Restatement of Previously Reported Consolidated Financial Statements | 17. Restatement of Previously Reported Consolidated Financial Statements On November 3, 2015, we completed the Spin-off of our international contract operations, international aftermarket services and global fabrication businesses into a standalone public company operating as Exterran Corporation. Since the completion of the Spin-off, Archrock and Exterran Corporation have been independent, publicly traded companies. Subsequent to the filing of our Annual Report on Form 10-K for the year ended December 31, 2015, originally filed with the SEC on February 29, 2016, we were notified that senior management of Exterran Corporation identified errors relating to the application of percentage-of-completion accounting principles to certain engineering, procurement and construction (“EPC”) projects in the Middle East by its Belleli subsidiary. As a result of an internal investigation, Exterran Corporation’s management identified inaccuracies related to Belleli EPC projects in estimating the total costs required to complete projects, estimating penalties for liquidated damages and cost of sales amounts charged to projects impacting the years ended December 31, 2015, 2014 and 2013 (including the unaudited quarterly periods within 2015 and 2014). Additionally, prior period errors were separately identified related to the miscalculation and recovery of non-income-based tax receivables owed to Exterran Corporation from the Brazilian government as of December 31, 2011. Along with restating its financial statements to correct the errors discussed above, Exterran Corporation recorded adjustments for certain immaterial accounting errors related to the periods covered in its Form 10-K/A amending its Annual Report on Form 10-K for the year ended December 31, 2015. Our management and the Audit Committee of our Board of Directors conducted a review of the errors and inaccuracies that were identified by Exterran Corporation in order to determine the impacts of such matters on our pre-Spin-off historical financial statements. None of the errors and inaccuracies identified relate to our ongoing operations. The international contract operations, international aftermarket services and global fabrication results of operations have been reported as discontinued operations, net of tax, in our consolidated statement of operations for all periods presented and were previously included in the international contract operations segment, aftermarket services segment and fabrication segment prior to the Spin-off. Subsequent to the Spin-off, we no longer operate in the international contract operations, international aftermarket services or fabrication businesses. Our consolidated financial statements as of and for the year ended December 31, 2015 and related financial information have been restated to reflect the adjustments described above. The restatement has been set forth in its entirety in our 2015 Form 10-K/A which we have filed with the SEC concurrently with this Form 10-Q. As a result of the errors and inaccuracies related to Belleli EPC projects, as described above, our net income was overstated by $1.1 million during the three months ended March 31, 2015. We delayed the filing of this Quarterly Report on Form 10-Q pending the completion of our review of the errors and inaccuracies described above, including the completion of the restatement, and after considering conclusions reached by Exterran Corporation described above. The tables below summarize the effects of the restatement on our (i) balance sheet at December 31, 2015 and January 1, 2016, (ii) statement of operations for the three months ended March 31, 2015, (iii) statement of comprehensive income for the three months ended March 31, 2015, (iv) statement of equity at March 31, 2015 and (v) statement of cash flows for the three months ended March 31, 2015. The effects of the restatement on our condensed consolidated balance sheet as of December 31, 2015 and January 1, 2016 are set forth in the following table (in thousands): December 31, 2015 and January 1, 2016 As Previously Reported Restatement Adjustments As Restated Additional paid-in capital $ 2,820,958 123,939 $ 2,944,897 Accumulated deficit (2,013,799 ) (123,939 ) (2,137,738 ) The effects of the restatement on our condensed consolidated statements of operations for the three months ended March 31, 2015 are set forth in the following table (in thousands, except per share amounts): Three Months Ended March 31, 2015 As Previously Reported Restatement Adjustments Reclassification Adjustments (1) As Restated and Reclassified Revenues: North America contract operations $ 202,261 $ — $ — $ 202,261 International contract operations 120,691 — (120,691 ) — Aftermarket services 86,856 — (36,244 ) 50,612 Fabrication 319,274 (6,932 ) (312,342 ) — 729,082 (6,932 ) (469,277 ) 252,873 Costs and expenses: Cost of sales (excluding depreciation and amortization expense): North America contract operations 82,679 — — 82,679 International contract operations 44,339 — (44,339 ) — Aftermarket services 65,934 — (25,157 ) 40,777 Fabrication 267,118 (6,087 ) (261,031 ) — Selling, general and administrative 86,686 — (54,118 ) 32,568 Depreciation and amortization 95,808 97 (38,892 ) 57,013 Long-lived asset impairment 12,732 — (4,579 ) 8,153 Restructuring and other charges 4,790 — (4,790 ) — Interest expense 27,298 — (507 ) 26,791 Equity in income of non-consolidated affiliates (5,006 ) — 5,006 — Other (income) expense, net 7,841 (898 ) (7,493 ) (550 ) 690,219 (6,888 ) (435,900 ) 247,431 Income before income taxes 38,863 (44 ) (33,377 ) 5,442 Provision for (benefit from) income taxes 16,491 1,071 (18,302 ) (740 ) Income from continuing operations 22,372 (1,115 ) (15,075 ) 6,182 Income from discontinued operations, net of tax 18,713 — 15,075 33,788 Net income 41,085 (1,115 ) — 39,970 Less: Net income attributable to the noncontrolling interest (8,943 ) — — (8,943 ) Net income attributable to Archrock stockholders $ 32,142 $ (1,115 ) $ — $ 31,027 Basic income (loss) per common share: Income (loss) from continuing operations attributable to Archrock common stockholders $ 0.19 $ (0.02 ) $ (0.21 ) $ (0.04 ) Income from discontinued operations attributable to Archrock common stockholders 0.27 — 0.22 0.49 Net income attributable to Archrock common stockholders $ 0.46 $ (0.02 ) $ 0.01 $ 0.45 Diluted income (loss) per common share: Income (loss) from continuing operations attributable to Archrock common stockholders $ 0.19 $ (0.02 ) $ (0.21 ) $ (0.04 ) Income from discontinued operations attributable to Archrock common stockholders 0.27 — 0.22 0.49 Net income attributable to Archrock common stockholders $ 0.46 $ (0.02 ) $ 0.01 $ 0.45 Weighted average common shares outstanding used in income (loss) per common share: Basic 68,252 — — 68,252 Diluted 68,534 — (282 ) 68,252 Dividends declared and paid per common share $ 0.15 $ — $ — $ 0.15 (1) As discussed in Note 3, in November 2015, we completed the Spin-off of our international contract operations, international aftermarket services and global fabrication businesses into a standalone public company operating as Exterran Corporation. The results of these businesses have been reclassified to discontinued operations in our financial statements for all periods presented. The effects of the restatement on our condensed consolidated statements of comprehensive income for the three months ended March 31, 2015 are set forth in the following table (in thousands): Three Months Ended March 31, 2015 As Previously Reported Restatement Adjustments As Restated Net income $ 41,085 $ (1,115 ) $ 39,970 Other comprehensive loss, net of tax: Derivative loss, net of reclassifications to earnings (4,650 ) — (4,650 ) Amortization of terminated interest rate swaps 635 — 635 Foreign currency translation adjustment (10,362 ) 2,617 (7,745 ) Total other comprehensive loss (14,377 ) 2,617 (11,760 ) Comprehensive income 26,708 1,502 28,210 Less: Comprehensive income attributable to the noncontrolling interest (5,970 ) — (5,970 ) Comprehensive income attributable to Archrock stockholders $ 20,738 $ 1,502 $ 22,240 The effects of the restatement on our condensed consolidated statement of equity as of March 31, 2015 are set forth in the following table (in thousands): March 31, 2015 As Previously Reported Restatement Adjustments As Restated Accumulated Other Comprehensive Income Balance at January 1, 2015 15,865 9,969 25,834 Comprehensive loss (11,404 ) 2,617 (8,787 ) Balance at March 31, 