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, 2017~~March 31, 2018

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

Commission File No. 001-36875

EXTERRAN CORPORATION

(Exact name of registrant as specified in its charter)



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

4444 Brittmoore Road
Houston, Texas		77041
(Address of principal executive offices)		(Zip Code)

(281) 836-7000

(Registrant’s 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	ox		Accelerated filer	xo
Non-accelerated filer	o	(Do not check if a smaller reporting company)	Smaller reporting company	o
			Emerging growth company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Number of shares of the common stock of the registrant outstanding as of ~~July 31, 2017: 35,793,506~~April 26, 2018: 36,133,845 shares.

Table of Contents

TABLE OF CONTENTS



	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)	3
Condensed Consolidated Balance Sheets	3
Condensed Consolidated Statements of Operations	4
Condensed Consolidated Statements of Comprehensive Income ~~(Loss)~~	5
Condensed Consolidated Statements of Stockholders’ Equity	6
Condensed Consolidated Statements of Cash Flows	7
Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2637
Item 3. Quantitative and Qualitative Disclosures About Market Risk	4448
Item 4. Controls and Procedures	4448
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	4850
Item 1A. Risk Factors	4850
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	4950
Item 3. Defaults Upon Senior Securities	4950
Item 4. Mine Safety Disclosures	4950
Item 5. Other Information	4950
Item 6. Exhibits	5051
SIGNATURES	5152
Exhibit Index	53

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

EXTERRAN CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value and share amounts)

(unaudited)


	June 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017
ASSETS

Current assets:
Cash and cash equivalents	$	45,364		$	35,678		$	17,336		$	49,145
Restricted cash	671			671			546			546
Accounts receivable, net of allowance of $6,204 and $5,383, respectively	253,140			230,607
Inventory (Note 3)	150,458			157,516
Costs and estimated earnings in excess of billings on uncompleted contracts (Note 4)	48,204			31,956
Accounts receivable, net of allowance of $5,580 and $5,388, respectively							237,211			266,052
Inventory, net (Note 4)							141,219			107,909
Costs and estimated earnings in excess of billings on uncompleted contracts							—			40,695
Contract assets (Note 2)							78,941			—
Other current assets	44,217			55,516			33,058			38,707
Current assets associated with discontinued operations (Note 2)	3			14
Current assets held for sale (Note 6)							16,604			15,761
Current assets associated with discontinued operations (Note 3)							17,781			23,751
Total current assets	542,057			511,958			542,696			542,566
Property, plant and equipment, net (Note 5)	787,418			797,809			837,528			822,279
Deferred income taxes	9,277			6,015			13,175			10,550
Intangible and other assets, net	67,903			58,996			98,118			76,980
Long-term assets held for sale (Note 6)							4,422			4,732
Long-term assets associated with discontinued operations (Note 3)							3,648			3,700
Total assets	$	1,406,655		$	1,374,778		$	1,499,587		$	1,460,807

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable, trade	$	120,975		$	95,959		$	177,718		$	148,744
Accrued liabilities	129,427			162,792			108,632			114,336
Deferred revenue	24,670			32,154			—			23,902
Billings on uncompleted contracts in excess of costs and estimated earnings (Note 4)	86,970			42,116
Current liabilities associated with discontinued operations (Note 2)	269			1,113
Billings on uncompleted contracts in excess of costs and estimated earnings							—			89,565
Contract liabilities (Note 2)							107,447			—
Current liabilities associated with discontinued operations (Note 3)							21,511			31,971
Total current liabilities	362,311			334,134			415,308			408,518
Long-term debt (Note 7)	367,535			348,970
Long-term debt (Note 8)							386,580			368,472
Deferred income taxes	10,874			11,700			8,928			9,746
Long-term deferred revenue	100,236			98,964			—			92,485
Long-term contract liabilities (Note 2)							87,596			—
Other long-term liabilities	24,688			24,237			42,965			20,272
Long-term liabilities associated with discontinued operations (Note 2)	—			2
Long-term liabilities associated with discontinued operations (Note 3)							6,759			6,528
Total liabilities	865,644			818,007			948,136			906,021
Commitments and contingencies (Note 15)
Commitments and contingencies (Note 16)
Stockholders’ equity:
Preferred stock, $0.01 par value per share; 50,000,000 shares authorized; zero issued	—			—			—			—
Common stock, $0.01 par value per share; 250,000,000 shares authorized; 36,178,889 and 35,641,113 shares issued, respectively	362			356
Common stock, $0.01 par value per share; 250,000,000 shares authorized; 36,729,867 and 36,193,930 shares issued, respectively							367			362
Additional paid-in capital	732,961			768,304			743,191			739,164
Accumulated deficit	(233,525		)	(257,252		)	(228,194		)	(223,510		)
Treasury stock — 385,383 and 202,430 common shares, at cost, respectively	(5,269		)	(2,145		)
Treasury stock — 586,972 and 453,178 common shares, at cost, respectively							(10,377		)	(6,937		)
Accumulated other comprehensive income	46,482			47,508			46,464			45,707
Total stockholders’ equity	541,011			556,771			551,451			554,786
Total liabilities and stockholders’ equity	$	1,406,655		$	1,374,778		$	1,499,587		$	1,460,807

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

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EXTERRAN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(unaudited)

Three Months Ended June 30, Six Months Ended June 30,
2017 2016 2017 2016
Revenues:
Contract operations $ 95,341
$ 94,689
$ 187,386
$ 199,448
Aftermarket services 24,244
34,668
46,768
64,909
Oil and gas product sales 198,116
99,332
328,972
240,999
Belleli EPC product sales 12,885
33,458
48,159
63,421
330,586
262,147
611,285
568,777
Costs and expenses:
Cost of sales (excluding depreciation and amortization expense):
Contract operations 34,691
36,401
65,489
74,899
Aftermarket services 17,278
24,137
33,890
46,437
Oil and gas product sales 178,025
89,786
297,562
220,091
Belleli EPC product sales 8,064
33,262
26,063
64,849
Selling, general and administrative 46,084
40,648
91,481
86,386
Depreciation and amortization 29,447
27,417
55,327
78,350
Long-lived asset impairment (Note 9) —
—
—
651
Restatement related charges (recoveries), net (Note 10) (1,158 ) 7,851
1,014
7,851
Restructuring and other charges (Note 11) 310
10,636
2,178
23,203
Interest expense 12,382
8,879
19,469
17,342
Equity in income of non-consolidated affiliates (Note 6) —
(5,229 ) —
(10,403 )
Other (income) expense, net 3,701
(5,394 ) 1,368
(9,811 )
328,824
268,394
593,841
599,845
Income (loss) before income taxes 1,762
(6,247 ) 17,444
(31,068 )
Provision for (benefit from) income taxes (Note 12) (1,814 ) 100,335
13,185
104,344
Income (loss) from continuing operations 3,576
(106,582 ) 4,259
(135,412 )
Income (loss) from discontinued operations, net of tax (Note 2) (32 ) 11,036
19,606
(53,091 )
Net income (loss) $ 3,544
$ (95,546 ) $ 23,865
$ (188,503 )

Basic net income (loss) per common share (Note 14):
Income (loss) from continuing operations per common share $ 0.10
$ (3.08 ) $ 0.12
$ (3.92 )
Income (loss) from discontinued operations per common share —
0.32
0.54
(1.54 )
Net income (loss) per common share $ 0.10
$ (2.76 ) $ 0.66
$ (5.46 )

Diluted net income (loss) per common share (Note 14):
Income (loss) from continuing operations per common share $ 0.10
$ (3.08 ) $ 0.12
$ (3.92 )
Income (loss) from discontinued operations per common share —
0.32
0.54
(1.54 )
Net income (loss) per common share $ 0.10
$ (2.76 ) $ 0.66
$ (5.46 )

Weighted average common shares outstanding used in net income (loss) per common share (Note 14):
Basic 35,018
34,618
34,913
34,529
Diluted 35,094
34,618
34,999
34,529



	Three Months Ended March 31,
	2018		2017
Revenues (Note 2):
Contract operations	$	96,493	$	92,045
Aftermarket services	26,371		22,524
Product sales	227,519		130,856
	350,383		245,425
Costs and expenses:
Cost of sales (excluding depreciation and amortization expense):
Contract operations	35,385		30,798
Aftermarket services	18,897		16,612
Product sales	200,336		119,537
Selling, general and administrative	44,242		44,411
Depreciation and amortization	31,029		24,752
Long-lived asset impairment (Note 10)	1,804		—
Restatement related charges (Note 11)	621		2,172
Restructuring and other charges (Note 12)	—		2,308
Interest expense	7,219		7,087
Other (income) expense, net	1,420		(1,819		)
	340,953		245,858
Income (loss) before income taxes	9,430		(433		)
Provision for income taxes (Note 13)	5,492		11,890
Income (loss) from continuing operations	3,938		(12,323		)
Income from discontinued operations, net of tax (Note 3)	1,399		32,644
Net income	$	5,337	$	20,321

Basic net income per common share (Note 15):
Income (loss) from continuing operations per common share	$	0.11	$	(0.35	)
Income from discontinued operations per common share	0.04		0.93
Net income per common share	$	0.15	$	0.58

Diluted net income per common share (Note 15):
Income (loss) from continuing operations per common share	$	0.11	$	(0.35	)
Income from discontinued operations per common share	0.04		0.93
Net income per common share	$	0.15	$	0.58

Weighted average common shares outstanding used in net income per common share (Note 15):
Basic	35,301		34,850
Diluted	35,373		34,850

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

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EXTERRAN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ~~(LOSS)~~

(In thousands)

(unaudited)

Three Months Ended June 30, Six Months Ended June 30,
2017 2016 2017 2016
Net income (loss) $ 3,544
$ (95,546 ) $ 23,865
$ (188,503 )
Other comprehensive income (loss):
Foreign currency translation adjustment (2,669 ) 1,886
(1,026 ) 4,199
Comprehensive income (loss) $ 875
$ (93,660 ) $ 22,839
$ (184,304 )



	Three Months Ended March 31,
	2018		2017
Net income	$	5,337	$	20,321
Other comprehensive income:
Foreign currency translation adjustment	757		1,643
Comprehensive income	$	6,094	$	21,964

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

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EXTERRAN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(unaudited)


	Common Stock		Additional Paid-in Capital			Accumulated Deficit			Treasury Stock			Accumulated Other Comprehensive Income			Total			Common Stock		Additional Paid-in Capital		Accumulated Deficit			Treasury Stock			Accumulated Other Comprehensive Income		Total
Balance, January 1, 2016	$	352	$	805,755		$	(29,315	)	$	(54	)	$	29,198		$	805,936
Net loss						(188,503		)							(188,503		)
Options exercised			694												694
Foreign currency translation adjustment												4,199			4,199
Cash transfer to Archrock, Inc. (Note 15)			(29,662		)										(29,662		)
Treasury stock purchased									(1,427		)				(1,427		)
Stock-based compensation, net of forfeitures	4		7,252												7,256
Other			(28		)										(28		)
Balance, June 30, 2016	$	356	$	784,011		$	(217,818	)	$	(1,481	)	$	33,397		$	598,465

Balance, January 1, 2017	$	356	$	768,304		$	(257,252	)	$	(2,145	)	$	47,508		$	556,771
Cumulative-effect adjustment from adoption of ASU 2016-09			138			(138		)							—
Balance, January 1, 2018																		$	362	$	739,164	$	(223,510	)	$	(6,937	)	$	45,707	$	554,786
Cumulative-effect adjustment from adoption of ASC Topic 606 (Note 1)																						(10,021		)						(10,021		)
Net income						23,865									23,865							5,337								5,337
Options exercised	1		683												684					428										428
Foreign currency translation adjustment												(1,026		)	(1,026		)											757		757
Cash transfer to Archrock, Inc. (Notes 7 and 15)			(44,720		)										(44,720		)
Treasury stock purchased									(3,124		)				(3,124		)								(3,440		)			(3,440		)
Stock-based compensation, net of forfeitures	5		8,556												8,561			5		3,599										3,604
Balance, June 30, 2017	$	362	$	732,961		$	(233,525	)	$	(5,269	)	$	46,482		$	541,011
Balance, March 31, 2018																		$	367	$	743,191	$	(228,194	)	$	(10,377	)	$	46,464	$	551,451

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

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EXTERRAN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)


	Six Months Ended June 30,						Three Months Ended March 31,
	2017			2016			2018			2017
Cash flows from operating activities:
Net income (loss)	$	23,865		$	(188,503	)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Net income							$	5,337		$	20,321
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	55,327			78,350			31,029			24,752
Long-lived asset impairment	—			651			1,804			—
Amortization of deferred financing costs	3,375			2,321			670			1,131
(Income) loss from discontinued operations, net of tax	(19,606		)	53,091
Income from discontinued operations, net of tax							(1,399		)	(32,644		)
Provision for doubtful accounts	953			1,394			215			486
Gain on sale of property, plant and equipment	(1,783		)	(2,301		)	(227		)	(34		)
Equity in income of non-consolidated affiliates	—			(10,403		)
Gain on remeasurement of intercompany balances	(26		)	(7,546		)
Loss on foreign currency derivatives	—			546
(Gain) loss on remeasurement of intercompany balances							630			(1,462		)
Loss on sale of business	111			—			—			111
Stock-based compensation expense	8,561			7,256			3,604			5,303
Deferred income tax provision (benefit)	(5,143		)	72,818
Deferred income tax benefit							(1,706		)	(48		)
Changes in assets and liabilities:
Accounts receivable and notes	(25,663		)	124,865			20,815			(42,923		)
Inventory	6,032			36,742			(34,292		)	(6,140		)
Costs and estimated earnings versus billings on uncompleted contracts	28,567			3,597			—			52,131
Contract assets							(31,397		)	—
Other current assets	(3,476		)	10,696			7,939			1,920
Accounts payable and other liabilities	(8,971		)	(36,396		)	6,469			6,912
Deferred revenue	(5,039		)	23,581			—			633
Contract liabilities							(6,429		)	—
Other	(1,223		)	3,538			564			(1,094		)
Net cash provided by continuing operations	55,861			174,297			3,626			29,355
Net cash provided by (used in) discontinued operations	2,241			(3,163		)	(2,849		)	5,511
Net cash provided by operating activities	58,102			171,134			777			34,866

Cash flows from investing activities:
Capital expenditures	(44,216		)	(30,787		)	(49,219		)	(20,590		)
Proceeds from sale of property, plant and equipment	6,991			899			2,260			2,584
Proceeds from sale of business	894			—			—			894
Return of investments in non-consolidated affiliates	—			10,403
Settlement of foreign currency derivatives	—			(53		)
Net cash used in continuing operations	(36,331		)	(19,538		)	(46,959		)	(17,112		)
Net cash provided by discontinued operations	18,600			14,637			66			19,150
Net cash used in investing activities	(17,731		)	(4,901		)
Net cash provided by (used in) investing activities							(46,893		)	2,038

Cash flows from financing activities:
Proceeds from borrowings of long-term debt	488,000			284,258
Repayments of long-term debt	(463,877		)	(412,385		)
Cash transfer to Archrock, Inc. (Notes 7 and 15)	(44,720		)	(29,662		)
Payments for debt issuance costs	(7,606		)	(779		)
Proceeds from borrowings of debt							66,500			60,500
Repayments of debt							(48,563		)	(93,063		)
Cash transfer to Archrock, Inc. (Note 16)							—			(19,720		)
Payment for debt issuance costs							(47		)	—
Proceeds from stock options exercised	684			694			428			684
Purchases of treasury stock	(3,124		)	(1,427		)	(3,440		)	(3,024		)
Net cash used in financing activities	(30,643		)	(159,301		)
Net cash provided by (used in) financing activities							14,878			(54,623		)

Effect of exchange rate changes on cash and cash equivalents	(42		)	(2,544		)
Net increase in cash and cash equivalents	9,686			4,388
Cash and cash equivalents at beginning of period	35,678			29,032
Cash and cash equivalents at end of period	$	45,364		$	33,420
Effect of exchange rate changes on cash, cash equivalents and restricted cash							(571		)	55
Net decrease in cash, cash equivalents and restricted cash							(31,809		)	(17,664		)
Cash, cash equivalents and restricted cash at beginning of period							49,691			36,349
Cash, cash equivalents and restricted cash at end of period							$	17,882		$	18,685

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

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EXTERRAN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Description of Business and Basis of Presentation

Description of Business

Exterran Corporation (together with its subsidiaries, “Exterran Corporation,” “our,” “we” or “us”), a Delaware corporation formed in March 2015, is a global systems and process company offering solutions in the oil, gas, water and power markets. We are a market leader in ~~the provision of~~natural gas processing and treatment and compression ~~production and processing~~ products and services, ~~that support~~providing critical midstream infrastructure solutions to customers throughout the ~~production and transportation~~world. Outside the United States of ~~oil and~~America (“U.S.”), we are a leading provider of full-service natural gas ~~throughout the world.~~contract compression, and a supplier of aftermarket parts and services. We provide these products and services to a global customer base consisting of companies engaged in all aspects of the oil and natural gas industry, including large integrated oil and natural gas companies, national oil and natural gas companies, independent oil and natural gas producers and oil and natural gas processors, gatherers and pipeline operators. We operate in ~~four~~three primary business lines: contract operations, aftermarket services ~~oil~~ and ~~gas product sales and Belleli EPC~~ product sales.

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

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Exterran Corporation included herein have been prepared in accordance with accounting principles generally accepted ~~accounting principles (“GAAP”)~~ in the ~~United States of America~~U.S. (“~~U.S.”~~GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP are not required in these interim financial statements and have been condensed or omitted. Management believes that the information furnished includes all adjustments of a normal recurring nature that are necessary to fairly present our consolidated financial position, results of operations and cash flows for the periods indicated. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated and combined financial statements presented in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017. That report contains a comprehensive summary of our accounting policies. The interim results reported herein are not necessarily indicative of results for a full year. Certain reclassifications resulting from the adoption of ASU 2016-18, Restricted Cash have been made to the statement of cash flows for the prior year period to conform to the current year presentation.

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

Recent Accounting Pronouncements

We consider the applicability and impact of all Accounting Standard Updates (“ASUs”). ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our ~~consolidated financial position or results of operations.~~

~~Recently Adopted Accounting Pronouncements~~

~~In July 2015, the Financial Accounting Standards Board (“FASB”) issued ASU 2015-11,~~ ~~Simplifying the Measurement of Inventory~~, which requires an entity to measure inventory at the lower of cost and net realizable value. Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. On January 1, 2017, we adopted this update on a prospective basis. The adoption of this update did not have a material impact on our financial statements.

Table of Contents

~~In March 2016, the FASB issued ASU 2016-09,~~ ~~Compensation - Stock Compensation (Topic 718)~~. The update covers such areas as the recognition of excess tax benefits and deficiencies, the classification of those excess tax benefits on the statement of cash flows, an accounting policy election for forfeitures, the amount an employer can withhold to cover income taxes and still qualify for equity classification and the classification of those taxes paid on the statement of cash flows. On January 1, 2017, we adopted this update. Upon adoption, we elected to account for forfeitures as they occur rather than applying an estimated forfeiture rate, which resulted in a cumulative-effect adjustment to accumulated deficit and additional paid-in capital of $0.1 million under the modified retrospective transition method. Additionally, as a result of this adoption, cash flows related to excess tax benefits are now presented within operating activities within the statements of cash flows. The impact of this retroactive adoption was immaterial to the results of the prior year period.

Recently ~~Issued~~Adopted Accounting Pronouncements ~~Not Yet Adopted~~

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The update outlines a single comprehensive model for companies to use in accounting for revenue arising from contracts with customers and supersedes the most current revenue recognition guidance, including industry-specific guidance. The core principle of the guidance is that an entity should recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which the entity expects to be entitled for those goods or services. The update also requires disclosures enabling users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. On January 1, 2018, we adopted this update using the modified retrospective approach to all contracts that were not completed as of January 1, 2018. As a result of this adoption, we recorded a net increase to the accumulated deficit of $10.0 million as of January 1, 2018 and an increase of $0.9 million in revenue for the three months ended March 31, 2018. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. See Note 2 for the required disclosures related to the impact of adopting this standard and a discussion of our updated policies related to revenue recognition.

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As a result of applying the modified retrospective method to adopt the new revenue guidance, the following adjustments were made to the balance sheet as of January 1, 2018 (in thousands):



	Impact of Changes in Accounting Policies
	December 31, 2017			Adjustments			January 1, 2018
ASSETS

Current assets:
Cash and cash equivalents	$	49,145		$	—		$	49,145
Restricted cash	546			—			546
Accounts receivable, net of allowance	266,052			(4,801		)	261,251
Inventory, net	107,909			(124		)	107,785
Costs and estimated earnings in excess of billings on uncompleted contracts	40,695			(40,695		)	—
Contract assets	—			50,824			50,824
Other current assets	38,707			(179		)	38,528
Current assets held for sale	15,761			—			15,761
Current assets associated with discontinued operations	23,751			—			23,751
Total current assets	542,566			5,025			547,591
Property, plant and equipment, net	822,279			(2,029		)	820,250
Deferred income taxes	10,550			404			10,954
Intangible and other assets, net	76,980			18,273			95,253
Long-term assets held for sale	4,732			—			4,732
Long-term assets associated with discontinued operations	3,700			—			3,700
Total assets	$	1,460,807		$	21,673		$	1,482,480

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable, trade	$	148,744		$	—		$	148,744
Accrued liabilities	114,336			16,044			130,380
Deferred revenue	23,902			(23,902		)	—
Billings on uncompleted contracts in excess of costs and estimated earnings	89,565			(89,565		)	—
Contract liabilities	—			112,244			112,244
Current liabilities associated with discontinued operations	31,971			—			31,971
Total current liabilities	408,518			14,821			423,339
Long-term debt	368,472			—			368,472
Deferred income taxes	9,746			(1,908		)	7,838
Long-term deferred revenue	92,485			(92,485		)	—
Long-term contract liabilities	—			89,004			89,004
Other long-term liabilities	20,272			22,262			42,534
Long-term liabilities associated with discontinued operations	6,528			—			6,528
Total liabilities	906,021			31,694			937,715

Stockholders’ equity:
Preferred stock	—			—			—
Common stock	362			—			362
Additional paid-in capital	739,164			—			739,164
Accumulated deficit	(223,510		)	(10,021		)	(233,531		)
Treasury stock	(6,937		)	—			(6,937		)
Accumulated other comprehensive income	45,707			—			45,707
Total stockholders’ equity	554,786			(10,021		)	544,765
Total liabilities and stockholders’ equity	$	1,460,807		$	21,673		$	1,482,480

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In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). The update addresses eight specific cash flow issues and is intended to reduce diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. On January 1, 2018, we adopted this update. The adoption of this update did not have an impact on our statements of cash flows.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. The update requires a reporting entity to recognize the tax expense from intra-entity asset transfers of assets other than inventory in the selling entity’s tax jurisdiction when the transfer occurs, even though the pre-tax effects of that transaction are eliminated in consolidation. Any deferred tax asset that arises in the buying entity’s jurisdiction would also be recognized at the time of the transfer. On January 1, 2018, we adopted this update using a modified retrospective approach. The impact of this adoption was immaterial to our financial statements.

In November 2016, the FASB issued ASU 2016-18, Restricted Cash. The guidance requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. On January 1, 2018, we adopted this update retrospectively. As a result of this adoption, $0.7 million of restricted cash has been included in the cash and cash equivalent balances in the statement of cash flows for the prior year period. At December 31, 2017, the $49.7 million of cash, cash equivalents and restricted cash on our statement of cash flows is composed of $49.1 million of cash and cash equivalents and $0.5 million of restricted cash. At March 31, 2018, the $17.9 million of cash, cash equivalents and restricted cash on our statement of cash flows is composed of $17.3 million of cash and cash equivalents and $0.5 million of restricted cash. The impact of this adoption was immaterial to our financial statements.

In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718). This update provides guidance that clarifies that changes to the terms or conditions of a share-based payment award should be accounted for as modifications. This update will be effective for reporting periods beginning after December 15, 2017, including interim periods within the reporting ~~period. Companies may use either~~period, using a ~~full retrospective~~prospective method to an award modified on or ~~a modified retrospective approach to adopt~~after the ~~updates. We intend to adopt the new guidance on~~adoption date. On January 1, 2018, we adopted this update using ~~the modified retrospective~~a prospective approach. In preparation for our adoption of the new standard, we have evaluated representative samples of contracts and other forms of agreements with our customers based upon the five-step model specified by the new guidance. We are in the process of completing our preliminary assessment of the potentialThe impact ~~the implementation~~ of this ~~new guidance may have on~~adoption was immaterial to our financial statements. ~~Although our preliminary assessment may change based upon completion of our evaluation, the following summarizes the more significant impacts expected from the adoption of the new standard:~~

Revenue from the sale of compression equipment within our oil and gas product sales segment is currently recognized over time using the percentage-of-completion method. Under the new standard, a significant amount of revenue from the sale of compression equipment is expected to be recognized at a point in time.

