Archrock, Inc. - Annual Report: 2014 (Form 10-K)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

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

For the fiscal year ended December 31, 2014

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

For the transition period from to

Commission file no. 001-33666

Exterran Holdings, Inc.

(Exact name of registrant as specified in its charter)

Delaware		74-3204509
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

16666 Northchase Drive, Houston, Texas 77060

(Address of principal executive offices, zip code)

(281) 836-7000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class		Name of Each Exchange on Which Registered
Common Stock, $0.01 par value		New York Stock Exchange

Securities registered pursuant to 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

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 (§ 232.405 of this chapter) 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x		Accelerated filer o

Non-accelerated filer o		Smaller reporting company o
(Do not check if a smaller reporting company)

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

The aggregate market value of the common stock of the registrant held by non-affiliates as of June 30, 2014 was $1,452,591,680. For purposes of this disclosure, common stock held by persons who hold more than 5% of the outstanding voting shares and common stock held by executive officers and directors of the registrant have been excluded in that such persons may be deemed to be “affiliates” as that term is defined under the rules and regulations promulgated under the Securities Act of 1933, as amended. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

Number of shares of the common stock of the registrant outstanding as of February 19, 2015: 68,923,955 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement for the 2015 Meeting of Stockholders, which is expected to be filed with the Securities and Exchange Commission within 120 days after December 31, 2014, are incorporated by reference into Part III of this Form 10-K.

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TABLE OF CONTENTS

		Page
PART I
Item 1.	Business	2
Item 1A.	Risk Factors	16
Item 1B.	Unresolved Staff Comments	30
Item 2.	Properties	31
Item 3.	Legal Proceedings	31
Item 4.	Mine Safety Disclosures	31
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	32
Item 6.	Selected Financial Data	34
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	40
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	60
Item 8.	Financial Statements and Supplementary Data	61
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	61
Item 9A.	Controls and Procedures	61
Item 9B.	Other Information	63
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	63
Item 11.	Executive Compensation	63
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	63
Item 13.	Certain Relationships and Related Transactions and Director Independence	65
Item 14.	Principal Accountant Fees and Services	65
PART IV
Item 15.	Exhibits and Financial Statement Schedules	65
SIGNATURES		70

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PART I

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; 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 from those in these forward-looking statements are described below, in Part I, Item 1A (“Risk Factors”) and Part II, Item 7 (“Management’s Discussion and Analysis of Financial Condition and Results of Operations”) of this report. Important factors that could cause our actual results to differ materially from the expectations reflected in these forward-looking statements include, among other things:

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

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

· the success of our subsidiaries, including Exterran Partners, L.P. (along with its subsidiaries, the “Partnership”);

· our ability to complete the proposed separation (the “Spinoff”) of our international contract operations, international aftermarket services and global fabrication businesses into an independent, publicly traded company;

· changes in economic or political conditions in the countries in which we do business, including civil 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;

· the inherent risks associated with our operations, such as equipment defects, impairments, malfunctions and natural disasters;

· loss of the Partnership’s status as a partnership for United States of America (“U.S.”) federal income tax purposes;

· a decline in the Partnership’s quarterly distribution of cash to us attributable to our ownership interest in the Partnership;

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

· the financial condition of our customers;

· 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;

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· our ability to implement certain business and financial objectives, such as:

· winning profitable new business;

· sales of additional U.S. contract operations contracts and equipment to the Partnership;

· 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; and

· accessing the capital markets at an acceptable cost;

· liability related to the use of our products and services;

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

Item 1. Business

We were incorporated in February 2007 as a wholly-owned subsidiary of Universal Compression Holdings, Inc. (“Universal”). On August 20, 2007, Universal and Hanover Compressor Company (“Hanover”) merged into our wholly-owned subsidiaries, and we became the parent entity of Universal and Hanover. Immediately following the completion of the merger, Universal merged with and into us. References to “Exterran,” “our,” “we” and “us” refer to Exterran Holdings, Inc. and its subsidiaries. References to “North America” when used in this report refer to the U.S. and Canada. References to “International” and variations thereof when used in this report refer to the world excluding North America.

General

We are a global market leader in the full-service natural gas compression business and a premier provider of operations, maintenance, service and equipment for oil and natural gas production, processing and transportation applications. Our global customer base consists 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 producers and natural gas processors, gatherers and pipelines. We operate in three primary business lines: contract operations, aftermarket services and fabrication. In our contract operations business line, we use our fleet of natural gas compression equipment and crude oil and natural gas production and processing equipment to provide operations services to our customers. In our aftermarket services business line, we sell parts and components and provide operations, maintenance, overhaul and reconfiguration services to customers who own compression, production, processing, treating and other equipment. In our fabrication business line, we fabricate natural gas compression and oil and natural gas production and processing equipment for sale to our customers and for use in our contract operations services. In addition, our fabrication business line provides engineering, procurement and fabrication services related to the manufacturing of critical process equipment for refinery and petrochemical facilities, the fabrication of tank farms and the fabrication of evaporators and brine heaters for desalination plants. We 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 products and services are essential to the production, processing, transportation and storage of natural gas and are provided primarily to producers and distributors of oil and natural gas. Our geographic business unit operating structure, technically experienced personnel and high-quality contract operations fleet and fabrication facilities allow us to provide reliable customer service and products in a timely manner.

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Exterran Partners, L.P.

We have an equity interest in the Partnership, a master limited partnership that provides natural gas contract operations services to customers throughout the U.S. As of December 31, 2014, public unitholders held a 63% ownership interest in the Partnership and we owned the remaining equity interest, including all of the general partner interest and incentive distribution rights. We consolidate the financial position and results of operations of the Partnership. It is our intention for the Partnership to be the primary vehicle for the growth of our U.S. contract operations business and we may grow the Partnership through third party acquisitions, organic growth and transfers by us of additional U.S. contract operations customer contracts and equipment to the Partnership over time in exchange for cash, the Partnership’s assumption of our debt and/or additional equity interests in the Partnership. As of December 31, 2014, the Partnership’s fleet included 6,472 compressor units comprising approximately 3,139,000 horsepower, or 75% of our and the Partnership’s combined total U.S. horsepower. The Partnership’s fleet included 229 compressor units, comprising approximately 79,000 horsepower, leased from our wholly-owned subsidiaries and excluded 1 compressor unit, comprising approximately 100 horsepower, owned by the Partnership but leased to our wholly-owned subsidiaries as of December 31, 2014.

August 2014 MidCon Acquisition

On August 8, 2014, the Partnership completed an acquisition of natural gas compression assets, including a fleet of 162 compressor units, comprising approximately 110,000 horsepower from MidCon Compression, L.L.C. (“MidCon”) for $130.1 million. The purchase price was funded with borrowings under the Partnership’s revolving credit facility. The majority of the horsepower acquired is under a five-year contract operations services agreement with BHP Billiton Petroleum (“BHP Billiton”) to provide compression services. In connection with the acquisition, the contract operations services agreement with BHP Billiton was assigned to the Partnership effective as of the closing.

In accordance with the terms of the Purchase and Sale Agreement between the Partnership and MidCon relating to this acquisition, the Partnership directed MidCon to sell a tract of real property and the facility located thereon, a fleet of vehicles, personal property and parts inventory to our wholly-owned subsidiary Exterran Energy Solutions, L.P. (“EESLP”), an indirect parent company of the Partnership, for $4.1 million. The assets acquired by EESLP are used in conjunction with the compression units the Partnership acquired from MidCon to provide compression services. The acquisition of the assets by the Partnership and EESLP from MidCon is referred to as the “August 2014 MidCon Acquisition.”

April 2014 MidCon Acquisition

On April 10, 2014, the Partnership completed an acquisition of natural gas compression assets, including a fleet of 337 compressor units, comprising approximately 444,000 horsepower from MidCon for $352.9 million. The purchase price was funded with the net proceeds from the Partnership’s public sale of 6.2 million common units and a portion of the net proceeds from the Partnership’s issuance of $350.0 million aggregate principal amount of 6% senior notes due October 2022 (the “Partnership 2014 Notes”). The compressor units were previously used by MidCon to provide compression services to a subsidiary of Access Midstream Partners LP (“Access”). Effective as of the closing of the acquisition, the Partnership and Access entered into a seven-year contract operations services agreement under which the Partnership provides compression services to Williams Partners, L.P. (“Williams,” formerly Access).

In accordance with the terms of the Purchase and Sale Agreement between the Partnership and MidCon relating to this acquisition, the Partnership directed MidCon to sell a tract of real property and the facility located thereon, a fleet of vehicles, personal property and parts inventory to our wholly-owned subsidiary EESLP, an indirect parent company of the Partnership, for $7.7 million. The assets acquired by EESLP are used in conjunction with the compression units the Partnership acquired from MidCon to provide compression services. The acquisition of the assets by the Partnership and EESLP from MidCon is referred to as the “April 2014 MidCon Acquisition.”

Proposed Spinoff Transaction

On November 17, 2014, we announced that our board of directors had authorized management to pursue a plan to separate our international contract operations, international aftermarket services and global fabrication businesses into an independent, publicly traded company (“Spinco”). To effect the Spinoff, we intend to distribute, on a pro rata basis, all of the shares of Spinco common stock to our stockholders as of the record date for the Spinoff. The Spinoff is subject to market conditions, the receipt of an opinion of counsel as to the tax-free nature of the transaction, completion of a review by the U.S. Securities and Exchange Commission of a Form 10 to be filed by Spinco, the execution of separation and intercompany agreements and final approval of our board of directors. Upon completion of the Spinoff, we and Spinco will be independent, publicly traded companies with separate public ownership, boards of directors and management, and we will own and operate the remaining U.S. contract operations and U.S. aftermarket services businesses that we currently own. In addition, we will continue to hold interests in the Partnership, which include the sole general partner interest and certain limited partner interests, as well as all of the incentive distribution rights in the Partnership.

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Spinco is expected to issue certain third-party debt instruments and borrow funds on or before the completion of the Spinoff. Certain, if not all, of the proceeds received by Spinco from such borrowings are expected to be distributed to us on or before the completion of the Spinoff and we expect to use those distributed funds to repay, in whole or in part, our (but not the Partnership’s) outstanding debt instruments. Although our current goal is to complete the Spinoff in the second half of 2015, there are no assurances as to when the proposed Spinoff will be completed, if at all, or if the Spinoff will be completed based on the expected plans.

Industry Overview

Natural Gas Compression

Natural gas compression is a mechanical process whereby the pressure of a given volume of natural gas is increased to a desired higher pressure for transportation from one point to another. It is essential to the production and transportation of natural gas. Compression is typically required several times during the natural gas production and transportation cycle, including (i) at the wellhead, (ii) throughout gathering and distribution systems, (iii) into and out of processing and storage facilities and (iv) along intrastate and interstate pipelines.

· Wellhead and Gathering Systems — Natural gas compression is used to transport natural gas from the wellhead through the gathering system. At some point during the life of natural gas wells reservoir, pressures typically fall below the line pressure of the natural gas gathering or pipeline system used to transport the natural gas to market. At that point, natural gas no longer naturally flows into the pipeline. Compression equipment is applied in both field and gathering systems to boost the pressure levels of the natural gas flowing from the well allowing it to be transported to market. Changes in pressure levels in natural gas fields require periodic changes to the size and/or type of on-site compression equipment. Additionally, compression is used to reinject natural gas into producing oil wells to maintain reservoir pressure and help lift liquids to the surface, which is known as secondary oil recovery or natural gas lift operations. Typically, these applications require low- to mid-range horsepower compression equipment located at or near the wellhead. Compression equipment is also used to increase the efficiency of a low-capacity natural gas field by providing a central compression point from which the natural gas can be produced and injected into a pipeline for transmission to facilities for further processing.

· Pipeline Transportation Systems — Natural gas compression is used during the transportation of natural gas from the gathering systems to storage or the end user. Natural gas transported through a pipeline loses pressure over the length of the pipeline. Compression is staged along the pipeline to increase capacity and boost pressure to overcome the friction and hydrostatic losses inherent in normal operations. These pipeline applications generally require larger horsepower compression equipment (1,500 horsepower and higher).

· Storage Facilities — Natural gas compression is used in natural gas storage projects for injection and withdrawals during the normal operational cycles of these facilities.

· Processing Applications — Compressors may also be used in combination with natural gas production and processing equipment and to process natural gas into other marketable energy sources. In addition, compression services are used for compression applications in refineries and petrochemical plants.

Many natural gas producers, transporters and processors outsource their compression services due to the benefits and flexibility of contract compression. Changing well and pipeline pressures and conditions over the life of a well often require producers to reconfigure or replace their compressor units to optimize the well production or gathering system efficiency.

We believe outsourcing compression operations to compression service providers such as us offers customers:

· the ability to efficiently meet their changing compression needs over time while limiting the underutilization of their owned compression equipment;

· access to the compression service provider’s specialized personnel and technical skills, including engineers and field service and maintenance employees, which we believe generally leads to improved production rates and/or increased throughput;

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· the ability to increase their profitability by transporting or producing a higher volume of natural gas through decreased compression downtime and reduced operating, maintenance and equipment costs by allowing the compression service provider to efficiently manage their compression needs; and

· the flexibility to deploy their capital on projects more directly related to their primary business by reducing their compression equipment and maintenance capital requirements.

The international compression market is comprised primarily of large horsepower compressors. A significant portion of this market involves comprehensive projects that require the design, fabrication, delivery, installation, operation and maintenance of compressors and related natural gas treatment and processing equipment by the contract operations service provider.

Production and Processing Equipment

Crude oil and natural gas are generally not marketable as produced at the wellhead and must be processed or treated before they can be transported to market. Production and processing equipment is used to separate and treat oil and natural gas as it is produced to achieve a marketable quality of product. Production processing typically involves the separation of oil and natural gas and the removal of contaminants. The end result is “pipeline” or “sales” quality oil and natural gas. Further processing or refining is almost always required before oil or natural gas is suitable for use as fuel or feedstock for petrochemical production. Production processing normally takes place in the “upstream” and “midstream” markets, while refining and petrochemical processing is referred to as the “downstream” market. Wellhead or upstream production and processing equipment includes a wide and diverse range of products.

The standard production and processing equipment market tends to be somewhat commoditized, with sales following general industry trends of oil and natural gas production. We fabricate and stock standard production equipment based on historical product mix and expected customer purchases. In addition, we sell custom-engineered, built-to-specification production and processing equipment, which typically consists of much larger equipment packages than standard equipment, and is generally used in much larger scale production operations. The custom equipment market is driven by global economic trends, and the specifications for purchased equipment can vary significantly. Technology, engineering capabilities, project management, available manufacturing space and quality control standards are the key drivers in the custom equipment market.

