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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~~March 3031, ~~2018~~2019

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

Archrock Partners, L.P.

(Exact name of registrant as specified in its charter)



Delaware		22-3935108
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

9807 Katy Freeway, Suite 100
Houston, Texas		77024
(Address of principal executive offices)		(Zip Code)

9807 Katy Freeway, Suite 100, Houston, Texas 77024

(Address of principal executive offices, zip code)

(281) 836-8000

(Registrant’s telephone number, including area code)

Archrock Partners, L.P. meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format.

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. ~~(Check one)~~:

Large accelerated filer o	Accelerated filer xo
Non-accelerated filer o	Smaller reporting company o
Non-accelerated filer x	Smaller reporting company o
	Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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

At ~~October~~April 2529, ~~2018~~2019, the registrant’s common equity consisted of 70,231,036 common units, all of which were held indirectly by Archrock, Inc.

Table of Contents

TABLE OF CONTENTS

	Page
GLOSSARY	3
FORWARD-LOOKING STATEMENTS	54
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)	76
Condensed Consolidated Balance Sheets	76
Condensed Consolidated Statements of Operations	87
Condensed Consolidated Statements of Comprehensive Income	98
Condensed Consolidated Statements of Partners’ Capital	109
Condensed Consolidated Statements of Cash Flows	1110
Notes to Unaudited Condensed Consolidated Financial Statements	1211
Item 2. Management’s Narrative Analysis of Results of Operations	2620
Item 3. Quantitative and Qualitative Disclosures About Market Risk	2821
Item 4. Controls and Procedures	2821
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	2922
Item 1A. Risk Factors	2922
Item 2. Unregistered Sales of Equity Securities	2922
Item 3. Defaults Upon Senior Securities	2922
Item 4. Mine Safety Disclosures	2922
Item 5. Other Information	2922
Item 6. Exhibits	3023
SIGNATURES	3125

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GLOSSARY

The following terms and abbreviations appearing in the text of this report have the meanings indicated below.

2006 LTIP	The Archrock Partners, L.P. Long Term Incentive Plan, adopted in October 2006
2018 Form 10-K	Archrock Partners, L.P.’s Annual Report on Form 10-K for the year ended December 31, 2018
2017 Form 10-K	Archrock Partners, L.P.’s Annual Report on Form 10-K for the year ended December 31, 2017
2027 Notes	$500.0 million of 6.875% senior notes due April 2027, issued in March 2019
2017 LTIP	The Archrock Partners, L.P. Long Term Incentive Plan, adopted in April 2017
6% Notes	$350.0 million of 6% senior notes due April 2021 and $350 million of 6% senior notes due October 2022, collectively
Amendment No. 1	Amendment No. 1 to Credit Agreement dated February 23, 2018, which amended that certain Credit Agreement, dated as of March 30, 2017, which governs the Credit Facility
Archrock	Prior to the Merger: Archrock, Inc., individually and together with its wholly-owned subsidiariesSubsequent to the Merger: Archrock, Inc., individually and together with its wholly-owned subsidiaries, excluding the Partnership
ASC Topic 842 Leases	Accounting Standards Codification Topic 842 Leases as promulgated by Accounting Standards Update No. 2016-02 Leases (Topic 842) and further updated by Accounting Standards Update No. 2018-11 Leases (Topic 842): Targeted Improvements
ASC 842 Leases	Accounting Standards Codification Topic 842 Leases as promulgated by Accounting Standards Update No. 2016-02 Leases (Topic 842) and further updated by Accounting Standards Updates No. 2018-11 Leases (Topic 842): Targeted Improvements and 2019-01 Leases (Topic 842) — Codification Improvements
ASU 2016-13	Accounting Standards Update No. 2016-13 Financial Instruments -— Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
ASU 2016-15	Accounting Standards Update No. 2016-15 Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
ASU 2017-12	Accounting Standards Update No. 2017-12 Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
ASU 2018-13	Accounting Standards Update No. 2018-13 Fair Value Measurement (Topic 820): — Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement
Credit Facility	$1.25 billion asset-based revolving credit facility due March 2022, as amended by Amendment No. 1
EBITDA	Earnings before interest, taxes, depreciation and amortization
EES Leasing	Archrock Services Leasing LLC, formerly known as EES Leasing LLC
Exchange Act	Securities Exchange Act of 1934, as amended
EXLP Leasing	Archrock Partners Leasing LLC, formerly known as EXLP Leasing LLC
FASB	Financial Accounting Standards Board
Financial Statements	~~The Partnership’s~~ Condensed ~~Consolidated~~consolidated ~~Financial~~financial ~~Statements~~statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q
Former Credit Facility	$825.0 million revolving credit facility and $150.0 million term loan, terminated in March 2017
GAAP	U.S. generally accepted accounting principles
GAAP	Accounting principles generally accepted in the U.S.
General Partner	Archrock General Partner, L.P., the Partnership’s general partner, and an indirect, wholly-owned subsidiary of Archrock
Heavy Equipment Statutes	Texas Tax Code §§ 23.1241, 23.1242
Merger	Transaction in which Archrock acquired all of the Partnership’s outstanding common units not already owned by Archrock pursuant to the Agreement and Plan of Merger, dated as of January 1, 2018, among Archrock and the Partnership, which was amended by Amendment No. 1 to Agreement and Plan of Merger on January 11, 2018, and which was completed and effective on April 26, 2018
Merger	The transaction completed on April 26, 2018 pursuant to the Merger Agreement in which Archrock acquired all of the Partnership’s outstanding common units not already owned by Archrock
Omnibus Agreement	Partnership’s Fifth Amended and Restated Omnibus Agreement with certain Archrock entities, dated as of April 26, 2018, which governs various services and transactions that may occur between the Partnership and Archrock
Merger Agreement	Agreement and Plan of Merger, dated as of January 1, 2018, among Archrock and the Partnership, which was amended by Amendment No. 1 to Agreement and Plan of Merger on January 11, 2018, and which was completed and effective on April 26, 2018
Notes	$350.0 million of 6% senior notes due April 2021 and $350 million of 6% senior notes due October 2022
Omnibus Agreement	The Partnership’s Fifth Amended and Restated Omnibus Agreement with Archrock, dated as of April 26, 2018
Partnership, we, our, us	Archrock Partners, L.P., together with its subsidiaries
Partnership Agreement	First Amended and Restated Agreement of Limited Partnership of Exterran Partners, L.P. (now Archrock Partners, L.P.), as amended, dated as of April 14, 2008
Revenue Recognition Update	Accounting Standards Update No. 2014-09 Revenue from Contracts with Customers (Topic 606) and additional related standards updates
Revolving Loan Agreement	Agreement dated April 26, 2018 among the Partnership and Archrock under which the Partnership may make loans to Archrock
ROU	Right-of-use, as related to the new lease model under ASC 842 Leases
SEC	U.S. Securities and Exchange Commission
Securities Act	Securities Act of 1933, as amended
SG&A	Selling, general and administrative
U.S.	United States of America

Table of Contents

ROU	Right-of-use, as related to the new lease model under ASC Topic 842 Leases
SEC	U.S. Securities and Exchange Commission
SG&A	Selling, general and administrative
TCJA	Public Law No. 115-97, a comprehensive tax reform bill signed into law on December 22, 2017
U.S.	United States of America

Table of Contents

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements.” All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q are forward-looking statements, including, without limitation, statements regarding the effects of the Merger; the Partnership’s business growth strategy and projected costs; future financial position; the sufficiency of available cash flows to fund continuing operations and make cash distributions; anticipated cost savings; future revenue and other financial or operational measures related to our business; the future value of our equipment; and plans and objectives of our management for our future operations. 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 Quarterly Report on Form 10-Q. 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 ~~2017~~2018 Form 10-K and those set forth from time to time in our filings with the SEC, which are available through our website at www.archrock.com and through the SEC’s website at www.sec.gov, as well as the following risks and uncertainties:


•	the risk that cost savings, tax benefits and any other synergies from the Merger may not be fully realized or may take longer to realize than expected;

• conditions in the ~~impact~~oil and ~~outcome~~natural ofgas ~~pending~~industry, ~~and~~including ~~future~~the ~~litigation,~~level ~~including~~of ~~litigation~~production of, ifdemand ~~any,~~for ~~relating~~or toprice ~~the~~of ~~Merger~~oil or natural gas;

• 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 low price of oil or natural gas;


•	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 Archrock to provide personnel and services, including its ability to hire, train and retain key employees and to cost-effectively perform the services necessary to conduct our business;


•	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;

• the loss of our status as a partnership for U.S. 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:


–	winning profitable new business;


–	growing our asset base and enhancing asset utilization;


–	integrating acquired businesses;


–	generating sufficient cash; and


–	accessing the capital markets at an acceptable cost;


•	liability related to the use of our services;


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

Table of Contents


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

Table of Contents

All forward-looking statements included in this Quarterly Report on Form 10-Q are based on information available to us on the date of this Quarterly Report on Form 10-Q. 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 Quarterly Report on Form 10-Q.

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ARCHROCK PARTNERS, L.P.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except ~~for~~ unit amounts)

(unaudited)

	September 30, 2018			December 31, 2017
	March 31, 2019			December 31, 2018
ASSETS
Current assets:
Cash	$	~~243~~183		$	~~8,078~~264
Accounts receivable, trade, net of allowance of $946 and $1,296, respectively	73,258			67,714
Accounts receivable, trade, net of allowance of $965 and $1,253, respectively	81,119			80,606
Current portion of interest rate swaps	3,592			186
Tax refund receivable	—			14,000
Accrued interest on loan receivable due from Archrock	217			—
Derivative asset	2,428			3,185
Total current assets	77,310			75,978
Other current assets	109			123
Property, plant and equipment	2,872,151			2,727,401
Total current assets	83,839			98,178
Accumulated depreciation	(994,422		)	(953,325		)
Property, plant and equipment	3,054,144			2,933,568
Property, plant and equipment, net	1,877,729			1,774,076
Accumulated depreciation	(1,066,098		)	(1,042,182		)
Intangible assets, net	49,359			60,747
Property, plant and equipment, net	1,988,046			1,891,386
Contract costs	29,531			—
Intangible assets, net	42,371			45,839
Loan receivable due from Archrock	53,500			—
Contract costs, net	33,606			32,220
Other long-term assets	24,216			19,401
Loan receivable due from Archrock	21,350			20,000
Total assets	$	2,111,645		$	1,930,202
Other assets	14,286			17,801
Total assets	$	2,183,498		$	2,105,424
LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities:
Accounts payable, trade	$	2123,~~831~~611		$	1810,~~368~~646
Accrued liabilities	1012,~~489~~922			710,~~597~~129
Deferred revenue	98,~~881~~858			19,~~299~~577
Accrued interest	23,~~163~~147			1211,~~972~~999
Due to Archrock, net	31,~~349~~002			417,~~683~~251
Current portion of interest rate swaps	—			134
Total current liabilities	69,540			59,602
Total current liabilities	68,713			45,053
Long-term debt	1,582,217			1,529,501
Long-term debt	1,515,679			1,361,053
Other liabilities	9,694			9,175
Other long-term liabilities	9,529			9,356
Total liabilities	1,661,451			1,598,278
Total liabilities	1,593,921			1,415,462
Commitments and contingencies (Note 11)
Commitments and contingencies (Note 13)
Partners’ capital:
Common units: 70,231,036 and 70,310,590 issued, respectively	493,197			501,023
Common units: 70,231,036 issued and outstanding	506,032			488,209
General partner units: 1,422,458 and 1,421,768 issued and outstanding, respectively	11,448			11,582
General partner units: 1,422,458 issued and outstanding	11,933			11,630
Accumulated other comprehensive income	134,~~079~~082			47,~~476~~307
Treasury units: 113,609 common units at December 31, 2017	—			(2,341		)
Total partners’ capital	522,047			507,146
Total partners’ capital	517,724			514,740
Total liabilities and partners’ capital	$	2,183,498		$	2,105,424
Total liabilities and partners’ capital	$	2,111,645		$	1,930,202

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

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ARCHROCK PARTNERS, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands)

(unaudited)

