Archrock Partners, L.P. - FORM 10-Q

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

(MARK ONE)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED September 30, 2014

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO .

Commission File No. 001-33078

EXTERRAN PARTNERS, L.P.

(Exact name of registrant as specified in its charter)

Delaware		22-3935108
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

16666 Northchase Drive
Houston, Texas		77060
(Address of principal executive offices)		(Zip Code)

(281) 836-7000

(Registrant’s telephone number, including area code)

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 x 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 x No o

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):

Large accelerated filer x		Accelerated filer o

Non-accelerated filer o		Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of October 28, 2014, there were 55,660,543 common units outstanding.

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TABLE OF CONTENTS

	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)	3
Condensed Consolidated Balance Sheets	3
Condensed Consolidated Statements of Operations	4
Condensed Consolidated Statements of Comprehensive Income	5
Condensed Consolidated Statements of Partners’ Capital	6
Condensed Consolidated Statements of Cash Flows	7
Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3. Quantitative and Qualitative Disclosures About Market Risk	36
Item 4. Controls and Procedures	37
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	37
Item 1A. Risk Factors	39
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 3. Defaults Upon Senior Securities	39
Item 4. Mine Safety Disclosures	39
Item 5. Other Information	39
Item 6. Exhibits	40
SIGNATURES	41

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

EXTERRAN PARTNERS, L.P.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except for unit amounts)

(unaudited)

	September 30, 2014			December 31, 2013
ASSETS

Current assets:
Cash and cash equivalents	$	275		$	182
Accounts receivable, trade, net of allowance of $833 and $363, respectively	79,796			52,641
Due from affiliates, net	62			10,548
Total current assets	80,133			63,371
Property, plant and equipment	2,323,081			1,794,545
Accumulated depreciation	(696,879		)	(647,527		)
Property, plant and equipment, net	1,626,202			1,147,018
Goodwill	127,757			124,019
Intangible and other assets, net	126,542			33,655
Total assets	$	1,960,634		$	1,368,063

LIABILITIES AND PARTNERS’ CAPITAL

Current liabilities:
Accrued liabilities	$	7,187		$	7,255
Accrued interest	21,903			5,940
Current portion of interest rate swaps	5,225			3,374
Total current liabilities	34,315			16,569
Long-term debt	1,220,013			757,955
Deferred income taxes	1,293			1,132
Other long-term liabilities	1,985			652
Total liabilities	1,257,606			776,308
Commitments and contingencies (Note 13)
Partners’ capital:
Common units, 55,720,897 and 49,465,528 units issued, respectively	686,113			578,493
General partner units, 2% interest with 1,129,221 and 1,003,227 equivalent units issued and outstanding, respectively	19,773			16,780
Accumulated other comprehensive loss	(1,408		)	(2,353		)
Treasury units, 60,354 and 50,917 common units, respectively	(1,450		)	(1,165		)
Total partners’ capital	703,028			591,755
Total liabilities and partners’ capital	$	1,960,634		$	1,368,063

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

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EXTERRAN PARTNERS, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per unit amounts)

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014		2013
Revenues:
Revenue — third parties	$	153,103		$	115,717		$	419,645	$	346,996
Revenue — affiliates	60			91			258		327
Total revenue	153,163			115,808			419,903		347,323

Costs and expenses:
Cost of sales (excluding depreciation and amortization expense) — affiliates	61,852			51,478			174,890		149,339
Depreciation and amortization	33,598			27,158			93,227		76,894
Long-lived asset impairment	3,558			784			8,035		3,249
Restructuring charges	125			—			702		—
Selling, general and administrative — affiliates	20,734			16,948			59,157		44,758
Interest expense	16,141			9,735			40,586		27,458
Other (income) expense, net	(649		)	(639		)	88		(8,316		)
Total costs and expenses	135,359			105,464			376,685		293,382
Income before income taxes	17,804			10,344			43,218		53,941
Provision for (benefit from) income taxes	(299		)	309			424		1,277
Net income	$	18,103		$	10,035		$	42,794	$	52,664

General partner interest in net income	$	3,631		$	1,911		$	9,325	$	5,794
Common units interest in net income	$	14,472		$	8,124		$	33,469	$	46,870

Weighted average common units outstanding used in income per common unit:
Basic	55,661			49,409			53,583		47,058
Diluted	55,663			49,429			53,585		47,072

Income per common unit:
Basic	$	0.26		$	0.16		$	0.62	$	1.00
Diluted	$	0.26		$	0.16		$	0.62	$	1.00

Distributions declared and paid per limited partner unit in respective periods	$	0.5425		$	0.5225		$	1.6125	$	1.5525

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

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EXTERRAN PARTNERS, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(unaudited)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2014		2013			2014			2013
Net income	$	18,103	$	10,035		$	42,794		$	52,664
Other comprehensive income (loss):
Interest rate swap gain (loss), net of reclassifications to earnings	1,143		(2,256		)	(1,836		)	4,362
Amortization of terminated interest rate swaps	916		994			2,781			1,761
Total other comprehensive income (loss)	2,059		(1,262		)	945			6,123
Comprehensive income	$	20,162	$	8,773		$	43,739		$	58,787

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

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EXTERRAN PARTNERS, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL

(In thousands, except for unit amounts)

(unaudited)

	Partners’ Capital													Accumulated Other
	Common Units				General Partner Units				Treasury Units					Comprehensive
	$			Units	$			Units	$			Units		Loss			Total
Balance, January 1, 2013	$	436,587		42,313,731	$	13,490		858,583	$	(983	)	(43,630	)	$	(10,094	)	$	439,000
Issuance of common units for vesting of phantom units				19,643													—
Treasury units purchased									(91		)	(3,790	)				(91		)
Acquisition of a portion of Exterran Holdings’ U.S. contract operations business	158,417			7,123,527	3,233			144,644									161,650
Transaction costs for registration of units	(68		)														(68		)
Contribution of capital, net	27,540				517												28,057
Excess of purchase price of equipment over Exterran Holdings’ cost of equipment	(7,445		)		(468		)										(7,913		)
Cash distributions	(73,051		)		(5,805		)										(78,856		)
Unit-based compensation expense	858																858
Interest rate swap gain, net of reclassification to earnings														4,362			4,362
Amortization of terminated interest rate swaps														1,761			1,761
Net income	46,870				5,794												52,664
Balance, September 30, 2013	$	589,708		49,456,901	$	16,761		1,003,227	$	(1,074	)	(47,420	)	$	(3,971	)	$	601,424

Balance, January 1, 2014	$	578,493		49,465,528	$	16,780		1,003,227	$	(1,165	)	(50,917	)	$	(2,353	)	$	591,755
Issuance of common units for vesting of phantom units				45,369													—
Treasury units purchased									(285		)	(9,437	)				(285		)
Net proceeds from issuance of common units	169,471			6,210,000													169,471
Proceeds from sale of general partner units to Exterran Holdings					3,573			125,994									3,573
Contribution of capital, net	3,473				(96		)										3,377
Excess of purchase price of equipment over Exterran Holdings’ cost of equipment	(13,581		)		(757		)										(14,338		)
Cash distributions	(86,529		)		(9,052		)										(95,581		)
Unit-based compensation expense	1,317																1,317
Interest rate swap loss, net of reclassification to earnings														(1,836		)	(1,836		)
Amortization of terminated interest rate swaps														2,781			2,781
Net income	33,469				9,325												42,794
Balance, September 30, 2014	$	686,113		55,720,897	$	19,773		1,129,221	$	(1,450	)	(60,354	)	$	(1,408	)	$	703,028

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

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EXTERRAN PARTNERS, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)

	Nine Months Ended September 30,
	2014			2013
Cash flows from operating activities:
Net income	$	42,794		$	52,664
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	93,227			76,894
Long-lived asset impairment	8,035			3,249
Amortization of deferred financing costs	2,268			2,355
Amortization of debt discount	760			282
Amortization of terminated interest rate swaps	2,781			1,761
Interest rate swaps	258			295
Unit-based compensation expense	1,322			873
Provision for (benefit from) doubtful accounts	580			(174		)
Gain on sale of property, plant and equipment	(2,257		)	(8,798		)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable, trade	(27,735		)	(10,106		)
Other liabilities	15,132			8,960
Net cash provided by operating activities	137,165			128,255

Cash flows from investing activities:
Capital expenditures	(209,386		)	(114,789		)
Payments for MidCon acquisitions	(483,012		)	—
Proceeds from sale of property, plant and equipment	5,891			50,567
(Increase) decrease in amounts due from affiliates, net	10,486			(6,045		)
Net cash used in investing activities	(676,021		)	(70,267		)

Cash flows from financing activities:
Proceeds from borrowings of long-term debt	793,798			923,536
Repayments of long-term debt	(332,500		)	(884,500		)
Distributions to unitholders	(95,581		)	(78,856		)
Net proceeds from issuance of common units	169,471			—
Net proceeds from sale of general partner units	3,573			—
Payments for debt issuance costs	(6,923		)	(11,929		)
Payments for settlement of interest rate swaps that include financing elements	(2,844		)	(1,271		)
Purchases of treasury units	(285		)	(91		)
Capital contribution from limited partners and general partner	10,240			16,830
Decrease in amounts due to affiliates, net	—			(21,598		)
Net cash provided by (used in) financing activities	538,949			(57,879		)

Net increase in cash and cash equivalents	93			109
Cash and cash equivalents at beginning of period	182			142
Cash and cash equivalents at end of period	$	275		$	251

Supplemental disclosure of non-cash transactions:
Non-cash capital contribution from limited and general partner	$	4,591		$	18,659
Contract operations equipment acquired/exchanged, net	$	(11,454	)	$	149,030
Intangible assets allocated in contract operations acquisitions	$	—		$	3,131
Non-cash capital distribution due to the contract operations acquisitions	$	—		$	12,350
Common units issued in contract operations acquisitions	$	—		$	170,537
General partner units issued in contract operations acquisitions	$	—		$	3,463

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

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EXTERRAN PARTNERS, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation and Summary of Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements of Exterran Partners, L.P. (“we,” “our,” “us,” or the “Partnership”) included herein have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.”) (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP are not required in these interim financial statements and have been condensed or omitted. Management believes that the information furnished includes all adjustments, consisting only of normal recurring adjustments, that are necessary to present fairly our consolidated financial position, results of operations and cash flows for the periods indicated. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements presented in our Annual Report on Form 10-K for the year ended December 31, 2013. That report contains a more comprehensive summary of our accounting policies. The interim results reported herein are not necessarily indicative of results for a full year.

Organization

Exterran General Partner, L.P. is our general partner and an indirect wholly-owned subsidiary of Exterran Holdings, Inc. (individually, and together with its wholly-owned subsidiaries, “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, which we refer to herein as our board of directors and our officers, make decisions on our behalf.

Comprehensive Income (Loss)

Components of comprehensive income (loss) are net income (loss) and all changes in equity during a period except those resulting from transactions with our limited partners or general partner. Our accumulated other comprehensive income (loss) consists only of derivative financial instruments. Changes in accumulated other comprehensive income (loss) represent changes in the fair value of derivative financial instruments that are designated as cash flow hedges and to the extent the hedge is effective and the amortization of terminated interest rate swaps. See Note 7 for additional disclosures related to comprehensive income (loss).

Financial Instruments

Our financial instruments consist of cash, trade receivables, interest rate swaps and debt. At September 30, 2014 and December 31, 2013, the estimated fair values of these financial instruments approximated their carrying amounts as reflected in our condensed consolidated balance sheets. The fair value of our fixed rate debt was estimated based on quoted market yields in inactive markets, which are Level 2 inputs. The fair value of our floating rate debt was estimated using a discounted cash flow analysis based on interest rates offered on loans with similar terms to borrowers of similar credit quality, which are Level 3 inputs. See Note 8 for additional information regarding the fair value hierarchy.

The following table summarizes the carrying amount and fair value of our debt as of September 30, 2014 and December 31, 2013 (in thousands):

	September 30, 2014				December 31, 2013
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Fixed rate debt	$	690,013	$	683,000	$	344,955	$	346,000
Floating rate debt	530,000		531,000		413,000		413,000
Total debt	$	1,220,013	$	1,214,000	$	757,955	$	759,000

GAAP requires that all derivative instruments (including certain derivative instruments embedded in other contracts) be recognized in the balance sheet at fair value and that changes in such fair values be recognized in earnings (loss) unless specific hedging criteria are met. Changes in the values of derivatives that meet these hedging criteria will ultimately offset related earnings effects of the hedged item pending recognition in earnings.

Earnings (Loss) Per Common Unit

Earnings (loss) per common unit is computed using the two-class method. Under the two-class method, basic earnings (loss) per common unit is determined by dividing net income (loss) allocated to the common units after deducting the amounts allocated to our

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general partner (including distributions to our general partner on its incentive distribution rights) and participating securities, by the weighted average number of outstanding common units (also referred to as limited partner units) during the period. Participating securities include unvested phantom units with nonforfeitable tandem distribution equivalent rights to receive cash distributions in the quarter in which distributions are paid on common units. During periods of net loss, no effect is given to participating securities because they do not have a contractual obligation to participate in our losses.

When computing earnings per common unit in periods when distributions are greater than earnings (loss), the amount of the actual incentive distribution rights, if any, is deducted from net income (loss) and allocated to our general partner for the corresponding period. The remaining amount of net income (loss), after deducting distributions to participating securities, is allocated between the general partner and common units based on how our partnership agreement allocates net losses.

When computing earnings (loss) per common unit in periods when earnings (loss) are greater than distributions, earnings are allocated to the general partner, participating securities and common 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 (loss) does not impact our total net income (loss), consolidated results of operations or total cash distributions (including actual incentive distribution rights); however, it may result in our general partner being allocated additional incentive distributions for purposes of our earnings (loss) per unit calculation, which could reduce net income per common unit. However, as required by 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.

The following table reconciles net income used in the calculation of basic and diluted earnings per common unit (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Net income	$	18,103		$	10,035		$	42,794		$	52,664
Less: General partner incentive distribution rights	(3,338		)	(1,746		)	(8,647		)	(4,842		)
Less: General partner 2% ownership interest	(293		)	(165		)	(678		)	(952		)
Common units interest in net income	14,472			8,124			33,469			46,870
Less: Net income attributable to participating securities	(50		)	—			(149		)	—
Net income used in basic and diluted earnings per common unit	$	14,422		$	8,124		$	33,320		$	46,870

There were no adjustments to net income attributable to common unitholders for the diluted earnings per common unit calculation for the three and nine months ended September 30, 2014 and 2013.