Market Conditions

We believe that the growing global consumption of natural gas and its byproducts is the predominant force driving the demand for natural gas compression and production and processing equipment. As more natural gas is consumed, the demand for compression and production and processing equipment generally increases. Because we expect the demand for natural gas and natural gas byproducts to increase over the long term, we believe the demand for compression and production and processing equipment and related services will increase as well.

Natural gas consumption in the U.S. for the twelve months ended November 30, 2014 increased by approximately 5% compared to the twelve months ended November 30, 2013. The U.S. Energy Information Administration (“EIA”) forecasts that total U.S. natural gas consumption will increase by 1.4% in 2015 compared to 2014 and increase by an average of 0.7% per year thereafter until 2040. The EIA estimates that the U.S. natural gas consumption level will be approximately 30 trillion cubic feet in 2040, or 16% of the projected worldwide total of approximately 185 trillion cubic feet.

Natural gas marketed production in the U.S. for the twelve months ended November 30, 2014 increased by approximately 5% compared to the twelve months ended November 30, 2013. The EIA forecasts that total U.S. natural gas marketed production will increase by 4% in 2015 compared to 2014 and U.S. natural gas production will increase by an average of 1.5% per year thereafter until 2040. The EIA estimates that the U.S. natural gas production level will be approximately 33 trillion cubic feet in 2040, or 18% of the projected worldwide total of approximately 187 trillion cubic feet.

Global oil and U.S. natural gas prices have declined significantly in the last several months, and, as a result, research analysts are forecasting declines in U.S. and worldwide capital spending for drilling activity in 2015, and U.S. producers and other producers around the world have begun to announce reduced capital budgets for this year.

We believe the long-term outlook for natural gas compression in the U.S. will continue to benefit from increased production from unconventional sources and from the aging of producing natural gas fields that will require more compression to continue producing the same volume of natural gas. In addition, we believe there are opportunities to provide compression services to producers of natural gas liquids. Global oil and U.S. natural gas prices, however, have fallen significantly recently. During periods of lower oil and natural gas prices, production growth could moderate or decline in North America and in other parts of the world, and as a result the demand or pricing for our natural gas compression and oil and natural gas production and processing equipment and services could be adversely affected.

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The EIA reports that natural gas consumption outside of the U.S. grew 47% from 2000 through 2012. Despite this growth in demand, most international energy markets have historically lacked the infrastructure necessary to either transport natural gas to markets or consume it locally; thus, more infrastructure is required to utilize this natural gas. Total natural gas consumption worldwide is projected to increase by 1.7% per year until 2040, according to the EIA, and therefore, we believe that over the long term, demand for natural gas infrastructure in international markets will increase. We believe this anticipated increase in demand for infrastructure will be further supported by recent technology advances, including liquefied natural gas (or LNG) and gas-to-liquids, which make the transportation of natural gas without pipelines more economical, environmental legislation prohibiting flaring and the anticipated construction of natural gas-fueled power plants built to meet international energy demand. Additionally, we believe demand for production and processing equipment will increase over time to support the anticipated increased infrastructure.

While natural gas compression and production and processing equipment typically must be engineered to meet unique customer specifications, the fundamental technology of such equipment has not been subject to significant change.

As energy industry capital spending declined in 2009, our fabrication business segment experienced a reduction in demand that continued through 2011. However, during 2012 we had significant improvements in our fabrication backlog, which increased by approximately 45% from December 31, 2011. During 2013, our fabrication backlog decreased by approximately 36% from December 31, 2012. Over 30% of that reduction was related to an installation project for one customer that was completed in 2013. During 2014, our fabrication backlog increased by approximately 40% from December 31, 2013. Additionally, we have seen some shift in the regional mix of our fabrication backlog over the past several years. As of December 31, 2013, our backlog for North America, the Eastern Hemisphere and Latin America represented approximately 43%, 55% and 2%, respectively, of our fabrication backlog. As of December 31, 2014, North America, the Eastern Hemisphere and Latin America accounted for approximately 56%, 37% and 7% respectively, of our fabrication backlog.

Our critical process equipment fabrication business has also experienced a reduction in backlog given the longer lead times for the development of projects. In addition, we fabricate evaporators and brine heaters for desalination plants and tank farms primarily for use in North Africa and the Middle East. Demand for these products is driven primarily by population growth, improvements in the standard of living and investment in infrastructure. The reductions in global economic activity led to a substantial reduction in our fabrication backlog levels related to these products during 2011 and 2012. During 2013, we significantly improved the total backlog for these products, which increased by approximately 75% from December 31, 2012 to $239.2 million as of December 31, 2013. Total backlog for these products decreased by approximately 22% during 2014, but remained significantly higher than the backlog levels at December 31, 2012 and 2011. If capital investment in drilling activities remains low throughout 2015, we may see lower bookings in our fabrication business in 2015 and in future periods.

Operations

Business Segments

Our revenues and income are derived from four business segments:

· North America Contract Operations. Our North America contract operations segment primarily provides natural gas compression services to meet specific customer requirements utilizing Exterran-owned assets within the U.S.

· International Contract Operations. Our international contract operations segment provides substantially the same services as our North America contract operations segment except it services locations outside the U.S. Services provided in our international contract operations segment often include engineering, procurement and on-site construction of large natural gas compression stations and/or crude oil or natural gas production and processing facilities.

· Aftermarket Services. Our aftermarket services segment provides a full range of services to support the surface production, compression and processing needs of customers, from parts sales and normal maintenance services to full operation of a customer’s owned assets.

· Fabrication. Our fabrication segment provides (i) design, engineering, fabrication, installation and sale of natural gas compression units and accessories and equipment used in the production, treating and processing of crude oil and natural gas and (ii) engineering, procurement and fabrication services related to the manufacturing of critical process equipment for refinery and petrochemical facilities, the fabrication of tank farms and the fabrication of evaporators and brine heaters for desalination plants.

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For financial data relating to our business segments or geographic regions that accounted for 10% or more of consolidated revenue in any of the last three fiscal years, see Part II, Item 7 (“Management’s Discussion and Analysis of Financial Condition and Results of Operations”) and Note 24 to the Consolidated Financial Statements included in Part IV, Item 15 (“Financial Statements”) of this report.

Compressor Fleet

The size and horsepower of our worldwide natural gas compressor fleet on December 31, 2014 is summarized in the following table:

		Aggregate
	Number	Horsepower	% of
Range of Horsepower Per Unit	of Units	(in thousands)	Horsepower
0 – 200	3,759	430	8	%
201 – 500	2,460	671	12	%
501 – 800	693	429	8	%
801 – 1,100	462	445	8	%
1,101 – 1,500	1,641	2,236	41	%
1,501 and over	609	1,234	23	%
Total	9,624	5,445	100	%

As of December 31, 2014, the Partnership’s fleet included 6,472 of these compressor units comprising approximately 3,139,000 horsepower, or 75% of our and the Partnership’s combined total U.S. horsepower. As of December 31, 2014, the Partnership’s fleet included 229 compressor units, comprising approximately 79,000 horsepower, leased from our wholly-owned subsidiaries and excluded 1 compressor unit, comprising approximately 100 horsepower, owned by the Partnership but leased to our wholly-owned subsidiaries.

Over the last several years, we have undertaken efforts to standardize our compressor fleet around major components and key suppliers. The standardization of our fleet:

· enables us to minimize our fleet operating costs and maintenance capital requirements;

· enables us to reduce inventory costs;

· facilitates low-cost compressor resizing; and

· allows us to develop improved technical proficiency in our maintenance and overhaul operations, which enables us to achieve high run-time rates while maintaining lower operating costs.

Contract Operations — North America and International

We provide comprehensive contract operations services, including the personnel, equipment, tools, materials and supplies to meet our customers’ natural gas compression, production or processing service needs. Based on the operating specifications at the customer’s location and the customer’s unique needs, these services include designing, sourcing, owning, installing, operating, servicing, repairing and maintaining equipment to provide these services to our customers.

When providing contract compression services, we work closely with a customer’s field service personnel so that the compression services can be adjusted to efficiently match changing characteristics of the natural gas reservoir and the natural gas produced. We routinely repackage or reconfigure a portion of our existing fleet to adapt to our customers’ compression services needs. We utilize both slow and high speed reciprocating compressors primarily driven by internal natural gas fired combustion engines. We also utilize rotary screw compressors for specialized applications.

Our equipment is maintained in accordance with established maintenance schedules. These maintenance procedures are updated as technology changes and as our operations group develops new techniques and procedures. In addition, because our field technicians provide maintenance on our contract operations equipment, they are familiar with the condition of our equipment and can readily identify potential problems. In our experience, these maintenance procedures maximize equipment life and unit availability, minimize avoidable downtime and lower the overall maintenance expenditures over the equipment life. Generally, each of our compressor units undergoes a major overhaul once every three to seven years, depending on the type, size and utilization of the unit.

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We also provide contract production and processing services, similar to the contract compression services described above, utilizing our fleet of oil and natural gas production and processing equipment. Most of these services are what we call Integrated Projects, in which we provide the engineering, design, project management, procurement and construction services necessary to incorporate our products into production, processing and compression facilities.

We believe that our aftermarket services and fabrication businesses, described below, provide opportunities to cross-sell our contract operations services.

Our customers typically contract for our services on a site-by-site basis for a specific monthly service rate that is generally reduced if we fail to operate in accordance with the contract requirements. Following the initial minimum term, which in North America is typically between six and twelve months, contract operations services generally continue until terminated by either party with 30 days’ advance notice. Our customers generally are required to pay our monthly service fee even during periods of limited or disrupted natural gas flows, which enhances the stability and predictability of our cash flows. Additionally, because we typically do not take title to the natural gas we compress, process or treat and because the natural gas we use as fuel for our compressors and other equipment is supplied by our customers, we have limited direct exposure to commodity price fluctuations.

We maintain field service locations from which we can service and overhaul our own compressor fleet to provide contract operations services to our customers. We also use many of these locations to provide aftermarket services to our customers, as described in more detail below. As of December 31, 2014, our North America contract operations segment provided contract operations services primarily using a fleet of 8,638 natural gas compression units with an aggregate capacity of approximately 4,209,000 horsepower. During the year ended December 31, 2014, 25% of our total revenue and 40% of our total gross margin was generated from North America contract operations. Gross margin, a non-GAAP financial measure, is reconciled, in total, to net income (loss), its most directly comparable financial measure calculated and presented in accordance with GAAP in Part II, Item 6 (“Selected Financial Data — Non-GAAP Financial Measures”) of this report.

Our international operations are focused on markets that require both large horsepower compressor applications and full production and processing facilities. Our international contract operations segment typically engages in longer-term contracts and more comprehensive projects than our North America contract operations segment. International projects often require us to provide complete engineering, design and installation services and a greater investment in equipment, facilities and related installation costs. These larger projects may include several compressor units on one site or entire facilities designed to process and treat oil or natural gas to make it suitable for end use. As of December 31, 2014, our international contract operations segment provided contract operations services using a fleet of 986 natural gas compression units with an aggregate capacity of approximately 1,236,000 horsepower and a fleet of production and processing equipment. During the year ended December 31, 2014, 17% of our total revenue and 30% of our total gross margin was generated from international contract operations.

Aftermarket Services

Our aftermarket services segment sells parts and components and provides operation, maintenance, overhaul and reconfiguration services to customers who own compression, production, treating and oilfield power generation equipment. We believe that we are particularly well qualified to provide these services because our highly experienced operating personnel have access to the full range of our compression services, production and processing equipment and oilfield power generation equipment and facilities. During the year ended December 31, 2014, 14% of our total revenue and 8% of our total gross margin was generated from aftermarket services.

Fabrication

Compressor and Accessory Fabrication

We design, engineer, fabricate, install and sell skid-mounted natural gas compression units and accessories to meet standard or unique customer specifications. We sell this compression equipment 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.

Generally, we assemble compressors sold to third parties according to each customer’s specifications. We purchase components for these compressors from third party suppliers including several major engine and compressor manufacturers in the industry. We also sell pre-packaged compressor units designed to our standard specifications. During the year ended December 31, 2014, 14% of our total revenue and 6% of our total gross margin was generated from our compressor and accessory fabrication business line.

As of December 31, 2014, our compressor and accessory fabrication backlog was $270.3 million, compared to $157.9 million at December 31, 2013. At December 31, 2014, $24.7 million of future revenue related to our compressor and accessory fabrication backlog is expected to be recognized after December 31, 2015.

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Production and Processing Equipment Fabrication and Installation

We design, engineer, fabricate, install and sell a broad range of oil and natural gas production and processing equipment designed to heat, separate, dehydrate and condition crude oil and natural gas to make them suitable for end use. Our products include line heaters, oil and natural gas separators, glycol dehydration units, condensate stabilizers, dewpoint control plants, water treatment, mechanical refrigeration and cryogenic plants and skid-mounted production packages designed for both onshore and offshore production facilities. We sell standard production and processing equipment, which is used for processing wellhead production from onshore or shallow-water offshore platform production primarily into U.S. markets. In addition, we sell custom-engineered, built-to-specification production and processing equipment. Some of these projects are in remote areas and in developing countries with limited oil and natural gas industry infrastructure. To meet most customers’ rapid response requirements and minimize customer downtime, we maintain an inventory of standard products and long delivery components used to manufacture our products to our customers’ specifications. We also provide engineering, procurement and fabrication services related to the manufacturing of critical process equipment for refinery and petrochemical facilities, the fabrication of tank farms and the fabrication of evaporators and brine heaters for desalination plants. During the year ended December 31, 2014, 30% of our total revenue and 16% of our total gross margin was generated from our production and processing equipment fabrication and installation business lines.

As of December 31, 2014, our production and processing equipment fabrication backlog was $561.2 million, compared to $475.6 million at December 31, 2013. Typically, we expect our production and processing equipment backlog to be produced within a three to 24 month period. At December 31, 2014, $34.3 million of future revenue related to our production and processing equipment backlog is expected to be recognized after December 31, 2015. As of December 31, 2014, our installation backlog was $121.8 million, compared to $46.4 million at December 31, 2013. At December 31, 2014, $0.4 million of future revenue related to our installation backlog is expected to be recognized after December 31, 2015.

