Edgar Filing: Exterran Corp

Document

Table of Contents

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 March 31, 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. 001-36875

EXTERRAN CORPORATION

(Exact name of registrant as specified in its charter)



Delaware		47-3282259
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

11000 Equity Drive
Houston, Texas		77041
(Address of principal executive offices)		(Zip Code)

(281) 836-7000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:



Title of each class	Ticker symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	EXTN	New York Stock Exchange

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 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.



Large accelerated filer	x	Accelerated filer	o
Non-accelerated filer	o	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

Number of shares of the common stock of the registrant outstanding as of April 25, 2019: 36,327,036 shares.

Table of Contents

TABLE OF CONTENTS



	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)	3
Condensed Consolidated Balance Sheets	3
Condensed Consolidated Statements of Operations	4
Condensed Consolidated Statements of Comprehensive Income (Loss)	5
Condensed Consolidated Statements of Stockholders’ Equity	6
Condensed Consolidated Statements of Cash Flows	7
Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3. Quantitative and Qualitative Disclosures About Market Risk	39
Item 4. Controls and Procedures	39
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	41
Item 1A. Risk Factors	41
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3. Defaults Upon Senior Securities	41
Item 4. Mine Safety Disclosures	41
Item 5. Other Information	41
Item 6. Exhibits	42
SIGNATURES	43

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

EXTERRAN CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value and share amounts)

(unaudited)



	March 31, 2019			December 31, 2018
ASSETS

Current assets:
Cash and cash equivalents	$	18,576		$	19,300
Restricted cash	178			178
Accounts receivable, net of allowance of $5,350 and $5,474, respectively	266,286			248,467
Inventory, net (Note 5)	166,891			150,689
Contract assets (Note 2)	70,636			91,602
Other current assets	40,173			44,234
Current assets associated with discontinued operations (Note 4)	8,570			11,605
Total current assets	571,310			566,075
Property, plant and equipment, net (Note 6)	943,488			901,577
Operating lease right-of-use assets (Note 3)	29,782			—
Deferred income taxes	12,024			11,370
Intangible and other assets, net	84,329			86,371
Long-term assets associated with discontinued operations (Note 4)	1,629			1,661
Total assets	$	1,642,562		$	1,567,054

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable, trade	$	188,109		$	165,744
Accrued liabilities	113,269			123,335
Contract liabilities (Note 2)	139,975			153,483
Current operating lease liabilities (Note 3)	6,738			—
Current liabilities associated with discontinued operations (Note 4)	11,713			14,767
Total current liabilities	459,804			457,329
Long-term debt (Note 7)	433,952			403,810
Deferred income taxes	6,762			6,005
Long-term contract liabilities (Note 2)	134,997			101,363
Long-term operating lease liabilities (Note 3)	28,277			—
Other long-term liabilities	35,821			39,812
Long-term liabilities associated with discontinued operations (Note 4)	5,765			5,914
Total liabilities	1,105,378			1,014,233
Commitments and contingencies (Note 15)
Stockholders’ equity:
Preferred stock, $0.01 par value per share; 50,000,000 shares authorized; zero issued	—			—
Common stock, $0.01 par value per share; 250,000,000 shares authorized; 37,468,801 and 36,868,066 shares issued, respectively	375			369
Additional paid-in capital	738,448			734,458
Accumulated deficit	(220,255		)	(208,677		)
Treasury stock — 1,141,491 and 721,280 common shares, at cost, respectively	(18,647		)	(11,560		)
Accumulated other comprehensive income	37,263			38,231
Total stockholders’ equity (Note 12)	537,184			552,821
Total liabilities and stockholders’ equity	$	1,642,562		$	1,567,054

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

Table of Contents

EXTERRAN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(unaudited)



	Three Months Ended March 31,
	2019			2018
Revenues (Note 2):
Contract operations	$	85,700		$	96,493
Aftermarket services	27,302			26,371
Product sales	238,444			227,519
	351,446			350,383
Costs and expenses:
Cost of sales (excluding depreciation and amortization expense):
Contract operations	28,591			35,385
Aftermarket services	20,718			18,897
Product sales	209,535			200,336
Selling, general and administrative	43,452			44,242
Depreciation and amortization	38,217			31,029
Long-lived asset impairment (Note 9)	—			1,804
Restatement related charges	48			621
Restructuring and other charges (Note 10)	384			—
Interest expense	8,163			7,219
Other (income) expense, net	(1,245		)	1,420
	347,863			340,953
Income before income taxes	3,583			9,430
Provision for income taxes (Note 11)	9,140			5,492
Income (loss) from continuing operations	(5,557		)	3,938
Income from discontinued operations, net of tax (Note 4)	163			1,399
Net income (loss)	$	(5,394	)	$	5,337

Basic net income (loss) per common share (Note 14):
Income (loss) from continuing operations per common share	$	(0.16	)	$	0.11
Income from discontinued operations per common share	0.01			0.04
Net income (loss) per common share	$	(0.15	)	$	0.15

Diluted net income (loss) per common share (Note 14):
Income (loss) from continuing operations per common share	$	(0.16	)	$	0.11
Income from discontinued operations per common share	0.01			0.04
Net income (loss) per common share	$	(0.15	)	$	0.15

Weighted average common shares outstanding used in net income (loss) per common share (Note 14):
Basic	35,646			35,301
Diluted	35,646			35,373

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

Table of Contents

EXTERRAN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(unaudited)



	Three Months Ended March 31,
	2019			2018
Net income (loss)	$	(5,394	)	$	5,337
Other comprehensive income (loss):
Foreign currency translation adjustment	(968		)	757
Comprehensive income (loss)	$	(6,362	)	$	6,094

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

Table of Contents

EXTERRAN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(unaudited)



	Common Stock		Additional Paid-in Capital		Accumulated Deficit			Treasury Stock			Accumulated Other Comprehensive Income			Total
Balance, January 1, 2018	$	362	$	739,164	$	(223,510	)	$	(6,937	)	$	45,707		$	554,786
Cumulative-effect adjustment from adoption of ASC 606 (Note 2)					(10,021		)							(10,021		)
Net income					5,337									5,337
Options exercised			428											428
Foreign currency translation adjustment											757			757
Treasury stock purchased								(3,440		)				(3,440		)
Stock-based compensation, net of forfeitures	5		3,599											3,604
Balance, March 31, 2018	$	367	$	743,191	$	(228,194	)	$	(10,377	)	$	46,464		$	551,451