The following table shows the potential common units that were included in computing diluted earnings per common unit (in thousands):

	Three Months Ended September 30,			Nine Months Ended September 30,
	2014		2013	2014		2013
Weighted average common units outstanding including participating securities	55,752		49,409	53,664		47,058
Less: Weighted average participating securities outstanding	(91	)	—	(81	)	—
Weighted average common units outstanding — used in basic earnings per common unit	55,661		49,409	53,583		47,058
Net dilutive potential common units issuable:
Phantom units	2		20	2		14
Weighted average common units and dilutive potential common units — used in diluted earnings per common unit	55,663		49,429	53,585		47,072

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2. August 2014 MidCon Acquisition, April 2014 MidCon Acquisition and March 2013 Contract Operations Acquisition

August 2014 MidCon Acquisition

On August 8, 2014, we completed an acquisition of natural gas compression assets, including a fleet of 162 compressor units, comprising approximately 110,000 horsepower from MidCon Compression, L.L.C. (“MidCon”) for $130.1 million (the “August 2014 MidCon Acquisition”). The purchase price was funded with borrowings under our revolving credit facility. The majority of the horsepower acquired is under a five-year contract operations services agreement with BHP Billiton Petroleum (“BHP Billiton”) to provide compression services. In connection with the acquisition, the contract operations services agreement with BHP Billiton was assigned to us effective as of the closing. During the nine months ended September 30, 2014, we incurred transaction costs of approximately $0.9 million related to the August 2014 MidCon Acquisition, which is reflected in other (income) expense, net, in our condensed consolidated statements of operations.

In accordance with the terms of the Purchase and Sale Agreement relating to this acquisition, we directed MidCon to sell a tract of real property and the facility located thereon, a fleet of vehicles, personal property and parts inventory to a wholly-owned subsidiary of Exterran Holdings that is our indirect parent company for $4.1 million. The purchase price paid by us and the wholly-owned subsidiary of Exterran Holdings is subject to post-closing adjustments in accordance with the terms of the Purchase and Sale Agreement.

We accounted for the August 2014 MidCon Acquisition using the acquisition method, which requires, among other things, assets acquired and liabilities assumed to be recorded at their fair value on the acquisition date. The excess of the consideration transferred over those fair values is recorded as goodwill. The preliminary allocation of the purchase price, which is subject to certain adjustments, was based upon preliminary valuations and our estimates and assumptions are subject to change upon the completion of management’s review of the final valuations. We are in the process of finalizing valuations related to property, plant and equipment, goodwill, identifiable intangible assets and liabilities. Post-closing adjustments to the purchase price could impact future depreciation and amortization expense. The final valuation of net assets acquired is expected to be completed as soon as possible, but no later than one year from the acquisition date, in accordance with GAAP.

The following table summarizes the preliminary purchase price allocation based on estimated fair values of the acquired assets and liabilities as of the acquisition date (in thousands):

	Preliminary Fair Value
Property, plant and equipment	$	78,356
Goodwill	3,738
Intangible assets	48,373
Current liabilities	(372		)
Preliminary purchase price	$	130,095

Property, Plant and Equipment, Goodwill and Intangible Assets Acquired

The preliminary amount of property, plant and equipment is comprised of compression equipment that will be depreciated on a straight-line basis over an estimated average remaining useful life of 24 years.

The preliminary amount of goodwill of $3.7 million resulting from the acquisition is attributable to the expansion of our services in the region. The preliminary amount of goodwill recorded is considered to have an indefinite life and will be reviewed annually for impairment or more frequently if indicators of impairment exist.

The preliminary amount of finite life intangible assets, and their associated average useful lives, was determined based on the period which the assets are expected to contribute directly or indirectly to our future cash flows, consisting of the following:

	Amount (In thousands)		Average Useful Life
Customer related	$	21,590	25 years
Contract based	26,783		5 years
Total acquired identifiable intangible assets	$	48,373

The results of operations attributable to the assets acquired in the August 2014 MidCon Acquisition have been included in our condensed consolidated financial statements since the date of acquisition. Revenue attributable to the assets acquired in the August 2014 MidCon Acquisition was $3.4 million from the date of acquisition through September 30, 2014. We are unable to

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provide earnings attributable to the assets acquired in the August 2014 MidCon Acquisition since the date of acquisition as we do not prepare full stand-alone earnings reports for those assets.

April 2014 MidCon Acquisition

On April 10, 2014, we completed an acquisition of natural gas compression assets, including a fleet of 337 compressor units, comprising approximately 444,000 horsepower from MidCon for $352.9 million (the “April 2014 MidCon Acquisition”). The purchase price was funded with the net proceeds from the sale, pursuant to a public underwritten offering, of 6.2 million common units and a portion of the net proceeds from the issuance of $350.0 million aggregate principal amount of 6% senior notes due October 2022 (the “2014 Notes”). The compressor units were previously used by MidCon to provide compression services to a subsidiary of Access Midstream Partners LP (“Access”). Effective as of the closing of the acquisition, we and Access entered into a seven-year contract operations services agreement under which we will provide compression services to Access. During the nine months ended September 30, 2014, we incurred transaction costs of approximately $1.5 million related to the April 2014 MidCon Acquisition, which is reflected in other (income) expense, net, in our condensed consolidated statements of operations.

We accounted for the April 2014 MidCon Acquisition using the acquisition method, which requires, among other things, assets acquired and liabilities assumed to be recorded at their fair value on the acquisition date. The preliminary allocation of the purchase price was based upon preliminary valuations and our estimates and assumptions are subject to change upon the completion of management’s review of the final valuations. We are in the process of finalizing valuations related to property, plant and equipment, identifiable intangible assets and liabilities. Adjustments to the preliminary purchase price allocation could impact future depreciation and amortization expense. The final valuation of net assets acquired is expected to be completed as soon as possible, but no later than one year from the acquisition date, in accordance with GAAP. The following table summarizes the preliminary purchase price allocation based on estimated fair values of the acquired assets and liabilities as of the acquisition date (in thousands):

	Preliminary
	Fair Value
Property, plant and equipment	$	311,270
Intangible assets	42,474
Current liabilities	(827		)
Purchase price	$	352,917

Property, Plant and Equipment and Intangible Assets Acquired

	Amount (In thousands)		Average Useful Life
Customer related	$	4,701	25 years
Contract based	37,773		7 years
Total acquired identifiable intangible assets	$	42,474

The results of operations attributable to the assets acquired in the April 2014 MidCon Acquisition have been included in our condensed consolidated financial statements since the date of acquisition. Revenue attributable to the assets acquired in the April 2014 MidCon Acquisition was $42.7 million from the date of acquisition through September 30, 2014. We are unable to provide earnings attributable to the assets acquired in the April 2014 MidCon Acquisition since the date of acquisition as we do not prepare full stand-alone earnings reports for those assets.

March 2013 Contract Operations Acquisition

In March 2013, we acquired from Exterran Holdings contract operations customer service agreements with 50 customers and a fleet of 363 compressor units used to provide compression services under those agreements, comprising approximately 256,000 horsepower, or 8% (by then available horsepower) of the combined U.S. contract operations business of Exterran Holdings and us (the “March 2013 Contract Operations Acquisition”). The acquired assets also included 204 compressor units, comprising approximately 99,000 horsepower, previously leased from Exterran Holdings to us and contracts relating to approximately 6,000 horsepower of compressor units we already owned and previously leased to Exterran Holdings. At the acquisition date, the acquired fleet assets had a net book value of $158.5 million, net of accumulated depreciation of $94.9 million. Total consideration for the transaction was approximately $174.0 million, excluding transaction costs. In connection with this acquisition, we issued approximately 7.1 million common units to Exterran Holdings and approximately 145,000 general partner units to our general partner.

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In connection with this acquisition, we were allocated $3.1 million finite life intangible assets associated with customer relationships 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. These intangible assets are being amortized through 2024, based on the present value of income expected to be realized from these intangible assets.

Because Exterran Holdings and we are considered entities under common control, GAAP requires that we record the assets acquired and liabilities assumed from Exterran Holdings in connection with the March 2013 Contract Operations Acquisition using Exterran Holdings’ historical cost basis in the assets and liabilities. The difference between the historical cost basis of the assets acquired and liabilities assumed and the purchase price is treated as either a capital contribution or distribution. As a result, we recorded a capital distribution of $12.4 million for the March 2013 Contract Operations Acquisition during the nine months ended September 30, 2013.

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 March 2013 Contract Operations Acquisition 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, revenue 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.

Pro Forma Financial Information

Pro forma financial information for the three and nine months ended September 30, 2014 and 2013 has been included to give effect to the additional assets acquired in the August 2014 MidCon Acquisition, the April 2014 MidCon Acquisition and the March 2013 Contract Operations Acquisition. The August 2014 MidCon Acquisition, the April 2014 MidCon Acquisition and the March 2013 Contract Operations Acquisition are presented in the pro forma financial information as though the transactions occurred as of January 1, 2013. The pro forma financial information reflects the following transactions:

As related to the August 2014 MidCon Acquisition:

· our acquisition in August 2014 of natural gas compression assets and identifiable intangible assets from MidCon; and

· our borrowings under our revolving credit facility to pay $130.1 million to MidCon for the August 2014 MidCon Acquisition.

As related to the April 2014 MidCon Acquisition:

· our acquisition in April 2014 of natural gas compression assets and identifiable intangible assets from MidCon;

· our issuance of 6.2 million common units to the public and approximately 126,000 general partner units to our general partner;

· our issuance of $350.0 million aggregate principal amount of the 2014 Notes; and

· our use of proceeds from the issuance of common units, general partner units and the 2014 Notes to pay $352.9 million to MidCon for the April 2014 MidCon Acquisition and to pay down $157.5 million on our revolving credit facility.

As related to the March 2013 Contract Operations Acquisition:

· our acquisition in March 2013 of certain contract operations customer service agreements, compression equipment and identifiable intangible assets from Exterran Holdings; and

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

The pro forma financial information below is presented for informational purposes only and is not necessarily indicative of our results of operations that would have occurred had each transaction been consummated at the beginning of the period presented, nor is it necessarily indicative of future results. The pro forma financial information below was derived by adjusting our historical financial statements.

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The following table shows pro forma financial information for the three and nine months ended September 30, 2014 and 2013 (in thousands, except per unit amounts):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Revenue	$	155,475	$	144,414	$	457,710	$	442,981
Net income	$	17,823	$	13,448	$	45,482	$	65,806
Basic earnings per common unit	$	0.25	$	0.20	$	0.65	$	1.06
Diluted earnings per common unit	$	0.25	$	0.20	$	0.65	$	1.06

Pro forma net income (loss) per common unit is determined by dividing the pro forma net income (loss) that would have been allocated to our common unitholders by the weighted average number of common units outstanding after the completion of the transactions included in the pro forma financial statements. Pursuant to our partnership agreement, to the extent that the quarterly distributions exceed certain targets, our general partner is entitled to receive certain incentive distributions that will result in more net income (loss) proportionately being allocated to our general partner than to our common unitholders. The pro forma net income per limited partner unit calculations reflect the incentive distributions made to our general partner and a reduction of net income allocable to our limited partners of $0.2 million and $0.6 million for the three and nine months ended September 30, 2013, respectively, which reflects the amount of additional incentive distributions that would have occurred if the pro forma limited partner units had been outstanding as of January 1, 2013. There was no additional pro forma reduction of net income allocable to our limited partners, including the amount of additional incentive distributions that would have occurred, for the three and nine months ended September 30, 2014.

3. Related Party Transactions

We are a party to an omnibus agreement with Exterran Holdings, our general partner and others (as amended and/or restated, the “Omnibus Agreement”), which includes, 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;

· 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 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, exchange or lease compression equipment among one another;

· the terms under which we may purchase newly-fabricated contract operations equipment from Exterran Holdings;

· Exterran Holdings’ grant to us of a license to use certain intellectual property, including our logo; and

· Exterran Holdings’ and our obligations to indemnify each other for certain liabilities.

The Omnibus Agreement will terminate upon a change of control of Exterran GP LLC, our general partner or us, and certain provisions of the Omnibus Agreement will terminate upon a change of control of Exterran Holdings. Provisions such as non-competition, transfers of compression equipment and caps on operating and selling, general and administrative (“SG&A”) expenses will terminate on December 31, 2014, unless extended.

Pursuant to the Omnibus Agreement, we may purchase newly-fabricated compression equipment from Exterran Holdings or its affiliates at Exterran Holdings’ cost to fabricate such equipment plus a fixed margin, which may be modified with the approval of Exterran Holdings and the conflicts committee of our board of directors. During the nine months ended September 30, 2014 and 2013, we purchased $152.6 million and $79.3 million, respectively, of newly-fabricated compression equipment from Exterran Holdings. Transactions between us and Exterran Holdings and its affiliates are transactions between entities under common control. 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 a capital distribution or contribution. As a result, the newly-fabricated compression equipment purchased during the nine months ended September 30, 2014 and 2013 was recorded in our condensed consolidated balance sheets as property, plant and equipment of $138.3 million and $71.4 million, respectively, which represents the carrying value of the Exterran Holdings’ affiliates that sold it to us, and as a distribution of equity of $14.3 million and $7.9 million, respectively, which represents the fixed margin we paid above the carrying value in accordance with the Omnibus Agreement. During the nine months ended September 30,

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2014 and 2013, Exterran Holdings contributed to us $4.6 million and $18.7 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.

If Exterran Holdings determines in good faith that we or Exterran Holdings’ contract operations services business need to transfer, exchange or lease compression equipment between Exterran Holdings and us, the Omnibus Agreement permits such equipment to be transferred, exchanged or leased if it will not cause us to breach any existing contracts, suffer a loss of revenue under an existing compression services contract or incur any unreimbursed costs. In consideration for such transfer, exchange or lease 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. These provisions will terminate on December 31, 2014 unless the Omnibus Agreement is terminated earlier as discussed above.

During the nine months ended September 30, 2014, pursuant to the terms of the Omnibus Agreement, we transferred ownership of 349 compressor units, totaling approximately 176,300 horsepower with a net book value of approximately $74.4 million, to Exterran Holdings. In exchange, Exterran Holdings transferred ownership of 354 compressor units, totaling approximately 128,800 horsepower with a net book value of approximately $63.0 million, to us. During the nine months ended September 30, 2013, pursuant to the terms of the Omnibus Agreement, we transferred ownership of 231 compressor units, totaling approximately 102,800 horsepower with a net book value of approximately $45.5 million, to Exterran Holdings. In exchange, Exterran Holdings transferred ownership of 235 compressor units, totaling approximately 74,600 horsepower with a net book value of approximately $36.0 million, to us. During the nine months ended September 30, 2014 and 2013, we recorded capital distributions of approximately $11.4 million and $9.5 million, respectively, related to the differences in net book value on the exchanged compression equipment. 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.