Business Strategy

We intend to continue to capitalize on our competitive strengths to meet our customers’ needs through the following key strategies:

· Grow our North America business. We plan to continue to invest in strategically growing our North America business both organically and through third-party acquisitions. Our North America contract operations business is our largest business segment based on gross margin, representing 40% of our gross margin during 2014. We see opportunities to grow this business over the long term by continuing to put idle units back to work and adding new horsepower in key growth areas, including providing compression services to producers of natural gas from shale and liquids rich plays. We intend to utilize the Partnership as our primary vehicle for the long-term growth of our U.S. contract operations business. In addition, we believe the long-term development of shale plays and areas focused on the production of oil and natural gas liquids in North America will lead to future opportunities in our North America fabrication business.

· Focus on key international markets. International markets continue to represent a significant growth opportunity for our business, due in large part to the fact that over 70% of the world’s natural gas production resides in markets outside North America. We believe that natural gas production in international markets will grow over the long term at a pace greater than that of North America. In addition, we typically see higher returns and margins in international markets relative to North America due to more complex project requirements. We expect to allocate additional resources toward key areas of our international business.

· Lower costs and improve profitability. As the largest provider of natural gas compression services in North America and internationally, we intend to use our scale to achieve cost savings in our operations. We are also focused on increasing productivity and optimizing our processes in our core lines of business. By making our systems and processes more efficient, we intend to lower our internal costs and improve our profitability.

Competitive Strengths

We believe we have the following key competitive strengths:

· Breadth and quality of product and service offerings. We provide our customers a broad variety of products and services, including outsourced compression, production and processing services, as well as the sale of natural gas compression and oil and natural gas production and processing equipment and installation services. We believe our contract operations services generally allow our customers that outsource their compression or production and processing needs to achieve higher production rates than they would achieve with their own operations, resulting in increased revenue for our customers. In addition, outsourcing allows our customers flexibility for their evolving compression and production and processing needs while limiting their capital requirements. By offering a broad range of services that leverage our core strengths, we believe that we can provide comprehensive integrated solutions to meet our customers’ needs. In our Integrated Projects, we can provide the engineering, design, project management and procurement and construction services necessary to incorporate our products into production, processing and compression facilities. We believe the breadth and quality of our products and services, the depth of our customer relationships and our presence in many major oil and natural gas-producing regions place us in a position to capture additional business on a global basis.

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· Focus on providing superior customer service. We believe we operate in a relationship-driven, service-intensive industry and therefore need to provide superior customer service. We believe that our regionally-based network, local presence, experience and in-depth knowledge of customers’ operating needs and growth plans enable us to respond to our customers’ needs and meet their evolving demands on a timely basis. In addition, we focus on achieving a high level of mechanical reliability for the services we provide in order to maximize our customers’ production levels. Our sales efforts concentrate on demonstrating our commitment to enhancing our customers’ cash flow through superior customer service, product design, fabrication, installation and after-market support.

· Size and geographic scope. We operate in the major onshore and offshore oil and natural gas producing regions of North America and many international markets. We believe we have sufficient fleet size, personnel, logistical capabilities, geographic scope, fabrication capabilities and range of services and product offerings to meet the needs of our customers on a timely and cost-effective basis. We believe our size, geographic scope and broad customer base provide us with improved operating expertise and business development opportunities.

· Ability to leverage the Partnership. We believe that the Partnership provides us a lower cost of capital over time. Since 2006, we have completed eight sales to the Partnership of compressor units aggregating approximately 2.4 million horsepower. The proceeds from these transactions have provided us significant capital to reduce our debt and fund our capital expenditures. As of December 31, 2014, we held a 35% ownership interest in the Partnership’s limited partner units and we owned all of the general partner interest and incentive distribution rights. We believe our ownership interest in the Partnership will allow us to participate in its future growth.

Oil and Natural Gas Industry Cyclicality and Volatility

Changes in oil and natural gas exploration and production spending normally results in changes in demand for our products and services; however, we believe our contract operations business is typically less impacted by commodity prices than certain other energy products and service providers because:

· compression, production and processing services are necessary for natural gas to be delivered from the wellhead to end users;

· the need for compression services and equipment has grown over time due to the increased production of natural gas, the natural pressure decline of natural gas producing basins and the increased percentage of natural gas production from unconventional sources; and

· our contract operations businesses are tied primarily to natural gas and oil production and consumption, which are generally less cyclical in nature than exploration activities.

Because we typically do not take title to the natural gas we compress, process or treat and because the natural gas we use as fuel for our compressors and other equipment is supplied by our customers, our direct exposure to commodity price risk is further reduced.

Seasonal Fluctuations

Our results of operations have not historically reflected any material seasonal tendencies and we currently do not believe that seasonal fluctuations will have a material impact on us in the foreseeable future.

Market and Customers

Our global customer base consists primarily 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 producers and natural gas processors, gatherers and pipelines.

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We conduct our contract operations and sales activities throughout North America and internationally, including offshore operations. We currently operate in approximately 30 countries in major oil and natural gas producing areas including the U.S., Argentina, Brazil, Mexico and the United Arab Emirates. We have fabrication facilities in the U.S., Italy, Singapore and the United Arab Emirates.

Sales and Marketing

Our salespeople pursue the market for our products in their respective territories. Each salesperson is assigned a customer list or territory based on the individual’s experience and personal relationships and the customers’ service requirements. This customer and relationship-focused strategy is communicated through frequent direct contact, technical presentations, print literature, print advertising and direct mail. Additionally, our salespeople coordinate with each other to effectively pursue customers that operate in multiple regions. Our salespeople work with our operations personnel to promptly respond to and satisfy customer needs.

Upon receipt of a request for proposal or bid by a customer, we analyze the application and prepare a quotation, including pricing and delivery date. The quotation is then delivered to the customer and, if we are selected as the vendor, final terms are agreed upon and a contract or purchase order is executed. Our engineering and operations personnel also provide assistance on complex applications, field operations issues and equipment modifications.

Sources and Availability of Raw Materials

We fabricate compression and production and processing equipment to provide contract operations services and to sell to third parties from components and subassemblies, most of which we acquire from a wide range of vendors. These components represent a significant portion of the cost of our compressor and production and processing equipment products. In addition, we fabricate tank farms and critical process equipment for refinery and petrochemical facilities and other vessels used in production, processing and treating of crude oil and natural gas. Steel can have wide price fluctuations and represents a significant portion of the raw materials for these products. Increases in raw material costs cannot always be offset by increases in our products’ sales prices. While many of our materials and components are available from multiple suppliers at competitive prices, we obtain some of the components used in our products from a limited group of suppliers. We occasionally experience long lead times for components from our suppliers and, therefore, we may at times make purchases in anticipation of future orders.

Competition

The natural gas compression services and fabrication business is highly competitive. Overall, we experience considerable competition from companies that may be able to more quickly adapt to changes within our industry and changes in economic conditions as a whole, more readily take advantage of available opportunities and adopt more aggressive pricing policies. We believe we are competitive with respect to price, equipment availability, customer service, flexibility in meeting customer needs, technical expertise, quality and reliability of our compressors and related services. We face vigorous competition in both compression services and compressor fabrication, with some firms competing in both segments. In our production and processing equipment business, we have different competitors in the standard and custom-engineered equipment markets. Competitors in the standard equipment market include several large companies and a large number of small, regional fabricators. Competition in the standard equipment market is generally based upon price and availability. Our competition in the custom-engineered market usually consists of larger companies with the ability to provide integrated projects and product support after the sale. The ability to fabricate these large custom-engineered systems near the point of end-use is often a competitive advantage.

International Operations

We operate in many geographic markets outside North America. For the year ended December 31, 2014, approximately 23% of our revenue was generated in the Eastern Hemisphere and approximately 16% of our revenue was generated in Latin America (primarily in Argentina, Brazil and Mexico). Changes in local economic or political conditions could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our future plans involve expanding our business in select international markets. The risks inherent in establishing new business ventures or expanding existing operations, especially in international markets where local customs, laws and business procedures present special challenges, may affect our ability to be successful in these ventures or operations or avoid losses which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We have significant operations that expose us to currency risk primarily in Argentina, Brazil, Italy and Mexico.

Additional risks inherent in our international business activities are described in Part I, Item 1A (“Risk Factors”) of this report. For financial data relating to our geographic concentrations, see Note 24 to the Financial Statements.

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Environmental and Other Regulations

Government Regulation

Our operations are subject to stringent and complex U.S. federal, state, local and international laws and regulations governing the discharge of materials into the environment or otherwise relating to protection of the environment and to occupational safety and health. Compliance with these environmental laws and regulations may expose us to significant costs and liabilities and cause us to incur significant capital expenditures in our operations. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, imposition of investigatory and remedial obligations, and the issuance of injunctions delaying or prohibiting operations. We believe that our operations are in substantial compliance with applicable environmental and safety and health laws and regulations and that continued compliance with currently applicable requirements would not have a material adverse effect on us. However, the clear trend in environmental regulation is to place more restrictions on activities that may affect the environment, and thus, any changes in these laws and regulations that result in more stringent and costly waste handling, storage, transport, disposal, emission or remediation requirements could have a material adverse effect on our results of operations and financial position.

The primary U.S. federal environmental laws to which our operations are subject include the Clean Air Act (“CAA”) and regulations thereunder, which regulate air emissions; the Clean Water Act (“CWA”) and regulations thereunder, which regulate the discharge of pollutants in industrial wastewater and storm water runoff; the Resource Conservation and Recovery Act (“RCRA”) and regulations thereunder, which regulate the management and disposal of hazardous and non-hazardous solid wastes; and the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) and regulations thereunder, known more commonly as “Superfund,” which imposes liability for the remediation of releases of hazardous substances in the environment. We are also subject to regulation under the U.S. federal Occupational Safety and Health Act (“OSHA”) and regulations thereunder, which regulate the protection of the safety and health of workers. Analogous state, local and international laws and regulations may also apply.

Air Emissions

The CAA and analogous state laws and their implementing regulations regulate emissions of air pollutants from various sources, including natural gas compressors, and also impose various monitoring and reporting requirements. Such laws and regulations may require a facility to obtain pre-approval for the construction or modification of certain projects or facilities expected to produce air emissions or result in the increase of existing air emissions, obtain and strictly comply with air permits containing various emissions and operational limitations, or utilize specific emission control technologies to limit emissions. Our standard contract operations contract typically provides that the customer will assume permitting responsibilities and certain environmental risks related to site operations.

On August 20, 2010, the U.S. Environmental Protection Agency (“EPA”) published new regulations under the CAA to control emissions of hazardous air pollutants from existing stationary reciprocal internal combustion engines. The rule would have required us to undertake certain expenditures and activities, including purchasing and installing emissions control equipment, such as oxidation catalysts or non-selective catalytic reduction equipment, on a portion of our engines located at certain sources of hazardous air pollutants and all our engines over a certain size regardless of location, following prescribed maintenance practices for engines (which are consistent with our existing practices), and implementing additional emissions testing and monitoring. Following legal challenges to the 2010 rule, the EPA reconsidered the rule and published revisions to the rule on January 30, 2013. The revised rule requires management practices for all covered engines but requires catalyst installation only on larger equipment at sites that are not deemed to be “remote.” Compliance with the final rule was required by October 2013 and the rule has not had and is not expected to have a material adverse impact on our business, financial condition, results of operations or cash flows.

On May 21, 2012, the EPA issued new ozone nonattainment designations for all areas except Chicago, in relation to the 2008 national ambient air quality standard (“NAAQS”) for ozone. Among other things, these new designations add Wise County to the Dallas-Fort Worth (“DFW”) nonattainment area. This new designation will require Texas to modify its State Implementation Plan (“SIP”) to include a plan for Wise County, Texas to come into compliance with the ozone NAAQS. This modification process started in January 2014, and the State of Texas anticipates having new regulations in place by mid-2015. If Texas implements the same control requirements in Wise County that are already in place in the other counties in the DFW nonattainment area, we could be required to modify or remove and replace a significant amount of equipment we currently utilize in Wise County. However, at this point we cannot predict what Texas’ new SIP will require or what equipment will still be operating in Wise County when it comes into effect and, as a result, we cannot currently accurately predict the impact or cost to comply.

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On August 16, 2012, the EPA published final rules that establish new air emission controls for natural gas and natural gas liquids production, processing and transportation activities, including New Source Performance Standards to address emissions of sulfur dioxide and volatile organic compounds, and a separate set of emission standards to address hazardous air pollutants frequently associated with production and processing activities. Among other things, the rules establish specific requirements regarding emissions from compressors and controllers at natural gas gathering and boosting stations and processing plants together with dehydrators and storage tanks at natural gas processing plants, compressor stations and gathering and boosting stations. In addition, the rules establish new requirements for leak detection and repair of leaks at natural gas processing plants that exceed 500 parts per million in concentration. The rule has not had and is not expected to have a material adverse impact on our business, financial condition, results of operations or cash flows.

In addition, in January 2011, the Texas Commission on Environmental Quality (“TCEQ”) finalized revisions to certain air permit programs that significantly increase air emissions-related requirements for new and certain existing oil and gas production and gathering sites in the Barnett Shale production area. The final rule established new emissions standards for engines, which could impact the operation of specific categories of engines by requiring the use of alternative engines, compressor packages or the installation of aftermarket emissions control equipment. The rule became effective for the Barnett Shale production area in April 2011, and the lower emissions standards will become applicable between 2020 and 2030 depending on the type of engine and the permitting requirements. A number of other states where our engines are operated have adopted or are considering adopting additional regulations that could impose new air permitting or pollution control requirements for engines, some of which could entail material costs to comply. At this point, however, we cannot predict whether any such rules would require us to incur material costs.

These new regulations and proposals, when finalized, and any other new regulations requiring the installation of more sophisticated pollution control equipment or the adoption of other environmental protection measures, could have a material adverse impact on our business, financial condition, results of operations and cash flows.

Climate change legislation and regulatory initiatives could result in increased compliance costs.

The U.S. Congress has previously considered legislation to restrict or regulate emissions of greenhouse gases, such as carbon dioxide and methane. One bill, passed by the House of Representatives in 2009, but never adopted by the full Congress, would have required greenhouse gas emissions reductions by covered sources of as much as 17% from 2005 levels by 2020 and by as much as 83% by 2050. It presently appears unlikely that comprehensive climate legislation will be passed by either house of Congress in the near future, although energy legislation and other initiatives continue to be proposed that may be relevant to greenhouse gas emissions issues. In addition, almost half of the states, either individually or through multi-state regional initiatives, have begun to address greenhouse gas emissions, primarily through the planned development of emission inventories or regional greenhouse gas cap and trade programs. Although most of the state-level initiatives have to date been focused on large sources of greenhouse gas emissions, such as electric power plants, it is possible that smaller sources such as our gas-fired compressors could become subject to greenhouse gas-related regulation. Depending on the particular program, we could be required to control emissions or to purchase and surrender allowances for greenhouse gas emissions resulting from our operations.