	Three Months EndedSeptember 30,					Nine Months Ended September 30,
	Three Months EndedMarch 31,
	2018		2017			2018			2017
	2019		2018
Revenue	$	~~154~~165,~~033~~719	$	~~140~~147,~~191~~002		$	~~451,901~~		$	~~415,741~~
Cost of sales (excluding depreciation and amortization)	6267,~~068~~724		6256,~~584~~302			~~178,596~~			~~172,856~~
Selling, general and administrative	1821,~~143~~107		2019,~~711~~801			~~57,288~~			~~59,325~~
Depreciation and amortization	3435,~~095~~376		3534,~~787~~326			~~102,319~~			~~108,947~~
Long-lived asset impairment	32,~~673~~684		53,~~368~~066			~~10,585~~			~~14,659~~
Interest expense, net	2223,~~767~~428		21,~~839~~609			~~66,918~~			~~63,361~~
Debt extinguishment loss	—		—			—			291
Merger-related costs	—		1,376
Merger-related costs	2		—			2,718			—
Other (income) loss, net	552		(287		)
Other (income) loss, net	126		(2,793		)	(555		)	(3,614		)
Income before income taxes	14,848		10,809
Income (loss) before income taxes	13,159		(3,305		)	34,032			(84		)
Provision for income taxes	529		519
Provision for income taxes	546		708			648			2,970
Net income	$	14,319	$	10,290
Net income (loss)	$	12,613	$	(4,013	)	$	33,384		$	(3,054	)

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

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ARCHROCK PARTNERS, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ~~(LOSS)~~

(in thousands)

(unaudited)

	Three Months Ended September 30,						Nine Months EndedSeptember 30,
	Three Months EndedMarch 31,
	2018			2017			2018		2017
	2019			2018
Net income (loss)	$	12,613		$	(4,013	)	$	33,384	$	(3,054	)
Net income	$	14,319		$	10,290
Other comprehensive income:
Other comprehensive income (loss):
Interest rate swap gain, net of reclassifications to earnings	1,213			2,314			8,376		4,452
Interest rate swap gain (loss), net of reclassifications to earnings	(3,225		)	4,985
Amortization of terminated interest rate swaps	—			~~257~~166			~~227~~		~~257~~
Total other comprehensive income	1,213			2,571			8,603		4,709
Total other comprehensive income (loss)	(3,225		)	5,151
Comprehensive income (loss)	$	13,826		$	(1,442	)	$	41,987	$	1,655
Comprehensive income	$	11,094		$	15,441

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

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ARCHROCK PARTNERS, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL

(in thousands, except ~~for~~unit and per unit amounts)

(unaudited)

	Partners’ Capital									Treasury Units					AccumulatedOther Comprehensive Income (Loss)
	Common Units					General Partner Units
	$			Units		$			Units	$			Units					Total
	Amount			Units		Amount			Units	Amount			Units					Total
Balance at January 1, 2017	$	516,208		65,606,655		$	12,027		1,326,965	$	(1,892	)	(86,795	)	$	(4,170	)	$	522,173
Issuance of common units for vesting of phantom units				89,263
Treasury units purchased										(404		)	(22,977	)				(404		)
Issuance of common units	60,291			4,600,000														60,291
Issuance of general partner units						1,305			94,506									1,305
Contribution (distribution) of capital, net	1,798					(92		)										1,706
Cash distributions	(57,528		)			(1,162		)										(58,690		)
Unit-based compensation expense	753																	753
Comprehensive income
Net loss	(2,991		)			(63		)										(3,054		)
Interest rate swap gain, net of reclassifications to earnings															4,452			4,452
Amortization of terminated interest rate swaps															257			257
Balance at September 30, 2017	$	518,531		70,295,918		$	12,015		1,421,471	$	(2,296	)	(109,772	)	$	539		$	528,789
Balance at January 1, 2018	$	501,023		70,310,590		$	11,582		1,421,768	$	(2,341	)	(113,609	)	$	4,476		$	514,740
Issuance of common units for vesting of phantom units				53,091														—
Treasury units purchased										(250		)	(19,036	)				(250		)
Issuance of general partner units						9			690									9
Contribution of capital	1,544																	1,544
Contribution of capital, net	1,825																	1,825
Cash distributions	(52,651		)			(1,066		)										(53,717		)
Cash distributions ($0.285 per common unit)	(20,050		)			(405		)										(20,455		)
Unit-based compensation expense	314																	314
Impact of adoption of Revenue Recognition Update	12,462					252												12,714
Impact of adoption of ASU 2017-12	375					8												383
Merger-related adjustments	(2,591		)	(132,645	)					2,591			132,645					—
Comprehensive income
Net income	3210,~~721~~086					~~663~~204												3310,~~384~~290
Interest rate swap gain, net of reclassifications to earnings															84,~~376~~985			84,~~376~~985
Amortization of terminated interest rate swaps															~~227~~166			~~227~~166
Balance at September 30, 2018	$	493,197		70,231,036		$	11,448		1,422,458	$	—		—		$	13,079		$	517,724
Balance at March 31, 2018	$	506,035		70,363,681		$	11,650		1,422,458	$	(2,591	)	(132,645	)	$	9,627		$	524,721
Balance at January 1, 2019	$	488,209		70,231,036		$	11,630		1,422,458	$	—		—		$	7,307		$	507,146
Distribution of capital, net	(1,780		)			(56		)										(1,836		)
Contribution of capital - excess of fair market value of equipment sold to Archrock over equipment purchased from Archrock	1,840																	1,840
Cash distributions ($0.240 per common unit)	(16,855		)			(342		)										(17,197		)
Cash contributions from Archrock	20,583					417												21,000
Comprehensive income (loss)
Net income	14,035					284												14,319
Interest rate swap loss, net of reclassifications to earnings															(3,225		)	(3,225		)
Balance at March 31, 2019	$	506,032		70,231,036		$	11,933		1,422,458	$	—		—		$	4,082		$	522,047

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

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ARCHROCK PARTNERS, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Nine Months Ended September 30,
	Three Months EndedMarch 31,
	2018			2017
	2019			2018
Cash flows from operating activities:
Net income (loss)	$	33,384		$	(3,054	)
Net income	$	14,319		$	10,290
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	~~102~~35,~~319~~376			~~108~~34,~~947~~326
Long-lived asset impairment	102,~~585~~684			143,~~659~~066
Amortization of deferred financing costs	41,~~371~~509			41,~~320~~353
Amortization of debt discount	~~1,049~~366			~~986~~344
Amortization of terminated interest rate swaps	~~227~~—			~~257~~166
Debt extinguishment loss	—			291
Interest rate swaps	(410		)	257
Interest rate swaps	166			2,028
Unit-based compensation expense	—			314
Unit-based compensation expense	314			753
Provision for (benefit from) doubtful accounts	(30		)	118
Provision for doubtful accounts	773			2,287
(Gain) loss on sale of property, plant and equipment	587			(256		)
Gain on sale of property, plant and equipment	(621		)	(3,518		)
Deferred income tax provision	416			391
Deferred income tax provision	294			2,918
Amortization of contract costs	4,180			2,101
Amortization of contract costs	7,962			—
Deferred revenue recognized in earnings	(4,768		)	(2,237		)
Non-cash deferred revenue	(9,326		)	—
Changes in assets and liabilities:
Accounts receivable, trade	(5,881		)	(10,255		)
Accounts and other receivables	7,936			(1,639		)
Contract costs	(215,~~176~~566		)	—(6,604		)
Deferred revenue	144,~~010~~150			~~(72~~4,119		)
Other assets and liabilities	1312,~~810~~384			1611,~~625~~613
Net cash provided by operating activities	~~152~~73,~~260~~133			~~137~~57,~~172~~722
Cash flows from investing activities:
Capital expenditures	(~~217~~124,~~692~~541		)	(~~115~~60,~~939~~555		)
Proceeds from sale of property, plant and equipment	179,~~336~~173			1710,~~316~~377
Proceeds from insurance	~~252~~238			—136
Loan receivable due from Archrock	(53,500		)	—
Loans receivable from Archrock, net	(1,350		)	—
Net cash used in investing activities	(~~253~~116,~~604~~480		)	(9850,~~623~~042		)
Cash flows from financing activities:
Proceeds from borrowings of long-term debt	~~425~~690,~~830~~000			~~818~~73,~~500~~830
Repayments of long-term debt	(~~273~~629,~~636~~000		)	(~~846~~61,~~500~~136		)
Payments for debt issuance costs	(37,~~332~~521		)	(142,~~855~~316		)
Payments for settlement of interest rate swaps that include financing elements	(61		)	(1,405		)
(Payments for) proceeds from settlement of interest rate swaps that include financing elements	393			(205		)
Distributions to unitholders	(5317,~~717~~197		)	(5820,~~690~~455		)
Net proceeds from issuance of common units	—			60,291
Contributions from Archrock	21,000			—
Net proceeds from sale of general partner units	9			1,305
Net proceeds from issuance of general partner units	—			9
Purchases of treasury units	~~(250~~—		)	(~~404~~250		)
Increase (decrease) in amounts due to Archrock, net	(1,334		)	3,440
Decrease in amounts due to Archrock, net	(14,409		)	(3,772		)
Net cash provided by (used in) financing activities	9343,~~509~~266			(3814,~~318~~295		)
Net increase (decrease) in cash	(7,835		)	231
Net decrease in cash	(81		)	(6,615		)
Cash at beginning of period	~~8,078~~264			~~217~~8,078
Cash at end of period	$	~~243~~183		$	~~448~~1,463
Supplemental disclosure of non-cash transactions:
Non-cash capital contribution, net from limited and general partner	$	1,544		$	3,855
Non-cash capital contribution, net from limited partner	$	1,031		$	1,825
Contract operations equipment acquired/exchanged, net	$	—		$	(2,149	)
Contract operations equipment acquired, net	(2,867		)	—
Non-cash capital contribution from Archrock	1,840			—

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

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ARCHROCK PARTNERS, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Basis of Presentation

We are a ~~Delaware~~leading ~~limited~~provider ~~partnership~~of ~~formed~~natural ingas ~~June 2006~~compression services to ~~provide~~customers ~~natural~~in ~~gas~~the ~~contract~~oil ~~operations~~and ~~services~~natural togas ~~customers~~industry throughout the U.S. Our contract operations services primarily include designing, sourcing, owning, installing, operating, servicing, repairing and maintaining equipment to provide natural gas compression services to our customers.

~~The~~In ~~accompanying~~April ~~unaudited~~2018, ~~condensed~~Archrock ~~consolidated~~completed ~~financial statements included herein have been prepared in accordance with U.S. GAAP for interim financial information and~~ the ~~rules and~~acquisition ~~regulations~~ of ~~the~~all ~~SEC.~~of ~~Certain~~our ~~information~~outstanding ~~and~~common ~~footnote~~units ~~disclosures~~that ~~normally~~it ~~included~~did ~~in financial statements prepared in accordance with GAAP are~~ not ~~required~~already inown ~~these interim financial statements~~ and ~~have been condensed or omitted. Management believes that the information furnished includes all adjustments~~, ~~consisting~~as ~~only~~a ~~of normal recurring adjustments~~result, ~~which~~we ~~are~~became ~~necessary~~its towholly-owned ~~present fairly our consolidated financial position, results of operations and cash flows for the periods indicated~~subsidiary. ~~The~~See ~~accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements presented in our 2017 Form~~Note 10~~-K,~~ ~~which~~(“Partners’ ~~contains~~Capital”) afor ~~more~~further ~~comprehensive~~details ~~summary~~ of ~~our accounting policies. The interim results reported herein are not necessarily indicative of results for a full year. Certain prior year amounts have been reclassified to conform to~~ the ~~current year presentation~~Merger.

