exterran Holdings and issued to
Exterran Holdings approximately 4.7 million common units
and approximately 97,000 general partner units. Concurrent with
the closing of the November 2009 Contract Operations
Acquisition, we borrowed $28.0 million and
$30.0 million under our revolving credit facility and
asset-backed securitization facility, respectively, which
together were used to repay the debt assumed from Exterran
Holdings 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
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.
87
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.
|
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 November 10, 2012 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, for a three-year period following the applicable
acquisition date, against certain potential environmental
claims, losses and expenses associated with the ownership and
operation of the assets we acquire from Exterran Holdings that
occur before
88
that acquisition date. Exterran Holdings maximum liability
for this and its other indemnification obligations under the
Omnibus Agreement 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 such
acquisition date. We have agreed to indemnify Exterran Holdings
against environmental liabilities occurring on or after the
applicable acquisition date 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, 2009, 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, 2009, we purchased $3.1 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 November 2012.
For the year ended December 31, 2009, we had revenues of
$1.0 million from Exterran Holdings related to the lease of
our compression equipment and cost of sales of
$11.1 million with Exterran Holdings related to the lease
of its compression equipment.
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
89
methodologies used to allocate indirect costs to us are
reasonable. Included in our SG&A expense for the year ended
December 31, 2009 is $20.1 million of indirect costs
incurred by Exterran Holdings.
Exterran Holdings has agreed that, for a period that will
terminate on December 31, 2010, 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 $7.6 million per quarter (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, 2009, our cost of sales
exceeded the cap by $7.2 million, and our SG&A
expenses exceeded the cap by $0.6 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.
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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 2009 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 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
90
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.
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ITEM 14.
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Principal
Accountant Fees and Services
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During the years ended December 31, 2009 and 2008, 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, 2009 and
2008 were for the audit of our annual financial statements and
work related to registration statements and were approximately
$0.3 million and $0.2 million, respectively. 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 of the
board of directors of Exterran GP LLC 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.
All services performed by the independent registered public
accounting firm during 2009 and 2008 were approved in advance by
the audit committee. 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
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ITEM 15.
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Exhibits
and Financial Statement Schedules
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(a) The following documents are filed as part of this
Report:
1. Financial Statements The financial
statements of Exterran Partners, L.P. 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
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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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2
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.2
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Contribution, Conveyance and Assumption Agreement, dated
October 2, 2009, by and among Exterran Holdings, Inc.,
Exterran Energy Corp., Exterran General Holdings LLC, Exterran
Energy Solutions, L.P., 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 October 5, 2009
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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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4
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.1
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Indenture, dated as of October 13, 2009, by and between
EXLP ABS 2009 LLC, as Issuer, EXLP ABS Leasing 2009 LLC and
Wells Fargo Bank, National Association, as Indenture Trustee,
with respect to the $150,000,000 ABS facility consisting of
$150,000,000 of
Series 2009-1
Notes, incorporated by reference to Exhibit 4.1 to the
Registrants Current Report on
Form 8-K
filed on October 19, 2009
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4
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.2
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Series 2009-1
Supplement, dated as of October 13, 2009, to Indenture
dated as of October 13, 2009, by and between EXLP ABS 2009
LLC, as Issuer, EXLP ABS Leasing 2009 LLC and Wells Fargo Bank,
National Association, as Indenture Trustee, with respect to the
$150,000,000 of
Series 2009-1
Notes, incorporated by reference to Exhibit 4.2 to the
Registrants Current Report on
Form 8-K
filed on October 19, 2009
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92
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Exhibit
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No.
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Description
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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, Inc.,
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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10
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.5*
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Second Amended and Restated Omnibus Agreement, dated
November 10, 2009, by and among Exterran Holdings, Inc.,
Exterran Energy Solutions, L.P., Exterran GP LLC, Exterran
General Partner, L.P. and EXLP Operating LLC (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)
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10
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.6
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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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.7
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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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.8
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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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.9
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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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93
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Exhibit
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No.
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Description
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10
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.10
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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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.11
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Intercreditor and Collateral Agency Agreement, dated as of
October 13, 2009, by and among Exterran Partners, L.P.,
EXLP ABS 2009 LLC, EXLP Operating LLC, Wells Fargo Bank,
National Association, as Indenture Trustee, Wachovia Bank,
National Association, as Bank Agent, and Wells Fargo Bank,
National Association, in its individual capacity as the
Intercreditor Collateral Agent, incorporated by reference to
Exhibit 10.1 to the Registrants Current Report on
Form 8-K
filed on October 19, 2009
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10
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.12
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Management Agreement, dated as of October 13, 2009, by and
between Exterran Partners, L.P., as Manager, EXLP ABS 2009 LLC,
as Issuer, and EXLP ABS Leasing 2009 LLC, incorporated by
reference to Exhibit 10.2 to the Registrants Current
Report on
Form 8-K
filed on October 19, 2009
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10
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.13
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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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.14
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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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.15
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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
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.16
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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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.17
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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
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.18
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Third Amendment to Exterran Partners, L.P. Long-Term Incentive
Plan, incorporated by reference to the Registrants Annual
Report on
Form 10-K
for the year ended December 31, 2008
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10
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.19
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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
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.20
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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
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.21
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Form of Amendment to Grant of Options, incorporated by reference
to Exhibit 10.18 to the Registrants Annual Report on
Form 10-K
for the year ended December 31, 2008
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10
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.22
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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
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.23
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Form of Amendment No. 3 to Grant of Options, incorporated
by reference to the Registrants Annual Report on
Form 10-K
for the year ended December 31, 2008
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10
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.24
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First Amendment to Grant of Phantom Units for Stephen A. Snider,
incorporated by reference to Exhibit 10.21 to the
Registrants Annual Report on
Form 10-K
for the year ended December 31, 2008
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10
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.25
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Third Amendment to Grant of Options for Stephen A. Snider,
incorporated by reference to Exhibit 10.22 to the
Registrants Annual Report on
Form 10-K
for the year ended December 31, 2008
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10
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.26
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Form of Exterran Partners, L.P. Award Notice for Phantom Units
with DERs, incorporated by reference to Exhibit 10.1 to the
Registrants Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2009
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10
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.27
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Form of Exterran Partners, L.P. Award Notice for Phantom Units
with DERs for Directors, incorporated by reference to
Exhibit 10.2 to the Registrants Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2009
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94
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Exhibit
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No.
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Description
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10
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.28
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Exterran Partners, L.P. Award Notice for Phantom Units with DERs
for Stephen A. Snider, incorporated by reference to
Exhibit 10.3 to the Registrants Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2009
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21
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.1*
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List of Subsidiaries of Exterran Partners, L.P.
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23
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.1*
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Consent of Deloitte & Touche LLP
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31
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.1*
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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
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.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
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32
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.1*
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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
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.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. |
95
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
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Page
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EXTERRAN PARTNERS, L.P. FINANCIAL STATEMENTS
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F-2
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F-3
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F-4
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F-5
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F-6
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F-7
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F-8
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F-31
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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, 2009 and 2008,
and the related consolidated statements of operations,
comprehensive income, partners capital, and cash flows for
each of the three years in the period ended December 31,
2009. Our audits also included the financial statement schedule
for each of the three years in the period ended
December 31, 2009 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 and financial statement schedule 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, 2009 and 2008, and the results
of their operations and their cash flows for each of the three
years in the period ended December 31, 2009, 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, presents
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, 2009, 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 25, 2010
expressed an unqualified opinion on the Partnerships
internal control over financial reporting.
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/s/ DELOITTE &
TOUCHE LLP
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Houston, Texas
February 25, 2010
F-2
EXTERRAN
PARTNERS, L.P.