At September 30, 2014, we had equipment on lease to Exterran Holdings with an aggregate cost and accumulated depreciation of $0.6 million and $0.1 million, respectively. During each of the nine month periods ended September 30, 2014 and 2013, we had revenue of $0.3 million from Exterran Holdings related to the lease of our compression equipment. During the nine months ended September 30, 2014 and 2013, we had cost of sales of $3.8 million and $4.4 million, respectively, with Exterran Holdings related to the lease of Exterran Holdings’ compression equipment.

During the nine months ended September 30, 2013, we sold used compression equipment with a net book value of $1.3 million to Exterran Holdings for $3.4 million. Under GAAP, assets sales 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 received and the carrying value of the assets sold is treated as a capital distribution or contribution. During the nine months ended September 30, 2013, we recorded a capital contribution of $2.1 million related to the difference between the sales price and the carrying value of the used compression equipment sold. During the nine months ended September 30, 2014, we did not sell any used compression equipment to Exterran Holdings.

Exterran Holdings provides all operational staff, corporate staff and support services reasonably necessary to run our business. These services 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.

Exterran Holdings charges us for costs that are directly attributable to us. Costs 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.

Under the Omnibus Agreement, our obligation to reimburse Exterran Holdings for any cost of sales that it incurs in the operation of our business and any cash SG&A expense allocated to us is capped (after taking into account any such costs we incur and pay directly) through December 31, 2014. Cost of sales was capped at $21.75 per operating horsepower per quarter through December 31, 2013, and is capped at $22.50 per operating horsepower per quarter from January 1, 2014 through December 31, 2014. SG&A costs were capped at $10.5 million per quarter through March 31, 2013, $12.5 million per quarter from April 1, 2013 through December 31, 2013 and $15.0 million per quarter from January 1, 2014 through April 9, 2014, and are capped at $17.7 million per quarter from April 10, 2014 through December 31, 2014. These caps may be subject to future adjustment or termination in connection with expansion of our operations through the acquisition or construction of new assets or businesses.

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Our cost of sales exceeded the cap provided in the Omnibus Agreement by $3.2 million during the three months ended September 30, 2013 and by $2.5 million and $8.4 million during the nine months ended September 30, 2014 and 2013, respectively. During the three months ended September 30, 2014, our cost of sales did not exceed the cap provided in the Omnibus Agreement. Our SG&A expenses exceeded the cap provided in the Omnibus Agreement by $2.7 million and $4.2 million during the three months ended September 30, 2014 and 2013, respectively, and by $7.7 million and $8.4 million during the nine months ended September 30, 2014 and 2013, respectively. The excess amounts over the caps are included in the condensed 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 condensed consolidated balance sheets and condensed consolidated statements of cash flows.

4. Long-Term Debt

Long-term debt consisted of the following (in thousands):

	September 30, 2014		December 31, 2013
Revolving credit facility due May 2018	$	380,000	$	263,000
Term loan facility due May 2018	150,000		150,000
6% senior notes due April 2021 (presented net of the unamortized discount of $4.6 million and $5.0 million, respectively)	345,381		344,955
6% senior notes due October 2022 (presented net of the unamortized discount of $5.4 million as of September 30, 2014)	344,632		—
Long-term debt	$	1,220,013	$	757,955

Revolving Credit Facility and Term Loan

In March 2013, we amended our senior secured credit agreement (the “Credit Agreement”) to reduce the borrowing capacity under our revolving credit facility by $100.0 million to $650.0 million and extend the maturity date of the term loan and revolving credit facilities to May 2018. As a result of the March 2013 amendment, we expensed $0.7 million of unamortized deferred financing costs, which is reflected in interest expense in our condensed consolidated statements of operations. We incurred transaction costs of approximately $4.3 million related to the amendment to our Credit Agreement. These costs were included in intangible and other assets, net, and are being amortized over the terms of the facilities. As of September 30, 2014, we had undrawn and available capacity of $270.0 million under our revolving credit facility.

6% Senior Notes Due April 2021

In March 2013, we issued $350.0 million aggregate principal amount of 6% senior notes due April 2021 (the “2013 Notes”). We used the net proceeds of $336.9 million, after original issuance discount and issuance costs, to repay borrowings outstanding under our revolving credit facility. We incurred $7.6 million in transaction costs related to this issuance. These costs were included in intangible and other assets, net, and are being amortized to interest expense over the term of the 2013 Notes. The 2013 Notes were issued at an original issuance discount of $5.5 million, which is being amortized using the effective interest method at an interest rate of 6.25% over their term. In January 2014, holders of the 2013 Notes exchanged their 2013 Notes for registered notes with the same terms.

6% Senior Notes Due October 2022

In April 2014, we issued $350.0 million aggregate principal amount of the 2014 Notes. We received net proceeds of $337.4 million, after original issuance discount and issuance costs, from this offering, which we used to fund a portion of the April 2014 MidCon Acquisition and repay borrowings under our revolving credit facility. The 2014 Notes were issued at an original issuance discount of $5.7 million, which is being amortized using the effective interest method at an interest rate of 6.25% over their term. We incurred $6.9 million in transaction costs related to this issuance. These costs were included in intangible and other assets, net, and are being amortized to interest expense over the term of the 2014 Notes. The 2014 Notes have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), or any state securities laws, and unless so registered, may not be offered or sold in the U.S. except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. We offered and issued the 2014 Notes only to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to persons outside the U.S. pursuant to Regulation S. Pursuant to a registration rights agreement, we are required to register the 2014 Notes no later than 365 days after April 7, 2014.

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the indenture remains outstanding after such redemption and the redemption occurs within 180 days of the date of the closing of such equity offering. On or after April 1, 2018, we may redeem all or a part of the 2014 Notes at redemption prices (expressed as percentages of principal amount) equal to 103.000% for the twelve-month period beginning on April 1, 2018, 101.500% for the twelve-month period beginning on April 1, 2019 and 100.000% for the twelve-month period beginning on April 1, 2020 and at any time thereafter, plus accrued and unpaid interest, if any, to the applicable redemption date of the 2014 Notes.

The 2013 Notes and the 2014 Notes are guaranteed on a senior unsecured basis by all of our existing subsidiaries (other than EXLP Finance Corp., which is a co-issuer of the 2013 Notes and the 2014 Notes) and certain of our future subsidiaries. The 2013 Notes and the 2014 Notes and the guarantees, respectively, are our and the guarantors’ general unsecured senior obligations, rank equally in right of payment with all of our and the guarantors’ other senior obligations, and are effectively subordinated to all of our and the guarantors’ existing and future secured debt to the extent of the value of the collateral securing such indebtedness. In addition, the 2013 Notes and the 2014 Notes and guarantees are effectively subordinated to all existing and future indebtedness and other liabilities of any future non-guarantor subsidiaries. All of our subsidiaries are 100% owned, directly or indirectly, by us and guarantees by our subsidiaries are full and unconditional (subject to customary release provisions) and constitute joint and several obligations. We have no assets or operations independent of our subsidiaries, and there are no significant restrictions upon our subsidiaries’ ability to distribute funds to us. EXLP Finance Corp. has no operations and does not have revenue other than as may be incidental as co-issuer of the 2013 Notes and the 2014 Notes. Because we have no independent operations, the guarantees are full and unconditional (subject to customary release provisions) and constitute joint and several obligations of our subsidiaries other than EXLP Finance Corp., and as a result we have not included consolidated financial information of our subsidiaries.

5. Cash Distributions

We make distributions of available cash (as defined in our partnership agreement) from operating surplus 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 common unitholders, pro rata, and 2% to our general partner, until each unit has received a distribution of $0.4025;

· third, 85% to all common unitholders, pro rata, and 15% to our general partner, until each unit has received a distribution of $0.4375;

· fourth, 75% to all common unitholders, pro rata, and 25% to our general partner, until each unit has received a total of $0.5250; and

· thereafter, 50% to all common unitholders, pro rata, and 50% to our general partner.

The following table summarizes our distributions per unit for 2013 and 2014:

Period Covering	Payment Date	Distribution per Limited Partner Unit		Total Distribution (1)
1/1/2013 — 3/31/2013	May 15, 2013	$	0.5175	$	27.6 million
4/1/2013 — 6/30/2013	August 14, 2013	0.5225		27.9 million
7/1/2013 — 9/30/2013	November 14, 2013	0.5275		28.3 million
10/1/2013 — 12/31/2013	February 14, 2014	0.5325		28.8 million
1/1/2014 — 3/31/2014	May 15, 2014	0.5375		33.1 million
4/1/2014 — 6/30/2014	August 14, 2014	0.5425		33.6 million

(1) Includes distributions to our general partner on its incentive distribution rights.

On October 28, 2014, our board of directors approved a cash distribution of $0.5525 per limited partner unit, or approximately $34.8 million, including distributions to our general partner on its incentive distribution rights. The distribution covers the period from July 1, 2014 through September 30, 2014. The record date for this distribution is November 7, 2014 and payment is expected to occur on November 14, 2014.

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6. Unit-Based Compensation

Long-Term Incentive Plan

Our board of directors adopted the Exterran Partners, L.P. Long-Term Incentive Plan (the “Plan”) in October 2006 for employees, directors and consultants of us, Exterran Holdings and our respective affiliates. A maximum of 1,035,378 common units, common unit options, restricted units and phantom units are available under the Plan. The Plan is administered by our board of directors or a committee thereof (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 market value of a common unit. Certain phantom units granted under the Plan include nonforfeitable tandem distribution equivalent rights to receive cash distributions on unvested phantom units in the quarter in which distributions are paid on common units.

Phantom Units

The following table presents phantom unit activity during the nine months ended September 30, 2014:

	Phantom Units		Weighted Average Grant-Date Fair Value per Unit
Phantom units outstanding, January 1, 2014	85,361		$	23.72
Granted	54,896		30.50
Vested	(45,369	)	24.69
Phantom units outstanding, September 30, 2014	94,888		27.18

As of September 30, 2014, we expect $2.0 million of unrecognized compensation cost related to unvested phantom units to be recognized over the weighted-average period of 2.0 years.

7. Accounting for Derivatives

We are exposed to market risks associated with changes in interest rates. 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.

Interest Rate Risk

During the three months ended September 30, 2014, we entered into interest rate swaps with a notional value of $150.0 million. At September 30, 2014, we were a party to interest rate swaps with a total notional value of $400.0 million, pursuant to which we make fixed payments and receive floating payments. 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, with interest rate swaps having a notional amount of $300.0 million expiring in May 2018 and the remaining interest rate swaps having a notional amount of $100.0 million expiring in May 2019. As of September 30, 2014, the weighted average effective fixed interest rate on our interest rate swaps was 1.6%. 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. As 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, 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. There was no ineffectiveness related to interest rate swaps during the nine months ended September 30, 2014 and 2013. We estimate that $5.5 million of deferred losses attributable to interest rate swaps and included in our accumulated other comprehensive income (loss) at September 30, 2014, will be reclassified into earnings as interest expense at then-current values during the next twelve months as the underlying hedged transactions occur. 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, unless the derivative contract contains a significant financing element; in this case, the cash settlements for these derivatives are classified as cash flows from financing activities in our condensed consolidated statements of cash flows.

In May 2013, we amended our interest rate swap agreements with a notional value of $250.0 million to adjust the fixed interest rates and extend the maturity dates to May 2018 consistent with the maturity date of our Credit Agreement. These amendments effectively

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created new derivative contracts and terminated the old derivative contracts. As a result, we designated the new hedge relationships under the amended terms and de-designated the original hedge relationships as of the termination date. The original hedge relationships qualified for hedge accounting and were included at their fair value in our balance sheet as a liability and accumulated other comprehensive income (loss). The fair value of the interest rate swap agreements immediately prior to the execution of the amendments was a liability of $8.8 million. The associated amount in accumulated other comprehensive income (loss) is being amortized into interest expense over the original terms of the swaps.

The following tables present the effect of derivative instruments on our consolidated financial position and results of operations (in thousands):

	September 30, 2014
	Balance Sheet Location	Fair Value Asset (Liability)
Derivatives designated as hedging instruments:
Interest rate hedges	Intangible and other assets, net	$	2,925
Interest rate hedges	Current portion of interest rate swaps	(5,225		)
Total derivatives		$	(2,300	)

	December 31, 2013
	Balance Sheet Location	Fair Value Asset (Liability)
Derivatives designated as hedging instruments:
Interest rate hedges	Intangible and other assets, net	$	322
Interest rate hedges	Current portion of interest rate swaps	(3,374		)
Total derivatives		$	(3,052	)

	Three Months Ended September 30, 2014						Nine Months Ended September 30, 2014
	Gain (Loss) Recognized in Other Comprehensive Income (Loss) on Derivatives		Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (Loss)	Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (Loss)			Gain (Loss) Recognized in Other Comprehensive Income (Loss) on Derivatives			Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (Loss)	Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (Loss)
Derivatives designated as cash flow hedges:
Interest rate hedges	$	846	Interest expense	$	(1,213	)	$	(2,283	)	Interest expense	$	(3,228	)

	Three Months Ended September 30, 2013							Nine Months Ended September 30, 2013
	Gain (Loss) Recognized in Other Comprehensive Income (Loss) on Derivatives			Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (Loss)	Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (Loss)			Gain (Loss) Recognized in Other Comprehensive Income (Loss) on Derivatives		Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (Loss)	Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (Loss)
Derivatives designated as cash flow hedges:
Interest rate hedges	$	(2,247	)	Interest expense	$	(985	)	$	2,453	Interest expense	$	(3,670	)

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 senior secured credit facility and, in that capacity, share proportionally in the collateral pledged under the related facility.

8. Fair Value Measurements

The accounting standard for fair value measurements and disclosures 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

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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 presents our assets and liabilities measured at fair value on a recurring basis as of September 30, 2014 and December 31, 2013, with pricing levels as of the date of valuation (in thousands):

	September 30, 2014							December 31, 2013
	(Level 1)		(Level 2)			(Level 3)		(Level 1)		(Level 2)			(Level 3)
Interest rate swaps asset	$	—	$	2,925		$	—	$	—	$	322		$	—
Interest rate swaps liability	—		(5,225		)	—		—		(3,374		)	—

On a quarterly basis, our interest rate swaps are recorded at fair value utilizing a combination of the market approach and income approach to estimate fair value based on forward LIBOR curves.