WeThe ~~meet~~accompanying ~~the~~unaudited ~~conditions~~condensed ~~specified~~consolidated financial statements included herein have been prepared in ~~General~~accordance ~~Instruction~~with ~~H(1)(a)~~GAAP and ~~(b)~~the rules and regulations of ~~Form~~the ~~10-Q~~SEC. Certain information and ~~are~~footnote ~~thereby~~disclosures ~~permitted~~normally toincluded ~~use~~in ~~the~~financial ~~reduced~~statements ~~disclosure~~prepared ~~format~~in ~~for~~accordance ~~wholly-owned~~with ~~subsidiaries~~GAAP ofare ~~reporting~~not ~~companies~~required ~~specified~~in ~~therein.~~these ~~Accordingly,~~interim wefinancial statements and have been condensed or omitted. ~~from~~Management ~~this~~believes ~~report~~that the information ~~called~~furnished ~~for~~includes byall ~~Part~~adjustments, Iconsisting ~~Item~~only 3of ~~“Quantitative~~normal ~~and~~recurring ~~Qualitative~~adjustments, ~~Disclosures~~which ~~About~~are ~~Market~~necessary ~~Risk,”~~to ~~Part~~present IIfairly ~~Item~~our 2consolidated ~~“Unregistered~~financial ~~Sales~~position, results of ~~Equity~~operations ~~Securities”~~ and ~~Part~~cash IIflows ~~Item~~for 3the ~~“Defaults~~periods ~~Upon Senior Securities~~indicated.” InThe ~~addition,~~accompanying inunaudited ~~lieu~~condensed ofconsolidated ~~the~~financial ~~information~~statements ~~called~~should ~~for~~be byread ~~Part~~in Iconjunction ~~Item~~with 2the ~~“Management’s~~consolidated ~~Discussion~~financial ~~and~~statements ~~Analysis~~presented ofin ~~Financial~~our ~~Condition~~2018 ~~and~~Form 10-K, ~~Results~~which ofcontains ~~Operations,”~~a wemore ~~have~~comprehensive ~~included,~~summary ~~under~~of ~~Item~~our 2,accounting ~~“Management’s~~policies. ~~Narrative~~The ~~Analysis~~interim ofresults ~~Results~~reported ofherein ~~Operations”~~are tonot ~~explain~~necessarily ~~the~~indicative ~~reasons~~of results for ~~material~~a ~~changes~~full inyear. ~~the~~Certain ~~amount~~prior ofyear ~~revenue~~amounts ~~and~~have ~~expense~~been ~~items~~reclassified ~~between~~to conform to the ~~periods~~current ~~reported~~year ~~herein~~presentation.

Omission of Information by Certain Wholly-Owned Subsidiaries

We meet the conditions specified in General Instruction H(1)(a) and (b) of Form 10-Q and are thereby permitted to use the reduced disclosure format for wholly-owned subsidiaries of reporting companies specified therein. Accordingly, we have omitted from this report the information called for by Part I Item 3 “Quantitative and Qualitative Disclosures About Market Risk,” Part II Item 2 “Unregistered Sales of Equity Securities” and Part II Item 3 “Defaults Upon Senior Securities.” In addition, in lieu of the information called for by Part I Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we have included, under Item 2, “Management’s Narrative Analysis of Results of Operations” to explain the reasons for material changes in the amount of revenue and expense items in the year-to-date periods reported herein.

2. Recent Accounting Developments

Accounting Standards Updates Implemented

On January 1, 2018, we adopted ASU 2017-12 using the modified retrospective approach to existing cash flow hedge relationships as of January 1, 2018. ASU 2017-12 expands and refines hedge accounting for both financial and nonfinancial risk components, aligns the recognition and presentation of the effects of the hedging instrument and hedged item in the financial statements and eliminates the requirement to separately measure and report hedge ineffectiveness. As a result of the adoption of ASU 2017-12, we recognized a net gain of $0.4 million as a cumulative-effect adjustment to opening partners’ capital and a corresponding adjustment to other comprehensive income (loss) to reverse the cumulative ineffectiveness previously recognized in interest expense.

On January 1, 2018, we adopted ASU 2016-15 on a retrospective basis. ASU 2016-15 addresses diversity in practice and simplifies several elements of cash flow classification including how certain cash receipts and cash payments are classified in the statement of cash flows. ASU 2016-15 did not have an impact on our condensed consolidated statement of cash flow for the nine months ended September 30, 2017.

Revenue Recognition Update

On January 1, 2018, we adopted the Revenue Recognition Update using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. We recognized the cumulative effect of initially applying the Revenue Recognition Update as an adjustment to the opening balance of retained earnings. For contracts that were modified before the effective date, we identified performance obligations on the basis of the current version of the contract, which included any contract modifications since inception. The application of the practical expedient for contract modifications did not have a material effect on the adjustment to retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

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Under previous guidance, contract operations revenue was recognized when earned, which generally occurs monthly when the service is provided under our customer contracts. Under the Revenue Recognition Update the timing of revenue recognition is impacted by contractual provisions for service availability guarantees of our compressor assets and re-billable costs associated with moving our compressor assets to a customer site. These changes are further discussed below and did not result in a material difference from previous practice for contract operations.

The Revenue Recognition Update provides guidance on contract costs that should be recognized as assets and amortized over the period that the related goods or services transfer to the customer. Certain costs that were previously expensed as incurred, such as sales commissions and freight charges to transport compressor assets, are deferred and amortized.

The following table summarizes the cumulative impact of the adoption of the Revenue Recognition Update on the opening balance sheet (in thousands):

	December 31, 2017		Adjustments Due to the Revenue Recognition Update		January 1, 2018
Assets
Contract costs	$	—	$	16,316	$	16,316
Liabilities
Accrued liabilities	$	7,597	$	186	$	7,783
Deferred revenue	1,299		3,416		4,715
Partners’ capital
Common units	$	501,023	$	12,462	$	513,485
General partner units	11,582		252		11,834

The following tables summarize the impact of the application of the Revenue Recognition Update on our condensed consolidated balance sheet and condensed consolidated statement of operations (in thousands):

	September 30, 2018
Balance Sheet	As Reported		Balance Excluding the Impact of the Revenue Recognition Update		Effect of Change
Assets
Accounts receivable, trade	$	73,258	$	72,902	$	356
Contract costs	29,531		—		29,531
Liabilities
Accrued liabilities	$	10,489	$	10,256	$	233
Deferred revenue	9,881		2,137		7,744
Other long-term liabilities	9,529		9,534		(5		)
Equity
Common units	$	493,197	$	471,779	$	21,418
General partner units	11,448		10,951		497

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	Three Months Ended September 30, 2018
Statement of Operations	As Reported		Balance Excluding the Impact of the Revenue Recognition Update		Effect of Change
Revenue	$	154,033	$	155,377	$	(1,344	)
Cost of sales (excluding depreciation and amortization)	62,068		66,388		(4,320		)
Selling, general and administrative	18,143		18,693		(550		)
Provision for income taxes	546		539		7
Net income	12,613		9,094		3,519

	Nine Months Ended September 30, 2018
Statement of Operations	As Reported		Balance Excluding the Impact of the Revenue Recognition Update		Effect of Change
Revenue	$	451,901	$	455,920	$	(4,019	)
Cost of sales (excluding depreciation and amortization)	178,596		190,425		(11,829		)
Selling, general and administrative	57,288		58,674		(1,386		)
Provision for income taxes	648		653		(5		)
Net income	33,384		24,183		9,201

Accounting Standards Updates Not Yet Implemented

In August 2018, the FASB issued ASU 2018-13 which amends the required fair value measurements disclosures related to valuation techniques and inputs used, uncertainty in measurement, and changes in measurements applied. These amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. We are currently evaluating the impact of ASU 2018-13 on our consolidated financial statements and footnote disclosures.

In June 2016, the FASB issued ASU 2016-13 that changes the impairment model for most financial assets and certain other instruments, including trade and other receivables, held-to-maturity debt securities and loans, and requires entities to use a new forward-looking expected loss model that will result in the earlier recognition of allowance for losses. For public entities that meet the definition of an SEC filer, ASU 2016-13 is effective for fiscal years beginning after December 15, 2019 and early adoption is permitted. Entities will apply ASU 2016-13 provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. We are currently evaluating the impact of ASU 2016-13 on our consolidated financial statements and footnote disclosures.

Leases

ASC ~~Topic~~ 842 Leases establishes a ROU model that requires a lessee to record a ROU asset and a lease liability on the balance sheet ~~for all leases with terms longer than 12 months~~. Leases ~~will~~are be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. Under the new guidance, lessor accounting is largely unchanged. ~~ASC~~We ~~Topic~~are ~~842~~a ~~Leases~~party isto effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach that involves recasting the comparative periods in the year of initial application is required for leases ~~existing at, or entered into after, the beginning of the earliest comparative period presented~~ in ~~the~~our ~~financial~~contract ~~statements,~~operations ~~with~~services ~~certain transition practical expedients available~~agreements. ~~In July 2018 the FASB provided an optional transition method that would allow adoption of the standard as of the effective date without restating prior periods.~~ We ~~intend~~adopted ~~to adopt~~ ASC ~~Topic~~ 842 Leases on January 1, 2019, ~~using the optional transition method~~ and ~~are~~have ~~currently~~determined ~~assessing~~that ~~the~~ASC ~~transition~~842 ~~practical~~Leases ~~expedients. Upon adoption, we~~ will ~~recognize~~not ~~the~~have ~~cumulative effect of adoption as~~ an ~~adjustment~~impact toon ~~the opening balance of~~ our ~~retained~~condensed ~~earnings.~~consolidated ~~Comparative~~financial ~~information will continue to be reported under the accounting standards in effect for those periods~~statements.

14ASC 842 Leases provides several practical expedients, one of which is for lessors to not separate lease and nonlease components and instead account for those components as a single component if the nonlease components otherwise would be accounted for under the Revenue Recognition Update and certain conditions are met. ASC 842 Leases also provides clarification for lessors on whether ASC 842 Leases or the Revenue Recognition Update is applicable to the combined component based on determination of the predominant component. We have concluded that for our contract operations services agreements, in which we are the lessor, the services nonlease component is predominant over the compression unit lease component and therefore ongoing recognition of these agreements will continue to follow the Revenue Recognition Update guidance.

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~~Additionally,~~Accounting ~~the~~Standards ~~July~~Updates ~~2018~~Not ~~amendment~~Yet provided lessors with a practical expedient to not separate nonlease components from the associated lease component and, instead, to account for those components as a single component if the nonlease components otherwise would be accounted for under the Revenue Recognition Update and certain conditions are met. The amendment also provided clarification on whether ASC Topic 842 or the Revenue Recognition Update is applicable to the combined component based on determination of the predominant component. An entity that elects the lessor practical expedient also should provide certain disclosures. We are evaluating the impact of the July 2018 amendment on our contract operations services agreements and have tentatively concluded that the services nonlease component is predominant, which would result in the ongoing recognition following the Revenue Recognition Update guidance.Implemented

~~Our~~In ~~evaluation~~August of2018, the ~~impact~~FASB ofissued ~~adopting~~ASU ~~ASC~~2018-13 ~~Topic~~which ~~842~~amends ~~Leases~~the isrequired ~~ongoing.~~fair Wevalue ~~have~~measurements ~~established~~disclosures arelated ~~cross-functional~~to ~~implementation~~valuation ~~team~~techniques toand ~~identify~~inputs ~~our~~used, ~~lease~~uncertainty ~~population~~in measurement and changes in measurements applied. These amendments are ~~assessing~~effective ~~changes~~for toall ~~our~~entities ~~internal~~for ~~control~~fiscal ~~structure~~years, ~~business~~and ~~processes,~~interim ~~systems~~periods ~~and~~within ~~accounting~~those ~~policies~~fiscal ~~that~~years, ~~are~~beginning ~~necessary~~after toDecember ~~implement~~15, ~~the~~2019. ~~standard~~Early adoption is permitted. We doare ~~not~~currently ~~believe~~evaluating the ~~standard~~impact ~~will~~of ~~materially~~ASU ~~affect~~2018-13 on our consolidated ~~balance~~financial ~~sheets,~~ statements ofand ~~operations~~footnote ~~or cash flows~~disclosures.

3In June 2016, the FASB issued ASU 2016-13 that changes the impairment model for most financial assets and certain other instruments, including trade and other receivables, held-to-maturity debt securities and loans, and requires entities to use a new forward-looking expected loss model that will result in earlier recognition of allowance for losses. ~~Revenue~~For ~~from~~public ~~Contracts~~entities ~~with~~that ~~Customers~~meet the definition of an SEC filer, ASU 2016-13 is effective for fiscal years beginning after December 15, 2019 and early adoption is permitted. Entities will apply ASU 2016-13 provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. We are currently evaluating the impact of ASU 2016-13 on our consolidated financial statements and footnote disclosures.

~~Revenue~~3. ~~Recognition~~Related Party Transactions

Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we are entitled to receive in exchange for those goods or services. Sales and usage-based taxes that are collected from the customer are excluded from revenue.

