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 June 30, 2014
|
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. 001-33666
EXTERRAN HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware |
|
74-3204509 |
(State or Other Jurisdiction of |
|
(I.R.S. Employer |
Incorporation or Organization) |
|
Identification No.) |
|
|
|
16666 Northchase Drive |
|
|
Houston, Texas |
|
77060 |
(Address of principal executive offices) |
|
(Zip Code) |
(281) 836-7000
(Registrants telephone number, including area code)
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post 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, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x |
|
Accelerated filer o |
|
|
|
Non-accelerated filer o |
|
Smaller reporting company o |
(Do not check if a smaller reporting company) |
|
|
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 July 29, 2014: 67,019,352 shares.
EXTERRAN HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value and share amounts)
(unaudited)
|
|
June 30, |
|
December 31, |
| ||
ASSETS |
|
|
|
|
| ||
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
| ||
Cash and cash equivalents |
|
$ |
53,903 |
|
$ |
35,665 |
|
Restricted cash |
|
1,514 |
|
1,269 |
| ||
Accounts receivable, net of allowance of $5,475 and $8,605, respectively |
|
504,989 |
|
476,792 |
| ||
Inventory, net |
|
420,126 |
|
413,927 |
| ||
Costs and estimated earnings in excess of billings on uncompleted contracts |
|
113,210 |
|
117,175 |
| ||
Current deferred income taxes |
|
104,476 |
|
117,576 |
| ||
Other current assets |
|
65,904 |
|
58,285 |
| ||
Current assets associated with discontinued operations |
|
293 |
|
442 |
| ||
Total current assets |
|
1,264,415 |
|
1,221,131 |
| ||
Property, plant and equipment, net |
|
3,175,249 |
|
2,820,272 |
| ||
Intangible and other assets, net |
|
203,758 |
|
164,836 |
| ||
Long-term assets associated with discontinued operations |
|
19,695 |
|
20,918 |
| ||
Total assets |
|
$ |
4,663,117 |
|
$ |
4,227,157 |
|
|
|
|
|
|
| ||
LIABILITIES AND EQUITY |
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
| ||
Accounts payable, trade |
|
$ |
199,373 |
|
$ |
177,289 |
|
Accrued liabilities |
|
248,780 |
|
278,949 |
| ||
Deferred revenue |
|
69,395 |
|
93,310 |
| ||
Billings on uncompleted contracts in excess of costs and estimated earnings |
|
70,148 |
|
87,925 |
| ||
Current liabilities associated with discontinued operations |
|
2,215 |
|
3,233 |
| ||
Total current liabilities |
|
589,911 |
|
640,706 |
| ||
Long-term debt |
|
1,852,568 |
|
1,502,155 |
| ||
Deferred income taxes |
|
207,864 |
|
198,353 |
| ||
Other long-term liabilities |
|
64,396 |
|
72,068 |
| ||
Long-term liabilities associated with discontinued operations |
|
307 |
|
447 |
| ||
Total liabilities |
|
2,715,046 |
|
2,413,729 |
| ||
Commitments and contingencies (Note 14) |
|
|
|
|
| ||
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; 73,593,910 and 72,500,773 shares issued, respectively |
|
736 |
|
725 |
| ||
Additional paid-in capital |
|
3,729,172 |
|
3,769,429 |
| ||
Accumulated other comprehensive income |
|
29,993 |
|
30,078 |
| ||
Accumulated deficit |
|
(1,899,261 |
) |
(1,924,244 |
) | ||
Treasury stock 6,571,505 and 6,582,068 common shares, at cost, respectively |
|
(90,409 |
) |
(213,898 |
) | ||
Total Exterran stockholders equity |
|
1,770,231 |
|
1,662,090 |
| ||
Noncontrolling interest |
|
177,840 |
|
151,338 |
| ||
Total equity |
|
1,948,071 |
|
1,813,428 |
| ||
Total liabilities and equity |
|
$ |
4,663,117 |
|
$ |
4,227,157 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
EXTERRAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
| ||||||||
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
| ||||
Revenues: |
|
|
|
|
|
|
|
|
| ||||
North America contract operations |
|
$ |
181,940 |
|
$ |
162,207 |
|
$ |
338,463 |
|
$ |
320,157 |
|
International contract operations |
|
134,392 |
|
117,872 |
|
245,432 |
|
227,430 |
| ||||
Aftermarket services |
|
100,359 |
|
99,368 |
|
188,407 |
|
182,980 |
| ||||
Fabrication |
|
322,579 |
|
456,459 |
|
609,976 |
|
915,235 |
| ||||
|
|
739,270 |
|
835,906 |
|
1,382,278 |
|
1,645,802 |
| ||||
Costs and expenses: |
|
|
|
|
|
|
|
|
| ||||
Cost of sales (excluding depreciation and amortization expense): |
|
|
|
|
|
|
|
|
| ||||
North America contract operations |
|
77,514 |
|
70,513 |
|
148,595 |
|
141,623 |
| ||||
International contract operations |
|
46,502 |
|
50,015 |
|
87,534 |
|
96,214 |
| ||||
Aftermarket services |
|
79,297 |
|
77,936 |
|
147,118 |
|
143,382 |
| ||||
Fabrication |
|
279,983 |
|
381,573 |
|
509,571 |
|
783,972 |
| ||||
Selling, general and administrative |
|
95,712 |
|
91,005 |
|
188,290 |
|
175,879 |
| ||||
Depreciation and amortization |
|
111,956 |
|
80,751 |
|
197,478 |
|
163,397 |
| ||||
Long-lived asset impairment |
|
9,847 |
|
16,574 |
|
13,654 |
|
20,137 |
| ||||
Restructuring charges |
|
353 |
|
|
|
5,175 |
|
|
| ||||
Interest expense |
|
32,722 |
|
30,250 |
|
61,030 |
|
58,124 |
| ||||
Equity in income of non-consolidated affiliates |
|
(4,909 |
) |
(4,722 |
) |
(9,602 |
) |
(9,387 |
) | ||||
Other (income) expense, net |
|
(3,671 |
) |
(7,223 |
) |
(6,105 |
) |
(17,031 |
) | ||||
|
|
725,306 |
|
786,672 |
|
1,342,738 |
|
1,556,310 |
| ||||
Income before income taxes |
|
13,964 |
|
49,234 |
|
39,540 |
|
89,492 |
| ||||
Provision for income taxes |
|
10,870 |
|
23,624 |
|
20,279 |
|
38,607 |
| ||||
Income from continuing operations |
|
3,094 |
|
25,610 |
|
19,261 |
|
50,885 |
| ||||
Income (loss) from discontinued operations, net of tax |
|
17,769 |
|
(1,106 |
) |
36,496 |
|
32,410 |
| ||||
Net income |
|
20,863 |
|
24,504 |
|
55,757 |
|
83,295 |
| ||||
Less: Net income attributable to the noncontrolling interest |
|
(8,486 |
) |
(15,169 |
) |
(10,784 |
) |
(23,755 |
) | ||||
Net income attributable to Exterran stockholders |
|
$ |
12,377 |
|
$ |
9,335 |
|
$ |
44,973 |
|
$ |
59,540 |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic income (loss) per common share: |
|
|
|
|
|
|
|
|
| ||||
Income (loss) from continuing operations attributable to Exterran common stockholders |
|
$ |
(0.08 |
) |
$ |
0.16 |
|
$ |
0.13 |
|
$ |
0.41 |
|
Income (loss) from discontinued operations attributable to Exterran common stockholders |
|
0.27 |
|
(0.02 |
) |
0.54 |
|
0.50 |
| ||||
Net income attributable to Exterran common stockholders |
|
$ |
0.19 |
|
$ |
0.14 |
|
$ |
0.67 |
|
$ |
0.91 |
|
|
|
|
|
|
|
|
|
|
| ||||
Diluted income (loss) per common share: |
|
|
|
|
|
|
|
|
| ||||
Income (loss) from continuing operations attributable to Exterran common stockholders |
|
$ |
(0.08 |
) |
$ |
0.16 |
|
$ |
0.12 |
|
$ |
0.41 |
|
Income (loss) from discontinued operations attributable to Exterran common stockholders |
|
0.27 |
|
(0.02 |
) |
0.52 |
|
0.49 |
| ||||
Net income attributable to Exterran common stockholders |
|
$ |
0.19 |
|
$ |
0.14 |
|
$ |
0.64 |
|
$ |
0.90 |
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average common shares outstanding used in income (loss) per common share: |
|
|
|
|
|
|
|
|
| ||||
Basic |
|
65,890 |
|
64,484 |
|
65,575 |
|
64,281 |
| ||||
Diluted |
|
65,890 |
|
65,016 |
|
68,772 |
|
64,806 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Dividends declared and paid per common share |
|
$ |
0.15 |
|
$ |
|
|
$ |
0.30 |
|
$ |
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
EXTERRAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(unaudited)
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
| ||||||||
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
| ||||
Net income |
|
$ |
20,863 |
|
$ |
24,504 |
|
$ |
55,757 |
|
$ |
83,295 |