The following table presents our assets and liabilities measured at fair value on a nonrecurring basis during the nine months ended September 30, 2014 and 2013, with pricing levels as of the date of valuation (in thousands):

	Nine Months Ended September 30, 2014						Nine Months Ended September 30, 2013
	(Level 1)		(Level 2)		(Level 3)		(Level 1)		(Level 2)		(Level 3)
Impaired long-lived assets	$	—	$	—	$	865	$	—	$	—	$	927

Our estimate of the impaired long-lived assets’ fair value was primarily based on either the expected net sale proceeds compared to other fleet units we recently sold and/or a review of other units recently offered for sale by third parties, or the estimated component value of the equipment we plan to use. We discounted the expected proceeds, net of selling and other carrying costs, using a weighted average disposal period of four years and a discount rate of 9%.

9. Long-Lived Asset Impairment

We review long-lived assets, including property, plant and equipment and identifiable intangibles that are being amortized, for impairment whenever events or changes in circumstances, including the removal of compressor units from our active fleet, indicate that the carrying amount of an asset may not be recoverable.

During the nine months ended September 30, 2014, we evaluated the future deployment of our idle fleet and determined to retire and either sell or re-utilize the key components of approximately 95 idle compressor units, representing approximately 23,000 horsepower, previously used to provide services. As a result, we performed an impairment review and recorded a $7.4 million asset impairment to reduce the book value of each unit to its estimated fair value. The fair value of each unit was estimated based on either the expected net sale proceeds compared to other fleet units we recently sold and/or a review of other units recently offered for sale by third parties, or the estimated component value of the equipment we plan to use.

In connection with our fleet review during the third quarter of 2014, we evaluated for impairment idle units that had been culled from our fleet in prior years and were available for sale. Based upon that review, we reduced the expected proceeds from disposition for certain of the remaining units. This resulted in an additional impairment of $0.6 million to reduce the book value of each unit to its estimated fair value.

During the nine months ended September 30, 2013, we evaluated the future deployment of our idle fleet and determined to retire and either sell or re-utilize the key components of approximately 80 idle compressor units, representing approximately 16,000 horsepower, previously used to provide services. As a result, we performed an impairment review and recorded a $3.2 million asset impairment to reduce the book value of each unit to its estimated fair value. The fair value of each unit was estimated based on either the expected net sale proceeds compared to other fleet units we recently sold and/or a review of other units recently offered for sale by third parties, or the estimated component value of the equipment we plan to use.

10. Restructuring Charges

In January 2014, Exterran Holdings announced a plan to centralize its make-ready operations to improve the cost and efficiency of its shops and further enhance the competitiveness of our and Exterran Holdings’ combined U.S. compressor fleet. As part of this plan, Exterran Holdings examined both recent and anticipated changes in the U.S. market, including the throughput demand of its shops and the addition of new equipment to our and Exterran Holdings’ combined U.S. compressor fleet. To better align its costs and capabilities

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with the current market, Exterran Holdings has determined to close several of its make-ready shops. The centralization of its make-ready operations was completed in the second quarter of 2014.

During the nine months ended September 30, 2014, we incurred $0.7 million of restructuring charges comprised of an allocation of expenses, including termination benefits associated with the centralization of Exterran Holdings’ make-ready operations, from Exterran Holdings to us pursuant to the terms of the Omnibus Agreement based on revenue and horsepower. These charges are reflected as restructuring charges in our condensed consolidated statements of operations.

11. Unit Transactions

In April 2014, we sold, pursuant to a public underwritten offering, 6,210,000 common units, including 810,000 common units pursuant to an over-allotment option. We received net proceeds of $169.5 million, after deducting underwriting discounts, commissions and offering expenses, which we used to fund a portion of the April 2014 MidCon Acquisition. In connection with this sale and as permitted under our partnership agreement, we issued and sold approximately 126,000 general partner units to our general partner so it could maintain its approximate 2.0% general partner interest in us. We received net proceeds of $3.6 million from the general partner contribution which we used to repay borrowings outstanding under our revolving credit facility.

In March 2013, we completed the March 2013 Contract Operations Acquisition from Exterran Holdings. In connection with this acquisition, we issued approximately 7.1 million common units to Exterran Holdings and approximately 145,000 general partner units to our general partner.

As of September 30, 2014, Exterran Holdings owned 19,618,918 common units and 1,129,221 general partner units, collectively representing a 37% interest in us.

12. Recent Accounting Developments

In May 2014, the Financial Accounting Standards Board (“FASB”) issued an update to the authoritative guidance related to revenue recognition. The update outlines a single comprehensive model for companies to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The update also requires disclosures enabling users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The update will be effective for reporting periods beginning after December 15, 2016. Early adoption is not permitted. We are currently evaluating the potential impact of the update on our financial statements.

13. Commitments and Contingencies

During 2013 and the first nine months of 2014, we were party to three Heavy Equipment Statutes cases tried and completed in Texas state district courts. In each case the court held that the revised Heavy Equipment Statutes apply to natural gas compressors. However, in each case the court further held that the revised Heavy Equipment Statutes are unconstitutional as applied to natural gas compressors, which is favorable to the county appraisal districts. We continue to believe that the revised statutes are constitutional as applied to natural gas compressors and have appealed the courts’ decisions in our cases. For two of these district court rulings, oral arguments were made before the Eighth Court of Appeals in El Paso, Texas on October 9, 2014. No decision has been issued. In a fourth state district court case, both parties’ respective motions for summary judgment are pending and we have yet to receive the court’s decision. In a fifth state district court case, the court denied both parties’ respective motions for summary judgment and set a trial date for February 15, 2015.

As a result of the new methodology, our ad valorem tax expense (which is reflected on our condensed consolidated statements of operations as a component of cost of sales (excluding depreciation and amortization expense)) includes a benefit of $7.4 million during the nine months ended September 30, 2014. Since the change in methodology became effective in 2012, we have recorded an aggregate benefit of $17.9 million as of September 30, 2014, of which approximately $4.6 million has been agreed to by a number of appraisal review boards and county appraisal districts and $13.3 million has been disputed and is currently in litigation. Recognizing the similarity of the issues and that these cases will ultimately be resolved by the Texas appellate courts, we have reached, or intend to reach, agreements with appraisal districts to stay or abate other pending district court cases. If we are unsuccessful in any of the cases

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with the appraisal districts, we would be required to pay ad valorem taxes up to the aggregate benefit we have recorded, and the additional ad valorem tax payments may also be subject to penalties and interest. In addition, if we are unsuccessful in any of the cases with the appraisal districts, we would likely be required to pay the ad valorem taxes under the old methodology going forward, which would increase our quarterly cost of sales expense up to approximately the amount of our then most recent quarterly benefit recorded, and as a result impact our future results of operations and cash flows, including our cash available for distribution.

In the ordinary course of business, we are also involved in various other 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 any of these other actions will not have a material adverse effect on our consolidated financial position, results of operations or cash flows, including our ability to make cash distributions to our unitholders. However, because of the inherent uncertainty of litigation and arbitration proceedings, 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, including our ability to make cash distributions to our unitholders.

We are subject to a number of state and local taxes that are not income-based. As many of these taxes are subject to audit by the taxing authorities, it is possible that an audit could result in additional taxes due. We accrue for such additional taxes when we determine that it is probable that we have incurred a liability and we can reasonably estimate the amount of the liability. As of September 30, 2014 and December 31, 2013, we have accrued $0.1 million and $4.7 million, respectively, for the outcomes of non-income based tax audits. We do not expect that the ultimate resolutions of these audits will result in a material variance from the amounts accrued. We do not accrue for unasserted claims for tax audits unless we believe the assertion of a claim is probable, it is probable that it will be determined that the claim is owed and we can reasonably estimate the claim or range of the claim. We do not have any unasserted claims from non-income based tax audits that we have determined are probable of assertion. We also believe the likelihood is remote that the impact of potential unasserted claims from non-income based tax audits could be material to our consolidated financial position, but it is possible that the resolution of future audits could be material to our results of operations or cash flows for the period in which the resolution occurs.

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Item 2. Management’s 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 unaudited financial statements and the notes thereto included in the Condensed Consolidated Financial Statements in Part I, Item 1 (“Financial Statements”) of this report and in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2013.

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 Exterran Partners, L.P.’s (“we,” “our,” “us” or “the Partnership”) business growth strategy and projected costs; future financial position; the sufficiency of available cash flows to fund continuing operations and 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 “believe,” “expect,” “intend,” “project,” “anticipate,” “estimate,” “will continue” or similar words or the negative thereof.

Such forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this report. Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, no assurance can be given that these expectations will prove to be correct. Known material factors that could cause our actual results to differ materially from the expectations reflected in these forward-looking statements include the risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2013, and those set forth from time to time in our filings with the Securities and Exchange Commission (“SEC”), which are available through our website at www.exterran.com and through the SEC’s website at www.sec.gov, as well as the following risks and uncertainties:

· conditions in the oil and natural gas industry, including a sustained decrease in the level of supply or demand for oil or natural gas or a sustained decrease in the price of oil or natural gas, which could cause a decline in the demand for our natural gas compression services;

· our reduced profit margins or the loss of market share resulting from competition or the introduction of competing technologies by other companies;

· our dependence on Exterran Holdings to provide services and compression equipment, including its ability to hire, train and retain key employees and to timely and cost effectively obtain compression equipment and components necessary to conduct our business;

· our dependence on and the availability of cost caps from Exterran Holdings to generate sufficient cash to enable us to make cash distributions at our current distribution rate;

· changes in economic or political conditions, including terrorism and legislative changes;

· the inherent risks associated with our operations, such as equipment defects, impairments, malfunctions and natural disasters;

· loss of our status as a partnership for federal income tax purposes;

· the risk that counterparties will not perform their obligations under our financial instruments;

· the financial condition of our customers;

· our ability to implement certain business and financial objectives, such as:

· growing our asset base and asset utilization;

· winning profitable new business;

· integrating acquired businesses;

· generating sufficient cash;

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· accessing the capital markets at an acceptable cost; and

· purchasing additional contract operation contracts and equipment from Exterran Holdings;

· liability related to the provision of our services;

· changes in governmental safety, health, environmental or other regulations, which could require us to make significant expenditures; and

· our level of indebtedness and ability to fund our business.

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.

General

We are a publicly held Delaware limited partnership formed in June 2006 to provide natural gas contract operations services to customers throughout the United States of America (“U.S.”). We completed our initial public offering in October 2006. We are the market leader in the U.S. full-service natural gas compression business.

August 2014 MidCon Acquisition

April 2014 MidCon Acquisition

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March 2013 Contract Operations Acquisition

Omnibus Agreement

We are a party to an omnibus agreement with Exterran Holdings, our general partner and others (as amended and/or restated, the “Omnibus Agreement”), which includes, 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;

· the terms under which we, Exterran Holdings, and our respective affiliates may transfer, exchange or lease compression equipment among one another;

· the terms under which we may purchase newly-fabricated contract operations equipment from Exterran Holdings;

· Exterran Holdings’ grant to us of a license to use certain intellectual property, including our logo; and

· Exterran Holdings’ and our obligations to indemnify each other for certain liabilities.

For further discussion of the Omnibus Agreement, please see Note 3 to the Financial Statements.

Overview

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 oil and natural gas reserves in the U.S. Spending by oil and natural gas exploration and production companies is dependent upon these companies’ forecasts regarding the expected future supply, demand and 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 normally result in changes in demand for our services.

Natural gas consumption in the U.S. for the twelve months ended July 31, 2014 increased by approximately 4% compared to the twelve months ended July 31, 2013. The U.S. Energy Information Administration (“EIA”) forecasts that total U.S. natural gas consumption will increase by 2% in 2014 compared to 2013 and increase by an average of 0.7% per year thereafter until 2040.

Natural gas marketed production in the U.S. for the twelve months ended July 31, 2014 increased by approximately 4% compared to the twelve months ended July 31, 2013. The EIA forecasts that total U.S. natural gas marketed production will increase by 5% in 2014 compared to 2013, and U.S. natural gas production will increase by an average of 1.5% per year thereafter until 2040.

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.

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Our revenue, earnings and financial position are affected by, among other things, market conditions that impact demand and pricing for natural gas compression, our customers’ decisions between using our services or our competitors’ services, our customers’ decisions regarding whether to own and operate the equipment themselves, and the timing and consummation of acquisitions of additional contract operations customer service agreements and equipment from Exterran Holdings or others. As we believe there will continue to be steady activity in certain U.S. areas focused on the production of oil and natural gas liquids, we have invested more capital in new fleet units in 2014 than we did in 2013.

In the second half of 2011, Exterran Holdings, which provides all operational staff, corporate staff and support services necessary to operate our business, embarked on a multi-year plan to improve the profitability of its operations, including the operations of our business. Exterran Holdings implemented certain key profitability initiatives associated with this plan in 2012 and implemented additional process initiatives intended to improve operating efficiency and reduce cost structure throughout 2013 and into 2014. These initiatives have positively impacted our business, and we expect continued positive impact.

We continue to see steady activity in certain shale plays and areas focused on the production of oil and natural gas liquids. This activity has increased the overall amount of compression horsepower in the industry; however, these increases continue to be partially offset by horsepower declines in more mature and predominantly dry gas markets, where we provide a significant amount of contract operations services. During the nine months ended September 30, 2014, excluding operating horsepower added through acquisitions, our operating horsepower has increased at a higher rate in the shale plays and areas focused on the production of oil and natural gas liquids than the declines we have seen in the more mature and predominately dry gas plays in the U.S. Historically, oil and natural gas prices in the U.S. have been volatile. Global oil prices have fallen recently compared to levels seen over the past 18 months. West Texas Intermediate crude oil spot prices as of September 30, 2014 were 14% and 11% lower than prices at June 30, 2014 and September 30, 2013, respectively. During periods of lower oil and natural gas prices, oil and natural gas production growth could moderate or decline in the U.S. A 1% decrease in average operating horsepower of our contract operations fleet during the nine months ended September 30, 2014 would have resulted in a decrease of approximately $4.2 million and $2.5 million in our revenue and gross margin (defined as revenue less cost of sales, excluding depreciation and amortization expense), respectively. Gross margin is a non-GAAP financial measure. For a reconciliation of gross margin to net income (loss), its most directly comparable financial measure, calculated and presented in accordance with accounting principles generally accepted in the U.S. (“GAAP”), please read “— Non-GAAP Financial Measures.”