The following table presents our revenue from contracts with customers disaggregated by revenue source (in thousands):

	Three Months Ended September 30, 2018		Nine Months Ended September 30, 2018
0 - 1,000 horsepower per unit	$	55,215	$	164,031
1,001 - 1,500 horsepower per unit	63,806		187,890
Over 1,500 horsepower per unit	34,156		98,056
Other (1)	856		1,924
Total revenue (2)	$	154,033	$	451,901

——————

(1) Primarily relates to fees associated with Partnership-owned non-compressor equipment.

(2) Includes $1.4 million and $3.9 million for three and nine months ended September 30, 2018, respectively, related to billable maintenance on Partnership-owned units that was recognized at a point in time. All other revenue is recognized over time.

Contract Operations

We provide comprehensive contract operations services, including the personnel, equipment, tools, materials and supplies to meet our customers’ natural gas compression needs. Based on the operating specifications at the customer location and each customer's unique needs, these services include designing, sourcing, owning, installing, operating, servicing, repairing and maintaining equipment to provide natural gas compression services to our customers.

Natural gas compression services are generally satisfied over time, as the customer simultaneously receives and consumes the benefits provided by these services. Our performance obligation is a series in which the unit of service is one month, as the customer receives substantially the same benefit each month from the services regardless of the type of service activity performed, which may vary. If the transaction price is based on a fixed fee, revenue is recognized monthly on a straight-line basis over the period that we are providing services to the customer. Amounts invoiced to customers for costs associated with moving our compressor assets to a customer site are also included in the transaction price and are amortized over the initial contract term.

Variable consideration exists if customers are billed at a lesser standby rate when a unit is not running. We have elected to apply the invoicing practical expedient to recognize revenue for such variable consideration, as the invoice corresponds directly to the value transferred to the customer based on our performance completed to date. The rate for standby service is lower to reflect the decrease in costs and effort required to provide standby service when a unit is not running.

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We also perform billable maintenance service on our natural gas compression equipment at the customer’s request on an as-needed basis. The performance obligation is satisfied and revenue is recognized at the agreed-upon transaction price at the point in time when service is complete and the customer has accepted the work performed and can obtain the remaining benefits of the service that the unit will provide.

As of September 30, 2018, we had $249.7 million of remaining performance obligations related to our contract compression service. We have elected the practical expedient to not consider the effects of the time value of money, as the expected time between the transfer of services and payment for such services is less than one year. This amount will be recognized through 2022 as follows (in thousands):

	2018				2019				2020				2021				2022				Total
Remaining performance obligations	$	85,439			$	110,145			$	44,906			$	8,132			$	1,073			$	249,695

Contract Balances

Contract operations services are generally billed monthly at the beginning of the month in which service is being provided. We recognize a contract asset when we have the right to consideration in exchange for goods or services transferred to a customer when the right is conditioned on something other than the passage of time. We recognize a contract liability when we have an obligation to transfer goods or services to a customer for which we have already received consideration. Freight billings to transport compressor assets often result in a contract liability.

As of September 30, and January 1, 2018, our receivables from contracts with customers, net of allowance for doubtful accounts were $71.9 million and $66.2 million, respectively. As of September 30, and January 1, 2018, our contract liabilities were $10.1 million and $5.4 million, respectively, which are included in deferred revenue and other long-term liabilities in our condensed consolidated balance sheets. The increase in the contract liability balance during the nine months ended September 30, 2018 was due to the deferral of $14.0 million partially offset by $9.3 million recognized as revenue during the period, each primarily related to freight billings.

4. Related Party Transactions

Revolving Loan Agreement with Archrock

In conjunction with the closing of the Merger ~~on April 26~~, ~~2018,~~ we and Archrock entered into the Revolving Loan Agreement under which we may make loans to Archrock from time to time in an aggregate amount not to exceed the Credit Facility’s outstanding balance. The Revolving Loan Agreement matures on the maturity date of our Credit Facility. Interest on amounts loaned under the Revolving Loan Agreement is payable to us on a monthly basis and is calculated as a proportion of our total interest expense on the Credit Facility.

OnAt ~~April 26~~March 31, ~~2018~~2019, ~~Archrock~~the ~~terminated~~balance ~~its~~of ~~credit~~outstanding ~~facility~~borrowings ~~and~~under ~~repaid~~ the Revolving Loan Agreement was $6321.24 million. inDuring ~~outstanding~~the ~~borrowings~~three ~~and~~months ~~accrued~~ended ~~and~~March 31, ~~unpaid~~2019, ~~interest~~we ~~and~~recorded ~~fees~~$0.2 ~~under~~million ~~the~~of ~~Archrock~~interest ~~credit~~income ~~facility~~earned ~~with~~on aloans ~~borrowing~~to Archrock under the Revolving Loan Agreement. ~~See~~which ~~Note 6~~was ~~(“Long-Term~~included ~~Debt”)~~in ~~and~~interest ~~Note 7~~expense, ~~(“Partners’~~net ~~Capital”)~~in ~~for further details of the Merger and~~ our ~~pay~~condensed ~~down~~consolidated statements of ~~the Archrock credit facility~~operations.

At September 30, 2018, the balance of outstanding borrowings under the Revolving Loan Agreement was $53.5 million. During the three and nine months ended September 30, 2018, we recorded $0.7 million and $1.3 million, respectively, of interest income earned on loans to Archrock under the Revolving Loan Agreement which was included in interest expense, net in our condensed consolidated statements of operations.

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Omnibus Agreement

Our Omnibus Agreement with Archrock provides for, among other things:

• Archrock’s obligation to provide all operational staff, corporate staff and support services reasonably necessary to operate our business and our obligation to reimburse Archrock for such services;

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

• Archrock’s grant to us of a license to use certain intellectual property, including the “Archrock” logo; and

• Archrock’s and our obligations to indemnify each other for certain liabilities.

Common Control Transactions

Transactions between us and Archrock 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 received is treated as a capital distribution or contribution.

~~Transfer,~~Sales ~~Exchange or Lease~~ of Compression Equipment with Archrock

If Archrock determines in good faith that we or Archrock’s contract operations services business ~~need~~needs to ~~transfer,~~sell ~~exchange or lease~~ compression equipment between Archrock and us, the Omnibus Agreement permits such ~~equipment~~transactions ~~to be transferred, exchanged or leased~~ if it will not cause us to breach any existing contracts, suffer a loss of revenue under anany existing ~~compression~~contract operations services ~~contract~~contracts or incur any unreimbursed costs. InAs consideration for ~~such~~the ~~transfer,~~sale ~~exchange or lease~~ of compression equipment, the transferee will ~~either~~make ~~(i)~~a ~~transfer~~distribution to ~~the~~or ~~transferor~~receive ~~compression~~a ~~equipment~~contribution ~~equal in value to the appraised value of the compression equipment transferred to it, (ii) agree to lease such compression equipment~~ from the transferor orin ~~(iii) pay the transferor~~ an amount ~~in cash~~ equal to the ~~appraised~~net book value of the compression equipment ~~transferred to it~~sold.

The ~~TCJA~~following ~~made~~table ~~significant~~summarizes ~~changes~~compressor tounit ~~the~~sales ~~determination~~activity ofbetween ~~partnership~~Archrock ~~taxable~~and ~~income~~us ~~that~~(dollars ~~included~~in ~~the cessation of like-kind exchange treatment for exchanges of tangible personal property. In accordance with this change, we no longer perform such exchanges as of January 1, 2018.~~ thousands):

Transfer and Exchange of Overhauls



	Three Months Ended March 31, 2019
	Sold to Archrock		Purchased from Archrock
Compressor units	11		30
Horsepower	8,441		10,089
Net book value	$	6,993	$	4,126

During the nine months ended September 30, 2018 and September 30, 2017, Archrock contributed to us $1.7 million and $3.9 million, respectively, 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.12

Other Exchanges

The following table summarizes the like-kind exchange activity between Archrock and us for the nine months ended September 30, 2017 prior to the enactment of the TCJA (dollars in thousands):

	Nine Months Ended September 30, 2017
	Transferred to Archrock		Transferred from Archrock
Compressor units	199		170
Horsepower	109,800		99,500
Net book value	$	47,824	$	45,664

During the nine months ended September 30, 2017, we recorded capital distributions of $2.1 million related to the differences in net book value on the exchanged compression equipment. No customer contracts were included in the exchanges.

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~~Leases~~During the three months ended March 31, 2019, we recorded a capital distribution of $2.9 million related to the difference in net book value of the compression equipment sold to and acquired from Archrock. In addition, in accordance with the Omnibus Agreement, we recorded a capital contribution of $1.8 million which represented the net excess of the fair market value of the equipment sold to Archrock over the equipment purchased from Archrock. No customer contracts were included in these sales.

~~The~~Transfers ~~following table summarizes the aggregate cost and accumulated depreciation~~ of ~~equipment on lease to and from Archrock (in thousands):~~Overhauls

	September 30, 2018		December 31, 2017
Equipment on lease to Archrock
Aggregate cost	$	40,212	$	3,560
Accumulated depreciation	5,783		272
Equipment on lease from Archrock
Aggregate cost	$	67,048	$	224
Accumulated depreciation	33,337		34

During the three months ended March 31, 2019 and 2018, Archrock contributed to us $1.0 million and $1.8 million, respectively, related to the completion of overhauls on compression equipment that was sold to us and where the overhauls were in progress on the date of the sale.

The following table summarizes the revenue from Archrock related to the lease of our compression equipment and the cost of sales related to the lease of Archrock compression equipment (in thousands):

	Nine Months Ended September 30,
	2018		2017
Revenue	$	984	$	356
Cost of sales	1,924		719

Reimbursement of Operating and SG&A Expense

Archrock 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.

Archrock charges us for costs that are directly attributable to us. Costs that are indirectly attributable to us and Archrock’s other operations are allocated among Archrock’s other operations and us. The allocation methodologies vary based on the nature of the charge and have included, among other things, headcount and horsepower. We believe that the allocation methodologies used to allocate indirect costs to us are reasonable.

54. ~~Contract~~Long-Term ~~Costs~~Debt

We capitalize incremental costs to obtain a contract with a customer if we expect to recover those costs. Capitalized costs include commissions paid to our sales force to obtain contract operations contracts. As of September 30, and January 1, 2018, we recorded contract costs of $3.3 million and $2.0 million, respectively, associated with sales commissions.

We capitalize costs incurred to fulfill a contract if those costs relate directly to a contract, enhance resources that we will use in satisfying performance obligations and if we expect to recover those costs. Capitalized costs incurred to fulfill our customer contracts include freight charges to transport compressor assets before transferring services to the customer and mobilization activities associated with our contract operations services. As of September 30, and January 1, 2018, we recorded contract costs of $26.2 million and $14.3 million, respectively, associated with freight and mobilization.

Contract operations costs are amortized based on the transfer of service to which the assets relate, which is estimated to be 36 months based on average contract term, including anticipated renewals. We assess periodically whether the 36-month estimate fairly represents the average contract term and adjust as appropriate. Contract costs associated with commissions are amortized to SG&A. Contract costs associated with freight and mobilization are amortized to cost of sales (excluding depreciation and amortization). During the three and nine months ended September 30, 2018, we amortized $0.4 million and $0.9 million, respectively, related to commissions and $2.8 million and $7.1 million, respectively, related to freight and mobilization. During the three and nine months ended September 30, 2018, there were no impairment losses recorded in relation to the costs capitalized.

