Discontinued Operations

12 Months Ended

Dec. 31, 2019

Discontinued Operations and Disposal Groups [Abstract]

5. Discontinued Operations

Spin-off of Exterran Corporation

In 2015 we completed the Spin-off. In order to effect the Spin-off and govern our relationship with Exterran Corporation after the Spin-off, we entered into several agreements with Exterran Corporation, which include, but are not limited to, the separation and distribution agreement, the tax matters agreement and the supply agreement. Certain terms of these agreements follow:

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The separation and distribution agreement specifies our right to promptly receive payments from Exterran Corporation based on a notional amount corresponding to payments received by Exterran Corporation from PDVSA Gas, S.A., a subsidiary of Petroleos de Venezuela, S.A., in respect of the sale of Exterran Corporation’s and joint ventures’ previously nationalized assets after such amounts are collected by Exterran Corporation. During the years ended December 31, 2018 and 2017, we received $18.7 million and $19.7 million, respectively, from Exterran Corporation pursuant to this term of the separation and distribution agreement. The separation and distribution agreement also specifies our right to receive a $25.0 million cash payment from Exterran Corporation promptly following the occurrence of a qualified capital raise as defined in the Exterran Corporation credit agreement. Such a qualified capital raise occurred in April 2017 and we received a cash payment of $25.0 million later that month.

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 Exterran Corporation’s business with Exterran Corporation. Pursuant to the separation and distribution agreement, we and Exterran Corporation generally release the other party from all claims arising prior to the Spin-off that relate to the other party’s business.

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The tax matters agreement governs the respective rights, responsibilities and obligations of Exterran Corporation and us with respect to tax liabilities and benefits, tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings and certain other matters regarding taxes. Subject to the provisions of this agreement Exterran Corporation and we agreed to indemnify the primary obligor of any return for tax periods beginning before and ending before or after the Spin-off (including any ongoing or future amendments and audits for these returns) for the portion of the tax liability (including interest and penalties) that relates to their respective operations reported in the filing. As of December 31, 2019, we classified $8.5 million of unrecognized tax benefits (including interest and penalties) as noncurrent liabilities associated with discontinued operations since it relates to operations of Exterran Corporation prior to the Spin-off. We have also recorded an offsetting $8.5 million indemnification asset related to this reserve as noncurrent assets associated with discontinued operations.

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The supply agreement, which expired November 2017, set forth the terms under which Exterran Corporation provided manufactured equipment, including the design, engineering, manufacturing and sale of natural gas compression equipment, on an exclusive basis to us and the Partnership, subject to certain exceptions. During the year ended December 31, 2017, we purchased $150.2 million of newly-manufactured compression equipment from Exterran Corporation.

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



	December 31,
	2019		2018
Other current assets	$	—	$	300
Other assets	8,508		7,063
Deferred tax assets⁽¹⁾	4,393		—
Total assets associated with discontinued operations	$	12,901	$	7,363

Other current liabilities	$	—	$	297
Deferred tax liabilities	8,508		7,063
Total liabilities associated with discontinued operations	$	8,508	$	7,360

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⁽¹⁾	As of December 31, 2018, the $5.6 million net deferred tax asset was fully offset by a valuation allowance. As of December 31, 2019, the $5.6 million valuation allowance was released and the net deferred tax asset decreased by $1.2 million due to current period tax amortization. See Note 20 (“Income Taxes”) for further details.

The following table summarizes the statements of operations for discontinued operations (in thousands):



	Year Ended December 31,
	2019			2018			2017
Other (income) loss, net	$	(1,473	)	$	(654	)	$	154
Provision for (benefit from) income taxes	1,746			654			(100		)
Loss from discontinued operations, net of tax	$	(273	)	$	—		$	(54	)