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
| ||||
Derivative gain (loss), net of reclassifications to earnings |
|
(1,650 |
) |
5,102 |
|
(2,220 |
) |
6,183 |
| ||||
Adjustments from changes in ownership of Partnership |
|
65 |
|
|
|
65 |
|
(703 |
) | ||||
Amortization of terminated interest rate swaps |
|
749 |
|
684 |
|
1,529 |
|
1,009 |
| ||||
Foreign currency translation adjustment |
|
(1,403 |
) |
1,492 |
|
(269 |
) |
(3,770 |
) | ||||
Total other comprehensive income (loss) |
|
(2,239 |
) |
7,278 |
|
(895 |
) |
2,719 |
| ||||
Comprehensive income |
|
18,624 |
|
31,782 |
|
54,862 |
|
86,014 |
| ||||
Less: Comprehensive income attributable to the noncontrolling interest |
|
(7,650 |
) |
(19,654 |
) |
(9,974 |
) |
(29,124 |
) | ||||
Comprehensive income attributable to Exterran stockholders |
|
$ |
10,974 |
|
$ |
12,128 |
|
$ |
44,888 |
|
$ |
56,890 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
EXTERRAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(In thousands)
(unaudited)
|
|
Exterran Holdings, Inc. Stockholders |
|
|
|
|
| |||||||||||||||
|
|
Common |
|
Additional |
|
Accumulated |
|
Treasury |
|
Accumulated |
|
Noncontrolling |
|
Total |
| |||||||
Balance, January 1, 2013 |
|
$ |
713 |
|
$ |
3,710,758 |
|
$ |
23,909 |
|
$ |
(209,359 |
) |
$ |
(2,047,408 |
) |
$ |
223,646 |
|
$ |
1,702,259 |
|
Treasury stock purchased |
|
|
|
|
|
|
|
(3,515 |
) |
|
|
|
|
(3,515 |
) | |||||||
Options exercised |
|
3 |
|
5,786 |
|
|
|
|
|
|
|
|
|
5,789 |
| |||||||
Shares issued in employee stock purchase plan |
|
|
|
805 |
|
|
|
|
|
|
|
|
|
805 |
| |||||||
Stock-based compensation, net of forfeitures |
|
7 |
|
8,035 |
|
|
|
|
|
|
|
345 |
|
8,387 |
| |||||||
Income tax benefit from stock-based compensation expense |
|
|
|
867 |
|
|
|
|
|
|
|
|
|
867 |
| |||||||
Adjustments from changes in ownership of Partnership |
|
|
|
31,573 |
|
|
|
|
|
|
|
(49,238 |
) |
(17,665 |
) | |||||||
Cash distribution to noncontrolling unitholders of the Partnership |
|
|
|
|
|
|
|
|
|
|
|
(30,679 |
) |
(30,679 |
) | |||||||
Other |
|
|
|
(84 |
) |
|
|
|
|
|
|
|
|
(84 |
) | |||||||
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net income |
|
|
|
|
|
|
|
|
|
59,540 |
|
23,755 |
|
83,295 |
| |||||||
Derivatives gain, net of reclassifications to earnings and tax |
|
|
|
|
|
814 |
|
|
|
|
|
5,369 |
|
6,183 |
| |||||||
Adjustments from changes in ownership of Partnership |
|
|
|
|
|
(703 |
) |
|
|
|
|
|
|
(703 |
) | |||||||
Amortization of terminated interest rate swaps, net of tax |
|
|
|
|
|
1,009 |
|
|
|
|
|
|
|
1,009 |
| |||||||
Foreign currency translation adjustment |
|
|
|
|
|
(3,770 |
) |
|
|
|
|
|
|
(3,770 |
) | |||||||
Balance, June 30, 2013 |
|
$ |
723 |
|
$ |
3,757,740 |
|
$ |
21,259 |
|
$ |
(212,874 |
) |
$ |
(1,987,868 |
) |
$ |
173,198 |
|
$ |
1,752,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Balance, January 1, 2014 |
|
$ |
725 |
|
$ |
3,769,429 |
|
$ |
30,078 |
|
$ |
(213,898 |
) |
$ |
(1,924,244 |
) |
$ |
151,338 |
|
$ |
1,813,428 |
|
Treasury stock purchased |
|
|
|
|
|
|
|
(6,315 |
) |
|
|
|
|
(6,315 |
) | |||||||
Options exercised |
|
6 |
|
10,761 |
|
|
|
|
|
|
|
|
|
10,767 |
| |||||||
Cash dividends |
|
|
|
|
|
|
|
|
|
(19,990 |
) |
|
|
(19,990 |
) | |||||||
Shares issued in employee stock purchase plan |
|
|
|
897 |
|
|
|
|
|
|
|
|
|
897 |
| |||||||
Stock-based compensation, net of forfeitures |
|
4 |
|
10,692 |
|
|
|
|
|
|
|
607 |
|
11,303 |
| |||||||
Income tax benefit from stock-based compensation expense |
|
|
|
7,684 |
|
|
|
|
|
|
|
|
|
7,684 |
| |||||||
Net proceeds from the sale of Partnership units, net of tax |
|
|
|
74,521 |
|
|
|
|
|
|
|
51,212 |
|
125,733 |
| |||||||
Cash distribution to noncontrolling unitholders of the Partnership |
|
|
|
|
|
|
|
|
|
|
|
(35,291 |
) |
(35,291 |
) | |||||||
Redemption of convertible debt |
|
1 |
|
(234,219 |
) |
|
|
219,211 |
|
|
|
|
|
(15,007 |
) | |||||||
Shares acquired from exercise of call options |
|
|
|
89,407 |
|
|
|
(89,407 |
) |
|
|
|
|
|
| |||||||
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net income |
|
|
|
|
|
|
|
|
|
44,973 |
|
10,784 |
|
55,757 |
| |||||||
Derivatives loss, net of reclassifications to earnings and tax |
|
|
|
|
|
(1,410 |
) |
|
|
|
|
(810 |
) |
(2,220 |
) | |||||||
Adjustments from changes in ownership of Partnership |
|
|
|
|
|
65 |
|
|
|
|
|
|
|
65 |
| |||||||
Amortization of terminated interest rate swaps, net of tax |
|
|
|
|
|
1,529 |
|
|
|
|
|
|
|
1,529 |
| |||||||
Foreign currency translation adjustment |
|
|
|
|
|
(269 |
) |
|
|
|
|
|
|
(269 |
) | |||||||
Balance, June 30, 2014 |
|
$ |
736 |
|
$ |
3,729,172 |
|
$ |
29,993 |
|
$ |
(90,409 |
) |
$ |
(1,899,261 |
) |
$ |
177,840 |
|
$ |
1,948,071 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
EXTERRAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
|
|
Six Months Ended June 30, |
| ||||
|
|
2014 |
|
2013 |
| ||
Cash flows from operating activities: |
|
|
|
|
| ||
Net income |
|
$ |
55,757 |
|
$ |
83,295 |
|
Adjustments to reconcile net income to cash provided by operating activities: |
|
|
|
|
| ||
Depreciation and amortization |
|
197,478 |
|
163,397 |
| ||
Long-lived asset impairment |
|
13,654 |
|
20,137 |
| ||
Amortization of deferred financing costs |
|
3,288 |
|
4,542 |
| ||
Income from discontinued operations, net of tax |
|
(36,496 |
) |
(32,410 |
) | ||
Amortization of debt discount |
|
11,821 |
|
11,314 |
| ||
Provision for (benefit from) doubtful accounts |
|
1,387 |
|
(739 |
) | ||
Gain on sale of property, plant and equipment |
|
(3,493 |
) |
(18,906 |
) | ||
Equity in income of non-consolidated affiliates |
|
(9,602 |
) |
(9,387 |
) | ||
Amortization of terminated interest rate swaps |
|
2,353 |
|
1,552 |
| ||
Interest rate swaps |
|
151 |
|
152 |
| ||
(Gain) loss on remeasurement of intercompany balances |
|
(2,882 |
) |
469 |
| ||
Stock-based compensation expense |
|
11,303 |
|
8,387 |
| ||
Deferred income tax provision |
|
(12,575 |
) |
10,614 |
| ||
Changes in assets and liabilities, net of acquisition: |
|
|
|
|
| ||
Accounts receivable and notes |
|
(29,385 |
) |
(8,156 |
) | ||
Inventory |
|
(3,398 |
) |
(68,094 |
) | ||
Costs and estimated earnings versus billings on uncompleted contracts |
|
(13,882 |
) |
(118,607 |
) | ||
Other current assets |
|
(7,283 |
) |
938 |
| ||
Accounts payable and other liabilities |
|
(26,568 |
) |
31,653 |
| ||
Deferred revenue |
|
(27,585 |
) |
5,451 |
| ||
Other |
|
(3,906 |
) |
(10,507 |
) | ||
Net cash provided by continuing operations |
|
120,137 |
|
75,095 |
| ||
Net cash provided by discontinued operations |
|
2,466 |
|
5,520 |
| ||
Net cash provided by operating activities |
|
122,603 |
|
80,615 |
| ||
|
|
|
|
|
| ||
Cash flows from investing activities: |
|
|
|
|
| ||
Capital expenditures |
|
(238,210 |
) |
(214,934 |
) | ||
Proceeds from sale of property, plant and equipment |
|
13,399 |
|
71,111 |
| ||
Payment for MidCon acquisition |
|
(360,521 |
) |
|
| ||
Return of investments in non-consolidated affiliates |
|
9,799 |
|
9,387 |
| ||
Increase in restricted cash |
|
(245 |
) |
|
| ||
Cash invested in non-consolidated affiliates |
|
(197 |
) |
|
| ||
Net cash used in continuing operations |
|
(575,975 |
) |
(134,436 |
) | ||
Net cash provided by discontinued operations |
|
33,276 |
|
29,335 |
| ||
Net cash used in investing activities |
|
(542,699 |
) |
(105,101 |
) | ||
|
|
|
|
|
| ||
Cash flows from financing activities: |
|
|
|
|
| ||
Proceeds from borrowings of long-term debt |
|
1,389,799 |
|
1,474,037 |
| ||
Repayments of long-term debt |
|
(1,051,000 |
) |
(1,407,750 |
) | ||
Payments for debt issuance costs |
|
(6,923 |
) |
(11,929 |
) | ||
Payments above face value for redemption of convertible debt |