Revenue from installation services within our oil and gas product sales segment is currently recognized using the completed contract method. Under the new standard, revenue from such services is expected to be recognized over time.Recently Issued Accounting Pronouncements Not Yet Adopted

Revenue from overhaul and reconfiguration services within our aftermarket services segment is currently recognized at a point in time. Under the new standard, revenue from such services is expected to be recognized over time.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The update requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by long-term leases. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the statements of operations. The update also requires certain qualitative and quantitative disclosures about the amount, timing and uncertainty of cash flows arising from leases. ~~Accounting by lessors~~Lessor accounting will ~~remain largely unchanged.~~be similar to the current model except for changes made to align with certain changes to the lessee model and the new revenue recognition standard. Existing sale-leaseback guidance will be replaced with a new model applicable to both lessees and lessors. This update is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted. Adoption will require a modified retrospective approach beginning with the earliest period presented. We are currently evaluating the potential impact of the update on our financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326). The update changes the impairment model for most financial assets and certain other instruments, including trade and other receivables, held-to-maturity debt securities and loans, and requires entities to use a new forward-looking expected loss model that will result in the earlier recognition of allowance for losses. This update is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. Adoption will require a modified retrospective approach beginning with the earliest period presented. We are currently evaluating the potential impact of the update on our financial statements.

In ~~August 2016,~~February 2018, the FASB issued ASU ~~2016-15,~~2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassifications of Certain Tax Effects from Accumulated Other Comprehensive Income. ~~Statement~~This update provides an option to reclassify stranded tax effects within accumulated other comprehensive income to retained earnings in each period in which the effect of ~~Cash Flows (Topic 230). The update addresses eight specific cash flow issues and is intended to reduce diversity in practice in how certain cash receipts and cash payments are presented and classified~~the change in the ~~statement of cash flows.~~U.S. federal corporate income tax rate is recorded resulting from the Tax Cut and Job Act tax legislation enacted on December 22, 2017. This update will be effective for reporting periods beginning after December 15, ~~2017,~~2018, including interim periods within the reporting ~~period. This update will require adoption on~~period, using a retrospective ~~basis unless it is impracticable~~transition method to ~~apply, in which case it would be required to apply the amendments prospectively as of the earliest date practicable.~~each period presented, with early adoption permitted. We are currently evaluating the potential impact of the update on our financial statements.

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~~In October 2016,~~Note 2 - Revenue

On January 1, 2018, we adopted Topic 606 applying the ~~FASB issued~~ ~~ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. The update requires a reporting entity~~modified retrospective method to ~~recognize the tax expense from intra-entity asset transfers of assets other than inventory in the selling entity’s tax jurisdiction when the transfer occurs, even though the pre-tax effects of~~all contracts that ~~transaction are eliminated in consolidation. Any deferred tax asset that arises in the buying entity’s jurisdiction would also be recognized at the time~~were not completed as of the ~~transfer. This update will be~~date of adoption. For contracts that were modified before the effective date, we reflected the aggregate effect of all modifications when identifying performance obligations and allocating transaction price in accordance with a Topic 606 practical expedient. Results for reporting periods beginning after ~~December 15, 2017, including interim periods~~January 1, 2018 are presented under Topic 606, while prior period amounts have not been adjusted and continue to be reported under the accounting standards in effect for the prior period. We recorded a net increase to accumulated deficit of $10.0 million as of January 1, 2018 due to the cumulative impact of adopting Topic 606. Revenues for the three months ended March 31, 2018 increased by $0.9 million as a result of adopting Topic 606.

Disaggregation of Revenue

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



Products and Services	Revenue
Contract Operations:
Contract operations services ⁽¹⁾	$	96,493

Aftermarket Services:
Operation and maintenance services ⁽¹⁾	$	13,875
Part sales ⁽²⁾	9,133
Other services ⁽¹⁾	3,363
Total aftermarket services	$	26,371

Product Sales:
Compression equipment ⁽¹⁾	$	131,559
Processing and treating equipment ⁽¹⁾	86,115
Production equipment ⁽²⁾	7,998
Other product sales ^{(1) (2)}	1,847
Total product sales revenues	$	227,519

Total revenues	$	350,383


⁽¹⁾	Revenue recognized over time.


⁽²⁾	Revenue recognized at a point in time.



Geographical Regions	Revenue
North America	$	231,848
Latin America	67,951
Middle East and Africa	26,125
Asia Pacific	24,459
Total revenues	$	350,383

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

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Revenue is recognized when control of the promised goods or services are transferred to our customers, in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. The following is a description of principal activities from which we generate revenue.

Contract Operations Segment

In our contract operations segment, we provide compression or processing and treating services through operating our natural gas compression equipment and crude oil and natural gas production and process equipment on behalf of our customers. Our services include the provision of personnel, equipment, tools, materials and supplies to meet our customers’ natural gas compression or oil and natural gas production and processing service needs. Activities we may perform in meeting our customers’ needs include engineering, designing, sourcing, constructing, installing, operating, servicing, repairing, maintaining and demobilizing equipment owned by us necessary to provide these services. Contract operation services represent a series of distinct monthly services that are substantially the same, with the same pattern of transfer to the customer. Because our customers benefit equally throughout the service period and our efforts in providing contract operation services are incurred relatively evenly over the period of performance, revenue is recognized over time using a time based measure as we provide our services to the customer. Our contracts generally require customers to pay a monthly service fee, which may contain variable consideration such as production or volume based fees, guaranteed run rates, performance bonuses or penalties, liquidated damages and standby fees. Variable considerations included in our contracts are typically resolved on a monthly basis, and as such, variable considerations included in our contracts are generally allocated to each distinct month in the series within the ~~reporting period. Adoption will require~~contract. In addition, our contracts may include billings prior to or after the performance of our contract operation services that are recognized as revenue on a ~~modified retrospective approach beginning~~straight-line basis over the contract term as we perform our services and the customer receives and consumes the benefits of the services we provide.

We generally enter into contracts with our contract operations customers with initial terms ranging between three to five years, and in some cases, in excess of 10 years. In many instances, we are able to renew those contracts prior to the expiration of the initial term and in other instances, we may sell the underlying assets to our customers pursuant to purchase options or negotiated sale. As of March 31, 2018, we had contract operation services contracts with unsatisfied performance obligations extending through the year 2028. The total aggregate transaction price allocated to the unsatisfied performance obligations as of March 31, 2018 was approximately $1.2 billion, of which approximately $211 million is expected to be recognized during the remainder of 2018 and approximately $242 million is expected to be recognized in 2019. Our contracts are subject to cancellation or modification at the election of the customer; however, due to the level of capital deployed by our customers on underlying projects, we have not been materially adversely affected by contract cancellations or modifications in the past.

Aftermarket Services Segment

In our aftermarket services business, we sell parts and components and provide operations, maintenance, overhaul, upgrade, commissioning and reconfiguration services to customers who own their own compression, production, processing, treating and related equipment. Our services range from routine maintenance services and parts sales to the full operation and maintenance of customer-owned equipment.

Operations and maintenance services: Operation and maintenance services include personnel to run the equipment and monitor the outputs of the equipment, along with performing preventative or scheduled maintenance on customer-owned equipment. Operation and maintenance services represent a series of distinct monthly services that are substantially the same, with the ~~earliest~~same pattern of transfer to the customer. Because our customers benefit equally throughout the service period ~~presented.~~and our efforts in providing operation and maintenance services are incurred relatively evenly over the period of performance, revenue is recognized over time using a time based measure as we provide our services to the customer. Our contracts generally require customers to pay a monthly service fee, which may contain variable consideration such as production or volume based fees and performance bonuses or penalties. Variable considerations included in our contracts are typically resolved on a monthly basis, and as such, variable considerations included in our contracts are generally allocated to each distinct month in the series within the contract. We generally enter into contracts with our operation and maintenance customers with initial terms ranging between two to four years, and in some cases, in excess of six years. In many instances, we are ~~currently evaluating~~able to renew those contracts prior to the ~~potential impact~~expiration of the ~~update on our financial statements.~~initial term.

Parts sales: We offer our customers a full range of parts needed for the maintenance, repair and overhaul of oil and natural gas equipment, including natural gas compressors, industrial engines and production and processing equipment. We recognize revenue for parts sales at a point in time following the transfer of control of such parts to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying contract. Our contracts require customers to pay a fixed fee upon shipment or delivery of the parts.

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Other services: Within our aftermarket services segment we also provide a wide variety of other services such as overhaul, commissioning, upgrade and reconfiguration services on customer-owned equipment. Overhaul services provided to customers are intended to return the major components to a “like new” condition without significantly modifying the applications for which the units were designed. Commissioning services that we provide to our customers generally include supervision and the introduction of fluids or gases into the systems to test vibrations, pressures and temperatures to ensure that customer-owned equipment is operating properly and is ready for start-up. Upgrade and reconfiguration services modify the operating parameters of customer-owned equipment such that the equipment can be used in applications for which it previously was not suited. Generally, the wide array of other services provided within the aftermarket services segment are expected to be completed within a six month period. Individually these services are generally distinct within the context of the contract and are not highly interdependent or interrelated with other service offerings. We recognize revenue from these services over time based on the proportion of labor hours expended to the total labor hours expected to complete the contract performance obligation. Our contracts generally require customers to pay a service fee that is either fixed or on a time and materials basis, which may include progress billings based on the scope of work.

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

Product Sales Segment

In ~~November 2016,~~our product sales segment, we design, engineer, manufacture, install and sell natural gas compression packages as well as equipment used in the ~~FASB issued~~production, treating and processing of crude oil and natural gas primarily to major and independent oil and natural gas producers as well as national oil and natural gas companies in the countries where we operate.

Compression equipment: ~~ASU 2016-18, Restricted Cash~~We design, engineer, manufacture and sell skid-mounted natural gas compression equipment to meet standard or unique customer specifications. We recognize revenue from the sale of compression equipment over time based on the proportion of labor hours expended to the total labor hours expected to complete the contract performance obligation. Compression equipment manufactured for our customers are specifically designed and engineered to our customers’ specification and do not have an alternative use to us. Our contracts include a fixed fee and require our customers to make progress payments based on completion of contractual milestones during the life cycle of the manufacturing process. Our contracts provide us with an enforceable right to payment for work performed to date. Components of variable considerations exist in certain of our contracts and may include unpriced change orders, liquidated damages and performance bonuses or penalties. Typically, we expect the manufacturing of our compressor equipment to be completed within a three to 12 month period.

Processing and treating equipment: .Processing and treating equipment sold to our customers consists of custom-engineered processing and treating plants, such as refrigeration, amine, cryogenic and natural gas processing plants. The ~~guidance~~manufacturing of processing and treating equipment generally represents a single performance obligation within the context of the contract. We recognize revenue from the sale of processing and treating equipment over time based on the proportion of labor hours expended to the total labor hours expected to complete the contract performance obligation. Processing and treating equipment manufactured for our customers are specifically designed and engineered to our customers’ specification and do not have an alternative use to us. Our contracts include a fixed fee and require our customers to make progress payments based on completion of contractual milestones during the life cycle of the manufacturing process. Our contracts provide us with an enforceable right to payment for work performed to date. Components of variable considerations exist in certain of our contracts and may include unpriced change orders, liquidated damages and performance bonuses or penalties. Typically, we expect the manufacturing of our processing and treating equipment to be completed within a six to 24 month period.

Production equipment: We manufacture standard production equipment used for processing wellhead production from onshore or shallow-water offshore platform production. The manufacturing of production equipment generally represents a single performance obligation within the context of the contract. We recognize revenue from the sale of production equipment at a point in time following the transfer of control of the equipment to the customer, which typically occurs upon completion of the manufactured equipment, depending on the terms of the underlying contract. Our contracts generally require customers to pay a fixed fee upon completion. Typically, we expect the manufacturing of our production equipment to be completed within a month to six month period.

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Other product sales: Within our product sales segment we also provide for the sale of standard and custom water treatment equipment and floating production storage and offloading equipment and supervisor site work services. We recognize revenue from the sale of standard water treatment equipment at a point in time following the transfer of control of such equipment to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying contract. We recognize revenue from the sale of custom water treatment equipment over time based on the proportion of costs expended to the total costs expected to complete the contract performance obligation. We recognize revenue from the sale of custom water treatment equipment and floating production storage and offloading equipment and supervisor site work services over time based on the proportion of labor costs expended to the total labor costs expected to complete the contract performance obligation.

Product sales contracts that include engineering, design, project management, procurement, construction and installation services necessary to incorporate our products into production, processing and compression facilities are treated as a single performance obligation due to the services that significantly integrate each piece of equipment into the combined output contracted by the customer.

We provide warranties on certain equipment in our product sales contracts. Product warranty reserves are established in the same period that revenue from the sale of the related products is recognized, or in the period that a specific issue arises as to the functionality of a product. The determination of such reserves requires that ~~a statement~~we make estimates of ~~cash flows explain~~expected costs to repair or to replace the ~~change~~products under warranty. The amounts of the reserves are based on established terms and our best estimate of the amounts necessary to settle future and existing claims on product sales as of the balance sheet date. If actual repair and replacement costs differ significantly from estimates, adjustments to recognize additional cost of sales may be required in future periods.

As of March 31, 2018, the total aggregate transaction price allocated to the unsatisfied performance obligations for product sales contracts was approximately $427 million, of which approximately $392 million is expected to be recognized during the remainder of 2018 and approximately $35 million is expected to be recognized in 2019. Our contracts are subject to cancellation or modification at the election of the customer; however, due to our enforceable right to payment for work performed, we have not been materially adversely affected by contract cancellations or modifications in the past.

Significant Estimates

The recognition of revenue over time based on the proportion of labor hours expended to the total labor hours expected to complete depends largely on our ability to make reasonable dependable estimates related to the extent of progress toward completion of the contract, contract revenues and contract costs. Recognized revenues and profits are subject to revisions as the contract progresses to completion. Revisions in profit estimates are charged to income in the period in which the facts that give rise to the revision become known. Due to the nature of some of our contracts, developing the estimates of costs often requires significant judgment. To calculate the proportion of labor hours expended to the total labor hours expected to complete the contract performance obligation, management uses significant judgment to estimate the number of ~~cash, cash equivalents~~total hours for each project and to estimate the profit expected on the project.

Variable Consideration

The nature of our contracts gives rise to several types of variable consideration. We estimate variable consideration at the most likely amount to which we expect to be entitled. We include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Additionally, we include in our contract estimates additional revenue for unapproved change orders or claims against customers when we believe we have an enforceable right to the modification or claim, the amount can be estimated reliably and its realization is probable. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and historical, current and forecasted information that is reasonably available to us.

Contracts with Multiple Performance Obligations

Some of our contracts have multiple performance obligations. For instance, some of our product sales contracts include commissioning services or the supply of spare parts. For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. The primary method used to estimate standalone selling price is the expected cost plus a margin approach, under which we forecast our expected costs of satisfying a performance obligation and then add an appropriate margin for that distinct good or service.

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Contract Assets and Contract Liabilities

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



	As of March 31, 2018		As of January 1, 2018
Accounts receivables, net	$	237,211	$	261,251
Contract assets and contract liabilities:
Current contract assets	78,941		50,824
Long-term contract assets	15,225		11,835
Current contract liabilities	107,447		112,244
Long-term contract liabilities	87,596		89,004

Accounts receivables are recorded when the right to consideration becomes unconditional. Our contract assets include amounts related to revenue that has been recognized in advance of billing the customer. The contract assets on our balance sheets include costs in excess of billings and unbilled receivables. When we receive consideration, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of the contract, we record a contract liability. Our contract liabilities include payments received in advance of performance under the contract. The contract liabilities on our balance sheets include billings in excess of costs and deferred revenue. Billings in excess of costs primarily relate to billings that have not been recognized as revenue on product sales jobs where the transfer of control to the customer occurs over time. Deferred revenue is primarily comprised of upfront billings on contract operations jobs and billings related to product sales jobs that have not begun where revenue is recognized over time. Upfront payments received from customers on contract operations jobs are generally ~~described~~deferred and amortized over the contract term as ~~restricted cash~~we perform our services and the customer receives and consumes the benefits of the services we provide. These assets and liabilities are reported in our balance sheets on a net contract asset or ~~restricted cash equivalents. This update~~liability position on a contract-by-contract basis at the end of each reporting period.

During the three months ended March 31, 2018, revenue recognized from contract operations services included $5.4 million of revenue deferred in previous periods. Revenue recognized during the three months ended March 31, 2018 from product sales performance obligations partially satisfied in previous periods was $208.8 million, of which $87.2 million was included in billings in excess of costs at the beginning of the period. Additionally, we recognized $2.8 million in revenue from a contract operations services performance obligation that was satisfied in a previous period. The increase in our contract assets during the three months ended March 31, 2018 was primarily driven by progression of product sales projects and the timing of milestone billings.

Costs to Fulfill a Contract

We capitalize costs incurred to fulfill our revenue contracts that (i) relate directly to the contract (ii) are expected to generate resources that will be ~~effective~~used to satisfy the performance obligation under the contract and (iii) are expected to be recovered through revenue generated under the contract. As of March 31, 2018, we had capitalized fulfillment costs of $8.9 million related to contractual obligations incurred at the completion of the commissioning phase and prior to providing services on contracts within our contract operations segment. Contract fulfillment costs are expensed to cost of sales as we satisfy our performance obligations by transferring contract operation services to the customer. During the three months ended March 31, 2018, we recorded amortization expense for ~~reporting periods beginning after December 15, 2017, including interim periods within the reporting period, using a retrospective transition method to each period presented. This update will result~~capitalized fulfillment costs of $0.6 million. Capitalized fulfillment costs are included in intangible and other assets, net, in the ~~inclusion~~balance sheets.

Costs to Obtain a Contract

We recognize an asset for the incremental costs of ~~our restricted cash balances~~obtaining a contract with ~~cash~~a customer if we expect the benefit of those costs to be longer than one year. We have determined that certain commissions paid to internal sales representatives and ~~cash equivalents~~third party agents meet the requirements to ~~reflect total cash~~be capitalized. The amount capitalized for incremental costs to obtain contracts as of March 31, 2018 was $7.3 million. The judgments made in ~~our statements~~determining the amount of ~~cash flows.~~ costs incurred include whether the commissions are in fact incremental and would not have occurred absent the customer contract. Capitalized costs to obtain a contract are included in intangible and other assets, net, in the balance sheets and are amortized to selling, general and administrative expense over the expected period of benefit in a manner that is consistent with the transfer of the related goods or services to which the asset relates. During the three months ended March 31, 2018, we recorded amortization expense for capitalized costs to obtain a contract of $0.4 million.

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Practical Expedients and Exemptions

We have elected the following practical expedients:

We do not adjust the promised amount of consideration for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised product or service to a customer and when the customer pays for that product or service will be one year or less.

We treat shipping and handling activities that occur after the transfer of control as costs to fulfill a contract rather than a separate performance obligation.

We record taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by us from our customers on a net basis, and thus, such taxes are excluded from the measurement of a performance obligation’s transaction price.

We expense sales commissions as incurred when we expect that the amortization period of such costs will be one year or less.

Impact of New Revenue Recognition Guidance on Financial Statement Line Items

The following tables summarize the impacts of the adoption of ~~this update to be material to our financial statements.~~the new revenue recognition guidance on the balance sheet, statement of operations and cash flows, as of and for the three months ended March 31, 2018 (in thousands):



	March 31, 2018
	As Reported			Adjustments			Balances Without Adoption of Topic 606
ASSETS

Accounts receivable, net of allowance	$	237,211		$	221		$	237,432
Inventory, net	141,219			143			141,362
Contract assets	78,941			(13,435		)	65,506
Other current assets	33,058			7,049			40,107
Property, plant and equipment, net	837,528			1,986			839,514
Deferred income taxes	13,175			(1,847		)	11,328
Intangible and other assets, net	98,118			(18,422		)	79,696
Total assets	$	1,499,587		$	(24,305	)	$	1,475,282

LIABILITIES AND STOCKHOLDERS’ EQUITY

Accrued liabilities	$	108,632		$	(16,252	)	$	92,380
Contract liabilities	107,447			1,177			108,624
Deferred income taxes	8,928			1,206			10,134
Long-term contract liabilities	87,596			3,443			91,039
Other long-term liabilities	42,965			(23,573		)	19,392
Total liabilities	948,136			(33,999		)	914,137
Accumulated deficit	(228,194		)	9,694			(218,500		)
Total stockholders’ equity	551,451			9,694			561,145
Total liabilities and stockholders’ equity	$	1,499,587		$	(24,305	)	$	1,475,282

~~In May 2017, the FASB issued~~ ~~ASU 2017-09, Compensation - Stock Compensation (Topic 718). This update provides guidance that clarifies that changes to the terms or conditions~~

Table of a share-based payment award should be accounted for as modifications. This update will be effective for reporting periods beginning after December 15, 2017, including interim periods within the reporting period, using a prospective method to an award modified on or after theContents

The adoption ~~date. We are currently evaluating the potential impact~~ of the ~~update~~new revenue recognition guidance resulted in increases in total assets and liabilities of $24.3 million and $34.0 million, respectively. This was primarily due to capitalized contract fulfillment and obtainment costs and related liabilities recorded associated with contracts within our contract operations segment.



	Three Months Ended March 31, 2018
	As Reported		Adjustments			Balances Without Adoption of Topic 606
Revenues:
Contract operations	$	96,493	$	(769	)	$	95,724
Aftermarket services	26,371		(170		)	26,201
Cost of sales (excluding depreciation and amortization expense):
Contract operations	35,385		(600		)	34,785
Aftermarket services	18,897		(43		)	18,854
Depreciation and amortization	31,029		(709		)	30,320
Income before income taxes	9,430		413			9,843
Provision for income taxes	5,492		740			6,232
Income from continuing operations	3,938		(327		)	3,611
Net income	5,337		(327		)	5,010

Basic net income per common share	$	0.15	$	(0.01	)	$	0.14
Diluted net income per common share	0.15		(0.01		)	0.14

The adoption of the new revenue recognition guidance resulted in an increase in net income of $0.3 million for the three months ended March 31, 2018.



	Three Months Ended March 31, 2018
	As Reported			Adjustments			Balances Without Adoption of Topic 606
Cash flows from operating activities:
Net income	$	5,337		$	(327	)	$	5,010
Depreciation and amortization	31,029			(709		)	30,320
Deferred income tax benefit	(1,706		)	740			(966		)
Changes in assets and liabilities:
Inventory	(34,292		)	(19		)	(34,311		)
Contract assets	(31,397		)	6,600			(24,797		)
Other current assets	7,939			(2,289		)	5,650
Accounts payable and other liabilities	6,469			(1,078		)	5,391
Contract liabilities	(6,429		)	60			(6,369		)
Other	564			(2,978		)	(2,414		)
Net cash provided by continuing operations	$	3,626		$	—		$	3,626

The adoption of the new revenue recognition guidance resulted in offsetting shifts in cash flows within cash flows from operating activities and did not have an impact on our ~~financial statements.~~total cash flows from operations.

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Note 23 - Discontinued Operations

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 an installment payment, including an annual charge, totaling $19.7 million during the ~~six~~three months ended ~~June 30, 2017 and $19.3 million during the three and six months ended June 30, 2016.~~March 31, 2017. As of ~~June 30, 2017,~~March 31, 2018, the remaining principal amount due to us was approximately $17 million. We have not recognized amounts payable to us by PDVSA Gas as a receivable and will therefore recognize 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 accordance with the separation and distribution agreement from the Spin-off, a subsidiary of Archrock has the right to receive payments from our wholly owned subsidiary, Exterran Energy Solutions, L.P. (“EESLP”), based on a notional amount corresponding to payments received by our subsidiaries from PDVSA Gas in respect of the sale of our previously nationalized assets promptly after such amounts are collected by our subsidiaries. Pursuant to the separation and distribution agreement, we transferred cash of $19.7 million ~~and $19.3 million~~ to Archrock during the ~~six~~three months ended ~~June 30, 2017 and 2016, respectively.~~March 31, 2017. The transfer of cash was recognized as a reduction to additional paid-in capital in our financial statements. SeeNote 1516 for further discussion related to our contingent liability to Archrock.

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In the first quarter of 2016, we began executing a plan to exit certain Belleli businesses to focus on our core oil and gas businesses. Specifically, we began marketing for sale the Belleli CPE business comprised of engineering, procurement and manufacturing services related to the manufacture of critical process equipment for refinery and petrochemical facilities (referred to as “Belleli CPE” or the “Belleli CPE business” herein). In addition, we began executing our exit of the Belleli EPC business that has historically been comprised of engineering, procurement and construction for the manufacture of tanks for tank farms and the manufacture of evaporators and brine heaters for desalination plants in the Middle East (referred to as “Belleli EPC” or the “Belleli EPC business” herein). by ceasing the bookings of new orders. As of the fourth quarter of 2017, we have substantially exited our Belleli ~~CPE met the held for sale criteria~~EPC business and, in accordance with GAAP, it is reflected as discontinued operations in our financial statements for all periods presented. ~~In August 2016,~~Although we completed the sale of our Belleli CPE business to Tosto S.r.l. for cash proceeds of $5.5 million. Belleli CPE was previously included in our former product sales segment. In conjunction with the planned disposition of Belleli CPE, we recorded impairments of long-lived assets and current assets that totaled $7.1 million and $68.8 million during the three and six months ended June 30, 2016, respectively. The impairment charges are reflected in income (loss) from discontinued operations, net of tax. In accordance with GAAP,have reached mechanical completion on all remaining Belleli EPC ~~will be reflected as discontinued operations upon the substantial cessation~~contracts, we are still subject to risks and uncertainties potentially resulting from warranty obligations, customer or vendors claims against us, settlement of ~~the remaining non-oil~~claims against customers, completion of demobilization activities and ~~gas business. During the first quarter of 2016, we ceased the booking of new orders~~litigation developments. The facility previously utilized to manufacture products for our Belleli EPC ~~business. Our plan~~business has been repurposed to ~~exit our Belleli EPC business resulted in a reduction in the remaining useful lives of the~~manufacture product sales equipment. As such, certain personnel, buildings, equipment and other assets that ~~are currently used in~~were previously related to the Belleli EPC business ~~and~~will remain as part of our continuing operations. As a ~~long-lived asset impairment charge of $0.7 million impacting results from~~result, activities associated with our ongoing operations at our repurposed facility are included in continuing ~~operations during the six months ended June 30, 2016. Belleli EPC is represented by our Belleli EPC product sales segment.~~operations.