Balance, January 1, 2019	$	369	$	734,458	$	(208,677	)	$	(11,560	)	$	38,231		$	552,821
Cumulative-effect adjustment from adoption of ASC 842 (Note 1)					(6,184		)							(6,184		)
Net loss					(5,394		)							(5,394		)
Foreign currency translation adjustment											(968		)	(968		)
Treasury stock purchased								(7,087		)				(7,087		)
Stock-based compensation, net of forfeitures	6		3,990											3,996
Balance, March 31, 2019	$	375	$	738,448	$	(220,255	)	$	(18,647	)	$	37,263		$	537,184

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

Table of Contents

EXTERRAN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)



	Three Months Ended March 31,
	2019			2018
Cash flows from operating activities:
Net income (loss)	$	(5,394	)	$	5,337
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation and amortization	38,217			31,029
Long-lived asset impairment	—			1,804
Amortization of deferred financing costs	628			670
Income from discontinued operations, net of tax	(163		)	(1,399		)
Provision for doubtful accounts	—			215
Gain on sale of property, plant and equipment	(1,000		)	(227		)
(Gain) loss on remeasurement of intercompany balances	(446		)	630
Loss on foreign currency derivatives	665			—
Stock-based compensation expense	3,996			3,604
Deferred income tax benefit	(980		)	(1,706		)
Changes in assets and liabilities:
Accounts receivable and notes	(16,684		)	20,815
Inventory	(19,427		)	(34,292		)
Contract assets	17,245			(31,397		)
Other current assets	528			7,939
Accounts payable and other liabilities	7,759			6,469
Contract liabilities	24,051			(6,429		)
Other	30			564
Net cash provided by continuing operations	49,025			3,626
Net cash provided by (used in) discontinued operations	16			(2,849		)
Net cash provided by operating activities	49,041			777

Cash flows from investing activities:
Capital expenditures	(76,354		)	(49,219		)
Proceeds from sale of property, plant and equipment	4,012			2,260
Settlement of foreign currency derivatives	(207		)	—
Net cash used in continuing operations	(72,549		)	(46,959		)
Net cash provided by discontinued operations	—			66
Net cash used in investing activities	(72,549		)	(46,893		)

Cash flows from financing activities:
Proceeds from borrowings of debt	179,000			66,500
Repayments of debt	(149,113		)	(48,563		)
Payments for debt issuance costs	—			(47		)
Proceeds from stock options exercised	—			428
Purchases of treasury stock	(6,701		)	(3,440		)
Net cash provided by financing activities	23,186			14,878

Effect of exchange rate changes on cash, cash equivalents and restricted cash	(402		)	(571		)
Net decrease in cash, cash equivalents and restricted cash	(724		)	(31,809		)
Cash, cash equivalents and restricted cash at beginning of period	19,478			49,691
Cash, cash equivalents and restricted cash at end of period	$	18,754		$	17,882

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

Table of Contents

EXTERRAN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Description of Business and Basis of Presentation

Description of Business

Exterran Corporation (together with its subsidiaries, “Exterran Corporation,” “our,” “we” or “us”), a Delaware corporation formed in March 2015, is a global systems and process company offering solutions in the oil, gas, water and power markets. We are a leader in natural gas processing and treatment and compression products and services, providing critical midstream infrastructure solutions to customers throughout the world. We provide our products and services to a global customer base consisting of companies engaged in all aspects of the oil and natural gas industry, including large integrated oil and natural gas companies, national oil and natural gas companies, independent oil and natural gas producers and oil and natural gas processors, gatherers and pipeline operators. Our manufacturing facilities are located in the U.S., Singapore and the United Arab Emirates. We operate in three primary business lines: contract operations, aftermarket services and product sales.

On November 3, 2015, Archrock, Inc. (named Exterran Holdings, Inc. prior to November 3, 2015) (“Archrock”) completed the spin-off (the ‘‘Spin-off”) of its international contract operations, international aftermarket services and global fabrication businesses into an independent, publicly traded company named Exterran Corporation.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Exterran Corporation included herein have been prepared in accordance with generally accepted accounting principles 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 of a normal recurring nature that are necessary to fairly present 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, 2018. That report contains a comprehensive summary of our accounting policies. The interim results reported herein are not necessarily indicative of results for a full year.

We refer to the condensed consolidated financial statements collectively as “financial statements,” and individually as “balance sheets,” “statements of operations,” “statements of comprehensive income (loss),” “statements of stockholders’ equity” and “statements of cash flows” herein.

Recent Accounting Pronouncements

We consider the applicability and impact of all Accounting Standard Updates (“ASUs”). ASUs not listed below were assessed and determined to be not applicable.

Table of Contents

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASC 842”). The update requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by leases. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the statements of operations. The update also requires certain qualitative and quantitative disclosures about the amount, timing and uncertainty of cash flows arising from leases. On January 1, 2019, we adopted the standard using the transition method that allows us to initially apply ASC 842 as of January 1, 2019 and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Additionally, we elected certain practical expedients permitted by ASC 842 in applying the lease standard upon adoption. Upon implementation of the new lease standard, we did not to reassess whether a contract is or contains a lease at the date of initial application. For contracts entered into before the transition date, we used the lease classification under the accounting standards in effect prior to adoption. We also excluded initial direct costs for the measurement of the right-of-use asset at the date of initial application. As a result of this adoption, as a lessee, we recorded operating lease assets and lease liabilities of $21.2 million and $26.5 million, respectively, as of January 1, 2019. The difference between the lease assets and lease liabilities, including prepayments, was recorded as an adjustment to retained earnings. The adoption of this standard did not have a material effect on our statements of operations and cash flows. See Note 3 for the required disclosures related to the impact of adopting this standard.