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6. Long-Term Debt

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

	September 30, 2018			December 31, 2017
	March 31, 2019			December 31, 2018
Credit Facility	$	~~826~~400,500		$	~~674~~839,~~306~~500
6.875% senior notes due April 2027	500,000			—
Less: Deferred financing costs, net of amortization	(9,111		)	—
	490,889			—
6% senior notes due April 2021	350,000			350,000
Less: Debt discount, net of amortization	(1,~~977~~598		)	(21,~~523~~789		)
Less: Deferred financing costs, net of amortization	(2,~~568~~055		)	(32,~~338~~311		)
	345,455			344,139
	346,347			345,900
6% senior notes due October 2022	350,000			350,000
Less: Debt discount, net of amortization	(2,~~938~~590		)	(32,~~441~~766		)
Less: Deferred financing costs, net of amortization	(32,~~338~~929		)	(3,~~951~~133		)
	343,724			342,608
	344,481			344,101
Long-term debt	$	1,~~515~~582,~~679~~217		$	1,~~361~~529,~~053~~501

Credit Facility

~~The~~As ~~Credit~~of ~~Facility~~March 31, is2019, awe ~~five-year,~~had $115.252 ~~billion~~million ~~asset-based~~letters ~~revolving~~of credit ~~facility~~outstanding ~~that~~under ~~will~~the ~~mature~~Credit onFacility ~~March 30,~~and ~~2022~~the ~~except~~applicable ~~that~~margin ifon ~~any~~borrowings ~~portion~~outstanding ofwas ~~our 6~~2.7%. ~~senior~~The ~~notes~~weighted ~~due~~average ~~April~~annual ~~2021~~interest ~~are~~rate ~~outstanding~~on asthe ofoutstanding ~~December 2,~~balance ~~2020,~~under ~~then~~the ~~maturity~~Credit ~~will~~Facility, ~~instead~~excluding bethe oneffect ~~December 2,~~of ~~2020.~~interest Inrate ~~March 2017~~swaps, wewas ~~incurred $14~~5.93% ~~million~~and ~~in transaction costs related to the formation of the Credit Facility~~5.4% ~~Concurrent~~at ~~with~~March 31, ~~entering~~2019 ~~into~~and ~~the~~December 31, ~~Credit Facility~~2018, werespectively. ~~expensed~~We incurred $0.65 million ofin ~~unamortized~~commitment ~~deferred~~fees ~~financing~~on ~~costs~~the ~~and~~daily ~~recorded~~unused aamount ~~debt~~of ~~extinguishment~~the ~~loss~~Credit ofFacility ~~$0.3~~during ~~million~~each ~~related~~of to the ~~termination~~three ofmonths ~~our~~ended ~~Former~~March 31, ~~Credit~~2019 ~~Facility~~and 2018.

~~On February 23, 2018, we amended the Credit Facility to, among other things:~~13

• increase the maximum Total Debt to EBITDA ratios, as defined in the Credit Facility agreement (see below for the revised ratios), effective as of the execution of Amendment No. 1 on February 23, 2018; and

• effective upon completion of the Merger on April 26, 2018:

– increase the aggregate revolving commitment from $1.1 billion to $1.25 billion;

– increase the amount available for the issuance of letters of credit from $25.0 million to $50.0 million;

– increase the basket sizes under certain covenants including covenants limiting our ability to make investments, incur debt, make restricted payments, incur liens and make asset dispositions;

– name Archrock Services, L.P., one of Archrock’s subsidiaries, as a borrower under the Credit Facility and certain of Archrock’s other subsidiaries as loan guarantors; and

– amend the definition of “Borrowing Base” to include certain assets of Archrock’s subsidiaries.

We incurred $3.3 million in transaction costs related to Amendment No. 1 which were included in other long-term assets in our condensed consolidated balance sheet and are being amortized over the term of the Credit Facility.

On April 26, 2018, in connection with the Merger and Amendment No. 1, Archrock terminated its credit facility and we borrowed on our Credit Facility to repay the $63.2 million in borrowings and accrued and unpaid interest and fees outstanding under the Archrock credit facility, which we recorded as a loan receivable due from Archrock (see Note 4 (“Related Party Transactions”) for further details of the loan receivable). In addition, the $15.4 million of letters of credit outstanding under Archrock’s credit facility as of the Merger were converted to letters of credit under our Credit Facility.

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AsWe ofmust ~~September 30,~~maintain ~~2018, we had $15.4 million outstanding letters of credit under~~ the ~~Credit~~following ~~Facility~~consolidated ~~and~~financial ~~the applicable margin on amounts outstanding under the Credit Facility was 3.2%. The weighted average annual interest rate on the outstanding balance under the Credit Facility~~ratios, ~~excluding~~as ~~the~~defined ~~effect of interest rate swaps, was 5.5% and 4.8% at September 30, 2018 and December 31, 2017, respectively. We incurred $0.6 million~~ in ~~commitment~~our ~~fees on the daily unused amount of the~~ Credit Facility and Former Credit Facility during each of the three months ended September 30, 2018 and 2017, and $1.7 million and $1.5 million during the nine months ended September 30, 2018 and 2017, respectively.agreement:

We must maintain the following consolidated financial ratios, as defined in the Credit Facility agreement:



EBITDA to Interest Expense	2.5 to 1.0
Senior Secured Debt to EBITDA	3.5 to 1.0
Total Debt to EBITDA
Through fiscal year 2018	5.95 to 1.0
Through fiscal year 2019	5.75 to 1.0
Through second quarter of 2020	5.50 to 1.0
Thereafter ⁽¹⁾	5.25 to 1.0

——————


⁽¹⁾	Subject to a temporary increase to 5.5 to 1.0 for any quarter during which an acquisition satisfying certain thresholds is completed and for the two quarters immediately following such quarter.

As ~~of September 30, 2018, we had undrawn capacity of $408.1 million under the Credit Facility. As~~ a result of the ratio requirements above, $~~324~~485.08 million of the $~~408~~834.13 million of undrawn capacity was available for additional borrowings as of ~~September~~March 3031, ~~2018~~2019. As of ~~September~~March 3031, ~~2018~~2019, we were in compliance with all covenants under the Credit Facility agreement.

~~The~~2027 Notes

~~The~~On ~~Notes~~March ~~are~~21, ~~guaranteed~~2019, onwe completed a ~~senior~~private ~~unsecured~~offering ~~basis~~of by$500.0 ~~all~~million ofaggregate ~~our~~principal ~~existing~~amount ~~subsidiaries~~of ~~(other~~6.875% ~~than~~senior ~~Archrock~~notes ~~Partners~~due ~~Finance~~April ~~Corp~~2027., ~~which~~We isreceived anet ~~co-issuer~~proceeds of ~~the~~$490.9 ~~Notes)~~million ~~and~~after ~~certain~~deducting ofissuance ~~our future subsidiaries~~costs. The ~~Notes~~$9.1 ~~and~~million ~~the~~of ~~guarantees,~~issuance ~~respectively,~~costs ~~are~~were ~~our~~recorded ~~and~~as ~~the~~deferred ~~guarantors’~~financing ~~general~~costs ~~unsecured~~within ~~senior~~long-term ~~obligations,~~debt ~~rank equally~~ in ~~right of payment with all of~~ our ~~and~~condensed ~~the~~consolidated ~~guarantors’~~balance ~~other~~sheets ~~senior obligations,~~ and are ~~effectively~~being ~~subordinated~~amortized to ~~all~~interest ofexpense in our ~~and~~condensed ~~the~~consolidated ~~guarantors’~~statement ~~existing~~of ~~and~~operations ~~future~~over ~~secured debt to~~ the ~~extent~~term of the ~~value of the collateral securing such indebtedness~~notes. InThe ~~addition,~~net ~~the~~proceeds ~~Notes~~were ~~and~~used ~~guarantees are effectively subordinated~~ to ~~all~~repay ~~existing~~borrowings ~~and~~outstanding ~~future~~under ~~indebtedness~~our ~~and~~Credit ~~other~~Facility ~~liabilities~~as of ~~any~~March ~~future~~31, ~~non-guarantor subsidiaries~~2019. ~~All~~In ofApril ~~our subsidiaries are 100% owned~~2019, ~~directly~~we orborrowed ~~indirectly,~~on ~~by us and guarantees by~~ our ~~subsidiaries~~Credit ~~are~~Facility ~~full~~to ~~and~~repay ~~unconditional~~the ~~and constitute joint and several obligations~~$350.0 Wemillion ~~have no assets or operations independent~~ of our ~~subsidiaries~~6% ~~and~~senior ~~there~~notes ~~are~~due noApril ~~significant restrictions upon our subsidiaries’ ability to distribute funds to us~~2021. ~~Archrock~~See ~~Partners~~Note 12 Finance Corp. has no operations and does not have revenue other than as may be incidental as co-issuer of the Notes. Because we have no independent operations, the guarantees are full and unconditional (~~subject~~“Subsequent ~~to customary release provisions~~Events”) ~~and~~for ~~constitute~~further ~~joint~~details ~~and several obligations~~ of ~~our~~the ~~subsidiaries other than Archrock Partners Finance Corp~~redemption. ~~and as a result, we have not included consolidated financial information of our subsidiaries.~~

7The 2027 Notes have not been and will not be registered under the Securities Act or the securities laws of any other jurisdiction and may not be offered or sold in the U.S. ~~Partners’~~except ~~Capital~~pursuant to a registration exemption under the Securities Act and applicable state securities laws. We offered and issued the 2027 Notes only to qualified institutional buyers in accordance with Rule 144A under the Securities Act and to certain non-U.S. persons outside the U.S. in accordance with Regulation S under the Securities Act.

~~Merger~~The ~~Transaction~~2027 Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by Archrock and all of its existing subsidiaries, other than Archrock Partners, L.P. and APLP Finance Corp., which are co-issuers of the 2027 Notes, and certain of its future subsidiaries. The 2027 Notes and the guarantees rank equally in right of payment with all of Archrock and the guarantors’ existing and future senior indebtedness.

OnPrior to April 261, ~~2018~~2022, ~~Archrock~~we ~~completed~~may ~~the~~redeem ~~acquisition~~all or part of ~~all~~the 2027 Notes at a redemption price equal to 100% of ~~our~~the ~~outstanding~~principal ~~common~~amount ~~units~~of ~~and~~the we2027 ~~became~~Notes plus a ~~wholly~~make-~~owned~~whole ~~subsidiary~~premium ofplus ~~Archrock~~accrued and unpaid interest, if any. ~~With~~We may also redeem up to 35% of the ~~closing~~aggregate principal amount of the ~~Merger~~2027 Notes prior to April 1, ~~Archrock~~2022 ~~issued~~with ~~57.6~~the ~~million~~net ~~shares~~proceeds of ~~its~~one ~~common~~or ~~stock~~more equity offerings at a ~~fixed~~redemption ~~exchange~~price ~~ratio~~ of 1106.40875% ~~shares~~of ~~for~~the ~~each~~principal amount of the ~~41.2~~2027 ~~million~~Notes ~~common~~plus ~~units~~any ~~not~~accrued ~~owned~~and byunpaid ~~Archrock~~interest ~~prior~~as tolong as at least 65% of the ~~Merger.~~aggregate ~~Additionally,~~principal ~~all~~amount ~~outstanding~~of ~~treasury~~the ~~units~~2027 ~~were~~Notes ~~retired~~remains outstanding after such redemption and ~~our~~the ~~incentive~~redemption ~~distribution~~occurs ~~rights,~~within ~~all~~180 days of ~~which~~the ~~were~~closing ~~previously~~of ~~owned~~such ~~indirectly~~equity byoffering. ~~Archrock~~On ~~prior~~or toafter ~~the~~April 1, ~~Merger~~2022, ~~were~~we ~~canceled~~may ~~and~~redeem ~~ceased~~all or part of the 2027 Notes at redemption prices equal to ~~exist~~105.156%, As103.438% aand ~~result~~101.719% offor the ~~Merger,~~12-month ~~our~~periods ~~common~~beginning ~~units~~on ~~are~~April no1, ~~longer~~2022, ~~publicly~~2023 ~~traded~~and 2024, respectively, and 100.000% ~~Our~~beginning ~~Notes~~on ~~were~~April ~~not~~1, ~~impacted~~2025 byand ~~the~~at ~~Merger~~any time thereafter, plus any accrued and ~~remain~~unpaid ~~outstanding~~interest.