Exterran Holdings intends for us to be the primary long-term growth vehicle for its U.S. contract operations business and intends, but is not obligated, to offer us the opportunity to purchase the remainder of its U.S. contract operations business over time. Likewise, we are not required to purchase any additional portions of such business. The consummation of any future purchase of additional portions of Exterran Holdings’ U.S. contract operations business and the timing of any such purchase will depend upon, among other things, our ability to reach 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 our access to additional debt and equity capital. Future acquisitions of assets from Exterran Holdings may increase or decrease our operating performance, financial position and liquidity. Unless otherwise indicated, this discussion of performance trends and outlook excludes any future potential transfers of additional contract operations customer service agreements and equipment from Exterran Holdings to us.

Operating Highlights

The following table summarizes total available horsepower, total operating horsepower, average operating horsepower and horsepower utilization percentages (in thousands, except percentages):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Total Available Horsepower (at period end)(1)	3,052		2,391		3,052		2,391
Total Operating Horsepower (at period end)(1)	2,947		2,221		2,947		2,221
Average Operating Horsepower	2,877		2,217		2,618		2,127
Horsepower Utilization:
Spot (at period end)	97	%	93	%	97	%	93	%
Average	96	%	93	%	94	%	94	%

(1) Includes compressor units comprising approximately 64,000 and 96,000 horsepower leased from Exterran Holdings as of September 30, 2014 and 2013, respectively. Excludes compressor units comprising approximately 1,000 and 7,000 horsepower leased to Exterran Holdings as of September 30, 2014 and 2013, respectively (see Note 3 to the Financial Statements).

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Summary of Results

Net income. We generated net income of $18.1 million and $10.0 million during the three months ended September 30, 2014 and 2013, respectively, and $42.8 million and $52.7 million during the nine months ended September 30, 2014 and 2013, respectively. The increase in net income during the three months ended September 30, 2014 compared to the three months ended September 30, 2013 was attributable to the inclusion of the results from the assets acquired in the August 2014 MidCon Acquisition and the April 2014 MidCon Acquisition, which resulted in higher current year gross margin and depreciation and amortization expense and contributed to the increase in selling, general and administrative (“SG&A”) expense. These activities were partially offset by an increase in interest expense of $6.4 million during the three months ended September 30, 2014 compared to the three months ended September 30, 2013. The decrease in net income during the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013 was primarily due to $9.8 million of gross margin and $6.8 million of gain on sale of property, plant and equipment recognized on two natural gas processing plant contracts that terminated during the second quarter of 2013. These decreases in net income for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013 were partially offset by the inclusion of the results from the assets acquired in the August 2014 MidCon Acquisition, the April 2014 MidCon Acquisition and the March 2013 Contract Operations Acquisition, which resulted in higher current year gross margin and depreciation and amortization expense and contributed to the increase in SG&A expense.

EBITDA, as further adjusted. Our EBITDA, as further adjusted, was $75.1 million and $55.7 million during the three months ended September 30, 2014 and 2013, respectively, and $199.7 million and $179.8 million during the nine months ended September 30, 2014 and 2013, respectively. The increase in EBITDA, as further adjusted, during the three months ended September 30, 2014 compared to the three months ended September 30, 2013 was attributable to the inclusion of the results from the assets acquired in the August 2014 MidCon Acquisition and the April 2014 MidCon Acquisition, including improved gross margin. These activities were partially offset by the impact of the increase in the SG&A costs cap from $12.5 million during the three months ended September 30, 2013 to $17.7 million during the three months ended September 30, 2014 and a decrease of $3.2 million in the benefit received by us from the cap on operating costs provided by Exterran Holdings. The increase in EBITDA, as further adjusted, during the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013 was primarily due to the impact of the assets acquired in the August 2014 MidCon Acquisition, the April 2014 MidCon Acquisition and the March 2013 Contract Operations Acquisition, including improved gross margin. These activities were partially offset by $9.8 million of gross margin and $6.8 million of gain on sale of property, plant and equipment recognized on two natural gas processing plant contracts that terminated during the second quarter of 2013, a decrease of $5.9 million in the benefit received by us from the cap on operating costs provided by Exterran Holdings and the impact of the increase in the SG&A costs cap from an average of $11.8 million per quarter during the nine months ended September 30, 2013 to an average of $16.7 million per quarter during the nine months ended September 30, 2014. For a reconciliation of EBITDA, as further adjusted, to net income (loss), its most directly comparable financial measure calculated and presented in accordance with GAAP, please read “— Non-GAAP Financial Measures.”

Distributable cash flow. Our distributable cash flow was $45.7 million and $33.3 million during the three months ended September 30, 2014 and 2013, respectively, and $124.2 million and $115.1 million during the nine months ended September 30, 2014 and 2013, respectively, and distributable cash flow coverage (distributable cash flow for the period divided by distributions declared to all unitholders for the period, including incentive distribution rights) was 1.31x and 1.17x during the three months ended September 30, 2014 and 2013, respectively, and 1.22x and 1.37x during the nine months ended September 30, 2014 and 2013, respectively. The increase in distributable cash flow during the three and nine months ended September 30, 2014 compared to the three and nine months ended September 30, 2013 was primarily due to increases in the gross margin discussed above, partially offset by the impact of increases in the SG&A costs cap discussed above, decreases in benefits received from the cap on operating costs provided by Exterran Holdings discussed above, increases in cash interest expense and increases in maintenance capital expenditures. Distributable cash flow and distributable cash flow coverage during the nine months ended September 30, 2013 benefited from $9.8 million of gross margin recognized on two natural gas processing plant contracts that terminated during the second quarter of 2013. Additionally, distributable cash flow coverage was impacted by an increase in distributions declared to all unitholders, including incentive distribution rights, during the three and nine months ended September 30, 2014 compared to the three and nine months ended September 30, 2013 of $6.4 million and $17.6 million, respectively. For a reconciliation of distributable cash flow to net income (loss) and net cash provided by operating activities, its most directly comparable financial measures calculated and presented in accordance with GAAP, please read “— Non-GAAP Financial Measures.”

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Financial Results of Operations

The Three Months Ended September 30, 2014 Compared to the Three Months Ended September 30, 2013

The following table summarizes our revenue, gross margin, gross margin percentage, expenses and net income (dollars in thousands):

	Three Months Ended September 30,
	2014			2013
Revenue	$	153,163		$	115,808
Gross margin(1)	91,311			64,330
Gross margin percentage	60		%	56		%
Expenses:
Depreciation and amortization	$	33,598		$	27,158
Long-lived asset impairment	3,558			784
Restructuring charges	125			—
Selling, general and administrative — affiliates	20,734			16,948
Interest expense	16,141			9,735
Other (income) expense, net	(649		)	(639		)
Provision for (benefit from) income taxes	(299		)	309
Net income	$	18,103		$	10,035

(1) Defined as revenue less cost of sales, excluding depreciation and amortization expense. For a reconciliation of gross margin to net income (loss), its most directly comparable financial measure calculated and presented in accordance with GAAP, please read “— Non-GAAP Financial Measures.”

Revenue. The increase in revenue and average operating horsepower was primarily due to the inclusion of the results from the assets acquired in the August 2014 MidCon Acquisition and the April 2014 MidCon Acquisition as well as from organic growth in operating horsepower. Average operating horsepower was approximately 2,877,000 and 2,217,000 during the three months ended September 30, 2014 and 2013, respectively. The increase in revenue during the three months ended September 30, 2014 compared to the three months ended September 30, 2013 was also attributable to higher rates in the current year.

Gross Margin. The increases in gross margin and gross margin percentage during the three months ended September 30, 2014 compared to the three months ended September 30, 2013 were primarily due to the increases in revenue discussed above.

Depreciation and Amortization. The increase in depreciation and amortization expense during the three months ended September 30, 2014 compared to the three months ended September 30, 2013 was primarily due to additional depreciation expense on compression equipment additions, including the assets acquired in the August 2014 MidCon Acquisition and the April 2014 MidCon Acquisition, and additional amortization expense attributable to intangible assets acquired in the August 2014 MidCon Acquisition and the April 2014 MidCon Acquisition.

Long-Lived Asset Impairment. During the three months ended September 30, 2014, we evaluated the future deployment of our idle fleet and determined to retire and either sell or re-utilize the key components of approximately 30 idle compressor units, representing approximately 8,000 horsepower, previously used to provide services. As a result, we performed an impairment review and recorded a $3.0 million asset impairment to reduce the book value of each unit to its estimated fair value. The fair value of each unit was estimated based on either the expected net sale proceeds compared to other fleet units we recently sold and/or a review of other units recently offered for sale by third parties, or the estimated component value of the equipment we plan to use.

During the three months ended September 30, 2013, we evaluated the future deployment of our idle fleet and determined to retire and either sell or re-utilize the key components of approximately 20 idle compressor units, representing approximately 4,000 horsepower, previously used to provide services. As a result, we performed an impairment review and recorded a $0.8 million asset impairment to reduce the book value of each unit to its estimated fair value. The fair value of each unit was estimated based on either the expected net sale proceeds compared to other fleet units we recently sold and/or a review of other units recently offered for sale by third parties, or the estimated component value of the equipment we plan to use.

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SG&A — affiliates. SG&A expenses are primarily comprised of an allocation of expenses, including costs for personnel support and related expenditures, from Exterran Holdings to us pursuant to the terms of the Omnibus Agreement. The increase in SG&A expense was primarily due to increased costs associated with the impact of the August 2014 MidCon Acquisition and the April 2014 MidCon Acquisition. SG&A expenses represented 14% and 15% of revenue during the three months ended September 30, 2014 and 2013, respectively.

Interest Expense. The increase in interest expense during the three months ended September 30, 2014 compared to the three months ended September 30, 2013 was primarily due to a higher average balance of long-term debt and an increase in the weighted average effective interest rate on our debt caused by the issuance of the 2014 Notes in April 2014.

Other (Income) Expense, Net. Other (income) expense, net, during the three months ended September 30, 2014 included $0.9 million of transaction costs associated with the August 2014 MidCon Acquisition and $1.4 million of gain on sale of property, plant and equipment. Other (income) expense, net, during the three months ended September 30, 2013 included $0.6 million of gain on sale of property, plant and equipment.

Provision for (Benefit from) Income Taxes. The decrease in our provision for income taxes during the three months ended September 30, 2014 compared to the three months ended September 30, 2013 was primarily due to a state tax benefit recognized in the current period for amendments to prior years’ tax returns.

The Nine Months Ended September 30, 2014 Compared to the Nine Months Ended September 30, 2013

The following table summarizes our revenue, gross margin, gross margin percentage, expenses and net income (dollars in thousands):

	Nine Months Ended September 30,
	2014			2013
Revenue	$	419,903		$	347,323
Gross margin(1)	245,013			197,984
Gross margin percentage	58		%	57		%
Expenses:
Depreciation and amortization	$	93,227		$	76,894
Long-lived asset impairment	8,035			3,249
Restructuring charges	702			—
Selling, general and administrative — affiliates	59,157			44,758
Interest expense	40,586			27,458
Other (income) expense, net	88			(8,316		)
Provision for income taxes	424			1,277
Net income	$	42,794		$	52,664

Revenue. The increase in revenue and average operating horsepower was primarily due to the inclusion of the results from the assets acquired in the August 2014 MidCon Acquisition, the April 2014 MidCon Acquisition and the March 2013 Contract Operations Acquisition as well as from organic growth in operating horsepower. Average operating horsepower was approximately 2,618,000 and 2,127,000 during the nine months ended September 30, 2014 and 2013, respectively. The increase in revenue during the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013 was also attributable to higher rates in the current year. These increases in revenue were partially offset by an $11.2 million decrease in revenue due to the termination of two natural gas processing plant contracts during the second quarter of 2013.

Gross Margin. The increases in gross margin and gross margin percentage during the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013 were primarily due to the increases in revenue discussed above, partially offset by a $9.8 million decrease in gross margin due to the termination of two natural gas processing plant contracts during the second quarter of 2013.

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Depreciation and Amortization. The increase in depreciation and amortization expense during the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013 was primarily due to additional depreciation expense on compression equipment additions, including the assets acquired in the August 2014 MidCon Acquisition, the April 2014 MidCon Acquisition and the March 2013 Contract Operations Acquisition, and additional amortization expense attributable to intangible assets acquired in the August 2014 MidCon Acquisition and the April 2014 MidCon Acquisition.

Long-Lived Asset Impairment. During the nine months ended September 30, 2014, we evaluated the future deployment of our idle fleet and determined to retire and either sell or re-utilize the key components of approximately 95 idle compressor units, representing approximately 23,000 horsepower, previously used to provide services. As a result, we performed an impairment review and recorded a $7.4 million asset impairment to reduce the book value of each unit to its estimated fair value. The fair value of each unit was estimated based on either the expected net sale proceeds compared to other fleet units we recently sold and/or a review of other units recently offered for sale by third parties, or the estimated component value of the equipment we plan to use.

Restructuring Charges. In January 2014, Exterran Holdings announced a plan to centralize its make-ready operations to improve the cost and efficiency of its shops and further enhance the competitiveness of our and Exterran Holdings’ combined U.S. compressor fleet. As part of this plan, Exterran Holdings examined both recent and anticipated changes in the U.S. market, including the throughput demand of its shops and the addition of new equipment to our and Exterran Holdings’ combined U.S. compressor fleet. To better align its costs and capabilities with the current market, Exterran Holdings determined to close several of its make-ready shops. The centralization of its make-ready operations was completed in the second quarter of 2014. During the nine months ended September 30, 2014, we incurred $0.7 million of restructuring charges comprised of an allocation of expenses, including termination benefits associated with the centralization of Exterran Holdings’ make-ready operations, from Exterran Holdings to us pursuant to the terms of the Omnibus Agreement based on revenue and horsepower. See Note 10 to the Financial Statements for further discussion of these charges.

SG&A — affiliates. SG&A expenses are primarily comprised of an allocation of expenses, including costs for personnel support and related expenditures, from Exterran Holdings to us pursuant to the terms of the Omnibus Agreement. The increase in SG&A expense was primarily due to increased costs associated with the impact of the August 2014 MidCon Acquisition, the April 2014 MidCon Acquisition and the March 2013 Contract Operations Acquisition. SG&A expenses represented 14% and 13% of revenue during the nine months ended September 30, 2014 and 2013, respectively.