(In
thousands, except for unit amounts)
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December 31,
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2009
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2008
|
|
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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203
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|
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$
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3,244
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Restricted cash
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431
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Accounts receivable, trade, net of allowance of $714 and $230,
respectively
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23,210
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25,958
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Due from affiliates, net
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|
|
|
|
|
6,445
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
23,844
|
|
|
|
35,647
|
|
Compression equipment
|
|
|
770,703
|
|
|
|
566,286
|
|
Accumulated depreciation
|
|
|
(212,776
|
)
|
|
|
(131,973
|
)
|
|
|
|
|
|
|
|
|
|
Net compression equipment
|
|
|
557,927
|
|
|
|
434,313
|
|
Goodwill
|
|
|
124,019
|
|
|
|
124,019
|
|
Interest rate swaps
|
|
|
262
|
|
|
|
|
|
Intangibles and other assets, net
|
|
|
11,174
|
|
|
|
5,965
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
717,226
|
|
|
$
|
599,944
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND PARTNERS CAPITAL
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable, trade
|
|
$
|
|
|
|
$
|
297
|
|
Due to affiliates, net
|
|
|
1,293
|
|
|
|
|
|
Accrued liabilities
|
|
|
7,198
|
|
|
|
5,703
|
|
Accrued interest
|
|
|
2,030
|
|
|
|
1,880
|
|
Current portion of interest rate swaps
|
|
|
9,229
|
|
|
|
5,483
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
19,750
|
|
|
|
13,363
|
|
Long-term debt
|
|
|
432,500
|
|
|
|
398,750
|
|
Interest rate swaps
|
|
|
6,668
|
|
|
|
12,204
|
|
Other long-term liabilities
|
|
|
|
|
|
|
159
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
458,918
|
|
|
|
424,476
|
|
Commitments and contingencies (Note 14)
|
|
|
|
|
|
|
|
|
Partners capital:
|
|
|
|
|
|
|
|
|
Limited partner units:
|
|
|
|
|
|
|
|
|
Common units, 17,541,965 and 12,767,462 units issued,
respectively
|
|
|
298,010
|
|
|
|
221,090
|
|
Subordinated units, 6,325,000 issued and outstanding
|
|
|
(33,194
|
)
|
|
|
(35,518
|
)
|
General partner units, 2% interest with 486,243 and 389,642
equivalent units issued and outstanding, respectively
|
|
|
8,457
|
|
|
|
6,805
|
|
Accumulated other comprehensive loss
|
|
|
(14,857
|
)
|
|
|
(16,909
|
)
|
Treasury units, 8,426 and zero common units, respectively
|
|
|
(108
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total partners capital
|
|
|
258,308
|
|
|
|
175,468
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and partners capital
|
|
$
|
717,226
|
|
|
$
|
599,944
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
EXTERRAN
PARTNERS, L.P.
(In
thousands, except per unit amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenue
|
|
$
|
181,729
|
|
|
$
|
163,712
|
|
|
$
|
107,675
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (excluding depreciation and amortization expense)
|
|
|
83,480
|
|
|
|
73,563
|
|
|
|
46,066
|
|
Depreciation and amortization
|
|
|
36,452
|
|
|
|
27,053
|
|
|
|
16,570
|
|
Fleet impairment
|
|
|
3,151
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
24,226
|
|
|
|
16,085
|
|
|
|
13,730
|
|
Interest expense
|
|
|
20,303
|
|
|
|
18,039
|
|
|
|
11,658
|
|
Other (income) expense, net
|
|
|
(1,208
|
)
|
|
|
(1,430
|
)
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
166,404
|
|
|
|
133,310
|
|
|
|
88,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
15,325
|
|
|
|
30,402
|
|
|
|
19,673
|
|
Income tax expense
|
|
|
541
|
|
|
|
555
|
|
|
|
272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
14,784
|
|
|
$
|
29,847
|
|
|
$
|
19,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General partner interest in net income
|
|
$
|
1,354
|
|
|
$
|
1,206
|
|
|
$
|
447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common units interest in net income
|
|
$
|
9,137
|
|
|
$
|
18,403
|
|
|
$
|
10,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated units interest in net income
|
|
$
|
4,293
|
|
|
$
|
10,238
|
|
|
$
|
8,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common units outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
13,461
|
|
|
|
11,369
|
|
|
|
8,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
13,477
|
|
|
|
11,414
|
|
|
|
8,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average subordinated units outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
6,325
|
|
|
|
6,325
|
|
|
|
6,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
6,325
|
|
|
|
6,325
|
|
|
|
6,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.68
|
|
|
$
|
1.62
|
|
|
$
|
1.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.68
|
|
|
$
|
1.61
|
|
|
$
|
1.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per subordinated unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.68
|
|
|
$
|
1.62
|
|
|
$
|
1.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.68
|
|
|
$
|
1.61
|
|
|
$
|
1.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
EXTERRAN
PARTNERS, L.P.
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net income
|
|
$
|
14,784
|
|
|
$
|
29,847
|
|
|
$
|
19,401
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps gain (loss)
|
|
|
2,052
|
|
|
|
(7,749
|
)
|
|
|
(8,447
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
16,836
|
|
|
$
|
22,098
|
|
|
$
|
10,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
EXTERRAN
PARTNERS, L.P.
(In
thousands, except for unit amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners Capital
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Common Units
|
|
|
Subordinated Units
|
|
|
General Partner Units
|
|
|
Treasury Units
|
|
|
Other
Comprehensive
|
|
|
|
|
|
|
$
|
|
|
Units
|
|
|
$
|
|
|
Units
|
|
|
$
|
|
|
Units
|
|
|
$
|
|
|
Units
|
|
|
Loss
|
|
|
Total
|
|
|
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 swap 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 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
|
|
Issuance of units to Exterran Holdings, Inc. for a portion of
its U.S. contract operations business
|
|
|
82,722
|
|
|
|
4,739,927
|
|
|
|
|
|
|
|
|
|
|
|
1,685
|
|
|
|
96,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84,407
|
|
Issuance of units for vesting of phantom units
|
|
|
|
|
|
|
34,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury units purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(108
|
)
|
|
|
(8,426
|
)
|
|
|
|
|
|
|
(108
|
)
|
Transaction costs for registration of units
|
|
|
(24
|
)
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35
|
)
|
Contribution of capital
|
|
|
7,749
|
|
|
|
|
|
|
|
9,901
|
|
|
|
|
|
|
|
361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,011
|
|
Excess of purchase price of equipment over Exterran
Holdings cost of equipment
|
|
|
(143
|
)
|
|
|
|
|
|
|
(159
|
)
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(312
|
)
|
Cash distributions
|
|
|
(23,651
|
)
|
|
|
|
|
|
|
(11,700
|
)
|
|
|
|
|
|
|
(1,738
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37,089
|
)
|
Unit based compensation expense
|
|
|
955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
955
|
|
Other
|
|
|
175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175
|
|
Interest rate swap gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,052
|
|
|
|
2,052
|
|
Net income
|
|
|
9,137
|
|
|
|
|
|
|
|
4,293
|
|
|
|
|
|
|
|
1,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
$
|
298,010
|
|
|
|
17,541,965
|
|
|
$
|
(33,194
|
)
|
|
|
6,325,000
|
|
|
$
|
8,457
|
|
|
|
486,243
|
|
|
$
|
(108
|
)
|
|
|
(8,426
|
)
|
|
$
|
(14,857
|
)
|
|
$
|
258,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
EXTERRAN
PARTNERS, L.P.