|
(15,007 |
) |
|
| ||
Payments for settlement of interest rate swaps that include financing elements |
|
(1,894 |
) |
(314 |
) | ||
Net proceeds from the sale of Partnership units |
|
169,471 |
|
|
| ||
Proceeds from stock options exercised |
|
10,767 |
|
5,789 |
| ||
Proceeds from stock issued pursuant to our employee stock purchase plan |
|
897 |
|
805 |
| ||
Purchases of treasury stock |
|
(6,315 |
) |
(3,515 |
) | ||
Dividends to Exterran stockholders |
|
(19,990 |
) |
|
| ||
Stock-based compensation excess tax benefit |
|
7,820 |
|
1,026 |
| ||
Distributions to noncontrolling partners in the Partnership |
|
(35,291 |
) |
(30,679 |
) | ||
Net cash provided by financing activities |
|
442,334 |
|
27,470 |
| ||
|
|
|
|
|
| ||
Effect of exchange rate changes on cash and cash equivalents |
|
(4,000 |
) |
(644 |
) | ||
Net increase in cash and cash equivalents |
|
18,238 |
|
2,340 |
| ||
Cash and cash equivalents at beginning of period |
|
35,665 |
|
34,601 |
| ||
Cash and cash equivalents at end of period |
|
$ |
53,903 |
|
$ |
36,941 |
|
|
|
|
|
|
| ||
Supplemental disclosure of non-cash transactions: |
|
|
|
|
| ||
Shares issued for redemption of convertible debt |
|
$ |
219,211 |
|
$ |
|
|
Shares acquired from exercise of call options |
|
$ |
(89,407 |
) |
$ |
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
EXTERRAN HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Summary of Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements of Exterran Holdings, Inc. (Exterran, our, we or us) included herein have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S.) (GAAP) for interim financial information and the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP are not required in these interim financial statements and have been condensed or omitted. Management believes that the information furnished includes all adjustments, consisting only of normal recurring adjustments, that are necessary to present fairly our consolidated financial position, results of operations and cash flows for the periods indicated. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements presented in our Annual Report on Form 10-K for the year ended December 31, 2013. That report contains a more comprehensive summary of our accounting policies. The interim results reported herein are not necessarily indicative of results for a full year.
Revenue Recognition
Contract operations revenue is recognized when earned, which generally occurs monthly when service is provided under our customer contracts. Aftermarket services revenue is recognized as products are delivered and title is transferred or services are performed for the customer.
Fabrication revenue is recognized using the percentage-of-completion method when the applicable criteria are met. We estimate percentage-of-completion for compressor and accessory fabrication on a direct labor hour to total labor hour basis. We estimate production and processing equipment fabrication percentage-of-completion using the direct labor hour to total labor hour basis and the cost to total cost basis. The duration of these projects is typically between three and 36 months. Fabrication revenue is recognized using the completed contract method when the applicable criteria of the percentage-of-completion method are not met. Fabrication revenue from a claim is recognized to the extent that costs related to the claim have been incurred, when collection is probable and can be reliably estimated. During the three and six months ended June 30, 2014, we recorded $3.5 million of revenue related to a claim on a contract that was determined to be probable of collection.
Earnings (Loss) Attributable to Exterran Common Stockholders Per Common Share
Basic income (loss) attributable to Exterran common stockholders per common share is computed by dividing income (loss) attributable to Exterran common stockholders by the weighted average number of shares outstanding for the period. Unvested share-based awards with nonforfeitable rights to receive dividends or dividend equivalents, whether paid or unpaid, are participating securities and are included in the computation of earnings (loss) per share following the two-class method. Therefore, our restricted stock and certain of our stock settled restricted stock units are considered participating securities for purposes of calculating earnings per share. The two-class method is an earnings allocation formula that determines net income per share for each class of common stock and participating security according to dividends declared and participation rights in undistributed earnings. During periods of net loss, no effect is given to participating securities because they do not have a contractual obligation to participate in our losses.
Diluted income (loss) attributable to Exterran common stockholders per common share is computed using the weighted average number of shares outstanding adjusted for the incremental common stock equivalents attributed to outstanding options and warrants to purchase common stock, restricted stock units, stock to be issued pursuant to our employee stock purchase plan and convertible senior notes, unless their effect would be anti-dilutive.
The following table summarizes net income attributable to Exterran common stockholders used in the calculation of basic and diluted income per common share (in thousands):
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
| ||||||||
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
| ||||
Income (loss) from continuing operations attributable to Exterran stockholders |
|
$ |
(5,392 |
) |
$ |
10,441 |
|
$ |
8,477 |
|
$ |
27,130 |
|
Income (loss) from discontinued operations, net of tax |
|
17,769 |
|
(1,106 |
) |
36,496 |
|
32,410 |
| ||||
Less: Net income attributable to participating securities |
|
(122 |
) |
(175 |
) |
(803 |
) |
(1,106 |
) | ||||
Net income attributable to Exterran common stockholders |
|
$ |
12,255 |
|
$ |
9,160 |
|
$ |
44,170 |
|
$ |
58,434 |
|
The following table shows the potential shares of common stock that were included in computing diluted income (loss) attributable to Exterran common stockholders per common share (in thousands):
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
| ||||
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
|
Weighted average common shares outstanding including participating securities |
|
66,826 |
|
65,716 |
|
66,579 |
|
65,498 |
|
Less: Weighted average participating securities outstanding |
|
(936 |
) |
(1,232 |
) |
(1,004 |
) |
(1,217 |
) |
Weighted average common shares outstanding used in basic income (loss) per common share |
|
65,890 |
|
64,484 |
|
65,575 |
|
64,281 |
|
Net dilutive potential common shares issuable: |
|
|
|
|
|
|
|
|
|
On exercise of options and vesting of restricted stock units |
|
** |
|
530 |
|
556 |
|
523 |
|
On settlement of employee stock purchase plan shares |
|
** |
|
2 |
|
1 |
|
2 |
|
On exercise of warrants |
|
** |
|
** |
|
2,640 |
|
** |
|
On conversion of 4.25% convertible senior notes due 2014 |
|
** |
|
** |
|
** |
|
** |
|
On conversion of 4.75% convertible senior notes due 2014 |
|
** |
|
** |
|
** |
|
** |
|
Weighted average common shares outstanding used in diluted income (loss) per common share |
|
65,890 |
|
65,016 |
|
68,772 |
|
64,806 |
|
** Excluded from diluted income (loss) per common share as their inclusion would have been anti-dilutive.
There were no adjustments to net income (loss) attributable to Exterran common stockholders for the diluted earnings (loss) per common share calculation during the three and six months ended June 30, 2014 and 2013.