Prior to the Merger, public unitholders held a 57% ownership interest in us and Archrock owned our remaining equity interests, including 29,064,637 common units and 1,422,458 general partner units, collectively representing a 43% interest in us.14

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~~Capital~~6% ~~Offering~~Notes

InThe ~~August~~6% ~~2017,~~Notes weare ~~sold,~~guaranteed ~~pursuant~~on to a ~~public~~senior ~~underwritten~~unsecured ~~offering,~~basis ~~4,600,000~~by ~~common~~all ~~units,~~of ~~including~~our ~~600,000~~existing ~~common~~subsidiaries ~~units~~(other ~~pursuant~~than toArchrock anPartners ~~over-allotment~~Finance ~~option~~Corp., Wewhich ~~received~~is ~~net~~a ~~proceeds~~co-issuer of ~~$60~~the 6% Notes) and certain of our future subsidiaries.3 ~~million~~The ~~after~~6% ~~deducting~~Notes ~~underwriting~~and ~~discounts~~the guarantees, ~~commissions~~respectively, are our and ~~offering~~the ~~expenses~~guarantors’ general unsecured senior obligations, ~~which~~rank weequally ~~used~~in right of payment with all of our and the guarantors’ other senior obligations and are effectively subordinated to ~~repay~~all ~~borrowings~~of ~~outstanding~~our ~~under~~and the ~~Credit~~guarantors’ ~~Facility~~existing and future secured debt to the extent of the value of the collateral securing such indebtedness. In ~~connection~~addition, ~~with~~the ~~this~~6% ~~sale~~Notes and asguarantees ~~permitted~~are ~~under~~effectively subordinated to all existing and future indebtedness and other liabilities of any future non-guarantor subsidiaries. All of our ~~partnership~~subsidiaries ~~agreement~~are 100% owned, wedirectly ~~sold~~or 93indirectly,~~163~~ ~~general~~by ~~partner~~us ~~units~~and toguarantees by our ~~general~~subsidiaries ~~partner~~are sofull itand ~~could~~unconditional ~~maintain~~and ~~its~~constitute ~~approximate~~joint 2%and ~~general~~several ~~partner~~obligations. ~~interest~~We inhave no assets or operations independent of our subsidiaries and there are no significant restrictions upon our subsidiaries’ ability to distribute funds to us. WeArchrock ~~received~~Partners ~~net~~Finance ~~proceeds~~Corp. has no operations and does not have revenue other than as may be incidental as co-issuer of $1the 6% Notes.3 ~~million~~Because ~~from~~we have no independent operations, the ~~general~~guarantees ~~partner~~are ~~contribution~~full and unconditional (subject to customary release provisions) and constitute joint and several obligations of our subsidiaries other than Archrock Partners Finance Corp. and as a result, we have not included consolidated financial information of our subsidiaries.

~~Cash~~5. ~~Distributions~~Revenue from Contracts with Customers

AsDisaggregation of the closing of the Merger, any distributions are paid to Archrock as the owner of all outstanding common and general partner units. In the nine months ended September 30, 2018 we paid cash distributions of $0.7492 per common unit, or $53.7 million, which covered the period from October 1, 2017 through June 30, 2018.Revenue

OnThe ~~October 29,~~following ~~2018,~~table presents our ~~board~~revenue offrom ~~directors~~contracts ~~approved~~with acustomers ~~cash~~disaggregated ~~distribution~~by ofrevenue ~~$0.2432~~source ~~per~~(in ~~common unit, or approximately $17.4 million, which covers the period from July 1, 2018 through September 30, 2018.~~thousands):

8. Unit-Based Compensation



	Three Months Ended March 31,
	2019		2018
0 - 1,000 horsepower per unit	$	58,161	$	54,427
1,001 - 1,500 horsepower per unit	68,207		60,694
Over 1,500 horsepower per unit	39,025		31,435
Other ⁽¹⁾	326		446
Total revenue ⁽²⁾	$	165,719	$	147,002

~~Long-Term Incentive Plan~~——————

In(1) ~~April~~Primarily ~~2017,~~relates ~~we adopted the 2017 LTIP~~ to ~~provide~~fees ~~for~~associated ~~the~~with ~~benefit~~Partnership-owned of the employees, directors and consultants of us, Archrock and our respective affiliates. The 2006 LTIP expired in 2016 and, as such, no further grants have been or can be made under that plan following expiration. Previous grants made under the 2006 LTIP continue to be governed by the 2006 LTIP and the applicable award agreements. Because we grant phantom units to non-~~employees,~~compressor we are required to remeasure the fair value of these phantom units, which is based on the fair value of our common units, each period and record a cumulative adjustment of the expense previously recognizedequipment. Phantom units granted under the 2017 and 2006 LTIP may 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 granted generally vest one-third per year on dates as specified in the applicable award agreements subject to continued service through the applicable vesting date. During the nine months ended September 30, 2018, 53,091 phantom units vested with a weighted average grant date fair value per unit of $11.24.

~~Pursuant~~(2) toIncludes ~~the~~$2.1 ~~Merger,~~million ~~all~~and ~~outstanding~~$1.1 ~~phantom~~million ~~units~~for ~~previously granted under~~ the ~~2017~~three ~~and~~months ~~2006~~ended ~~Partnership~~March ~~LTIP~~31, ~~were~~2019 ~~converted~~and ~~into comparable awards based on Archrock’s common shares. As such~~2018, ~~all outstanding phantom units were converted~~respectively, ~~effective~~related asto ofbillable ~~the~~maintenance ~~closing~~on ofPartnership-owned ~~the Merger, into Archrock restricted stock~~ units. ~~See~~that ~~Note 7~~was ~~(“Partners’~~recognized ~~Capital”)~~at ~~for~~a ~~further~~point ~~details~~in ~~of the Merger~~time. ~~Each~~All ~~Archrock restricted stock unit will be subject to the same vesting, forfeiture and~~ other ~~terms~~revenue ~~and~~is ~~conditions~~recognized ~~applicable~~over ~~to the converted Partnership phantom units~~time.

9.Performance ~~Derivatives~~Obligations

As of March 31, 2019, we had $261.3 million of remaining performance obligations related to our contract operations segment. We have elected to apply the practical expedient to not consider the effects of the time value of money, as the expected time between the transfer of services and payment for such services is less than one year. The remaining performance obligations will be recognized through 2022 as follows (in thousands):



	2019		2020		2021		2022		2023		Total
Remaining performance obligations	$	162,137	$	77,913	$	19,075	$	2,170	$	20	$	261,315

Contract Balances

As of March 31, 2019 and December 31, 2018, our receivables from contracts with customers, net of allowance for doubtful accounts were $78.7 million and $78.6 million, respectively. As of March 31, 2019 and December 31, 2018, our contract liabilities were $9.1 million and $9.7 million, respectively, which are included in deferred revenue and other liabilities in our condensed consolidated balance sheets. Freight billings to customers for the transport of compressor assets often result in a contract liability. During the three months ended March 31, 2019 and 2018 we recognized $4.8 million and $2.2 million, respectively, as revenue during the period primarily related to freight billings.

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6. Derivatives

We are exposed to market risks associated with changes in the variable interest rate of the Partnership Credit Facility. We use derivative instruments to manage our exposure to fluctuations in this variable interest rate and thereby minimize the risks and costs associated with financial activities. We do not use derivative instruments for trading or other speculative purposes.

At ~~September~~March 3031, ~~2018~~2019, we were a party to the following interest rate swaps, which were entered into to offset changes in expected cash flows due to fluctuations in the associated variable interest rates (in millions):

Expiration Date	Notional Value
May 2019	$	100.0
May 2020	100.0
March 2022	300.0
	$	500.0

The counterparties to our derivative agreements are major 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.

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We have designated these interest rate swaps as cash flow hedging instruments and so any change in their fair value is recognized as a component of other comprehensive income (loss) until the hedged transaction affects earnings. At that time, amounts are reclassified into earnings to interest expense, net, the same statement of operations line item to which the earnings effect of the hedged item is recorded. 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.

We expect the hedging relationship to be highly 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. ~~Prior~~We toperform ~~adoption~~quarterly ofqualitative ~~ASU~~prospective ~~2017-12,~~and weretrospective ~~performed~~hedge ~~quarterly~~effectiveness ~~calculations~~assessments tounless ~~determine~~facts ~~whether~~and ~~the~~circumstances ~~swap~~related ~~agreements continued~~ to bethe ~~highly~~hedging ~~effective~~relationships atchange ~~achieving~~such ~~offsetting~~that ~~changes~~we incan ~~cash~~no ~~flows~~longer ~~attributable~~assert toqualitatively that the ~~hedged~~cash ~~risk.~~flow ~~Upon~~hedge ~~adoption~~relationships ofwere ~~ASU~~and ~~2017-12,~~continue weto ~~perform~~be ~~quarterly~~highly ~~qualitative~~effective. ~~prospective~~During ~~and~~the ~~retrospective~~three ~~hedge~~months ~~effectiveness~~ended ~~assessments~~March ~~unless~~31, ~~facts~~2019, ~~and~~we ~~circumstances~~performed ~~related~~a toquantitative ~~the~~assessment ~~hedging~~of ~~relationships~~hedge ~~change~~effectiveness. ~~such~~The ~~that~~results weindicated ~~can~~the nointerest ~~longer~~rate ~~assert~~swap ~~qualitatively that the~~ cash flow hedge ~~relationships~~relationship ~~were~~was and ~~continue~~continues to be highly effective. We estimate that $32.64 million of the deferred gain attributable to interest rate swaps included in accumulated other comprehensive income ~~(loss)~~ at ~~September~~March 3031, ~~2018~~2019 will be reclassified into earnings as interest income at then-current values during the next ~~twelve~~12 months as the underlying hedged transactions occur.

InAs ~~August 2017, we amended the terms~~ of ~~$300.0 million of our interest rate swap agreements to adjust the fixed interest rate and extend the maturity dates to~~ March ~~2022. These amendments effectively created new derivative contracts and terminated the old derivative contracts. As a result~~31, ~~as of the amendment date~~2019, ~~we discontinued~~ the ~~original~~weighted ~~cash~~average ~~flow~~effective ~~hedge~~fixed ~~relationships on a prospective basis and designated the amended~~ interest rate ~~swaps under new cash flow hedge relationships based~~ on ~~the~~our ~~amended terms. The fair value of the~~ interest rate swaps ~~immediately prior to the execution of the amendments~~ was ~~a liability of $0~~1.~~7 million~~8%. ~~The associated amount in accumulated other comprehensive income (loss) was amortized into interest expense over the original terms of the interest rate swaps through May 2018.~~

As of September 30, 2018, the weighted average effective fixed interest rate on our interest rate swaps was 1.8%.

The following table presents the effect of our derivative instruments designated as cash flow hedging instruments on our condensed consolidated balance sheets (in thousands):

	Fair Value Asset (Liability)
	September 30, 2018		December 31, 2017
	March 31, 2019		December 31, 2018
Current portion of interest rate swaps	$	3,592	$	186
Derivative asset	$	2,428	$	3,185
Other long-term assets	9,487		4,490
Other assets	1,654		4,122
Current portion of interest rate swaps	—		(134		)
	$	4,082	$	7,307
	$	13,079	$	4,542

The following tables present the effect of our derivative instruments designated as cash flow hedging instruments on our condensed consolidated statements of operations (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months EndedMarch 31,
	2018			2017			2018			2017
	2019			2018
Pre-tax gain recognized in other comprehensive income (loss)	$	1,642		$	1,919		$	8,583		$	2,282
Pre-tax gain (loss) recognized in other comprehensive income (loss)	$	(2,299	)	$	4,696
Pre-tax gain (loss) reclassified from accumulated other comprehensive income (loss) into interest expense, net	429			(652		)	(20		)	(2,427		)
Pre-tax gain (loss) reclassified from accumulated other comprehensive income into interest expense, net	926			(455		)

	Three Months Ended September 30, 2018		Nine Months Ended September 30, 2018
Total amount of interest expense, net in which the effects of cash flow hedges are recorded	$	22,767	$	66,918
Amount of gain reclassified from accumulated other comprehensive income (loss) into interest expense, net	429		582

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10. Fair Value Measurements



	Three Months Ended March 31,
	2019		2018
Total amount of interest expense, net in which the effects of cash flow hedges are recorded	$	23,428	$	21,609
Amount of gain (loss) reclassified from accumulated other comprehensive income into interest expense, net	926		(54		)

See Note 7 (“Fair Value Measurements”) for further details on our derivative instruments.

7. Fair Value Measurements

The accounting standard for fair value measurements and disclosures establishes a fair value hierarchy that prioritizes the inputs of valuation techniques used to measure fair value into the following three categories:


•	Level 1 — Quoted unadjusted prices for identical instruments in active markets to which we have access at the date of measurement.

•

Level 2 — Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. Level 2 inputs are those in markets for which there are few transactions, the prices are not current, little public information exists or prices vary substantially over time or among brokered market makers.