As a result of the adoption of the new lease guidance, the following adjustments were made to the balance sheet as of January 1, 2019 (in thousands):



	Impact of Changes in Accounting Policies
	December 31, 2018			Adjustments			January 1, 2019
ASSETS

Other current assets	$	44,234		$	(506	)	$	43,728
Operating lease right-of-use assets	—			21,181			21,181
Intangible and other assets, net	86,371			(353		)	86,018
Total assets	$	1,567,054		$	20,322		$	1,587,376

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current operating lease liabilities	$	—		$	6,769		$	6,769
Long-term operating lease liabilities	—			19,737			19,737
Total liabilities	1,014,233			26,506			1,040,739
Accumulated deficit	(208,677		)	(6,184		)	(214,861		)
Total stockholders’ equity	552,821			(6,184		)	546,637
Total liabilities and stockholders’ equity	$	1,567,054		$	20,322		$	1,587,376

From a lessor perspective, new customer contracts entered into or modified on or after January 1, 2019 have been assessed in accordance with ASC 842 and ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”), as applicable and will be assessed accordingly in future periods. Additionally, for contracts determined to have lease and nonlease components, we have elected to apply the practical expedient to not separate the components and account for those components as a single component, if the applicable conditions are met. Furthermore, for contracts where the nonlease component is determined to be the predominant component, revenue will continue to be recognized in accordance with ASC 606. During the three months ended March 31, 2019, there were no new customer contracts or amendments to existing customer contracts that were assessed to be within ASC 842.

Table of Contents

Recently Issued Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326). The update 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. This update is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. Adoption will require a modified retrospective approach beginning with the earliest period presented. We are currently evaluating the potential impact of the update on our financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The update modifies the disclosure requirements on fair value measurements by removing, modifying and adding certain disclosure requirements. This update is effective for annual and interim periods beginning after December 15, 2019. Early adoption is permitted for any removed or modified disclosures upon issuance of the guidance and delayed adoption of the additional required disclosures is permitted until the effective date. Adoption will require a prospective or retrospective approach based on the specific amendments. We are currently evaluating the potential impact of the update on our financial statements.

Note 2 - Revenue

On January 1, 2018, we adopted ASC 606 applying the modified retrospective method to all contracts that were not completed as of the date of adoption. We recorded a net increase to accumulated deficit of $10.0 million as of January 1, 2018 due to the cumulative impact of adopting ASC 606.

Disaggregation of Revenue

The following tables present disaggregated revenue by products and services lines and by geographical regions for the three months ended March 31, 2019 and 2018 (in thousands):



	Three Months Ended March 31,
Revenue by Products and Services	2019		2018
Contract Operations Segment:
Contract operations services ⁽¹⁾	$	85,700	$	96,493

Aftermarket Services Segment:
Operation and maintenance services ⁽¹⁾	$	12,673	$	13,875
Part sales ⁽²⁾	9,796		9,133
Other services ⁽¹⁾	4,833		3,363
Total aftermarket services	$	27,302	$	26,371

Product Sales Segment:
Compression equipment ⁽¹⁾	$	145,439	$	131,559
Processing and treating equipment ⁽¹⁾	89,220		86,115
Production equipment ⁽²⁾	2,435		7,998
Other product sales ^{(1) (2)}	1,350		1,847
Total product sales revenues	$	238,444	$	227,519

Total revenues	$	351,446	$	350,383


⁽¹⁾	Revenue recognized over time.


⁽²⁾	Revenue recognized at a point in time.

Table of Contents



	Three Months Ended March 31,
Revenue by Geographical Regions	2019		2018
North America	$	198,933	$	231,848
Latin America	60,559		67,951
Middle East and Africa	82,791		26,125
Asia Pacific	9,163		24,459
Total revenues	$	351,446	$	350,383

The North America region is primarily comprised of our operations in Mexico and the U.S. The Latin America region is primarily comprised of our operations in Argentina, Bolivia and Brazil. The Middle East and Africa region is primarily comprised of our operations in Bahrain, Iraq, Oman, Nigeria and the United Arab Emirates. The Asia Pacific region is primarily comprised of our operations in China, Indonesia, Singapore and Thailand.

The following table summarizes the expected timing of revenue recognition from unsatisfied performance obligations (commonly referred to as backlog) as of March 31, 2019 (in thousands):



	Contract Operations Segment		Product Sales Segment
Remainder of 2019	$	226,634	$	520,239
2020	202,500		29,531
2021	207,204		3,721
2022	168,224		—
2023	149,805		—
Thereafter	403,044		—
Total backlog	$	1,357,411	$	553,491

Our aftermarket services contracts are subject to cancellation or modification at the election of the customer.

Contract Assets and Contract Liabilities

The following table provides information about accounts receivables, net, contract assets and contract liabilities from contracts with customers (in thousands):



	March 31, 2019		December 31, 2018
Accounts receivables, net	$	266,286	$	248,467
Contract assets and contract liabilities:
Current contract assets	70,636		91,602
Long-term contract assets	5,403		5,430
Current contract liabilities	139,975		153,483
Long-term contract liabilities	134,997		101,363

During the three months ended March 31, 2019, revenue recognized from contract operations services included $4.9 million of revenue deferred in previous periods. Revenue recognized during the three months ended March 31, 2019 from product sales performance obligations partially satisfied in previous periods was $212.2 million, of which $74.1 million was included in billings in excess of costs at the beginning of the period. The decreases in current contract assets and current contract liabilities during the three months ended March 31, 2019 were primarily driven by progression of product sales projects and the timing of milestone billings in the North America region. The increase in long-term contract liabilities during the three months ended March 31, 2019 was primarily driven by advanced billings to contract operations customers in the Latin America region.

Table of Contents

Note 3 - Leases

As discussed in Note 1, on January 1, 2019, we adopted ASC 842 retrospectively through a cumulative-effect adjustment as permitted under the specific transitional provisions in ASC 842. Results for reporting periods beginning after January 1, 2019 are presented under ASC 842, while prior period amounts have not been adjusted and continue to be reported under the accounting standards in effect for the prior period.

