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Basis of Presentation and Summary of Significant Accounting Policies | 6 Months Ended
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Jun. 30, 2014
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. (“Exterran”, “our”, “we” or “us”) included herein have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.”) (“GAAP”) 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 GAAP are not required in these interim financial statements and have been condensed or omitted. Management believes that the information furnished includes all adjustments, consisting only of normal recurring adjustments, that are necessary to present fairly our consolidated financial position, results of operations and cash flows for the periods indicated. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements presented in our Annual Report on Form 10-K for the year ended December 31, 2013. That report contains a more comprehensive summary of our accounting policies. The interim results reported herein are not necessarily indicative of results for a full year. Revenue Recognition Contract operations revenue is recognized when earned, which generally occurs monthly when service is provided under our customer contracts. Aftermarket services revenue is recognized 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. We estimate production and processing equipment fabrication percentage-of-completion using the direct labor hour to total labor hour basis 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. During the three and six months ended June 30, 2014, we recorded $3.5 million of revenue related to a claim on a contract that was determined to be probable of collection. Earnings (Loss) Attributable to Exterran Common Stockholders Per Common Share Basic income (loss) attributable to Exterran common 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 with nonforfeitable rights to receive 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, our restricted stock and certain of our stock settled restricted stock units are considered participating securities for purposes of calculating earnings per share. The two-class method is an earnings allocation formula that determines net income per share for each class of common stock and participating security according to dividends declared and participation rights in undistributed earnings. During periods of net loss, no effect is given to participating securities because they do not have a contractual obligation to participate in our losses. Diluted income (loss) attributable to Exterran common 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 units, stock to be issued pursuant to our employee stock purchase plan and convertible senior notes, unless their effect would be anti-dilutive. The following table summarizes net income attributable to Exterran common stockholders used in the calculation of basic and diluted income per common share (in thousands):
|  | Three Months Ended June 30, |  | Six Months Ended June 30, |
|  | 2014 |  | 2013 |  | 2014 |  | 2013 |
Income (loss) from continuing operations attributable to Exterran stockholders |  | $ | (5,392 | ) | $ | 10,441 |  | $ | 8,477 |  | $ | 27,130 |
Income (loss) from discontinued operations, net of tax |  | 17,769 |  | (1,106 | ) | 36,496 |  | 32,410 |
Less: Net income attributable to participating securities |  | (122 | ) | (175 | ) | (803 | ) | (1,106 | )
Net income attributable to Exterran common stockholders |  | $ | 12,255 |  | $ | 9,160 |  | $ | 44,170 |  | $ | 58,434 |
The following table shows the potential shares of common stock that were included in computing diluted income (loss) attributable to Exterran common stockholders per common share (in thousands):
|  | Three Months Ended June 30, |  | Six Months Ended June 30, |
|  | 2014 |  | 2013 |  | 2014 |  | 2013 |
Weighted average common shares outstanding including participating securities |  | 66,826 |  | 65,716 |  | 66,579 |  | 65,498 |
Less: Weighted average participating securities outstanding |  | (936 | ) | (1,232 | ) | (1,004 | ) | (1,217 | )
Weighted average common shares outstanding — used in basic income (loss) per common share |  | 65,890 |  | 64,484 |  | 65,575 |  | 64,281 |
Net dilutive potential common shares issuable: |  |  |  |  |  |  |  |  |
On exercise of options and vesting of restricted stock units |  | ** |  | 530 |  | 556 |  | 523 |