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

Three Months Ended June 30, 2017 Three Months Ended June 30, 2016
Venezuela Venezuela Belleli CPE Total
Revenue $ —
$ —
$ 12,164
$ 12,164
Cost of sales (excluding depreciation and amortization expense) —
—
11,762
11,762
Selling, general and administrative 32
40
1,548
1,588
Long-lived asset impairment —
—
7,144
7,144
Recovery attributable to expropriation —
(16,551 ) —
(16,551 )
Interest expense —
—
7
7
Other (income) expense, net —
(2,753 ) (69 ) (2,822 )
Income (loss) from discontinued operations, net of tax $ (32 ) $ 19,264
$ (8,228 ) $ 11,036


	Six Months Ended June 30, 2017			Six Months Ended June 30, 2016									Three Months Ended March 31, 2018							Three Months Ended March 31, 2017
	Venezuela			Venezuela			Belleli CPE			Total			Venezuela			Belleli EPC		Total		Venezuela			Belleli EPC			Total
Revenue	$	—		$	—		$	24,093		$	24,093		$	—		$	4,967	$	4,967	$	—		$	35,274		$	35,274
Cost of sales (excluding depreciation and amortization expense)	—			—			23,436			23,436			—			2,403		2,403		—			17,999			17,999
Selling, general and administrative	65			78			3,441			3,519			32			60		92		33			986			1,019
Depreciation and amortization	—			—			861			861			—			428		428		—			1,128			1,128
Long-lived asset impairment	—			—			68,780			68,780
Recovery attributable to expropriation	(16,514		)	(16,557		)	—			(16,557		)	—			—		—		(16,514		)	—			(16,514		)
Interest expense	—			—			15			15
Restructuring and other charges													—			—		—		—			(439		)	(439		)
Other (income) expense, net	(3,157		)	(3,021		)	151			(2,870		)	1			599		600		(3,157		)	(515		)	(3,672		)
Provision for income taxes													—			45		45		—			3,109			3,109
Income (loss) from discontinued operations, net of tax	$	19,606		$	19,500		$	(72,591	)	$	(53,091	)	$	(33	)	$	1,432	$	1,399	$	19,638		$	13,006		$	32,644

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


	June 30, 2017						December 31, 2016						March 31, 2018						December 31, 2017
	Venezuela		Belleli CPE		Total		Venezuela		Belleli CPE		Total		Venezuela		Belleli EPC		Total		Venezuela		Belleli EPC		Total
Cash	$	3	$	—	$	3	$	11	$	—	$	11	$	1	$	—	$	1	$	3	$	—	$	3
Accounts receivable													—		8,047		8,047		—		14,770		14,770
Costs and estimated earnings in excess of billings on uncompleted contracts													—		7,557		7,557		—		7,786		7,786
Other current assets	—		—		—		3		—		3		—		2,176		2,176		2		1,190		1,192
Total current assets associated with discontinued operations													1		17,780		17,781		5		23,746		23,751
Property, plant and equipment, net													—		625		625		—		1,054		1,054
Intangible and other assets, net													—		3,023		3,023		—		2,646		2,646
Total assets associated with discontinued operations	$	3	$	—	$	3	$	14	$	—	$	14	$	1	$	21,428	$	21,429	$	5	$	27,446	$	27,451

Accounts payable													$	—	$	4,580	$	4,580	$	—	$	9,253	$	9,253
Accrued liabilities	$	62	$	207	$	269	$	906	$	207	$	1,113	64		13,398		13,462		59		15,617		15,676
Billings on uncompleted contracts in excess of costs and estimated earnings													—		3,469		3,469		—		7,042		7,042
Total current liabilities associated with discontinued operations	62		207		269		906		207		1,113		64		21,447		21,511		59		31,912		31,971
Other long-term liabilities	—		—		—		2		—		2		—		6,759		6,759		1		6,527		6,528
Total liabilities associated with discontinued operations	$	62	$	207	$	269	$	908	$	207	$	1,115	$	64	$	28,206	$	28,270	$	60	$	38,439	$	38,499

Note 34 - Inventory, net

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


	June 30, 2017		December 31, 2016		March 31, 2018		December 31, 2017
Parts and supplies	$	104,824	$	104,897	$	80,954	$	79,803
Work in progress	29,267		32,167		36,324		21,853
Finished goods(1)	16,367		20,452		23,941		6,253
Inventory	$	150,458	$	157,516
Inventory, net					$	141,219	$	107,909

~~Note 4 - Product Sales Contracts~~

~~Costs, estimated earnings (losses) and billings on uncompleted contracts that are recognized using the percentage-of-completion method consisted of the following (in thousands):~~

June 30, 2017 December 31, 2016
Costs incurred on uncompleted contracts $ 676,834
$ 558,274
Estimated earnings (losses) on uncompleted contracts ⁽¹⁾
7,803
(10,370 )
684,637
547,904
Less — billings to date on uncompleted contracts (723,403 ) (558,064 )
$ (38,766 ) $ (10,160 )

⁽¹⁾

~~Estimated earnings (losses)~~The increase in finished goods inventory during the three months ended March 31, 2018 was primarily due to a nonmonetary agreement that we entered into with an existing customer to receive an idle processing and treating plant from the customer in exchange for an identical processing and treating plant to be manufactured by us. We recorded the finished goods inventory received and our corresponding liability to the customer at fair value based on ~~uncompleted contracts includes $51.1 million~~the estimated resale price of the processing and $56.4 million of cumulative losses realized on uncompleted Belleli EPC product sales contracts as of June 30, 2017 and December 31, 2016, respectively. Estimated earnings (losses) on uncompleted contracts as of June 30, 2017 and December 31, 2016 excludes estimated accrued loss contract provisions on uncompleted Belleli EPC product sales contracts recognized but not realized of $10.6 million and $28.6 million, respectively. Accrued loss contract provisions aretreating plant received. The liability resulting from this transaction is included ~~in accrued liabilities~~within accounts payable, trade, in our balance ~~sheets.~~sheet and will be extinguished upon our delivery of the replacement processing and treating plant to the customer.

~~Costs, estimated earnings and billings on uncompleted contracts are presented in the accompanying financial statements as follows (in thousands):~~

June 30, 2017 December 31, 2016
Costs and estimated earnings in excess of billings on uncompleted contracts $ 48,204
$ 31,956
Billings on uncompleted contracts in excess of costs and estimated earnings (86,970 ) (42,116 )
$ (38,766 ) $ (10,160 )

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Note 5 - Property, Plant and Equipment, net

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


	June 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017
Compression equipment, facilities and other fleet assets(1)	$	1,491,010		$	1,480,568		$	1,610,053		$	1,577,052
Land and buildings	106,803			110,378			98,335			96,463
Transportation and shop equipment	140,009			140,128			82,457			82,240
Other	97,000			95,817			92,260			90,395
	1,834,822			1,826,891			1,883,105			1,846,150
Accumulated depreciation	(1,047,404		)	(1,029,082		)	(1,045,577		)	(1,023,871		)
Property, plant and equipment, net	$	787,418		$	797,809		$	837,528		$	822,279

⁽¹⁾

In the fourth quarter of 2017, we evaluated the estimated useful lives and salvage values of our property, plant and equipment. As a result of this evaluation, we changed the useful lives and salvage values for our compression equipment from a maximum useful life of 30 years to 23 years and a maximum salvage value of 20% to 15% based on expected future use. During the three months ended March 31, 2018, we recorded a $3.1 million increase in depreciation expense as a result of these changes in useful lives and salvage values which impacted our diluted net income per share by $0.09.

Note 6 - Assets Held for Sale

In the fourth quarter of 2017, we classified certain current and long-term assets primarily related to inventory and property, plant and equipment, net, within our product sales business as assets held for sale in our balance sheets. As described in Note 19, in April 2018, we entered into a definitive agreement for the sale of these assets. During the three months ended March 31, 2018, we recorded an additional impairment of $1.8 million to reduce these assets to their approximate fair values based on the expected net proceeds. The impairment charges are reflected in long-lived asset impairment in our statements of operations. The sale of these assets is expected to close in the summer of 2018.

Note 67 - Investments in Non-Consolidated Affiliates

Investments in affiliates that are not controlled by us where we have the ability to exercise significant influence over the operations are accounted for using the equity method.

We own a 30.0% interest in WilPro Energy Services (PIGAP II) Limited and a 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, Petroleos de Venezuela, S.A. (“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 the International Centre for Settlement of Investment Disputes 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 $5.2 million and $10.4 million during the three and six months ended June 30, 2016, respectively.~~ As of ~~June 30, 2017,~~March 31, 2018, the remaining principal amount due to us was approximately $4 million. We have not recognized amounts payable to us by PDVSA Gas as a receivable and will therefore recognize payments received in the future as equity in income of non-consolidated affiliates in our 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.

In accordance with the separation and distribution agreement, a subsidiary of Archrock has the right to receive payments from EESLP based on a notional amount corresponding to payments received by our subsidiaries from PDVSA Gas in respect of the sale of our joint ventures’ previously nationalized assets promptly after such amounts are collected by our subsidiaries. Pursuant to the separation and distribution agreement, we transferred cash of $10.4 million to Archrock during the six months ended June 30, 2016. The transfer of cash was recognized as a reduction to additional paid-in capital in our financial statements. See~~Note~~ 15 ~~for further discussion related to our contingent liability to Archrock.~~

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Note 78 - ~~Long-Term~~ Debt

~~Long-term debt~~Debt consisted of the following (in thousands):


	June 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017
Revolving credit facility due November 2020	$	—		$	118,000		$	18,000		$	—
Term loan facility due November 2017	—			232,750
8.125% senior notes due May 2025	375,000			—			375,000			375,000
Other, interest at various rates, collateralized by equipment and other assets	456			583
Other debt							1,107			1,171
Unamortized deferred financing costs of 8.125% senior notes	(7,921		)	—			(7,078		)	(7,250		)
Unamortized deferred financing costs of term loan facility	—			(2,363		)
Total debt							387,029			368,921
Less: Amounts due within one year ⁽¹⁾							(449		)	(449		)
Long-term debt	$	367,535		$	348,970		$	386,580		$	368,472

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

Revolving Credit Facility ~~and Term Loan~~

We and our wholly owned subsidiary, EESLP, ~~have a fourth~~are parties to an amended and restated credit agreement (the “Credit Agreement”) consisting of a $680.0 million revolving credit facility expiring in November 2020 and previously included a term loan facility. In April 2017, we paid the remaining principal amount of $232.8 million due under the term loan facility with proceeds from the 2017 Notes (as defined below) issuance. As a result of the repayment of the term loan facility, we expensed $1.7 million of unamortized deferred financing costs in the second quarter of 2017, which is reflected in interest expense in our statements of operations.2020.

As of ~~June 30, 2017,~~March 31, 2018, we had ~~$55.8~~$18.0 million in outstanding borrowings and $25.4 million in outstanding letters of credit under our revolving credit facility and, taking into account guarantees through letters of credit, we had undrawn capacity of ~~$624.2~~$636.6 million under our revolving credit facility. Our Credit Agreement limits our Total Debt to EBITDA ratio (as defined in the Credit Agreement) on the last day of the fiscal quarter to no greater than 4.50 to 1.0. As a result of this limitation, ~~$415.4~~$561.0 million of the ~~$624.2~~$636.6 million of undrawn capacity under our revolving credit facility was available for additional borrowings as of ~~June 30, 2017.~~

During the second quarter of 2016, we incurred transaction costs of approximately $0.8 million related to amending the Credit Agreement. These costs were included in intangible and other assets, net, and are being amortized over the term of the revolving credit facility.March 31, 2018.

8.125% Senior Notes Due May 2025

In April 2017, our 100% owned subsidiaries EESLP and EES Finance Corp. issued $375.0 million aggregate principal amount of 8.125% senior unsecured notes due 2025 (the “2017 Notes”). The 2017 Notes are guaranteed by us on a senior unsecured basis. The net proceeds of $366.9 million from the 2017 Notes issuance were used to repay all of the borrowings outstanding under the term loan facility and revolving credit facility and for general corporate purposes. Additionally, pursuantPursuant to the separation and distribution agreement from the Spin-off, EESLP used proceeds from the issuance of the 2017 Notes to pay a subsidiary of Archrock $25.0 million in satisfaction of EESLP’s obligation to pay that sum following the occurrence of a qualified capital raise. The transfer of cash to Archrock’s subsidiary was recognized as a reduction to additional paid-in capital in the second quarter of 2017.

The 2017 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. We offered and issued the 2017 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, we are required to register the 2017 Notes no later than 400 days after April 4, 2017.

~~Table of Contents~~

Prior to May 1, 2020, we may redeem all or a portion of the 2017 Notes at a redemption price equal to the sum of (i) the principal amount thereof, and (ii) a make-whole premium at the redemption date, plus accrued and unpaid interest, if any, to the redemption date. In addition, we may redeem up to 35% of the aggregate principal amount of the 2017 Notes prior to May 1, 2020 with the net proceeds of one or more equity offerings at a redemption price of 108.125% of the principal amount of the 2017 Notes, plus any accrued and unpaid interest to the date of redemption, if at least 65% of the aggregate principal amount of the 2017 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 May 1, 2020, we may redeem all or a portion of the 2017 Notes at redemption prices (expressed as percentages of principal amount) equal to 106.094% for the twelve-month period beginning on May 1, 2020, 104.063% for the twelve-month period beginning on May 1, 2021, 102.031% for the twelve-month period beginning on May 1, 2022 and 100.000% for the twelve-month period beginning on May 1, 2023 and at any time thereafter, plus accrued and unpaid interest, if any, to the applicable redemption date of the 2017 Notes.

During the second quarter of 2017, we incurred transaction costs of $8.1 million related to the issuance of the 2017 Notes. These costs are presented as a direct deduction from the carrying value of the 2017 Notes and are being amortized over the term of the 2017 Notes.

Note 89 - 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.

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Nonrecurring Fair Value Measurements

The following table presents our assets and liabilities measured at fair value on a nonrecurring basis during the ~~six~~three months ended ~~June 30, 2016,~~March 31, 2018, with pricing levels as of the date of valuation (in thousands):

Six Months Ended June 30, 2016
(Level 1) (Level 2) (Level 3)
Impaired assets—Discontinued operations ⁽¹⁾
$ —
$ —
$ 13,859
Note receivable from the sale of a plant ⁽²⁾
—
—
7,037
Liability to exit the use of a corporate operating lease—restructuring and other charges ⁽³⁾
—
—
3,580



	Three Months Ended March 31, 2018
	(Level 1)		(Level 2)		(Level 3)
Impaired assets—assets held for sale ⁽¹⁾	$	—	$	—	$	21,026


⁽¹⁾	Our estimate of the fair value of the impaired assets ~~of Belleli CPE, which were classified as discontinued operations,~~held for sale during the ~~six~~three months ended ~~June 30, 2016~~March 31, 2018 was based on the expected net proceeds ~~received~~ from the sale of ~~Belleli CPE, net of selling costs.~~


⁽²⁾	~~Our estimate of~~ the fair value of the note receivable, including annual payments, from the sale of our plant in Argentina during the six months ended June 30, 2016 was discounted based on a settlement period of 2.6 years and a discount rate of 5%.


⁽³⁾	The fair value of our liability to exit the use of a corporate operating lease relating to restructuring activities during the second quarter of 2016 was estimated based on an incremental borrowing rate of 3% and remaining lease payments, net of estimated sublease rentals, through February 2018.assets.

~~We did not have any assets~~Financial Instruments

Our financial instruments consist of cash, restricted cash, receivables, payables and ~~liabilities measured at fair value on a nonrecurring basis during the six months ended June 30, 2017.~~

~~Table of Contents~~

~~Fair Value of Debt~~

The fair value of the 2017 Notes 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 carrying amount of the 2017 Notes, excluding unamortized deferred financing costs, of $375.0 million was estimated to have a fair value of $385.3 million. Due to the variable rate nature of our revolving credit facilitydebt. At March 31, 2018 and ~~term loan facility, the carrying values as of~~ December 31, ~~2016 approximated their~~2017, the estimated fair values ~~as the rates were comparable to then-current market rates at which debt with similar terms could have been obtained.~~

~~Other~~

~~The fair values~~ of ~~our~~ cash, restricted cash, receivables and payables approximated their carrying amounts as reflected in our balance sheets due to the short-term nature of these financial instruments.

The fair value of the 2017 Notes was estimated based on model derived calculations using market yields observed in active markets, which are Level 2 inputs. As of March 31, 2018 and December 31, 2017, the carrying amount of the 2017 Notes, excluding unamortized deferred financing costs, of $375.0 million was estimated to have a fair value of $398.0 million and $404.0 million, respectively. Due to the variable rate nature of our revolving credit facility, the carrying value as of March 31, 2018 approximated the fair value as the rate was comparable to the then-current market rate at which debt with similar terms could have been obtained.

Note 910 - 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.

In the fourth quarter of 2017, we classified certain current and long-term assets primarily related to inventory and property, plant and equipment, net, within our product sales business as assets held for sale in our balance sheets. As ~~discussed~~described in Note 219, in ~~the first quarter of 2016,~~April 2018, we ~~began executing~~entered into a ~~plan to exit our Belleli EPC business to focus on our core oil and gas businesses. Based on our decision to cease the booking of new orders~~definitive agreement for the ~~manufacture~~sale of ~~tanks for tank farms and~~these assets. During the manufacture of evaporators and brine heaters for desalination plants, the customer relationship intangible assets related to our Belleli EPC business were assessed to have no future benefit to us. As a result,three months ended March 31, 2018, we recorded ~~a long-lived asset~~an additional impairment ~~charge~~ of ~~$0.7~~$1.8 million ~~during~~to reduce these assets to their approximate fair values based on the ~~six months ended June 30, 2016. In addition,~~expected net proceeds. The sale of these assets is expected to close in the ~~property, plant and equipment~~summer of our Belleli EPC business was reviewed for recoverability. As a result, the remaining useful lives of Belleli EPC non-oil and gas property, plant and equipment were reduced to reflect their estimated cessation date.2018.

Note 1011 - Restatement Related Charges ~~(Recoveries), net~~

During the first quarter of 2016, our senior management identified errors relating to the application of percentage-of-completion accounting principles to specific Belleli EPC product sales projects. As a result, the Audit Committee of the Company’s Board of Directors initiated an internal investigation, including the use of services of a forensic accounting firm. Management also engaged a consulting firm to assist in accounting analysis and compilation of restatement adjustments. During the three ~~and six~~ months ended ~~June 30,~~March 31, 2018 and 2017, we incurred ~~$1.6~~$0.6 million and ~~$3.8~~$2.2 million, respectively, of external costs associated with the ~~current~~restatement of our financial statements, an ongoing SEC investigation and remediation activities related to the restatement. During the three and six months ended June 30, 2017, we recorded recoveries from Archrock pursuant to the separation and distribution agreement of $2.8 million for previously incurred restatement related costs. During the three and six months ended June 30, 2016, we incurred $7.9 million of costs associated with the restatement of our financial statements, which primarily related to $4.8 million of external accounting costs and $2.7 million of external legal costs. We ~~expect that we will continue to~~may incur additional cash expenditures related to external legal counsel costs associated with an ongoing SEC investigation surrounding the restatement of our financial statements, of which a portion may be recoverable from Archrock.

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The following table summarizes the changes to our accrued liability balance related to restatement charges ~~(recoveries), net,~~ for the ~~six~~three months ended ~~June 30, 2016~~March 31, 2017 and ~~2017~~2018 (in thousands):

Restatement Related Charges
Beginning balance at January 1, 2016 $ —
Additions for costs expensed 7,851
Reductions for payments (275 )
Ending balance at June 30, 2016 $ 7,576

Beginning balance at January 1, 2017 $ 2,212
Additions for costs expensed, net 1,014
Add-back recoveries from Archrock 2,801
Reductions for payments, net (4,273 )
Ending balance at June 30, 2017 $ 1,754

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	Restatement Related Charges
Beginning balance at January 1, 2017	$	2,212
Additions for costs expensed	2,172
Reductions for payments	(2,299		)
Ending balance at March 31, 2017	$	2,085

Beginning balance at January 1, 2018	$	579
Additions for costs expensed	621
Reductions for payments	(408		)
Ending balance at March 31, 2018	$	792

The following table summarizes the components of charges included in restatement related charges ~~(recoveries), net,~~ in our statements of operations for the three ~~and six~~ months ended ~~June 30,~~March 31, 2018 and 2017 ~~and 2016~~ (in thousands):


	Three Months Ended June 30,					Six Months Ended June 30,					Three Months Ended March 31,
	2017			2016		2017			2016		2018		2017
External accounting costs	$	108		$	4,781	$	754		$	4,781	$	—	$	646
External legal costs	1,449			2,722		2,692			2,722		533		1,243
Other	86			348		369			348		88		283
Recoveries from Archrock	(2,801		)	—		(2,801		)	—
Total restatement related charges (recoveries), net	$	(1,158	)	$	7,851	$	1,014		$	7,851
Total restatement related charges											$	621	$	2,172

Note 1112 - Restructuring and Other Charges

We incurred restructuring and other charges associated with the Spin-off of $0.3 million during the ~~six~~three months ended ~~June 30,~~March 31, 2017 ~~and $1.2 million and $2.8 million during the three and six months ended June 30, 2016, respectively. These costs incurred were~~ primarily related to retention awards to certain employees, which ~~are~~were being amortized over the required service period of each applicable employee. During the three months ended June 30, 2017, we recorded a restructuring benefit of $0.1 million related to changes in estimated retention awards to be paid for certain employees. The charges incurred in conjunction with the Spin-off are included in restructuring and other charges in our statements of operations. We currently estimate that we will incur additional one-time expenditures of approximately $0.4 million related to retention awards to certain employees in the form of cash and stock-based compensation through November 2017.

As a result of unfavorable market conditions in North America, combined with the impact of lower international activity due to customer budget cuts driven by lower oil prices, in the second quarter of 2015,Additionally, we announced a cost reduction plan primarily focused on workforce reductions and the reorganization of certain ~~facilities.~~facilities in the second quarter of 2015. We incurred restructuring and other charges associated with the cost reduction plan of ~~$0.4 million and $9.5~~$2.0 million during the three months ended ~~June 30,~~March 31, 2017, and 2016, respectively, and $1.9 million and $20.4 million during the six months ended June 30, 2017 and 2016, respectively. Costs incurred for employee termination benefits during the three and six months ended June 30, 2017 were $0.4 million andof which $1.5 million ~~respectively. Restructuring and other charges incurred during the three and six months ended June 30, 2016 were primarily~~ related to employee termination ~~benefits~~benefits. The charges incurred in conjunction with the Spin-off and the exit from a leased corporate building. Costs incurred for employee termination benefits during the three months ended June 30, 2016 were $6.7 million, of which $4.6 million related to our oil and gas product sales business. Costs incurred for employee termination benefits during the six months ended June 30, 2016 were $17.5 million, of which $8.1 million related to our oil and gas product sales business and $4.6 million related to our Belleli EPC product sales business. We ceased the use of a corporate building under an operating lease in the second quarter of 2016, and as a result, recorded net charges of $2.7 million during the three and six months ended June 30, 2016. These chargescost reduction plan are reflected as restructuring and other charges in our statements of operations. ~~Accrued liabilities~~

In 2017, we completed restructuring activities related to the Spin-off and cost reduction plan, which are expected to be settled within the next twelve months with cash payments, are based on estimates that may vary significantly from actual costs depending, in part, upon factors that may be beyond our control. We will continue to review the status of our restructuring obligations on a quarterly basis and, if appropriate, record changes to these obligations in current operations based on management’s most current estimates.

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~~The following table summarizes the changes to our accrued liability balance related to restructuring and other charges for the six months ended June 30, 2016 and 2017 (in thousands):~~

Spin-off
Cost
Reduction Plan
Total
Beginning balance at January 1, 2016 $ 1,083
$ 565
$ 1,648
Additions for costs expensed 2,778
20,425
23,203
Less non-cash income (expense) (700 ) 435
(265 )
Reductions for payments (1,488 ) (13,453 ) (14,941 )
Ending balance at June 30, 2016 $ 1,673
$ 7,972
$ 9,645

Beginning balance at January 1, 2017 $ 934
$ 7,885
$ 8,819
Additions for costs expensed 253
1,925
2,178
Less non-cash income (expense) (178 ) 771
593
Reductions for payments —
(6,464 ) (6,464 )
Ending balance at June 30, 2017 $ 1,009
$ 4,117
$ 5,126
plan.