We primarily lease various offices, warehouses, equipment and vehicles. A right-of-use asset represents our right to use an underlying asset for the lease term and a lease liability represents our obligation to make lease payments arising from the lease. Our operating lease right-of-use assets and lease liabilities are recognized at the present value of lease payments over the lease term at the time of lease commencement, adjusted to include the impact of any lease incentives. Leases with initial terms of 12 months or less are not recorded on our balance sheets and leases that contain non-lease components are combined with the lease component and accounted for as a single lease component.

Our lease agreements are negotiated on an individual basis and contain a variety of different terms and conditions. They generally do not contain any material residual value guarantees or material restrictive covenants. Certain lease agreements include rental payments adjusted periodically for inflation. Additionally, some of our leases include one or more options to renew, with renewal terms that can extend the lease term from one month to 10 years. Options to renew our lease terms are included in determining the right-of-use asset and lease liability when it is reasonably certain that we will exercise that option. Lease expense is recognized on a straight-line basis over the lease term. During the three months ended March 31, 2019, we recorded expense of $2.0 million for our operating leases, of which $0.1 million of expenses related to operating leases with initial terms of 12 months or less. We do not have any material leases, individually or in the aggregate, classified as a finance leasing arrangement.

As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. We used the incremental borrowing rate on January 1, 2019 for operating leases that commenced prior to that date. As of March 31, 2019, the weighted average remaining lease term and weighted average discount rate applied for our operating leases were nine years and 8%, respectively.

As of March 31, 2019, our lease assets and lease liabilities consisted of the following (in thousands):



Leases	Classification	March 31, 2019
Assets
Operating lease assets	Operating lease right-of-use assets	$	29,782

Liabilities
Operating - current	Current operating lease liabilities	$	6,738
Operating - noncurrent	Long-term operating lease liabilities	28,277
Total lease liabilities		$	35,015

As of March 31, 2019, maturities of our operating lease liabilities consisted of the following (in thousands):



Maturity of Operating Lease Liabilities	March 31, 2019
Remainder of 2019 ⁽¹⁾	$	1,546
2020	6,998
2021	6,396
2022	5,437
2023	4,771
Thereafter	25,352
Total lease payments	50,500
Less: Imputed interest	(15,485		)
Present value of lease liabilities	$	35,015

⁽¹⁾Includes anticipated lease incentives of $3.8 million.

Table of Contents

As of December 31, 2018, commitments for future minimum rental payments with terms in excess of one year were as follows (in thousands):



Future Minimum Rental Payments	December 31, 2018
2019	$	6,076
2020	5,929
2021	4,583
2022	3,756
2023	3,038
Thereafter	11,615
Total lease payments	$	34,997

The following table provides supplemental cash flow information related to leases for the three months ended March 31, 2019 (in thousands):



Cash Flow Information	Classification	Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities	Net cash provided by operating activities	$	(2,061	)
Leased assets obtained in exchange for new operating lease liabilities	Non-cash	9,864

Note 4 - Discontinued Operations

In the first quarter of 2016, we began executing the exit of our Belleli EPC business that has historically been comprised of engineering, procurement and construction for the manufacture of tanks for tank farms and the manufacture of evaporators and brine heaters for desalination plants in the Middle East (referred to as “Belleli EPC” or the “Belleli EPC business” herein) by ceasing the bookings of new orders. As of the fourth quarter of 2017, we had substantially exited our Belleli EPC business and, in accordance with GAAP, it is reflected as discontinued operations in our financial statements for all periods presented. Although we have reached mechanical completion on all remaining Belleli EPC contracts, we are still subject to risks and uncertainties potentially resulting from warranty obligations, customer or supplier claims against us, settlement of claims against customers, completion of demobilization activities and litigation developments. The facility previously utilized to manufacture products for our Belleli EPC business has been repurposed to manufacture product sales equipment. As such, certain personnel, buildings, equipment and other assets that were previously related to our Belleli EPC business remain a part of our continuing operations. As a result, activities associated with our ongoing operations at our repurposed facility are included in continuing operations.

The following table summarizes the operating results of discontinued operations (in thousands):



	Three Months Ended March 31, 2019									Three Months Ended March 31, 2018
	Venezuela			Belleli EPC			Total			Venezuela			Belleli EPC		Total
Revenue	$	—		$	137		$	137		$	—		$	4,967	$	4,967
Cost of sales (excluding depreciation and amortization expense)	—			(316		)	(316		)	—			2,403		2,403
Selling, general and administrative	35			541			576			32			60		92
Depreciation and amortization	—			—			—			—			428		428
Other (income) expense, net	—			(328		)	(328		)	1			599		600
Provision for income taxes	—			42			42			—			45		45
Income (loss) from discontinued operations, net of tax	$	(35	)	$	198		$	163		$	(33	)	$	1,432	$	1,399

Table of Contents

The following table summarizes the balance sheet data for discontinued operations (in thousands):



	March 31, 2019						December 31, 2018
	Venezuela		Belleli EPC		Total		Venezuela		Belleli EPC		Total
Cash	$	—	$	—	$	—	$	3	$	—	$	3
Accounts receivable	—		7,883		7,883		—		11,509		11,509
Contract assets	—		277		277		—		—		—
Other current assets	—		410		410		7		86		93
Total current assets associated with discontinued operations	—		8,570		8,570		10		11,595		11,605
Property, plant and equipment, net	—		—		—		—		28		28
Intangible and other assets, net	—		1,629		1,629		—		1,633		1,633
Total assets associated with discontinued operations	$	—	$	10,199	$	10,199	$	10	$	13,256	$	13,266

Accounts payable	$	—	$	3,349	$	3,349	$	—	$	4,382	$	4,382
Accrued liabilities	15		5,811		5,826		12		7,831		7,843
Contract liabilities	—		2,538		2,538		—		2,542		2,542
Total current liabilities associated with discontinued operations	15		11,698		11,713		12		14,755		14,767
Other long-term liabilities	—		5,765		5,765		—		5,914		5,914
Total liabilities associated with discontinued operations	$	15	$	17,463	$	17,478	$	12	$	20,669	$	20,681

Note 5 - Inventory, Net

Inventory, net of reserves, consisted of the following amounts (in thousands):