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
14,784
|
|
|
$
|
29,847
|
|
|
$
|
19,401
|
|
Adjustments to reconcile net income to cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
36,452
|
|
|
|
27,053
|
|
|
|
16,570
|
|
Fleet impairment
|
|
|
3,151
|
|
|
|
|
|
|
|
|
|
Amortization of debt issuance cost
|
|
|
457
|
|
|
|
285
|
|
|
|
238
|
|
Amortization of fair value of acquired interest rate swaps
|
|
|
149
|
|
|
|
187
|
|
|
|
162
|
|
Unit based compensation expense (income)
|
|
|
811
|
|
|
|
(2,090
|
)
|
|
|
3,184
|
|
Provision for doubtful accounts
|
|
|
627
|
|
|
|
159
|
|
|
|
86
|
|
Gain on sale of compression equipment
|
|
|
(2,011
|
)
|
|
|
(1,435
|
)
|
|
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, trade
|
|
|
2,121
|
|
|
|
(12,683
|
)
|
|
|
(7,844
|
)
|
Other assets
|
|
|
94
|
|
|
|
25
|
|
|
|
(25
|
)
|
Accounts payable, trade
|
|
|
(163
|
)
|
|
|
(419
|
)
|
|
|
(1,553
|
)
|
Other liabilities
|
|
|
(536
|
)
|
|
|
2,339
|
|
|
|
4,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
55,936
|
|
|
|
43,268
|
|
|
|
34,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(17,893
|
)
|
|
|
(23,434
|
)
|
|
|
(32,362
|
)
|
Proceeds from the sale of compression equipment
|
|
|
4,457
|
|
|
|
8,559
|
|
|
|
|
|
Increase in restricted cash
|
|
|
(431
|
)
|
|
|
|
|
|
|
|
|
(Increase) decrease in amounts due from affiliates, net
|
|
|
6,445
|
|
|
|
(6,445
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(7,422
|
)
|
|
|
(21,320
|
)
|
|
|
(32,362
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under revolving credit facility
|
|
|
46,750
|
|
|
|
74,250
|
|
|
|
105,800
|
|
Repayments under revolving credit facility
|
|
|
(100,200
|
)
|
|
|
(185,325
|
)
|
|
|
(173,400
|
)
|
Borrowings under term loan facility
|
|
|
|
|
|
|
117,500
|
|
|
|
|
|
Borrowings under asset-backed securitization facility
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
Distributions to unitholders
|
|
|
(37,089
|
)
|
|
|
(32,192
|
)
|
|
|
(20,868
|
)
|
Net proceeds from issuance of common units
|
|
|
|
|
|
|
|
|
|
|
68,982
|
|
Debt issuance costs
|
|
|
|
|
|
|
(309
|
)
|
|
|
(184
|
)
|
Purchase of treasury units
|
|
|
(108
|
)
|
|
|
|
|
|
|
|
|
Capital contribution from limited partners and general partner
|
|
|
7,799
|
|
|
|
12,600
|
|
|
|
8,901
|
|
Increase (decrease) in amounts due to affiliates, net
|
|
|
1,293
|
|
|
|
(8,063
|
)
|
|
|
9,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(51,555
|
)
|
|
|
(21,539
|
)
|
|
|
(1,753
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(3,041
|
)
|
|
|
409
|
|
|
|
405
|
|
Cash and cash equivalents at beginning of period
|
|
|
3,244
|
|
|
|
2,835
|
|
|
|
2,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
203
|
|
|
$
|
3,244
|
|
|
$
|
2,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
19,696
|
|
|
$
|
19,301
|
|
|
$
|
8,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for taxes
|
|
$
|
104
|
|
|
$
|
275
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash capital contribution from limited and general partner
|
|
$
|
5,967
|
|
|
$
|
11,008
|
|
|
$
|
4,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract operations equipment acquired/exchanged, net
|
|
$
|
141,745
|
|
|
$
|
134,181
|
|
|
$
|
135,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill allocated in acquisitions
|
|
$
|
|
|
|
$
|
56,867
|
|
|
$
|
30,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets allocated in acquisitions
|
|
$
|
5,746
|
|
|
$
|
4,592
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt assumed in acquisitions
|
|
$
|
57,200
|
|
|
$
|
175,325
|
|
|
$
|
159,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common units issued to limited partner
|
|
$
|
82,722
|
|
|
$
|
19,322
|
|
|
$
|
2,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General partner units issued to general partner
|
|
$
|
1,685
|
|
|
$
|
397
|
|
|
$
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
EXTERRAN
PARTNERS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
1.
|
Basis of
Presentation and Summary of Significant Accounting
Policies
|
Organization
Exterran Partners, L.P., together with its subsidiaries
(we, us, our, or the
Partnership), is 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 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 Compression Holdings, Inc.
(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. As of
December 31, 2009, public unitholders held a 34% ownership
interest in us and Exterran Holdings owned our remaining equity
interests, including the general partner interests and all of
our incentive distribution rights.
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.
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 in the Financial Statements
The preparation of financial statements in conformity with
generally accepted accounting principles (GAAP)
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.
Restricted
Cash
Restricted cash consists of cash restricted for use to pay for
distributions and expenses incurred under our asset-backed
securitization facility (see Note 7). Restricted cash is
presented separately from cash and cash equivalents in the
balance sheet and statement of cash flows.
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 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 the years ended December 31,
2009, 2008 and 2007, our bad debt expense was $0.6 million,
$0.2 million and $0.1 million, respectively. During
the year ended December 31, 2009, Devon Energy Corporation
accounted for 11% of our total revenue. None of our other
customers individually accounted for 10% or more of our total
revenue for the year ended December 31, 2009.
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, 2009 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 seven years. Depreciation expense for the years ended
December 31, 2009, 2008 and 2007 was $35.8 million,
$26.8 million and $16.6 million, respectively.
Long-Lived
Assets
We review for the impairment of long-lived assets, including
property, plant and equipment and identifiable intangibles that
are being amortized whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. An impairment loss exists when estimated
undiscounted cash flows expected to result from the use of the
asset and its eventual disposition are less than its carrying
amount. The impairment loss recognized represents the excess of
the assets carrying value as compared to its estimated
fair value. Identifiable intangibles are amortized over the
assets estimated useful lives.
F-9
EXTERRAN
PARTNERS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Goodwill
and Intangible Assets
Goodwill is reviewed for impairment annually or whenever events
indicate impairment may have occurred.
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 our consolidated balance sheets.
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.
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 the
years ended December 31, 2009 and 2008, we recorded income
tax expense of approximately $0.5 million and
$0.6 million, respectively, related to state income taxes.
Segment
Reporting
ASC 280, Segment Reporting, 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 United
States (U.S).
Fair
Value of Financial Instruments
Our financial instruments consist of cash, restricted cash,
trade receivables and payables, interest rate swaps and
long-term debt. At December 31, 2009 and 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, 2009 and
2008 because the applicable margin on our debt was below the
market rates as of these dates. The fair value of our debt has
been estimated based on similar debt transactions that occurred
near December 31, 2009 and 2008. A summary of the fair
value and carrying value of our debt is shown in the table below
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
As of December 31,
|
|
|
2009
|
|
2008
|
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
|
Amount
|
|
Value
|
|
Amount
|
|
Value
|
|
Long-term debt
|
|
$
|
432,500
|
|
|
$
|
417,861
|
|
|
$
|
398,750
|
|
|
$
|
366,476
|
|
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
F-10
EXTERRAN
PARTNERS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 and subordinated unit
are based on the weighted average number of common and
subordinated units, respectively, outstanding during the
applicable 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. Basic earnings per common and subordinated unit are
determined by dividing net income allocated to the common units
and subordinated units, respectively, after deducting the amount
allocated to our general partner (including distributions to our
general partner on its incentive distribution rights), by the
weighted average number of outstanding common and subordinated
units, respectively, during the period.
When computing earnings per common and subordinated unit under
the two-class method in periods when earnings are greater than
distributions, earnings are allocated to the general partner,
common and subordinated units based on how our partnership
agreement would allocate earnings if the full amount of earnings
for the period had been distributed. This allocation of net
income does not impact our total net income, consolidated
results of operations or total cash distributions; however, it
may result in our general partner being allocated additional
incentive distributions for purposes of our earnings per unit
calculation, which could reduce net income per common and
subordinated unit. However, as defined in our partnership
agreement, we determine cash distributions based on available
cash and determine the actual incentive distributions allocable
to our general partner based on actual distributions. When
computing earnings per common and subordinated unit, the amount
of the assumed incentive distribution rights is deducted from
net income and allocated to our general partner for the period
to which the calculation relates. The remaining amount of net
income, after deducting the assumed incentive distribution
rights, is allocated between the general partner, common and
subordinated units based on how our partnership agreement
allocates net income.