•	Level 3 — Model-derived valuations in which one or more significant inputs or significant value drivers are unobservable. Unobservable inputs are those inputs that reflect our own assumptions regarding how market participants would price the asset or liability based on the best available information.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

On a quarterly basis, our interest rate swaps are valued based on the income approach (discounted cash flow) using market observable inputs, including London Interbank Offered Rate forward curves. These fair value measurements are classified as Level 2. Our interest rate swap assets measured at fair value on a recurring basis with pricing levels as of March 31, 2019 and December 31, 2018 were $4.1 million and $7.3 million, respectively.

The following table presents our interest rate swaps asset and liability measured at fair value on a recurring basis with pricing levels as of the date of valuation (in thousands):

	September 30, 2018		December 31, 2017
Interest rate swaps asset	$	13,079	$	4,676
Interest rate swaps liability	—		(134		)

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

During the ~~nine~~three months ended ~~September~~March 3031, ~~2018~~2019, we recorded non-recurring fair value measurements related to our idle and previously-culled compressor units. Our estimate of the compressor units’ fair value was primarily based on 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. These fair value measurements are classified as Level 3. The fair value of our impaired compressor units was $0.83 million and $1.80 million at ~~September~~March 3031, ~~2018~~2019 and December 31, ~~2017~~2018, respectively. See Note 118 (“Long-Lived Asset Impairment”) for further details.

Other Financial Instruments

The carrying amounts of our cash, receivables and payables approximate fair value due to the short-term nature of those instruments.

The carrying amount of borrowings outstanding under our Credit Facility approximates fair value due to its variable interest rate. The fair value of these outstanding borrowings 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.

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The fair value of our fixed rate debt was estimated based on quoted prices in inactive markets and is considered a Level 2 measurement. The following table summarizes the carrying amount and fair value of our fixed rate debt (in thousands):

	September 30, 2018		December 31, 2017
	March 31, 2019		December 31, 2018
Carrying amount of fixed rate debt (1)	$	~~689~~1,~~179~~181,717	$	~~686~~690,~~747~~001
Fair value of fixed rate debt	~~706~~1,216,000		~~702~~674,000

——————

(1) Carrying amounts are shown net of unamortized debt discounts and unamortized deferred financing costs. See Note 64 (“Long-Term Debt”) ~~for further details~~.

238. Long-Lived Asset Impairment

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11. 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.

We periodically review the future deployment of our idle compression assets for units that are not of the type, configuration, condition, make or model that are cost efficient to maintain and operate. Based on these reviews, we determine that certain idle compressor units should be retired from the active fleet. The retirement of these units from the active fleet triggers a review of these assets for impairment and as a result of our review, we may record an asset impairment to reduce the book value of each unit to its estimated fair value. The fair value of each unit is estimated based on the expected net sale proceeds compared to other fleet units we recently sold, 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 review of our idle compression assets, we evaluate for impairment idle units that were culled from our fleet in prior years and are available for sale. Based on that review, we may reduce the expected proceeds from disposition and record additional impairment to reduce the book value of each unit to its estimated fair value.

The following table presents the results of our impairment review (dollars in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	Three Months EndedMarch 31,
	2018		2017		2018		2017
	2019		2018
Idle compressor units retired from the active fleet	3515		4535		~~140~~		~~150~~
Horsepower of idle compressor units retired from the active fleet	1413,000		1813,000		~~44,000~~		~~53,000~~
Impairment recorded on idle compressor units retired from the active fleet	$	32,~~673~~684	$	53,~~368~~066	$	~~10,585~~	$	~~14,659~~

129. Income Taxes

Unrecognized Tax Benefits

As of ~~September~~March 3031, ~~2018~~2019, we believe it is reasonably possible that $01.92 million of our unrecognized tax benefits, including penalties and interest, will be reduced prior to ~~September~~March 3031, ~~2019~~2020 due to the settlement of audits or the expiration of statutes of limitations or both. However, due to the uncertain and complex application of the tax regulations, it is possible that the ultimate resolution of these matters may result in liabilities which could materially differ from this estimate.

1310. ~~Commitments~~Partners’ ~~and~~Capital ~~Contingencies~~

Merger Transaction

In April 2018, Archrock completed the acquisition of all of our outstanding common units and we became a wholly-owned subsidiary of Archrock. Additionally, all outstanding treasury units were retired and our incentive distribution rights, all of which were previously owned by Archrock prior to the Merger, were canceled and ceased to exist. As a result of the Merger, our common units are no longer publicly traded. Our 6% Notes were not impacted by the Merger.

Prior to the Merger, at March 31, 2018, public unitholders held a 57% ownership interest in us and Archrock owned our remaining equity interests, including 29,064,637 common units and 1,422,458 general partner units, collectively representing a 43% interest.

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Cash Distributions

As of the closing of the Merger, any distributions are paid to Archrock as the owner of all outstanding common and general partner units. On April 26, 2019, our board of directors approved a cash distribution of $0.24 per common unit, or approximately $17.2 million, to be paid to Archrock on May 14, 2019.

11. Commitments and Contingencies

Insurance Matters

Our business can be hazardous, involving unforeseen circumstances such as uncontrollable flows of natural gas or well fluids and fires or explosions. Archrock insures our property and operations against many, but not all, of these risks. We believe that our insurance coverage is customary for the industry and adequate for our business; however, losses and liabilities not covered by insurance would increase our costs.

In addition, Archrock is substantially self-insured for worker’s compensation, employer’s liability, property, auto liability, general liability and employee group health claims in view of the relatively high per-incident deductibles it absorbs under its insurance arrangements for these risks. Losses up to the deductible amounts are estimated and accrued based upon known facts, historical trends and industry averages.

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Tax Matters

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~~each of March 3031, ~~2018~~2019 and December 31, ~~2017~~2018, we accrued $23.72 million ~~and $1.6 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 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 consolidated results of operations or cash flows.

Litigation and Claims

In the ordinary course of business, we are involved in various pending or threatened legal actions. While management is unable to predict the ultimate outcome of these actions, it believes that any ultimate liability arising from any of these 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 Archrock. 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, and results of operations ~~or cash flows, including our ability to make cash distributions to Archrock~~.

~~Heavy~~12. ~~Equipment~~Subsequent Events

InOn ~~2011~~April 5, ~~the~~2019, ~~Texas~~we ~~Legislature~~borrowed ~~enacted~~on ~~changes that affected~~ the ~~appraisal~~Credit ofFacility ~~natural gas compressors for ad valorem tax purposes by expanding the special valuation methodology for “Heavy Equipment Inventory”~~ to ~~include~~repay ~~inventory held for lease effective from the beginning of 2012. Under the Heavy Equipment Statutes, we are a “Heavy Equipment Dealer” and~~ our ~~natural~~6% ~~gas~~senior ~~compressors~~notes ~~are~~due ~~Heavy~~April ~~Equipment Inventory~~2021. AsThe ~~such,~~notes wewere ~~began~~redeemed ~~filing~~at ~~our~~100% adof ~~valorem~~their ~~taxes under this methodology starting in the 2012 tax year~~$350.0 ~~Our~~million ~~natural~~aggregate ~~gas~~principal ~~compressors~~amount ~~are~~plus ~~taxable~~accrued ~~under the Heavy Equipment Statutes in the counties where we maintain a business location~~ and ~~store~~unpaid ~~our~~interest ~~inventory~~ of ~~natural~~$0.2 ~~gas~~million. ~~compressors~~We aswill ~~opposed~~record toa ~~where~~debt ~~the~~extinguishment ~~compressors~~loss ~~may be located on January 1~~ of aapproximately ~~tax year~~$3.7 ~~Although~~million a few appraisal review boards accepted our position, many denied it. As a result, our wholly-owned subsidiary, Archrock Partners Leasing LLC, formerly known as EXLP Leasing, and Archrock’s wholly-owned subsidiary, Archrock Services Leasing LLC, formerly known as EES Leasing, filed numerous petitions for review in the ~~appropriate~~second ~~district~~quarter ~~courts~~related ~~with respect~~ to the ~~2012-2017 tax years~~redemption.

To date, three cases have been decided by trial courts, with two of the decisions having been rendered by the same presiding judge. All three of those decisions were appealed, and all three of the appeals have been decided on by intermediate appellate courts. On March 2, 2018, the Texas Supreme Court ruled in one of the cases, EXLP Leasing LLC & EES Leasing LLC v. Galveston Central Appraisal District, on two of the three issues related to the Heavy Equipment Statutes: constitutionality and situs. The third issue — the district court’s ruling that the Heavy Equipment Statutes apply to the compressors — was not appealed in this case. The Texas Supreme Court ruled in our favor on all accounts, holding that the Heavy Equipment Statutes are constitutional and that our natural gas compressors are taxable only in the counties where we maintain a business location that manages our inventory of natural gas compressors. On September 28, 2018, the Texas Supreme Court denied Galveston Central Appraisal District’s motion for rehearing, thus concluding the litigation in this case. 19

Two cases, EXLP Leasing LLC & EES Leasing LLC v. Loving County Appraisal District and EES Leasing LLC & EXLP Leasing LLC v. Ward County Appraisal District, remain pending for review by the Texas Supreme Court. We expect the pending cases to be disposed of in a manner consistent with the Galveston case.

As a result of the rulings on the Heavy Equipment litigation thus far, all counties in which we filed petitions for review have removed our compressors from their 2018 property rolls except for Galveston County, which has agreed to do so promptly. As of September 30, 2018, many of the petitions that we filed for tax years 2012-2017 have been closed and the remaining pending petitions are in the process of being closed. We believe that the likelihood of an unfavorable outcome or further litigation on this issue is remote.

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Item 2. Management’s Narrative Analysis of Results of Operations

The following analysis of our results of operations should be read in conjunction with our unaudited financial statements and the notes thereto included in the Financial Statements of this Quarterly Report on Form 10-Q and in conjunction with our ~~2017~~2018 Form 10-K.

Financial Results of Operations

~~Summary~~The offollowing ~~Results~~table presents our results for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 (in thousands):

Net income (loss). We generated net income of $33.4 million and a net loss of $3.1 million during the nine months ended September 30, 2018 and 2017, respectively. The change from net loss to net income was primarily due to the increase in revenue and decreases in depreciation and amortization, long-lived asset impairment and provision for income taxes, partially offset by increases in cost of sales (excluding depreciation and amortization), interest expense, net and Merger-related costs and a decrease in other income, net.



	Three Months Ended March 31,
	2019		2018
Revenue	$	165,719	$	147,002
Cost of sales (excluding depreciation and amortization)	67,724		56,302
Selling, general and administrative	21,107		19,801
Depreciation and amortization	35,376		34,326
Long-lived asset impairment	2,684		3,066
Interest expense, net	23,428		21,609
Merger-related costs	—		1,376
Other (income) loss, net	552		(287		)
Provision for income taxes	529		519
Net income	$	14,319	$	10,290

~~Nine~~Revenue. ~~Months~~The ~~Ended~~increase ~~September~~in revenue during the three months ended March 3031, ~~2018~~2019 ~~Compared~~compared to ~~Nine~~the ~~Months~~three ~~Ended~~months ~~September~~ended March 3031, ~~2017~~2018 was primarily due to an 8% increase in average operating horsepower and an increase in contract operations rates driven by an increase in customer demand.

Cost of sales (excluding depreciation and amortization). The ~~following~~increase ~~table~~in ~~summarizes~~cost ~~our~~of ~~revenue,~~sales ~~costs~~(excluding depreciation and ~~expenses~~amortization) during the three months ended March 31, 2019 compared to the three months ended March 31, 2018 was primarily driven by increases in maintenance, freight and ~~net~~lube ~~income~~oil ~~(loss)~~expense (associated with the increase in ~~thousands):~~average operating horsepower.

	Nine Months EndedSeptember 30,
	2018			2017
Revenue	$	451,901		$	415,741
Cost of sales (excluding depreciation and amortization)	178,596			172,856
Selling, general and administrative	57,288			59,325
Depreciation and amortization	102,319			108,947
Long-lived asset impairment	10,585			14,659
Interest expense, net	66,918			63,361
Debt extinguishment loss	—			291
Merger-related costs	2,718			—
Other income, net	(555		)	(3,614		)
Provision for income taxes	648			2,970
Net income (loss)	$	33,384		$	(3,054	)

Selling, general and administrative. SG&A is primarily comprised of an allocation of expenses, including costs for personnel support and related expenditures, from Archrock to us pursuant to the terms of the Omnibus Agreement. The increase in SG&A expense was primarily due to an increase in costs allocated to us by Archrock, partially offset by decreases in professional expense and bad debt expense. The increase in costs allocated to us by Archrock was driven by an overall increase in SG&A expense incurred by Archrock and an increase in our available horsepower as compared to the combined available horsepower of Archrock and us.

