3. August 2014 MidCon Acquisition and April 2014 MidCon Acquisition

August 2014 MidCon Acquisition

On August 8, 2014, the Partnership 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 purchase price was funded with borrowings under the Partnership’s 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 the Partnership effective as of the closing. During the nine months ended September 30, 2014, the Partnership incurred transaction costs of approximately $0.9 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 this acquisition, 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 $4.1 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 “August 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 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 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 the acquired assets and liabilities as of the acquisition date (in thousands):

	Preliminary Fair Value
Inventory	$	2,302
Property, plant and equipment	80,154
Goodwill	3,738
Intangible assets	48,373
Current liabilities	(372		)
Preliminary purchase price	$	134,195

Property, Plant and Equipment, Goodwill 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 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 and was assigned to our North America contract operations segment. 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 goodwill from this acquisition is expected to be deductible for U.S. federal income tax purposes based on our ownership interest in the Partnership.

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 as part of our North America contract operations segment 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 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, the Partnership 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 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 nine months ended September 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 this acquisition, 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 EESLP, an indirect parent company of the Partnership, for $7.7 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.”

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
Inventory	$	4,357
Property, plant and equipment	314,556
Intangible assets	42,474
Current liabilities	(827		)
Purchase price	$	360,560

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 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 $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.

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 and the April 2014 MidCon Acquisition. The August 2014 MidCon Acquisition and the April 2014 MidCon 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:

· the Partnership’s acquisition in August 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 borrowings under its revolving credit facility to pay $130.1 million to MidCon for the August 2014 MidCon Acquisition; and

· our borrowings under our revolving credit facility to pay $4.1 million to MidCon for assets acquired by EESLP in the August 2014 MidCon Acquisition.

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;

· the Partnership’s issuance of 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;

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

· our borrowings under our revolving credit facility to pay $7.7 million to MidCon for assets acquired by EESLP in the April 2014 MidCon Acquisition.

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.

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	$	726,144	$	804,190	$	2,143,918	$	2,504,698
Net income attributable to Exterran common stockholders	$	34,151	$	42,070	$	81,064	$	103,326
Basic net income per common share attributable to Exterran common stockholders	$	0.51	$	0.64	$	1.21	$	1.56
Diluted net income per common share attributable to Exterran common stockholders	$	0.48	$	0.63	$	1.15	$	1.55