When computing earnings per common and subordinated unit under
the two-class method in periods when distributions are greater
than earnings, the excess of distributions over earnings is
allocated to the general partner, common and subordinated units
based on how our partnership agreement allocates net losses. The
amount of the incentive distribution rights is deducted from net
income and allocated to our general partner for the period to
which the calculation relates. The remaining amount of net
income, after deducting the incentive distribution rights, is
allocated between the general partner, common and subordinated
units based on how our partnership agreement allocates net
losses.
The 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 table below
F-11
EXTERRAN
PARTNERS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
indicates the potential limited partner units that were included
in computing the dilutive potential limited partner units used
in diluted income per limited partner unit (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Weighted average limited partner units outstanding
used in basic income per limited partner unit
|
|
|
19,786
|
|
|
|
17,694
|
|
|
|
14,604
|
|
Net dilutive potential limited partner units issuable:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit options
|
|
|
|
|
|
|
40
|
|
|
|
95
|
|
Phantom units
|
|
|
16
|
|
|
|
5
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average limited partner units and dilutive potential
limited partner units used in diluted income per
limited partner unit
|
|
|
19,802
|
|
|
|
17,739
|
|
|
|
14,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below indicates the potential shares of limited
partner units that were excluded from net dilutive potential
units of limited partner units as their effect would have been
anti-dilutive (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net dilutive potential common shares issuable:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit options
|
|
|
|
|
|
|
591
|
|
|
|
|
|
Phantom units
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net dilutive potential common shares issuable
|
|
|
|
|
|
|
595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications
Certain amounts in the prior financial statements have been
reclassified to conform to the 2009 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 guidance under ASC 820,
Fair Value Measurements and Disclosures (ASC
820), which defines fair value, establishes a framework
for measuring fair value in accordance with GAAP and expands
disclosures about fair value measurements. The new provisions of
ASC 820 are effective for fiscal years beginning after
November 15, 2007; however, in February 2008, the FASB
deferred 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. Our adoption of the required undeferred provisions of ASC
820 on January 1, 2008 did not have a material impact on
our consolidated financial statements. Our adoption of the
deferred provisions of ASC 820 on January 1, 2009 did not
have a material impact on our consolidated financial statements.
In December 2007, the FASB issued guidance under ASC 805,
Business Combinations (ASC 805), which
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. ASC 805 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
F-12
EXTERRAN
PARTNERS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
on deferred taxes and acquired tax contingencies associated with
acquisitions. Under ASC 805, adjustments made to valuation
allowances on deferred taxes and acquired tax contingencies
associated with acquisitions that closed prior to the effective
date of ASC 805 would also apply the provisions of ASC 805. Our
adoption of ASC 805 on January 1, 2009 did not have a
material impact on our consolidated financial statements,
although we are not able to predict its impact on future
potential acquisitions.
In March 2008, the FASB issued guidance under ASC 260,
Earnings per Share (ASC 260), which
provides guidance on the accounting treatment of cash
distributions in excess of earnings and earnings in excess of
cash distributions. ASC 260 notes 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 our
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. The new
guidance under ASC 260 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. Our adoption of the new
provisions of ASC 260 on January 1, 2009 did not have a
material impact on our consolidated financial statements.
In March 2008, the FASB issued guidance under ASC 815,
Derivatives and Hedging (ASC 815), which
requires enhanced disclosures for derivative instruments,
including those used in hedging activities. The new guidance in
ASC 815 is effective for fiscal years beginning on or after
November 15, 2008. Our adoption of the new provisions of
ASC 815 on January 1, 2009 did not have a material impact
on our consolidated financial statements; however, we have
expanded disclosures regarding our derivative instruments.
In April 2008, the FASB issued guidance under ASC 350,
Intangibles Goodwill and Other
(ASC 350), 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.
The intent of the new guidance is to improve the consistency
between the useful life of a recognized intangible asset and the
period of expected cash flows used to measure the fair value of
the asset, in accordance with GAAP. The new guidance under ASC
350 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. The new guidance
under ASC 350 was effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim
periods within those fiscal years. Our adoption of the new
provisions of ASC 350 on January 1, 2009 did not have a
material impact on our consolidated financial statements.
In April 2009, the FASB issued guidance under ASC 825,
Financial Instruments,
section 10-65-1
(ASC 825-10-65-1),
which requires disclosures about the fair value of financial
instruments for interim reporting periods of publicly traded
companies as well as in annual financial statements. Prior to
issuing
ASC 825-10-65-1,
fair values for financial instruments were only disclosed once a
year. ASC
825-10-65-1
was effective for interim reporting periods ending after
June 15, 2009. ASC
825-10-65-1
does not require disclosures for earlier periods presented for
comparative purposes at initial adoption, and, in periods after
initial adoption, requires comparative disclosures only for
periods ending after initial adoption. Our adoption of the
provisions of ASC
825-10-65-1
on June 30, 2009 did not have a material impact on our
consolidated financial statements.
In June 2009, the FASB issued guidance under ASC 105,
Generally Accepted Accounting Principles
(ASC 105), which identifies the sources of
accounting principles and the framework for selecting the
principles used in the preparation of financial statements of
nongovernmental entities that are presented in
F-13
EXTERRAN
PARTNERS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
conformity with GAAP. Rules and interpretive releases of the SEC
under federal securities laws are also sources of authoritative
GAAP for SEC registrants. All guidance contained in the
codification carries an equal level of authority. The new
guidance under ASC 105 is effective for interim and annual
periods ending after September 15, 2009. Our adoption of
the new provisions of ASC 105 on September 30, 2009 did not
have a material impact on our consolidated financial statements.
|
|
3.
|
November
2009, July 2008 and July 2007 Contract Operations
Acquisitions
|
In November 2009, we acquired from Exterran Holdings certain
contract operations customer service agreements with 18
customers and a fleet of approximately 900 compressor units used
to provide compression services under those agreements having a
net book value of $137.2 million, net of accumulated
depreciation of $47.2 million, and comprising approximately
270,000 horsepower, or 6% (by then available horsepower) of the
combined contract operations business in the U.S. of
Exterran Holdings and us (the November 2009 Contract
Operations Acquisition). In connection with this
acquisition, we assumed $57.2 million of long-term debt
from Exterran Holdings and issued to Exterran Holdings
approximately 4.7 million common units and approximately
97,000 general partner units. Concurrent with the closing of the
November 2009 Contract Operations Acquisition, we borrowed
$28.0 million and $30.0 million under our revolving
credit facility and asset-backed securitization facility,
respectively, which together were used to repay the debt assumed
from Exterran Holdings in the acquisition.
In connection with this acquisition, we were allocated
$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 November
2009 Contract Operations Acquisition is comprised of
$4.9 million associated with customer relationships and
$0.8 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.
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 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.
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 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.
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
F-14
EXTERRAN
PARTNERS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 and
additional borrowings of $90.0 million under our revolving
credit facility, along with available cash, to repay the debt
assumed from Universal in the acquisition.
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.
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 November 2009, July 2008
and the July 2007 Contract Operations Acquisitions was
impracticable because such retroactive application would have
required significant assumptions in a prior period that cannot
be substantiated. Accordingly, our financial statements include
the assets acquired, liabilities assumed, revenues and direct
operating expenses associated with the 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 the years ended
December 31, 2009, 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 November 2009, July 2008
and the July 2007 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 the years
ended December 31, 2009, 2008 and 2007 reflects the
following transactions:
|
|
|
|
|
the contribution of customer service contracts and equipment
used to provide compression services under those contracts
transferred in the November 2009, July 2008 and July 2007
Contract Operations Acquisitions from Universal and Exterran
Holdings to us;
|
|
|
|
our assumption of $159.6 million and $232.5 million of
Universals debt and Exterran Holdings debt,
respectively;
|
|
|
|
the issuance of our common units and general partner units to
Exterran Holdings wholly-owned subsidiaries; and
|
F-15
EXTERRAN
PARTNERS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
our borrowing of $117.5 million, $176.3 million and
$30.0 million under our term loan, senior secured credit
facility and asset-backed securitization facility, respectively,
and use of those proceeds to repay the debt assumed from
Exterran Holdings.
|
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.
