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Organization and Summary of Significant Accounting Policies | 6 Months Ended
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Jun. 30, 2018
Accounting Policies [Abstract] |
Organization and Summary of Significant Accounting Policies | 1. Organization and Summary of Significant Accounting Policies The accompanying unaudited condensed consolidated financial statements included herein have been prepared in accordance with U.S. GAAP for interim financial information and the rules and regulations of the 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, which 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 2017 Form 10-K, which contains a more comprehensive 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. Organization We are a pure play U.S. natural gas contract operations services business and the leading provider of natural gas compression services to customers in the oil and natural gas industry throughout the U.S. and a leading supplier of aftermarket services to customers that own compression equipment in the U.S. We operate in two primary business segments: contract operations and aftermarket services. In our contract operations business, we use our owned fleet of natural gas compression equipment to provide operations services to our customers. In our aftermarket services business line, we sell parts and components and provide operations, maintenance, overhaul and reconfiguration services to customers who own compression equipment. Merger Transaction On January 1, 2018, we entered into the Merger Agreement pursuant to which we agreed to merge the Partnership with and into our indirect wholly-owned subsidiary. On April 26, 2018, the Merger was completed and we issued 57.6 million shares of our common stock to acquire the 41.2 million common units of the Partnership not owned by us prior to the Merger at a fixed exchange ratio of 1.40 shares of our common stock for each Partnership common unit for total implied consideration of $625.3 million. Additionally, the incentive distribution rights in the Partnership, all of which we owned indirectly prior to the Merger, were canceled and ceased to exist. As a result of the Merger, the Partnership’s common units are no longer publicly traded. The Partnership’s 6% senior notes due April 2021 and October 2022 were not impacted by the Merger and remain outstanding. As we controlled the Partnership prior to the Merger and continue to control the Partnership after the Merger, we accounted for the change in our ownership interest in the Partnership as an equity transaction which was reflected as a reduction of the noncontrolling interest with corresponding increases to common stock, additional paid-in capital and accumulated other comprehensive income. No gain or loss was recognized in our condensed consolidated statements of operations as a result of the Merger. The following table presents the effects of changes in our ownership interest in the Partnership on the equity attributable to Archrock stockholders:
| Six Months Ended June 30,
| 2018 |  | 2017
Net loss attributable to Archrock stockholders | $ | (1,879 | ) |  | $ | (18,372 | )
Decrease in Archrock stockholders’ additional paid-in capital for purchase of Partnership common units | 52,815 |  |  | — |
Change from net loss attributable to Archrock stockholders and transfers from noncontrolling interest | $ | 50,936 |  |  | $ | (18,372 | )
Prior to the Merger, public unitholders held an approximate 57% ownership interest in the Partnership and we owned the remaining equity interest. The equity interests in the Partnership that were owned by the public prior to April 26, 2018 are reflected within noncontrolling interest in our condensed consolidated balance sheet as of December 31, 2017. The earnings of the Partnership that were attributed to its common units held by the public prior to April 26, 2018 are reflected in net income (loss) attributable to the noncontrolling interest in our condensed consolidated statement of operations. The tax effects of the Merger were reported as adjustments to other long-term assets, long-term assets associated with discontinued operations, deferred income taxes, additional paid-in capital and other comprehensive income. Due to the change in ownership and tax step up from the consideration given in the Merger, we recorded a $156.5 million deferred tax asset which resulted in an overall $57.2 million net deferred tax asset. We evaluated the realizability of our resulting net deferred tax asset position by assessing the available positive and negative evidence and concluded, based on the weight of the evidence, that a $55.3 million valuation allowance was required. The $101.2 million net tax impact of the change in deferred tax asset and the valuation allowance was recorded as an offsetting increase to additional paid-in capital. We incurred $5.7 million and $9.8 million of transaction costs directly attributable to the Merger during the three and six months ended June 30, 2018, respectively, including financial advisory, legal service and other professional fees, which were recorded to merger-related costs on our condensed consolidated statements of operations. Significant Accounting Policies Income (Loss) Attributable to Archrock Common Stockholders Per Common Share Basic income (loss) attributable to Archrock common stockholders per common share is computed using the two-class method, which is an earnings allocation formula that determines net income (loss) 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 Archrock common stockholders per common share is determined by dividing income (loss) attributable to Archrock common stockholders after deducting amounts allocated to participating securities, by the weighted average number of common shares outstanding for the period. Participating securities include unvested restricted stock and 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 Archrock 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 stock to be issued pursuant to our employee stock purchase plan unless their effect would be anti-dilutive. The following table summarizes net income (loss) attributable to Archrock common stockholders used in the calculation of basic and diluted loss per common share (in thousands):
| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2018 |  | 2017 |  | 2018 |  | 2017
Net income (loss) attributable to Archrock stockholders | $ | 1,937 |  |  | $ | (6,687 | ) |  | $ | (1,879 | ) |  | $ | (18,372 | )
Less: Net income attributable to participating securities | (157 | ) |  | (180 | ) |  | (313 | ) |  | (334 | )
Net income (loss) attributable to Archrock common stockholders | $ | 1,780 |  |  | $ | (6,867 | ) |  | $ | (2,192 | ) |  | $ | (18,706 | )
The following table shows the potential shares of common stock that were included in computing diluted income (loss) attributable to Archrock common stockholders per common share (in thousands):
| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2018 |  | 2017 |  | 2018 |  | 2017
Weighted average common shares outstanding including participating securities | 112,995 |  |  | 70,908 |  |  | 92,130 |  |  | 70,833 |
Less: Weighted average participating securities outstanding | (1,699 | ) |  | (1,320 | ) |  | (1,541 | ) |  | (1,337 | )
Weighted average common shares outstanding — used in basic income (loss) per common share | 111,296 |  |  | 69,588 |  |  | 90,589 |  |  | 69,496 |
Net dilutive potential common shares issuable: |  |  |  |  |  |  |
On exercise of options | 99 |  |  | * |  |  | * |  |  | * |
On the settlement of employee stock purchase plan shares | 7 |  |  | — |  |  | * |  |  | — |
Weighted average common shares outstanding — used in diluted income (loss) per common share | 111,402 |  |  | 69,588 |  |  | 90,589 |  |  | 69,496 |
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* | Excluded from diluted income (loss) per common share as their inclusion would have been anti-dilutive.