~~Revenue~~Depreciation and amortization. The increase in ~~revenue~~depreciation and amortization expense during the ~~nine~~three months ended ~~September~~March 3031, ~~2018~~2019 compared to the ~~nine~~three months ended ~~September~~March 3031, ~~2017~~2018 was primarily due to ~~a 6% increase in average operating horsepower and~~ an increase in ~~rates~~depreciation ~~resulting~~expense ~~from~~associated anwith ~~increase~~fixed inasset ~~customer~~additions, ~~demand driven by improved market conditions. The increase in revenue was~~ partially offset by ~~the~~a ~~deferral~~decrease ofin ~~rebillable~~depreciation ~~freight~~expense ~~revenue~~resulting asfrom acertain ~~result~~assets ofreaching the ~~adoption~~end of ~~the~~their ~~Revenue~~depreciable ~~Recognition Update~~lives.

~~Cost~~Long-lived ofasset ~~sales (excluding depreciation and amortization)~~impairment. ~~The~~During ~~increase in cost of sales (excluding depreciation and amortization) during~~ the ~~nine~~three months ended ~~September~~March 3031, 2019 and 2018, ~~compared~~we toreviewed the ~~nine~~future ~~months~~deployment ~~ended~~of ~~September 30,~~our ~~2017~~idle ~~was~~compression ~~primarily~~assets ~~driven~~for byunits ~~increases~~that inwere ~~maintenance~~not ~~expense,~~of ~~freight~~the ~~expense~~type, ~~lube~~configuration, ~~oil~~condition, ~~expense~~make ~~and~~or ~~the~~model ~~mobilization~~that ofare ~~compressor~~cost ~~units~~efficient ~~associated~~to ~~with~~maintain ~~the~~and ~~increase~~operate. inIn ~~average~~addition, ~~operating~~we ~~horsepower.~~evaluated ~~The~~for ~~increase~~impairment inidle ~~cost~~units ofthat ~~sales~~had ~~was~~been ~~partially~~culled ~~offset~~from byour ~~the~~fleet ~~capitalization~~in ofprior ~~freight~~years and ~~mobilization~~were ~~costs~~available ~~incurred~~for tosale. ~~fulfill~~See ~~contracts~~Note 8 ~~prior~~(“Long-Lived toAsset ~~the~~Impairment”) ~~transfer~~to ofour ~~service~~Financial asStatements afor ~~result~~further ~~of the adoption of the Revenue Recognition Update~~details.

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Selling, general and administrative. SG&A is primarily comprised of an allocation of expenses, including costs for personnel support and related expenditures, from Archrock to us pursuant to the terms of the Omnibus Agreement (see Note 4 (“Related Party Transactions”) to our Financial Statements for further details on the Omnibus Agreement). The decrease in SG&A expense was primarily due to a decrease in bad debt expense and a decrease in commission expense. The decrease was partially offset by an increase in costs allocated to us by Archrock as a result of an increase in our available horsepower.

Depreciation and amortization. The decrease in depreciation and amortization expense during the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017 was primarily due to a decrease in depreciation expense resulting from certain assets reaching the end of their depreciable lives as well as the impact of asset impairments during 2017 and 2018, offset by an increase in depreciation expense associated with fixed asset additions.

Long-lived asset impairment. During the nine months ended September 30, 2018 and 2017, we reviewed the future deployment of our idle compression assets for units that were not of the type, configuration, condition, make or model that are cost efficient to maintain and operate. In addition, we evaluated for impairment idle units that had been culled from our fleet in prior years and were available for sale. See Note 11 (“Long-Lived Asset Impairment”) to our Financial Statements for further details.

The following table presents the results of our impairment review (dollars in thousands):

	Nine Months Ended September 30,
	Three Months EndedMarch 31,
	2018		2017
	2019		2018
Idle compressor units retired from the active fleet	~~140~~15		~~150~~35
Horsepower of idle compressor units retired from the active fleet	4413,000		5313,000
Impairment recorded on idle compressor units retired from the active fleet	$	102,~~585~~684	$	143,~~659~~066

Interest expense, net. The increase in interest expense, net during the ~~nine~~three months ended ~~September~~March 3031, ~~2018~~2019 compared to the ~~nine~~three months ended ~~September~~March 3031, ~~2017~~2018 was primarily due to ~~increases~~an increase in the average outstanding balance of long-term debt ~~and~~partially offset by a decrease in the weighted average effective interest rate, ~~partially~~and ~~offset by~~ $10.32 million of interest income earned on the loan receivable due from Archrock during the ~~nine~~three months ended ~~September~~March 3031, ~~2018 and a $0~~2019.~~6 million write-off of deferred financing costs associated with the termination of our Former Credit Facility in the nine months ended September 30, 2017.~~

Merger-related costs. We incurred $21.74 million of Merger-related costs consisting of financial advisory, legal and other professional fees during the ~~nine~~three months ended ~~September~~March 3031, 2018.

Other (income) loss, net. The ~~decrease~~change in other (income) loss, net ~~during~~was ~~the~~primarily ~~nine~~due ~~months~~to ~~ended~~$0.6 ~~September 30~~million of loss on sale of property, ~~2018~~plant ~~compared~~and toequipment during the ~~nine~~three months ended ~~September~~March 3031, ~~2017~~2019 ~~was~~compared ~~primarily due~~ to a $20.93 million ~~decrease~~of ~~in the~~ gain on sale of property, plant and equipment during the three months ended March 31, 2018.

Provision for income taxes. The decrease in provision for income taxes during the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017 was primarily due to a lower unrecognized tax benefit recorded in 2018 compared to 2017 and a benefit recorded in 2018 for the settlement of a tax audit.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

The information called for by this Item 3 is omitted pursuant to General Instruction H(2) to Form 10-Q (Omission of Information by Certain Wholly-Owned Subsidiaries).

Item 4. Controls and Procedures

This Item 4 includes information concerning the controls and controls evaluation referred to in the certifications of our Chief Executive Officer and Chief Financial Officer required by Rule 13a-14 of the Exchange Act included in this Quarterly Report as Exhibits 31.1 and 31.2.

Management’s Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to management to allow timely decisions regarding required disclosures.

As of the end of the period covered by this Quarterly Report on Form 10-Q, 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 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 SEC. Based on the evaluation, as of ~~September~~March 3031, ~~2018~~2019 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.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

~~See~~In ~~Note 13~~the ~~(“Commitments~~ordinary ~~and~~course ~~Contingencies”)~~of business, we are also involved in various other pending or threatened legal actions. While management is unable to ~~our~~predict ~~Financial~~the ~~Statements~~ultimate ~~for~~outcome of these actions, it believes that any ultimate liability arising from any of these other actions will not have a ~~discussion~~material adverse effect on our consolidated financial position, results of ~~litigation~~operations ~~related~~or tocash flows. However, because of the ~~Heavy~~inherent ~~Equipment~~uncertainty ~~Statutes~~of litigation and arbitration proceedings, we cannot provide assurance that the resolution of any particular claim or proceeding to which iswe ~~incorporated~~are bya ~~reference~~party ~~into~~will ~~this~~not ~~Item~~have 1a material adverse effect on our consolidated financial position, results of operations or cash flows.

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 Archrock. 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 Archrock.

Item 1A. Risk Factors

There have been no material changes or updates to our risk factors that were previously disclosed in our ~~2017~~2018 Form 10-K.

Item 2. Unregistered Sales of Equity Securities

The information called for by this Item 2 is omitted pursuant to General Instruction H(2) to Form 10-Q (Omission of Information by Certain Wholly-Owned Subsidiaries).

Item 3. Defaults Upon Senior Securities

The information called for by this Item 3 is omitted pursuant to General Instruction H(2) to Form 10-Q (Omission of Information by Certain Wholly-Owned Subsidiaries).

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Item 6. Exhibits

Exhibit No.		Description
2.1		Agreement and Plan of Merger, dated as of January 1, 2018, by and among Archrock, Inc., Archrock GP LLC, Archrock General Partner, L.P. and Archrock Partners, L.P., incorporated by reference to Exhibit 2.1 of ~~Archrock~~the ~~Partners~~Registrant’s Current Report on Form 8-K filed on January 2, 2018
2.2		Amendment No. 1 to Agreement and Plan of Merger, dated as of January 11, 2018, by and among Archrock, Inc., Archrock GP LLC, Archrock General Partner, L.P., Archrock Partners, L.P. and Amethyst Merger Sub LLC, incorporated by reference to Exhibit 2.2 of ~~Archrock~~the ~~Partners~~Registrant’s Current Report on Form 8-K filed on January 16, 2018
3.1		Certificate of Limited Partnership of UCO Partners, L.P. (now Archrock 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 Archrock 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		Certificate of Amendment of Certificate of Limited Partnership of Exterran Partners, L.P. (now Archrock Partners, L.P.), incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on November 5, 2015
3.4		Composite Certificate of Limited Partnership of Archrock Partners, L.P., incorporated by reference to Exhibit 3.4 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2015
3.5		First Amended and Restated Agreement of Limited Partnership of Exterran Partners, L.P. (now Archrock 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
3.6		Certificate of Limited Partnership of UCO General Partner, LP (now Archrock General Partner, L.P.), incorporated by reference to Exhibit 3.3 to the Registrant’s Registration Statement on Form S-1 filed on June 27, 2006
3.7		Amended and Restated Limited Partnership Agreement of UCO General Partner, LP (now Archrock General Partner, L.P.), incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed on October 26, 2006
3.8		Certificate of Formation of UCO GP, LLC (now Archrock GP, LLC), incorporated by reference to Exhibit 3.5 to the Registrant’s Registration Statement on Form S-1 filed June 27, 2006
3.9		Amended and Restated Limited Liability Company Agreement of UCO GP, LLC (now Archrock GP, LLC), incorporated by reference to Exhibit 3.3 to the Registrant’s Current Report on Form 8-K filed on October 26, 2006
3.10		Amendment No. 2 to the First Amended and Restated Agreement of Limited Partnership of Archrock Partners, L.P., dated December 22, 2017, incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on December 22, 2017
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		Registration Rights Agreement, dated as of March 27, 2013, 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 March 28, 2013
4.3		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
4.4		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 11, 2014
10.1		Purchase Agreement, dated as of March 7, 2019, by and among Archrock Partners, L.P., Archrock Partners Finance Corp., Archrock, Inc., the other guarantors party thereto and J.P. Morgan Securities LLC, as representative of the initial purchasers named therein, incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on March 8, 2019
10.2		Indenture, dated as of March 21, 2019, by and among Archrock Partners, L.P., Archrock Partners Finance Corp., the guarantors party thereto and Wells Fargo Bank, National Association, as trustee, incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on March 21, 2019
31.1*		Certification of the Principal Executive Officer of Archrock GP LLC (as general partner of the general partner of Archrock Partners, L.P.) pursuant to Rule 13a-14 under the Securities Exchange Act of 1934
31.2*		Certification of the Principal Financial Officer of Archrock GP LLC (as general partner of the general partner of Archrock Partners, L.P.) pursuant to Rule 13a-14 under the Securities Exchange Act of 1934
32.1**		Certification of the Chief Executive Officer of Archrock GP LLC (as general partner of the general partner of Archrock 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 Archrock GP LLC (as general partner of the general partner of Archrock 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

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32.1**		Certification of the Chief Executive Officer of Archrock GP LLC (as general partner of the general partner of Archrock 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 Archrock GP LLC (as general partner of the general partner of Archrock 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.

	ARCHROCK PARTNERS, L.P.
	By:	ARCHROCK GENERAL PARTNER, L.P.
		its General Partner
	By:	ARCHROCK GP LLC
		its General Partner
	By:	/s/ DOUGLAS S. ARON
		Douglas S. Aron
		Senior Vice President and Chief Financial Officer
		(Principal Financial Officer)
	By:	/s/ DONNA A. HENDERSON
		Donna A. Henderson
		Vice President and Chief Accounting Officer
		(Principal Accounting Officer)
		November 1, 2018
		April 30, 2019

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Filing Compare · Archrock Partners, L.P.