Interest Expense. The increase in interest expense during the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013 was primarily due to a higher average balance of long-term debt and an increase in the weighted average effective interest rate on our debt caused by the issuance of the 2014 Notes in April 2014 and the issuance of $350.0 million aggregate principal amount of 6% senior notes in March 2013 (the “2013 Notes”). These activities were partially offset by a charge of $0.7 million related to the write-off of unamortized deferred financing costs in conjunction with the March 2013 amendment to our senior secured credit agreement (the “Credit Agreement”).

Other (Income) Expense, Net. Other (income) expense, net, during the nine months ended September 30, 2014 included $2.4 million of transaction costs associated with the August 2014 MidCon Acquisition and the April 2014 MidCon Acquisition and $2.3 million of gain on sale of property, plant and equipment. Other (income) expense, net, during the nine months ended September 30, 2013 included $8.8 million of gain on sale of property, plant and equipment, of which $6.8 million resulted from the exercise of purchase options by our customer on two natural gas processing plant contracts, and $0.6 million of transaction costs associated with the March 2013 Contract Operations Acquisition.

Provision for Income Taxes. The decrease in our provision for income taxes during the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013 was primarily due to a state tax benefit recognized in the current period for amendments to prior years’ tax returns.

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Liquidity and Capital Resources

The following tables summarize our sources and uses of cash during the nine months ended September 30, 2014 and 2013, and our cash and working capital as of the end of the periods presented (in thousands):

	Nine Months Ended September 30,
	2014			2013
Net cash provided by (used in):
Operating activities	$	137,165		$	128,255
Investing activities	(676,021		)	(70,267		)
Financing activities	538,949			(57,879		)
Net change in cash and cash equivalents	$	93		$	109

	September 30, 2014		December 31, 2013
Cash and cash equivalents	$	275	$	182
Working capital	45,818		46,802

Operating Activities. The increase in net cash provided by operating activities was primarily due to the increase in business levels resulting from the August 2014 MidCon Acquisition, the April 2014 MidCon Acquisition and the March 2013 Contract Operations Acquisition, which contributed to the increase in gross margin and SG&A expense during the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013. This activity was partially offset by a $9.8 million decrease in gross margin due to the termination of two natural gas processing plant contracts during the second quarter of 2013 and higher interest payments during the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013.

Investing Activities. The increase in net cash used in investing activities during the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013 was primarily attributable to $483.0 million paid for the August 2014 MidCon Acquisition and the April 2014 MidCon Acquisition during the nine months ended September 30, 2014, a $94.6 million increase in capital expenditures and a $44.7 million decrease in proceeds from sale of property, plant and equipment. These activities were partially offset by a decrease of $16.5 million in amounts due from affiliates during the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013. Capital expenditures during the nine months ended September 30, 2014 were $209.4 million, consisting of $173.9 million for fleet growth capital and $35.5 million for compressor maintenance activities.

Financing Activities. The increase in net cash provided by financing activities during the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013 was primarily due to an increase of $422.3 million in net borrowings under our debt facilities, $169.5 million of net proceeds received from a public offering of common units in April 2014 and a $21.6 million decrease in amounts due to affiliates, net, during the nine months ended September 30, 2013. These activities were partially offset by a $16.7 million increase in distributions to unitholders during the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013.

Working Capital. The decrease in working capital at September 30, 2014 compared to December 31, 2013 was primarily due to an increase of $16.0 million in accrued interest, a decrease of $10.5 million in amounts due from affiliates and an increase of $1.9 million in current portion of interest rate swaps, offset by an increase of $27.2 million in accounts receivable. The increase in accounts receivable was primarily driven by billings on contracts acquired in the August 2014 MidCon Acquisition and the April 2014 MidCon Acquisition. The increase in accrued interest was primarily due to the issuance of the 2014 Notes in April 2014 and timing of interest payments on the 2013 Notes.

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 will continue to consist of, the following:

· maintenance capital expenditures, which are 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 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.

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Maintenance capital expenditures are related to major overhauls of significant components of a compressor unit, such as the engine, compressor and cooler, that return the components to a like new condition, but do not modify the applications for which the compressor unit was designed. Substantially all of our expansion capital expenditures are related to the acquisition cost of new compressor units that we add to our fleet. In addition to the cost of new compressor units, expansion capital expenditures can also include the upgrading of major components on an existing compressor unit where the current configuration of the compressor unit is no longer in demand and the compressor is not likely to return to an operating status without the capital expenditures. These latter expenditures substantially modify the operating parameters of the compressor unit such that it can be used in applications for which it previously was not suited.

Without giving effect to any equipment we may acquire pursuant to any future acquisitions, we currently plan to make approximately $47 million to $52 million in equipment maintenance capital expenditures during 2014. Exterran Holdings manages its and our respective U.S. fleets as one pool of compression equipment from which we can each readily fulfill our respective customers’ service needs. When we or Exterran Holdings are advised of a contract operations services opportunity, Exterran Holdings reviews both our and its fleet for an available and appropriate compressor unit. The majority of the idle compression equipment required for servicing these contract operations services has been and is currently held by Exterran Holdings. Under the Omnibus Agreement, the owner of the equipment being transferred is required to pay the costs associated with making the idle equipment suitable for the proposed customer and then has generally leased the equipment to the recipient of the equipment or exchanged the equipment for other equipment of the recipient. Because Exterran Holdings has owned the majority of such equipment, Exterran Holdings has generally had to bear a larger portion of the maintenance capital expenditures associated with making transferred equipment ready for service. For equipment that is then leased, the maintenance capital cost is a component of the lease rate that is paid under the lease. As we acquire more compression equipment, we expect that more of our equipment will be available to satisfy our or Exterran Holdings’ customer requirements. As a result, we expect that our maintenance capital expenditures will continue to increase (and that lease expense will be reduced).

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 senior secured credit facility and that we will be able to generate cash or borrow adequate amounts of cash under our senior secured credit facility to meet our needs through December 31, 2014. 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 expect to actively consider a variety of assets for potential acquisitions and expansion projects. We expect to fund these future capital expenditures with borrowings under our senior secured credit facility and the issuance of additional debt and equity securities, 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 senior secured credit facility and the issuance of debt and equity securities, rather than cash reserves established by our general partner, to fund our acquisitions and expansion capital expenditures. Our ability to access the capital markets may be restricted at a time when we would like, or need, to do so, which could have an impact on our ability to grow.

We expect that we will distribute all of our available cash to our unitholders. Available cash is reduced by cash reserves established by our general partner to provide for the proper conduct of our business, including future capital expenditures. To the extent we are unable to finance growth externally and we are unwilling to establish cash reserves to fund future acquisitions, our cash distribution policy will significantly impair our ability to grow. Because we distribute all of our available cash, we may not grow as quickly as businesses that reinvest their available cash to expand ongoing operations. To the extent we issue additional units in connection with any acquisitions or expansion capital expenditures, the payment of distributions on those additional units may increase the risk that we will be unable to maintain or increase our per unit distribution level, which in turn may impact the available cash that we have to distribute for each unit. There are no limitations in our partnership agreement or in the terms of our senior secured credit facility on our ability to issue additional units, including units ranking senior to our common units.

Long-Term Debt. In November 2010, we amended and restated our Credit Agreement to provide for a five-year $550.0 million senior secured credit facility, consisting of a $400.0 million revolving credit facility and a $150.0 million term loan facility. The revolving borrowing capacity under this facility increased to $550.0 million in March 2011 and to $750.0 million in March 2012. We amended our Credit Agreement in March 2013 to reduce the borrowing capacity under our revolving credit facility to $650.0 million and extend the maturity date of the term loan and revolving credit facilities to May 2018. As of September 30, 2014, we had undrawn and available capacity of $270.0 million under our revolving credit facility.

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The revolving credit and term loan facilities bear interest at a base rate or LIBOR, at our option, plus an applicable margin. Depending on our leverage ratio, the applicable margin for the revolving and term loans varies (i) in the case of LIBOR loans, from 2.0% to 3.0% and (ii) in the case of base rate loans, from 1.0% to 2.0%. The base rate is the highest of the prime rate announced by Wells Fargo Bank, National Association, the Federal Funds Effective Rate plus 0.5% and one-month LIBOR plus 1.0%. At September 30, 2014, all amounts outstanding under these facilities were LIBOR loans and the applicable margin was 2.5%. The weighted average annual interest rate on the outstanding balance under these facilities at September 30, 2014 and 2013, excluding the effect of interest rate swaps, was 2.7% and 2.2%, respectively. During the nine months ended September 30, 2014 and 2013, the average daily debt balance under these facilities was $397.1 million and $471.6 million, respectively.

Borrowings under the Credit Agreement are secured by substantially all of the U.S. personal property assets of us and our Significant Domestic Subsidiaries (as defined in the Credit Agreement), including all of the membership interests of our Domestic Subsidiaries (as defined in the Credit Agreement).

The Credit Agreement contains various covenants with which we must comply, including, but not limited to, restrictions on the use of proceeds from borrowings and limitations on our ability to incur additional indebtedness, engage in transactions with affiliates, merge or consolidate, sell assets, make certain investments and acquisitions, make loans, grant liens, repurchase equity and pay dividends and distributions. The Credit Agreement also contains various covenants requiring mandatory prepayments from the net cash proceeds of certain asset transfers. 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 2.75 to 1.0, a ratio of Total Debt (as defined in the Credit Agreement) to EBITDA of not greater than 5.25 to 1.0 (subject to a temporary increase to 5.5 to 1.0 for any quarter during which an acquisition meeting certain thresholds is completed and for the following two quarters after the acquisition closes) and a ratio of Senior Secured Debt (as defined in the Credit Agreement) to EBITDA of not greater than 4.0 to 1.0. Because the August 2014 MidCon Acquisition closed during the third quarter of 2014, our Total Debt to EBITDA ratio was temporarily increased to 5.5 to 1.0 during the quarter ended September 30, 2014 and will continue at that level through March 31, 2015, reverting to 5.25 to 1.0 for the quarter ending June 30, 2015 and subsequent quarters. As of September 30, 2014, we maintained a 5.5 to 1.0 EBITDA to Total Interest Expense ratio, a 4.1 to 1.0 Total Debt to EBITDA ratio and a 1.8 to 1.0 Senior Secured Debt to EBITDA ratio. A material adverse effect on our assets, liabilities, financial condition, business or operations that, taken as a whole, impacts our ability to perform our obligations under the Credit Agreement, could lead to a default under that agreement. A default under one of our debt agreements would trigger cross-default provisions under our other debt agreements, which would accelerate our obligation to repay our indebtedness under those agreements. As of September 30, 2014, we were in compliance with all financial covenants under the Credit Agreement.

In March 2013, we issued $350.0 million aggregate principal amount of the 2013 Notes. We used the net proceeds of $336.9 million, after original issuance discount and issuance costs, to repay borrowings outstanding under our revolving credit facility. The 2013 Notes were issued at an original issuance discount of $5.5 million, which is being amortized using the effective interest method at an interest rate of 6.25% over their term. In January 2014, holders of the 2013 Notes exchanged their 2013 Notes for registered notes with the same terms.

Prior to April 1, 2017, we may redeem all or a part of the 2013 Notes at a redemption price equal to the sum of (i) the principal amount thereof, plus (ii) a make-whole premium at the redemption date, plus accrued and unpaid interest, if any, to the redemption date. In addition, we may redeem up to 35% of the aggregate principal amount of the 2013 Notes prior to April 1, 2016 with the net proceeds of one or more equity offerings at a redemption price of 106.000% of the principal amount of the 2013 Notes, plus any accrued and unpaid interest to the date of redemption, if at least 65% of the aggregate principal amount of the 2013 Notes issued under the indenture remains outstanding after such redemption and the redemption occurs within 180 days of the date of the closing of such equity offering. On or after April 1, 2017, we may redeem all or a part of the 2013 Notes at redemption prices (expressed as percentages of principal amount) equal to 103.000% for the twelve-month period beginning on April 1, 2017, 101.500% for the twelve-month period beginning on April 1, 2018 and 100.000% for the twelve-month period beginning on April 1, 2019 and at any time thereafter, plus accrued and unpaid interest, if any, to the applicable redemption date of the 2013 Notes.

In April 2014, we issued $350.0 million aggregate principal amount of the 2014 Notes. We received net proceeds of $337.4 million, after original issuance discount and issuance costs, from this offering, which we used to fund a portion of the April 2014 MidCon Acquisition and repay borrowings under our revolving credit facility. The 2014 Notes were issued at an original issuance discount of $5.7 million, which is being amortized using the effective interest method at an interest rate of 6.25% over their term. The 2014 Notes have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), or any state securities laws, and unless so registered, may not be offered or sold in the U.S. except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. We offered and issued the 2014 Notes only to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to persons outside the U.S. pursuant to Regulation S. Pursuant to a registration rights agreement, we are required to register the 2014 Notes no later than 365 days after April 7, 2014.

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Prior to April 1, 2018, we may redeem all or a part of the 2014 Notes at a redemption price equal to the sum of (i) the principal amount thereof, plus (ii) a make-whole premium at the redemption date, plus accrued and unpaid interest, if any, to the redemption date. In addition, we may redeem up to 35% of the aggregate principal amount of the 2014 Notes prior to April 1, 2017 with the net proceeds of one or more equity offerings at a redemption price of 106.000% of the principal amount of the 2014 Notes, plus any accrued and unpaid interest to the date of redemption, if at least 65% of the aggregate principal amount of the 2014 Notes issued under the indenture remains outstanding after such redemption and the redemption occurs within 180 days of the date of the closing of such equity offering. On or after April 1, 2018, we may redeem all or a part of the 2014 Notes at redemption prices (expressed as percentages of principal amount) equal to 103.000% for the twelve-month period beginning on April 1, 2018, 101.500% for the twelve-month period beginning on April 1, 2019 and 100.000% for the twelve-month period beginning on April 1, 2020 and at any time thereafter, plus accrued and unpaid interest, if any, to the applicable redemption date of the 2014 Notes.

We have entered into interest rate swap agreements to offset changes in expected cash flows due to fluctuations in the interest rates associated with our variable rate debt. At September 30, 2014, we were a party to interest rate swaps with a notional value of $400.0 million, pursuant to which we make fixed payments and receive floating payments. Our interest rate swaps expire over varying dates, with interest rate swaps having a notional amount of $300.0 million expiring in May 2018 and the remaining interest rate swaps having a notional amount of $100.0 million expiring in May 2019. As of September 30, 2014, the weighted average effective fixed interest rate on our interest rate swaps was 1.6%. See Part I, Item 3 (“Quantitative and Qualitative Disclosures About Market Risk”) of this report for further discussion of our interest rate swap agreements.