The following table shows the potential shares of common stock issuable that were excluded from computing diluted income (loss) attributable to Archrock 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,
| 2018 |  | 2017 |  | 2018 |  | 2017
Net dilutive potential common shares issuable: |  |  |  |  |  |  |
On exercise of options where exercise price is greater than average market value for the period | 187 |  |  | 282 |  |  | 205 |  |  | 297 |
On exercise of options | — |  |  | 108 |  |  | 89 |  |  | 125 |
On the settlement of employee stock purchase plan shares | — |  |  | — |  |  | 5 |  |  | — |
Net dilutive potential common shares issuable | 187 |  |  | 390 |  |  | 299 |  |  | 422 |
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 changes in the fair value of derivative instruments, net of tax, that are designated as cash flow hedges, amortization of terminated interest rate swaps and adjustments related to changes in our ownership of 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, 2017 and 2018 (in thousands):
| Derivatives Cash Flow Hedges
Accumulated other comprehensive loss, January 1, 2017 | $ | (1,678 | )
Gain recognized in other comprehensive income, net of tax(1) | 173 |
Loss reclassified from accumulated other comprehensive loss, net of tax(2) | 569 |
Other comprehensive income attributable to Archrock stockholders | 742 |
Accumulated other comprehensive loss, June 30, 2017 | $ | (936 | )
Accumulated other comprehensive income, January 1, 2018 | $ | 1,197 |
Gain recognized in other comprehensive income, net of tax(3) | 2,051 |
Loss reclassified from accumulated other comprehensive loss, net of tax(4) | 456 |
Merger-related adjustments (5) | 5,670 |
Other comprehensive income attributable to Archrock stockholders | 8,177 |
Accumulated other comprehensive income, June 30, 2018 | $ | 9,374 |
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(1) | During the three months ended June 30, 2017, we recognized a loss of $0.1 million and a tax benefit of $0.1 million, in other comprehensive income (loss) related to the change in the fair value of derivative instruments. During the six months ended June 30, 2017, we recognized a gain of $0.2 million and immaterial tax expense in other comprehensive income (loss) related to change in the fair value of derivative financial instruments.
(2) | During the three months ended June 30, 2017, we reclassified a loss of $0.4 million to interest expense and a tax benefit of $0.1 million to provision for (benefit from) income taxes in our condensed consolidated statements of operations from accumulated other comprehensive income (loss). During the six months ended June 30, 2017, we reclassified a loss of $0.9 million to interest expense and a tax benefit of $0.3 million to provision for (benefit from) income taxes in our condensed consolidated statements of operations from accumulated other comprehensive income (loss).
(3) | During the three months ended June 30, 2018, we recognized a gain of $0.9 million and a tax provision of $0.5 million, in other comprehensive income (loss) related to the change in the fair value of derivative instruments. During the six months ended June 30, 2018, we recognized a gain of $2.9 million and a tax provision of $0.9 million, in other comprehensive income (loss) related to the change in the fair value of derivative instruments.
(4) | During the three months ended June 30, 2018, we reclassified an immaterial loss to interest expense and an immaterial tax benefit to provision for (benefit from) income taxes in our condensed consolidated statements of operations from accumulated other comprehensive income (loss). During the six months ended June 30, 2018, we reclassified a loss of $0.3 million to interest expense and a tax benefit of $0.1 million to provision for (benefit from) income taxes in our condensed consolidated statements of operations from accumulated other comprehensive income (loss). Additionally, during the six months ended June 30, 2018, we reclassified stranded tax effects resulting from the TCJA of $0.3 million to accumulated deficit in our condensed consolidated balance sheets. See Note 2 (“Recent Accounting Developments”) for further detail.
(5) | Pursuant to the Merger, we reclassified a gain of $5.7 million from noncontrolling interest to accumulated other comprehensive income (loss) related to fair value of derivative instruments that was previously attributed to public ownership of the Partnership.

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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 Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 + Details
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