The following table summarizes the components of charges included in restructuring and other charges in our statements of operations for the three ~~and six~~ months ended ~~June 30,~~March 31, 2017 ~~and 2016~~ (in thousands):

Three Months Ended June 30, Six Months Ended June 30,
2017 2016 2017 2016
Start-up of stand-alone functions $ —
$ 610
$ —
$ 887
Retention awards to certain employees (92 ) 566
253
1,891
Employee termination benefits 361
6,732
1,454
17,453
Net charges to exit the use of a corporate operating lease —
2,708
—
2,708
Other 41
20
471
264
Total restructuring and other charges $ 310
$ 10,636
$ 2,178
$ 23,203



	Three Months Ended March 31, 2017
Retention awards to certain employees	$	345
Employee termination benefits	1,533
Other	430
Total restructuring and other charges	$	2,308

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The following table summarizes the components of restructuring and other charges incurred ~~since~~in connection with the Spin-off and since the announcement of the cost reduction plan (in thousands):

Spin-off
Cost
Reduction Plan
Total
Financial advisor fees related to the Spin-off $ 4,598
$ —
$ 4,598
Consulting fees —
1,954
1,954
Start-up of stand-alone functions 2,219
—
2,219
Retention awards to certain employees 6,430
—
6,430
Chief Executive Officer signing bonus 2,000
—
2,000
Non-cash inventory write-downs 4,700
4,007
8,707
Employee termination benefits —
30,971
30,971
Net charges to exit the use of a corporate operating lease —
2,904
2,904
Other —
1,167
1,167
Total restructuring and other charges $ 19,947
$ 41,003
$ 60,950



	Spin-off		Cost Reduction Plan		Total
Financial advisor fees related to the Spin-off	$	4,598	$	—	$	4,598
Consulting fees	—		1,954		1,954
Start-up of stand-alone functions	2,219		—		2,219
Retention awards to certain employees	6,776		—		6,776
Chief Executive Officer signing bonus	2,000		��		2,000
Non-cash inventory write-downs	4,700		4,007		8,707
Employee termination benefits	—		26,198		26,198
Net charges to exit the use of a corporate operating lease	—		2,904		2,904
Other	—		1,186		1,186
Total restructuring and other charges	$	20,293	$	36,249	$	56,542

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Note 1213 - Provision for Income Taxes

~~During~~On December 22, 2017, the ~~second quarter~~U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Reform Act”). Additionally, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB118”) in December 2017, which addresses how a company recognizes provisional amounts when a company does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the effect of the changes in the Tax Reform Act. The measurement period ends when a company has obtained, prepared and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year.

For the year ended December 31, 2017, our ~~Brazil subsidiary entered the Tax Regularization Program (the “Program”) pursuant to Brazil Provisional Measure No. 766 issued on January 4, 2017. The Program allows~~provision for ~~the partial settling of debts, both~~ income tax ~~debts~~included the impact of decisions regarding the various impacts of tax reform and ~~non-income-based tax debts, due by November 30, 2016~~related disclosures. In some cases where the guidance in SAB118 applied, we disclosed in our financial statements those cases where the accounting could be completed, and for matters that have not been completed, we recognized provisional amounts to ~~Brazil’s Federal Revenue Service~~the extent that they are reasonably estimable and will adjust them over time as more information becomes available. Specifically, we recorded provisional amounts associated with the ~~use~~transition tax on undistributed earnings, the re-measurement of tax credits, including income tax loss carryforwards. An $11.9 million income tax benefit was recorded during the three and six months ended June 30, 2017 attributable to the reversal of valuation allowances against certain deferred tax assets ~~related to income tax loss carryforwards that were utilized under the Program, including interest income. Additionally, during the three~~ and six months ended June 30, 2017, we incurred $1.5 million in penalties, which is reflected in other (income) expense, net, in our statements of operations, and $2.4 million in interest expense, which is reflected in interest expense in our statements of operations, attributableliabilities due to the ~~settling of non-income-based~~reduction in the corporate tax ~~debts in connection~~rate and the transition tax, and the tax benefit associated with the ~~Program.~~

~~Management assesses all available positive and negative evidence to estimate our ability to generate sufficient future taxable income~~reduction of the ~~appropriate character, and in the appropriate taxing jurisdictions, to permit use of~~valuation allowance. The provisional amounts incorporate assumptions made based upon our existing deferred tax assets. A significant piece of objective negative evidence is a cumulative loss incurred over a three-year period in a taxing jurisdiction. Prevailing accounting practice is that such objective evidence would limit the ability to consider other subjective evidence, such as our projections for future growth. Based on information available at June 30, 2016, we expected to incur a three-year cumulative loss in the U.S. by the end of 2016. Due to this significant negative evidence of cumulative losses, which outweighed the positive evidence of firm sales backlog and projected further taxable income, we were no longer able to support that it was more-likely-than-not that we would have sufficient taxable incomecurrent interpretation of the ~~appropriate character~~Tax Reform Act and may change as we receive additional clarification and implementation guidance. We are continuing to analyze additional information to determine the final impact as well as other impacts of the Tax Reform Act. Any adjustments recorded to the provisional amounts will be included in ~~the future that would allow us~~income from operations as an adjustment to ~~realize~~ our ~~U.S. deferred tax assets. During the three and six months ended June 30, 2016, we recorded additional valuation allowances against our U.S. deferred tax assets of $88.0 million.~~2018 financial statements.

Note 1314 - Stock-Based Compensation

Stock Options

Stock options are granted at fair market value at the grant date, are exercisable according to the vesting schedule established and generally expire no later than ~~seven~~ten years after the grant date. Stock options generally vest one-third per year on each of the first three anniversaries of the grant date. There were no stock options granted during the ~~six~~three months ended ~~June 30, 2017.~~March 31, 2018.

Restricted Stock, Restricted Stock Units ~~Performance Units, Cash Settled Restricted Stock Units~~ and ~~Cash Settled~~ Performance Units

For grants of restricted stock, restricted stock units and performance units, we recognize compensation expense over the applicable vesting period equal to the fair value of our common stock at the grant date. We remeasure the fair value of cash settled restricted stock units and cash settled performance units and record a cumulative adjustment of the expense previously recognized. Our obligation related to the cash settled restricted stock units and cash settled performance units is reflected as a liability in our balance sheets. Grants of restricted stock, restricted stock units ~~performance units, cash settled restricted stock units~~ and ~~cash settled~~ performance units generally vest ~~one-third~~one third per year on each of the first three anniversaries of the grant date. Certain grants of restricted stock cliff vest on the third anniversary of the grant date and certain grants of performance units cliff vest on the second anniversary of the grant date.

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The table below presents the changes in restricted stock, restricted stock units ~~performance units, cash settled restricted stock units~~ and ~~cash settled~~ performance units for our common stock during the ~~six~~three months ended June 30, 2017. Non-vested awards granted prior to November 3, 2015 relate to Archrock’s and our employees, directors and consultants. Awards granted subsequent to November 3, 2015 only relate to our employees, directors and consultants.March 31, 2018.


	Shares (in thousands)		Weighted Average Grant-Date Fair Value Per Share		Shares (in thousands)		Weighted Average Grant-Date Fair Value Per Share
Non-vested awards, January 1, 2017	1,292		$	17.68
Non-vested awards, January 1, 2018					1,165		$	23.93
Granted	639		29.91		555		26.24
Vested	(544	)	20.48		(438	)	23.17
Change in expected vesting of performance units	103		30.87
Cancelled	(168	)	18.50		(18	)	27.75
Non-vested awards, June 30, 2017 ⁽¹⁾	1,322		23.36
Non-vested awards, March 31, 2018					1,264		25.15


⁽¹⁾	~~Non-vested awards as of June 30, 2017 are comprised of 3,000 cash settled restricted stock units and 1,319,000 restricted shares, restricted stock units and performance units.~~

As of ~~June 30, 2017,~~March 31, 2018, we estimate ~~$22.4~~$29.5 million of unrecognized compensation cost related to unvested restricted stock, restricted stock units ~~performance units, cash settled restricted stock units~~ and ~~cash settled~~ performance units issued to our employees to be recognized over the weighted-average vesting period of ~~2.2~~2.0 years.

Note 1415 - Net Income (Loss) Per Common Share

Basic net income (loss) per common share is computed using the two-class method, which is an earnings allocation formula that determines net income (loss) per share for each class of common stock and participating security according to dividends declared and participation rights in undistributed earnings. Under the two-class method, basic net income (loss) per common share is determined by dividing net income (loss) after deducting amounts allocated to participating securities, by the weighted average number of common shares outstanding for the period. Participating securities include ~~our~~certain unvested restricted stock and ~~certain stock settled~~ restricted stock units that have nonforfeitable rights to receive dividends or dividend equivalents, whether paid or unpaid. During periods of net loss from continuing operations, no effect is given to participating securities because they do not have a contractual obligation to participate in our losses.

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

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The following table presents a reconciliation of basic and diluted net income ~~(loss)~~ per common share for the three ~~and six~~ months ended ~~June 30,~~March 31, 2018 and 2017 ~~and 2016~~ (in thousands, except per share data):


	Three Months Ended June 30,							Six Months Ended June 30,						Three Months Ended March 31,
	2017				2016			2017			2016			2018			2017
Numerator for basic and diluted net income (loss) per common share:
Numerator for basic and diluted net income per common share:
Income (loss) from continuing operations	$	3,576			$	(106,582	)	$	4,259		$	(135,412	)	$	3,938		$	(12,323	)
Income (loss) from discontinued operations, net of tax	(32		)		11,036			19,606			(53,091		)
Income from discontinued operations, net of tax														1,399			32,644
Less: Net income attributable to participating securities	(102		)		—			(699		)	—			(138		)	—
Net income (loss) — used in basic and diluted net income (loss) per common share	$	3,442			$	(95,546	)	$	23,166		$	(188,503	)
Net income — used in basic and diluted net income per common share														$	5,199		$	20,321

Weighted average common shares outstanding including participating securities	36,057				35,567			35,967			35,476			36,236			35,918
Less: Weighted average participating securities outstanding	(1,039		)		(949		)	(1,054		)	(947		)	(935		)	(1,068		)
Weighted average common shares outstanding — used in basic net income (loss) per common share	35,018				34,618			34,913			34,529
Weighted average common shares outstanding — used in basic net income per common share														35,301			34,850
Net dilutive potential common shares issuable:
On exercise of options and vesting of restricted stock units	76				*			86			*			72			*
Weighted average common shares outstanding — used in diluted net income (loss) per common share	35,094				34,618			34,999			34,529
Weighted average common shares outstanding — used in diluted net income per common share														35,373			34,850

Net income (loss) per common share:
Net income per common share:
Basic	$	0.10			$	(2.76	)	$	0.66		$	(5.46	)	$	0.15		$	0.58
Diluted	$	0.10		��	$	(2.76	)	$	0.66		$	(5.46	)	$	0.15		$	0.58


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

The following table shows the potential shares of common stock issuable that were excluded from computing diluted net income ~~(loss)~~ per common share as their inclusion would have been anti-dilutive for the three months ended March 31, 2018 and 2017 (in thousands):


	Three Months Ended June 30,		Six Months Ended June 30,		Three Months Ended March 31,
	2017	2016	2017	2016	2018	2017
Net dilutive potential common shares issuable:
On exercise of options where exercise price is greater than average market value for the period	48	236	49	240
On exercise of options where exercise price is greater than average market value					35	50
On exercise of options and vesting of restricted stock units	—	49	—	53	—	96
Net dilutive potential common shares issuable	48	285	49	293	35	146

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Note 1516 - Commitments and Contingencies

~~Guarantees~~

~~We have issued the following guarantees that are not recorded on our accompanying balance sheet (dollars in thousands):~~

Term Maximum Potential Undiscounted Payments as of June 30, 2017
Performance guarantees through letters of credit ⁽¹⁾
2017 - 2021 $ 94,345
Standby letters of credit 2017 720
Bid bonds and performance bonds ⁽¹⁾
2017 - 2023 44,729
Maximum potential undiscounted payments
$ 139,794


⁽¹⁾	~~We have issued guarantees to third parties to ensure performance of our obligations, some of which may be fulfilled by third parties.~~

Contingencies

See Note 23 and Note 67 for a discussion of our gain contingencies related to assets that were expropriated in Venezuela.

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Pursuant to the separation and distribution agreement, EESLP contributed to a subsidiary of Archrock the right to receive payments based on a notional amount corresponding to payments received by our subsidiaries from PDVSA Gas in respect of the sale of our and our joint ventures’ previously nationalized assets promptly after such amounts are collected by our subsidiaries until Archrock’s subsidiary has received an aggregate amount of such payments up to the lesser of (i) $125.8 million, plus the aggregate amount of all reimbursable expenses incurred by Archrock and its subsidiaries in connection with recovering any PDVSA Gas default installment payments following the completion of the Spin-off or (ii) $150.0 million. Our balance sheets do not reflect this contingent liability to Archrock or the amount payable to us by PDVSA Gas as a receivable. Pursuant to the separation and distribution agreement, we transferred cash of $19.7 million ~~and $29.7 million~~ to Archrock during the ~~six~~three months ended ~~June 30, 2017 and 2016, respectively.~~March 31, 2017. The ~~transfers~~transfer of cash ~~were~~was recognized as ~~reductions~~a reduction to additional paid-in capital in our financial statements. As of ~~June 30, 2017,~~March 31, 2018, the remaining principal amount due to us from PDVSA Gas in respect of the sale of our and our joint ventures’ previously nationalized assets was approximately $21 million. In subsequent periods, the recognition of a liability, if applicable, resulting from this contingency to Archrock is expected to impact equity, and as such, is not expected to have an impact on our statements of operations.

In addition to U.S. federal, state and local and foreign income taxes, we are subject to a number of taxes that are not income-based. As many of these taxes are subject to audit by the taxing authorities, it is possible that an audit could result in additional taxes due. We accrue for such additional taxes when we determine that it is probable that we have incurred a liability and we can reasonably estimate the amount of the liability. As of ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, we had accrued ~~$2.9~~$2.7 million and ~~$3.1~~$2.8 million, respectively, for the outcomes of non-income-based tax audits. We do not expect that the ultimate resolutions of these audits will result in a material variance from the amounts accrued. We do not accrue for unasserted claims for tax audits unless we believe the assertion of a claim is probable, it is probable that it will be determined that the claim is owed and we can reasonably estimate the claim or range of the claim. We do not have any unasserted claims from ~~non-income-based~~non-income based tax audits that we have determined are probable of assertion. We also believe the likelihood is remote that the impact of potential unasserted claims from non-income-based tax audits could be material to our financial position, but it is possible that the resolution of future audits could be material to our results of operations or cash flows for the period in which the resolution occurs.

Our business can be hazardous, involving unforeseen circumstances such as uncontrollable flows of natural gas or well fluids and fires or explosions. As is customary in our industry, we review our safety equipment and procedures and carry insurance against some, but not all, risks of our business. Our insurance coverage includes property damage, general liability, commercial automobile liability and other coverage we believe is appropriate. We believe that our insurance coverage is customary for the industry and adequate for our business; however, losses and liabilities not covered by insurance would increase our costs.

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

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~~Contracts Containing Liquidated Damages Provisions~~

Some of our product sales contracts have schedule dates and performance obligations that could subject us to penalties for liquidated damages if not met. These generally relate to specified activities that must be completed by a set contractual date or by achievement of a specified level of output or throughput. Each contract defines the conditions under which a customer may make a claim for liquidated damages. However, in some instances, liquidated damages are not asserted by the customer, but the potential to do so is used in negotiating or settling claims and closing out the contract. As of June 30, 2017, estimated penalties for liquidated damages of $8.7 million have been recorded in our financial statements based on our actual or projected failure to meet certain specified contractual milestone dates. We believe that we will be successful in obtaining schedule extensions or other customer-agreed changes that should resolve the potential for additional liquidated damages. Accordingly, we do not believe that we will incur any amounts for these potential liquidated damages in excess of the amounts currently reflected in our financial statements. However, we may not achieve relief on some or all of the issues involved and as a result, we could be subject to higher liquidated damages amounts. Additionally, we have asserted claims, or intend to assert claims, against certain customers that could result in a release of such claims in exchange for release of certain liquidated damages currently recorded in our financial statements if settled. We recognize claims for recovery of incurred cost when it is probable that the claim will result in additional contract revenue and when the amount of the claim can be reliably estimated. These requirements are satisfied when the contract or other evidence provides a legal basis for the claim, additional costs were caused by circumstances that were unforeseen at the contract date and not the result of deficiencies in our performance, claim-related costs are identifiable and considered reasonable in view of the work performed, evidence supporting the claim is objective and verifiable and collection is probable. These assessments require judgments concerning matters such as litigation developments and outcomes, the anticipated outcome of negotiations, the number of future claims and the cost of both pending and future claims.

Litigation and Claims

In the ordinary course of business, we are involved in various pending or threatened legal actions. While management is unable to predict the ultimate outcome of these actions, it believes that any ultimate liability arising from any of these actions will not have a material adverse effect on our financial position, results of operations or cash flows. However, because of the inherent uncertainty of litigation and arbitration proceedings, we cannot provide assurance that the resolution of any particular claim or proceeding to which we are a party will not have a material adverse effect on our financial position, results of operations or cash flows.

Contemporaneously with filing the Form 8-K on April 26, 2016, we self-reported the errors and possible irregularities at Belleli EPC to the SEC. Since then, we have been cooperating with the SEC in its investigation of this matter, ~~including~~which has included responding to a subpoena for documents related to the restatement and of our compliance with the U.S. Foreign Corrupt Practices Act (“FCPA”), which were also provided to the Department of Justice (“DOJ”) at its request. The SEC staff has notified us that they have concluded their investigation concerning our compliance with the FCPA and that they do not intend to recommend an enforcement action concerning our compliance with the FCPA. The DOJ has similarly informed us that it does not intend to proceed with any further investigation or enforcement. The SEC’s investigation related ~~requests in~~to the circumstances giving rise to the restatement is continuing, and we are presently unable to predict the duration, scope or results or whether the SEC ~~subpoena pertain to our policies and procedures, information about our third-party sales agents, and documents related to historical internal investigations completed prior to November 2015.~~will commence any legal action.

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Indemnifications

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

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Note 1617 - Reportable Segments

~~We manage our~~Our chief operating decision maker manages business ~~segments primarily~~operations, evaluates performance and allocates resources based upon the type of product or service provided. We have ~~four~~three reportable segments: contract operations, aftermarket services ~~oil~~ and ~~gas product sales and Belleli EPC~~ product sales. ~~The~~In our contract operations segment, ~~primarily provides~~we own and operate natural gas compression ~~services,~~equipment and crude oil and natural gas production and processing equipment ~~services and maintenance services to meet specific customer requirements~~ on ~~assets owned by us. The~~behalf of our customers outside of the U.S. In our aftermarket services segment, ~~provides a full range of~~we sell parts and components and provide operations, maintenance, overhaul, upgrade, commissioning and reconfiguration services to ~~support~~customers outside of the ~~surface~~U.S. who own their own compression, production, ~~compression~~processing, treating and ~~processing needs of customers, from parts sales and normal maintenance services to full operation of a customer’s owned assets. The oil and gas~~related equipment. In our product sales segment, ~~provides~~we design, ~~engineering, manufacturing, installation~~engineer, manufacture, install and ~~sale of~~sell natural gas compression ~~units and accessories and~~packages as well as equipment used in the production, treating and processing of crude oil and natural ~~gas. The Belleli EPC product sales segment, which comprises~~gas to our customers throughout the world and for use in our contract operations of our Belleli EPC subsidiary that we are exiting, has historically provided engineering, procurement and construction for the manufacture of tanks for tank farms and the manufacture of evaporators and brine heaters for desalination plants.business line.

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

The following table presents ~~revenues~~revenue and other financial information by reportable segment ~~during~~for the three ~~and six~~ months ended ~~June 30,~~March 31, 2018 and 2017 ~~and 2016~~ (in thousands):


Three Months Ended	Contract Operations		Aftermarket Services		Oil and Gas Product Sales		Belleli EPC Product Sales		Reportable Segments Total		Contract Operations		Aftermarket Services		Product Sales		Reportable Segments Total
June 30, 2017:
March 31, 2018:
Revenue	$	95,341	$	24,244	$	198,116	$	12,885	$	330,586	$	96,493	$	26,371	$	227,519	$	350,383
Gross margin ⁽¹⁾	60,650		6,966		20,091		4,821		92,528		61,108		7,474		27,183		95,765
June 30, 2016 ⁽²⁾
March 31, 2017:
Revenue	$	94,689	$	34,668	$	99,332	$	33,458	$	262,147	$	92,045	$	22,524	$	130,856	$	245,425
Gross margin ⁽¹⁾	58,288		10,531		9,546		196		78,561		61,247		5,912		11,319		78,478

Six Months Ended

Contract
Operations
Aftermarket Services Oil and Gas Product Sales Belleli EPC Product Sales Reportable
Segments
Total
June 30, 2017:
Revenue $ 187,386
$ 46,768
$ 328,972
$ 48,159
$ 611,285
Gross margin ⁽¹⁾
121,897
12,878
31,410
22,096
188,281
June 30, 2016 ⁽²⁾

Revenue $ 199,448
$ 64,909
$ 240,999
$ 63,421
$ 568,777
Gross margin ⁽¹⁾
124,549
18,472
20,908
(1,428 ) 162,501


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


⁽²⁾	In the third quarter of 2016, we changed our reporting segments to split our previously disclosed product sales segment into the following two new reportable segments: “oil and gas product sales” and “Belleli EPC product sales.” In the table above, reclassifications have been made for the three and six months ended June 30, 2016 to conform to this presentation.

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


	Three Months Ended June 30,						Six Months Ended June 30,					Three Months Ended March 31,
	2017			2016			2017		2016			2018		2017
Income (loss) before income taxes	$	1,762		$	(6,247	)	$	17,444	$	(31,068	)	$	9,430	$	(433	)
Selling, general and administrative	46,084			40,648			91,481		86,386			44,242		44,411
Depreciation and amortization	29,447			27,417			55,327		78,350			31,029		24,752
Long-lived asset impairment	—			—			—		651			1,804		—
Restatement related charges (recoveries), net	(1,158		)	7,851			1,014		7,851
Restatement related charges												621		2,172
Restructuring and other charges	310			10,636			2,178		23,203			—		2,308
Interest expense	12,382			8,879			19,469		17,342			7,219		7,087
Equity in income of non-consolidated affiliates	—			(5,229		)	—		(10,403		)
Other (income) expense, net	3,701			(5,394		)	1,368		(9,811		)	1,420		(1,819		)
Total gross margin	$	92,528		$	78,561		$	188,281	$	162,501		$	95,765	$	78,478

Note 18 - Supplemental Guarantor Financial Information

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

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Condensed Consolidating Balance Sheet

March 31, 2018

(In thousands)



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

Cash and cash equivalents	$	660	$	1,091	$	15,585		$	—		$	17,336
Restricted cash	—		—		546			—			546
Accounts receivable, net	—		112,933		124,278			—			237,211
Inventory, net	—		79,223		61,996			—			141,219
Contract assets	—		57,434		21,507			—			78,941
Intercompany receivables	—		159,131		355,369			(514,500		)	—
Other current assets	—		4,713		28,345			—			33,058
Current assets held for sale	—		16,604		—			—			16,604
Current assets associated with discontinued operations	—		—		17,781			—			17,781
Total current assets	660		431,129		625,407			(514,500		)	542,696
Property, plant and equipment, net	—		287,498		550,030			—			837,528
Investment in affiliates	552,536		836,133		(283,597		)	(1,105,072		)	—
Deferred income taxes	—		5,488		7,687			—			13,175
Intangible and other assets, net	—		12,614		85,504			—			98,118
Long-term assets held for sale	—		4,422		—			—			4,422
Long-term assets associated with discontinued operations	—		—		3,648			—			3,648
Total assets	$	553,196	$	1,577,284	$	988,679		$	(1,619,572	)	$	1,499,587

LIABILITIES AND EQUITY

Accounts payable, trade	$	—	$	146,922	$	30,796		$	—		$	177,718
Accrued liabilities	115		39,452		69,065			—			108,632
Contract liabilities	—		87,165		20,282			—			107,447
Intercompany payables	1,630		355,369		157,501			(514,500		)	—
Current liabilities associated with discontinued operations	—		—		21,511			—			21,511
Total current liabilities	1,745		628,908		299,155			(514,500		)	415,308
Long-term debt	—		386,580		—			—			386,580
Deferred income taxes	—		—		8,928			—			8,928
Long-term contract liabilities	—		—		87,596			—			87,596
Other long-term liabilities	—		9,260		33,705			—			42,965
Long-term liabilities associated with discontinued operations	—		—		6,759			—			6,759
Total liabilities	1,745		1,024,748		436,143			(514,500		)	948,136
Total Equity	551,451		552,536		552,536			(1,105,072		)	551,451
Total liabilities and equity	$	553,196	$	1,577,284	$	988,679		$	(1,619,572	)	$	1,499,587

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Condensed Consolidating Balance Sheet

December 31, 2017

(In thousands)



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

Cash and cash equivalents	$	397	$	24,195	$	24,553		$	—		$	49,145
Restricted cash	—		—		546			—			546
Accounts receivable, net	—		123,362		142,690			—			266,052
Inventory, net	—		50,528		57,381			—			107,909
Costs and estimated earnings in excess of billings on uncompleted contracts	—		33,439		7,256			—			40,695
Intercompany receivables	—		158,296		359,766			(518,062		)	—
Other current assets	—		6,095		32,612			—			38,707
Current assets held for sale	—		15,761		—			—			15,761
Current assets associated with discontinued operations	—		—		23,751			—			23,751
Total current assets	397		411,676		648,555			(518,062		)	542,566
Property, plant and equipment, net	—		288,670		533,609			—			822,279
Investment in affiliates	555,735		831,097		(275,362		)	(1,111,470		)	—
Deferred income taxes	—		5,452		5,098			—			10,550
Intangible and other assets, net	—		12,218		64,762			—			76,980
Long-term assets held for sale	—		4,732		—			—			4,732
Long-term assets associated with discontinued operations	—		—		3,700			—			3,700
Total assets	$	556,132	$	1,553,845	$	980,362		$	(1,629,532	)	$	1,460,807