We may from time to time seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

Sales of Partnership Units. In April 2014, we sold, pursuant to a public underwritten offering, 6,210,000 common units, including 810,000 common units pursuant to an over-allotment option. We received net proceeds of $169.5 million, after deducting underwriting discounts, commissions and offering expenses, which we used to fund a portion of the April 2014 MidCon Acquisition. In connection with this sale and as permitted under our partnership agreement, we issued and sold approximately 126,000 general partner units to our general partner so it could maintain its approximate 2.0% general partner interest in us. We received net proceeds of $3.6 million from the general partner contribution which we used to repay borrowings outstanding under our revolving credit facility.

Distributions to Unitholders. Our partnership agreement requires us to distribute all of our “available cash” quarterly. Under our 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.

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Pursuant to the Omnibus Agreement, our obligation to reimburse Exterran Holdings for cost of sales and SG&A expenses is capped through December 31, 2014 (see Note 3 to the Financial Statements). Our cost of sales exceeded the cap provided in the Omnibus Agreement by $3.2 million during the three months ended September 30, 2013 and by $2.5 million and $8.4 million during the nine months ended September 30, 2014 and 2013, respectively. During the three months ended September 30, 2014, our cost of sales did not exceed the cap provided in the Omnibus Agreement. Our SG&A expenses exceeded the cap provided in the Omnibus Agreement by $2.7 million and $4.2 million during the three months ended September 30, 2014 and 2013, respectively, and by $7.7 million and $8.4 million during the nine months ended September 30, 2014 and 2013, respectively. Accordingly, our EBITDA, as further adjusted, and our distributable cash flow (please see “— Non-GAAP Financial Measures” for a discussion of EBITDA, as further adjusted, and distributable cash flow) would have been approximately $2.7 million and $7.4 million lower during the three months ended September 30, 2014 and 2013, respectively, and $10.2 million and $16.8 million lower during the nine months ended September 30, 2014 and 2013, respectively, without the benefit of the cost caps. As a result, without the benefit of the cost caps, our distributable cash flow coverage (distributable cash flow for the period divided by distributions declared to all unitholders for the period, including incentive distribution rights) would have been 1.24x and 0.91x during the three months ended September 30, 2014 and 2013, respectively, and 1.12x and 1.17x during the nine months ended September 30, 2014 and 2013, respectively, rather than the actual distributable cash flow coverage (which includes the benefit of cost caps) of 1.31x and 1.17x during the three months ended September 30, 2014 and 2013, respectively, and 1.22x and 1.37x during the nine months ended September 30, 2014 and 2013, respectively.

Non-GAAP Financial Measures

We 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 to evaluate 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 operating performance of our operations and excludes the impact of the prior historical costs of the assets acquired or constructed that are utilized in those operations, the indirect costs associated with our SG&A activities, the impact of our financing methods and income taxes. 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 operating performance, gross margin should not be considered an alternative to, or more meaningful than, net income (loss) as determined in accordance with GAAP. Our 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 (loss). These limitations are primarily due to the exclusion of interest expense, depreciation and amortization expense, SG&A expense, impairments and restructuring charges. Each of these excluded expenses is material to our condensed consolidated statements 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 to support our operations and required partnership 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):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014		2013
Net income	$	18,103		$	10,035		$	42,794	$	52,664
Depreciation and amortization	33,598			27,158			93,227		76,894
Long-lived asset impairment	3,558			784			8,035		3,249
Restructuring charges	125			—			702		—
Selling, general and administrative — affiliates	20,734			16,948			59,157		44,758
Interest expense	16,141			9,735			40,586		27,458
Other (income) expense, net	(649		)	(639		)	88		(8,316		)
Provision for (benefit from) income taxes	(299		)	309			424		1,277
Gross margin	$	91,311		$	64,330		$	245,013	$	197,984

We define EBITDA, as further adjusted, as net income (loss) (a) excluding income taxes, interest expense (including debt extinguishment costs and gain or loss on termination of interest rate swaps), depreciation and amortization expense, impairment charges, restructuring charges, expensed acquisition costs, other items and non-cash SG&A costs (b) plus the amounts reimbursed to us by Exterran Holdings as a result of the caps on cost of sales and SG&A costs provided in the Omnibus Agreement, which amounts are treated as capital contributions from Exterran Holdings for accounting purposes. We believe EBITDA, as further adjusted, is an important measure of operating performance because it allows management, investors and others to evaluate and compare our core operating results from period to period by removing the impact of our capital structure (interest expense from our outstanding debt), asset base (depreciation and amortization expense, impairment charges), tax consequences, caps on operating and SG&A costs, non-cash SG&A costs and reimbursements, impairment charges, restructuring charges and other items. Management uses EBITDA, as further adjusted, as a supplemental measure to review current period operating performance, comparability measures and performance measures for period to period comparisons. Our EBITDA, as further adjusted, may not be comparable to a similarly titled measure of another company because other entities may not calculate EBITDA in the same manner.

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In the first quarter of 2014, we revised our definition of EBITDA, as further adjusted, to add back expensed acquisition costs. This adjustment was made because management uses the resulting EBITDA, as further adjusted, as a supplemental measure to review current period operating performance. EBITDA, as further adjusted, for the nine months ended September 30, 2013 has been restated to exclude this amount for comparison purposes.

EBITDA, as further adjusted, is not a measure of financial performance under GAAP, and should not be considered in isolation or as an alternative to net income (loss), cash flows from operating activities and other measures determined in accordance with GAAP. Items excluded from EBITDA, as further adjusted, are significant and necessary components to the operations of our business, and, therefore, EBITDA, as further adjusted, should only be used as a supplemental measure of our operating performance.

The following table reconciles our net income to EBITDA, as further adjusted (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2014			2013		2014		2013
Net income	$	18,103		$	10,035	$	42,794	$	52,664
Provision for (benefit from) income taxes	(299		)	309		424		1,277
Depreciation and amortization	33,598			27,158		93,227		76,894
Long-lived asset impairment	3,558			784		8,035		3,249
Restructuring charges	125			—		702		—
Cap on operating and selling, general and administrative costs provided by Exterran Holdings	2,685			7,376		10,240		16,830
Non-cash selling, general and administrative costs — affiliates	348			285		1,322		873
Interest expense	16,141			9,735		40,586		27,458
Expensed acquisition costs	866			—		2,410		575
EBITDA, as further adjusted	$	75,125		$	55,682	$	199,740	$	179,820

We define distributable cash flow as net income (loss) (a) plus depreciation and amortization expense, impairment charges, restructuring charges, expensed acquisition costs, non-cash SG&A costs, interest expense and any amounts reimbursed to us by Exterran Holdings as a result of the caps on cost of sales and SG&A costs provided in the Omnibus Agreement, which amounts are treated as capital contributions from Exterran Holdings for accounting purposes, (b) less cash interest expense (excluding amortization of deferred financing fees, amortization of debt discount and non-cash transactions related to interest rate swaps) and maintenance capital expenditures, and (c) excluding gains or losses on asset sales and other items. We believe distributable cash flow is a supplemental financial measure that management and external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, may use to assess our operating performance as compared to other publicly traded partnerships without regard to historical cost basis. We also believe distributable cash flow is an important liquidity measure because it allows management and external users of our financial statements the ability to compute the ratio of distributable cash flow to the cash distributions declared to all unitholders, including incentive distribution rights, to determine the rate at which the distributable cash flow covers the distribution. Our distributable cash flow may not be comparable to a similarly titled measure of another company because other entities may not calculate distributable cash flow in the same manner.

Distributable cash flow is not a measure of financial performance under GAAP, and should not be considered in isolation or as an alternative to net income (loss), cash flows from operating activities and other measures determined in accordance with GAAP. Items excluded from distributable cash flow are significant and necessary components to the operations of our business, and, therefore, distributable cash flow should only be used as a supplemental measure of our operating performance.

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The following table reconciles our net income to distributable cash flow (in thousands, except ratios):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Net income	$	18,103		$	10,035		$	42,794		$	52,664
Depreciation and amortization	33,598			27,158			93,227			76,894
Long-lived asset impairment	3,558			784			8,035			3,249
Restructuring charges	125			—			702			—
Cap on operating and selling, general and administrative costs provided by Exterran Holdings	2,685			7,376			10,240			16,830
Non-cash selling, general and administrative costs — affiliates	348			285			1,322			873
Interest expense	16,141			9,735			40,586			27,458
Expensed acquisition costs	866			—			2,410			575
Less: Gain on sale of property, plant and equipment	(1,414		)	(614		)	(2,257		)	(8,798		)
Less: Cash interest expense	(14,962		)	(8,802		)	(37,363		)	(24,036		)
Less: Maintenance capital expenditures	(13,366		)	(12,675		)	(35,478		)	(30,582		)
Distributable cash flow	$	45,682		$	33,282		$	124,218		$	115,127

Distributions declared to all unitholders for the period, including incentive distributions rights	$	34,764		$	28,340		$	101,506		$	83,865
Distributable cash flow coverage(1)	1.31		x	1.17		x	1.22		x	1.37		x
Distributable cash flow coverage (without the benefit of the cost caps)(2)	1.24		x	0.91		x	1.12		x	1.17		x

(1) Defined as distributable cash flow for the period divided by distributions declared to all unitholders for the period, including incentive distribution rights.

(2) Defined as distributable cash flow excluding the benefit of the cost caps divided by distributions declared to all unitholders for the period, including incentive distribution rights. The benefit received by us from the caps on operating and selling, general and administrative costs provided by Exterran Holdings was $2.7 million and $7.4 million during the three months ended September 30, 2014 and 2013, respectively, and $10.2 million and $16.8 million during the nine months ended September 30, 2014 and 2013, respectively.

The following table reconciles our net cash provided by operating activities to distributable cash flow (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Net cash provided by operating activities	$	52,980		$	49,072		$	137,165		$	128,255
(Provision for) benefit from doubtful accounts	(145		)	(52		)	(580		)	174
Restructuring charges	125			—			702			—
Cap on operating and selling, general and administrative costs provided by Exterran Holdings	2,685			7,376			10,240			16,830
Expensed acquisition costs	866			—			2,410			575
Payments for settlement of interest rate swaps that include financing elements	(950		)	(957		)	(2,844		)	(1,271		)
Maintenance capital expenditures	(13,366		)	(12,675		)	(35,478		)	(30,582		)
Changes in assets and liabilities	3,487			(9,482		)	12,603			1,146
Distributable cash flow	$	45,682		$	33,282		$	124,218		$	115,127

Off-Balance Sheet Arrangements

We have no material off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk primarily associated with changes in interest rates under our financing arrangements. 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.

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As of September 30, 2014, after taking into consideration interest rate swaps, we had $130.0 million of outstanding indebtedness that was effectively subject to floating interest rates. A 1% increase in the effective interest rate on our outstanding debt subject to floating interest rates at September 30, 2014 would result in an annual increase in our interest expense of approximately $1.3 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 Note 7 to the Financial Statements.

Item 4. Controls and Procedures

Management’s Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, our principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), which are designed to provide reasonable assurance that we are able to record, process, summarize and report the information required to be disclosed in our reports under the Exchange Act within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based on the evaluation, as of September 30, 2014, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed in reports that we file or submit under the Exchange Act is accumulated and communicated to management, and made known to our principal executive officer and principal financial officer, on a timely basis to ensure that it is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

In 2011, the Texas Legislature enacted changes related to the appraisal of natural gas compressors for ad valorem tax purposes by expanding the definitions of “Heavy Equipment Dealer” and “Heavy Equipment” effective from the beginning of 2012 (the “Heavy Equipment Statutes”). Under the revised statutes, we believe we are a Heavy Equipment Dealer, that our natural gas compressors are Heavy Equipment and that we, therefore, are required to file our ad valorem tax renditions under this new methodology. A large number of appraisal review boards denied our position, although some accepted it, and we filed 82 petitions for review in the appropriate district courts with respect to the 2012 tax year, 92 petitions for review in the appropriate district courts with respect to the 2013 tax year, and 110 petitions for review in the appropriate district courts with respect to the 2014 tax year. Since we filed the petitions, many of the cases, pending in the same county, have been consolidated. Only five cases have advanced to the point of trial or submission of summary judgment motions on the merits, and only three cases have been decided, with two decisions rendered by the same presiding judge. One other case was dismissed without reaching the merits.

On October 17, 2013, the 143rd Judicial District Court of Loving County, Texas ruled in EXLP Leasing LLC & EES Leasing LLC v. Loving County Appraisal District that our wholly-owned subsidiary EXLP Leasing LLC (“EXLP Leasing”) and EES Leasing LLC (“EES Leasing”), a subsidiary of Exterran Holdings, are Heavy Equipment Dealers and that their compressors qualify as Heavy Equipment, but the district court further held that the Heavy Equipment Statutes were unconstitutional as applied to EXLP Leasing’s and EES Leasing’s compressors. EES Leasing and EXLP Leasing appealed the district court’s constitutionality holding to the Eighth Court of Appeals in El Paso, Texas. The case has been fully briefed and was argued before the Court of Appeals on October 9, 2014. No decision has been issued.

On October 28, 2013, the 143rd Judicial District Court of Ward County, Texas ruled in EES Leasing LLC & EXLP Leasing LLC v. Ward County Appraisal District that EXLP Leasing and EES Leasing are Heavy Equipment Dealers and that their compressors qualify as Heavy Equipment, but the court held that the Heavy Equipment Statutes were unconstitutional as applied to their compressors. EXLP Leasing and EES Leasing appealed the district court’s constitutionality holding to the Eighth Court of Appeals in El Paso, Texas, and the Ward County Appraisal District cross-appealed the district court’s ruling that EXLP Leasing and EES Leasing are Heavy Equipment Dealers and that their compressors qualify as Heavy Equipment. The case has been fully briefed and was also argued on October 9, 2014. No decision has been issued.

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On March 18, 2014, the 10th Judicial District Court in Galveston, Texas ruled in EXLP Leasing LLC & EES Leasing LLC v. Galveston Central Appraisal District that EXLP Leasing and EES Leasing are Heavy Equipment Dealers and that their compressors qualify as Heavy Equipment, but the court held the Heavy Equipment Statutes unconstitutional as applied to their compressors. EXLP Leasing and EES Leasing have filed their appellate brief challenging the district court’s constitutionality holding with the Fourteenth Court of Appeals in Houston, Texas. The parties are still briefing the case, and there is currently no hearing date for oral argument.