On settlement of employee stock purchase plan shares |  | ** |  | 2 |  | 1 |  | 2 |
On exercise of warrants |  | ** |  | ** |  | 2,640 |  | ** |
On conversion of 4.25% convertible senior notes due 2014 |  | ** |  | ** |  | ** |  | ** |
On conversion of 4.75% convertible senior notes due 2014 |  | ** |  | ** |  | ** |  | ** |
Weighted average common shares outstanding — used in diluted income (loss) per common share |  | 65,890 |  | 65,016 |  | 68,772 |  | 64,806 |
** Excluded from diluted income (loss) per common share as their inclusion would have been anti-dilutive. There were no adjustments to net income (loss) attributable to Exterran common stockholders for the diluted earnings (loss) per common share calculation during the three and six months ended June 30, 2014 and 2013. The following table shows the potential shares of common stock issuable that were excluded from computing diluted income (loss) attributable to Exterran common stockholders per common share as their inclusion would have been anti-dilutive (in thousands):
|  | Three Months Ended June 30, |  | Six Months Ended June 30, |
|  | 2014 |  | 2013 |  | 2014 |  | 2013 |
Net dilutive potential common shares issuable: |  |  |  |  |  |  |  |  |
On exercise of options where exercise price is greater than average market value for the period |  | 497 |  | 741 |  | 541 |  | 834 |
On exercise of options and vesting of restricted stock units |  | 497 |  | — |  | — |  | — |
On settlement of employee stock purchase plan shares |  | — |  | — |  | — |  | — |
On exercise of warrants |  | 12,426 |  | 12,426 |  | — |  | 12,426 |
On conversion of 4.25% convertible senior notes due 2014 |  | 12,900 |  | 15,334 |  | 14,146 |  | 15,334 |
On conversion of 4.75% convertible senior notes due 2014 |  | — |  | — |  | — |  | 241 |
Net dilutive potential common shares issuable |  | 26,320 |  | 28,501 |  | 14,687 |  | 28,835 |
Comprehensive Income (Loss) Components of comprehensive income (loss) are net income (loss) and all changes in equity during a period except those resulting from transactions with owners. Our accumulated other comprehensive income (loss) consists of foreign currency translation adjustments, changes in the fair value of derivative financial instruments, net of tax, that are designated as cash flow hedges and to the extent the hedge is effective and adjustments related to changes in our ownership of Exterran Partners, L.P. (the “Partnership”). The following table presents the changes in accumulated other comprehensive income (loss) by component, net of tax, and excluding noncontrolling interest, during the six months ended June 30, 2013 and 2014 (in thousands):
|  | Derivatives Cash Flow Hedges |  | Foreign Currency Translation Adjustment |  | Total |
Accumulated other comprehensive income (loss), January 1, 2013 |  | $ | (2,984 | ) | $ | 26,893 |  | $ | 23,909 |
Loss recognized in other comprehensive income (loss), net of tax |  | (26 | )(1) | (6,145 | )(3) | (6,171 | )
Loss reclassified from accumulated other comprehensive income (loss), net of tax |  | 1,146 | (2) | 2,375 | (4) | 3,521 |
Other comprehensive income (loss) attributable to Exterran stockholders |  | 1,120 |  | (3,770 | ) | (2,650 | )
Accumulated other comprehensive income (loss), June 30, 2013 |  | $ | (1,864 | ) | $ | 23,123 |  | $ | 21,259 |
Accumulated other comprehensive income (loss), January 1, 2014 |  | $ | (1,346 | ) | $ | 31,424 |  | $ | 30,078 |
Loss recognized in other comprehensive income (loss), net of tax |  | (639 | )(5) | (269 | )(7) | (908 | )
Loss reclassified from accumulated other comprehensive income (loss), net of tax |  | 823 | (6) | — |  | 823 |
Other comprehensive income (loss) attributable to Exterran stockholders |  | 184 |  | (269 | ) | (85 | )
Accumulated other comprehensive income (loss), June 30, 2014 |  | $ | (1,162 | ) | $ | 31,155 |  | $ | 29,993 |
