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Basis of Presentation and Summary of Significant Accounting Policies | 6 Months Ended
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Jun. 30, 2015
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 (“SEC”). 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, 2014. 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. On November 17, 2014, we announced that our board of directors had authorized management to pursue a plan to separate (the “Spin-off”) our international contract operations, international aftermarket services and global fabrication businesses into an independent, publicly traded company (“Exterran Corporation,” previously named Exterran SpinCo, Inc. prior to May 18, 2015). Upon the completion of the Spin-off, we will be renamed Archrock, Inc. and will trade on the New York Stock exchange under the symbol “AROC.” Unless otherwise indicated, the financial statements and related footnote disclosures within this report exclude the potential future impact of the Spin-off, if consummated. The effect of the Spin-off could significantly change and materially impact future disclosures, results of operations, balance sheet and cash flow positions. See Note 2 for further discussion of the Spin-off. Earnings (Loss) Attributable to Exterran Common Stockholders Per Common Share Basic income (loss) attributable to Exterran common stockholders per common share is computed using the two-class method, which 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. Under the two-class method, basic income (loss) attributable to Exterran common stockholders per common share is determined by dividing income (loss) attributable to Exterran common stockholders after deducting amounts allocated to participating securities, by the weighted average number of common shares outstanding for the period. Participating securities include our unvested restricted stock and certain stock settled restricted stock units that have nonforfeitable rights to receive dividends or dividend equivalents, whether paid or unpaid. 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 (loss) attributable to Exterran common stockholders used in the calculation of basic and diluted income (loss) per common share (in thousands):
|  | Three Months Ended June 30, |  | Six Months Ended June 30, |
|  | 2015 |  | 2014 |  | 2015 |  | 2014 |
Income (loss) from continuing operations attributable to Exterran stockholders |  | $ | (1,643 | ) | $ | (5,392 | ) | $ | 11,786 |  | $ | 8,477 |
Income from discontinued operations, net of tax |  | 254 |  | 17,769 |  | 18,967 |  | 36,496 |
Less: Net income attributable to participating securities |  | (126 | ) | (122 | ) | (505 | ) | (803 | )
Net income (loss) attributable to Exterran common stockholders |  | $ | (1,515 | ) | $ | 12,255 |  | $ | 30,248 |  | $ | 44,170 |
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, |
|  | 2015 |  | 2014 |  | 2015 |  | 2014 |
Weighted average common shares outstanding including participating securities |  | 69,503 |  | 66,826 |  | 69,339 |  | 66,579 |
Less: Weighted average participating securities outstanding |  | (989 | ) | (936 | ) | (958 | ) | (1,004 | )
Weighted average common shares outstanding — used in basic income (loss) per common share |  | 68,514 |  | 65,890 |  | 68,381 |  | 65,575 |
Net dilutive potential common shares issuable: |  |  |  |  |  |  |  |  |
On exercise of options and vesting of restricted stock units |  | * |  | * |  | 286 |  | 556 |
On settlement of employee stock purchase plan shares |  | * |  | * |  | — |  | 1 |
On exercise of warrants |  | ** |  | * |  | — |  | 2,640 |
On conversion of 4.25% convertible senior notes due 2014 |  | ** |  | * |  | ** |  | * |
Weighted average common shares outstanding — used in diluted income (loss) per common share |  | 68,514 |  | 65,890 |  | 68,667 |  | 68,772 |
*Excluded from diluted income (loss) per common share as their inclusion would have been anti-dilutive. **Not applicable as these instruments were not outstanding during the period. 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, 2015 and 2014. 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, |
|  | 2015 |  | 2014 |  | 2015 |  | 2014 |
Net dilutive potential common shares issuable: |  |  |  |  |  |  |  |  |
On exercise of options where exercise price is greater than average market value for the period |  | 374 |  | 497 |  | 471 |  | 541 |
On exercise of options and vesting of restricted stock units |  | 290 |  | 497 |  | — |  | — |
On settlement of employee stock purchase plan shares |  | 1 |  | — |  | — |  | — |
On exercise of warrants |  | * |  | 12,426 |  | — |  | — |
On conversion of 4.25% convertible senior notes due 2014 |  | * |  | 12,900 |  | * |  | 14,146 |
Net dilutive potential common shares issuable |  | 665 |  | 26,320 |  | 471 |  | 14,687 |
| * |  | Not applicable as these instruments were not outstanding during the period.
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, amortization of terminated interest rate swaps 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, 2014 and 2015 (in thousands):
|  | Derivatives Cash Flow Hedges |  | Foreign Currency Translation Adjustment |  | Total |
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 | )(1) | (269 | )(3) | (908 | )
Loss reclassified from accumulated other comprehensive income (loss), net of tax |  | 823 | (2) | — |  | 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 |
Accumulated other comprehensive income (loss), January 1, 2015 |  | $ | (911 | ) | $ | 16,776 |  | $ | 15,865 |
Loss recognized in other comprehensive income (loss), net of tax |  | (1,943 | )(4) | (6,703 | )(6) | (8,646 | )
Loss reclassified from accumulated other comprehensive income (loss), net of tax |  | 1,030 | (5) | — |  | 1,030 |
Other comprehensive income (loss) attributable to Exterran stockholders |  | (913 | ) | (6,703 | ) | (7,616 | )
Accumulated other comprehensive income (loss), June 30, 2015 |  | $ | (1,824 | ) | $ | 10,073 |  | $ | 8,249 |
| (1) |  | 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.
| (2) |  | 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).
| (3) |  | 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.
| (4) |  | During the three months ended June 30, 2015, we recognized a loss of $0.6 million and a tax benefit of $0.2 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, 2015, we recognized a loss of $2.9 million and a tax benefit of $1.0 million, in other comprehensive income (loss), net of tax, related to changes in the fair value of derivative financial instruments.
| (5) |  | During the three months ended June 30, 2015, we reclassified a $0.9 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, 2015, we reclassified a $1.6 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).
| (6) |  | During the three and six months ended June 30, 2015, we recognized a gain of $3.7 million and a loss of $6.7 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, 2015 and December 31, 2014, 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, 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 10 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, 2015 and December 31, 2014 (in thousands):
|  | June 30, 2015 |  | December 31, 2014 |
|  | Carrying Amount |  | Fair Value |  | Carrying Amount |  | Fair Value |
Fixed rate debt |  | $ | 1,041,762 |  | $ | 1,043,000 |  | $ | 1,041,402 |  | $ | 960,000 |
Floating rate debt |  | 1,048,000 |  | 1,049,000 |  | 985,500 |  | 986,000 |
Total debt |  | $ | 2,089,762 |  | $ | 2,092,000 |  | $ | 2,026,902 |  | $ | 1,946,000 |
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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