In EES Leasing v. Irion County Appraisal District, EES Leasing and the appraisal district each filed motions for summary judgment concerning the applicability and constitutionality of the Heavy Equipment Statutes in the 51st Judicial District Court of Irion County, Texas. On May 20, 2014, the district court entered an order denying both EES Leasing’s and the appraisal district’s motions for summary judgment, holding that a fact issue existed as to the applicability of the Heavy Equipment Statutes to the one compressor at issue. Trial has been set for February 15, 2015.

EES Leasing and EXLP Leasing also filed a motion for summary judgment in EES Leasing LLC & EXLP Leasing LLC v. Harris County Appraisal District, pending in the 189th Judicial District Court of Harris County, Texas. The court heard arguments on the motion on December 6, 2013 but has yet to rule. No trial date has been set.

One court has dismissed EXLP Leasing’s and EES Leasing’s tax appeals for lack of jurisdiction without reaching the merits of the appeal. In EXLP Leasing LLC et. al v. Webb County Appraisal District, filed in the 406th Judicial District Court in Webb County, United Independent School District (“United ISD”) intervened as a party in interest and sought to dismiss the lawsuit arguing that the district court was without jurisdiction to hear the appeal. Under Section 42.08(b) of the Texas Tax Code, a property owner must pay before the delinquency date the lesser of (1) the amount of taxes due on the portion of the taxable value of the property that is not in dispute or (2) the amount of taxes due on the property under the order from which the appeal is taken. EXLP Leasing and EES Leasing paid zero taxes to Webb County because the entire amount of tax assessed by Webb County was in dispute. Instead, as required by the Heavy Equipment Statutes and Texas Comptroller forms, EXLP Leasing and EES Leasing paid taxes on the compressors at issue to Victoria County, where they maintain their inventory and place of business. The Webb County Appraisal District and United ISD contest EXLP Leasing’s and EES Leasing’s position that the Heavy Equipment Statutes have special situs provisions requiring that taxes be paid where the dealer has a business location and keeps its inventory, instead arguing that taxes are payable to the county where each compressor is located as of January 1 of the tax year at issue. The court granted United ISD’s motion to dismiss on April 1, 2014 and declined EXLP Leasing’s and EES Leasing’s motion to reconsider. EXLP Leasing and EES Leasing appealed the dismissal order to the Fourth Court of Appeals in San Antonio, Texas. The parties are still briefing the case, and there is currently no hearing date for oral argument.

In Webb County, United ISD has four delinquency lawsuits pending against EXLP Leasing and EES Leasing in the 49th District Court of Webb County, Texas (“49th District Court”). In light of their pending appeal of the 406th District Court of Webb County, the 49th District Court granted the motion to continue these delinquency lawsuits filed by EXLP Leasing and EES Leasing, and there is no current trial date for the delinquency lawsuits.

We continue to believe that the revised statutes are constitutional as applied to natural gas compressors. Recognizing the similarity of the issues and that these cases will ultimately be resolved by the Texas appellate courts, we have reached, or intend to reach, agreements with appraisal districts to stay or abate other pending 2012 and 2013 district court cases. Please see Note 13 (“Commitments and Contingencies”) to the Financial Statements included in this report for a discussion of our ad valorem tax expense and benefit relating to the Heavy Equipment Statutes, which is incorporated by reference into this Item 1.

In the ordinary course of business, we are also involved in various other 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 any of these other actions will not have a material adverse effect on our consolidated financial position, results of operations or cash flows, including our ability to make cash distributions to our unitholders. 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, including our ability to make cash distributions to our unitholders.

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Item 1A. Risk Factors

There have been no material changes or updates to our risk factors that were previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2013, except as follows:

Failure to successfully combine our business with the assets acquired from MidCon may adversely affect our future results.

The consummation of the assets acquired through the August 2014 MidCon Acquisition and the April 2014 MidCon Acquisition involve potential risks, including:

· the failure to realize expected profitability, growth or accretion;

· environmental or regulatory compliance matters or liabilities;

· diversion of management’s attention from our existing businesses; and

· the incurrence of unanticipated liabilities and costs for which indemnification is unavailable or inadequate.

If these risks or other anticipated or unanticipated liabilities were to materialize, any desired benefits of the August 2014 MidCon Acquisition or the April 2014 MidCon Acquisition may not be fully realized, if at all, and our business, results of operations, financial condition and our available cash for distribution could be negatively impacted.

As a result of the April 2014 MidCon Acquisition, we depend on Access for a significant portion of our revenue. The loss of our business with Access or the inability or failure of Access to meet their payment obligations may adversely affect our financial results.

For the year ended December 31, 2013, no customer individually accounted for 10% or more of our total revenue. In connection with the April 2014 MidCon Acquisition, we and Access have entered into a seven-year contract operations services agreement under which we provide contract compression services to Access in regions including the Permian, Eagle Ford, Barnett, Anadarko, Mississippi Lime, Granite Wash, Woodford, Haynesville and Niobrara Basins. Following completion of the April 2014 MidCon Acquisition, Access accounted for approximately 14% of our revenue during the six months ended September 30, 2014. The loss of our business with Access, unless offset by additional contract compression services revenue from other customers, or the inability or failure of Access to meet their payment obligations could have a material adverse effect on our business, results of operations, financial condition and ability to make cash distributions to our unitholders.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) Not applicable.

(b) Not applicable.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

On October 30, 2014, Jon C. Biro, 48, was appointed as a member of the board of directors (the “Board”) of Exterran GP LLC, our managing general partner, by its sole member, Exterran Energy Solutions, L.P., effective as of such date. Mr. Biro has not been appointed to serve on any Board committee. On October 28, 2014, Mr. Biro was appointed as Senior Vice President of Exterran GP, LLC, effective as of such date.

Since September 22, 2014, Mr. Biro has been the Senior Vice President and Chief Financial Officer of Exterran Holdings, Inc. (“Exterran”), the indirect owner of Exterran GP LLC. From January 2008 to January 2014, Mr. Biro served as Executive Vice President and Chief Financial Officer of Consolidated Graphics, Inc., an international commercial printer previously listed on the New York Stock Exchange, until its acquisition by R.R. Donnelley & Sons Company earlier this year.

Prior to joining Consolidated Graphics in 2008, Mr. Biro held several executive positions with ICO, Inc., an international oilfield services and specialty polymers business previously traded on Nasdaq. He was Chief Financial Officer and Treasurer of ICO from April 2002 to January 2008 and served as its Interim Chief Executive Officer from July 2003 to February 2004. Mr. Biro was also a member of the ICO board of directors from 2003 to 2008. Prior to being named Chief Financial Officer of ICO, Inc., Mr. Biro served as ICO’s Senior Vice President, Chief Accounting Officer and Treasurer and, prior to that, as its Controller. Prior to his employment with ICO, Mr. Biro was employed by PriceWaterhouse Coopers LLP. Mr. Biro is a certified public accountant and received a B.A. from the University of Texas and M.S. of Accounting from the University of Houston.

Mr. Biro receives compensation as Senior Vice President and Chief Financial Officer of Exterran as set forth under “Compensation Arrangements” in Exterran’s current report on Form 8-K filed on September 16, 2014. As a non-independent director, Mr. Biro will not receive remuneration for his services on the Board. Neither we nor Exterran GP LLC have any agreement with Mr. Biro, either written or oral, that guarantees salaries, salary increases, bonuses or benefits. There are no other arrangements or understandings between Mr. Biro and any other person pursuant to which he was appointed a director. There are no family relationships between Mr. Biro and any executive officer or director of Exterran GP LLC, Exterran General Partner, L.P. or us. As noted above, Mr. Biro has served as Senior Vice President and Chief Financial Officer of Exterran since September 22, 2014. Information regarding transactions between Exterran and us is included in our Annual Report on Form 10-K for the year ended December 31, 2013 and in our subsequent filings with the Securities and Exchange Commission. There are no other relationships involving Mr. Biro that would require disclosure pursuant to Item 404(a) of Regulation S-K.

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Item 6. Exhibits

Exhibit No.		Description
2.1		Contribution, Conveyance and Assumption Agreement, dated March 7, 2013, by and among Exterran Holdings, Inc., 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 Registrant’s Current Report on Form 8-K filed on March 8, 2013
2.2		Purchase and Sale Agreement, dated February 27, 2014, between EXLP Operating LLC and MidCon Compression, L.L.C., incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on March 5, 2014
2.3		Closing Agreement and First Amendment to Purchase and Sale Agreement, dated April 10, 2014, between EXLP Operating LLC and MidCon Compression, L.L.C., incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on April 15, 2014
2.4		Second Amendment to Purchase and Sale Agreement, dated April 22, 2014, between EXLP Operating LLC and MidCon Compression, L.L.C., incorporated by reference to Exhibit 2.4 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014
2.5		Purchase and Sale Agreement, dated July 11, 2014, between EXLP Operating LLC and MidCon Compression, L.L.C., incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on July 14, 2014
3.1		Certificate of Limited Partnership of Universal Compression Partners, L.P., incorporated by reference to Exhibit 3.1 to the Registrant’s 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 Registrant’s 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 Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008
3.4		Certificate of Limited Partnership of UCO General Partner, LP, incorporated by reference to Exhibit 3.3 to the Registrant’s 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 Registrant’s 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 Registrant’s 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 Registrant’s Current Report on Form 8-K filed on October 26, 2006
4.1		Indenture, dated as of March 27, 2013, by and among Exterran Partners, L.P., EXLP Finance Corp., the Guarantors named therein and Wells Fargo Bank, National Association, incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on March 28, 2013
4.2		Indenture, dated as of April 7, 2014, by and among Exterran Partners, L.P., EXLP Finance Corp., the Guarantors named therein and Wells Fargo Bank, National Association, incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on April 11, 2014
4.3		Registration Rights Agreement, dated as of April 7, 2014, by and among Exterran Partners, L.P., EXLP Finance Corp., the Guarantors named therein and Wells Fargo Securities, LLC, as representative of the Initial Purchasers, incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed on April 7, 2014
10.1 *		Fourth Amendment to Third Amended and Restated Omnibus Agreement, dated August 15, 2014, by and among Exterran Holdings, Inc., Exterran Energy Solutions, L.P., Exterran GP LLC, Exterran General Partner, L.P., Exterran Partners, L.P. and EXLP Operating LLC (portions of this exhibit have been omitted by redacting a portion of the text (indicated by asterisks in the text) and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment)
31.1 *		Certification of the Principal Executive Officer of Exterran GP LLC (as general partner of the general partner of Exterran Partners, L.P.) pursuant to Rule 13a-14 under the Securities Exchange Act of 1934
31.2 *		Certification of the Principal 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
101.1 *		Interactive data files pursuant to Rule 405 of Regulation S-T

* Filed herewith.

** Furnished, not filed.

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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.

Date: November 4, 2014	EXTERRAN PARTNERS, L.P.

	By:	EXTERRAN GENERAL PARTNER, L.P.
		its General Partner

	By:	EXTERRAN GP LLC
		its General Partner

	By:	/s/ DAVID S. MILLER
		David S. Miller
		Senior Vice President and Chief Financial Officer
		(Principal Financial Officer)

	By:	/s/ KENNETH R. BICKETT
		Kenneth R. Bickett
		Vice President and Controller
		(Principal Accounting Officer)

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Index to Exhibits

Exhibit No.		Description
2.1		Contribution, Conveyance and Assumption Agreement, dated March 7, 2013, by and among Exterran Holdings, Inc., 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 Registrant’s Current Report on Form 8-K filed on March 8, 2013
2.2		Purchase and Sale Agreement, dated February 27, 2014, between EXLP Operating LLC and MidCon Compression, L.L.C., incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on March 5, 2014
2.3		Closing Agreement and First Amendment to Purchase and Sale Agreement, dated April 10, 2014, between EXLP Operating LLC and MidCon Compression, L.L.C., incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on April 15, 2014
2.4		Second Amendment to Purchase and Sale Agreement, dated April 22, 2014, between EXLP Operating LLC and MidCon Compression, L.L.C., incorporated by reference to Exhibit 2.4 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014
2.5		Purchase and Sale Agreement, dated July 11, 2014, between EXLP Operating LLC and MidCon Compression, L.L.C., incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on July 14, 2014
3.1		Certificate of Limited Partnership of Universal Compression Partners, L.P., incorporated by reference to Exhibit 3.1 to the Registrant’s 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 Registrant’s 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 Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008
3.4		Certificate of Limited Partnership of UCO General Partner, LP, incorporated by reference to Exhibit 3.3 to the Registrant’s 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 Registrant’s 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 Registrant’s 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 Registrant’s Current Report on Form 8-K filed on October 26, 2006
4.1		Indenture, dated as of March 27, 2013, by and among Exterran Partners, L.P., EXLP Finance Corp., the Guarantors named therein and Wells Fargo Bank, National Association, incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on March 28, 2013
4.2		Indenture, dated as of April 7, 2014, by and among Exterran Partners, L.P., EXLP Finance Corp., the Guarantors named therein and Wells Fargo Bank, National Association, incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on April 11, 2014
4.3		Registration Rights Agreement, dated as of April 7, 2014, by and among Exterran Partners, L.P., EXLP Finance Corp., the Guarantors named therein and Wells Fargo Securities, LLC, as representative of the Initial Purchasers, incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed on April 7, 2014
10.1 *		Fourth Amendment to Third Amended and Restated Omnibus Agreement, dated August 15, 2014, by and among Exterran Holdings, Inc., Exterran Energy Solutions, L.P., Exterran GP LLC, Exterran General Partner, L.P., Exterran Partners, L.P. and EXLP Operating LLC (portions of this exhibit have been omitted by redacting a portion of the text (indicated by asterisks in the text) and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment)
31.1 *		Certification of the Principal Executive Officer of Exterran GP LLC (as general partner of the general partner of Exterran Partners, L.P.) pursuant to Rule 13a-14 under the Securities Exchange Act of 1934
31.2 *		Certification of the Principal 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
101.1 *		Interactive data files pursuant to Rule 405 of Regulation S-T

* Filed herewith.

** Furnished, not filed.

Archrock Partners, L.P. - FORM 10-Q - November 4, 2014

Attached files

Archrock Partners, L.P. Reports