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 loss was understated by $3.7 million and our net income was overstated by $27.7 million during the three and nine months ended September 30, 2015, respectively. 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. We also concurrently filed Quarterly Reports on Form 10-Q for the quarters ended March 31, 2016 and June 30, 2016. 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 and nine months ended September 30, 2015, (iii) statement of comprehensive income for the three and nine months ended September 30, 2015, (iv) statement of equity at September 30, 2015 and (v) statement of cash flows for the nine months ended September 30, 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 and nine months ended September 30, 2015 are set forth in the following table (in thousands, except per share amounts): Three Months Ended September 30, 2015 Nine Months Ended September 30, 2015 As Previously Reported Restatement Adjustments Reclassification Adjustments (1) As Restated and Reclassified As Previously Reported Restatement Adjustments Reclassification Adjustments (1) As Restated and Reclassified Revenues: North America contract operations $ 191,692 $ — $ — $ 191,692 $ 592,212 $ — $ — $ 592,212 International contract operations 114,104 — (114,104 ) — 350,045 — (350,045 ) — Aftermarket services 82,443 — (25,272 ) 57,171 260,133 — (95,547 ) 164,586 Fabrication 261,262 (8,667 ) (252,595 ) — 860,025 (20,943 ) (839,082 ) — 649,501 (8,667 ) (391,971 ) 248,863 2,062,415 (20,943 ) (1,284,674 ) 756,798 Costs and expenses: Cost of sales (excluding depreciation and amortization expense): North America contract operations 77,927 — — 77,927 241,827 — — 241,827 International contract operations 41,114 — (41,114 ) — 130,198 — (130,198 ) — Aftermarket services 63,773 — (18,336 ) 45,437 199,878 — (67,820 ) 132,058 Fabrication 226,925 (3,548 ) (223,377 ) — 734,897 6,955 (741,852 ) — Selling, general and administrative 82,124 — (49,503 ) 32,621 252,684 — (156,138 ) 96,546 Depreciation and amortization 94,924 90 (36,927 ) 58,087 285,057 284 (112,702 ) 172,639 Long-lived asset impairment 23,708 — (3,775 ) 19,933 51,860 — (14,264 ) 37,596 Restructuring and other charges 11,998 — (11,709 ) 289 36,392 — (34,910 ) 1,482 Interest expense 28,577 — (581 ) 27,996 84,273 — (1,407 ) 82,866 Equity in income of non-consolidated affiliates (5,084 ) — 5,084 — (15,152 ) — 15,152 — Other (income) loss, net 30,129 (53 ) (27,921 ) 2,155 38,975 (1,014 ) (38,838 ) (877 ) 676,115 (3,511 ) (408,159 ) 264,445 2,040,889 6,225 (1,282,977 ) 764,137 Income (loss) before income taxes (26,614 ) (5,156 ) 16,188 (15,582 ) 21,526 (27,168 ) (1,697 ) (7,339 ) Provision for (benefit from) income taxes (3,605 ) (1,550 ) 7,522 2,367 14,628 340 (14,870 ) 98 Income (loss) from continuing operations (23,009 ) (3,606 ) 8,666 (17,949 ) 6,898 (27,508 ) 13,173 (7,437 ) Income from discontinued operations, net of tax 18,776 — (8,666 ) 10,110 37,743 — (13,173 ) 24,570 Net income (loss) (4,233 ) (3,606 ) — (7,839 ) 44,641 (27,508 ) — 17,133 Less: Net income attributable to the noncontrolling interest (2,071 ) — — (2,071 ) (20,192 ) — — (20,192 ) Net income (loss) attributable to Archrock stockholders $ (6,304 ) $ (3,606 ) $ — $ (9,910 ) $ 24,449 $ (27,508 ) $ — $ (3,059 ) Basic income (loss) per common share: Loss from continuing operations attributable to Archrock common stockholders $ (0.37 ) $ (0.06 ) $ 