Independent of Congress, the EPA has been pursuing regulations controlling greenhouse gas emissions under its existing CAA authority. The EPA has adopted rules requiring many facilities, including petroleum and natural gas systems, to inventory and report their greenhouse gas emissions. These rules triggered reporting obligations for some sites we operated in 2014.

In addition, the EPA in June 2010 published a final rule providing for the tailored applicability of air permitting requirements for greenhouse gas emissions. The EPA reported that the rulemaking was necessary because without it certain permitting requirements would apply as of January 2011 at an emissions level that would have greatly increased the number of required permits and, among other things, imposed undue costs on small sources and overwhelmed the resources of permitting authorities. In the rule, the EPA established two initial steps of phase-in to minimize those burdens, excluding certain smaller sources from greenhouse gas permitting until at least April 30, 2016. On January 2, 2011, the first step of the phase-in applied only to new projects at major sources (as defined under those CAA permitting programs) that, among other things, increase net greenhouse gas emissions by 75,000 tons per year. On July 1, 2011, the second step of the phase-in began requiring permitting for otherwise minor sources of air emissions that have the potential to emit at least 100,000 tons per year of greenhouse gases. On June 29, 2012, the EPA issued final regulations for “Phase III” of its program, retaining the permitting thresholds established in Phases I and II. On June 23, 2014, the U.S. Supreme Court held that greenhouse gas emissions alone cannot trigger an obligation to obtain such an air permit even if the project will substantially increase the source’s greenhouse gas emissions. However, for those sources that trigger such air permitting requirements based on their traditional criteria pollutant emissions, the permit must include a limit for greenhouse gases. In addition, the Court concluded that the rule was flawed because the EPA failed to identify a de minimis threshold for greenhouse gases below which Best Available Control Technology would not be required. The EPA has yet to set this threshold. This rule affects some of our and our customers’ largest new or modified facilities going forward.

Although it is not currently possible to predict how any proposed or future greenhouse gas legislation or regulation by Congress, the states or multi-state regions will impact our business, any legislation or regulation of greenhouse gas emissions that may be imposed in areas in which we conduct business could result in increased compliance costs or additional operating restrictions or reduced demand for our services, and could have a material adverse effect on our business, financial condition, results of operations and cash flows.

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Water Discharges

The CWA and analogous state laws and their implementing regulations impose restrictions and strict controls with respect to the discharge of pollutants into state waters or waters of the U.S. The discharge of pollutants into regulated waters is prohibited, except in accordance with the terms of a permit issued by the EPA or an analogous state agency. In addition, the CWA regulates storm water discharges associated with industrial activities depending on a facility’s primary standard industrial classification. Many of our facilities have applied for and obtained industrial wastewater discharge permits as well as sought coverage under local wastewater ordinances. In addition, many of those facilities have filed notices of intent for coverage under statewide storm water general permits and developed and implemented storm water pollution prevention plans, as required. U.S. federal laws also require development and implementation of spill prevention, controls, and countermeasure plans, including appropriate containment berms and similar structures to help prevent the contamination of navigable waters in the event of a petroleum hydrocarbon tank spill, rupture, or leak at such facilities.

Waste Management and Disposal

The RCRA and analogous state laws and their implementing regulations govern the generation, transportation, treatment, storage and disposal of hazardous and non-hazardous solid wastes. During the course of our operations, we generate wastes (including, but not limited to, used oil, antifreeze, filters, sludges, paints, solvents and abrasive blasting materials) in quantities regulated under RCRA. The EPA and various state agencies have limited the approved methods of disposal for these types of wastes. CERCLA and analogous state laws and their implementing regulations impose strict, and under certain conditions, joint and several liability without regard to fault or the legality of the original conduct on classes of persons who are considered to be responsible for the release of a hazardous substance into the environment. These persons include current and past owners and operators of the facility or disposal site where the release occurred and any company that transported, disposed of, or arranged for the transport or disposal of the hazardous substances released at the site. Under CERCLA, such persons may be subject to joint and several liabilities for the costs of cleaning up the hazardous substances that have been released into the environment, for damages to natural resources and for the costs of certain health studies. In addition, where contamination may be present, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury, property damage and recovery of response costs allegedly caused by hazardous substances or other pollutants released into the environment.

We currently own or lease, and in the past have owned or leased, a number of properties that have been used in support of our operations for a number of years. Although we have utilized operating and disposal practices that were standard in the industry at the time, hydrocarbons, hazardous substances, or other regulated wastes may have been disposed of or released on or under the properties owned or leased by us or on or under other locations where such materials have been taken for disposal by companies sub-contracted by us. In addition, many of these properties have been previously owned or operated by third parties whose treatment and disposal or release of hydrocarbons, hazardous substances or other regulated wastes was not under our control. These properties and the materials released or disposed thereon may be subject to CERCLA, RCRA and analogous state laws. Under such laws, we could be required to remove or remediate historical property contamination, or to perform certain operations to prevent future contamination. At certain of such sites, we are currently working with the prior owners who have undertaken to monitor and clean up contamination that occurred prior to our acquisition of these sites. We are not currently under any order requiring that we undertake or pay for any cleanup activities. However, we cannot provide any assurance that we will not receive any such order in the future.

Occupational Safety and Health

We are subject to the requirements of OSHA and comparable state statutes. These laws and the implementing regulations strictly govern the protection of the safety and health of employees. The OSHA hazard communication standard, the EPA community right-to-know regulations under Title III of CERCLA and similar state statutes require that we organize and/or disclose information about hazardous materials used or produced in our operations.

International Operations

Our operations outside the U.S. are subject to similar international governmental controls and restrictions pertaining to the environment and other regulated activities in the countries in which we operate. We believe our operations are in substantial compliance with existing international governmental controls and restrictions and that compliance with these international controls and restrictions has not had a material adverse effect on our operations. We cannot provide any assurance, however, that we will not incur significant costs to comply with international controls and restrictions in the future.

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Employees

As of December 31, 2014, we had approximately 10,000 employees. We believe that our relations with our employees are satisfactory.

Available Information

Our website address is www.exterran.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports are available on our website, without charge, as soon as reasonably practicable after they are filed electronically with the Securities and Exchange Commission (“SEC”). Information on our website is not incorporated by reference in this report or any of our other securities filings. Paper copies of our filings are also available, without charge, from Exterran Holdings, Inc., 16666 Northchase Drive, Houston, Texas 77060, Attention: Investor Relations. Alternatively, the public may read and copy any materials we file with the SEC at its Public Reference Room at 100 F Street, NE, Washington, DC 20549.

Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website that contains reports, proxy and information statements and other information regarding issuers who file electronically with the SEC. The SEC’s website address is www.sec.gov.

Additionally, we make available free of charge on our website:

· our Code of Business Conduct;

· our Corporate Governance Principles; and

· the charters of our audit, compensation and nominating and corporate governance committees.

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Item 1A. Risk Factors

As described in Part I (“Disclosure Regarding Forward-Looking Statements”), this report contains forward-looking statements regarding us, our business and our industry. The risk factors described below, among others, could cause our actual results to differ materially from the expectations reflected in the forward-looking statements. If any of the following risks actually occurs, our business, financial condition, results of operations and cash flows could be negatively impacted.

Continued low oil and natural gas prices could decrease demand or pricing for our natural gas compression and oil and natural gas production and processing equipment and services and, as a result, adversely affect our business.

Our results of operations depend upon the level of activity in the global energy market, including oil and natural gas development, production, processing and transportation. Oil and natural gas prices and the level of drilling and exploration activity can be volatile. For example, oil and natural gas exploration and development activity and the number of well completions typically decline when there is a sustained reduction in oil or natural gas prices or significant instability in energy markets. Even the perception of longer-term lower oil or natural gas prices by oil and natural gas exploration, development and production companies can result in their decision to cancel, reduce or postpone major expenditures or to reduce or shut in well production. In April 2012, natural gas prices in North America fell to their lowest levels in more than a decade with the Henry Hub spot price at around $2.00 per MMBtu. As a result, certain companies reduced their natural gas drilling and production activities, particularly in more mature and predominantly dry gas areas in North America, where we provide a significant amount of contract operations services, which led to a decline in our contract operations business in these areas during 2012. Since then, natural gas prices in North America improved somewhat and generally were near or above $4.00 per MMBtu for much of 2014, but natural gas prices in 2014 continued to cause certain companies to reduce their natural gas drilling and production activities in more mature and predominantly dry gas areas in North America, which led to a continued decline in our contract operations business in these areas in 2014. Global oil prices have fallen significantly recently. West Texas Intermediate crude oil spot prices as of December 31, 2014 were approximately 41% and 46% lower than prices at September 30, 2014 and December 31, 2013, respectively, which is expected to lead to reduced drilling of oil wells in 2015. Because we provide a significant amount of contract operations services related to the production of associated gas from oil wells and a significant amount of contract operations services related to the use of gas lift to enhance production of oil from oil wells, our operations and our levels of operating horsepower are also impacted by crude oil drilling and production activity. In addition, the Henry Hub spot price for natural gas was approximately $3.10 per MMBtu at December 31, 2014, which was approximately 24% and 27% lower than prices at September 30, 2014 and December 31, 2013, respectively, and the U.S. natural gas liquid composite price was approximately $7.84 per MMBtu for the month of November 2014, which was approximately 20% and 27% lower than prices for the months of September 2014 and December 2013, respectively, which is expected to lead to reduced drilling of gas wells in North America in 2015. If oil or natural gas production growth moderates or declines in North America or other parts of the world, the level of production activity and the demand for our contract operations services and oil and natural gas production and processing equipment could decrease, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. A reduction in demand for our products and services could also force us to reduce our pricing substantially, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. Moreover, a reduction in demand for our products and services could result in our customers seeking to preserve capital by canceling month-to-month contracts, canceling or delaying scheduled maintenance of their existing natural gas compression and oil and natural gas production and processing equipment, determining not to enter into new contract operations service contracts or purchase new compression and oil and natural gas production and processing equipment, or canceling or delaying orders for our products and services, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. Additionally, in North America, compression services for unconventional natural gas sources constitute an increasing percentage of our business. Some of these unconventional sources are less economic to produce in lower natural gas price environments.

The proposed Spinoff of our international contract operations, international aftermarket services and global fabrication businesses is contingent upon the satisfaction of a number of conditions, may require significant time and attention of our management, may not achieve the intended results, and difficulties in connection with the Spinoff could have an adverse effect on us.

As previously disclosed, our board of directors has approved a plan to reorganize our business by means of a Spinoff of our international contract operations, international aftermarket services and global fabrication businesses. For more information see “Proposed Spinoff Transaction” in Part I, Item 1 of this report. The Spinoff is contingent upon the final approval of our board of directors and other conditions, some of which are beyond our control. For this and other reasons, the Spinoff may not be completed in the expected timeframe or at all. Additionally, execution of the proposed Spinoff will continue to require significant expense and time and attention of our management. The Spinoff could distract management from the operation of our business and the execution of our other strategic initiatives. Our employees may also be uncertain about their future roles within the separate companies pending the completion of the Spinoff, which could lead to departures. Further, if the Spinoff is completed, we may not realize the benefits we expect to realize. Any such difficulties could have an adverse effect on our business, results of operations and financial condition. If completed, the Spinoff may also expose us to certain risks that could have an adverse effect on our results of operations and financial condition.

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The proposed Spinoff of our international contract operations, international aftermarket services and global fabrication businesses could result in substantial tax liability to us and our stockholders.

Historically, companies seeking to perform a tax-free spinoff transaction have been able to seek broad private letter rulings from the Internal Revenue Service (“IRS”) that the proposed spinoff transaction would qualify for tax-free treatment, with the exception of certain issues on which the IRS would not rule. However, in 2013 the IRS announced that it would no longer provide such broad advance rulings but would instead rule only on certain “significant issues.” We have not requested a ruling from the IRS regarding the Spinoff of our international contract operations, international aftermarket services and global fabrication businesses. Prior to completing the Spinoff, we expect to receive an opinion of counsel that the Spinoff should qualify as reorganization under Sections 355 and 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended (the “Code”), and, as a result, neither we nor our stockholders should recognize any gain or loss for U.S. federal income tax purposes as a result of the Spinoff. However, this opinion will not be binding on the IRS or any court. Accordingly, the IRS or the courts may reach conclusions with respect to the Spinoff that are different from the conclusions reached in the opinion of counsel. If the Spinoff and certain related transactions were determined to be taxable to us, we would be subject to a substantial tax liability, which could have a material adverse effect on our business, results of operations and financial condition. In addition, if the Spinoff were taxable to our stockholders, each holder of our common stock who receives shares of Spinco would generally be treated as receiving a taxable distribution of property in an amount equal to the fair market value of the shares received.

There are many risks associated with conducting operations in international markets.

We operate in many countries outside the U.S., and these activities accounted for a substantial amount of our revenue during the year ended December 31, 2014. We are exposed to risks inherent in doing business in each of the countries where we operate. Our operations are subject to various risks unique to each country that could have a material adverse effect on our business, financial condition, results of operations and cash flows. For example, as discussed in Note 3 to the Financial Statements, in 2009, the Venezuelan state-owned oil company, Petroleos de Venezuela S.A. (“PDVSA”), assumed control over substantially all of our assets and operations in Venezuela.

In April 2012, Argentina assumed control over its largest oil and gas producer, Yacimientos Petroliferos Fiscales (“YPF”). We had approximately 523,000 horsepower of compression in Argentina as of December 31, 2014, and we generated $172.5 million of revenue in Argentina, including $78.5 million of revenue from YPF, during the year ended December 31, 2014. We are unable to predict what effect, if any, the nationalization of YPF will have on our business in Argentina, or whether Argentina will nationalize additional businesses in the oil and gas industry; however, the nationalization of YPF, the nationalization of additional businesses or the taking of other actions listed below by Argentina could have a material adverse effect on our business, financial condition, results of operations and cash flows.

More generally in Argentina, the ongoing social, political, economic and legal climate has given rise to significant uncertainties about the country’s economic and political future. Since the presidential election in late 2011, the Argentine government has increasingly used foreign-exchange, price, trade and capital controls to attempt to address the country’s economic challenges. Because Argentina’s current regulations restrict foreign exchange, including exchanging Argentine pesos for U.S. dollars in certain cases, we are unable to freely repatriate earnings from Argentina and therefore the cash flow from our operations in Argentina may not be a reliable source of funding for our operations outside of Argentina, which could limit our ability to grow. In addition, our inability to exchange Argentine pesos for U.S. dollars subjects us to risk of currency devaluation on future earnings in Argentina. During 2014, we used Argentine pesos to purchase certain short-term investments in Argentine government issued U.S. dollar denominated bonds. The effective peso to U.S. dollar exchange rate embedded in the purchase price of these bonds resulted in our recognition of a loss during the year ended December 31, 2014 of $6.5 million, which is included in other (income) expense, net, in our consolidated statements of operations.