	March 31, 2019		December 31, 2018
Parts and supplies	$	103,147	$	92,016
Work in progress	52,942		49,547
Finished goods	10,802		9,126
Inventory, net	$	166,891	$	150,689

Note 6 - Property, Plant and Equipment, Net

Property, plant and equipment, net, consisted of the following (in thousands):



	March 31, 2019			December 31, 2018
Compression equipment, processing facilities and other fleet assets	$	1,782,321		$	1,713,153
Land and buildings	102,166			101,571
Transportation and shop equipment	82,618			82,960
Computer software	56,972			54,572
Other	46,034			47,210
	2,070,111			1,999,466
Accumulated depreciation	(1,126,623		)	(1,097,889		)
Property, plant and equipment, net	$	943,488		$	901,577

Table of Contents

Note 7 - Debt

Debt consisted of the following (in thousands):



	March 31, 2019			December 31, 2018
Revolving credit facility due October 2023	$	65,000		$	35,000
8.125% senior notes due May 2025	375,000			375,000
Other debt	575			687
Unamortized deferred financing costs of 8.125% senior notes	(6,174		)	(6,428		)
Total debt	434,401			404,259
Less: Amounts due within one year ⁽¹⁾	(449		)	(449		)
Long-term debt	$	433,952		$	403,810

⁽¹⁾Short-term debt and the current portion of long-term debt are included in accrued liabilities in our balance sheets.

Revolving Credit Facility

We and our wholly owned subsidiary, Exterran Energy Solutions, L.P. (“EESLP”), are parties to an amended and restated credit agreement (the “Credit Agreement”) consisting of a $700.0 million revolving credit facility expiring in October 2023.

As of March 31, 2019, we had $65.0 million in outstanding borrowings and $55.4 million in outstanding letters of credit under our revolving credit facility. At March 31, 2019, taking into account guarantees through letters of credit, we had undrawn capacity of $579.6 million under our revolving credit facility. Our Credit Agreement limits our senior secured leverage ratio (as defined in the Credit Agreement) on the last day of the fiscal quarter to no greater than 2.75 to 1.0. As a result of this limitation, $547.6 million of the $579.6 million of undrawn capacity under our revolving credit facility was available for additional borrowings as of March 31, 2019.

8.125% Senior Notes Due May 2025

In April 2017, our 100% owned subsidiaries EESLP and EES Finance Corp. issued $375.0 million aggregate principal amount of 8.125% senior unsecured notes due 2025 (the “2017 Notes”). The 2017 Notes are guaranteed by us on a senior unsecured basis. We may redeem the 2017 Notes at any time in cash, in whole or part, at certain redemption prices, including the applicable make-whole premium plus accrued and unpaid interest, if any, to the date of redemption.

Note 8 - Fair Value Measurements

The accounting standard for fair value measurements and disclosures establishes a fair value hierarchy that prioritizes the inputs to 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.

Table of Contents

Recurring Fair Value Measurements

The following table presents our assets and liabilities measured at fair value on a recurring basis as of March 31, 2019 and December 31, 2018, with pricing levels as of the date of valuation (in thousands):

March 31, 2019

December 31, 2018

(Level 1)

(Level 2)

(Level 3)

(Level 1)

(Level 2)

(Level 3)

Foreign currency derivatives liability

—

458

—

N/A

We are exposed to market risks associated with changes in foreign currency exchange rates, including foreign currency exchange rate changes recorded on intercompany obligations. From time to time, we may enter into foreign currency hedges to reduce our foreign exchange risk. During the three months ended March 31, 2019, we entered into forward currency exchange contracts with a total notional value of $26.0 million that expire at varying dates through June 2019 to mitigate exposures in U.S. dollars related to the Argentine Peso, Brazilian Real and Indonesian Rupiah. We entered into these foreign currency derivatives to manage existing exposures to foreign exchange risk related to assets and liabilities recorded on our balance sheets and intercompany activity. We did not designate these forward currency exchange contracts as hedge transactions. Changes in fair value and gains and losses on settlement on these forward currency exchange contracts are recognized in other (income) expense, net, in our statements of operations. During the three months ended March 31, 2019, we recognized losses of $0.7 million on forward currency exchange contracts, which offset foreign currency gains recognized during the period. Our estimate of the fair value of foreign currency derivatives as of March 31, 2019 was determined using quoted forward exchange rates in active markets at March 31, 2019. Foreign currency derivative liabilities are included in accrued liabilities in our balance sheets.

Nonrecurring Fair Value Measurements

The following table presents our assets and liabilities measured at fair value on a nonrecurring basis during the three months ended March 31, 2019 and 2018, with pricing levels as of the date of valuation (in thousands):

Three months ended March 31, 2019

Three months ended March 31, 2018

(Level 1)

(Level 2)

(Level 3)

(Level 1)

(Level 2)

(Level 3)

Impaired assets—assets held for sale ⁽¹⁾

N/A

—

21,026


⁽¹⁾	Our estimate of the fair value of the impaired North America production equipment assets (“PEQ assets”), which were classified as assets held for sale as of March 31, 2018 and sold in June 2018, was based on the expected net proceeds from the sale of the assets.

Financial Instruments

Our financial instruments consist of cash, restricted cash, receivables, payables and debt. At March 31, 2019 and December 31, 2018, the estimated fair values of cash, restricted cash, receivables and payables approximated their carrying amounts as reflected in our balance sheets due to the short-term nature of these financial instruments.

The fair value of the 2017 Notes was estimated based on model derived calculations using market yields observed in active markets, which are Level 2 inputs. As of March 31, 2019 and December 31, 2018, the carrying amount of the 2017 Notes, excluding unamortized deferred financing costs, of $375.0 million was estimated to have a fair value of $383.0 million and $362.0 million, respectively. Due to the variable rate nature of our revolving credit facility, the carrying value as of March 31, 2019 and December 31, 2018 approximated the fair value as the rate was comparable to the then-current market rate at which debt with similar terms could have been obtained.

Note 9 - 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.