2015 4,461 12,586 17,047 Accumulated Deficit Balance at January 1, 2015 (1,866,397 ) (97,208 ) (1,963,605 ) Comprehensive income 32,142 (1,115 ) 31,027 Balance at March 31, 2015 (1,844,595 ) (98,323 ) (1,942,918 ) Total Balance at January 1, 2015 1,953,045 (87,239 ) 1,865,806 Comprehensive income 26,708 1,502 28,210 Balance at March 31, 2015 1,951,581 (85,737 ) 1,865,844 The effects of the restatement on our condensed consolidated statements of cash flows for the three months ended March 31, 2015 are set forth in the following table (in thousands): Three Months Ended March 31, 2015 As Previously Reported Restatement Adjustments Reclassification Adjustments (1) As Restated and Reclassified Cash flows from operating activities: Net income $ 41,085 $ (1,115 ) $ — $ 39,970 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 95,808 97 (38,892 ) 57,013 Long-lived asset impairment 12,732 — (4,579 ) 8,153 Amortization of deferred financing costs 1,618 — — 1,618 Income from discontinued operations, net of tax (18,713 ) — (15,075 ) (33,788 ) Amortization of debt discount 286 — — 286 Provision for doubtful accounts 622 — (324 ) 298 Gain on sale of property, plant and equipment (489 ) — 132 (357 ) Equity in income of non-consolidated affiliates (5,006 ) — 5,006 — Amortization of terminated interest rate swaps 977 — — 977 Interest rate swaps (136 ) — — (136 ) Loss on remeasurement of intercompany balances 7,508 — (7,508 ) — Stock-based compensation expense 4,698 — (2,215 ) 2,483 Deferred income tax provision 620 1,070 (4,268 ) (2,578 ) Changes in assets and liabilities: Accounts receivable and notes 47,687 (5,213 ) (23,156 ) 19,318 Inventory (14,548 ) — 15,746 1,198 Costs and estimated earnings versus billings on uncompleted contracts 12,304 12,145 (24,449 ) — Other current assets (15,417 ) (40 ) 15,923 466 Accounts payable and other liabilities (40,086 ) (6,104 ) 46,583 393 Deferred revenue 3,764 — 3,571 7,335 Other (2,846 ) (840 ) 6,203 2,517 Net cash provided by continuing operations 132,468 — (27,302 ) 105,166 Net cash provided by discontinued operations 2,166 — 27,302 29,468 Net cash provided by operating activities 134,634 — — 134,634 Cash flows from investing activities: Capital expenditures (139,783 ) — 49,447 (90,336 ) Proceeds from sale of property, plant and equipment 8,910 — (3,600 ) 5,310 Return of investments in non-consolidated affiliates 5,006 — (5,006 ) — Net cash used in continuing operations (125,867 ) — 40,841 (85,026 ) Net cash provided by (used in) discontinued operations 16,530 — (40,841 ) (24,311 ) Net cash used in investing activities (109,337 ) — — (109,337 ) Cash flows from financing activities: Proceeds from borrowings of long-term debt 417,000 — — 417,000 Repayments of long-term debt (396,500 ) — — (396,500 ) Payments for debt issuance costs (1,311 ) — — (1,311 ) Payments for settlement of interest rate swaps that include financing elements (942 ) — — (942 ) Proceeds from stock options exercised 572 — — 572 Proceeds from stock issued pursuant to our employee stock purchase plan 419 — — 419 Purchases of treasury stock (3,678 ) — — (3,678 ) Dividends to Archrock stockholders (10,340 ) — — (10,340 ) Stock-based compensation excess tax benefit 2,131 — (764 ) 1,367 Distributions to noncontrolling partners in the Partnership (20,145 ) — — (20,145 ) Net cash used in continuing operations (12,794 ) — (764 ) (13,558 ) Net cash provided by discontinued operations — — 764 764 Net cash used in financing activities (12,794 ) — — (12,794 ) Effect of exchange rate changes on cash and cash equivalents (231 ) — — (231 ) Net increase in cash and cash equivalents - total operations 12,272 — — 12,272 Less: Net increase in cash and cash equivalents - discontinued operations — — 12,089 12,089 Cash and cash equivalents at beginning of period 39,739 — (39,361 ) 378 Cash and cash equivalents at end of period $ 52,011 $ — $ (51,450 ) $ 561 (1) As discussed in Note 3, in November 2015, we completed the Spin-off of our international contract operations, international aftermarket services and global fabrication businesses into a standalone public company operating as Exterran Corporation. The results of these businesses have been reclassified to discontinued operations in our financial statements for all periods presented. |