(1) During the three months ended June 30, 2013, we recognized a gain of $0.9 million and a tax provision of $0.3 million, in other comprehensive income (loss), net of tax, related to changes in the fair value of derivative financial instruments. During the six months ended June 30, 2013, we recognized a gain of $0.2 million and a tax provision of $0.2 million, in other comprehensive income (loss), net of tax, related to changes in the fair value of derivative financial instruments. (2) During the three months ended June 30, 2013, we reclassified a $1.0 million loss to interest expense and a tax benefit of $0.4 million to provision for income taxes in our condensed consolidated statements of operations from accumulated other comprehensive income (loss). During the six months ended June 30, 2013, we reclassified a $1.7 million loss to interest expense and a tax benefit of $0.6 million to provision for income taxes in our condensed consolidated statements of operations from accumulated other comprehensive income (loss). (3) During the three and six months ended June 30, 2013, we recognized a loss of $0.9 million and $6.1 million, respectively, in other comprehensive income (loss), net of tax, related to changes in foreign currency translation adjustment. (4) During the three and six months ended June 30, 2013, we reclassified a loss of $2.4 million related to foreign currency translation adjustment to long-lived asset impairment in our condensed consolidated statements of operations. This amount represents cumulative foreign currency translation adjustment associated with our United Kingdom entity that previously had been recognized in accumulated other comprehensive income (loss). As discussed in Note 10, we sold the entity that owned our fabrication facility in the United Kingdom in July 2013 and, we recognized an impairment during the three months ended June 30, 2013 based on the net transaction value set forth in our agreement to sell this entity. (5) During the three months ended June 30, 2014, we recognized a loss of $0.6 million and a tax benefit of $0.3 million, in other comprehensive income (loss), net of tax, related to changes in the fair value of derivative financial instruments. During the six months ended June 30, 2014, we recognized a loss of $1.0 million and a tax benefit of $0.4 million, in other comprehensive income (loss), net of tax, related to changes in the fair value of derivative financial instruments. (6) During the three months ended June 30, 2014, we reclassified a $0.6 million loss to interest expense and a tax benefit of $0.2 million to provision for income taxes in our condensed consolidated statements of operations from accumulated other comprehensive income (loss). During the six months ended June 30, 2014, we reclassified a $1.2 million loss to interest expense and a tax benefit of $0.4 million to provision for income taxes in our condensed consolidated statements of operations from accumulated other comprehensive income (loss). (7) During the three and six months ended June 30, 2014, we recognized a loss of $1.4 million and $0.3 million, respectively, in other comprehensive income (loss), net of tax, related to changes in foreign currency translation adjustment. Financial Instruments Our financial instruments consist of cash, restricted cash, receivables, payables, interest rate swaps and debt. At June 30, 2014 and December 31, 2013, the estimated fair values of these financial instruments approximated their carrying amounts as reflected in our condensed consolidated balance sheets. The fair value of our fixed rate debt was estimated based on quoted market yields in inactive markets or model derived calculations using market yields observed in active markets, which are Level 2 inputs. The fair value of our floating rate debt 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. See Note 9 for additional information regarding the fair value hierarchy. The following table summarizes the carrying amount and fair value of our debt as of June 30, 2014 and December 31, 2013 (in thousands):
|  | June 30, 2014 |  | December 31, 2013 |
|  | Carrying Amount |  | Fair Value |  | Carrying Amount |  | Fair Value |
Fixed rate debt |  | $ | 1,041,068 |  | $ | 1,080,000 |  | $ | 1,040,155 |  | $ | 1,070,000 |
Floating rate debt |  | 811,500 |  | 810,000 |  | 462,000 |  | 462,000 |
Total debt |  | $ | 1,852,568 |  | $ | 1,890,000 |  | $ | 1,502,155 |  | $ | 1,532,000 |
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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- Definition The entire disclosure for the basis of presentation and significant accounting policies concepts. Basis of presentation describes the underlying basis used to prepare the financial statements (for example, US Generally Accepted Accounting Principles, Other Comprehensive Basis of Accounting, IFRS). Accounting policies describe all significant accounting policies of the reporting entity. + References No definition available. + Details
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