In addition, the Argentine government may adopt additional regulations or policies in the future that may impact, among other things, (i) the timing of and our ability to repatriate cash from Argentina to the U.S. and other jurisdictions, (ii) the value of our assets and business in Argentina and (iii) our ability to import into Argentina the materials necessary for our operations. Any such changes could have a material adverse effect on our operations in Argentina.

With respect to any particular country in which we operate, the risks inherent in our activities may include the following, the occurrence of any of which could have a material adverse effect on our business, financial condition, results of operations and cash flows:

· difficulties in managing international operations, including our ability to timely and cost effectively execute projects;

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· unexpected changes in regulatory requirements, laws or policies by foreign agencies or governments;

· work stoppages;

· training and retaining qualified personnel in international markets;

· the burden of complying with multiple and potentially conflicting laws and regulations;

· tariffs and other trade barriers;

· actions by governments or national oil companies that result in the nullification or renegotiation on less than favorable terms of existing contracts, or otherwise result in the deprivation of contractual rights, and other difficulties in enforcing contractual obligations;

· governmental actions that result in restricting the movement of property or that impede our ability to import or export parts or equipment;

· foreign currency exchange rate risks, including the risk of currency devaluations by foreign governments;

· difficulty in collecting international accounts receivable;

· potentially longer receipt of payment cycles;

· changes in political and economic conditions in the countries in which we operate, including general political unrest, the nationalization of energy related assets, civil uprisings, riots, kidnappings, violence associated with drug cartels and terrorist acts;

· potentially adverse tax consequences or tax law changes;

· currency controls or restrictions on repatriation of earnings;

· expropriation, confiscation or nationalization of property without fair compensation;

· the risk that our international customers may have reduced access to credit because of higher interest rates, reduced bank lending or a deterioration in our customers’ or their lenders’ financial condition;

· complications associated with installing, operating and repairing equipment in remote locations;

· limitations on insurance coverage;

· inflation;

· the geographic, time zone, language and cultural differences among personnel in different areas of the world; and

· difficulties in establishing new international offices and the risks inherent in establishing new relationships in foreign countries.

In addition, we may expand our business in international markets where we have not previously conducted business. The risks inherent in establishing new business ventures, especially in international markets where local customs, laws and business procedures present special challenges, may affect our ability to be successful in these ventures or avoid losses that could have a material adverse effect on our business, financial condition, results of operations and cash flows.

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We are due to receive a substantial amount in installment payments from the purchaser of our previously nationalized Venezuelan assets, the nonpayment of which would reduce the anticipated amount of funds available to us to repay indebtedness and for general corporate purposes.

As discussed in Notes 3 and 9 to the Financial Statements, in March 2012 and August 2012, we sold our previously-nationalized Venezuelan joint venture assets and Venezuelan subsidiary assets, respectively, to PDVSA Gas, S.A. (“PDVSA Gas”), a subsidiary of PDVSA, for aggregate consideration of approximately $550 million. As of December 31, 2014, we have received payments, including annual charges, of approximately $421 million ($50 million of which we used to repay insurance proceeds previously collected under the policy we maintained for the risk of expropriation) and are due to receive the remaining principal amount of approximately $142 million in installments through the third quarter of 2016. We intend to use these remaining proceeds, as they are received, for the repayment of indebtedness and for general corporate purposes. Any failure by PDVSA Gas to pay these installments when due would reduce the amount of funds available to us in the future for these purposes. PDVSA’s payments to many of its suppliers and partners are currently significantly in arrears. Additionally the ongoing social, political, economic and legal climate has given rise to significant uncertainties about the country’s economic and political stability. Since the presidential election in the first half of 2013, the Venezuelan government has increasingly used foreign-exchange, price and capital controls to attempt to address the country’s economic challenges. If current political unrest were to develop into a prolonged period of governmental or economic instability, or if PDVSA becomes increasingly unable to pay its suppliers and partners due to the detrimental effect of recent commodity price declines on Venezuela’s economy or for other reasons, our ability to recover in full the remaining proceeds from PDVSA Gas could be adversely impacted.

The erosion of the financial condition of our customers could adversely affect our business.

Many of our customers finance their exploration and development activities through cash flow from operations, the incurrence of debt or the issuance of equity. During times when the oil or natural gas markets weaken, our customers are more likely to experience a downturn in their financial condition. A reduction in borrowing bases under reserve-based credit facilities, the lack of availability of debt or equity financing or other factors that negatively impact our customers’ financial condition could result in a reduction in our customers’ spending for our products and services, which may result in their cancellation of month-to-month contracts, the cancellation or delay of scheduled maintenance of their existing natural gas compression and oil and natural gas production and processing equipment, their determination not to enter into new natural gas compression service contracts or purchase new compression and oil and natural gas production and processing equipment, or their determination to cancel or delay orders for our products and services. Any such action by our customers would reduce demand for our products and services. Reduced demand for our products and services could adversely affect our business, financial condition, results of operations and cash flows. In addition, in the event of the financial failure of a customer, we could experience a loss on all or a portion of our outstanding accounts receivable associated with that customer.

Failure to timely and cost-effectively execute on larger projects could adversely affect our business.

Some of our projects have a relatively larger size and scope than the majority of our projects, which can translate into more technically challenging conditions or performance specifications for our products and services. Contracts with our customers generally specify delivery dates, performance criteria and penalties for our failure to perform. Any failure to execute such larger projects in a timely and cost effective manner could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We may incur losses on fixed-price contracts, which constitute a significant portion of our fabrication business.

In connection with projects covered by fixed-price contracts, we generally bear the risk of cost over-runs, operating cost inflation, labor availability and productivity, and supplier and subcontractor pricing and performance unless they result from customer-requested change orders. Under both our fixed-price contracts and our cost-reimbursable contracts, we may rely on third parties for many support services, and we could be subject to liability for their failures. For example, we have experienced losses on certain large fabrication projects that have negatively impacted our fabrication results. Any failure to accurately estimate our costs and the time required for a fixed-price fabrication project could have a material adverse effect on our business, financial condition, results of operations and cash flows.

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We are engaged in ongoing litigation regarding our qualification as a Heavy Equipment Dealer, the qualification of our natural gas compressors as Heavy Equipment and the resulting appraisal of our natural gas compressors for ad valorem tax purposes under revised Texas statutes. If this litigation is resolved against us, or if in the future we do not qualify as a Heavy Equipment Dealer or our compressors do not qualify as Heavy Equipment because of new or revised Texas statutes, we will incur additional taxes which would adversely impact our results of operations and cash flows.

In 2011, the Texas Legislature enacted changes related to the appraisal of natural gas compressors for ad valorem tax purposes by expanding the definitions of “Heavy Equipment Dealer” and “Heavy Equipment” effective from the beginning of 2012 (the “Heavy Equipment Statutes”). Under the revised statutes, we believe we are a Heavy Equipment Dealer, that our natural gas compressors are Heavy Equipment and that we, therefore, are required to file our ad valorem tax renditions under this new methodology. A large number of appraisal review boards denied our position, and we filed petitions for review in the appropriate district courts. See Note 22 to the Financial Statements for additional information regarding legal proceedings to which we are a party, including ongoing litigation regarding our qualification as a heavy equipment dealer, the qualification of our natural gas compressors as heavy equipment and the resulting appraisal of our natural gas compressors for ad valorem tax purposes under revised Texas statutes.

As a result of the new methodology, our ad valorem tax expense (which is reflected in our consolidated statements of operations as a component of cost of sales (excluding depreciation and amortization expense)) includes a benefit of $12.1 million during the year ended December 31, 2014. Since the change in methodology became effective in 2012, we have recorded an aggregate benefit of $26.9 million as of December 31, 2014, of which approximately $6.2 million has been agreed to by a number of appraisal review boards and county appraisal districts and $20.7 million has been disputed and is currently in litigation. Recognizing the similarity of the issues and that these cases will ultimately be resolved by the Texas appellate courts, we have reached, or intend to reach, agreements with some of the appraisal districts to stay or abate certain of these pending district court cases. If we are unsuccessful in our litigation with the appraisal districts, we would be required to pay ad valorem taxes up to the aggregate benefit we have recorded, and the additional ad valorem tax payments may also be subject to substantial penalties and interest. Also, if we are unsuccessful in our litigation with the appraisal districts, or if legislation is enacted in Texas that repeals or alters the Heavy Equipment Statutes such that in the future we do not qualify as a Heavy Equipment Dealer or our compressors do not qualify as Heavy Equipment, then we would likely be required to pay these ad valorem taxes under the old methodology going forward, which would increase our quarterly cost of sales expense up to approximately the amount of our then most recent quarterly benefit recorded, and as a result impact our future results of operations and cash flows.

In addition, because the Partnership recorded $10.2 million of the $12.1 million benefit during the year ended December 31, 2014, and is expected to record a significant portion of our and the Partnership’s consolidated benefit in future periods (including 2015), if this litigation is resolved against us or if legislation is enacted in Texas that repeals or alters the Heavy Equipment statutes, then the Partnership would also be negatively impacted, which could impair its ability to maintain or increase its distributions to its equity holders, including us, and as a result impact our results of operations and cash flows and also our ability to pay dividends in the future.

We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act (“FCPA”), similar worldwide anti-bribery laws and trade control laws. If we are found to have violated the FCPA or other legal requirements, we may be subject to criminal and civil penalties and other remedial measures, which could materially harm our reputation, business, results of operations, financial condition and liquidity.

Our international operations require us to comply with U.S. and international laws and regulations, including those involving anti-bribery and anti-corruption. For example, the FCPA and similar laws and regulations of other countries prohibit improper payments to foreign officials for the purpose of obtaining or retaining business or gaining any business advantage.

We operate in many parts of the world that experience high levels of corruption, and our business brings us in frequent contact with foreign officials. Our compliance policies and programs mandate compliance with all applicable anti-corruption laws but may not be completely effective in ensuring our compliance. Our training and compliance program and our internal control policies and procedures may not always protect us from violations committed by our employees or agents. Actual or alleged violations of these laws could disrupt our business and cause us to incur significant legal expenses, and could result in a material adverse effect on our reputation, business, results of operations, financial condition and liquidity. If we are found to be liable for FCPA or other anti-bribery law violations due to our own acts or omissions or due to the acts or omissions of others (including our joint venture partners, agents or other third party representatives), we could suffer from severe civil and criminal penalties or other sanctions, which could materially harm our reputation, business, results of operations financial condition and liquidity. Separately, we may face competitive disadvantages if our competitors are able to secure business, licenses or other advantages by making payments or using other methods that are prohibited by U.S. and international laws and regulations.

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We also are subject to other laws and regulations governing our operations, including regulations administered by the U.S. Department of Treasury’s Office of Foreign Asset Control and various non-U.S. government entities, including applicable export control regulations, economic sanctions on countries and persons and customs requirements. Trade control laws are complex and constantly changing. Our compliance policies and programs increase our cost of doing business and may not work effectively to ensure our compliance with trade control laws. If we undergo an investigation of potential violations of trade control laws by U.S. or foreign authorities or if we fail to comply with these laws, we may incur significant legal expenses or be subject to criminal and civil penalties and other sanctions and remedial measures, which could have a material adverse impact on our reputation, business, results of operations, financial condition and liquidity.

We are exposed to exchange rate fluctuations in the international markets in which we operate. A decrease in the value of any of these currencies relative to the U.S. dollar could reduce profits from international operations and the value of our international net assets.

We operate in many international countries. We anticipate that there will be instances in which costs and revenues will not be exactly matched with respect to currency denomination. We generally do not hedge exchange rate exposures, which exposes us to the risk of exchange rate losses. Gains and losses from the remeasurement of assets and liabilities that are receivable or payable in currency other than our subsidiaries’ functional currency are included in our consolidated statements of operations. In addition, currency fluctuations cause the U.S. dollar value of our international results of operations and net assets to vary with exchange rate fluctuations. This could have a negative impact on our business, financial condition or results of operations. In addition, fluctuations in currencies relative to currencies in which the earnings are generated may make it more difficult to perform period-to-period comparisons of our reported results of operations. For example, other (income) expense, net, during the years ended December 31, 2014 and 2013 included foreign currency losses of $8.8 million and $3.0 million, respectively.

To the extent we expand geographically, we expect that increasing portions of our revenues, costs, assets and liabilities will be subject to fluctuations in foreign currency valuations. We may experience economic loss and a negative impact on earnings or net assets solely as a result of foreign currency exchange rate fluctuations. Further, the markets in which we operate could restrict the removal or conversion of the local or foreign currency, resulting in our inability to hedge against these risks.

We depend on distributions from our subsidiaries, including the Partnership, to meet our capital needs and pay dividends to our stockholders.

To generate the funds necessary to meet our obligations, fund our business and pay dividends, we depend on the cash flows and distributions from our operating subsidiaries, including cash distributions from the Partnership to us attributable to our ownership interest in the Partnership. Applicable law and contractual restrictions (including restrictions in the Partnership’s debt instruments and partnership agreement) may negatively impact our ability to obtain such distributions from our subsidiaries, including the rights of the creditors of the Partnership that would often be superior to our interests in the Partnership. Furthermore, a decline in the Partnership’s revenues or increases in its expenses, principal and interest payments under existing and future debt instruments, working capital requirements or other cash needs would limit the amount of cash the Partnership has available to distribute to its equity holders, including us, which would reduce the amount of cash available for payment of our debt, payment of dividends and the funding of our business requirements, and as a result could have a material adverse effect on our business, financial condition and results of operations.

While we declared and paid quarterly dividends of $0.15 per share of common stock during 2014, there can be no assurance that we will pay dividends in the future.

During 2014, our Board of Directors declared and paid four quarterly cash dividends of $0.15 per share of common stock to our stockholders. We cannot provide assurance that we would, at any time in the future, again generate sufficient surplus cash that would be available for distribution to the holders of our common stock as a dividend or that our board of directors would determine to use any such surplus or our net profits to pay a dividend.

Future dividends may be affected by, among other factors:

· the availability of surplus or net profits, which in turn depend on the performance of our business and operating subsidiaries, including the Partnership;

· the amount of cash distributions we receive from the Partnership attributable to our ownership interest in the Partnership;

· our future capital requirements; and

· changes in U.S. federal and state income tax laws or corporate laws.