The following table shows the potential shares of common stock issuable that were excluded from computing diluted income (loss) attributable to Exterran common stockholders per common share as their inclusion would have been anti-dilutive (in thousands):
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
| ||||
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
|
Net dilutive potential common shares issuable: |
|
|
|
|
|
|
|
|
|
On exercise of options where exercise price is greater than average market value for the period |
|
497 |
|
741 |
|
541 |
|
834 |
|
On exercise of options and vesting of restricted stock units |
|
497 |
|
|
|
|
|
|
|
On settlement of employee stock purchase plan shares |
|
|
|
|
|
|
|
|
|
On exercise of warrants |
|
12,426 |
|
12,426 |
|
|
|
12,426 |
|
On conversion of 4.25% convertible senior notes due 2014 |
|
12,900 |
|
15,334 |
|
14,146 |
|
15,334 |
|
On conversion of 4.75% convertible senior notes due 2014 |
|
|
|
|
|
|
|
241 |
|
Net dilutive potential common shares issuable |
|
26,320 |
|
28,501 |
|
14,687 |
|
28,835 |
|
Comprehensive Income (Loss)
Components of comprehensive income (loss) are net income (loss) and all changes in equity during a period except those resulting from transactions with owners. Our accumulated other comprehensive income (loss) consists of foreign currency translation adjustments, changes in the fair value of derivative financial instruments, net of tax, that are designated as cash flow hedges and to the extent the hedge is effective and adjustments related to changes in our ownership of Exterran Partners, L.P. (the Partnership).
The following table presents the changes in accumulated other comprehensive income (loss) by component, net of tax, and excluding noncontrolling interest, during the six months ended June 30, 2013 and 2014 (in thousands):
|
|
Derivatives |
|
Foreign |
|
Total |
| |||
Accumulated other comprehensive income (loss), January 1, 2013 |
|
$ |
(2,984 |
) |
$ |
26,893 |
|
$ |
23,909 |
|
Loss recognized in other comprehensive income (loss), net of tax |
|
(26 |
)(1) |
(6,145 |
)(3) |
(6,171 |
) | |||
Loss reclassified from accumulated other comprehensive income (loss), net of tax |
|
1,146 |
(2) |
2,375 |
(4) |
3,521 |
| |||
Other comprehensive income (loss) attributable to Exterran stockholders |
|
1,120 |
|
(3,770 |
) |
(2,650 |
) | |||
Accumulated other comprehensive income (loss), June 30, 2013 |
|
$ |
(1,864 |
) |
$ |
23,123 |
|
$ |
21,259 |
|
|
|
|
|
|
|
|
| |||
Accumulated other comprehensive income (loss), January 1, 2014 |
|
$ |
(1,346 |
) |
$ |
31,424 |
|
$ |
30,078 |
|
Loss recognized in other comprehensive income (loss), net of tax |
|
(639 |
)(5) |
(269 |
)(7) |
(908 |
) | |||
Loss reclassified from accumulated other comprehensive income (loss), net of tax |
|
823 |
(6) |
|
|
823 |
| |||
Other comprehensive income (loss) attributable to Exterran stockholders |
|
184 |
|
(269 |
) |
(85 |
) | |||
Accumulated other comprehensive income (loss), June 30, 2014 |
|
$ |
(1,162 |
) |
$ |
31,155 |
|
$ |
29,993 |
|
(1) During the three months ended June 30, 2013, we recognized a gain of $0.9 million and a tax provision of $0.3 million, in other comprehensive income (loss), net of tax, related to changes in the fair value of derivative financial instruments. During the six months ended June 30, 2013, we recognized a gain of $0.2 million and a tax provision of $0.2 million, in other comprehensive income (loss), net of tax, related to changes in the fair value of derivative financial instruments.
(2) During the three months ended June 30, 2013, we reclassified a $1.0 million loss to interest expense and a tax benefit of $0.4 million to provision for income taxes in our condensed consolidated statements of operations from accumulated other comprehensive income (loss). During the six months ended June 30, 2013, we reclassified a $1.7 million loss to interest expense and a tax benefit of $0.6 million to provision for income taxes in our condensed consolidated statements of operations from accumulated other comprehensive income (loss).
(3) During the three and six months ended June 30, 2013, we recognized a loss of $0.9 million and $6.1 million, respectively, in other comprehensive income (loss), net of tax, related to changes in foreign currency translation adjustment.
(4) During the three and six months ended June 30, 2013, we reclassified a loss of $2.4 million related to foreign currency translation adjustment to long-lived asset impairment in our condensed consolidated statements of operations. This amount represents cumulative foreign currency translation adjustment associated with our United Kingdom entity that previously had been recognized in accumulated other comprehensive income (loss). As discussed in Note 10, we sold the entity that owned our fabrication facility in the United Kingdom in July 2013 and, we recognized an impairment during the three months ended June 30, 2013 based on the net transaction value set forth in our agreement to sell this entity.
(5) During the three months ended June 30, 2014, we recognized a loss of $0.6 million and a tax benefit of $0.3 million, in other comprehensive income (loss), net of tax, related to changes in the fair value of derivative financial instruments. During the six months ended June 30, 2014, we recognized a loss of $1.0 million and a tax benefit of $0.4 million, in other comprehensive income (loss), net of tax, related to changes in the fair value of derivative financial instruments.
(6) During the three months ended June 30, 2014, we reclassified a $0.6 million loss to interest expense and a tax benefit of $0.2 million to provision for income taxes in our condensed consolidated statements of operations from accumulated other comprehensive income (loss). During the six months ended June 30, 2014, we reclassified a $1.2 million loss to interest expense and a tax benefit of $0.4 million to provision for income taxes in our condensed consolidated statements of operations from accumulated other comprehensive income (loss).
(7) During the three and six months ended June 30, 2014, we recognized a loss of $1.4 million and $0.3 million, respectively, in other comprehensive income (loss), net of tax, related to changes in foreign currency translation adjustment.
Financial Instruments
Our financial instruments consist of cash, restricted cash, receivables, payables, interest rate swaps and debt. At June 30, 2014 and December 31, 2013, the estimated fair values of these financial instruments approximated their carrying amounts as reflected in our condensed consolidated balance sheets. The fair value of our fixed rate debt was estimated based on quoted market yields in inactive markets or model derived calculations using market yields observed in active markets, which are Level 2 inputs. The fair value of our floating rate debt was estimated using a discounted cash flow analysis based on interest rates offered on loans with similar terms to borrowers of similar credit quality, which are Level 3 inputs. See Note 9 for additional information regarding the fair value hierarchy.
The following table summarizes the carrying amount and fair value of our debt as of June 30, 2014 and December 31, 2013 (in thousands):
|
|
June 30, 2014 |
|
December 31, 2013 |
| ||||||||
|
|
Carrying |
|
Fair Value |
|
Carrying |
|
Fair Value |
| ||||
Fixed rate debt |
|
$ |
1,041,068 |
|
$ |
1,080,000 |
|
$ |
1,040,155 |
|
$ |
1,070,000 |
|
Floating rate debt |
|
811,500 |
|
810,000 |
|
462,000 |
|
462,000 |
| ||||
Total debt |
|
$ |
1,852,568 |
|
$ |
1,890,000 |
|
$ |
1,502,155 |
|
$ |
1,532,000 |
|
GAAP requires that all derivative instruments (including certain derivative instruments embedded in other contracts) be recognized in the balance sheet at fair value and that changes in such fair values be recognized in earnings (loss) unless specific hedging criteria are met. Changes in the values of derivatives that meet these hedging criteria will ultimately offset related earnings effects of the hedged item pending recognition in earnings.
2. Discontinued Operations
In May 2009, the Venezuelan government enacted a law that reserves to the State of Venezuela certain assets and services related to hydrocarbon activities, which included substantially all of our assets and services in Venezuela. The law provides that the reserved activities are to be performed by the State, by the State-owned oil company, Petroleos de Venezuela S.A. (PDVSA), or its affiliates, or through mixed companies under the control of PDVSA or its affiliates. The law authorizes PDVSA or its affiliates to take possession of the assets and take over control of those operations related to the reserved activities as a step prior to the commencement of an expropriation process, and permits the national executive of Venezuela to decree the total or partial expropriation of shares or assets of companies performing those services.
In June 2009, PDVSA commenced taking possession of our assets and operations in a number of our locations in Venezuela and by the end of the second quarter of 2009, PDVSA had assumed control over substantially all of our assets and operations in Venezuela. The expropriation of our business in Venezuela meets the criteria established for recognition as discontinued operations under GAAP. Therefore, our Venezuelan contract operations business is reflected as discontinued operations in our condensed consolidated financial statements.
In March 2010, our Spanish subsidiary filed a request for the institution of an arbitration proceeding against Venezuela with the International Centre for Settlement of Investment Disputes (ICSID) related to the seized assets and investments under the agreement between Spain and Venezuela for the Reciprocal Promotion and Protection of Investments and under Venezuelan law. The arbitration hearing occurred in July 2012.
In August 2012, our Venezuelan subsidiary sold its previously nationalized assets to PDVSA Gas, S.A. (PDVSA Gas) for a purchase price of approximately $441.7 million. We received installment payments, including an annual charge, totaling $18.1 million and $35.9 million during the three and six months ended June 30, 2014, respectively, and $34.3 million during the first quarter of 2013, which included a prepayment of $17.2 million for the second quarter 2013 installment payment. The remaining principal amount due to us of approximately $149 million as of June 30, 2014, is payable in quarterly cash installments through the third quarter of 2016. We have not recognized amounts payable to us by PDVSA Gas as a receivable and will therefore recognize quarterly payments received in the future as income from discontinued operations in the periods such payments are received. The proceeds from the sale of the assets are not subject to Venezuelan national taxes due to an exemption allowed under the Venezuelan Reserve Law applicable to expropriation settlements. In addition, and in connection with the sale, we and the Venezuelan government agreed to waive rights to assert certain claims against each other.