The following table presents unaudited pro forma financial
information (in thousands, except per unit amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Total revenues
|
|
$
|
233,737
|
|
|
$
|
263,118
|
|
|
$
|
233,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
26,054
|
|
|
$
|
53,128
|
|
|
$
|
44,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per common and subordinated unit
|
|
$
|
1.02
|
|
|
$
|
2.07
|
|
|
$
|
1.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per common and subordinated unit
|
|
$
|
1.02
|
|
|
$
|
2.07
|
|
|
$
|
1.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma earnings 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 our partnership agreement, to the
extent the quarterly distributions exceed certain targets, our
general partner is entitled to receive certain incentive
distributions that will result in more net income
proportionately being allocated to our general partner than to
the holders of common and subordinated units. The pro forma net
earnings per limited partner unit calculations include
adjustments for the pro forma incentive distributions to our
general partner, including a reduction to net income allocable
to the limited partners of approximately $0.2 million for
each of the years ended December 31, 2009 and 2008 and
$1.9 million for the year ended December 31, 2007, to
reflect 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.
|
|
4.
|
Merger
Between Universal and Hanover
|
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,
2009, owned 486,243 general partner units, representing a 2%
general partner interest, and all the incentive distribution
rights in us. As of December 31, 2009, Exterran Holdings
owned 9,167,994 common units and 6,325,000 subordinated units
which, together with the general partner interest, represent a
66% total ownership interest in us.
|
|
5.
|
Related
Party Transactions
|
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:
|
|
|
|
|
certain agreements not to compete between Exterran Holdings and
its affiliates, on the one hand, and us and our affiliates, on
the other hand;
|
F-16
EXTERRAN
PARTNERS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
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;
|
|
|
|
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;
|
|
|
|
the terms under which we may purchase newly-fabricated contract
operations equipment from Exterran Holdings affiliates;
|
|
|
|
Exterran Holdings grant of a license of certain
intellectual property to us, including our logo; and
|
|
|
|
Exterran Holdings obligation to indemnify us for certain
liabilities and our obligation to indemnify Exterran Holdings
for certain liabilities.
|
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.
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.
F-17
EXTERRAN
PARTNERS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 November 10, 2012 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 November 10, 2012 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 years ended December 31, 2009 and
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
our board of directors. During the years ended December 31,
2009 and 2008, we purchased $3.1 million and
$9.8 million, respectively, of new compression equipment
from Exterran Holdings. Under GAAP, 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 the years
ended December 31, 2009 and 2008 was recorded in our
consolidated balance sheet as property, plant and equipment of
$2.8 million and $8.8 million, respectively, which
represents the carrying value of the Exterran Holdings
affiliates that sold it to us, and as a distribution of equity
of $0.3 million and $1.0 million, respectively, which
represents the fixed margin we paid above the carrying value in
accordance with the Omnibus Agreement. During the years ended
December 31, 2009 and 2008, Exterran Holdings contributed
$7.5 million and $11.1 million, respectively,
primarily related to the completion of overhauls on compression
equipment that was exchanged with us or contributed to us and
where overhauls 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
F-18
EXTERRAN
PARTNERS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 the year ended December 31, 2009, pursuant to the
terms of the Omnibus Agreement, we transferred ownership of 140
compressor units, totaling approximately 49,400 horsepower with
a net book value of approximately $25.7 million, to
Exterran Holdings. In exchange, Exterran Holdings transferred
ownership to us of 242 compressor units, totaling approximately
50,400 horsepower with a net book value of approximately
$30.2 million. During the year ended December 31,
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. During the
years ended December 31, 2009 and 2008, we recorded equity
contributions of approximately $4.5 million and
$0.2 million, respectively, related to the differences in
net book value on the compression equipment that was exchanged
with us. 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 for the difference in fair
value of the equipment 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.
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.
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, 2009, we had
equipment on lease to Exterran Holdings with an aggregate cost
and accumulated depreciation of $10.4 million and
$2.8 million, respectively.
For the years ended December 31, 2009 and 2008, we had
revenues of $1.0 million and $1.4 million,
respectively, from Exterran Holdings related to the lease of our
compression equipment. For the years ended December 31,
2009 and 2008, we had cost of sales of $11.1 million and
$8.1 million, respectively, with Exterran Holdings related
to the lease of Exterran Holdings 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, taxes, facilities
management, investor relations, enterprise resource planning
system, training, executive, sales, business development and
engineering.
F-19
EXTERRAN
PARTNERS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 Selling, general and administrative
(SG&A) expense for the years ended
December 31, 2009 and 2008 are $20.1 million and
$16.3 million, respectively, of indirect costs incurred by
Exterran Holdings.
Under the Omnibus Agreement, Exterran Holdings has agreed that,
for a period that will terminate on December 31, 2010, 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 SG&A costs allocated to us
will be capped (after taking into account any such costs we
incur and pay directly). 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, 2009, cost of sales were capped at
$21.75 per operating horsepower 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
November 9, 2009, SG&A costs were capped at
$6.0 million per quarter. From November 10, 2009
through December 31, 2009, SG&A costs were capped at
$7.6 million per quarter. These caps may be subject to
future adjustment in connection with expansions of our
operations through the acquisition or construction of new assets
or businesses.
For the years ended December 31, 2009 and 2008, our cost of
sales exceeded the cap provided in the Omnibus Agreement by
$7.2 million and $12.5 million, respectively. For the
years ended December 31, 2009 and 2008, our SG&A
expense exceeded the cap provided in the Omnibus Agreement by
$0.6 million and $0.1 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 consolidated statements of cash flows.
In connection with the July 2008 and July 2007 Contract
Operations Acquisitions, we were allocated historical cost
goodwill of Exterran Holdings North America contract
operations segment and Universals U.S. contract
operations segment, respectively. The amount allocated was 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 and Universals
U.S. contract operations segment. The amount of goodwill
allocated to us in the July 2008 and July 2007 Contract
Operations Acquisitions was $56.9 million and
$30.7 million, respectively.
We perform our goodwill impairment test in the fourth quarter of
every year, or whenever events indicate impairment may have
occurred, to determine if the estimated recoverable value of our
reporting unit exceeds the net carrying value of the reporting
unit, including the applicable goodwill.
The first step in performing a goodwill impairment test is to
compare the estimated fair value of our reporting unit with its
recorded net book value (including the goodwill) of the
respective reporting unit. If the estimated fair value of the
reporting unit is higher than the recorded net book value, no
impairment is deemed to exist and no further testing is
required. If, however, the estimated fair value of the reporting
unit is below the recorded net book value, then a second step
must be performed to determine the goodwill impairment required,
if any. In this second step, the estimated fair value from the
first step is used as the purchase price in a hypothetical
acquisition of the reporting unit. Purchase business combination
accounting rules are followed to determine a hypothetical
purchase price allocation to the reporting units assets
and liabilities. The residual amount of goodwill that results
from this hypothetical purchase price allocation is compared to
the recorded amount of goodwill for the reporting unit, and the
recorded amount is written down to the hypothetical amount, if
lower.
F-20
EXTERRAN
PARTNERS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Because quoted market prices for our reporting units are not
available, management must apply judgment in determining the
estimated fair value of these reporting units for purposes of
performing the annual goodwill impairment test. Management uses
all available information to make these fair value
determinations, including the present values of expected future
cash flows using discount rates commensurate with the risks
involved in the assets.
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.
For the years ended December 31, 2009, 2008 and 2007, we
determined that there was no impairment of goodwill.
Long-term debt consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Revolving credit facility due October 2011
|
|
$
|
285,000
|
|
|
$
|
281,250
|
|
Term loan facility due October 2011
|
|
|
117,500
|
|
|
|
117,500
|
|
Asset-backed securitization facility due July 2013
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
432,500
|
|
|
$
|
398,750
|
|
|
|
|
|
|
|
|
|
|
Senior
Secured Credit Facility
We, as guarantor, and EXLP Operating LLC, our wholly-owned
subsidiary, are parties to a senior secured credit agreement
that provides for a five-year, $315 million revolving
credit facility that matures in October 2011.