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We cannot provide assurance that we will declare or pay dividends in any particular amounts or at all in the future. A decision not to pay dividends or a reduction in our dividend payments in the future could have a negative effect on our stock price.

As a result of the April 2014 MidCon Acquisition, the Partnership depends on Williams Partners, L.P. (“Williams”) for a significant portion of its revenue. The Partnership’s loss of its business with Williams or the inability or failure of Williams to meet its payment obligations may adversely affect the Partnership’s financial results, which could limit the amount of cash the Partnership has available for distribution to its equity holders, including us.

For the year ended December 31, 2013, no customer individually accounted for 10% or more of the Partnership’s total revenue. In connection with the April 2014 MidCon Acquisition, the Partnership and Access Midstream Partners LP (“Access”) entered into a seven-year contract operations services agreement under which the Partnership provided contract compression services in 2014 to Access in regions including the Permian, Eagle Ford, Barnett, Anadarko, Mississippi Lime, Granite Wash, Woodford, Haynesville and Niobrara Basins. During the year ended December 31, 2014, Access accounted for approximately 12% of the Partnership’s revenue. Access merged with Williams in February 2015 and, when combined, Access and Williams would have accounted for approximately 15% of the Partnership’s revenue during the year ended December 31, 2014. The Partnership’s loss of its business with Williams, unless offset by additional contract compression services revenue from other customers, or the inability or failure of Williams to meet its payment obligations could have a material adverse effect on the Partnership’s business, results of operations, financial condition and ability to make cash distributions to its equity holders, including us. A reduction in the Partnership’s cash distributions to us would reduce the amount of cash available for payment of our debt and to fund our business requirements, and as a result could have a material adverse effect on our business, financial condition and results of operations.

We have a substantial amount of debt that could limit our ability to fund future growth and operations and increase our exposure to risk during adverse economic conditions.

At December 31, 2014, we had approximately $2.0 billion in outstanding debt obligations. Many factors, including factors beyond our control, may affect our ability to make payments on our outstanding indebtedness. These factors include those discussed elsewhere in these Risk Factors and those listed in the Disclosure Regarding Forward-Looking Statements section included in Part I of this report.

Our substantial debt and associated commitments could have important adverse consequences. For example, these commitments could:

· make it more difficult for us to satisfy our contractual obligations;

· increase our vulnerability to general adverse economic and industry conditions;

· limit our ability to fund future working capital, capital expenditures, acquisitions or other corporate requirements;

· increase our vulnerability to interest rate fluctuations because the interest payments on a portion of our debt are based upon variable interest rates and a portion can adjust based upon our credit statistics;

· limit our flexibility in planning for, or reacting to, changes in our business and our industry;

· place us at a disadvantage compared to our competitors that have less debt or less restrictive covenants in such debt; and

· limit our ability to refinance our debt in the future or borrow additional funds.

Covenants in our debt agreements may impair our ability to operate our business.

Our senior secured credit facility contains various covenants with which we or certain of our subsidiaries must comply, including, but not limited to, restrictions on the use of proceeds from borrowings and limitations on our ability to incur additional indebtedness, enter into transactions with affiliates, merge or consolidate, sell assets, make certain investments and acquisitions, make loans, grant liens, repurchase equity and pay dividends and distributions. We are also subject to financial covenants, including a ratio of Adjusted EBITDA (as defined in the credit agreement) to Total Interest Expense (as defined in the credit agreement) of not less than 2.25 to 1.0, a ratio of consolidated Total Debt (as defined in the credit agreement) to Adjusted EBITDA of not greater than 5.0 to 1.0 and a ratio of Senior Secured Debt (as defined in the credit agreement) to Adjusted EBITDA of not greater than 4.0 to 1.0. As of December 31, 2014, we maintained a 14.8 to 1.0 Adjusted EBITDA to Total Interest Expense ratio, a 1.6 to 1.0 consolidated Total Debt to Adjusted EBITDA ratio and a 0.8 to 1.0 Senior Secured Debt to Adjusted EBITDA ratio. If we fail to remain in compliance with our financial covenants we would be in default under our debt agreements. In addition, if we experience a material adverse effect on our assets, liabilities, financial condition, business or operations that, taken as a whole, impacts our ability to perform our obligations under our debt agreements, this could lead to a default under our debt agreements. A default under one or more of our debt agreements would trigger cross-default provisions under certain of our other debt agreements, which would accelerate our obligation to repay our indebtedness under those agreements. As of December 31, 2014, we were in compliance with all financial covenants under our debt agreements.

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The Partnership’s senior secured credit agreement (the “Partnership Credit Agreement”) contains various covenants with which the Partnership must comply, including, but not limited to, restrictions on the use of proceeds from borrowings and limitations on the Partnership’s ability to incur additional indebtedness, engage in transactions with affiliates, merge or consolidate, sell assets, make certain investments and acquisitions, make loans, grant liens, repurchase equity and pay dividends and distributions. The Partnership Credit Agreement also contains various covenants requiring mandatory prepayments from the net cash proceeds of certain asset transfers. The Partnership must maintain various consolidated financial ratios, including a ratio of EBITDA (as defined in the Partnership Credit Agreement) to Total Interest Expense (as defined in the Partnership Credit Agreement) of not less than 2.75 to 1.0, a ratio of Total Debt (as defined in the Partnership Credit Agreement) to EBITDA of not greater than 5.25 to 1.0 (subject to a temporary increase to 5.5 to 1.0 for any quarter during which an acquisition meeting certain thresholds is completed and for the following two quarters after the acquisition closes) and a ratio of Senior Secured Debt (as defined in the Partnership Credit Agreement) to EBITDA of not greater than 4.0 to 1.0. Because the August 2014 MidCon Acquisition closed during the third quarter of 2014, the Partnership’s Total Debt to EBITDA ratio threshold was temporarily increased to 5.5 to 1.0 during the quarter ended September 30, 2014 and will continue at that level through March 31, 2015, reverting to 5.25 to 1.0 for the quarter ending June 30, 2015 and subsequent quarters. As of December 31, 2014, the Partnership maintained a 5.2 to 1.0 EBITDA to Total Interest Expense ratio, a 4.3 to 1.0 Total Debt to EBITDA ratio and a 2.0 to 1.0 Senior Secured Debt to EBITDA ratio. A material adverse effect with respect to the Partnership’s assets, liabilities, financial condition, business or operations that, taken as a whole, impacts the Partnership’s ability to perform its obligations under the Partnership Credit Agreement, could lead to a default under that agreement. A default under one of the Partnership’s debt agreements would trigger cross-default provisions under the Partnership’s other debt agreements, which would accelerate the Partnership’s obligation to repay its indebtedness under those agreements. As of December 31, 2014, the Partnership was in compliance with all financial covenants under the Partnership Credit Agreement.

The breach of any of our covenants could result in a default under one or more of our debt agreements, which could cause our indebtedness under those agreements to become due and payable. If the repayment obligations on any of our indebtedness were to be accelerated, we may not be able to repay the debt or refinance the debt on acceptable terms, and our financial position would be materially adversely affected.

We may be vulnerable to interest rate increases due to our floating rate debt obligations.

As of December 31, 2014, after taking into consideration interest rate swaps, we had $585.5 million of outstanding indebtedness that was effectively subject to floating interest rates. Changes in economic conditions outside of our control could result in higher interest rates, thereby increasing our interest expense and reducing the funds available for capital investment, operations or other purposes. A 1% increase in the effective interest rate on our outstanding debt subject to floating interest rates at December 31, 2014 would result in an annual increase in our interest expense of approximately $5.9 million.

Many of our North America contract operations services contracts have short initial terms and after the initial term are cancelable on short notice, and we cannot be sure that such contracts will be extended or renewed after the end of the initial contractual term. Any such nonrenewals, or renewals at reduced rates, or the loss of contracts with any significant customer, could adversely impact our results of operations.

The length of our contract operations services contracts with customers varies based on operating conditions and customer needs. In North America, our initial contract terms typically are not long enough to enable us to recoup the cost of the equipment we utilize to provide contract operations services and these contracts are typically cancelable on short notice after the initial term. We cannot be sure that a substantial number of these contracts will be extended or renewed by our customers or that any of our customers will continue to contract with us. The inability to negotiate extensions or renew a substantial portion of our North America contract operations services contracts, the renewal of such contracts at reduced rates, the inability to contract for additional services with our customers or the loss of all or a significant portion of our services contracts with any significant customer could lead to a reduction in revenues and net income and could require us to record additional asset impairments. This could have a material adverse effect upon our business, financial condition, results of operations and cash flows.

Many of our international contract operations services contracts are long-term, substantial contracts and the termination of any of such contracts could have a material impact on our business.

Our international contract operations services contracts are typically longer-term contracts for more comprehensive projects than our North America contract operations services contracts. As a result, the termination of any such contract may lead to a reduction in our revenues and net income, which could have a material adverse effect upon our business, financial condition, results of operations and cash flows.

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From time to time, we are subject to various claims, litigation and other proceedings that could ultimately be resolved against us, requiring material future cash payments or charges, which could impair our financial condition or results of operations.

The size, nature and complexity of our business make us susceptible to various claims, both in litigation and binding arbitration proceedings. We are currently, and may in the future become, subject to various claims, which, if not resolved within amounts we have accrued, could have a material adverse effect on our financial position, results of operations or cash flows. Similarly, any claims, even if fully indemnified or insured, could negatively impact our reputation among our customers and the public, and make it more difficult for us to compete effectively or obtain adequate insurance in the future. See Note 22 to the Financial Statements for additional information regarding certain legal proceedings to which we are a party, including ongoing litigation regarding our qualification as a heavy equipment dealer, the qualification of our natural gas compressors as heavy equipment and the resulting appraisal of our natural gas compressors for ad valorem tax purposes under revised Texas statutes.

We may not be able to consummate additional contributions or sales of portions of our U.S. contract operations business to the Partnership.

In the future, we may transfer additional portions of our U.S. contract operations business to the Partnership, but we are under no obligation to do so. Likewise, the Partnership is under no obligation to purchase any additional portions of that business. The consummation of any future sales of additional portions of that business and the timing of such sales will depend upon, among other things:

· our agreement with the Partnership regarding the terms of such sales, which will require the approval of the conflicts committee of the board of directors of the Partnership’s general partner, which is comprised exclusively of independent directors;

· the Partnership’s ability to finance such purchases on acceptable terms, which could be impacted by general equity and debt market conditions as well as conditions in the markets specific to master limited partnerships; and

· the Partnership’s and our compliance with our respective debt agreements.

The Partnership intends to fund any future acquisitions from us with external sources of capital, including additional borrowings under its credit facility and/or public or private offerings of equity or debt. If the Partnership is not able to fund future acquisitions of our U.S. contract operations business, or if we are otherwise unable to consummate additional contributions or sales of a portion of our U.S. contract operations business to the Partnership, we may not be able to capitalize on what we believe is the Partnership’s lower cost of capital.

We depend on particular suppliers and are vulnerable to product shortages and price increases.

Some of the components used in our products are obtained from a single source or a limited group of suppliers. Our reliance on these suppliers involves several risks, including price increases, inferior component quality and a potential inability to obtain an adequate supply of required components in a timely manner. We do not have long-term contracts with some of these sources, and the partial or complete loss of certain of these sources could have a negative impact on our results of operations and could damage our customer relationships. Further, a significant increase in the price of one or more of these components could have a negative impact on our results of operations.

We face significant competitive pressures that may cause us to lose market share and harm our financial performance.

Our businesses are highly competitive and there are low barriers to entry, especially our natural gas compression services and fabrication business. Our competitors may be able to adapt more quickly to technological changes within our industry and changes in economic and market conditions, more readily take advantage of acquisitions and other opportunities and adopt more aggressive pricing policies. Our ability to renew or replace existing contract operations service contracts with our customers at rates sufficient to maintain current revenue and cash flows could be adversely affected by the activities of our competitors. In our production and processing equipment business, we have different competitors in the standard and custom-engineered equipment markets. Competitors in the standard equipment market include several large companies and a large number of small, regional fabricators. Competition in the standard equipment market is generally based upon price and availability. Our competition in the custom-engineered market usually consists of larger companies with the ability to provide integrated projects and product support after the sale. If our competitors substantially increase the resources they devote to the development and marketing of competitive products, equipment or services or substantially decrease the price at which they offer their products, equipment or services, we may not be able to compete effectively.

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In addition, we could face significant competition from new entrants into the compression services and fabrication business. Some of our existing competitors or new entrants may expand or fabricate new compression units that would create additional competition for the products, equipment or services we provide to our customers.

We also may not be able to take advantage of certain opportunities or make certain investments because of our debt levels and our other obligations. Any of these competitive pressures could have a material adverse effect on our business, financial condition and results of operations.

Our operations entail inherent risks that may result in substantial liability. We do not insure against all potential losses and could be seriously harmed by unexpected liabilities.

Our operations entail inherent risks, including equipment defects, malfunctions and failures and natural disasters, which could result in uncontrollable flows of natural gas or well fluids, fires and explosions. These risks may expose us, as an equipment operator and fabricator, to liability for personal injury, wrongful death, property damage, pollution and other environmental damage. The insurance we carry against many of these risks may not be adequate to cover our claims or losses. We currently have a minimal amount of insurance on our offshore assets. In addition, we are substantially self-insured for workers’ compensation, employer’s liability, property, auto liability, general liability and employee group health claims in view of the relatively high per-incident deductibles we absorb under our insurance arrangements for these risks. Further, insurance covering the risks we expect to face or in the amounts we desire may not be available in the future or, if available, the premiums may not be commercially justifiable. If we were to incur substantial liability and such damages were not covered by insurance or were in excess of policy limits, or if we were to incur liability at a time when we are not able to obtain liability insurance, our business, financial condition and results of operations could be negatively impacted.

Threats of cyber attacks or terrorism could affect our business.

We may be threatened by problems such as cyber attacks, computer viruses or terrorism that may disrupt our operations and harm our operating results. Our industry requires the continued operation of sophisticated information technology systems and network infrastructure. Despite our implementation of security measures, our technology systems are vulnerable to disability or failures due to hacking, viruses, acts of war or terrorism and other causes. If our information technology systems were to fail and we were unable to recover in a timely way, we might be unable to fulfill critical business functions, which could have a material adverse effect on our business, financial condition and results of operations.