In connection with the sale of these assets, we have agreed to suspend the arbitration proceeding previously filed by our Spanish subsidiary against Venezuela pending payment in full by PDVSA Gas of the purchase price for these nationalized assets.
In June 2012, we committed to a plan to sell our contract operations and aftermarket services businesses in Canada (Canadian Operations) as part of our continued emphasis on simplification and focus on our core businesses. In July 2013, we completed the sale of our Canadian Operations. Our Canadian Operations are reflected as discontinued operations in our condensed consolidated financial statements. These operations were previously included in our North American contract operations and aftermarket services business segments. In connection with the planned disposition, we recorded impairment charges totaling $3.9 million and $6.0 million during the three and six months ended June 30, 2013, respectively. The impairment charges are reflected in income (loss) from discontinued operations, net of tax, in our condensed consolidated statements of operations.
In December 2013, we abandoned our contract water treatment business as part of our continued emphasis on simplification and focus on our core businesses. The abandonment of this business meets the criteria established for recognition as discontinued operations under GAAP. Therefore, our contract water treatment business is reflected as discontinued operations in our condensed consolidated financial statements. This business was previously included in our North American contract operations business segment.
The following tables summarize the operating results of discontinued operations (in thousands):
|
|
Three Months Ended June 30, 2014 |
|
Three Months Ended June 30, 2013 |
| |||||||||||||||||
|
|
Venezuela |
|
Contract |
|
Total |
|
Venezuela |
|
Canada |
|
Contract |
|
Total |
| |||||||
Revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
13,630 |
|
$ |
1,438 |
|
$ |
15,068 |
|
Expenses and selling, general and administrative |
|
121 |
|
104 |
|
225 |
|
81 |
|
10,771 |
|
760 |
|
11,612 |
| |||||||
Loss (recovery) attributable to expropriation and impairments |
|
(16,563 |
) |
|
|
(16,563 |
) |
(228 |
) |
3,924 |
|
|
|
3,696 |
| |||||||
Other (income) loss, net |
|
(1,472 |
) |
120 |
|
(1,352 |
) |
|
|
478 |
|
(16 |
) |
462 |
| |||||||
Provision for (benefit from) income taxes |
|
|
|
(79 |
) |
(79 |
) |
|
|
179 |
|
225 |
|
404 |
| |||||||
Income (loss) from discontinued operations, net of tax |
|
$ |
17,914 |
|
$ |
(145 |
) |
$ |
17,769 |
|
$ |
147 |
|
$ |
(1,722 |
) |
$ |
469 |
|
$ |
(1,106 |
) |
|
|
Six Months Ended June 30, 2014 |
|
Six Months Ended June 30, 2013 |
| |||||||||||||||||
|
|
Venezuela |
|
Contract |
|
Total |
|
Venezuela |
|
Canada |
|
Contract |
|
Total |
| |||||||
Revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
24,458 |
|
$ |
2,919 |
|
$ |
27,377 |
|
Expenses and selling, general and administrative |
|
245 |
|
177 |
|
422 |
|
308 |
|
21,810 |
|
1,808 |
|
23,926 |
| |||||||
Loss (recovery) attributable to expropriation and impairments |
|
(32,984 |
) |
|
|
(32,984 |
) |
(33,427 |
) |
6,000 |
|
|
|
(27,427 |
) | |||||||
Other (income) loss, net |
|
(3,858 |
) |
(27 |
) |
(3,885 |
) |
(2,592 |
) |
512 |
|
(17 |
) |
(2,097 |
) | |||||||
Provision for (benefit from) income taxes |
|
|
|
(49 |
) |
(49 |
) |
|
|
172 |
|
393 |
|
565 |
| |||||||
Income (loss) from discontinued operations, net of tax |
|
$ |
36,597 |
|
$ |
(101 |
) |
$ |
36,496 |
|
$ |
35,711 |
|
$ |
(4,036 |
) |
$ |
735 |
|
$ |
32,410 |
|
The following table summarizes the balance sheet data for discontinued operations (in thousands):
|
|
June 30, 2014 |
|
December 31, 2013 |
| ||||||||||||||
|
|
Venezuela |
|
Contract |
|
Total |
|
Venezuela |
|
Contract |
|
Total |
| ||||||
Cash |
|
$ |
70 |
|
$ |
|
|
$ |
70 |
|
$ |
74 |
|
$ |
|
|
$ |
74 |
|
Accounts receivable |
|
1 |
|
166 |
|
167 |
|
1 |
|
287 |
|
288 |
| ||||||
Inventory |
|
|
|
36 |
|
36 |
|
|
|
50 |
|
50 |
| ||||||
Other current assets |
|
6 |
|
14 |
|
20 |
|
16 |
|
14 |
|
30 |
| ||||||
Total current assets associated with discontinued operations |
|
77 |
|
216 |
|
293 |
|
91 |
|
351 |
|
442 |
| ||||||
Property, plant and equipment, net |
|
|
|
319 |
|
319 |
|
|
|
560 |
|
560 |
| ||||||
Deferred tax assets |
|
|
|
19,376 |
|
19,376 |
|
|
|
20,358 |
|
20,358 |
| ||||||
Total assets associated with discontinued operations |
|
$ |
77 |
|
$ |
19,911 |
|
$ |
19,988 |
|
$ |
91 |
|
$ |
21,269 |
|
$ |
21,360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Accounts payable |
|
$ |
236 |
|
$ |
|
|
$ |
236 |
|
$ |
366 |
|
$ |
2 |
|
$ |
368 |
|
Accrued liabilities |
|
1,271 |
|
708 |
|
1,979 |
|
1,998 |
|
867 |
|
2,865 |
| ||||||
Total current liabilities associated with discontinued operations |
|
1,507 |
|
708 |
|
2,215 |
|
2,364 |
|
869 |
|
3,233 |
| ||||||
Other long-term liabilities |
|
307 |
|
|
|
307 |
|
447 |
|
|
|
447 |
| ||||||
Total liabilities associated with discontinued operations |
|
$ |
1,814 |
|
$ |
708 |
|
$ |
2,522 |
|
$ |
2,811 |
|
$ |
869 |
|
$ |
3,680 |
|
3. April 2014 MidCon Acquisition
On April 10, 2014, the Partnership completed an acquisition of natural gas compression assets, including a fleet of 337 compressor units, comprising approximately 444,000 horsepower from MidCon Compression, L.L.C. (MidCon) for $351.1 million. The purchase price was funded with the net proceeds from the Partnerships sale, pursuant to a public underwritten offering, of 6.2 million common units and a portion of the net proceeds from the Partnerships issuance of $350.0 million aggregate principal amount of 6% senior notes due October 2022 (the Partnership 2014 Notes). The compressor units were previously used by MidCon to provide compression services to a subsidiary of Access Midstream Partners LP (Access). Effective as of the closing of the acquisition, the Partnership and Access entered into a seven-year contract operations services agreement under which the Partnership will provide compression services to Access. During the six months ended June 30, 2014, the Partnership incurred transaction costs of approximately $1.5 million related to this acquisition, which is reflected in other (income) expense, net, in our condensed consolidated statements of operations.
In accordance with the terms of the Purchase and Sale Agreement between the Partnership and MidCon relating to the transaction, the Partnership directed MidCon to sell a tract of real property and the facility located thereon, a fleet of vehicles, personal property and parts inventory to our wholly-owned subsidiary Exterran Energy Solutions, L.P. (EESLP), an indirect parent company of the Partnership, for $9.4 million. The assets acquired by EESLP are used in conjunction with the compression units the Partnership acquired from MidCon to provide compression services. The acquisition of the assets by the Partnership and EESLP from MidCon is referred to as the April 2014 MidCon Acquisition. The purchase price paid by the Partnership and EESLP is subject to post-closing adjustments in accordance with the terms of the Purchase and Sale Agreement.
We accounted for the April 2014 MidCon Acquisition using the acquisition method, which requires, among other things, assets acquired and liabilities assumed to be recorded at their fair value on the acquisition date. The preliminary allocation of the purchase price, which is subject to certain adjustments, was based upon preliminary valuations and our estimates and assumptions are subject to change upon the completion of managements review of the final valuations. We are in the process of finalizing valuations related to property, plant and equipment and identifiable intangible assets. Changes to the preliminary purchase price could impact future depreciation and amortization expense as well as income tax expense. The final valuation of net assets acquired is expected to be completed as soon as possible, but no later than one year from the acquisition date, in accordance with GAAP.