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 cash 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, 2009, we had $285.0 million
outstanding, with $30.0 million available, under our
revolving credit facility and $117.5 million of long-term
debt outstanding under the term loan.
All amounts outstanding under the senior secured credit facility
mature in October 2011.
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,
2009, all
F-21
EXTERRAN
PARTNERS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
amounts outstanding were LIBOR loans and the applicable margin
was 1.75%. The weighted average interest rate on the outstanding
balance at December 31, 2009, excluding the effect of
interest rate swaps, was 2.1%.
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, 2009, all amounts outstanding were LIBOR
loans and the applicable margin was 2.25%. 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, 2009, excluding
the effect of interest rate swaps, was 2.5%.
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 (as
defined in the credit agreement) to EBITDA of not greater than
5.0 to 1.0. Our senior secured credit facility allows for our
Total Debt to EBITDA ratio to be increased from 5.0 to 1.0 to
5.5 to 1.0 during a quarter when an acquisition closes meeting
certain thresholds and for the following two quarters after the
acquisition closes. Therefore, due to the November 2009 Contract
Operations Acquisition closing in the fourth quarter of 2009,
the maximum allowed ratio of Total Debt to EBITDA was increased
from 5.0 to 1.0 to 5.5 to 1.0 for the period from
December 31, 2009 through June 30, 2010. After
June 30, 2010, our required Total Debt to EBITDA ratio will
go back to 5.0 to 1.0. As of December 31, 2009, we
maintained a 5.2 to 1.0 EBITDA to Total Interest Expense ratio
and a 4.0 to 1.0 Total Debt to EBITDA ratio. If we continue to
experience a deterioration in the demand for our services, and
we are unable to consummate further acquisitions from Exterran
Holdings, amend our senior secured credit facility or
restructure our debt, we estimate that we could be in violation
of the maximum Total Debt to EBITDA covenant ratio contained in
our senior secured credit facility during 2010. In addition, if
we experience a material adverse effect on our assets,
liabilities, financial condition, business, operations or
prospects that, taken as a whole, impacted our ability to
perform our obligations under our credit agreement, this could
lead to a default under our credit agreement. As of
December 31, 2009, we were in compliance with all financial
covenants under the credit agreement.
Asset-Backed
Securitization Facility
In connection with the November 2009 Contract Operations
Acquisition, we entered into the 2009 ABS Facility, a portion of
which was used to fund the transaction. The 2009 ABS Facility
notes are revolving in nature and are payable in July 2013.
Interest and fees payable to the noteholders accrue on these
notes at a variable rate consisting of an applicable margin of
3.5% plus, at our option, either LIBOR or a base rate. The
weighted average interest rate on the outstanding balance of the
2009 ABS Facility at December 31, 2009, excluding the
effect of interest rate swaps, was 3.8%. Repayment of the 2009
ABS Facility notes has been secured by a pledge of all of the
assets of EXLP ABS 2009 LLC (EXLP ABS 2009) together
with its subsidiaries, consisting primarily of specified
compression services contracts and a fleet of natural gas
compressor units. The amount outstanding at any time is limited
to the lower of (i) 75% of the value of the natural gas
compression equipment owned by EXLP ABS 2009 (as defined in the
agreement), (ii) 4.0 times free cash flow or (iii) the
amount calculated under an interest coverage test. Additionally,
the senior secured credit facilitys credit agreement
limits the amount we can borrow under the 2009 ABS Facility to
two times our EBITDA (as defined in the credit agreement). As of
December 31, 2009, we had $30.0 million
F-22
EXTERRAN
PARTNERS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
outstanding, with $120.0 million of availability, under the
2009 ABS Facility. Under the 2009 ABS Facility, we had
$0.4 million of restricted cash as of December 31,
2009.
Long-term
Debt Maturity Schedule
Contractual maturities of long-term debt (excluding interest to
be accrued thereon) are as follows (in thousands):
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2010
|
|
$
|
|
|
2011
|
|
|
402,500
|
|
2012
|
|
|
|
|
2013
|
|
|
30,000
|
|
2014
|
|
|
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
432,500
|
|
|
|
|
|
|
|
|
8.
|
Partners
Equity, Allocations and Cash Distributions
|
Units
Outstanding
Partners capital at December 31, 2009 consists of
17,541,965 common units outstanding, 6,325,000 subordinated
units held by Exterran Holdings, collectively representing a 98%
effective ownership interest in us, and 486,243 general partner
units representing a 2% general partner interest in us.
As of December 31, 2009, Exterran Holdings owned 9,167,994
common units, 6,325,000 subordinated units and 486,243 general
partner units, collectively representing a 66% 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 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.
F-23
EXTERRAN
PARTNERS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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, 98% to all common and subordinated unitholders,
pro rata, and 2% to our general partner, until each unit has
received a distribution of $0.4025;
|
|
|
|
fifth, 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;
|
|
|
|
sixth, 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-24
EXTERRAN
PARTNERS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes our distributions per unit for
2007, 2008 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution per
|
|
|
|
|
|
|
|
Limited Partner
|
|
|
|
Period Covering
|
|
Payment Date
|
|
Unit
|
|
|
Total Distribution
|
|
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(1)
|
1/1/2008 3/31/2008
|
|
May 14, 2008
|
|
|
0.4250
|
|
|
7.3 million(1)
|
4/1/2008 6/30/2008
|
|
August 14, 2008
|
|
|
0.4250
|
|
|
8.3 million(1)
|
7/1/2008 9/30/2008
|
|
November 14, 2008
|
|
|
0.4625
|
|
|
9.3 million(1)
|
10/1/2008 12/31/2008
|
|
February 13, 2009
|
|
|
0.4625
|
|
|
9.3 million(1)
|
1/1/2009 3/31/2009
|
|
May 15, 2009
|
|
|
0.4625
|
|
|
9.3 million(1)
|
4/1/2009 6/30/2009
|
|
August 14, 2009
|
|
|
0.4625
|
|
|
9.3 million(1)
|
7/1/2009 9/30/2009
|
|
November 13, 2009
|
|
|
0.4625
|
|
|
9.3 million(1)
|
10/1/2009 12/31/2009
|
|
February 12, 2010
|
|
|
0.4625
|
|
|
11.6 million(1)
|
|
|
|
(1) |
|
Including distributions to our general partner on its incentive
distribution rights. |
|
|
9.
|
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Unit options
|
|
$
|
(1
|
)
|
|
$
|
(2,362
|
)
|
|
$
|
3,122
|
|
Phantom units
|
|
|
812
|
|
|
|
272
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unit-based compensation expense (income)(1)
|
|
$
|
811
|
|
|
$
|
(2,090
|
)
|
|
$
|
3,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-25
EXTERRAN
PARTNERS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
(1) |
|
Excludes the chargeback of unit-based compensation expense
(income) to Exterran Holdings of $0.7 million,
$(0.6) million and $1.3 million for the years ended
December 31, 2009, 2008 and 2007, respectively. |
We have granted unit options to individuals who are not our
employees, but who are employees of Exterran Holdings and its
subsidiaries who provide services to us. We have also granted
phantom units to directors of Exterran GP LLC and to employees
of Exterran Holdings and its subsidiaries. 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. We recorded $0.2 million in
SG&A expense related to the re-measurement of fair value of
the phantom units for the year ended December 31, 2009. We
recorded a reduction to expense of $3.9 million for the
year ended December 31, 2008 related to the re-measurement
of fair value of the unit options and phantom units.
Unit
Options
All unit options vested and became exercisable on
January 1, 2009, and expired on December 31, 2009.