In addition, our assets may be targets of terrorist activities that could disrupt our ability to service our customers. We may be required by our regulators or by the future terrorist threat environment to make investments in security that we cannot currently predict. The implementation of security guidelines and measures and maintenance of insurance, to the extent available, addressing such activities could increase costs. These types of events could materially adversely affect our business and results of operations. In addition, these types of events could require significant management attention and resources, and could adversely affect our reputation among customers and the public.

The tax treatment of the Partnership depends on its status as a partnership for U.S. federal income tax purposes, as well as it not being subject to a material amount of entity-level taxation by individual states. The Partnership could lose its status as a partnership for a number of reasons, including not having enough “qualifying income.” If the IRS treats the Partnership as a corporation or if the Partnership becomes subject to a material amount of entity-level taxation for state tax purposes, it would substantially reduce the amount of cash available for distribution to the Partnership’s unitholders and undermine the cost of capital advantage we believe the Partnership has.

The anticipated after-tax economic benefit of an investment in the Partnership’s common units depends largely on it being treated as a partnership for U.S. federal income tax purposes. The Partnership has not received a ruling from the IRS on this or any other tax matter affecting it.

Despite the fact that the Partnership is a limited partnership under Delaware law, a publicly traded partnership such as the Partnership will be treated as a corporation for U.S. federal income tax purposes unless 90% or more of its gross income from its business activities are “qualifying income” under Section 7704(d) of the Code. “Qualifying income” includes income and gains derived from the exploration, development, production, processing, transportation, storage and marketing of natural gas and natural gas products or other passive types of income such as interest and dividends. Although we do not believe based upon its current operations that the Partnership is treated as a corporation, the Partnership could be treated as a corporation for U.S. federal income tax purposes or otherwise subject to taxation as an entity if its gross income is not properly classified as qualifying income, there is a change in the Partnership’s business or there is a change in current law.

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If the Partnership were treated as a corporation for U.S. federal income tax purposes, it would pay U.S. federal income tax at the corporate tax rate and would also likely pay state income tax. Treatment of the Partnership as a corporation for U.S. federal income tax purposes would result in a material reduction in the anticipated cash flow and after-tax return to its unitholders, likely causing a substantial reduction in the value of its common units, including the Partnership common units we own, and the amount of distributions that we receive from the Partnership.

Current law may change so as to cause the Partnership to be treated as a corporation for U.S. federal income tax purposes or otherwise subject it to entity-level taxation. In addition, because of widespread state budget deficits and other reasons, several states are evaluating ways to subject partnerships to entity-level taxation through the imposition of state income, franchise and other forms of taxation. The Partnership’s partnership agreement provides that if a law is enacted or existing law is modified or interpreted in a manner that subjects it to taxation as a corporation or otherwise subjects it to entity-level taxation for U.S. federal, state or local income tax purposes, the minimum quarterly distribution amount and the target distribution levels of the Partnership may be adjusted to reflect the impact of that law on it at the option of its general partner without the consent of its unitholders. If the Partnership were to be taxed at the entity level, it would lose the comparative cost of capital advantage we believe it has over time as compared to a corporation.

The tax treatment of publicly traded partnerships or our investment in the Partnership’s common units could be subject to potential legislative, judicial or administrative changes and differing interpretations, possibly on a retroactive basis.

The present U.S. federal income tax treatment of publicly traded partnerships, including the Partnership, or our investment in the Partnership may be modified by administrative, legislative or judicial interpretation at any time. For example, the Obama administration’s budget proposal for fiscal year 2016 recommends that certain publicly traded partnerships earning income from activities related to fossil fuels be taxed as corporations beginning in 2021. From time to time, members of Congress propose and consider substantive changes to the existing U.S. federal income tax laws that could affect publicly traded partnerships. If successful, the Obama administration’s proposal or other similar proposals could eliminate the qualifying income exception to the treatment of all publicly-traded partnerships as corporations upon which the Partnership relies for its treatment as a partnership for U.S. federal income tax purposes. Any modification to the U.S. federal income tax laws may be applied retroactively and could make it more difficult or impossible for the Partnership to meet the exception for certain publicly traded partnerships to be treated as partnerships for U.S. federal income tax purposes. We are unable to predict whether any of these changes, or other proposals, will be reconsidered or will ultimately be enacted. Any such changes or differing judicial interpretations of existing laws could negatively impact the value of our investment in the Partnership and the amount of distributions that we receive from the Partnership.

Tax legislation and administrative initiatives or challenges to our tax positions could adversely affect our results of operations and financial condition.

We operate in locations throughout the United States and internationally and, as a result, we are subject to the tax laws and regulations of U.S. federal, state, local and foreign governments. From time to time, various legislative or administrative initiatives may be proposed that could adversely affect our tax positions. There can be no assurance that our tax provision or tax payments will not be adversely affected by these initiatives. In addition, international, U.S. federal, state and local tax laws and regulations are extremely complex and subject to varying interpretations. There can be no assurance that our tax positions will not be challenged by relevant tax authorities or that we would be successful in any such challenge.

U.S. Federal, state and local legislative and regulatory initiatives relating to hydraulic fracturing as well as governmental reviews of such activities could result in increased costs and additional operating restrictions or delays in the completion of oil and natural gas wells and adversely affect demand for our contract operations services and production and processing equipment.

Hydraulic fracturing is an important and common practice that is used to stimulate production of natural gas and/or oil from dense subsurface rock formations. Hydraulic fracturing involves the injection of water, sand or alternative proppant and chemicals under pressure into target geological formations to fracture the surrounding rock and stimulate production. Recently, there has been increased public concern regarding an alleged potential for hydraulic fracturing to adversely affect drinking water supplies, and proposals have been made to enact separate U.S. federal, state and local legislation that would increase the regulatory burden imposed on hydraulic fracturing.

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At the U.S. federal level, the EPA has asserted U.S. federal regulatory authority pursuant to the U.S. federal Safe Drinking Water Act (the “SDWA”) over certain hydraulic fracturing activities involving the use of diesel fuels and published permitting guidance in February 2013 addressing the performance of such activities. Also, in May 2014, the EPA issued an Advance Notice of Proposed Rulemaking to collect data on chemicals used in hydraulic fracturing operations under Section 8 of the Toxic Substances Control Act. To date, no other action has been taken. Further, the EPA has announced its intention to propose regulations under the CWA by sometime in 2015 governing wastewater discharges from hydraulic fracturing and certain other natural gas operations. In addition, the EPA is conducting a study of the potential impacts of hydraulic fracturing activities on water resources and a draft final report is anticipated sometime in 2015 for peer review and public comment. The results of this study or similar governmental review could spur initiatives to regulate hydraulic fracturing under the SDWA or otherwise. Also, the U.S. Department of the Interior published a revised proposed rule on May 16, 2013, that would update exiting regulation of hydraulic fracturing activities on U.S. federal lands, including requirements for chemical disclosure, wellbore integrity and handling of flowback water.

At the state level, several states have adopted or are considering legal requirements that could impose more stringent permitting, disclosure and well construction requirements on hydraulic fracturing activities. For example in May 2013, the Texas Railroad Commission adopted new rules governing well casing, cementing and other standards for ensuring that hydraulic fracturing operations do not contaminate nearby water resources. Local governments may also seek to adopt ordinances within their jurisdictions regulating the time, place and manner of drilling activities in general or hydraulic fracturing activities in particular or prohibit the performance of well drilling in general or hydraulic fracturing in particular. If new or more stringent U.S. federal, state or local legal restrictions relating to the hydraulic fracturing process are adopted in areas where our natural gas exploration and production customers operate, those customers could incur potentially significant added costs to comply with such requirements, experience delays or curtailment in the pursuit of exploration, development or production activities and perhaps even be precluded from drilling wells. Any such restrictions could reduce demand for our contract operations services and oil and natural gas production and processing equipment, and as a result could have a material adverse effect on our business, financial condition, results of operations and cash flows.

New regulations, proposed regulations and proposed modifications to existing regulations under the CAA, if implemented, could result in increased compliance costs.

On August 20, 2010, the EPA published new regulations under the CAA to control emissions of hazardous air pollutants from existing stationary reciprocal internal combustion engines. The rule would have required us to undertake certain expenditures and activities, including purchasing and installing emissions control equipment, such as oxidation catalysts or non-selective catalytic reduction equipment, on a portion of our engines located at certain sources of hazardous air pollutants and all our engines over a certain size regardless of location, following prescribed maintenance practices for engines (which are consistent with our existing practices), and implementing additional emissions testing and monitoring. Following legal challenges to the 2010 rule, the EPA reconsidered the rule and published revisions to the rule on January 30, 2013. The revised rule requires management practices for all covered engines but requires catalyst installation only on larger equipment at sites that are not deemed to be “remote.” Compliance with the final rule was required by October 2013.

On May 21, 2012, the EPA issued new ozone nonattainment designations for all areas except Chicago, in relation to the 2008 NAAQS for ozone. Among other things, these new designations add Wise County, Texas to the DFW nonattainment area. This new designation will require Texas to modify its SIP to include a plan for Wise County to come into compliance with the ozone NAAQS. This modification process started in January 2014, and the State of Texas anticipates having new regulations in place by mid-2015. If Texas implements the same control requirements in Wise County that are already in place in the other counties in the DFW nonattainment area, we could be required to modify or remove and replace a significant amount of equipment we currently utilize in Wise County. However, at this point we cannot predict what Texas’ new SIP will require or what equipment will still be operating in Wise County when it comes into effect and, as a result, we cannot currently accurately predict the impact or cost to comply.

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In addition, in January 2011, the TCEQ finalized revisions to certain air permit programs that significantly increase air emissions-related requirements for new and certain existing oil and gas production and gathering sites in the Barnett Shale production area. The final rule established new emissions standards for engines, which could impact the operation of specific categories of engines by requiring the use of alternative engines, compressor packages or the installation of aftermarket emissions control equipment. The rule became effective for the Barnett Shale production area in April 2011, and the lower emissions standards will become applicable between 2020 and 2030 depending on the type of engine and the permitting requirements. A number of other states where our engines are operated have adopted or are considering adopting additional regulations that could impose new air permitting or pollution control requirements for engines, some of which could entail material costs to comply. At this point, however, we cannot predict whether any such rules would require us to incur material costs.

We are subject to a variety of governmental regulations; failure to comply with these regulations may result in administrative, civil and criminal enforcement measures and changes in these regulations could increase our costs or liabilities.

We are subject to a variety of U.S. federal, state, local and international laws and regulations relating to, for example, the environment, safety and health, export controls, currency exchange, labor and employment and taxation. Many of these laws and regulations are complex, change frequently, are becoming increasingly stringent, and the cost of compliance with these requirements can be expected to increase over time. Failure to comply with these laws and regulations may result in a variety of administrative, civil and criminal enforcement measures, including assessment of monetary penalties, imposition of remedial requirements and issuance of injunctions as to future compliance. From time to time, as part of our operations, including newly acquired operations, we may be subject to compliance audits by regulatory authorities in the various countries in which we operate.

Environmental laws and regulations may, in certain circumstances, impose strict liability for environmental contamination, which may render us liable for remediation costs, natural resource damages and other damages as a result of our conduct that was lawful at the time it occurred or the conduct of, or conditions caused by, prior owners or operators or other third parties. In addition, where contamination may be present, it is not uncommon for neighboring land owners and other third parties to file claims for personal injury, property damage and recovery of response costs. Remediation costs and other damages arising as a result of environmental laws and regulations, and costs associated with new information, changes in existing environmental laws and regulations or the adoption of new environmental laws and regulations could be substantial and could negatively impact our financial condition, profitability and results of operations. Moreover, failure to comply with these environmental laws and regulations may result in the imposition of administrative, civil and criminal penalties and the issuance of injunctions delaying or prohibiting operations.

We may need to apply for or amend facility permits or licenses from time to time with respect to storm water or wastewater discharges, waste handling, or air emissions relating to manufacturing activities or equipment operations, which subjects us to new or revised permitting conditions that may be onerous or costly to comply with. In addition, certain of our customer service arrangements may require us to operate, on behalf of a specific customer, petroleum storage units such as underground tanks or pipelines and other regulated units, all of which may impose additional compliance and permitting obligations.

We conduct operations at numerous facilities in a wide variety of locations across the continental U.S. and internationally. The operations at many of these facilities require environmental permits or other authorizations. Additionally, natural gas compressors at many of our customers’ facilities require individual air permits or general authorizations to operate under various air regulatory programs established by rule or regulation. These permits and authorizations frequently contain numerous compliance requirements, including monitoring and reporting obligations and operational restrictions, such as emission limits. Given the large number of facilities in which we operate, and the numerous environmental permits and other authorizations that are applicable to our operations, we may occasionally identify or be notified of technical violations of certain requirements existing in various permits or other authorizations. Occasionally, we have been assessed penalties for our non-compliance, and we could be subject to such penalties in the future.

We routinely deal with natural gas, oil and other petroleum products. Hydrocarbons or other hazardous substances or wastes may have been disposed or released on, under or from properties used by us to provide contract operations services or inactive compression storage or on or under other locations where such substances or wastes have been taken for disposal. These properties may be subject to investigatory, remediation and monitoring requirements under environmental laws and regulations.

The modification or interpretation of existing environmental laws or regulations, the more vigorous enforcement of existing environmental laws or regulations, or the adoption of new environmental laws or regulations may also negatively impact oil and natural gas exploration and production, gathering and pipeline companies, including our customers, which in turn could have a negative impact on us.

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Climate change legislation and regulatory initiatives could result in increased compliance costs.

The price of our common stock and the Partnership’s common units may be volatile.

Some of the factors that could affect the price of our common stock are quarterly increases or decreases in revenue or earnings, changes in revenue or earnings estimates by the investment community and speculation in the press or investment community about our financial condition or results of operations. General market conditions and North America or international economic factors and political events unrelated to our performance may also affect our stock price. In addition, the price of our common stock may be impacted by changes in the value of our investment in and/or distributions from the Partnership. For these reasons, investors should not rely on recent trends in the price of our common stock to predict the future price of our common stock or our financial results.

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Our charter and bylaws contain provisions that may make it more difficult for a third party to acquire control of us, even if a change in control would result in the purchase of our stockholders’ shares of common stock at a premium to the market price or would otherwise be beneficial to our stockholders.

There are provisions in our restated certificate of incorporation and bylaws that may make it more difficult for a third party to acquire control of us, even if a change in control would result in the purchase of our stockholders’ shares of common stock at a premium to the market price or would otherwise be beneficial to our stockholders. For example, our restated certificate of incorporation authorizes the board of directors to issue preferred stock without stockholder approval. If our board of directors elects to issue preferred stock, it could be more difficult for a third party to acquire us. In addition, provisions of our restated certificate of incorporation and bylaws, such as limitations on stockholder actions by written consent and on stockholder proposals at meetings of stockholders, could make it more difficult for a third party to acquire control of us. Delaware corporation law may also discourage takeover attempts that have not been approved by the board of directors.