The following table summarizes the preliminary purchase price allocation based on estimated fair values of acquired assets as of the acquisition date (in thousands):
|
|
Preliminary |
| |
Inventory |
|
$ |
4,357 |
|
Property, plant and equipment |
|
314,556 |
| |
Intangible assets |
|
41,608 |
| |
Preliminary purchase price |
|
$ |
360,521 |
|
Property, Plant and Equipment and Intangible Assets Acquired
The preliminary amount of property, plant and equipment is primarily comprised of compression equipment that will be depreciated on a straight-line basis over an estimated average remaining useful life of 25 years.
The preliminary amount of finite life intangible assets, and their associated average useful lives, was determined based on the period which the assets are expected to contribute directly or indirectly to our future cash flows, consisting of the following:
|
|
Amount |
|
Average |
| |
Customer related |
|
$ |
4,583 |
|
25 years |
|
Contract based |
|
37,025 |
|
7 years |
| |
Total acquired identifiable intangible assets |
|
$ |
41,608 |
|
|
|
The results of operations attributable to the assets acquired in the April 2014 MidCon Acquisition have been included in our condensed consolidated financial statements as part of our North America contract operations segment since the date of acquisition. Revenue attributable to the assets acquired in the April 2014 MidCon Acquisition was $20.5 million from the date of acquisition through June 30, 2014. We are unable to provide earnings attributable to the assets acquired in the April 2014 MidCon Acquisition since the date of acquisition as we do not prepare full stand-alone earnings reports for those assets.
Pro Forma Financial Information
Pro forma financial information for the three and six months ended June 30, 2014 and 2013 has been included to give effect to the additional assets acquired in the April 2014 MidCon Acquisition. The April 2014 MidCon Acquisition is presented in the pro forma financial information as though the transaction occurred as of January 1, 2013. The pro forma financial information reflects the following transactions:
As related to the April 2014 MidCon Acquisition:
· the Partnerships acquisition in April 2014 of natural gas compression assets and identifiable intangible assets from MidCon;
· our wholly-owned subsidiary EESLPs, an indirect parent company of the Partnership, acquisition from MidCon, as directed by the Partnership, of a tract of real property and the facility located thereon, a fleet of vehicles, personal property and parts inventory;
· the Partnerships issuance of approximately 6.2 million common units to the public and approximately 126,000 general partner units to us;
· the Partnerships issuance of $350.0 million aggregate principal amount of the Partnership 2014 Notes; and
· the Partnerships use of proceeds from the issuance of common units, general partner units and the Partnership 2014 Notes to pay $351.1 million to MidCon for the April 2014 MidCon Acquisition and to pay down $159.3 million on its revolving credit facility.
The pro forma financial information below is presented for informational purposes only and is not necessarily indicative of our results of operations that would have occurred had the transaction been consummated at the beginning of the period presented, nor is it necessarily indicative of future results. The pro forma financial information below was derived by adjusting our historical financial statements.
The following table shows pro forma financial information for the three and six months ended June 30, 2014 and 2013 (in thousands, except per unit amounts):
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
| ||||||||
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
| ||||
Revenue |
|
$ |
741,550 |
|
$ |
857,239 |
|
$ |
1,406,050 |
|
$ |
1,687,487 |
|
Net income attributable to Exterran common stockholders |
|
$ |
12,493 |
|
$ |
10,055 |
|
$ |
46,268 |
|
$ |
60,910 |
|
Basic net income per common share attributable to Exterran common stockholders |
|
$ |
0.19 |
|
$ |
0.15 |
|
$ |
0.69 |
|
$ |
0.93 |
|
Diluted net income per common share attributable to Exterran common stockholders |
|
$ |
0.19 |
|
$ |
0.15 |
|
$ |
0.66 |
|
$ |
0.92 |
|
4. Inventory, net
Inventory, net of reserves, consisted of the following amounts (in thousands):
|
|
June 30, |
|
December 31, |
| ||
Parts and supplies |
|
$ |
244,202 |
|
$ |
233,216 |
|
Work in progress |
|
139,505 |
|
139,763 |
| ||
Finished goods |
|
36,419 |
|
40,948 |
| ||
Inventory, net |
|
$ |
420,126 |
|
$ |
413,927 |
|
As of June 30, 2014 and December 31, 2013, we had inventory reserves of $20.4 million and $14.1 million, respectively.
5. Property, Plant and Equipment, net
Property, plant and equipment, net, consisted of the following (in thousands):
|
|
June 30, |
|
December 31, |
| ||
Compression equipment, facilities and other fleet assets |
|
$ |
4,791,384 |
|
$ |
4,304,019 |
|
Land and buildings |
|
201,328 |
|
197,778 |
| ||
Transportation and shop equipment |
|
301,524 |
|
288,042 |
| ||
Other |
|
187,844 |
|
181,411 |
| ||
|
|
5,482,080 |
|
4,971,250 |
| ||
Accumulated depreciation |
|
(2,306,831 |
) |
(2,150,978 |
) | ||
Property, plant and equipment, net |
|
$ |
3,175,249 |
|
$ |
2,820,272 |
|
6. Investments in Non-Consolidated Affiliates
Investments in affiliates that are not controlled by us where we have the ability to exercise significant control over the operations are accounted for using the equity method.
We own a 30.0% interest in WilPro Energy Services (PIGAP II) Limited and 33.3% interest in WilPro Energy Services (El Furrial) Limited, which are joint ventures that provided natural gas compression and injection services in Venezuela. In May 2009, PDVSA assumed control over the assets of our Venezuelan joint ventures and transitioned the operations, including the hiring of their employees, to PDVSA. In March 2011, our Venezuelan joint ventures, together with the Netherlands parent company of our joint venture partners, filed a request for the institution of an arbitration proceeding against Venezuela with ICSID related to the seized assets and investments.
In March 2012, our Venezuelan joint ventures sold their assets to PDVSA Gas. We received installment payments, including an annual charge, totaling $4.9 million and $4.7 million during the three months ended June 30, 2014 and 2013, respectively, and $9.8 million and $9.4 million during the six months ended June 30, 2014 and 2013, respectively. The remaining principal amount due to us of approximately $30 million as of June 30, 2014, is payable in quarterly cash installments through the first quarter of 2016. We have not recognized amounts payable to us by PDVSA Gas as a receivable and will therefore recognize quarterly payments received in the future as equity in (income) loss of non-consolidated affiliates in our condensed consolidated statements of operations in the periods such payments are received. In connection with the sale of our Venezuelan joint ventures assets, the joint ventures and our joint venture partners have agreed to suspend their previously filed arbitration proceeding against Venezuela pending payment in full by PDVSA Gas of the purchase price for the assets.
7. Long-Term Debt
Long-term debt consisted of the following (in thousands):
|
|
June 30, |
|
December 31, |
| ||
Revolving credit facility due July 2016 |
|
$ |
459,500 |
|
$ |
49,000 |
|
Partnerships revolving credit facility due May 2018 |
|
202,000 |
|
263,000 |
| ||
Partnerships term loan facility due May 2018 |
|
150,000 |
|
150,000 |
| ||
Partnerships 6% senior notes due April 2021 (presented net of the unamortized discount of $4.8 million and $5.0 million, respectively) |
|
345,237 |
|
344,955 |
| ||
Partnerships 6% senior notes due October 2022 (presented net of the unamortized discount of $5.5 million as of June 30, 2014) |
|
344,499 |
|
|
| ||
4.25% convertible senior notes due June 2014 (presented net of the unamortized discount of $11.3 million as of December 31, 2013) |
|
|
|
343,661 |
| ||
7.25% senior notes due December 2018 |
|
350,000 |
|
350,000 |
| ||
Other, interest at various rates, collateralized by equipment and other assets |
|
1,332 |
|
1,539 |
| ||
Long-term debt |
|
$ |
1,852,568 |
|
$ |
1,502,155 |
|
Exterran Senior Secured Credit Facility
As of June 30, 2014, we had $459.5 million in outstanding borrowings and $113.1 million in outstanding letters of credit under our senior secured revolving credit facility (the Credit Facility). At June 30, 2014, taking into account guarantees through letters of credit, we had undrawn and available capacity of $327.4 million under the Credit Facility.
The Partnership Revolving Credit Facility and Term Loan
In March 2013, the Partnership amended its senior secured credit agreement (the Partnership Credit Agreement) to reduce the borrowing capacity under its revolving credit facility by $100.0 million to $650.0 million and extend the maturity date of the term loan and revolving credit facilities to May 2018. As a result of the March 2013 amendment, we expensed $0.7 million of unamortized deferred financing costs, which is reflected in interest expense in our condensed consolidated statements of operations. The Partnership incurred transaction costs of approximately $4.3 million related to the amendment to the Partnership Credit Agreement. These costs were included in intangible and other assets, net, and are being amortized over the terms of the facilities. As of June 30, 2014, the Partnership had undrawn and available capacity of $448.0 million under its revolving credit facility.