LIABILITIES AND EQUITY

Accounts payable, trade	$	—	$	115,273	$	33,471		$	—		$	148,744
Accrued liabilities	57		54,724		59,555			—			114,336
Deferred revenue	—		2,162		21,740			—			23,902
Billings on uncompleted contracts in excess of costs and estimated earnings	—		89,002		563			—			89,565
Intercompany payables	1,289		359,766		157,007			(518,062		)	—
Current liabilities associated with discontinued operations	—		—		31,971			—			31,971
Total current liabilities	1,346		620,927		304,307			(518,062		)	408,518
Long-term debt	—		368,472		—			—			368,472
Deferred income taxes	—		—		9,746			—			9,746
Long-term deferred revenue	—		629		91,856			—			92,485
Other long-term liabilities	—		8,082		12,190			—			20,272
Long-term liabilities associated with discontinued operations	—		—		6,528			—			6,528
Total liabilities	1,346		998,110		424,627			(518,062		)	906,021
Total Equity	554,786		555,735		555,735			(1,111,470		)	554,786
Total liabilities and equity	$	556,132	$	1,553,845	$	980,362		$	(1,629,532	)	$	1,460,807

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Condensed Consolidating Statement of Operations and Comprehensive Income

Three Months Ended March 31, 2018

(In thousands)



							Non- Guarantor Subsidiaries
	Parent Guarantor			Issuers			Non- Guarantor Subsidiaries			Eliminations			Consolidation
Revenues	$	—		$	258,316		$	116,391		$	(24,324	)	$	350,383
Cost of sales (excluding depreciation and amortization expense)	—			218,164			60,778			(24,324		)	254,618
Selling, general and administrative	283			20,965			22,994			—			44,242
Depreciation and amortization	—			9,327			21,702			—			31,029
Long-lived asset impairment	—			1,804			—			—			1,804
Restatement related charges	—			621			—			—			621
Interest expense	—			7,213			6			—			7,219
Intercompany charges, net	—			1,725			(1,725		)	—			—
Equity in (income) loss of affiliates	(5,620		)	(10,054		)	2,646			13,028			—
Other (income) expense, net	—			(49		)	1,469			—			1,420
Income before income taxes	5,337			8,600			8,521			(13,028		)	9,430
Provision for income taxes	—			1,192			2,512			1,788			5,492
Income from continuing operations	5,337			7,408			6,009			(14,816		)	3,938
Income from discontinued operations, net of tax	—			—			1,399			—			1,399
Net income	5,337			7,408			7,408			(14,816		)	5,337
Other comprehensive income	757			757			757			(1,514		)	757
Comprehensive income attributable to Exterran stockholders	$	6,094		$	8,165		$	8,165		$	(16,330	)	$	6,094

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Condensed Consolidating Statement of Operations and Comprehensive Income

Three Months Ended March 31, 2017

(In thousands)



							Non- Guarantor Subsidiaries
	Parent Guarantor			Issuers			Non- Guarantor Subsidiaries			Eliminations			Consolidation
Revenues	$	—		$	150,357		$	117,068		$	(22,000	)	$	245,425
Cost of sales (excluding depreciation and amortization expense)	—			127,168			61,779			(22,000		)	166,947
Selling, general and administrative	1,492			21,483			21,436			—			44,411
Depreciation and amortization	—			7,800			16,952			—			24,752
Restatement related charges	—			2,172			—			—			2,172
Restructuring and other charges	—			3,055			(747		)	—			2,308
Interest expense	—			7,211			(124		)	—			7,087
Intercompany charges, net	—			2,132			(2,132		)	—			—
Equity in (income) loss of affiliates	(21,813		)	(57,791		)	20,656			58,948			—
Other (income) expense, net	—			(2,153		)	334			—			(1,819		)
Income (loss) before income taxes	20,321			39,280			(1,086		)	(58,948		)	(433		)
Provision for (benefit from) income taxes	—			2,144			(5,576		)	15,322			11,890
Income (loss) from continuing operations	20,321			37,136			4,490			(74,270		)	(12,323		)
Income from discontinued operations, net of tax	—			—			32,644			—			32,644
Net income	20,321			37,136			37,134			(74,270		)	20,321
Other comprehensive income	1,643			1,643			1,643			(3,286		)	1,643
Comprehensive income attributable to Exterran stockholders	$	21,964		$	38,779		$	38,777		$	(77,556	)	$	21,964

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Condensed Consolidating Statement of Cash Flows

Three Months Ended March 31, 2018

(In thousands)



							Non- Guarantor Subsidiaries
	Parent Guarantor			Issuers						Eliminations			Consolidation
Cash flows from operating activities:
Net cash provided by (used in) continuing operations	$	(78	)	$	(22,466	)	$	26,170		$	—		$	3,626
Net cash used in discontinued operations	—			—			(2,849		)	—			(2,849		)
Net cash provided by (used in) operating activities	(78		)	(22,466		)	23,321			—			777

Cash flows from investing activities:
Capital expenditures	—			(17,234		)	(31,985		)	—			(49,219		)
Proceeds from sale of property, plant and equipment	—			—			2,260			—			2,260
Intercompany transfers	—			(342		)	(2,059		)	2,401			—
Net cash used in continuing operations	—			(17,576		)	(31,784		)	2,401			(46,959		)
Net cash provided by discontinued operations	—			—			66			—			66
Net cash used in investing activities	—			(17,576		)	(31,718		)	2,401			(46,893		)

Cash flows from financing activities:
Proceeds from borrowings of debt	—			66,500			—			—			66,500
Repayments of debt	—			(48,563		)	—			—			(48,563		)
Intercompany transfers	341			2,060			—			(2,401		)	—
Payments for debt issuance costs	—			(47		)	—			—			(47		)
Proceeds from stock options exercised	—			428			—			—			428
Purchases of treasury stock	—			(3,440		)	—			—			(3,440		)
Net cash provided by financing activities	341			16,938			—			(2,401		)	14,878

Effect of exchange rate changes on cash, cash equivalents and restricted cash	—			—			(571		)	—			(571		)
Net increase (decrease) in cash, cash equivalents and restricted cash	263			(23,104		)	(8,968		)	—			(31,809		)
Cash, cash equivalents and restricted cash at beginning of period	397			24,195			25,099			—			49,691
Cash, cash equivalents and restricted cash at end of period	$	660		$	1,091		$	16,131		$	—		$	17,882

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Condensed Consolidating Statement of Cash Flows

Three Months Ended March 31, 2017

(In thousands)



						Non- Guarantor Subsidiaries
	Parent Guarantor		Issuers						Eliminations			Consolidation
Cash flows from operating activities:
Net cash provided by (used in) continuing operations	$	139	$	(15,938	)	$	45,154		$	—		$	29,355
Net cash provided by discontinued operations	—		—			5,511			—			5,511
Net cash provided by (used in) operating activities	139		(15,938		)	50,665			—			34,866

Cash flows from investing activities:
Capital expenditures	—		(10,528		)	(10,062		)	—			(20,590		)
Proceeds from sale of property, plant and equipment	—		171			2,413			—			2,584
Intercompany transfers	—		(506		)	(64,846		)	65,352			—
Proceeds from sale of business	—		894			—			—			894
Net cash used in continuing operations	—		(9,969		)	(72,495		)	65,352			(17,112		)
Net cash provided by discontinued operations	—		—			19,150			—			19,150
Net cash provided by (used in) investing activities	—		(9,969		)	(53,345		)	65,352			2,038

Cash flows from financing activities:
Proceeds from borrowings of debt	—		60,500			—			—			60,500
Repayments of debt	—		(93,063		)	—			—			(93,063		)
Intercompany transfers	506		64,846			—			(65,352		)	—
Cash transfer to Archrock, Inc.	—		(19,720		)	—			—			(19,720		)
Proceeds from stock options exercised	—		684			—			—			684
Purchases of treasury stock	—		(3,024		)	—			—			(3,024		)
Net cash provided by (used in) financing activities	506		10,223			—			(65,352		)	(54,623		)

Effect of exchange rate changes on cash, cash equivalents and restricted cash	—		—			55			—			55
Net increase (decrease) in cash, cash equivalents and restricted cash	645		(15,684		)	(2,625		)	—			(17,664		)
Cash, cash equivalents and restricted cash at beginning of period	131		16,645			19,573			—			36,349
Cash, cash equivalents and restricted cash at end of period	$	776	$	961		$	16,948		$	—		$	18,685

Note 19 - Subsequent Events

On April 17, 2018, we entered into a definitive agreement for the sale of our North America production equipment assets to Titan Production Equipment Acquisition, LLC, an affiliate of Castle Harlan, Inc. The sale is expected to close in the summer of 2018 and is not expected to have a material impact in our financial statements. At March 31, 2018, the production equipment assets are reflected as assets held for sale in our financial statements as discussed in Note 6.

In April 2018, the 2017 Notes were exchanged for notes with substantially identical terms and registered under the Securities Act of 1933, as amended.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and the notes thereto included in the Condensed Consolidated Financial Statements in Part I, Item 1 (“Financial Statements”) of this report and in conjunction with our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.

Disclosure Regarding Forward-Looking Statements

This report contains “forward-looking statements” intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact contained in this report are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including, without limitation, statements regarding our business growth strategy and projected costs; future financial position; the sufficiency of available cash flows to fund continuing operations; the expected amount of our capital expenditures; expenditures related to the ~~restatement of our financial statements and pending~~current governmental investigation; anticipated cost savings, future revenue, gross margin and other financial or operational measures related to our business and our primary business segments; the future value of our equipment and non-consolidated affiliates; and plans and objectives of our management for our future operations. You can identify many of these statements by looking for words such as “believe,” “expect,” “intend,” “project,” “anticipate,” “estimate,” “will continue” or similar words or the negative thereof.

Such forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this report. Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, no assurance can be given that these expectations will prove to be correct. Known material factors that could cause our actual results to differ materially from the expectations reflected in these forward-looking statements include the risk factors described in our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2017, and those set forth from time to time in our filings with the Securities and Exchange Commission (“SEC”), which are available through our website at www.exterran.com and through the SEC’s website at www.sec.gov, as well as the following risks and uncertainties:

conditions in the oil and natural gas industry, including a sustained imbalance in the level of supply or demand for oil or natural gas or a sustained low price of oil or natural gas, which could depress or reduce the demand or pricing for our natural gas compression and oil and natural gas production and processing equipment and services;

reduced profit margins or the loss of market share resulting from competition or the introduction of competing technologies by other companies;

our reliance on Archrock, Inc. (named Exterran Holdings, Inc. prior to November 3, 2015) (“Archrock”) and its affiliates for recurring oil and gas product sales revenues and our ability to secure new oil and gas product sales customers;

economic or political conditions in the countries in which we do business, including civil developments such as uprisings, riots, terrorism, kidnappings, violence associated with drug cartels, legislative changes and the expropriation, confiscation or nationalization of property without fair compensation;

changes in currency exchange rates, including the risk of currency devaluations by foreign governments, and restrictions on currency repatriation;

risks associated with our operations, such as equipment defects, equipment malfunctions and natural disasters;

the risk that counterparties will not perform their obligations under our financial instruments;

the financial condition of our customers;

~~the impact of exiting our Belleli EPC product sales business;~~

our ability to timely and cost-effectively obtain components necessary to conduct our business;

employment and workforce factors, including our ability to hire, train and retain key employees;

our ability to implement our business and financial objectives, including:

winning profitable new business;

timely and cost-effective execution of projects;

enhancing our asset utilization, particularly with respect to our fleet of compressors;

integrating acquired businesses;

generating sufficient ~~cash;~~cash to satisfy our operating needs, existing capital commitments and other contractual cash obligations, including our debt obligations; and

accessing the financial markets at an acceptable cost;

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our ability to accurately estimate our costs and time required under our fixed price contracts;

liability related to the use of our products and services;

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changes in governmental safety, health, environmental or other regulations, which could require us to make significant expenditures;

~~our ability to successfully remediate each of the material weaknesses in our internal control environment as disclosed in this report within the time periods and in the manner currently anticipated;~~

~~the effectiveness of our internal control environment, including the identification of additional control deficiencies;~~

the results of governmental actions relating to the current ~~investigations;~~

~~the results of shareholder actions, if any, relating to the restatement of our financial statements;~~

~~the agreements related to the spin-off (see “Spin-off” below) and the anticipated effects of restructuring our business;~~investigation; and

our level of indebtedness and ability to fund our business.

All forward-looking statements included in this report are based on information available to us on the date of this report. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained throughout this report.

General

We provide ~~these~~our products and services to a global customer base consisting of companies engaged in all aspects of the oil and natural gas industry, including large integrated oil and natural gas companies, national oil and natural gas companies, independent oil and natural gas producers and oil and natural gas processors, gatherers and pipeline operators. We operate in ~~four~~three primary business lines: contract operations, aftermarket services ~~oil~~ and ~~gas product sales and Belleli EPC~~ product sales. The nature and inherent interactions between and among our business lines provide us with opportunities to cross-sell or offer integrated product and service solutions to our customers.

In our contract operations business line, ~~we have operations outside of the United States of America (‘‘U.S.’’) where~~ we own and operate natural gas compression equipment and crude oil and natural gas production and processing equipment on behalf of our ~~customers.~~customers outside of the U.S. In our aftermarket services business line, we ~~have operations outside of the U.S. where we~~sell parts and components and provide operations, maintenance, overhaul, upgrade, commissioning and reconfiguration services to customers who own their own compression, production, processing, treating and related equipment. In our ~~oil and gas~~ product sales business line, we design, engineer, manufacture, install and sell natural gas compression packages as well as equipment used in the production, treating and processing of crude oil and natural gas ~~production and processing equipment for sale~~ to our customers throughout the world and for use in our contract operations business line. In our Belleli EPC product sales business line that we are exiting, we have historically provided engineering, procurement and construction for the manufacture of tanks for tank farms and the manufacture of evaporators and brine heaters for desalination plants. We currently expect to have substantially exited the Belleli EPC product sales business by the end of 2017. We also offer our customers, on either a contract operations basis or a sale basis, the engineering, design, project management, procurement and construction services necessary to incorporate our products into production, processing and compression facilities, which we refer to as integrated projects.

Our chief operating decision maker manages business operations, evaluates performance and allocates resources based on the Company’s three primary business lines, which are also referred to as our segments. In order to more efficiently and effectively identify and serve our customer needs, we classify our world-wide operations into four geographic regions. The North America region is primarily comprised of our operations in Mexico and the U.S. The Latin America region is primarily comprised of our operations in Argentina, Bolivia and Brazil. The Middle East and Africa region is primarily comprised of our operations in Bahrain, Oman, Nigeria and the United Arab Emirates. The Asia Pacific region is primarily comprised of our operations in China, Indonesia, Thailand and Singapore.

We changed our reporting segments in the third quarter of 2016 to split our previously disclosed product sales segment into the following two new reportable segments: “oil and gas product sales” and “Belleli EPC product sales.” The contract operations and aftermarket services segments were not impacted by this change. The change in our reportable segments is reflected in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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Overview

Industry Conditions and Trends

Our business environment and corresponding operating results are affected by the level of energy industry spending for the exploration, development and production of oil and natural gas reserves. Spending by oil and natural gas exploration and production companies is dependent upon these companies’ forecasts regarding the expected future supply, demand and pricing of oil and natural gas products as well as their estimates of risk-adjusted costs to find, develop and produce reserves. Although we believe our contract operations business, and to a lesser extent our ~~oil and gas~~ product sales business, is typically less impacted by short-term commodity prices than certain other energy products and service providers, changes in oil and natural gas exploration and production spending normally result in changes in demand for our products and services.

Global oil and U.S. natural gas prices declined significantly from the third quarter of 2014 through the middle of 2016 but began to improve in the second half of 2016. This price volatility led to declines in U.S. and worldwide capital spending for drilling activity during 2015 and 2016. Given an improvement inIndustry observers anticipate that commodity prices ~~since the low point in 2016, we anticipate industry~~and customer spending should continue to increase in ~~2017.~~ 2018 due to the predicted strong global demand for hydrocarbons, including increased demand for liquefied natural gas. Geographically, North America is expected to see the largest increase in industry spending with international markets anticipated to grow for the first time in four years, albeit at modest levels.

However, ~~if oil~~customer cash flows and ~~natural gas prices decrease materially or return~~returns on capital could drive customer investment priorities. Industry observers believe shareholders are encouraging management teams of energy producers to ~~low levels, we may experience a decline in bookings~~focus operational and compensation strategies on returns and cash flow generation rather than solely on production growth. To accomplish these strategies, industry observers believe that energy producers would need to better prioritize capital spending such that cash required for their investments would not exceed cash generated from their operating cash flows. This could impact resource allocation and ultimately the amount of new projects and capital spending by our customers.

Our Performance Trends and Outlook

Our revenue, earnings and financial position are affected by, among other things, market conditions that impact demand and pricing for natural gas compression and oil and natural gas production and processing and our customers’ decisions to use our products and services, use our competitors’ products and services or own and operate the equipment themselves.

Low commodity prices in 2015 and the first half of 2016 led to reduced energy related capital spending in those years by our customers in North America. Customer spending and investments in equipment increased in 2017 as commodity prices, primarily oil prices, rebounded from their cyclical lows, leading to a sharp increase in bookings during that year. The Henry Hub spot price for natural gas was ~~$2.98~~$2.81 per MMBtu at ~~June 30, 2017,~~March 31, 2018, which was ~~20%~~24% and 10% lower than prices at December 31, ~~2016 but 1% higher than prices at June 30, 2016,~~2017 and March 31, 2017, respectively, and the U.S. natural gas liquid composite price was ~~$6.25~~$7.90 per MMBtu for the month of ~~April 2017,~~January 2018, which was ~~6% lower than prices for the month of December 2016 but 19%~~1% and 34% higher than prices for the ~~month~~months of ~~June 2016.~~December 2017 and March 2017, respectively. In addition, the West Texas Intermediate crude oil spot price as of ~~June 30, 2017~~March 31, 2018 was ~~14%~~7% and ~~5% lower~~28% higher than prices at December 31, ~~2016~~2017 and ~~June 30, 2016,~~March 31, 2017, respectively. During periods of lower oil or natural gas prices, our customers typically decrease their capital expenditures, which generally results in lower activity levels. Third party booking activity levels for our manufactured ~~oil and gas~~ products in North America during the three months ended ~~June 30, 2017~~March 31, 2018 were ~~$256.8~~$191.0 million, which represents an increase of ~~25%~~85% and ~~438%~~a decrease of 17% compared to the three months ended December 31, ~~2016~~2017 and ~~June 30, 2016,~~March 31, 2017, respectively, and our North America product sales backlog as of ~~June 30, 2017~~March 31, 2018 was ~~$444.4~~$400.4 million, which represents a decrease of 5% and an increase of ~~87% and 593%~~10% compared to December 31, ~~2016~~2017 and ~~June 30, 2016,~~March 31, 2017, respectively. We believe recent booking levels reflect the expectation that commodity prices will continue to remain above the low levels experienced in early 2016 as well as the selective deployment of capital by our customers in certain North America basins.

~~Industry forecasts indicate~~We expect that ~~U.S.~~industry spending ~~is expected to rise for 2017 with a weaker outlook continuing~~ in international ~~markets. As such, we believe international spending~~markets will begin to recover ~~more slowly than spending in North America. Despite the anticipated slower recovery internationally, longer-term~~as 2018 progresses. Longer-term fundamentals in our international markets ~~depend in part~~partially depends on international oil and gas infrastructure projects, many of which are based on longer-term plans of our customers that can be driven by their local market demand and local pricing for natural gas. As a result, we believe our international customers make decisions based on longer-term fundamentals that may be less tied to near term commodity prices than our North American customers. However, lower oil and natural gas prices in international markets have had some negative impacts on the amount of capital investment in new projects by our ~~customers.~~customers in recent years. Over the long term, we believe the demand for our products and services in international markets will continue, and we expect to have opportunities to grow our international businesses. Third party booking activity levels for our manufactured ~~oil and gas~~ products in international markets during the three months ended ~~June 30, 2017~~March 31, 2018 were ~~$23.3~~$2.4 million, which represents a decrease of 8%76% and 87% compared to the three months ended December 31, ~~2016,~~2017 and March 31, 2017, respectively, and our ~~oil and gas~~ international ~~market~~ product sales backlog as of ~~June 30, 2017~~March 31, 2018 was ~~$62.1~~$26.5 million, which represents a decrease of 9%33% and ~~an increase of 105%~~57% compared to December 31, ~~2016~~2017 and ~~June 30, 2016,~~March 31, 2017, respectively. ~~Third party bookings activity levels were insignificant for our manufactured oil and gas products in international markets during the three months ended June 30, 2016.~~

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Aggregate third party booking activity levels for our manufactured ~~oil and gas~~ products in North America and international markets during the three months ended ~~June 30, 2017~~March 31, 2018 were ~~$280.1~~$193.4 million, which represents an increase of ~~21%~~71% and ~~485%~~a decrease of 22% compared to the three months ended December 31, ~~2016~~2017 and ~~June 30, 2016,~~March 31, 2017, respectively. The aggregate ~~oil and gas~~ product sales backlog for our manufactured products in North America and international markets as of ~~June 30, 2017~~March 31, 2018 was ~~$506.5~~$426.9 million, which represents ~~an increase~~a decrease of ~~65% and 436%~~7% compared to December 31, ~~2016~~2017 and ~~June 30, 2016, respectively.~~relatively flat compared to March 31, 2017. Fluctuations in the size and timing of ~~our customers request~~customers’ requests for bid proposals and awards of new contracts tend to create variability in booking activity levels from period to period.

Since the first quarter of 2016, we have been executing activities necessary to exit the Belleli EPC business that has historically been comprised of engineering, procurement and construction for the manufacture of tanks for tank farms and the manufacture of evaporators and brine heaters for desalination plants in the Middle East (referred to as “Belleli EPC” or the “Belleli EPC business” herein). We currently expect to have substantially exited the Belleli EPC product sales business by the end of 2017. Based on contractual requirements, the progress on the projects and the status of negotiations with the related customers, a liability for estimated penalties for liquidated damages of $5.6 million has been included in our financial statements as of June 30, 2017, primarily due to our actual or projected failure to meet certain specified contractual milestone dates. We have asserted claims, or intend to assert claims, and are negotiating change orders that, if settled favorably, could result in recoveries for us, including a release of such claims in exchange for release of liquidated damages.

The timing of any change in activity levels by our customers is difficult to predict. As a result, our ability to project the anticipated activity level for our business, and particularly our ~~oil and gas~~ product sales segment, is limited. ~~In the latter part of 2016~~Throughout 2017 and ~~first half of 2017,~~thus far in 2018, we experienced an increase in ~~oil and gas~~ product sales bookings. However, volatility in commodity prices could delay investments by our customers in significant projects, which could result in a material adverse effect on our business, financial condition, results of operations and cash flows.

Our level of capital spending depends on our forecast for the demand for our products and services and the equipment required to provide services to our customers. Based on ~~current~~the demand we see for contract operations, we anticipate investing more capital in our contract operations business in ~~2017~~2018 than we did in ~~2016.~~2017. The increased investment during 2018 is driven by several large multi-year projects contracted in 2017, or that are expected to be contracted in 2018, that are scheduled or anticipated to start earning revenue in 2018 and 2019.

Operating Highlights

The following table summarizes our product sales backlog (in thousands):

June 30, 2017 December 31, 2016 June 30, 2016
Product Sales Backlog ⁽¹⁾:

Oil and Gas Product Sales Backlog:
Compressor and Accessory Backlog $ 248,147
$ 160,006
$ 47,834
Production and Processing Equipment Backlog 256,785
144,252
42,551
Installation Backlog 1,599
1,964
4,127
Belleli EPC Backlog ⁽²⁾
33,811
63,578
105,461
Total Product Sales Backlog $ 540,342
$ 369,800
$ 199,973



	March 31, 2018		December 31, 2017		March 31, 2017
Product Sales Backlog:
Compression equipment	$	206,252	$	254,745	$	221,994
Processing and treating equipment	199,122		178,814		143,562
Production equipment	9,481		14,138		36,126
Other product sales	12,041		13,349		22,872
Total product sales backlog	$	426,896	$	461,046	$	424,554


⁽¹⁾	~~Our product sales backlog consists of unfilled orders based on signed contracts and does not include potential product sales pursuant to letters of intent received from customers.~~


⁽²⁾	During the first quarter of 2016, we ceased the booking of new orders for our Belleli EPC business. Changes in our Belleli EPC backlog since March 31, 2016 reflect revenue recognized and change orders booked on existing contracts.

Financial Results of Operations

Summary of Results

As discussed in Note 23 to the Financial Statements, the results from continuing operations for all periods presented exclude the results of our Venezuelan contract operations ~~business~~ and ~~our~~ Belleli ~~CPE~~EPC business. Those results are reflected in discontinued operations for all periods presented.

Revenue. Revenue during the three months ended March 31, 2018 and 2017 was $350.4 million and $245.4 million, respectively. The ~~Belleli CPE business was comprised of engineering, procurement and manufacturing services related~~increase in revenue during the three months ended March 31, 2018 compared to the ~~manufacture~~three months ended March 31, 2017 was caused by revenue increases in all three of ~~critical process equipment for refinery and petrochemical facilities (referred to as “Belleli CPE” or the “Belleli CPE business” herein).~~our segments with a significant increase in revenue in our product sales segment.

