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April 2014 MidCon Acquisition
 6 Months Ended
Jun. 30, 2014
April 2014 MidCon Acquisition  
April 2014 MidCon Acquisition

3.  April 2014 MidCon Acquisition

 

On April 10, 2014, the Partnership completed an acquisition of natural gas compression assets, including a fleet of 337 compressor units, comprising approximately 444,000 horsepower from MidCon Compression, L.L.C. (“MidCon”) for $351.1 million. The purchase price was funded with the net proceeds from the Partnership’s sale, pursuant to a public underwritten offering, of 6.2 million common units and a portion of the net proceeds from the Partnership’s issuance of $350.0 million aggregate principal amount of 6% senior notes due October 2022 (the “Partnership 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, the Partnership and Access entered into a seven-year contract operations services agreement under which the Partnership will provide compression services to Access. During the six months ended June 30, 2014, the Partnership incurred transaction costs of approximately $1.5 million related to this 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 between the Partnership and MidCon relating to the transaction, the Partnership directed MidCon to sell a tract of real property and the facility located thereon, a fleet of vehicles, personal property and parts inventory to our wholly-owned subsidiary Exterran Energy Solutions, L.P. (“EESLP”), an indirect parent company of the Partnership, for $9.4 million. The assets acquired by EESLP are used in conjunction with the compression units the Partnership acquired from MidCon to provide compression services. The acquisition of the assets by the Partnership and EESLP from MidCon is referred to as the “April 2014 MidCon Acquisition.” The purchase price paid by the Partnership and EESLP is subject to post-closing adjustments in accordance with the terms of the Purchase and Sale Agreement.

 

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, 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 and identifiable intangible assets. Changes to the preliminary purchase price could impact future depreciation and amortization expense as well as income tax 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 acquired assets as of the acquisition date (in thousands):

 

 

 

Preliminary
Fair Value

 

Inventory

 

$

4,357

 

Property, plant and equipment

 

314,556

 

Intangible assets

 

41,608

 

Preliminary purchase price

 

$

360,521

 

 

Property, Plant and Equipment and Intangible Assets Acquired

 

The preliminary amount of property, plant and equipment is primarily comprised of compression equipment that will be depreciated on a straight-line basis over an estimated average remaining useful life of 25 years.

 

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

 

$

4,583

 

25 years

 

Contract based

 

37,025

 

7 years

 

Total acquired identifiable intangible assets

 

$

41,608

 

 

 

 

The results of operations attributable to the assets acquired in the April 2014 MidCon Acquisition have been included in our condensed consolidated financial statements as part of our North America contract operations segment since the date of acquisition. Revenue attributable to the assets acquired in the April 2014 MidCon Acquisition was $20.5 million from the date of acquisition through June 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.

 

Pro Forma Financial Information

 

Pro forma financial information for the three and six months ended June 30, 2014 and 2013 has been included to give effect to the additional assets acquired in the April 2014 MidCon Acquisition. The April 2014 MidCon Acquisition is presented in the pro forma financial information as though the transaction occurred as of January 1, 2013. The pro forma financial information reflects the following transactions:

 

As related to the April 2014 MidCon Acquisition:

 

·         the Partnership’s acquisition in April 2014 of natural gas compression assets and identifiable intangible assets from MidCon;

 

·         our wholly-owned subsidiary EESLP’s, an indirect parent company of the Partnership, acquisition from MidCon, as directed by the Partnership, of a tract of real property and the facility located thereon, a fleet of vehicles, personal property and parts inventory;

 

·         the Partnership’s issuance of approximately 6.2 million common units to the public and approximately 126,000 general partner units to us;

 

·         the Partnership’s issuance of $350.0 million aggregate principal amount of the Partnership 2014 Notes; and

 

·         the Partnership’s use of proceeds from the issuance of common units, general partner units and the Partnership 2014 Notes to pay $351.1 million to MidCon for the April 2014 MidCon Acquisition and to pay down $159.3 million on its revolving credit facility.

 

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 the 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.

 

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

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

Revenue

 

$

741,550

 

$

857,239

 

$

1,406,050

 

$

1,687,487

 

Net income attributable to Exterran common stockholders

 

$

12,493

 

$

10,055

 

$

46,268

 

$

60,910

 

Basic net income per common share attributable to Exterran common stockholders

 

$

0.19

 

$

0.15

 

$

0.69

 

$

0.93

 

Diluted net income per common share attributable to Exterran common stockholders

 

$

0.19

 

$

0.15

 

$

0.66

 

$

0.92