The Partnership 6% Senior Notes Due April 2021
In March 2013, the Partnership issued $350.0 million aggregate principal amount of 6% senior notes due April 2021 (the Partnership 2013 Notes). The Partnership used the net proceeds of $336.9 million, after original issuance discount and issuance costs, to repay borrowings outstanding under its revolving credit facility. The Partnership incurred $7.6 million in transaction costs related to this issuance. These costs were included in intangible and other assets, net, and are being amortized to interest expense over the term of the Partnership 2013 Notes. The Partnership 2013 Notes were issued at an original issuance discount of $5.5 million, which is being amortized using the effective interest method at an interest rate of 6.25% over their term. In January 2014, holders of the Partnership 2013 Notes exchanged their Partnership 2013 Notes for registered notes with the same terms.
The Partnership 6% Senior Notes Due October 2022
In April 2014, the Partnership issued $350.0 million aggregate principal amount of the Partnership 2014 Notes. The Partnership received net proceeds of $337.4 million, after original issuance discount and issuance costs, from this offering, which it used to fund a portion of the April 2014 MidCon Acquisition (see Note 3) and repay borrowings under its revolving credit facility. The Partnership 2014 Notes were issued at an original issuance discount of $5.7 million, which is being amortized using the effective interest method at an interest rate of 6.25% over their term. The Partnership incurred $6.9 million in transaction costs related to this issuance. These costs were included in intangible and other assets, net, and are being amortized to interest expense over the term of the Partnership 2014 Notes. The Partnership 2014 Notes have not been registered under the Securities Act of 1933, as amended (the Securities Act), or any state securities laws, and unless so registered, may not be offered or sold in the U.S. except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. The Partnership
offered and issued the Partnership 2014 Notes only to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to persons outside the U.S. pursuant to Regulation S. Pursuant to a registration rights agreement, the Partnership is required to register the Partnership 2014 Notes no later than 365 days after April 7, 2014.
The Partnership 2014 Notes are guaranteed on a senior unsecured basis by all of the Partnerships existing subsidiaries (other than EXLP Finance Corp., which is a co-issuer of the Partnership 2014 Notes) and certain of the Partnerships future subsidiaries. The Partnership 2014 Notes and the guarantees, respectively, are the Partnerships and the guarantors general unsecured senior obligations, rank equally in right of payment with all of the Partnerships and the guarantors other senior obligations, and are effectively subordinated to all of the Partnerships and the guarantors existing and future secured debt to the extent of the value of the collateral securing such indebtedness. In addition, the Partnership 2014 Notes and guarantees are effectively subordinated to all existing and future indebtedness and other liabilities of any future non-guarantor subsidiaries.
Prior to April 1, 2018, the Partnership may redeem all or a part of the Partnership 2014 Notes at a redemption price equal to the sum of (i) the principal amount thereof, plus (ii) a make-whole premium at the redemption date, plus accrued and unpaid interest, if any, to the redemption date. In addition, the Partnership may redeem up to 35% of the aggregate principal amount of the Partnership 2014 Notes prior to April 1, 2017 with the net proceeds of one or more equity offerings at a redemption price of 106.000% of the principal amount of the Partnership 2014 Notes, plus any accrued and unpaid interest to the date of redemption, if at least 65% of the aggregate principal amount of the Partnership 2014 Notes issued under the indenture remains outstanding after such redemption and the redemption occurs within 180 days of the date of the closing of such equity offering. On or after April 1, 2018, the Partnership may redeem all or a part of the Partnership 2014 Notes at redemption prices (expressed as percentages of principal amount) equal to 103.000% for the twelve-month period beginning on April 1, 2018, 101.500% for the twelve-month period beginning on April 1, 2019 and 100.000% for the twelve-month period beginning on April 1, 2020 and at any time thereafter, plus accrued and unpaid interest, if any, to the applicable redemption date of the Partnership 2014 Notes.
4.25% Convertible Senior Notes
In June 2009, we issued $355.0 million aggregate principal amount of 4.25% convertible senior notes due June 2014 (the 4.25% Notes). The 4.25% Notes, after taking into consideration dividends declared, were convertible upon the occurrence of certain conditions into shares of our common stock at a conversion rate of 43.5084 shares of our common stock per $1,000 principal amount of the convertible notes, equivalent to a conversion price of approximately $22.98 per share of common stock. In June 2014, we completed our redemption of the 4.25% Notes in exchange for $370.0 million in cash and 6.8 million shares of our common stock.
In connection with the offering of the 4.25% Notes, we purchased call options on our stock at approximately $22.98 per share of common stock, after taking into consideration dividends declared, and sold warrants on our stock at approximately $32.44 per share of common stock, after taking into consideration dividends declared. These transactions economically adjust the effective conversion price to $32.44 for $325.0 million of the 4.25% Notes. In June 2014, we exercised our call options to acquire 6.5 million shares of our common stock. The cost of the common shares acquired was recorded as treasury stock in our condensed consolidated balance sheets based on the original cost of the call options of $89.4 million. Counterparties to our warrants have the right to exercise the warrants in equal installments for 80 trading days beginning in September 2014.
4.75% Convertible Senior Notes
In January 2013, we redeemed for cash all $143.8 million principal amount outstanding of our 4.75% convertible senior notes (the 4.75% Notes) at a redemption price of 100% of the principal amount thereof plus accrued but unpaid interest to, but excluding, the redemption date. Upon redemption, the 4.75% Notes were no longer deemed outstanding, interest ceased to accrue thereon and all rights of the holders of the 4.75% Notes ceased to exist. We financed the redemption of the 4.75% Notes through borrowings under our revolving credit facility. As a result of the redemption, we expensed $0.9 million of unamortized deferred financing costs in the first quarter of 2013, which is reflected in interest expense in our condensed consolidated statements of operations.
8. Accounting for Derivatives
We are exposed to market risks associated with changes in interest rates. We use derivative financial instruments to minimize the risks and/or costs associated with financial activities by managing our exposure to interest rate fluctuations on a portion of our debt obligations. We do not use derivative financial instruments for trading or other speculative purposes.
Interest Rate Risk
At June 30, 2014, the Partnership was a party to interest rate swaps with a notional value of $250.0 million, pursuant to which it makes fixed payments and receives floating payments. The Partnership entered into these swaps to offset changes in expected cash flows due to fluctuations in the associated variable interest rates. These interest rate swaps expire in May 2018. As of June 30, 2014, the weighted average effective fixed interest rate on the interest rate swaps was 1.7%. We have designated these interest rate swaps as cash flow hedging instruments so that any change in their fair values is recognized as a component of comprehensive income (loss) and is included in accumulated other comprehensive income (loss) to the extent the hedge is effective. As the swap terms substantially coincide with the hedged item and are expected to offset changes in expected cash flows due to fluctuations in the variable rate, we currently do not expect a significant amount of ineffectiveness on these hedges. We perform quarterly calculations to determine whether the swap agreements are still effective and to calculate any ineffectiveness. There was no ineffectiveness related to interest rate swaps during the six months ended June 30, 2014. We recorded $0.2 million of interest income during the six months ended June 30, 2013 due to ineffectiveness related to interest rate swaps. We estimate that $4.4 million of deferred pre-tax losses attributable to interest rate swaps and included in our accumulated other comprehensive income (loss) at June 30, 2014, will be reclassified into earnings as interest expense at then current values during the next twelve months as the underlying hedged transactions occur. Cash flows from derivatives designated as hedges are classified in our condensed consolidated statements of cash flows under the same category as the cash flows from the underlying assets, liabilities or anticipated transactions, unless the derivative contract contains a significant financing element; in this case, the cash settlements for these derivatives are classified as cash flows from financing activities in our condensed consolidated statements of cash flows.
In May 2013, the Partnership amended its interest rate swap agreements with a notional value of $250.0 million to adjust the fixed interest rates and extend the maturity dates to May 2018 consistent with the maturity date of the Partnership Credit Agreement. These amendments effectively created new derivative contracts and terminated the old derivative contracts. As a result, we designated the new hedge relationships under the amended terms and de-designated the original hedge relationships as of the termination date. The original hedge relationships qualified for hedge accounting and were included at their fair value in our balance sheet as a liability and accumulated other comprehensive income (loss). The fair value of the interest rate swap agreements immediately prior to the execution of the amendments was a liability of $8.8 million. The associated amount in accumulated other comprehensive income (loss) is being amortized into interest expense over the original terms of the swaps.