Net income. We generated net income of $5.3 million and $20.3 million during the three months ended March 31, 2018 and 2017, respectively. The decrease in net income during the three months ended March 31, 2018 compared to the three months ended March 31, 2017 was primarily due to a decrease in income from discontinued operations, net of tax, and an increase in depreciation and amortization expense. These activities were partially offset by an increase in gross margin for our product sales segment and a decrease in income tax expense. Net income during the three months ended March 31, 2018 and 2017 included income from discontinued operations, net of tax, of $1.4 million and $32.6 million, respectively.

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~~Revenue~~

~~Revenue during the three months ended June 30, 2017 increased to $330.6~~EBITDA, as adjusted. Our EBITDA, as adjusted, was $50.7 million ~~compared to $262.1~~and $34.5 million during the three months ended ~~June 30, 2016 primarily due to a significant increase in revenue in our oil~~March 31, 2018 and ~~gas product sales segment, partially offset by decreases in revenue in our Belleli EPC product sales and aftermarket services segments.~~

~~Revenue during the six months ended June 30,~~ 2017, increased to $611.3 million compared to $568.8 million during the six months ended June 30, 2016 due to an increase in revenue in our oil and gas product sales segment, partially offset by decreases in revenue in our aftermarket services, Belleli EPC product sales and contract operations segments.

~~Net income (loss)~~

We generated net income of $3.5 million compared to net loss of $95.5 million during the three months ended June 30, 2017 and 2016, respectively. The increase in net income during the three months ended June 30, 2017 compared to the three months ended June 30, 2016 was primarily due to non-cash valuation allowances of $88.0 million recorded against U.S. net deferred tax assets during the prior year period, a decrease in restructuring and other charges and an increase in gross margin for our oil and gas product sales segment. These activities were partially offset by proceeds received during the prior year period of $19.3 million from the sale of our Venezuela subsidiary’s assets to PDVSA Gas, S.A. (PDVSA Gas) reflected in income from discontinued operations, net of tax. Net loss during the three months ended June 30, 2016 included income from discontinued operations, net of tax, of $11.0 million.

During the six months ended June 30, 2017, we generated net income of $23.9 million compared to net loss of $188.5 million during the six months ended June 30, 2016. The increase in net income during the six months ended June 30, 2017 compared to the six months ended June 30, 2016 was primarily due to non-cash valuation allowances of $88.0 million recorded against U.S. net deferred tax assets during the prior year period, impairment charges reflected in loss from discontinued operations, net of tax, of $68.8 million related to Belleli CPE during the prior year period, an increase in gross margin for our Belleli EPC product sales segment, a decrease in depreciation and amortization expense and a decrease in restructuring and other charges. Net income (loss) during the six months ended June 30, 2017 and 2016 included income from discontinued operations, net of tax, of $19.6 million and loss from discontinued operations, net of tax, of $53.1 million, respectively.

~~EBITDA, as adjusted~~

~~Our EBITDA, as adjusted, was $45.7 million and $40.9 million during the three months ended June 30, 2017 and 2016,~~ respectively. EBITDA, as adjusted, during the three months ended ~~June 30, 2017~~March 31, 2018 compared to the three months ended ~~June 30, 2016~~March 31, 2017 increased primarily due to ~~increases~~an increase in gross margin for our ~~oil and gas~~ product sales Belleli EPC product sales and contract operations segments, partially offset by an increase in selling, general and administrative (“SG&A”) expense, a decrease in gross margin for our aftermarket services segment and a decrease of $1.0 million in gain on sale of property, plant and equipment.

Our EBITDA, as adjusted, was $97.0 million and $78.9 million during the six months ended June 30, 2017 and 2016, respectively. EBITDA, as adjusted, during the six months ended June 30, 2017 compared to the six months ended June 30, 2016 increased primarily due to increases in gross margin for our Belleli EPC product sales and oil and gas product sales segments, partially offset by decreases in gross margin for our aftermarket services and contract operations segments and an increase in SG&A expense.

segment. EBITDA, as adjusted, is a non-GAAP financial measure. For a reconciliation of EBITDA, as adjusted, to net income (loss), its most directly comparable financial measure calculated and presented in accordance with GAAP, please read “— Non-GAAP Financial Measures” included elsewhere in this Quarterly Report.

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The Three Months Ended ~~June 30, 2017~~March 31, 2018 Compared to the Three Months Ended ~~June 30, 2016~~March 31, 2017

Contract Operations

(dollars in thousands)


	Three Months Ended June 30,						Increase		Three Months Ended March 31,
	2017			2016			(Decrease)		2018			2017			Change			% Change
Revenue	$	95,341		$	94,689		1	%	$	96,493		$	92,045		$	4,448		5	%
Cost of sales (excluding depreciation and amortization expense)	34,691			36,401			(5	)%	35,385			30,798			4,587			15	%
Gross margin	$	60,650		$	58,288		4	%	$	61,108		$	61,247		$	(139	)	—	%
Gross margin percentage ⁽¹⁾	64		%	62		%	2	%	63		%	67		%	(4		)%	(6	)%

___________________

(1) Defined as gross margin divided by revenue.

Revenue during the three months ended June 30, 2017 compared to the three months ended June 30, 2016 remained relatively flat with the 1% increase in revenue driven by operations in Latin America. Gross margin and gross margin percentage increased during the three months ended June 30, 2017 compared to the three months ended June 30, 2016 primarily due to demobilization expenses of $2.5 million incurred in the prior year period on the early termination of a project in the Eastern Hemisphere.

~~Aftermarket Services~~

~~(dollars in thousands)~~

Three Months Ended
June 30, Increase
2017 2016 (Decrease)
Revenue $ 24,244
$ 34,668
(30 )%
Cost of sales (excluding depreciation and amortization expense) 17,278
24,137
(28 )%
Gross margin $ 6,966
$ 10,531
(34 )%
Gross margin percentage 29 % 30 % (1 )%

The ~~decrease~~increase in revenue during the three months ended ~~June 30, 2017~~March 31, 2018 compared to the three months ended ~~June 30, 2016~~March 31, 2017 was primarily due to increases in revenue of $6.0 million and $2.5 million in the Middle East and Africa region and Asia Pacific region, respectively, partially offset by decreases in ~~parts sales~~revenue of $2.9 million and ~~operations and maintenance services, most notably a decrease in parts sales of $3.7~~$1.1 million in ~~China~~the North America region and Latin America region, respectively. The increase in the Middle East and Africa region was primarily driven by a $3.5 million increase in revenue from the start-up of projects in Oman that were not operating in the prior year period and a ~~decrease~~$3.4 million increase in ~~operations and maintenance services of $2.0 million in Colombia. Additionally,~~revenue from the sale of ~~our North America refurbishment and services business~~equipment pursuant to a customer exercised purchase option. The increase in revenue in the ~~first quarter~~Asia Pacific region was primarily driven by a $2.8 million recovery of ~~2017 led to~~an early termination fee for a ~~$1.1~~contract that terminated in January 2016. The decrease of revenue in the Latin America region was primarily driven by a $2.4 million decrease in Argentina due to unfavorable exchange rate impacts and the decrease of revenue ~~for~~in the North America region was primarily due to renegotiations on a contract extension that resulted in lower revenue in the current year period. Gross margin remained relatively flat during the three months ended ~~June 30, 2017~~March 31, 2018 compared to the three months ended ~~June 30, 2016. Gross margin decreased during the three months ended June 30, 2017 compared to the three months ended June 30, 2016 primarily due to the revenue decrease explained above.~~March 31, 2017. Gross margin percentage during the three months ended ~~June 30, 2017~~March 31, 2018 compared to the three months ended ~~June 30, 2016~~March 31, 2017 ~~remained relatively flat~~.decreased primarily due to lower maintenance expenses in the prior year period resulting from delayed expenditures and renegotiations on a contract extension in the North America region discussed above.

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~~Oil and Gas Product Sales~~Aftermarket Services

(dollars in thousands)


	Three Months Ended June 30,						Increase		Three Months Ended March 31,
	2017			2016			(Decrease)		2018			2017			Change			% Change
Revenue	$	198,116		$	99,332		99	%	$	26,371		$	22,524		$	3,847		17	%
Cost of sales (excluding depreciation and amortization expense)	178,025			89,786			98	%	18,897			16,612			2,285			14	%
Gross margin	$	20,091		$	9,546		110	%	$	7,474		$	5,912		$	1,562		26	%
Gross margin percentage	10		%	10		%	—	%	28		%	26		%	2		%	8	%

The increase in revenue during the three months ended ~~June 30, 2017~~March 31, 2018 compared to the three months ended ~~June 30, 2016~~March 31, 2017 was primarily due to ~~a significant~~increases in revenue of $2.1 million, $0.9 million and $0.8 million in the Middle East and Africa, Latin America and North America regions, respectively. The increases in revenue in the Middle East and Africa region and Latin America region were primarily driven by $1.3 million and $0.7 million in Iraq and Argentina, respectively, for parts sales and operation and maintenance services. The revenue increase in the North America region was due to an increase in part sales in the U.S. Gross margin increased during the three months ended March 31, 2018 compared to the three months ended March 31, 2017 primarily due to the revenue increase explained above. The increase in gross margin percentage during the three months ended March 31, 2018 compared to the three months ended March 31, 2017 was primarily driven by the part sales activity in North America ~~booking activities~~ in ~~recent quarters. Revenue in~~the current year period and the sale of the our North America ~~increased by $95.8 million, which~~refurbishment and services business in the prior year period.

Product Sales

(dollars in thousands)



	Three Months Ended March 31,
	2018			2017			Change			% Change
Revenue	$	227,519		$	130,856		$	96,663		74	%
Cost of sales (excluding depreciation and amortization expense)	200,336			119,537			80,799			68	%
Gross margin	$	27,183		$	11,319		$	15,864		140	%
Gross margin percentage	12		%	9		%	3		%	33	%

The increase in revenue during the three months ended March 31, 2018 compared to the three months ended March 31, 2017 was primarily ~~related~~due to an increase in revenue of $106.7 million in the North America region and $11.4 million in the Asia Pacific region, partially offset by a decrease in revenue of $22.6 million in the Middle East and Africa region. The increase in revenue in the North America region was primarily due to increases of ~~$71.2~~$67.1 million and ~~$30.5~~$49.3 million in processing and treating equipment revenue and compression equipment revenue, respectively. The increase in revenue in the Asia Pacific region was primarily due to an increase of $11.2 million in compression equipment revenue. The decrease in revenue in the Middle East and Africa region was primarily due to decreases of $11.7 million and $9.9 million in compression equipment revenue and processing and treating equipment revenue, respectively. Gross margin ~~increased during the three months ended June 30, 2017 compared to the three months ended June 30, 2016 primarily due to the revenue increase explained above. Gross~~and gross margin percentage increased during the three months ended ~~June 30, 2017~~March 31, 2018 compared to the three months ended ~~June 30, 2016~~March 31, 2017 ~~remained flat~~due to the revenue increase explained above and a shift in product mix in the North America region during the current year period.

~~Belleli EPC Product Sales~~

~~(dollars in thousands)~~

Three Months Ended
June 30, Increase
2017 2016 (Decrease)
Revenue $ 12,885
$ 33,458
(61 )%
Cost of sales (excluding depreciation and amortization expense) 8,064
33,262
(76 )%
Gross margin $ 4,821
$ 196
2,360 %
Gross margin percentage 37 % 1 % 36 %

~~The decrease in revenue during the three months ended June 30, 2017 compared to the three months ended June 30, 2016 was primarily due to decreased activities resulting from executing our exit~~Table of the Belleli EPC product sales business. We currently expect to have substantially exited this business by the end of 2017. The increases in gross margin and gross margin percentage were primarily due to incurring lower costs than expected to resolve a contingency on one project, which positively impacted gross margin by $3.6 million during the three months ended June 30, 2017, and a reduction in scope on a loss project negotiated during the current year period that positively impacted gross margin by $1.3 million.Contents

Costs and Expenses

(dollars in thousands)


	Three Months Ended June 30,						Increase		Three Months Ended March 31,
	2017			2016			(Decrease)		2018		2017			Change			% Change
Selling, general and administrative	$	46,084		$	40,648		13	%	$	44,242	$	44,411		$	(169	)	—	%
Depreciation and amortization	29,447			27,417			7	%	31,029		24,752			6,277			25	%
Restatement related charges (recoveries), net	(1,158		)	7,851			(115	)%
Long-lived asset impairment									1,804		—			1,804			n/a
Restatement related charges									621		2,172			(1,551		)	(71	)%
Restructuring and other charges	310			10,636			(97	)%	—		2,308			(2,308		)	(100	)%
Interest expense	12,382			8,879			39	%	7,219		7,087			132			2	%
Equity in income of non-consolidated affiliates	—			(5,229		)	(100	)%
Other (income) expense, net	3,701			(5,394		)	(169	)%	1,420		(1,819		)	3,239			(178	)%

Selling, general and administrative

Selling, general and administrative (“SG&A&A”) expense remained relatively flat during the three months ended ~~June 30, 2017~~March 31, 2018 compared to the three months ended June 30, 2016 increased primarily due to the reinstitution of certain incentive compensation that was suspended in 2016, partially offset by cost savings resulting from the portions of our cost reduction plan previously implemented.March 31, 2017. SG&A expense as a percentage of revenue was ~~14%~~13% and ~~16%~~18% during the three months ended ~~June 30,~~March 31, 2018 and 2017, ~~and 2016,~~ respectively.

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Depreciation and amortization

Depreciation and amortization expense during the three months ended ~~June 30, 2017~~March 31, 2018 compared to the three months ended ~~June 30, 2016~~March 31, 2017 increased primarily due to an increase in depreciation expense of ~~$2.1~~$3.1 million ~~on a contract operations project~~for our compression equipment driven by policy changes relating to the useful lives and salvage values made in ~~Brazil that started in August 2016. The~~the fourth quarter of 2017. Additionally, depreciation expense ~~recognized on this project in the current year period primarily related~~increased $2.0 million due to additional depreciation of capitalized installation costs ~~which~~on projects that were not operating in the prior year period. Capitalized installation costs, included, among other things, civil engineering, piping, electrical instrumentation and project management costs.

Long-lived asset impairment

In the fourth quarter of 2017, we classified certain current and long-term assets primarily related to inventory and property, plant and equipment, net, within our product sales business as assets held for sale in our balance sheets. In April 2018, we entered into a definitive agreement for the sale of these assets. During the three months ended March 31, 2018, we recorded an additional impairment of $1.8 million to reduce these assets to their approximate fair values based on the expected net proceeds. The sale of these assets is expected to close in the summer of 2018. For further details, see Note 6 and Note 19 to the Financial Statements.

Restatement related charges ~~(recoveries), net~~

As discussed in Note 1011 to the Financial Statements, during the first quarter of 2016, our senior management identified errors relating to the application of percentage-of-completion accounting principles to specific Belleli EPC product sales projects. During the three months ended ~~June 30,~~March 31, 2018 and 2017, we incurred ~~$1.6~~$0.6 million and $2.2 million, respectively, of external costs associated with ~~the current~~an ongoing SEC investigation and remediation activities related to the restatement and recorded recoveries from Archrock pursuant to the separation and distribution agreement of $2.8 million for previously incurred restatement related costs. During the three months ended June 30, 2016, we incurred $7.9 million of costs associated with the restatement of our financial ~~statements, which primarily related to $4.8 million of external accounting costs and $2.7 million of external legal costs.~~statements.

Restructuring and other charges

In the second quarter of 2015, we announced a cost reduction plan, primarily focused on workforce reductions and the reorganization of certain facilities. ~~These actions were in response to unfavorable market conditions in North America combined with the impact of lower international activity due to customer budget cuts driven by lower oil prices.~~ As a result of this plan, during the three months ended ~~June 30,~~March 31, 2017, we incurred restructuring and other charges of ~~$0.4~~$2.0 million, primarily related to employee termination benefits. ~~During~~Additionally, during the three months ended ~~June 30, 2016,~~March 31, 2017, we incurred $9.5 million of restructuring and other charges as a result of this plan, which primarily related to $6.7 million of employee termination benefits and a $2.7 million charge for the exit of a corporate building under an operating lease. During the three months ended June 30, 2016, we incurred $1.2$0.3 million of costs associated with the Spin-off ~~of which $0.6 million~~primarily related to retention awards to certain employees. The charges incurred in conjunction with the cost reduction plan and Spin-off are included in restructuring and other charges in our statements of operations. See Note 1112 to the Financial Statements for further discussion of these charges.

Interest expense

The increase in interest expense during the three months ended ~~June 30, 2017~~March 31, 2018 compared to the three months ended ~~June 30, 2016~~March 31, 2017 was primarily due to an increase in the effective interest rate on our debt ~~interest expense of $2.4 million recorded for the settling of non-income-based tax debt during the current year period in connection with the Brazilian Tax Regularization Program~~ and ~~$1.7 million of unamortized deferred financing costs expensed in the current period, partially offset by~~ a ~~lower~~higher average balance of long-term debt, ~~and~~partially offset by a decrease in amortization expense related to deferred financing costs ~~associated with the term loan facility in the prior year period. As discussed in~~ ~~Note~~ 7related to the Financial Statements, the proceeds received in April 2017 from the issuance of $375.0 million aggregate principal amount of 8.125% senior unsecured notes due 2025 (the “2017 Notes”) were used to repay all of the borrowings outstanding under the term loan facility and ~~revolving credit facility. For further discussion on the Brazilian Tax Regularization Program, see~~ ~~Note~~ 12 ~~to the Financial Statements included elsewhere~~an increase in ~~this Quarterly Report.~~

~~Equity in income of non-consolidated affiliates~~

~~In March 2012, our Venezuelan joint ventures sold their assets to PDVSA Gas. We received an installment payment, including an annual charge of $5.2 million during~~capitalized interest resulting from increased construction activities. During the three months ended ~~June 30, 2016. As of June 30,~~March 31, 2018 and 2017, the ~~remaining principal amount due to us was approximately $4 million. Payments we receive from the sale are recognized as equity in income~~average daily outstanding borrowings of ~~non-consolidated affiliates in our statements~~long-term debt were $392.3 million and $348.4 million, respectively.

Table of ~~operations in the periods such payments are received.~~Contents

Other (income) expense, net

The change in other (income) expense, net, was primarily due to foreign currency losses of ~~$3.2~~$1.9 million during the three months ended ~~June 30, 2017~~March 31, 2018 compared to foreign currency gains ~~net~~ of ~~foreign currency derivatives, of $1.4~~$1.3 million during the three months ended ~~June 30, 2016.~~March 31, 2017. Our foreign currency gains and losses included translation losses of ~~$1.4~~$0.6 million and translation gains of $1.5 million during the three months ended ~~June 30,~~March 31, 2018 and 2017, ~~compared to translation gains, net of foreign currency derivatives, of $2.4 million during the three months ended June 30, 2016~~respectively, related to the currency remeasurement of our foreign subsidiaries’ non-functional currency denominated intercompany obligations. The change in other (income) expense, net, was also due to penalties of $1.5 million incurred for the settling of non-income-based tax debt during the current year period in connection with the Brazilian Tax Regularization Program discussed above and a decrease of $1.0 million in gain on sale of property, plant and equipment.

~~Table of Contents~~

Income Taxes

(dollars in thousands)


	Three Months Ended June 30,						Increase		Three Months Ended March 31,
	2017			2016			(Decrease)		2018			2017			Change			% Change
Provision for (benefit from) income taxes	$	(1,814	)	$	100,335		(102	)%
Provision for income taxes									$	5,492		$	11,890		$	(6,398	)	(54	)%
Effective tax rate	(103		)%	(1,606		)%	1,503	%	58.2		%	(2,746.0		)%	2,804.2		%	(102	)%

Our income tax expense for the three months ended ~~June 30, 2017~~March 31, 2018 included an $11.9 million income tax benefit attributable to the reversal of valuation allowances against certain deferred tax assets related to income tax loss carryforwards that were utilized under the Brazilian Tax Regularization Program and a ~~$5.7~~$1.6 million valuation allowance ~~recorded~~charge against current period U.S. deferred tax assets. Our income tax expense for the three months ended ~~June 30, 2016~~March 31, 2017 included an ~~$88.0~~$11.8 million charge ~~for~~against current period U.S. deferred tax assets. Our effective tax rate is impacted by valuation allowances recorded against ~~our~~loss carryforwards in the U.S. ~~deferred tax assets~~ and ~~a $12.7 million charge incurred by one of our subsidiaries~~certain other jurisdictions, foreign withholding taxes and changes in ~~Nigeria for settlement of a~~ foreign tax audit ($7.4 million) and valuation allowances recorded against its remaining deferred tax assets ($5.3 million). Additionally, the change in income tax expense was impacted by an increase in income before income taxes of $8.0 million during the three months ended June 30, 2017 compared to the three months ended June 30, 2016. The valuation allowances recorded against our U.S. deferred tax assets related to carryforwards for U.S. federal net operating losses, foreign tax credits, research and development credits and alternative minimum tax credits.currency exchange rates.

Discontinued Operations

(dollars in thousands)

Three Months Ended
June 30, Increase
2017 2016 (Decrease)
Income (loss) from discontinued operations, net of tax $ (32 ) $ 11,036
(100 )%



	Three Months Ended March 31,
	2018		2017		Change			% Change
Income from discontinued operations, net of tax	$	1,399	$	32,644	$	(31,245	)	(96	)%

Income ~~(loss)~~ from discontinued operations, net of tax, ~~during the three months ended June 30, 2017 and 2016~~ includes our Venezuelan subsidiary’s operations that were expropriated in June 2009, including compensation for expropriation, and ~~costs associated with our arbitration proceeding, and~~ our Belleli ~~CPE~~EPC business.

~~As discussed in~~ ~~Note~~ 2Income from discontinued operations, net of tax, during the three months ended March 31, 2018 compared to the ~~Financial Statements,~~three months ended March 31, 2017 decreased primarily due to a $19.7 million decrease in ~~August 2012,~~income from our Venezuelan subsidiary ~~sold its previously nationalized assets~~and an $11.6 million decrease in income from Belleli EPC. The decrease in income from Belleli EPC was primarily due to recoveries in the first quarter of 2017 resulting from our release of liquidated damages by a customer in exchange for us releasing them from certain extension of time claims and the obtainment of customer approved change orders. The reduction in income from our Venezuelan subsidiary was primarily related to payments from PDVSA ~~Gas. We~~Gas, S.A. (“PDVSA Gas”) to our Venezuelan subsidiary. During the three months ended March 31, 2017, we received an installment payment, including an annual charge, of ~~$19.3 million during the three months ended June 30, 2016. As of June 30, 2017, the remaining principal amount due to us was approximately $17~~$19.7 million. We have not recognized amounts payable to us by PDVSA Gas as a receivable and will therefore recognize payments received in the future as income from discontinued operations in the periods such payments are received.

For further details on our discontinued operations, see Note 3 to the Financial Statements.

Liquidity and Capital Resources

Our unrestricted cash balance was $17.3 million at March 31, 2018, compared to $49.1 million at December 31, 2017. Working capital decreased to $127.4 million at March 31, 2018 from $134.0 million at December 31, 2017. The ~~proceeds from the sale of the assets are not subject to Venezuelan national taxes~~decrease in working capital was primarily due to an ~~exemption allowed under~~increase in accounts payable and a decrease in accounts receivables, partially offset by increases in inventory and contract assets. The increases in accounts payable and inventory were primarily due to a nonmonetary purchase of finished goods inventory during the ~~Venezuelan Reserve Law applicable to expropriation settlements. In addition, and~~current year period as discussed in ~~connection with the sale, we and the Venezuelan government agreed to waive rights to assert certain claims against each other.~~

~~As discussed~~further detail in Note 24 to the Financial ~~Statements,~~Statements. The increase in the first quarter of 2016, we committed to a plan to exit our Belleli CPE business, which provided engineering, procurement and manufacturing services related to the manufacture of critical process equipment for refinery and petrochemical facilities. In August 2016, we completed the sale of Belleli CPE. Our Belleli CPE businesscontract assets was ~~previously included in our former~~primarily driven by higher product sales segment. In conjunction with the planned disposition, we recorded impairments of current assets that totaled $7.1 million during the three months ended June 30, 2016. The impairment charges are reflectedactivity in ~~income (loss) from discontinued operations, net of tax.~~

~~Table of Contents~~

~~The Six Months Ended June 30, 2017 Compared to the Six Months Ended June 30, 2016~~

~~Contract Operations~~

~~(dollars in thousands)~~

Six Months Ended
June 30, Increase
2017 2016 (Decrease)
Revenue $ 187,386
$ 199,448
(6 )%
Cost of sales (excluding depreciation and amortization expense) 65,489
74,899
(13 )%
Gross margin $ 121,897
$ 124,549
(2 )%
Gross margin percentage ⁽¹⁾
65 % 62 % 3 %

~~(1)~~ ~~Defined as gross margin divided by revenue.~~

North America. The decrease in ~~revenue during the six months ended June 30, 2017 compared to the six months ended June 30, 2016~~accounts receivables was primarily due to ~~a $9.2 million decrease in revenue in Mexico, which was primarily driven by projects that terminated operations in 2016 and a reduction~~the timing of ~~recognized deferred revenue resulting~~payments received from contract extensions, and a decrease in revenue of $7.7 million resulting from an early termination of a project in the Eastern Hemisphere in January 2016 that had been operating since the third quarter of 2009. These decreases were partially offset by a $7.2 million increase in revenue in Brazil primarily driven by the start-up of a projectcustomers during the second half of 2016. Gross margin decreased during the six months ended June 30, 2017 compared to the six months ended June 30, 2016 primarily due to the revenue decrease explained above. Gross margin percentage ~~during the~~ ~~six months ended June 30, 2017~~ ~~compared to the~~ ~~six months ended June 30, 2016~~ ~~increased primarily due to~~ ~~demobilization expenses of $5.4 million incurred in the prior~~current year ~~period on the early termination of a project in the Eastern Hemisphere discussed above~~. The early termination of a project in the Eastern Hemisphere resulted in additional costs during the six months ended June 30, 2016 in the form of depreciation expense, which is excluded from gross margin.