Table of Contents

In the fourth quarter of 2017, we classified our PEQ assets primarily related to inventory and property, plant and equipment, net, within our product sales business as assets held for sale in our balance sheets. In June 2018, we completed the sale of our PEQ assets. During the three months ended March 31, 2018, we recorded an impairment of $1.8 million to reduce these assets to their approximate fair values based on the expected net proceeds.

Note 10 - Restructuring and Other Charges

In the second quarter of 2018, we initiated a relocation plan in the North America region to better align our contract operations business with our customers. As a result of this plan, during the three months ended March 31, 2019, we incurred restructuring and other charges of $0.4 million related to relocations costs. As of March 31, 2019, the accrued liability balance related to this plan was $0.3 million. The charges incurred in conjunction with this relocation plan are included in restructuring and other charges in our statements of operations. We do not expect to incur additional charges with respect to relocation costs related to this relocation plan.

The following table summarizes the changes to our accrued liability balance related to restructuring and other charges for the three months ended March 31, 2019 (in thousands):



	Restructuring and Other Charges
Beginning balance at January 1, 2019	$	309
Additions for costs expensed	384
Reductions for payments	(411		)
Ending balance at March 31, 2019	$	282

Note 11 - Provision for Income Taxes

Our effective tax rate is affected by recurring items, such as tax rates in foreign jurisdictions and the relative amounts of income we earn, or losses we incur, in those jurisdictions. It is also affected by discrete items that may occur in any given year but are not consistent from year to year. Our effective tax rate is also impacted by valuation allowances recorded against loss carryforwards in the U.S. and certain other jurisdictions, foreign withholding taxes and changes in foreign currency exchange rates.

The following items had the most significant impact on the difference between our statutory U.S. federal income tax rate of 21.0% and our effective tax rate for the quarter ended March 31, 2019: (i) a $3.0 million negative impact resulting from the recording of valuation allowances recorded against U.S. federal net operating losses and (ii) a $3.4 million negative impact resulting from foreign currency devaluations in Argentina. Our effective tax rate for the three months ended March 31, 2019 increased over the comparative period of March 31, 2018 primarily due to recording additional valuation allowance in the U.S. and additional tax related to foreign exchange movement in Argentina in 2019, and a valuation allowance release in Indonesia in the comparative period, partially offset by a decrease in foreign withholding tax.

Note 12 - Stockholders’ Equity

Share Repurchase Program

On February 20, 2019, our board of directors approved a share repurchase program under which the Company is authorized to purchase up to $100.0 million of its outstanding common stock through February 2022. The timing and method of any repurchases under the program will depend on a variety of factors, including prevailing market conditions among others. Purchases under the program may be suspended or discontinued at any time and we have no obligation to repurchase any amount of our common shares under the program. Shares of common stock acquired through the repurchase program are held in treasury at cost. During the three months ended March 31, 2019, we repurchased 268,500 shares of our common stock for $4.7 million in connection with our share repurchase program. As of March 31, 2019, the remaining authorized repurchase amount under the share repurchase program was $95.3 million. Additionally, treasury stock purchased during the three months ended March 31, 2019 and 2018 included shares withheld to satisfy employees’ tax withholding obligations in connection with vesting of restricted stock awards.

Table of Contents

Note 13 - Stock-Based Compensation

Stock Options

There were no stock options granted during the three months ended March 31, 2019.

Restricted Stock, Restricted Stock Units and Performance Units

For grants of restricted stock, restricted stock units and performance units, we recognize compensation expense over the applicable vesting period equal to the fair value of our common stock at the grant date. Grants of restricted stock, restricted stock units and performance units generally vest one third per year on each of the first three anniversaries of the grant date. Certain grants of restricted stock vest on the third anniversary of the grant date and certain grants of performance units vest on the second anniversary of the grant date.

The table below presents the changes in restricted stock, restricted stock units and performance units for our common stock during the three months ended March 31, 2019.



	Shares (in thousands)		Weighted Average Grant-Date Fair Value Per Share
Non-vested awards, January 1, 2019	1,044		$	25.89
Granted	806		17.01
Vested	(427	)	23.06
Cancelled	(16	)	27.24
Non-vested awards, March 31, 2019 ⁽¹⁾	1,407		21.65


⁽¹⁾	361,000 of the non-vested awards as of March 31, 2019 are presented within our balance sheets as liabilities due to their expected cash settlement.

As of March 31, 2019, we estimate $25.2 million of unrecognized compensation cost related to unvested restricted stock, restricted stock units and performance units issued to our employees to be recognized over the weighted-average vesting period of 1.9 years.

Note 14 - Net Income (Loss) Per Common Share

Basic net income (loss) 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 net income (loss) per common share is determined by dividing net income (loss) 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 restricted stock units that have non-forfeitable rights to receive dividends or dividend equivalents, whether paid or unpaid. During periods of net loss from continuing operations, no effect is given to participating securities because they do not have a contractual obligation to participate in our losses.

Diluted net income (loss) per common share is computed using the weighted average number of common shares outstanding adjusted for the incremental common stock equivalents attributed to outstanding options to purchase common stock and non-participating restricted stock units, unless their effect would be anti-dilutive.

Table of Contents

The following table presents a reconciliation of basic and diluted net income (loss) per common share for the three months ended March 31, 2019 and 2018 (in thousands, except per share data):



	Three Months Ended March 31,
	2019			2018
Numerator for basic and diluted net income (loss) per common share:
Income (loss) from continuing operations	$	(5,557	)	$	3,938
Income from discontinued operations, net of tax	163			1,399
Less: Net income attributable to participating securities	—			(138		)
Net income (loss) — used in basic and diluted net income (loss) per common share	$	(5,394	)	$	5,199

Weighted average common shares outstanding including participating securities	36,462			36,236
Less: Weighted average participating securities outstanding	(816		)	(935		)
Weighted average common shares outstanding — used in basic net income (loss) per common share	35,646			35,301
Net dilutive potential common shares issuable:
On exercise of options and vesting of restricted stock units	*			72
Weighted average common shares outstanding — used in diluted net income (loss) per common share	35,646			35,373

Net income (loss) per common share:
Basic	$	(0.15	)	$	0.15
Diluted	$	(0.15	)	$	0.15


*	Excluded from diluted net income (loss) per common share as their inclusion would have been anti-dilutive.