The following table presents unit option activity for 2009
(remaining life in years):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
Unit
|
|
|
Exercise
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
Life
|
|
|
Value
|
|
|
Unit options outstanding, December 31, 2008
|
|
|
591,429
|
|
|
$
|
23.77
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(10,714
|
)
|
|
|
25.94
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(580,715
|
)
|
|
|
23.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit options outstanding, December 31, 2009
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit options exercisable, December 31, 2009
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Phantom
Units
During the year ended December 31, 2009, we granted 90,502
phantom units to officers and directors of Exterran GP LLC and
certain employees of Exterran Holdings and its subsidiaries,
which settle
331/3%
on each of the first three anniversaries of the grant date.
The following table presents phantom unit activity for 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant-Date
|
|
|
|
Phantom
|
|
|
Fair Value
|
|
|
|
Units
|
|
|
per Unit
|
|
|
Phantom units outstanding, December 31, 2008
|
|
|
48,152
|
|
|
$
|
30.98
|
|
Granted
|
|
|
90,502
|
|
|
|
12.35
|
|
Vested
|
|
|
(34,576
|
)
|
|
|
24.02
|
|
Cancelled
|
|
|
(12,954
|
)
|
|
|
17.39
|
|
|
|
|
|
|
|
|
|
|
Phantom units outstanding, December 31, 2009
|
|
|
91,124
|
|
|
$
|
17.06
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009, $1.4 million of unrecognized
compensation cost related to unvested phantom units is expected
to be recognized over the weighted-average period of
1.9 years.
F-26
EXTERRAN
PARTNERS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
10.
|
Accounting
for Interest Rate Swap Agreements
|
We are exposed to market risks primarily associated with changes
in interest rates. We use derivative financial instruments to
minimize the risks and 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.
Interest
Rate Risk
At December 31, 2009, we were party to interest rate swaps
in which we pay fixed payments and receive floating payments on
a notional value of $255.0 million. We entered into these
swaps to offset changes in expected cash flows due to
fluctuations in the associated variable interest rates. Our
interest rate swaps expire over varying dates through July 2012.
The weighted average effective fixed interest rate payable on
our interest rate swaps was 4.7% as of December 31, 2009.
We have designated these interest rate swaps as cash flow
hedging instruments so that any change in their fair values is
recognized as a component of comprehensive income (loss) and is
included in accumulated other comprehensive income (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 whether the swap agreements are still
effective and to calculate any ineffectiveness. For the years
ended December 31, 2009 and 2008, there was no
ineffectiveness related to these swaps. We estimate that
$9.2 million of deferred pre-tax losses from the interest
rate swaps will be realized as an expense during the next twelve
months. Cash flows from derivatives designated as hedges are
classified in our condensed consolidated statements of cash
flows under the same category as the cash flows from the
underlying assets, liabilities or anticipated transactions.
The following tables present the effect of derivative
instruments on our consolidated financial position and results
of operations (in thousands):
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
Fair Value
|
|
|
|
Balance Sheet Location
|
|
Asset (Liability)
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
Interest rate hedges
|
|
Interest rate swaps
|
|
$
|
262
|
|
Interest rate hedges
|
|
Current portion of interest rate swaps
|
|
|
(9,229
|
)
|
Interest rate hedges
|
|
Interest rate swaps
|
|
|
(6,668
|
)
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
|
$
|
(15,635
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
|
|
|
|
|
Location of Gain
|
|
|
Gain (Loss)
|
|
|
|
Gain (Loss)
|
|
|
(Loss) Reclassified
|
|
|
Reclassified from
|
|
|
|
Recognized in Other
|
|
|
from Accumulated
|
|
|
Accumulated Other
|
|
|
|
Comprehensive
|
|
|
Other Comprehensive
|
|
|
Comprehensive
|
|
|
|
Income (Loss) on
|
|
|
Income (Loss) into
|
|
|
Income (Loss) into
|
|
|
|
Derivatives
|
|
|
Income (Loss)
|
|
|
Income (Loss)
|
|
|
Derivatives designated as cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate hedges
|
|
$
|
6,890
|
|
|
|
Interest expense
|
|
|
$
|
(4,838
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The counterparties to our derivative 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. We
have no specific collateral posted for our derivative
instruments. The counterparties to our interest rate swaps are
also lenders under our credit facility and, in that capacity,
share proportionally in the collateral pledged under the credit
facility.
F-27
EXTERRAN
PARTNERS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
11.
|
Fair
Value of Interest Rate Swaps
|
ASC 820 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.
ASC 820 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 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 and impaired fleet units in 2009 under ASC 820
pricing levels as of the date of valuation (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
|
|
$
|
(15,635
|
)
|
|
$
|
|
|
|
$
|
(15,635
|
)
|
|
$
|
|
|
Impaired fleet units
|
|
|
215
|
|
|
|
|
|
|
|
|
|
|
|
215
|
|
The following table summarizes the valuation of our interest
rate swaps at December 31, 2008 under ASC 820 pricing
levels (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. Our estimate of the fair value of
the impaired fleet units was based on the estimated component
value of the equipment that we plan to use.
As a result of a decline in market conditions and operating
horsepower during 2009, we reviewed the idle compression fleet
used in our business for units that are not of the type,
configuration, make or model that are cost efficient to maintain
and operate. As a result of that review, we determined that
56 units representing approximately 8,900 horsepower would
be retired from the fleet.
F-28
EXTERRAN
PARTNERS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We performed a cash flow analysis of the expected proceeds from
the disposition of these units to determine the fair value of
the fleet assets we will no longer utilize in our operations.
The net book value of these assets exceeded the fair value by
$3.2 million and the difference was recorded as a
long-lived asset impairment. The impairment is recorded in Fleet
impairment expense in the consolidated statements of operations.
The following table reconciles net income, as reported, to our
U.S. federal partnership taxable income (loss) (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net income, as reported
|
|
$
|
14,784
|
|
|
$
|
29,847
|
|
|
$
|
19,401
|
|
Book/tax depreciation and amortization adjustment
|
|
|
(37,742
|
)
|
|
|
(612
|
)
|
|
|
(17,544
|
)
|
Book/tax adjustment for unit based compensation expense (income)
|
|
|
811
|
|
|
|
(2,090
|
)
|
|
|
3,543
|
|
Other temporary differences
|
|
|
2,728
|
|
|
|
2,357
|
|
|
|
(1,410
|
)
|
Other permanent differences
|
|
|
16
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal partnership taxable income (loss)
|
|
$
|
(19,403
|
)
|
|
$
|
29,514
|
|
|
$
|
3,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 did
not affect our consolidated financial statements nor did 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 resulted in
increased taxable income (or reduced taxable loss) to certain of
our unitholders in 2008.
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.
|
|
|
|
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.
|
F-29
EXTERRAN
PARTNERS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
14.
|
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.
|
|
15.
|
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,
|
|
|
2009
|
|
2009(1)
|
|
2009
|
|
2009
|
|
Revenue
|
|
$
|
48,233
|
|
|
$
|
45,077
|
|
|
$
|
41,317
|
|
|
$
|
47,102
|
|
Gross profit(2)
|
|
|
17,873
|
|
|
|
13,410
|
|
|
|
12,669
|
|
|
|
15,493
|
|
Net income
|
|
|
6,721
|
|
|
|
2,738
|
|
|
|
2,008
|
|
|
|
3,317
|
|
Earnings per common and subordinated unit basic
|
|
$
|
0.33
|
|
|
$
|
0.13
|
|
|
$
|
0.09
|
|
|
$
|
0.13
|
|
Earnings per common and subordinated unit diluted
|
|
|
0.33
|
|
|
|
0.13
|
|
|
|
0.09
|
|
|
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
June 30,
|
|
September 30,
|
|
December 31,
|
|
|
2008
|
|
2008
|
|
2008
|
|
2008
|
|
Revenue
|
|
$
|
35,267
|
|
|
$
|
34,999
|
|
|
$
|
44,390
|
|
|
$
|
49,056
|
|
Gross profit(2)
|
|
|
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
|
|
|
|
|
(1) |
|
During the second quarter of 2009, we recorded a fleet asset
impairment charge of $3.0 million. |
|
(2) |
|
Gross profit is defined as revenue less cost of sales and direct
depreciation and amortization expense and fleet impairment
charges. |
F-30
EXTERRAN
PARTNERS, L.P.