The following tables present the effect of derivative instruments on our consolidated financial position and results of operations (in thousands):
|
|
June 30, 2014 |
| |||
|
|
Balance Sheet Location |
|
Fair Value |
| |
Derivatives designated as hedging instruments: |
|
|
|
|
| |
Interest rate hedges |
|
Accrued liabilities |
|
$ |
(3,483 |
) |
Interest rate hedges |
|
Other long-term liabilities |
|
(811 |
) | |
Total derivatives |
|
|
|
$ |
(4,294 |
) |
|
|
December 31, 2013 |
| |||
|
|
Balance Sheet Location |
|
Fair Value |
| |
Derivatives designated as hedging instruments: |
|
|
|
|
| |
Interest rate hedges |
|
Intangible and other assets, net |
|
$ |
322 |
|
Interest rate hedges |
|
Accrued liabilities |
|
(3,374 |
) | |
Total derivatives |
|
|
|
$ |
(3,052 |
) |
|
|
Three Months Ended June 30, 2014 |
|
Six Months Ended June 30, 2014 |
| ||||||||||||
|
|
Pre-tax Gain (Loss) |
|
Location of Pre-tax |
|
Pre-tax Gain (Loss) |
|
Pre-tax Gain (Loss) |
|
Location of Pre-tax |
|
Pre-tax Gain (Loss) |
| ||||
Derivatives designated as cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest rate hedges |
|
$ |
(2,174 |
) |
Interest expense |
|
$ |
(1,239 |
) |
$ |
(3,129 |
) |
Interest expense |
|
$ |
(2,503 |
) |
|
|
Three Months Ended June 30, 2013 |
|
Six Months Ended June 30, 2013 |
| ||||||||||||
|
|
Pre-tax Gain (Loss) |
|
Location of Pre-tax |
|
Pre-tax Gain (Loss) |
|
Pre-tax Gain (Loss) |
|
Location of Pre-tax |
|
Pre-tax Gain (Loss) |
| ||||
Derivatives designated as cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest rate hedges |
|
$ |
4,484 |
|
Interest expense |
|
$ |
(2,001 |
) |
$ |
4,700 |
|
Interest expense |
|
$ |
(3,473 |
) |
The counterparties to the derivative agreements are major international financial institutions. We monitor the credit quality of these financial institutions and do not expect non-performance by any counterparty, although such non-performance could have a material adverse effect on us. The Partnership has no specific collateral posted for its derivative instruments. The counterparties to the interest rate swaps are also lenders under the Partnerships senior secured credit facility and, in that capacity, share proportionally in the collateral pledged under the related facility.
9. 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 broad 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.
The following table presents our assets and liabilities measured at fair value on a recurring basis as of June 30, 2014 and December 31, 2013, with pricing levels as of the date of valuation (in thousands):
|
|
June 30, 2014 |
|
December 31, 2013 |
| ||||||||||||||
|
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
| ||||||
Interest rate swaps asset |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
322 |
|
$ |
|
|
Interest rate swaps liability |
|
|
|
(4,294 |
) |
|
|
|
|
(3,374 |
) |
|
| ||||||
On a quarterly basis, the interest rate swaps are recorded at fair value utilizing a combination of the market approach and income approach to estimate fair value based on forward LIBOR curves.
The following table presents our assets and liabilities measured at fair value on a nonrecurring basis during the six months ended June 30, 2014 and 2013, with pricing levels as of the date of valuation (in thousands):
|
|
Six Months Ended June 30, 2014 |
|
Six Months Ended June 30, 2013 |
| ||||||||||||||
|
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
| ||||||
Impaired long-lived assets |
|
$ |
|
|
$ |
|
|
$ |
1,671 |
|
$ |
|
|
$ |
|
|
$ |
3,825 |
|
Inventory write-downRestructuring |
|
|
|
|
|
2,331 |
|
|
|
|
|
|
| ||||||
Impaired long-lived assetsDiscontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Our estimate of the impaired long-lived assets fair value was primarily based on either the expected net sale proceeds compared to other fleet units we recently sold and/or a review of other units recently offered for sale by third parties, or the estimated component value of the equipment we plan to use. We discounted the expected proceeds, net of selling and other carrying costs, using a weighted average disposal period of four years and a discount rate of 8.6%. Impaired long-lived assets in the table above also includes our estimate of the fair value of the impaired assets of the entity that owned our fabrication facility in the United Kingdom, which was based on the net transaction value set forth in our July 2013 agreement to sell this entity. Our estimate of the fair value of the inventory associated with the restructuring of our make-ready operations was based on expected net sale proceeds. See Note 11 for further discussion of the restructuring of our make-ready operations. Our estimate of the fair value of the impaired assets that are classified as discontinued operations was based on our expected proceeds, net of selling costs.
10. 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.
During the six months ended June 30, 2014, we evaluated the future deployment of our idle fleet and determined to retire and either sell or re-utilize the key components of approximately 170 idle compressor units, representing approximately 46,000 horsepower, previously used to provide services in our North America contract operations segment. As a result, we performed an impairment review and recorded a $13.7 million asset impairment to reduce the book value of each unit to its estimated fair value. The fair value of each unit was estimated based on either the expected net sale proceeds compared to other fleet units we recently sold and/or a review of other units recently offered for sale by third parties, or the estimated component value of the equipment we plan to use.
During the six months ended June 30, 2013, we evaluated the future deployment of our idle fleet and determined to retire and either sell or re-utilize the key components of approximately 170 idle compressor units, representing approximately 40,000 horsepower, previously used to provide services in our North America contract operations segment. As a result, we performed an impairment review and recorded a $7.1 million asset impairment to reduce the book value of each unit to its estimated fair value. The fair value of each unit was estimated based on either the expected net sale proceeds compared to other fleet units we recently sold and/or a review of other units recently offered for sale by third parties, or the estimated component value of the equipment we plan to use.
In July 2013, as part of our continued emphasis on simplification and focus on our core business, we sold the entity that owned our fabrication facility in the United Kingdom. As a result, we recorded impairment charges of $11.9 million during the six months ended June 30, 2013.
During the six months ended June 30, 2013, we evaluated other long-lived assets for impairment and recorded long-lived asset impairments of $1.1 million on these assets.
11. Restructuring Charges
In January 2014, we announced a plan to centralize our make-ready operations to improve the cost and efficiency of our shops and further enhance the competitiveness of our fleet of compressors. As part of this plan, we examined both recent and anticipated changes in the North America market, including the throughput demand of our shops and the addition of new equipment to our fleet. To better align our costs and capabilities with the current market, we determined to close several of our make-ready shops. The centralization of our make-ready operations was completed in the second quarter of 2014.
During the six months ended June 30, 2014, we incurred $5.2 million of restructuring charges primarily related to termination benefits and a non-cash write-down of inventory associated with the centralization of our make-ready operations. These charges are reflected as restructuring charges in our condensed consolidated statements of operations and are related to our North America contract operations and aftermarket services segments.
The following table summarizes the changes to our accrued liability balance related to restructuring charges for the six months ended June 30, 2014 (in thousands):
|
|
Restructuring |
| |
Beginning balance at January 1, 2014 |
|
$ |
|
|
Additions for costs expensed |
|
5,175 |
| |
Less non-cash expense |
|
(4,103 |
) | |
Reductions for payments |
|
(929 |
) | |
Ending balance at June 30, 2014 |
|
$ |
143 |
|
12. Stock-Based Compensation
Stock Incentive Plan
In April 2013, we adopted the Exterran Holdings, Inc. 2013 Stock Incentive Plan (the 2013 Plan) to provide for the granting of stock options, restricted stock, restricted stock units, stock appreciation rights, performance units, other stock-based awards and dividend equivalent rights to employees, directors and consultants of Exterran. Under the 2013 Plan, the maximum number of shares of common stock available for issuance pursuant to awards is 6,500,000. Each option and stock appreciation right granted counts as one share against the aggregate share limit, and any share subject to a stock settled award other than a stock option, stock appreciation right or other award for which the recipient pays intrinsic value counts as 1.75 shares against the aggregate share limit. Awards granted under the 2013 Plan that are subsequently cancelled, terminated or forfeited are available for future grant. Cash settled awards are not counted against the aggregate share limit. Upon effectiveness of the 2013 Plan, no additional grants may be made under the Exterran Holdings, Inc. 2007 Amended and Restated Stock Incentive Plan (the 2007 Plan) or the Exterran Holdings, Inc. 2011 Employment Inducement Long-Term Equity Plan (the Employment Inducement Plan). Previous grants made under the 2007 Plan and the Employment Inducement Plan will continue to be governed by their respective plans.
Stock Options
Stock options are granted at fair market value at the grant date, are exercisable according to the vesting schedule established by the compensation committee of our board of directors in its sole discretion and expire no later than seven years after the grant date. Stock options generally vest one-third per year on each of the first three anniversaries of the grant date.
The weighted average grant date fair value for stock options granted during the six months ended June 30, 2014 was $14.47 and was estimated using the Black-Scholes option valuation model with the following weighted average assumptions:
|
|
Six Months |
|
Expected life in years |
|
4.5 |
|
Risk-free interest rate |
|
1.33 |
% |
Volatility |
|
46.51 |
% |
Dividend yield |
|
1.5 |
% |
The risk-free interest rate is based on the U.S. Treasury yield curve in effect on the grant date for a period commensurate with the estimated expected life of the stock options. Expected volatility is based on the historical volatility of our stock over the period commensurate with the expected life of the stock options and other factors. The dividend yield is based on the current annualized dividend rate in effect during the quarter in which the grant was made.
The following table presents stock option activity during the six months ended June 30, 2014:
|
|