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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 3 Months Ended
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Mar. 31, 2012
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying unaudited condensed consolidated financial statements of Exterran Holdings, Inc. (“we” or “Exterran”) included herein have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.”) for interim financial information and the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) are not required in these interim financial statements and have been condensed or omitted. It is the opinion of management that the information furnished includes all adjustments, consisting only of normal recurring adjustments, that are necessary to present fairly our financial position, results of operations and cash flows for the periods indicated. Correction of Misclassification in the Statement of Cash Flows We received $162.2 million of net proceeds from the sale of common units of Exterran Partners, L.P. (together with its subsidiaries, the “Partnership”) in the first quarter of 2011. These net proceeds were previously reported in our consolidated statement of cash flows as cash flows from investing activities. We have subsequently determined that the net proceeds from the sale of Partnership common units in the first quarter of 2011 should have been reported as cash flows from financing activities. This correction had no impact on cash flows from operating activities. The impact of the reclassification on the statement of cash flows for the first quarter of 2011 is shown below (in thousands):
|  | Three Months Ended March 31, 2011 |
|  | Investing |  | Financing |
Net Cash Provided By (Used In) |  | Activities |  | Activities |
As previously reported |  | $ | 138,627 |  | $ | (170,208 | )
Increase (decrease) |  | (162,236 | ) | 162,236 |
As corrected |  | $ | (23,609 | ) | $ | (7,972 | )
Correction of Misclassification in the Supplemental Guarantor Financial Information Footnote We identified misclassifications in our cash flow schedules included in our supplemental guarantor financial information footnote primarily related to how we accounted for changes in investments in consolidated subsidiaries (see Note 16). These errors had no impact on our consolidated financial statements. We have made conforming changes to the cash flow schedules included in our supplemental guarantor financial information footnote for the three months ended March 31, 2011 to conform to our current presentation. Subsequent to March 31, 2011, there were changes to the guarantor subsidiaries and other subsidiaries for our 4.75% Notes due 2014 which impacted the presentation in our supplemental guarantor financial information footnote. Therefore, the table below only shows the impact to the cash flow schedules for the parent and subsidiary issuer, included in our supplemental guarantor financial information footnote for three months ended March 31, 2011 (in thousands):
As Reported |  | Parent |  | Subsidiary Issuer |
Net cash provided by (used in) continuing operating activities |  | $ | 463,138 |  | $ | 334 |
Net cash provided by (used in) continuing investing activities |  | (144,883 | ) | 13,330 |
Net cash provided by (used in) financing activities |  | (318,382 | ) | (13,664 | )
As Corrected |  | Parent |  | Subsidiary Issuer |
Net cash provided by (used in) continuing operating activities |  | $ | 2,063 |  | $ | (68 | )
Net cash provided by (used in) continuing investing activities |  | 53,966 |  | 87,419 |
Net cash provided by (used in) financing activities |  | (56,156 | ) | (87,351 | )
Revenue Recognition Revenue from contract operations is recorded when earned, which generally occurs monthly at the time the monthly service is provided to customers in accordance with the contracts. Aftermarket services revenue is recorded as products are delivered and title is transferred or services are performed for the customer. Fabrication revenue is recognized using the percentage-of-completion method when the applicable criteria are met. We estimate percentage-of-completion for compressor and accessory fabrication on a direct labor hour to total labor hour basis. Production and processing equipment fabrication percentage-of-completion is estimated using the direct labor hour to total labor hour and the cost to total cost basis. The duration of these projects is typically between three and 36 months. Fabrication revenue is recognized using the completed contract method when the applicable criteria of the percentage-of-completion method are not met. Fabrication revenue from a claim is recognized to the extent that costs related to the claim have been incurred, when collection is probable and can be reliably estimated. Earnings (Loss) Attributable to Exterran Stockholders Per Common Share Basic income (loss) attributable to Exterran stockholders per common share is computed by dividing income (loss) attributable to Exterran common stockholders by the weighted average number of shares outstanding for the period. Unvested share-based awards that contain nonforfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are participating