~~Aftermarket Services~~

~~(dollars in thousands)~~

Six Months Ended
June 30, Increase
2017 2016 (Decrease)
Revenue $ 46,768
$ 64,909
(28 )%
Cost of sales (excluding depreciation and amortization expense) 33,890
46,437
(27 )%
Gross margin $ 12,878
$ 18,472
(30 )%
Gross margin percentage 28 % 28 % — %

The decrease in revenue during the six months ended June 30, 2017 compared to the six months ended June 30, 2016 was primarily due to decreases in parts sales and operations and maintenance services, most notably a decrease in parts sales of $5.5 million in China and a decrease in operations and maintenance services of $4.7 million in Colombia. Additionally, the sale of our North America refurbishment and services business in the first quarter of 2017 led to a $1.7 million decrease in revenue for the six months ended June 30, 2017 compared to the six months ended June 30, 2016. Gross margin decreased during the six months ended June 30, 2017 compared to the six months ended June 30, 2016 primarily due to the revenue decrease explained above. Gross margin percentage ~~during the~~ ~~six months ended June 30, 2017~~ ~~compared to the~~ ~~six months ended June 30, 2016~~ ~~remained flat~~.period.

Table of Contents

~~Oil and Gas Product Sales~~

~~(dollars in thousands)~~

Six Months Ended
June 30, Increase
2017 2016 (Decrease)
Revenue $ 328,972
$ 240,999
37 %
Cost of sales (excluding depreciation and amortization expense) 297,562
220,091
35 %
Gross margin $ 31,410
$ 20,908
50 %
Gross margin percentage 10 % 9 % 1 %

The increase in revenue during the six months ended June 30, 2017 compared to the six months ended June 30, 2016 was primarily due to increases of $68.9 million and $17.3 million in North America and the Eastern Hemisphere, respectively. The increase in revenue in North America was primarily due to a significant increase in North America booking activities in recent quarters. In North America, compression equipment revenue and processing and treating equipment revenue increased by $71.3 million and $18.2 million, respectively, partially offset by a decrease of $18.6 million in production equipment revenue. The increase in the Eastern Hemisphere revenue was primarily due to an increase of $24.8 million in processing and treating equipment revenue, partially offset by a decrease of $8.8 million in compression equipment revenue. Gross margin increased during the six months ended June 30, 2017 compared to the six months ended June 30, 2016 primarily due to the revenue increase explained above. Gross margin percentage ~~during the~~ ~~six months ended June 30, 2017~~ ~~compared to the~~ ~~six months ended June 30, 2016~~ ~~remained relatively flat~~.

~~Belleli EPC Product Sales~~

~~(dollars in thousands)~~

Six Months Ended
June 30, Increase
2017 2016 (Decrease)
Revenue $ 48,159
$ 63,421
(24 )%
Cost of sales (excluding depreciation and amortization expense) 26,063
64,849
(60 )%
Gross margin $ 22,096
$ (1,428 ) 1,647 %
Gross margin percentage 46 % (2 )% 48 %

The decrease in revenue during the six months ended June 30, 2017 compared to the six months ended June 30, 2016 was primarily due to decreased activities resulting from executing our exit of the Belleli EPC product sales business, partially offset by recoveries of $12.8 million and $5.6 million in the current year period resulting from our release of liquidated damages by a customer in exchange for us releasing them from certain extension of time claims and the obtainment of customer approved change orders, respectively. We currently expect to have substantially exited this business by the end of 2017. The increases in gross margin and gross margin percentage were primarily caused by the release of liquidated damages and customer approved change orders discussed above, a reduction in scope on a loss project negotiated during the current year period that positively impacted gross margin by $1.3 million and cost savings realized from subcontractors during the current year period.

~~Table of Contents~~

~~Costs and Expenses~~

~~(dollars in thousands)~~

Six Months Ended
June 30, Increase
2017 2016 (Decrease)
Selling, general and administrative $ 91,481
$ 86,386
6 %
Depreciation and amortization 55,327
78,350
(29 )%
Long-lived asset impairment —
651
(100 )%
Restatement related charges, net 1,014
7,851
(87 )%
Restructuring and other charges 2,178
23,203
(91 )%
Interest expense 19,469
17,342
12 %
Equity in income of non-consolidated affiliates —
(10,403 ) (100 )%
Other (income) expense, net 1,368
(9,811 ) (114 )%

~~Selling, general and administrative~~

SG&A expense increased during the six months ended June 30, 2017 compared to the six months ended June 30, 2016 primarily due to the reinstitution of certain incentive compensation that was suspended in 2016, partially offset by cost savings resulting from the portions of our cost reduction plan previously implemented. During the six months ended June 30, 2017 and 2016, SG&A expense as a percentage of revenue was 15% in each period.

~~Depreciation and amortization~~

Depreciation and amortization expense during the six months ended June 30, 2017 compared to the six months ended June 30, 2016 decreased primarily due to depreciation expense of $22.2 million recognized during the six months ended June 30, 2016 on a contract operations project in the Eastern Hemisphere that early terminated operations in January 2016. The depreciation expense recognized on this project in the prior year period primarily related to capitalized installation costs, which included, among other things, civil engineering, piping, electrical instrumentation and project management costs. The project had been operating since the third quarter of 2009.

~~Long-lived asset impairment~~

~~As discussed inNote~~ 2 to the Financial Statements, in the first quarter of 2016, we began executing a plan to exit our Belleli EPC business to focus on our core oil and gas businesses. Based on our decision to cease the booking of new orders for the manufacture of tanks for tank farms and the manufacture of evaporators and brine heaters for desalination plants, the customer relationship intangible assets related to our Belleli EPC business were assessed to have no future benefit to us. As a result, we recorded a long-lived asset impairment charge of $0.7 million during the six months ended June 30, 2016.

~~Restatement related charges, net~~

~~As discussed in~~ ~~Note~~ 10 to the Financial Statements, during the first quarter of 2016, our senior management identified errors relating to the application of percentage-of-completion accounting principles to specific Belleli EPC product sales projects. During the six months ended June 30, 2017, we incurred $3.8 million of external costs associated with the current SEC investigation and remediation activities related to the restatement and recorded recoveries from Archrock pursuant to the separation and distribution agreement of $2.8 million for previously incurred restatement related costs. During the six months ended June 30, 2016, we incurred $7.9 million of costs associated with the restatement of our financial statements, which primarily related to $4.8 million of external accounting costs and $2.7 million of external legal costs.

~~Table of Contents~~

~~Restructuring and other charges~~

In the second quarter of 2015, we announced a cost reduction plan primarily focused on workforce reductions and the reorganization of certain facilities. These actions were in response to unfavorable market conditions in North America combined with the impact of lower international activity due to customer budget cuts driven by lower oil prices. As a result of this plan, during the six months ended June 30, 2017, we incurred restructuring and other charges of $1.9 million primarily related to employee termination benefits. During the six months ended June 30, 2016, we incurred $20.4 million of restructuring and other charges as a result of this plan, which primarily related to $17.5 million of employee termination benefits and a $2.7 million charge for the exit of a corporate building under an operating lease. Additionally, during the six months ended June 30, 2017, we incurred $0.3 million of costs associated with the Spin-off primarily related to retention awards to certain employees. During the six months ended June 30, 2016, we incurred $2.8 million of costs associated with the Spin-off, of which $1.9 million related to retention awards to certain employees. The charges incurred in conjunction with the cost reduction plan and Spin-off are included in restructuring and other charges in our statements of operations. See ~~Note~~ 11 ~~to the Financial Statements for further discussion of these charges.~~

~~Interest expense~~

The increase in interest expense during the six months ended June 30, 2017 compared to the six months ended June 30, 2016 was primarily due to an increase in the effective rate on our debt, interest expense of $2.4 million recorded for the settling of non-income-based tax debt during the current year period in connection with the Brazilian Tax Regularization Program and $1.7 million of unamortized deferred financing costs expensed in the current period, partially offset by a lower average balance of long-term debt and a decrease in the amortization expense related to deferred financing costs associated with the term loan facility. As discussed in ~~Note~~ 7to the Financial Statements, the proceeds received in April 2017 from the issuance of the 2017 Notes were used to repay all of the borrowings outstanding under the term loan facility and revolving credit facility. For further discussion on the Brazilian Tax Regularization Program, see ~~Note~~ 12 ~~to the Financial Statements included elsewhere in this Quarterly Report.~~

~~Equity in income of non-consolidated affiliates~~

In March 2012, our Venezuelan joint ventures sold their assets to PDVSA Gas. We received installment payments, including an annual charge of $10.4 million during the six months ended June 30, 2016. As of June 30, 2017, the remaining principal amount due to us was approximately $4 million. Payments we receive from the sale are recognized as equity in income of non-consolidated affiliates in our statements of operations in the periods such payments are received.

~~Other (income) expense, net~~

The change in other (income) expense, net, was primarily due to foreign currency losses of $1.9 million during the six months ended June 30, 2017 compared to foreign currency gains, net of foreign currency derivatives, of $5.0 million during the six months ended June 30, 2016. Foreign currency gains during the six months ended June 30, 2016 included translation gains, net of foreign currency derivatives, of $7.0 million related to the currency remeasurement of our foreign subsidiaries’ non-functional currency denominated intercompany obligations. The change in other (income) expense, net, was also due to penalties of $1.5 million incurred for the settling of non-income-based tax debt during the current year period in connection with the Brazilian Tax Regularization Program discussed above and a decrease of $0.5 million in gain on sale of property, plant and equipment.

~~Table of Contents~~

~~Income Taxes~~

~~(dollars in thousands)~~

Six Months Ended
June 30, Increase
2017 2016 (Decrease)
Provision for income taxes $ 13,185
$ 104,344
(87 )%
Effective tax rate 76 % (336 )% 412 %

Our income tax expense for the six months ended June 30, 2017 included an $11.9 million income tax benefit attributable to the reversal of valuation allowances against certain deferred tax assets related to income tax loss carryforwards that were utilized under the Brazilian Tax Regularization Program and a $15.4 million valuation allowance recorded against U.S. deferred tax assets. Our income tax expense for the six months ended June 30, 2016 included an $88.0 million charge for valuation allowances recorded against our U.S. deferred tax assets and a $12.7 million charge incurred by one of our subsidiaries in Nigeria for settlement of a foreign tax audit ($7.4 million) and valuation allowances recorded against its remaining deferred tax assets ($5.3 million). Additionally, the change in income tax expense was impacted by an increase in income before income taxes of $48.5 million during the six months ended June 30, 2017 compared to the six months ended June 30, 2016. The valuation allowances recorded against our U.S. deferred tax assets related to carryforwards for U.S. federal net operating losses, foreign tax credits, research and development credits and alternative minimum tax credits.

~~Discontinued Operations~~

~~(dollars in thousands)~~

Six Months Ended
June 30, Increase
2017 2016 (Decrease)
Income (loss) from discontinued operations, net of tax $ 19,606
$ (53,091 ) 137 %

Income (loss) from discontinued operations, net of tax, during the six months ended June 30, 2017 and 2016 includes our Venezuelan subsidiary’s operations that were expropriated in June 2009, including compensation for expropriation and costs associated with our arbitration proceeding, and our Belleli CPE business.

~~As discussed in~~ ~~Note~~ 2 to the Financial Statements, in August 2012, our Venezuelan subsidiary sold its previously nationalized assets to PDVSA Gas. We received an installment payment, including an annual charge, of $19.7 million and $19.3 million during the six months ended June 30, 2017 and 2016, respectively. As of June 30, 2017, the remaining principal amount due to us was approximately $17 million. We have not recognized amounts payable to us by PDVSA Gas as a receivable and will therefore recognize 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.

~~As discussed in~~ ~~Note~~ 2 to the Financial Statements, in the first quarter of 2016, we committed to a plan to exit our Belleli CPE business, which provided engineering, procurement and manufacturing services related to the manufacture of critical process equipment for refinery and petrochemical facilities. In August 2016, we completed the sale of Belleli CPE. Our Belleli CPE business was previously included in our former product sales segment. In conjunction with the planned disposition, we recorded impairments of long-lived assets and current assets that totaled $68.8 million during the six months ended June 30, 2016. The impairment charges are reflected in income (loss) from discontinued operations, net of tax.

~~Table of Contents~~

~~Liquidity and Capital Resources~~

Our unrestricted cash balance was $45.4 million at June 30, 2017 compared to $35.7 million at December 31, 2016. Working capital increased to $179.7 million at June 30, 2017 from $177.8 million at December 31, 2016. The increase in working capital was primarily due to a decrease in accrued liabilities and increases in account receivables and costs and estimated earnings in excess of billings on uncompleted contracts, partially offset by increases in billings on uncompleted contracts in excess of costs and estimated earnings and accounts payables. The increases in account receivables, costs and estimated earnings in excess of billings on uncompleted contracts, billings on uncompleted contracts in excess of costs and estimated earnings and accounts payable were primarily driven by higher oil and gas product sales activity in North America. The decrease in accrued liabilities was primarily due to a decrease in accrued loss contract provisions resulting from the negotiated release of liquidated damages and receipt of customer approved change orders on a significant Belleli EPC product sales project.

Our cash flows from operating, investing and financing activities, as reflected in the statements of cash flows, are summarized in the following table (in thousands):


	Six Months Ended June 30,						Three Months Ended March 31,
	2017			2016			2018			2017
Net cash provided by (used in) continuing operations:
Operating activities	$	55,861		$	174,297		$	3,626		$	29,355
Investing activities	(36,331		)	(19,538		)	(46,959		)	(17,112		)
Financing activities	(30,643		)	(159,301		)	14,878			(54,623		)
Effect of exchange rate changes on cash and cash equivalents	(42		)	(2,544		)	(571		)	55
Discontinued operations	20,841			11,474			(2,783		)	24,661
Net change in cash and cash equivalents	$	9,686		$	4,388		$	(31,809	)	$	(17,664	)

Operating Activities. The decrease in net cash provided by operating activities during the ~~six~~three months ended ~~June 30, 2017~~March 31, 2018 compared to the ~~six~~three months ended ~~June 30, 2016~~March 31, 2017 was primarily attributable to ~~an increase~~lower current year period decreases in working capital, ~~during the current year period compared to a decrease in working capital during the prior year period.~~partially offset by improved gross margins for our product sales segment. Working capital changes during the ~~six~~three months ended ~~June 30, 2017~~March 31, 2018 included an increase of ~~$25.7~~$34.3 million in ~~accounts receivable~~inventory, an increase of $31.4 million in contract asset and a decrease of ~~$28.6~~$20.8 million in accounts receivable. Working capital changes during the three months ended March 31, 2017 included a decrease of $52.1 million in costs and estimated earnings versus billings on uncompleted contracts. Working capital changes during the six months ended June 30, 2016 included a decrease of $124.9 million in accounts receivable, a decrease of $36.7 million in inventory, a decrease of $36.4 million in accounts payable and other liabilitiescontracts and an increase of ~~$23.6~~$42.9 million in ~~deferred revenue.~~accounts receivable.

Investing Activities. The increase in net cash used in investing activities during the ~~six~~three months ended ~~June 30, 2017~~March 31, 2018 compared to the ~~six~~three months ended ~~June 30, 2016~~March 31, 2017 was primarily attributable to a ~~$13.4~~$28.6 million increase in capital expenditures and a $10.4 million decrease in proceeds received from the sale of our joint ventures’ previously nationalized assets, partially offset by a $6.1 million increase in proceeds from the sale of property, plant and equipment.expenditures.

Financing Activities. The ~~decrease~~increase in net cash ~~used in~~provided by financing activities during the ~~six~~three months ended ~~June 30, 2017~~March 31, 2018 compared to the ~~six~~three months ended ~~June 30, 2016~~March 31, 2017 was primarily attributable to an increase in net borrowings of ~~$152.3~~$50.5 million on our long-term debt ~~partially offset by~~and a ~~$15.1~~$19.7 million ~~increase~~decrease in cash transferred to Archrock pursuant to the separation and distribution agreement. The ~~transfers~~transfer of cash to Archrock during the ~~six~~three months ended ~~June 30,~~March 31, 2017 ~~and 2016 were~~was triggered by our receipt of ~~payments~~a payment from PDVSA Gas in respect of the sale of our and our joint ventures’ previously nationalized ~~assets and our occurrence of a qualified capital raise.~~assets.

Discontinued Operations. The ~~increase~~decrease in net cash provided by discontinued operations during the ~~six~~three months ended ~~June 30, 2017~~March 31, 2018 compared to the ~~six~~three months ended ~~June 30, 2016~~March 31, 2017 was primarily attributable to ~~working capital changes related to our Belleli CPE business in the prior year period and a $0.4~~$19.7 million ~~increase~~ in proceeds received from the sale of our Venezuelan subsidiary’s assets to PDVSA ~~Gas.~~Gas during the three months ended March 31, 2017 and working capital changes related to our Belleli EPC business in the prior year period.

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Capital Requirements. Our contract operations business is capital intensive, requiring significant investment to maintain and upgrade existing operations. Our capital spending is primarily dependent on the demand for our contract operations services and the availability of the type of equipment required for us to render those contract operations services to our customers. Our capital requirements have consisted primarily of, and we anticipate will continue to consist of, the following:

growth capital expenditures, which are made to expand or to replace partially or fully depreciated assets or to expand the operating capacity or revenue generating capabilities of existing or new assets, whether through construction, acquisition or modification; and

maintenance capital expenditures, which are made to maintain the existing operating capacity of our assets and related cash flows further extending the useful lives of the assets.

The majority of our growth capital expenditures are related to ~~the~~installation costs on integrated projects and acquisition ~~cost~~costs of new compressor units and processing and treating equipment that we add to our contract operations ~~fleet and installation costs on integrated projects.~~fleet. In addition, growth capital expenditures can include the upgrading of major components on an existing compressor unit where the current configuration of the compressor unit is no longer in demand and the compressor unit is not likely to return to an operating status without the capital expenditures. These latter expenditures substantially modify the operating parameters of the compressor unit such that it can be used in applications for which it previously was not suited. Maintenance capital expenditures are related to major overhauls of significant components of a compressor unit, such as the engine, compressor and cooler, that return the components to a “like new” condition, but do not modify the applications for which the compressor unit was designed.

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We generally invest funds necessary to manufacture contract operations fleet additions when our idle equipment cannot be reconfigured to economically fulfill a project’s requirements and the new equipment expenditure is expected to generate economic returns over its expected useful life that ~~exceed~~exceeds our targeted return on capital. We currently plan to spend approximately ~~$150~~$240 million to ~~$165~~$300 million in capital expenditures during ~~2017,~~2018, including (1) approximately ~~$125~~$200 million to ~~$130~~$250 million on contract operations growth capital expenditures and (2) approximately ~~$15~~$20 million to ~~$20~~$40 million on equipment maintenance capital related to our contract operations business.

Long-Term Debt. We and our wholly owned subsidiary, Exterran Energy Solutions, L.P. (“EESLP”), ~~have a fourth~~are parties to an amended and restated credit agreement (the “Credit Agreement”) consisting of a $680.0 million revolving credit facility expiring in November 2020 and previously included a term loan facility. ~~In April 2017, we paid the remaining principal amount of $232.8 million due under the term loan facility with proceeds from the 2017 Notes (as defined below) issuance.~~

During the ~~six~~three months ended ~~June 30,~~March 31, 2018 and 2017, ~~and 2016,~~ the average daily outstanding borrowings ~~under the term loan facility and revolving credit facility~~of long-term debt were ~~$161.4~~$392.3 million and ~~$469.8~~$348.4 million, respectively. The weighted average annual interest rate on outstanding borrowings under ~~the~~our revolving credit facility at ~~June 30, 2016~~March 31, 2018 and 2017 was ~~4.3%.~~3.7% and 4.4%, respectively. The annual interest rate on the outstanding balance of ~~the~~our term loan facility at ~~June 30, 2016~~March 31, 2017 was 6.8%.

As of ~~June 30, 2017,~~March 31, 2018, we had ~~$55.8~~$18.0 million in outstanding borrowings and $25.4 million in outstanding letters of credit under our revolving credit ~~facility and,~~facility. At March 31, 2018, taking into account guarantees through letters of credit, we had undrawn capacity of ~~$624.2~~$636.6 million under our revolving credit facility. Our Credit Agreement limits our Total Debt to EBITDA ratio (as defined in the Credit Agreement) on the last day of the fiscal quarter to no greater than 4.50 to 1.0. As a result of this limitation, ~~$415.4~~$561.0 million of the ~~$624.2~~$636.6 million of undrawn capacity under our revolving credit facility was available for additional borrowings as of ~~June 30, 2017.~~March 31, 2018.

The Credit Agreement contains various covenants with which we, EESLP and our respective restricted subsidiaries must comply, including, but not limited to, limitations on the incurrence of indebtedness, investments, liens on assets, repurchasing equity, making distributions, transactions with affiliates, mergers, consolidations, dispositions of assets and other provisions customary in similar types of agreements. We are required to maintain, on a consolidated basis, a minimum interest coverage ratio (as defined in the Credit Agreement) of 2.25 to 1.00; a maximum total leverage ratio (as defined in the Credit Agreement) of 4.50 to 1.00; and a maximum senior secured leverage ratio (as defined in the Credit Agreement) of 2.75 to 1.00. As of ~~June 30, 2017,~~March 31, 2018, Exterran Corporation maintained ~~a 6.4~~an 8.0 to 1.0 interest coverage ratio and a ~~2.1~~1.8 to 1.0 total leverage ratio. As of ~~June 30, 2017,~~March 31, 2018, we were in compliance with all financial covenants under the Credit Agreement.

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In April 2017, our 100% owned subsidiaries EESLP and EES Finance Corp. issued the 2017 Notes, which consists of $375.0 million aggregate principal amount of ~~8.125%~~ senior unsecured ~~notes due 2025 (the “2017 Notes”).~~notes. The 2017 Notes are guaranteed by us on a senior unsecured basis. The net proceeds of ~~$366.9~~$367.1 million from the 2017 Notes issuance were used to repay all of the borrowings outstanding under the term loan facility and revolving credit facility, and for general corporate purposes. Additionally, pursuant to the separation and distribution agreement from the Spin-off, EESLP used proceeds from the issuance of the 2017 Notes to pay a subsidiary of Archrock $25.0 million in satisfaction of EESLP’s obligation to pay that sum following the occurrence of a qualified capital raise. The transfer of cash to ~~Archrock’s~~a subsidiary of Archrock was recognized as a reduction to additional paid-in capital in the second quarter of 2017.

We may from time to time seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

Historically, we have financed capital expenditures ~~primarily~~ with a combination of net cash provided by operating and financing activities. Our ability to access the capital markets may be restricted at the time when we would like, or need, to do so, which could have an adverse impact on our ability to maintain our operations and to grow. If any of our lenders become unable to perform their obligations under the Credit Agreement, our borrowing capacity under our revolving credit facility could be reduced. Inability to borrow additional amounts under our revolving credit facility could limit our ability to fund our future growth and operations. Based on current market conditions, we expect that net cash provided by operating activities and borrowings under our revolving credit facility will be sufficient to finance our operating expenditures, capital expenditures and other contractual cash obligations, including our debt obligations. However, if net cash provided by operating activities and borrowings under our revolving credit facility are not sufficient, we may seek additional debt or equity financing.

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Contingencies to Archrock. Pursuant to the separation and distribution agreement, EESLP contributed to a subsidiary of Archrock the right to receive payments based on a notional amount corresponding to payments received by our subsidiaries from PDVSA Gas in respect of the sale of our and our joint ventures’ previously nationalized assets promptly after such amounts are collected by our subsidiaries until Archrock’s subsidiary has received an aggregate amount of such payments up to the lesser of (i) $125.8 million, plus the aggregate amount of all reimbursable expenses incurred by Archrock and its subsidiaries in connection with recovering any PDVSA Gas default installment payments following the completion of the Spin-off or (ii) $150.0 million. Our balance sheets do not reflect this contingent liability to Archrock or the amount payable to us by PDVSA Gas as a receivable. Pursuant to the separation and distribution agreement, we transferred cash of $19.7 million ~~and $29.7 million~~ to Archrock during the ~~six~~three months ended ~~June 30, 2017 and 2016, respectively.~~March 31, 2017. The ~~transfers~~transfer of cash ~~were~~was recognized as ~~reductions~~a reduction to additional paid-in capital in our financial statements. As of ~~June 30, 2017,~~March 31, 2018, the remaining principal amount due to us from PDVSA Gas in respect of the sale of our and our joint ventures’ previously nationalized assets was approximately $21 million.

Unrestricted Cash. Of our ~~$45.4~~$17.3 million unrestricted cash balance at ~~June 30, 2017, $21.0~~March 31, 2018, $16.1 million was held ~~by our non-U.S. subsidiaries. We have not provided for U.S. federal income taxes on indefinitely (or permanently) reinvested cumulative earnings generated~~ by our non-U.S. subsidiaries. In the event of a distribution of earnings to the U.S. in the form of dividends, we may be subject to ~~both~~ foreign withholding ~~taxes and U.S. federal income taxes net of allowable foreign tax credits.~~taxes. We do not believe that the cash held by our non-U.S. subsidiaries has an adverse impact on our liquidity because we expect that the cash we generate in the U.S. ~~and~~, the available borrowing capacity under our revolving credit facility ~~as well as~~and the repayment of intercompany liabilities from our non-U.S. subsidiaries will be sufficient to fund the cash needs of our U.S. operations for the foreseeable future.