The following table shows the potential shares of common stock issuable for the three months ended March 31, 2019 and 2018 that were excluded from computing diluted net income (loss) per common share as their inclusion would have been anti-dilutive (in thousands):



	Three Months Ended March 31,
	2019	2018
Net dilutive potential common shares issuable:
On exercise of options where exercise price is greater than average market value	74	35
Net dilutive potential common shares issuable	74	35

Table of Contents

Note 15 - Commitments and Contingencies

Contingencies

In addition to U.S. federal, state and local and foreign income taxes, we are subject to a number of 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 March 31, 2019 and December 31, 2018, we had accrued $5.2 million and $5.1 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 do not have any unasserted claims from non-income based tax audits that we have determined are probable of assertion. We also believe the likelihood is remote that the impact of potential unasserted claims from non-income-based tax audits could be material to our financial position, but it is possible that the resolution of future audits could be material to our results of operations or cash flows for the period in which the resolution occurs.

Our business can be hazardous, involving unforeseen circumstances such as uncontrollable flows of natural gas or well fluids and fires or explosions. As is customary in our industry, we review our safety equipment and procedures and carry insurance against some, but not all, risks of our business. Our insurance coverage includes property damage, general liability, commercial automobile liability and other coverage we believe is appropriate. 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.

Additionally, we are substantially self-insured for workers’ compensation and employee group health claims in view of the relatively high per-incident deductibles we absorb under our insurance arrangements for these risks. Losses up to the deductible amounts are estimated and accrued based upon known facts, historical trends and industry averages.

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 financial position, results of operations or cash flows. 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 financial position, results of operations or cash flows.

Contemporaneously with filing the Form 8-K on April 26, 2016, we self-reported the errors and possible irregularities at Belleli EPC to the SEC. On April 8, 2019, the SEC provided written notice to us stating that based on the information they have as of this date, they have concluded their investigation and do not intend to recommend enforcement action by the SEC against us in connection with this matter.

Indemnifications

In conjunction with, and effective as of the completion of, the Spin-off, we entered into the separation and distribution agreement with Archrock, which governs, among other things, the treatment between Archrock and us relating to certain aspects of indemnification, insurance, confidentiality and cooperation. Generally, the separation and distribution agreement provides for cross-indemnities principally designed to place financial responsibility for the obligations and liabilities of our business with us and financial responsibility for the obligations and liabilities of Archrock’s business with Archrock. Pursuant to the agreement, we and Archrock will generally release the other party from all claims arising prior to the Spin-off that relate to the other party’s business, subject to certain exceptions. Additionally, in conjunction with, and effective as of the completion of, the Spin-off, we entered into the tax matters agreement with Archrock. Under the tax matters agreement and subject to certain exceptions, we are generally liable for, and indemnify Archrock against, taxes attributable to our business, and Archrock is generally liable for, and indemnify us against, all taxes attributable to its business. We are generally liable for, and indemnify Archrock against, 50% of certain taxes that are not clearly attributable to our business or Archrock’s business. Any payment made by us to Archrock, or by Archrock to us, is treated by all parties for tax purposes as a nontaxable distribution or capital contribution, respectively, made immediately prior to the Spin-off.

Table of Contents

Note 16 - Reportable Segments

Our chief operating decision maker manages business operations, evaluates performance and allocates resources based upon the type of product or service provided. We have three reportable segments: contract operations, aftermarket services and product sales. In our contract operations segment, we provide compression, processing, treating and water treatment services through the operation of our natural gas compression equipment, crude oil and natural gas production and process equipment and water treatment equipment for our customers. In our aftermarket services segment, we sell parts and components and provide operations, maintenance, repair, overhaul, upgrade, startup and commissioning and reconfiguration services to customers who own their own oil and natural gas compression, production, processing, treating and related equipment. In our product sales segment, we design, engineer, manufacture, install and sell natural gas compression packages as well as equipment used in the treating and processing of crude oil, natural gas and water to our customers throughout the world and for use in our contract operations business line.

We evaluate the performance of our segments based on gross margin for each segment. Revenue only includes sales to external customers. We do not include intersegment sales when we evaluate our segments’ performance.

The following table presents revenue and other financial information by reportable segment for the three months ended March 31, 2019 and 2018 (in thousands):



Three Months Ended	Contract Operations		Aftermarket Services		Product Sales		Reportable Segments Total
March 31, 2019:
Revenue	$	85,700	$	27,302	$	238,444	$	351,446
Gross margin ⁽¹⁾	57,109		6,584		28,909		92,602
March 31, 2018:
Revenue	$	96,493	$	26,371	$	227,519	$	350,383
Gross margin ⁽¹⁾	61,108		7,474		27,183		95,765


⁽¹⁾	Gross margin is defined as revenue less cost of sales (excluding depreciation and amortization expense).

The following table reconciles income before income taxes to total gross margin (in thousands):



	Three Months Ended March 31,
	2019			2018
Income before income taxes	$	3,583		$	9,430
Selling, general and administrative	43,452			44,242
Depreciation and amortization	38,217			31,029
Long-lived asset impairment	—			1,804
Restatement related charges	48			621
Restructuring and other charges	384			—
Interest expense	8,163			7,219
Other (income) expense, net	(1,245		)	1,420
Total gross margin	$	92,602		$	95,765

Table of Contents

Note 17 - Supplemental Guarantor Financial Information

In April 2017, our 100% owned subsidiaries EESLP and EES Finance Corp. (together, the “Issuers”) issued the 2017 Notes, which consists of $375.0 million aggregate principal amount senior unsecured notes. The 2017 Notes are fully and unconditionally guaranteed on a joint and several senior unsecured basis by Exterran Corporation (the “Parent Guarantor” or “Parent”). All other consolidated subsidiaries of Exterran are collectively referred to as the “Non-Guarantor Subsidiaries.” As a result of the Parent’s guarantee, we are presenting the following condensed consolidating financial information pursuant to Rule 3-10 of Regulation S-X, Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered. These schedules are presented using the equity method of accounting for all periods presented. For purposes of the following condensed consolidating financial information, the Parent Guarantor’s investments in its subsidiaries, the Issuers’ investments in the Non-Guarantors Subsidiaries and the Non-Guarantor Subsidiaries’ investments in the Issuers are accounted for under the equity method of accounting. Under this method, investments in subsidiaries are recorded at cost and adjusted for our share in the subsidiaries’ cumulative results of operations, capital contributions and distributions and other changes in equity. Elimination entries relate primarily to the elimination of investments in subsidiaries and associated intercompany balances and transactions.