0.14 $ (0.29 ) $ (0.20 ) $ (0.40 ) $ 0.19 $ (0.41 ) Income from discontinued operations attributable to Archrock common stockholders 0.28 — (0.14 ) 0.14 0.55 — (0.19 ) 0.36 Net income (loss) attributable to Archrock common stockholders $ (0.09 ) $ (0.06 ) $ — $ (0.15 ) $ 0.35 $ (0.40 ) $ — $ (0.05 ) Diluted income (loss) per common share: Loss from continuing operations attributable to Archrock common stockholders $ (0.37 ) $ (0.06 ) $ 0.14 $ (0.29 ) $ (0.20 ) $ (0.40 ) $ 0.19 $ (0.41 ) Income from discontinued operations attributable to Archrock common stockholders 0.28 — (0.14 ) 0.14 0.55 — (0.19 ) 0.36 Net income (loss) attributable to Archrock common stockholders $ (0.09 ) $ (0.06 ) $ — $ (0.15 ) $ 0.35 $ (0.40 ) $ — $ (0.05 ) Weighted average common shares outstanding used in income (loss) per common share: Basic 68,560 — — 68,560 68,441 — — 68,441 Diluted 68,560 — — 68,560 68,441 — — 68,441 Dividends declared and paid per common share $ 0.15 $ — $ — $ 0.15 $ 0.45 $ — $ — $ 0.45 (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 and nine months ended September 30, 2015 are set forth in the following table (in thousands): Three Months Ended September 30, 2015 Nine Months Ended September 30, 2015 As Previously Reported Restatement Adjustments As Restated As Previously Reported Restatement Adjustments As Restated Net income (loss) $ (4,233 ) $ (3,606 ) $ (7,839 ) $ 44,641 $ (27,508 ) $ 17,133 Other comprehensive income (loss), net of tax: Derivative loss, net of reclassifications to earnings (4,076 ) — (4,076 ) (7,304 ) — (7,304 ) Adjustments from changes in ownership of Partnership — — — (223 ) — (223 ) Amortization of terminated interest rate swaps 543 — 543 1,768 — 1,768 Foreign currency translation adjustment 4,949 3,689 8,638 (1,754 ) 5,972 4,218 Total other comprehensive income (loss) 1,416 3,689 5,105 (7,513 ) 5,972 (1,541 ) Comprehensive income (loss) (2,817 ) 83 (2,734 ) 37,128 (21,536 ) 15,592 Less: Comprehensive (income) loss attributable to the noncontrolling interest 424 — 424 (16,384 ) — (16,384 ) Comprehensive income (loss) attributable to Archrock stockholders $ (2,393 ) $ 83 $ (2,310 ) $ 20,744 $ (21,536 ) $ (792 ) The effects of the restatement on our condensed consolidated statement of equity as of September 30, 2015 are set forth in the following table (in thousands): September 30, 2015 As Previously Reported Restatement Adjustments As Restated Accumulated Other Comprehensive Income Balance at January 1, 2015 15,865 9,969 25,834 Comprehensive income (loss) (3,705 ) 5,972 2,267 Balance at September 30, 2015 12,160 15,941 28,101 Accumulated Deficit Balance at January 1, 2015 (1,866,397 ) (97,208 ) (1,963,605 ) Comprehensive income (loss) 24,449 (27,508 ) (3,059 ) Balance at September 30, 2015 (1,873,115 ) (124,716 ) (1,997,831 ) Total Balance at January 1, 2015 1,953,045 (87,239 ) 1,865,806 Comprehensive income 37,128 (21,536 ) 15,592 Balance at September 30, 2015 1,901,047 (108,775 ) 1,792,272 The effects of the restatement on our condensed consolidated statement of cash flows for the nine months ended September 30, 2015 are set forth in the following table (in thousands): Nine Months Ended September 30, 2015 As Previously Reported Restatement Adjustments Reclassification Adjustments (1) As Restated and Reclassified Cash flows from operating activities: Net income $ 44,641 $ (27,508 ) $ — $ 17,133 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 285,057 284 (112,702 ) 172,639 Long-lived asset impairment 51,860 — (14,264 ) 37,596 Amortization of deferred financing costs 4,602 — — 4,602 Income from discontinued operations, net of tax (37,743 ) — 13,173 (24,570 ) Amortization of debt discount 871 — — 871 Provision for doubtful accounts 3,240 — (1,774 ) 1,466 Gain on sale of property, plant and equipment (2,227 ) — 1,184 (1,043 ) Equity in income of non-consolidated affiliates (15,152 ) — 15,152 — Amortization of terminated interest rate swaps 2,721 — — 2,721 Interest rate swaps 269 — — 269 Loss on remeasurement of intercompany balances 35,550 — (35,550 ) — Stock-based compensation expense 14,131 — (7,347 ) 6,784 Non-cash restructuring charges — — 1,000 1,000 Deferred income tax provision (38,091 ) 340 36,232 (1,519 ) Changes in assets and liabilities: Accounts receivable and notes 58,993 2,574 (42,288 ) 19,279 Inventory 23,457 — (24,083 ) (626 ) Costs and estimated earnings versus billings on uncompleted contracts (34,393 ) 15,442 18,951 — Other current assets (9,583 ) 187 9,317 (79 ) Accounts payable and other liabilities (51,748 ) 9,911 62,181 20,344 Deferred revenue (9,494 ) — 8,532 (962 ) Other (14,601 ) (1,230 ) 4,234 (11,597 ) Net cash provided by continuing operations 312,360 — (68,052 ) 244,308 Net cash provided by discontinued operations 3,441 — 68,052 71,493 Net cash provided by operating activities 315,801 — — 315,801 Cash flows from investing activities: Capital expenditures (350,253 ) — 144,193 (206,060 ) Proceeds from sale of property, plant and equipment 21,856 — (5,520 ) 16,336 Return of investments in non-consolidated affiliates 15,185 — (15,185 ) — Proceeds received from settlement of note receivable 5,357 (5,357 ) — Increase in restricted cash (1 ) 1 — Cash invested in non-consolidated affiliates (33 ) 33 — Net cash used in continuing operations (307,889 ) — 118,165 (189,724 ) Net cash provided by (used in) discontinued operations 33,119 — (118,165 ) (85,046 ) Net cash used in investing activities (274,770 ) — — (274,770 ) Cash flows from financing activities: Proceeds from borrowings of long-term debt 1,055,000 — — 1,055,000 Repayments of long-term debt (1,006,500 ) — — (1,006,500 ) Payments for debt issuance costs (3,208 ) — 498 (2,710 ) Payments for settlement of interest rate swaps that include financing elements (2,815 ) — — (2,815 ) Net proceeds from the sale of Partnership units 1,164 1,164 Proceeds from stock options exercised 1,106 — — 1,106 Proceeds from stock issued pursuant to our employee stock purchase plan 910 — — 910 Purchases of treasury stock (3,771 ) — — (3,771 ) Dividends to Archrock stockholders (31,167 ) — — (31,167 ) Stock-based compensation excess tax benefit 3,048 — (1,140 ) 1,908 Distributions to noncontrolling partners in the Partnership (61,045 ) — — (61,045 ) Net cash used in continuing operations (47,278 ) — (642 ) (47,920 ) Net cash provided by discontinuing operations — — 642 642 Net cash used in financing activities (47,278 ) — — (47,278 ) Effect of exchange rate changes on cash and cash equivalents (976 ) — — (976 ) Net decrease in cash and cash equivalents - total operations (7,223 ) — — (7,223 ) Less: Net decrease in cash and cash equivalents - discontinued operations — — (7,415 ) (7,415 ) Cash and cash equivalents at beginning of period 39,739 — (39,361 ) 378 Cash and cash equivalents at end of period $ 32,516 $ — $ (31,946 ) $ 570 (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. |