Dividends. We do not currently anticipate paying cash dividends on our common stock. We currently intend to retain our future earnings to support the growth and development of our business. The declaration of any future cash dividends and, if declared, the amount of any such dividends, will be subject to our financial condition, earnings, capital requirements, financial covenants, applicable law and other factors our board of directors deems relevant.

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

Non-GAAP Financial Measures

We define EBITDA, as adjusted, as net income (loss) excluding income (loss) from discontinued operations (net of tax), cumulative effect of accounting changes (net of tax), income taxes, interest expense (including debt extinguishment costs), depreciation and amortization expense, impairment charges, restructuring and other charges, non-cash gains or losses from foreign currency exchange rate changes recorded on intercompany obligations, expensed acquisition costs and other items. We believe EBITDA, as adjusted, is an important measure of operating performance because it allows management, investors and others to evaluate and compare our core operating results from period to period by removing the impact of our capital structure (interest expense from our outstanding debt), asset base (depreciation and amortization), our subsidiaries’ capital structure (non-cash gains or losses from foreign currency exchange rate changes on intercompany obligations), tax consequences, impairment charges, restructuring and other charges, expensed acquisition costs and other items. Management uses EBITDA, as adjusted, as a supplemental measure to review current period operating performance, comparability measures and performance measures for period to period comparisons. In addition, the compensation committee has used EBITDA, as adjusted, in evaluating the performance of the Company and management and in evaluating certain components of executive compensation, including performance-based annual incentive programs. Our EBITDA, as adjusted, may not be comparable to a similarly titled measure of another company because other entities may not calculate EBITDA in the same manner.

EBITDA, as adjusted, is not a measure of financial performance under GAAP, and should not be considered in isolation or as an alternative to net income (loss), cash flows from operating activities or any other measure determined in accordance with GAAP. Items excluded from EBITDA, as adjusted, are significant and necessary components to the operation of our business, and, therefore, EBITDA, as adjusted, should only be used as a supplemental measure of our operating performance.

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The following table reconciles our net income ~~(loss)~~ to EBITDA, as adjusted (in thousands):

Three Months Ended
June 30, Six Months Ended
June 30,
2017 2016 2017 2016
Net income (loss) $ 3,544
$ (95,546 ) $ 23,865
$ (188,503 )
(Income) loss from discontinued operations, net of tax 32
(11,036 ) (19,606 ) 53,091
Depreciation and amortization 29,447
27,417
55,327
78,350
Long-lived asset impairment —
—
—
651
Restatement related charges (recoveries), net (1,158 ) 7,851
1,014
7,851
Restructuring and other charges 310
10,636
2,178
23,203
Proceeds from sale of joint venture assets —
(5,229 ) —
(10,403 )
Interest expense 12,382
8,879
19,469
17,342
(Gain) loss on currency exchange rate remeasurement of intercompany balances 1,436
(2,390 ) (26 ) (7,000 )
Loss on sale of business —
—
111
—
Brazilian Tax Regularization Program penalties 1,476
—
1,476
—
Provision for (benefit from) income taxes (1,814 ) 100,335
13,185
104,344
EBITDA, as adjusted $ 45,655
$ 40,917
$ 96,993
$ 78,926

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	Three Months Ended March 31,
	2018			2017
Net income	$	5,337		$	20,321
Income from discontinued operations, net of tax	(1,399		)	(32,644		)
Depreciation and amortization	31,029			24,752
Long-lived asset impairment	1,804			—
Restatement related charges	621			2,172
Restructuring and other charges	—			2,308
Interest expense	7,219			7,087
(Gain) loss on currency exchange rate remeasurement of intercompany balances	630			(1,462		)
Loss on sale of business	—			111
Provision for income taxes	5,492			11,890
EBITDA, as adjusted	$	50,733		$	34,535

Off-Balance Sheet Arrangements

We have no material off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risks associated with changes in foreign currency exchange rates due to our significant international operations. The net assets and liabilities of these operations are exposed to changes in currency exchange rates. These operations may also have net assets and liabilities not denominated in their functional currency, which exposes us to changes in foreign currency exchange rates that impact income. We currently do not have any derivative financial instruments outstanding to mitigate foreign currency risk. In the future, we may utilize derivative instruments to manage the risk of fluctuations in foreign currency exchange rates ~~related to the potential~~that could potentially impact ~~these changes could have on~~our future earnings and forecasted cash flows. We recorded foreign currency ~~gains~~losses of $1.9 million and ~~$5.5~~foreign currency gains of $1.3 million in our statements of operations during the ~~six~~three months ended ~~June 30,~~March 31, 2018 and 2017, ~~and 2016,~~ respectively. Our foreign currency gains and losses are primarily due to exchange rate fluctuations related to monetary asset balances denominated in currencies other than the functional currency, including foreign currency exchange rate changes recorded on intercompany obligations. Our material exchange rate exposure relates to intercompany loans to ~~a subsidiary~~subsidiaries whose functional currency isare the Brazilian Real and Canadian Dollar, which loans carried U.S. dollars balances of ~~$30.2~~$17.3 million ~~U.S. dollars~~and $31.3 million, respectively, as of ~~June 30, 2017.~~March 31, 2018. Foreign currency gains and losses included a translation loss of $0.6 million and a translation gain of $1.5 million during the ~~six~~three months ended ~~June 30, 2016 included translation gains of $7.5 million~~March 31, 2018 and 2017, respectively, related to the functional currency remeasurement of our foreign subsidiaries’ non-functional currency denominated intercompany obligations. Additionally, during the six months ended June 30, 2016, we recognized a loss of $0.5 million on forward currency exchange contracts that offset exchange rate exposure related to intercompany loans to a subsidiary whose functional currency is the Brazilian Real. Changes in exchange rates may create gains or losses in future periods to the extent we maintain net assets and liabilities not denominated in the functional currency.

Item 4. Controls and Procedures

This Item 4 includes information concerning the controls and controls evaluation referred to in the certifications of our Chief Executive Officer and Chief Financial Officer required by Rule 13a-14 of the Exchange Act included in this Quarterly Report as Exhibits 31.1 and 31.2.

Management’s Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to management to allow timely decisions regarding required disclosures.

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In connection with the preparation of this Quarterly Report on Form 10-Q, our management, under the supervision and with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of ~~June 30, 2017.~~March 31, 2018. Based on that evaluation, our principal executive officer and principal financial officer concluded that ~~due to the existence of the material weaknesses in internal control over financial reporting described below (which we view as an integral part of our disclosure controls and procedures),~~ our disclosure controls and procedures were ~~not~~ effective ~~as of June 30, 2017. Based on the performance of additional procedures designed~~ to ~~ensure the reliability of our financial reporting, we believe~~provide reasonable assurance that the condensed consolidated financial statements included in this Quarterly Report fairly present, in all material respects, our financial position, results of operations and cash flows as of the dates, and for the periods, presented, in conformity with GAAP.

~~Material Weaknesses in Internal Control Over Financial Reporting~~

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. We have identified the following material weaknesses:

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~~Control Environment, Risk Assessment, Control Activities, Information and Communication and Monitoring~~

~~We did not maintain effective internal control over financial reporting related to the following areas: control environment, risk assessment, control activities,~~ information ~~and communication and monitoring. In particular, controls related to the following were not designed or operating effectively:~~

There was not adequate integration, emphasis of local senior management accountability and management oversight of accounting and financial reporting activities in implementing and maintaining certain accounting practices at Belleli EPC to conform to our policies and GAAP.

We did not modify our controls and testing procedures to sufficiently address our assessment of risks related to Belleli EPC that could significantly impact internal control over financial reporting by modifying our approach to how those risks should be addressed.

We did not implement and maintain the same accounting controls at Belleli EPC, including information and communication controls, as those maintained in our other operating locations, resulting in internal controls that were not adequate to prevent or detect instances of intentional override of controls, intentional misconduct, or manipulation of cost-to-complete estimates by, or at the direction of, certain former members of Belleli EPC local senior management.

We did not maintain a sufficient complement of personnel with appropriate levels of accounting knowledge, experience and training commensurate with the nature and complexity of Belleli EPC’s business.

Corporate monitoring controls over certain foreign operations were not adequate to detect inappropriate accounting practices and were not designed to operate at a sufficient level of precision to detect material misstatements.

~~The above material weaknesses contributed to material weaknesses at the control-activity level.~~

~~Revenue Recognition of Belleli EPC Percentage-of-Completion Projects~~

We did not design and maintain effective procedures or controls over accurate recording, presentation and disclosure of revenue and related costs in the application of percentage-of-completion accounting principles to our engineering, procurement and construction projects by Belleli EPC. Various deficiencies were identified in the process that aggregated to a material weakness. Controls relating to the following areas were not designed or operating effectively:

~~Controls over the determination of estimated cost-to-complete, including the assessment of contingencies and impact of project uncertainties; and~~

~~Controls to address the accuracy and completeness of information used to estimate revenue and related costs in the application of percentage-of-completion accounting principles.~~

We also identified material weaknesses in the control environment relating to risk assessment, control activities, information and communication and monitoring controls which contributed to this material weakness.

~~Existence and Recovery of Brazil Non-Income-Based Tax Receivables~~

Our controls and procedures around the existence and recovery of Brazilian non-income-based tax receivables were not designed to review the Brazilian non-income-based tax receivables on a regular basis by personnel with appropriate expertise.

~~We also identified material weaknesses in the control environment and corporate monitoring controls, which contributed to this material weakness.~~

All of the material weaknesses identified by us resulted in misstatements to product sales, product sales cost of sales, accounts receivable, costs and estimated earnings in excess of billings on uncompleted contracts, billings on uncompleted contracts in excess of costs and estimated earnings, accrued liabilities, intangibles and other assets, net, and other income.

~~Remediation of Material Weakness in Internal Control Over Financial Reporting~~

~~Our management continues~~required to be ~~committed~~disclosed in reports that we file or submit under the Exchange Act is accumulated and communicated to ~~the implementation of remediation efforts~~management, and made known to ~~address all identified material weaknesses, as well as to foster continuous improvement in~~ our internal controls. These remediation efforts, summarized below, are implemented, in the process of being implemented or are planned for implementation, and are intended to address the identified material weaknesses and enhance our overall financial control environment.

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In the first quarter of 2016, our management made a decision to exit the Belleli EPC business, which includes Belleli EPC’s engineering, procurement and construction for the manufacture of tanks for tank farms and the manufacture of evaporators and brine heaters for desalination plants. Accordingly, Belleli EPC has not entered into any new contracts or orders from any new or existing customers relating to the Belleli EPC business. This departure decision is considered in determining the nature and extent of our Belleli EPC remediation efforts. In addition, Belleli EPC’s prior local senior management responsible for the intentional override of controls and misconduct are no longer employees of Belleli EPC or its affiliates.

We have made numerous changes throughout our organization and have taken significant other actions to reinforce the importance of a strong control environment, including training and other steps designed to strengthen and enhance our control culture.

~~To remediate the deficiencies identified herein, our leadership team, including the~~ principal executive officer and ~~principal~~principle financial officer, ~~has reaffirmed and reemphasized the importance of internal control, control consciousness and~~on a ~~strong control environment.~~

~~To date we have implemented the following remediation efforts at Belleli EPC:~~

Restructured our Executive Leadership Team (ELT), including designating responsibility of overseeing Belleli EPC projects to an ELT member who now reports directly to the Exterran Corporation principal executive officer;

Appointed experienced professionals to key finance and operational leadership positions within Belleli EPC, including the hiring of a new Finance Manager and assigning a Managing Director to lead the operations organization;

Integrated oversight of Belleli EPC operating, finance and manufacturing personnel by certain members of the Exterran Corporation ELT and the Exterran Corporation chief financial officer’s leadership team, including implementing regular meetings, to ensure sufficient oversight of project performance;

~~Established a direct functional reporting structure between Belleli EPC and Exterran Corporation with more clearly defined responsibilities;~~

Provided enhanced training on our policies and ethical requirements in English, and in Italian where necessary, including the emphasis of our hotline, the importance of reporting unethical actions and our zero tolerance for retaliation of any kind;

~~Engaged a third-party consultant to accelerate redesigning the Belleli EPC project and contract management processes and controls; and~~

~~Enhanced the accuracy and visibility of Belleli EPC financial results by improving the integrity of the monthly data interface.~~

Our management continues to believe meaningful progress has been made against remaining remediation efforts; although timetables vary, management regards successful completion as an important priority. Ongoing remediation activities include:

~~Continuing our enhanced review of estimated costs at completion as part of the monthly close process;~~

~~Reviewing and redesigning internal controls, including spreadsheet controls,~~timely basis to ensure that it is recoded, processed, summarized and reported within the ~~control objectives mitigate~~time periods specified in the ~~identified risks;~~

~~Continuing to assess~~SEC’s rules and redesign, as necessary, systems and related processes at Belleli EPC to ensure information technology oversight matches the operations of the business. In this regard, the Company’s corporate Information Technology Department migrated the Belleli EPC server from Italy to Hamriyah, United Arab Emirates, and has integrated Belleli EPC’s Enterprise Resource Planning system into the Company’s integrated technology framework;

~~Integrating accounting, manufacturing and operations functions and revising organizational structures to enhance accurate reporting and ensure appropriate review and accountability;~~

~~Continuing to assess current staffing levels and competencies to ensure the optimal complement of personnel with appropriate backgrounds and skill sets;~~

Enhancing our Sarbanes-Oxley (SOX) compliance procedures, including designing controls to respond to our risk assessment processes, implementing walkthroughs and performing risk responsive testing on our internal controls; and

~~Continuing our corporate review, at least quarterly, of non-income-based tax receivables globally.~~

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Our management believes the measures, when fully implemented and operational, will remediate the control deficiencies we have identified and strengthen our internal control over financial reporting. We are committed to improving our internal control processes and intend to continue to review and improve our financial reporting controls and procedures. As we continue to evaluate and work to improve our internal control over financial reporting, we may take additional measures to address control deficiencies or determine to modify, or in appropriate circumstances not to complete, certain of the remediation measures described above.forms.

Changes in Internal Control over Financial Reporting

Other than those noted ~~above,~~below, there were no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We adopted the new revenue guidance under Accounting Standards Update 606 (ASC 606) on January 1, 2018. The adoption of this guidance required the implementation of new accounting processes and procedures, which required us to update our internal controls over accounting for revenue recognition, including the adjustments to accumulated deficit required under the modified retrospective method of adoption, and the related disclosures required under the new guidance. As a result, we changed our internal controls to meet the new standard’s reporting and disclosure requirements.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Contemporaneously with filing the Form 8-K on April 26, 2016, we self-reported the errors and possible irregularities at Belleli EPC to the SEC. Since then, we have been cooperating with the SEC in its investigation of this matter, ~~including~~which has included responding to a subpoena for documents related to the restatement and of our compliance with the ~~U.S. Foreign Corrupt Practices Act (“FCPA”),~~FCPA, which were also provided to the Department of Justice (“DOJ”) at its request. The SEC staff has notified us that they have concluded their investigation concerning our compliance with the FCPA and that they do not intend to recommend an enforcement action concerning our compliance with the FCPA. The DOJ has similarly informed us that it does not intend to proceed with any further investigation or enforcement. The SEC’s investigation related ~~requests in~~to the circumstances giving rise to the restatement is continuing, and we are presently unable to predict the duration, scope or results or whether the SEC ~~subpoena pertain to our policies and procedures, information about our third-party sales agents, and documents related to historical internal investigations completed prior to November 2015.~~will commence any legal action.

Item 1A. Risk Factors

There have been no material changes or updates to our risk factors that were previously disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) Not applicable.

(b) Not applicable.

March 31, 2018:

Period
Total Number of
Shares Repurchased ⁽¹⁾

Average
Price Paid
Per Unit

Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs

Maximum Number of Shares
yet to be Purchased Under the
Publicly Announced Plans or
Programs
April 1, 2017 - April 30, 2017 880
$ 29.80
N/A N/A
May 1, 2017 - May 31, 2017 2,648
28.23
N/A N/A
June 1, 2017 - June 30, 2017 —
—
N/A N/A
Total 3,528
$ 28.62
N/A N/A



Period	Total Number of Shares Repurchased⁽¹⁾	Average Price Paid Per Unit		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares yet to be Purchased Under the Publicly Announced Plans or Programs
January 1, 2018 - January 31, 2018	953	$	32.06	N/A	N/A
February 1, 2018 - February 28, 2018	208	27.06		N/A	N/A
March 1, 2018 - March 31, 2018	129,719	26.24		N/A	N/A
Total	130,880	$	26.28	N/A	N/A

____________________


⁽¹⁾	Represents shares withheld to satisfy employees’ tax withholding obligations in connection with vesting of restricted stock awards during the period.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Item 6. Exhibits



~~Exhibit No.~~		~~Description~~
~~2.1~~		Separation and Distribution Agreement, dated as of November 3, 2015, by and among Exterran Holdings, Inc., Exterran General Holdings LLC, Exterran Energy Solutions, L.P., Exterran Corporation, AROC Corp., EESLP LP LLC, AROC Services GP LLC, AROC Services LP LLC and Archrock Services, L.P., incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on November 5, 2015
~~2.2~~		First Amendment to Separation and Distribution Agreement, dated as of December 15, 2015, by and among Archrock, Inc., Exterran General Holdings LLC, Exterran Energy Solutions, L.P., Exterran Corporation, AROC Corp., EESLP LP LLC, AROC Services GP LLC, AROC Services LP LLC and Archrock Services, L.P., incorporated by reference to Exhibit 2.2 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2015
~~3.1~~		~~Amended and Restated Certificate of Incorporation of Exterran Corporation, incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on November 5, 2015~~
~~3.2~~		~~Amended and Restated Bylaws of Exterran Corporation, incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on April 19, 2017~~
~~4.1~~		Indenture, dated as of April 4, 2017, by and among Exterran Energy Solutions, L.P., EES Finance Corp., Exterran Corporation, as parent, the subsidiary guarantors party thereto from time to time, and Wells Fargo Bank, National Association, as trustee, incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on April 4, 2017
~~4.2~~		Registration Rights Agreement, dated as of April 4, 2017, by and among Exterran Energy Solutions, L.P., EES Finance Corp., Exterran Corporation and Wells Fargo Securities, LLC, for itself and as representative of the other Initial Purchasers, incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed on April 4, 2017
31.1*		~~Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~
31.2*		~~Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~
32.1**		~~Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~
32.2**		~~Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~
~~101.INS~~		~~XBRL Instance Document.~~
~~101.SCH~~		~~XBRL Taxonomy Extension Schema Document.~~
~~101.CAL~~		~~XBRL Extension Calculation Linkbase Document.~~
~~101.DEF~~		~~XBRL Taxonomy Extension Definition Linkbase Document.~~
~~101.LAB~~		~~XBRL Taxonomy Extension Labels Linkbase Document.~~
~~101.PRE~~		~~XBRL Taxonomy Extension Presentation Linkbase Document.~~



*		~~Filed herewith.~~
**		~~Furnished, not filed.~~

The information required by this Part II. Item 6 is set forth in the Exhibit Index accompanying this quarterly report on Form 10-Q and is incorporated by reference into this Part II. Item 6.

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	Exterran Corporation

Date: ~~August 8, 2017~~May 3, 2018	By:	/s/ DAVID A. BARTA
		David A. Barta
		Senior Vice President and Chief Financial Officer
		(Principal Financial Officer)

Table of Contents

EXHIBIT INDEX



Exhibit No.		Description
2.1		Separation and Distribution Agreement, dated as of November 3, 2015, by and among Exterran Holdings, Inc., Exterran General Holdings LLC, Exterran Energy Solutions, L.P., Exterran Corporation, AROC Corp., EESLP LP LLC, AROC Services GP LLC, AROC Services LP LLC and Archrock Services, L.P., incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on November 5, 2015
2.2		First Amendment to Separation and Distribution Agreement, dated as of December 15, 2015, by and among Archrock, Inc., Exterran General Holdings LLC, Exterran Energy Solutions, L.P., Exterran Corporation, AROC Corp., EESLP LP LLC, AROC Services GP LLC, AROC Services LP LLC and Archrock Services, L.P., incorporated by reference to Exhibit 2.2 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2015
3.1		~~Amended and~~ Restated Certificate of Incorporation of ~~Exterran Corporation,~~the Company, incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on ~~Form 8-K filed on November 5, 2015~~
~~3.2~~		~~Amended and Restated Bylaws of Exterran Corporation, incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form~~From 8-K filed on April ~~19, 2017~~30, 2018
~~4.1~~10.1†*		~~Indenture, dated as~~ Form of ~~April 4, 2017, by~~Award Notice and among Exterran Energy Solutions, L.P., EES Finance Corp., Exterran Corporation, as parent, the subsidiary guarantors party thereto from time to time, and Wells Fargo Bank, National Association, as trustee, incorporated by reference to Exhibit 4.1Agreement for Performance Units pursuant to the ~~Registrant’s Current Report on Form 8-K filed on April 4, 2017~~2015 Stock Incentive Plan
~~4.2~~10.2†*		~~Registration Rights~~ Form of Award Notice and Agreement ~~dated as of April 4, 2017, by and among Exterran Energy Solutions, L.P., EES Finance Corp., Exterran Corporation and Wells Fargo Securities, LLC,~~ for ~~itself and as representative of the other Initial Purchasers, incorporated by reference to Exhibit 4.3~~Restricted Stock pursuant to the ~~Registrant’s Current Report on~~ 2015 Stock Incentive Plan
10.3†*		Form ~~8-K filed on April 4, 2017~~of Award Notice and Agreement for Stock-Settled Restricted Stock Units pursuant to the 2015 Stock Incentive Plan
10.4†*		Form of Award Notice and Agreement for Cliff-Vested Restricted Stock pursuant to the 2015 Stock Incentive Plan
31.1*		Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*		Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**		Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**		Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		XBRL Instance Document.
101.SCH		XBRL Taxonomy Extension Schema Document.
101.CAL		XBRL Extension Calculation Linkbase Document.
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB		XBRL Taxonomy Extension Labels Linkbase Document.
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.



†		Management contract or compensatory plan or arrangement.
*		Filed herewith.
**		Furnished, not filed.

5253



	Three Months Ended June 30, 2017			Three Months Ended June 30, 2016
	Venezuela			Venezuela			Belleli CPE			Total
Revenue	$	—		$	—		$	12,164		$	12,164
Cost of sales (excluding depreciation and amortization expense)	—			—			11,762			11,762
Selling, general and administrative	32			40			1,548			1,588
Long-lived asset impairment	—			—			7,144			7,144
Recovery attributable to expropriation	—			(16,551		)	—			(16,551		)
Interest expense	—			—			7			7
Other (income) expense, net	—			(2,753		)	(69		)	(2,822		)
Income (loss) from discontinued operations, net of tax	$	(32	)	$	19,264		$	(8,228	)	$	11,036



	June 30, 2017			December 31, 2016
Costs incurred on uncompleted contracts	$	676,834		$	558,274
Estimated earnings (losses) on uncompleted contracts ⁽¹⁾	7,803			(10,370		)
	684,637			547,904
Less — billings to date on uncompleted contracts	(723,403		)	(558,064		)
	$	(38,766	)	$	(10,160	)



	Restatement Related Charges
Beginning balance at January 1, 2016	$	—
Additions for costs expensed	7,851
Reductions for payments	(275		)
Ending balance at June 30, 2016	$	7,576

Beginning balance at January 1, 2017	$	2,212
Additions for costs expensed, net	1,014
Add-back recoveries from Archrock	2,801
Reductions for payments, net	(4,273		)
Ending balance at June 30, 2017	$	1,754



	Term	Maximum Potential Undiscounted Payments as of June 30, 2017
Performance guarantees through letters of credit ⁽¹⁾	2017 - 2021	$	94,345
Standby letters of credit	2017	720
Bid bonds and performance bonds ⁽¹⁾	2017 - 2023	44,729
Maximum potential undiscounted payments		$	139,794



Six Months Ended	Contract Operations		Aftermarket Services		Oil and Gas Product Sales		Belleli EPC Product Sales			Reportable Segments Total
June 30, 2017:
Revenue	$	187,386	$	46,768	$	328,972	$	48,159		$	611,285
Gross margin ⁽¹⁾	121,897		12,878		31,410		22,096			188,281
June 30, 2016 ⁽²⁾
Revenue	$	199,448	$	64,909	$	240,999	$	63,421		$	568,777
Gross margin ⁽¹⁾	124,549		18,472		20,908		(1,428		)	162,501



	June 30, 2017		December 31, 2016		June 30, 2016
Product Sales Backlog ⁽¹⁾:
Oil and Gas Product Sales Backlog:
Compressor and Accessory Backlog	$	248,147	$	160,006	$	47,834
Production and Processing Equipment Backlog	256,785		144,252		42,551
Installation Backlog	1,599		1,964		4,127
Belleli EPC Backlog ⁽²⁾	33,811		63,578		105,461
Total Product Sales Backlog	$	540,342	$	369,800	$	199,973



Period	Total Number of Shares Repurchased ⁽¹⁾	Average Price Paid Per Unit		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares yet to be Purchased Under the Publicly Announced Plans or Programs
April 1, 2017 - April 30, 2017	880	$	29.80	N/A	N/A
May 1, 2017 - May 31, 2017	2,648	28.23		N/A	N/A
June 1, 2017 - June 30, 2017	—	—		N/A	N/A
Total	3,528	$	28.62	N/A	N/A