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
Balance at
|
|
Charged to
|
|
|
|
Balance at
|
|
|
Beginning
|
|
Costs and
|
|
|
|
End of
|
Item
|
|
of Period
|
|
Expenses(1)
|
|
Deductions(2)
|
|
Period
|
|
Allowance for doubtful accounts deducted from accounts
receivable in the balance sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
$
|
230
|
|
|
$
|
627
|
|
|
$
|
(143
|
)
|
|
$
|
714
|
|
December 31, 2008
|
|
|
86
|
|
|
|
159
|
|
|
|
(15
|
)
|
|
|
230
|
|
December 31, 2007
|
|
|
|
|
|
|
86
|
|
|
|
|
|
|
|
86
|
|
|
|
|
(1) |
|
Amounts accrued for uncollectibility |
|
(2) |
|
Uncollectible accounts written off, net of recoveries |
F-31
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
David S. Miller
Vice President and Chief Financial Officer
(Principal Financial Officer)
|
|
|
|
By:
|
/s/ KENNETH
R. BICKETT
|
Kenneth R. Bickett
Vice President Finance and Accounting
(Principal Accounting Officer)
Date: February 25, 2010
II-1
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Ernie L. Danner, David S.
Miller, 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 25, 2010.
|
|
|
|
|
|
|
Name
|
|
Title
|
|
|
|
|
/s/ ERNIE
L. DANNER
Ernie
L. Danner
|
|
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)
|
|
|
|
/s/ DAVID
S. MILLER
David
S. Miller
|
|
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)
|
|
|
|
/s/ KENNETH
R. BICKETT
Kenneth
R. Bickett
|
|
Vice President, Finance and Accounting, Exterran GP LLC, as
General Partner of Exterran General Partner, L.P., as General
Partner of Exterran Partners, L.P. (Principal Accounting Officer)
|
|
|
|
/s/ J.
MICHAEL ANDERSON
J.
Michael Anderson
|
|
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.
|
|
|
|
/s/ D.
BRADLEY CHILDERS
D.
Bradley Childers
|
|
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.
|
|
|
|
/s/ DANIEL
K. SCHLANGER
Daniel
K. Schlanger
|
|
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.
|
|
|
|
/s/ JAMES
G. CRUMP
James
G. Crump
|
|
Director, Exterran GP LLC, as General Partner of Exterran
General Partner, L.P., as General Partner of Exterran Partners,
L.P.
|
|
|
|
/s/ G.
STEPHEN FINLEY
G.
Stephen Finley
|
|
Director, Exterran GP LLC As General Partner of Exterran General
Partner, L.P., as General Partner of Exterran Partners, L.P.
|
|
|
|
/s/ EDMUND
P. SEGNER, III
Edmund
P. Segner, III
|
|
Director, Exterran GP LLC As General Partner of Exterran General
Partner, L.P., as General Partner of Exterran Partners, L.P.
|
II-2
EXHIBIT INDEX
|
|
|
|
|
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
|
|
2
|
.2
|
|
Contribution, Conveyance and Assumption Agreement, dated
October 2, 2009, by and among Exterran Holdings, Inc.,
Exterran Energy Corp., Exterran General Holdings LLC, Exterran
Energy Solutions, L.P., 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 October 5, 2009
|
|
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
|
|
4
|
.1
|
|
Indenture, dated as of October 13, 2009, by and between
EXLP ABS 2009 LLC, as Issuer, EXLP ABS Leasing 2009 LLC and
Wells Fargo Bank, National Association, as Indenture Trustee,
with respect to the $150,000,000 ABS facility consisting of
$150,000,000 of
Series 2009-1
Notes, incorporated by reference to Exhibit 4.1 to the
Registrants Current Report on
Form 8-K
filed on October 19, 2009
|
|
4
|
.2
|
|
Series 2009-1
Supplement, dated as of October 13, 2009, to Indenture
dated as of October 13, 2009, by and between EXLP ABS 2009
LLC, as Issuer, EXLP ABS Leasing 2009 LLC and Wells Fargo Bank,
National Association, as Indenture Trustee, with respect to the
$150,000,000 of
Series 2009-1
Notes, incorporated by reference to Exhibit 4.2 to the
Registrants Current Report on
Form 8-K
filed on October 19, 2009
|
|
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
|
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
10
|
.3
|
|
First Amended and Restated Omnibus Agreement, dated
August 20, 2007, by and among Exterran Holdings, Inc.,
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
|
|
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*
|
|
Second Amended and Restated Omnibus Agreement, dated
November 10, 2009, by and among Exterran Holdings, Inc.,
Exterran Energy Solutions, L.P., Exterran GP LLC, Exterran
General Partner, L.P. and EXLP Operating LLC (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)
|
|
10
|
.6
|
|
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
|
.7
|
|
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
|
.8
|
|
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
|
.9
|
|
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
|
.10
|
|
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
|
.11
|
|
Intercreditor and Collateral Agency Agreement, dated as of
October 13, 2009, by and among Exterran Partners, L.P.,
EXLP ABS 2009 LLC, EXLP Operating LLC, Wells Fargo Bank,
National Association, as Indenture Trustee, Wachovia Bank,
National Association, as Bank Agent, and Wells Fargo Bank,
National Association, in its individual capacity as the
Intercreditor Collateral Agent, incorporated by reference to
Exhibit 10.1 to the Registrants Current Report on
Form 8-K
filed on October 19, 2009
|
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
10
|
.12
|
|
Management Agreement, dated as of October 13, 2009, by and
between Exterran Partners, L.P., as Manager, EXLP ABS 2009 LLC,
as Issuer, and EXLP ABS Leasing 2009 LLC, incorporated by
reference to Exhibit 10.2 to the Registrants Current
Report on
Form 8-K
filed on October 19, 2009
|
|
10
|
.13
|
|
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
|
.14
|
|
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
|
.15
|
|
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
|
.16
|
|
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
|
.17
|
|
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
|
.18
|
|
Third Amendment to Exterran Partners, L.P. Long-Term Incentive
Plan, incorporated by reference to the Registrants Annual
Report on
Form 10-K
for the year ended December 31, 2008
|
|
10
|
.19
|
|
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
|
.20
|
|
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
|
|
10
|
.21
|
|
Form of Amendment to Grant of Options, incorporated by reference
to Exhibit 10.18 to the Registrants Annual Report on
Form 10-K
for the year ended December 31, 2008
|
|
10
|
.22
|
|
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
|
.23
|
|
Form of Amendment No. 3 to Grant of Options, incorporated
by reference to the Registrants Annual Report on
Form 10-K
for the year ended December 31, 2008
|
|
10
|
.24
|
|
First Amendment to Grant of Phantom Units for Stephen A. Snider,
incorporated by reference to Exhibit 10.21 to the
Registrants Annual Report on
Form 10-K
for the year ended December 31, 2008
|
|
10
|
.25
|
|
Third Amendment to Grant of Options for Stephen A. Snider,
incorporated by reference to Exhibit 10.22 to the
Registrants Annual Report on
Form 10-K
for the year ended December 31, 2008
|
|
10
|
.26
|
|
Form of Exterran Partners, L.P. Award Notice for Phantom Units
with DERs, incorporated by reference to Exhibit 10.1 to the
Registrants Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2009
|
|
10
|
.27
|
|
Form of Exterran Partners, L.P. Award Notice for Phantom Units
with DERs for Directors, incorporated by reference to
Exhibit 10.2 to the Registrants Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2009
|
|
10
|
.28
|
|
Exterran Partners, L.P. Award Notice for Phantom Units with DERs
for Stephen A. Snider, incorporated by reference to
Exhibit 10.3 to the Registrants Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2009
|
|
21
|
.1*
|
|
List of Subsidiaries of Exterran Partners, L.P.
|
|
23
|
.1*
|
|
Consent of Deloitte & Touche LLP
|
|
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
|
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
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. |