Business Context and Reporting Period
This Form 8-K was filed by Exterran Holdings, Inc. on April 10, 2014. The report details the entry into a material definitive agreement: a Third Amendment to the Third Amended and Restated Omnibus Agreement. This amendment was executed in connection with the completion of the "2014 MidCon Acquisition" by Exterran Partners, L.P. (the Partnership), a master limited partnership in which Exterran holds an equity interest.
Key Financial Metrics and Agreements
The filing does not report revenue, profit, cash flow, or debt metrics for the period. The primary financial impact disclosed relates to the amendment of cost allocation caps between Exterran and the Partnership:
- SG&A Cost Cap Increase: The cap on selling, general, and administrative (SG&A) costs allocable to the Partnership was increased from $15.0 million per quarter to $17.7 million per quarter.
- Cost of Sales Cap: A cap exists on the Partnership's obligation to reimburse Exterran for cost of sales incurred in operating the Partnership's business, though the specific dollar amount of this cap is not restated in this filing.
- Expiration: Unless extended, both the cost of sales cap and the SG&A cap will terminate on December 31, 2014.
Material Changes Versus Prior Period
The material change is the specific increase in the quarterly SG&A cost reimbursement cap from $15.0 million to $17.7 million. This adjustment reflects the operational scale following the acquisition of natural gas compression assets from MidCon Compression, L.L.C. The filing notes that the Omnibus Agreement governs various relationships, including non-compete provisions, staff allocation, equipment transfers, and intellectual property licensing.
Outlook, Risks, and Contingencies
Management Commentary and Structure: Exterran provides all operational, corporate, and support staff for the Partnership. Exterran holds approximately a 34.5% limited partner interest and a 2% general partner interest (including incentive distribution rights) in the Partnership. Due to this structure, certain officers and directors serve in multiple entities.
Risks and Contingencies: The filing highlights the existence of indemnification obligations where the Partnership indemnifies Exterran for certain liabilities, and Exterran indemnifies the Partnership for others. The cost caps are set to expire on December 31, 2014, creating a contingency regarding future cost allocation terms if not extended.
Important Facts for Investor Verification
- Verify the specific dollar amount of the "cost of sales" cap, as this filing only explicitly restates the SG&A cap increase.
- Confirm the status of the cost caps (whether they have been extended) after the December 31, 2014 termination date.
- Review the impact of the 2014 MidCon Acquisition on the Partnership's overall leverage and cash flow, as referenced in the March 5, 2014 Form 8-K.
- Assess the potential for related-party transaction conflicts given the overlapping officers and directors between Exterran and the Partnership.