Table of Contents

Condensed Consolidating Balance Sheet

March 31, 2019

(In thousands)



					Non- Guarantor Subsidiaries
	Parent Guarantor		Issuers		Non- Guarantor Subsidiaries			Eliminations			Consolidation
ASSETS

Cash and cash equivalents	$	27	$	1,116	$	17,433		$	—		$	18,576
Restricted cash	—		—		178			—			178
Accounts receivable, net	—		97,099		169,187			—			266,286
Inventory, net	—		97,037		69,854			—			166,891
Contract assets	—		47,380		23,256			—			70,636
Intercompany receivables	—		172,543		385,986			(558,529		)	—
Other current assets	—		6,970		33,203			—			40,173
Current assets associated with discontinued operations	—		—		8,570			—			8,570
Total current assets	27		422,145		707,667			(558,529		)	571,310
Property, plant and equipment, net	—		311,674		631,814			—			943,488
Operating lease right-of-use assets	—		12,374		17,408			—			29,782
Investment in affiliates	543,275		886,456		(343,181		)	(1,086,550		)	—
Deferred income taxes	—		5,493		6,531			—			12,024
Intangible and other assets, net	—		31,847		52,482			—			84,329
Long-term assets associated with discontinued operations	—		—		1,629			—			1,629
Total assets	$	543,302	$	1,669,989	$	1,074,350		$	(1,645,079	)	$	1,642,562

LIABILITIES AND EQUITY

Accounts payable, trade	$	—	$	142,709	$	45,400		$	—		$	188,109
Accrued liabilities	386		33,979		78,904			—			113,269
Contract liabilities	—		77,426		62,549			—			139,975
Current operating lease liabilities	—		1,967		4,771			—			6,738
Intercompany payables	5,732		385,986		166,811			(558,529		)	—
Current liabilities associated with discontinued operations	—		—		11,713			—			11,713
Total current liabilities	6,118		642,067		370,148			(558,529		)	459,804
Long-term debt	—		433,952		—			—			433,952
Deferred income taxes	—		—		6,762			—			6,762
Long-term contract liabilities	—		22,851		112,146			—			134,997
Long-term operating lease liabilities	—		16,484		11,793			—			28,277
Other long-term liabilities	—		11,360		24,461			—			35,821
Long-term liabilities associated with discontinued operations	—		—		5,765			—			5,765
Total liabilities	6,118		1,126,714		531,075			(558,529		)	1,105,378
Total equity	537,184		543,275		543,275			(1,086,550		)	537,184
Total liabilities and equity	$	543,302	$	1,669,989	$	1,074,350		$	(1,645,079	)	$	1,642,562

Table of Contents

Condensed Consolidating Balance Sheet

December 31, 2018

(In thousands)



					Non- Guarantor Subsidiaries
	Parent Guarantor		Issuers		Non- Guarantor Subsidiaries			Eliminations			Consolidation
ASSETS

Cash and cash equivalents	$	46	$	1,185	$	18,069		$	—		$	19,300
Restricted cash	—		—		178			—			178
Accounts receivable, net	—		92,880		155,587			—			248,467
Inventory, net	—		87,972		62,717			—			150,689
Contract assets	—		67,323		24,279			—			91,602
Intercompany receivables	—		158,977		379,628			(538,605		)	—
Other current assets	—		7,744		36,490			—			44,234
Current assets associated with discontinued operations	—		—		11,605			—			11,605
Total current assets	46		416,081		688,553			(538,605		)	566,075
Property, plant and equipment, net	—		303,813		597,764			—			901,577
Investment in affiliates	554,207		870,959		(316,752		)	(1,108,414		)	—
Deferred income taxes	—		5,493		5,877			—			11,370
Intangible and other assets, net	—		32,046		54,325			—			86,371
Long-term assets associated with discontinued operations	—		—		1,661			—			1,661
Total assets	$	554,253	$	1,628,392	$	1,031,428		$	(1,647,019	)	$	1,567,054

LIABILITIES AND EQUITY

Accounts payable, trade	$	—	$	133,291	$	32,453		$	—		$	165,744
Accrued liabilities	—		47,012		76,323			—			123,335
Contract liabilities	—		82,367		71,116			—			153,483
Intercompany payables	1,432		379,628		157,545			(538,605		)	—
Current liabilities associated with discontinued operations	—		—		14,767			—			14,767
Total current liabilities	1,432		642,298		352,204			(538,605		)	457,329
Long-term debt	—		403,810		—			—			403,810
Deferred income taxes	—		—		6,005			—			6,005
Long-term contract liabilities	—		17,226		84,137			—			101,363
Other long-term liabilities	—		10,851		28,961			—			39,812
Long-term liabilities associated with discontinued operations	—		—		5,914			—			5,914
Total liabilities	1,432		1,074,185		477,221			(538,605		)	1,014,233
Total equity	552,821		554,207		554,207			(1,108,414		)	552,821
Total liabilities and equity	$	554,253	$	1,628,392	$	1,031,428		$	(1,647,019	)	$	1,567,054

Table of Contents

Condensed Consolidating Statement of Operations and Comprehensive Loss

Three Months Ended March 31, 2019

(In thousands)



					Non- Guarantor Subsidiaries
	Parent Guarantor		Issuers		Non- Guarantor Subsidiaries		Eliminations			Consolidation
Revenues	$	—	$	214,790	$	164,631	$	(27,975	)	$	351,446
Cost of sales (excluding depreciation and amortization expense)	—		185,306		101,513		(27,975		)	258,844
Selling, general and administrative	297		22,107		21,048		—			43,452
Depreciation and amortization	—		14,927		23,290		—			38,217
Restatement related charges	—		48		—		—			48