securities and are included in the computation of earnings (loss) per share following the two-class method. Therefore, restricted share awards that contain the right to vote and receive dividends are included in the computation of basic and diluted earnings (loss) per share, unless their effect would be anti-dilutive. Diluted income (loss) attributable to Exterran stockholders per common share is computed using the weighted average number of shares outstanding adjusted for the incremental common stock equivalents attributed to outstanding options and warrants to purchase common stock, restricted stock, restricted stock units, stock to be issued pursuant to our employee stock purchase plan and convertible senior notes, unless their effect would be anti-dilutive. The table below summarizes income (loss) attributable to Exterran stockholders (in thousands):
|  | Three Months Ended March 31, |
|  | 2012 |  | 2011 |
Income (loss) from continuing operations attributable to Exterran stockholders |  | $ | 6,120 |  | $ | (27,892 | )
Loss from discontinued operations, net of tax |  | (625 | ) | (2,138 | )
Net income (loss) attributable to Exterran stockholders |  | $ | 5,495 |  | $ | (30,030 | )
The table below indicates the potential shares of common stock that were included in computing the dilutive potential shares of common stock used in diluted income (loss) attributable to Exterran stockholders per common share (in thousands):
|  | Three Months Ended March 31, |
|  | 2012 |  | 2011 |
Weighted average common shares outstanding-used in basic income (loss) per common share |  | 64,515 |  | 62,418 |
Net dilutive potential common shares issuable: |  |  |  |  |
On exercise of options and vesting of restricted stock units |  | 54 |  | ** |
On settlement of employee stock purchase plan shares |  | 27 |  | ** |
On exercise of warrants |  | ** |  | ** |
On conversion of 4.25% convertible senior notes due 2014 |  | ** |  | ** |
On conversion of 4.75% convertible senior notes due 2014 |  | ** |  | ** |
Weighted average common shares and dilutive potential common shares-used in diluted income per common share |  | 64,596 |  | 62,418 |
** Excluded from diluted income (loss) per common share as the effect would have been anti-dilutive. There were no adjustments to net income (loss) attributable to Exterran stockholders for the diluted earnings (loss) per share calculation for the three months ended March 31, 2012 and 2011. The table below indicates the potential shares of common stock issuable that were excluded from net dilutive potential shares of common stock issuable as their effect would have been anti-dilutive (in thousands):
|  | Three Months Ended March 31, |
|  | 2012 |  | 2011 |
Net dilutive potential common shares issuable: |  |  |  |  |
On exercise of options where exercise price is greater than average market value for the period |  | 2,510 |  | 1,320 |
On exercise of options and vesting of restricted stock and restricted stock units |  | — |  | 836 |
On settlement of employee stock purchase plan shares |  | — |  | 11 |
On exercise of warrants |  | 2,808 |  | 2,808 |
On conversion of 4.25% convertible senior notes due 2014 |  | 15,334 |  | 15,334 |
On conversion of 4.75% convertible senior notes due 2014 |  | 3,114 |  | 3,114 |
Net dilutive potential common shares issuable |  | 23,766 |  | 23,423 |
Financial Instruments Our financial instruments include cash, restricted cash, receivables, payables, interest rate swaps and debt. At March 31, 2012 and December 31, 2011, the estimated fair value of these financial instruments approximated their carrying value as reflected in our condensed consolidated balance sheets. We estimate the fair value of our fixed rate debt based on quoted market yields in inactive markets or model derived calculations using market yields observed in active markets, which are Level 2 inputs. We estimate the fair value of our floating rate debt using discounted cash flow analysis based on interest rates offered on loans with similar terms to borrowers of similar credit quality, which are Level 3 inputs. See Note 8 for additional information regarding the fair value hierarchy. A summary of the fair value and carrying value of our debt as of March 31, 2012 and December 31, 2011 is shown in the table below (in thousands):
|  | As of March 31, 2012 |  | As of December 31, 2011 |
|  | Carrying Amount |  | Fair Value |  | Carrying Amount |  | Fair Value |
Fixed rate debt |  | $ | 798,951 |  | $ | 825,000 |  | $ | 794,039 |  | $ | 792,000 |
Floating rate debt |  | 910,500 |  | 914,000 |  | 979,000 |  | 989,000 |
Total debt |  | $ | 1,709,451 |  | $ | 1,739,000 |  | $ | 1,773,039 |  | $ | 1,781,000 |
GAAP requires that all derivative instruments (including certain derivative instruments embedded in other contracts) be recognized in the balance sheet at fair value, and that changes in such fair values be recognized in earnings (loss) unless specific hedging criteria are met. Changes in the values of derivatives that meet these hedging criteria will ultimately offset related earnings effects of the hedged item pending recognition in earnings.

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