Item 1B. Unresolved Staff Comments

None.

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Item 2. Properties

The following table describes the material facilities we owned or leased as of December 31, 2014:

Location	Status	Square Feet	Uses
Houston, Texas	Leased	243,746	Corporate office
Oklahoma City, Oklahoma	Leased	41,250	North America contract operations and aftermarket services
Yukon, Oklahoma	Owned	72,000	North America contract operations and aftermarket services
Belle Chase, Louisiana	Owned	35,000	North America contract operations and aftermarket services
Casper, Wyoming	Owned	28,390	North America contract operations and aftermarket services
Davis, Oklahoma	Owned	393,870	North America contract operations and aftermarket services
Farmington, New Mexico	Owned	42,097	North America contract operations and aftermarket services
Houma, Louisiana	Owned	60,000	North America contract operations and aftermarket services
Kilgore, Texas	Owned	32,995	North America contract operations and aftermarket services
Midland, Texas	Owned	53,300	North America contract operations and aftermarket services
Midland, Texas	Owned	22,180	North America contract operations and aftermarket services
Pampa, Texas	Leased	24,000	North America contract operations and aftermarket services
Victoria, Texas	Owned	59,852	North America contract operations and aftermarket services
Camacari, Brazil	Owned	86,112	International contract operations and aftermarket services
Neuquen, Argentina	Leased	47,500	International contract operations and aftermarket services
Reynosa, Mexico	Owned	24,347	International contract operations and aftermarket services
Comodoro Rivadavia, Argentina	Owned	26,000	International contract operations and aftermarket services
Neuquen, Argentina	Owned	38,798	International contract operations and aftermarket services
Santa Cruz, Bolivia	Leased	22,017	International contract operations and aftermarket services
Bangkok, Thailand	Leased	36,611	Aftermarket services
Port Harcourt, Nigeria	Leased	19,031	Aftermarket services
Broussard, Louisiana	Owned	74,402	Fabrication, North America contract operations and aftermarket services
Houston, Texas	Owned	343,750	Fabrication
Houston, Texas	Owned	261,600	Fabrication
Schulenburg, Texas	Owned	22,675	Fabrication
Broken Arrow, Oklahoma	Owned	141,549	Fabrication
Columbus, Texas	Owned	219,552	Fabrication
Youngstown, Ohio	Leased	65,000	Fabrication
Jebel Ali Industrial Area, UAE	Leased	112,378	Fabrication
Hamriyah Free Zone, UAE	Leased	212,742	Fabrication
Mantova, Italy	Owned	654,397	Fabrication
Singapore, Singapore	Leased	111,693	Fabrication

Our executive offices are located at 16666 Northchase Drive, Houston, Texas 77060 and our telephone number is (281) 836-7000.

Item 3. Legal Proceedings

A description of certain legal proceedings can be found in Litigation and Claims in Note 22 (“Commitments and Contingencies”) to the Financial Statements included in this report and is incorporated by reference into this Item 3.

Item 4. Mine Safety Disclosures

Not applicable.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is traded on the New York Stock Exchange under the symbol “EXH.” The following table sets forth the range of high and low sale prices for our common stock for the periods indicated.

	Price Range
	High		Low
Year Ended December 31, 2013
First Quarter	$	27.40	$	22.01
Second Quarter	$	30.26	$	23.25
Third Quarter	$	32.55	$	27.07
Fourth Quarter	$	34.48	$	26.50
Year Ended December 31, 2014
First Quarter	$	44.66	$	33.42
Second Quarter	$	45.90	$	40.81
Third Quarter	$	47.01	$	41.16
Fourth Quarter	$	45.35	$	30.58

On February 19, 2015, the closing price of our common stock was $32.35 per share. As of February 12, 2015, there were approximately 1,319 holders of record of our common stock.

We had not paid any cash dividends on our common stock since our formation through the year ended December 31, 2013. During 2014, our Board of Directors declared and paid quarterly cash dividends of $0.15 per share of common stock to our stockholders. The following table sets forth dividends declared and paid during 2014 per common share:

Declaration Date	Payment Date	Dividends per Common Share		Total Dividends
February 25, 2014	March 28, 2014	$	0.15	$	10.0 million
April 29, 2014	May 16, 2014	0.15		10.0 million
July 31, 2014	August 18, 2014	0.15		10.0 million
October 30, 2014	November 17, 2014	0.15		10.3 million

On January 30, 2015, our board of directors declared a quarterly dividend of $0.15 per share of common stock which was paid on February 17, 2015 to stockholders of record at the close of business on February 9, 2015. Any future determinations to pay cash dividends to our stockholders will be at the discretion of our board of directors and will be dependent upon our financial condition and results of operations, credit and loan agreements in effect at that time and other factors deemed relevant by our board of directors.

For disclosures regarding securities authorized for issuance under equity compensation plans, see Part III, Item 12 (“Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters”) of this report.

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The performance graph below shows the cumulative total stockholder return on our common stock, compared with the S&P 500 Composite Stock Price Index (the “S&P 500 Index”) and the Oilfield Service Index (the “OSX”) over the five-year period beginning on December 31, 2009. The results are based on an investment of $100 in each of our common stock, the S&P 500 Index and the OSX. The graph assumes the reinvestment of dividends and adjusts all closing prices and dividends for stock splits.

Comparison of Five Year Cumulative Total Return

The performance graph shall not be deemed incorporated by reference by any general statement incorporating by reference this Annual Report on Form 10-K into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that we specifically incorporate this information by reference, and shall not otherwise be deemed filed under those Acts.

Unregistered Sales of Equity Securities and Use of Proceeds

Repurchase of Equity Securities

The following table summarizes our repurchases of equity securities during the three months ended December 31, 2014:

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
October 1, 2014 - October 31, 2014	6,250	$	44.86	N/A	N/A
November 1, 2014 - November 30, 2014	—	—		N/A	N/A
December 1, 2014 - December 31, 2014	12,327	31.79		N/A	N/A
Total	18,577	$	36.19	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.

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Item 6. Selected Financial Data

The table below shows certain selected financial data for Exterran for each of the five years in the period ended December 31, 2014, which has been derived from our audited Financial Statements. As discussed in Note 3 to the Financial Statements, the results from continuing operations for all periods presented exclude the results of our Venezuelan contract operations business, Canadian contract operations and aftermarket services businesses (“Canadian Operations”) and contract water treatment business. Those results are reflected in discontinued operations for all periods presented. The following information should be read together with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Financial Statements contained in this report (in thousands, except per share data):

	Years Ended December 31,
	2014			2013			2012			2011			2010
Statement of Operations Data:
Revenues	$	2,899,738		$	3,160,404		$	2,794,246		$	2,612,625		$	2,394,037
Gross margin(1)	1,031,294			963,006			829,408			720,414			784,707
Selling, general and administrative	377,754			358,173			375,647			352,096			350,709
Depreciation and amortization	386,071			327,505			346,177			352,793			387,571
Long-lived asset impairment(2)	46,679			28,637			136,614			6,068			143,874
Restructuring charges(3)	7,553			—			6,471			11,594			—
Goodwill impairment(4)	—			—			—			196,807			—
Interest expense	114,178			115,745			134,376			149,473			136,149
Equity in (income) loss of non-consolidated affiliates(5)	(14,553		)	(19,000		)	(51,483		)	471			609
Other (income) expense, net	1,747			(24,501		)	506			(5,597		)	(11,481		)
Provision for (benefit from) income taxes	58,657			84,719			(45,755		)	(11,717		)	(64,559		)
Income (loss) from continuing operations	53,208			91,728			(73,145		)	(331,574		)	(158,165		)
Income (loss) from discontinued operations, net of tax(6)	72,674			64,014			35,976			(8,044		)	44,924
Net income (loss) attributable to noncontrolling interest	27,716			32,578			2,317			990			(11,416		)
Net income (loss) attributable to Exterran stockholders	98,166			123,164			(39,486		)	(340,608		)	(101,825		)
Income (loss) from continuing operations attributable to Exterran stockholders per common share:
Basic	$	0.38		$	0.90		$	(1.19	)	$	(5.31	)	$	(2.37	)
Diluted	$	0.36		$	0.89		$	(1.19	)	$	(5.31	)	$	(2.37	)
Weighted average common shares outstanding used in income (loss) per common share:
Basic	66,234			64,454			63,436			62,624			61,995
Diluted	69,090			65,003			63,436			62,624			61,995
Other Financial Data:
EBITDA, as adjusted(7)	$	658,839		$	633,893		$	460,661		$	388,089		$	434,361
Capital expenditures:
Contract Operations Equipment:
Growth(8)	$	389,712		$	231,195		$	261,548		$	132,986		$	126,546
Maintenance(9)	96,144			95,197			100,208			90,477			69,257
Other	55,839			65,333			66,975			48,687			35,610
Cash flows provided by (used in):
Operating activities	$	379,369		$	355,704		$	389,925		$	120,443		$	366,313
Investing activities	(929,851		)	(196,451		)	(205,451		)	(239,184		)	(102,965		)
Financing activities	558,481			(156,702		)	(171,290		)	99,290			(298,667		)
Dividends declared and paid per common share	$	0.60		$	—		$	—		$	—		$	—
Balance Sheet Data:
Cash and cash equivalents	$	39,739		$	35,665		$	34,601		$	21,903		$	44,361
Working capital(10)	654,958			580,425			463,429			454,046			402,401
Property, plant and equipment, net	3,326,892			2,820,272			2,838,719			2,911,711			2,990,284
Total assets	4,857,147			4,227,157			4,254,847			4,360,662			4,741,536
Long-term debt	2,026,902			1,502,155			1,564,923			1,773,039			1,897,147
Total Exterran stockholder’s equity	1,797,260			1,662,090			1,478,613			1,437,236			1,609,448

(1) Gross margin, a non-GAAP financial measure, is defined, reconciled to net income (loss) and discussed further below under “Non-GAAP Financial Measures.”

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(2) Year ended December 31, 2014: During 2014, we evaluated the future deployment of our idle fleet and determined to retire and either sell or re-utilize the key components of approximately 310 idle compressor units, representing approximately 131,000 horsepower, previously used to provide services in our North America and international contract operations segments. As a result, we performed an impairment review and recorded a $33.3 million asset impairment to reduce the book value of each unit to its estimated fair value. The fair value of each unit was estimated based on either the expected net sale proceeds compared to other fleet units we recently sold and/or a review of other units recently offered for sale by third parties, or the estimated component value of the equipment we plan to use.

In connection with our fleet review during 2014, we evaluated for impairment idle units that had been culled from our fleet in prior years and were available for sale. Based upon that review, we reduced the expected proceeds from disposition for certain of the remaining units. This resulted in an additional impairment of $12.7 million to reduce the book value of each unit to its estimated fair value.

During the year ended December 31, 2014, we evaluated other long-lived assets for impairment and recorded long-lived asset impairments of $0.7 million on these assets.

Year ended December 31, 2013: During 2013, we evaluated the future deployment of our idle fleet and determined to retire and either sell or re-utilize the key components of approximately 280 idle compressor units, representing approximately 76,000 horsepower, previously used to provide services in our North America contract operations segment. As a result, we performed an impairment review and recorded a $14.9 million asset impairment to reduce the book value of each unit to its estimated fair value. The fair value of each unit was estimated based on either the expected net sale proceeds compared to other fleet units we recently sold and/or a review of other units recently offered for sale by third parties, or the estimated component value of the equipment we plan to use.

In July 2013, as part of our continued emphasis on simplification and focus on our core business, we sold the entity that owned our fabrication facility in the United Kingdom. As a result, we recorded impairment charges of $11.9 million during the year ended December 31, 2013.

During 2013, we evaluated other long-lived assets for impairment and recorded long-lived asset impairments of $1.8 million on these assets.

Year ended December 31, 2012: During 2012, we evaluated the future deployment of our idle fleet and determined to retire and either sell or re-utilize the key components of approximately 930 idle compressor units, representing approximately 318,000 horsepower, previously used to provide services in our North America contract operations segment. As a result, we performed an impairment review and recorded a $97.1 million asset impairment to reduce the book value of each unit to its estimated fair value. The fair value of each unit was estimated based on either the expected net sale proceeds compared to other fleet units we recently sold and/or a review of other units recently offered for sale by third parties, or the estimated component value of the equipment we plan to use.

In connection with our 2012 fleet review, we evaluated for impairment idle units that had been culled from our fleet in prior years and were available for sale. Based upon that review, we reduced the expected proceeds from disposition for most of the remaining units and increased the weighted average disposal period for the units from the assumptions used in prior periods. This resulted in an additional impairment of $34.8 million to reduce the book value of each unit to its estimated fair value.

During 2012, we evaluated other long-lived assets for impairment and recorded long-lived asset impairments of $4.7 million on these assets.

Year ended December 31, 2011: During 2011, we reviewed our idle compression assets used in our contract operations segments for units that were not of the type, configuration, make or model that are cost effective to maintain and operate. As a result, we performed an impairment review and recorded a $5.7 million asset impairment to reduce the book value of each unit to its estimated fair value. The fair value of each unit was estimated based on either the expected net sale proceeds compared to other fleet units we recently sold and/or a review of other units recently offered for sale by third parties, or the estimated component value of the equipment we plan to use.

During 2011, we evaluated other long-lived assets for impairment and recorded long-lived asset impairments of $0.4 million on these assets.

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Year ended December 31, 2010: During 2010, we completed an evaluation of our longer-term strategies and determined to retire and sell approximately 1,800 idle compressor units, representing approximately 600,000 horsepower, previously used to provide services in our North America and international contract operations businesses. As a result, we performed an impairment review and recorded a $133.0 million asset impairment to reduce the book value of each unit to its estimated fair value. The fair value of each unit was estimated based on either the expected net sale proceeds compared to other fleet units we recently sold and/or a review of other units recently offered for sale by third parties. During 2010, we also reviewed the idle compression assets used in our contract operations segments for units that were not of the type, configuration, make or model that are cost effective to maintain and operate and determined to retire 323 units representing 61,400 horsepower from the fleet. We performed a cash flow analysis of the expected proceeds from the salvage value of these units to determine the fair value of the assets. As a result, we recorded a $7.6 million asset impairment to reduce the book value of each unit to its estimated fair value. In addition, in the fourth quarter of 2010, 105 fleet units previously used in our international contract operations segment were damaged in a flood, resulting in a long-lived asset impairment of $3.3 million.

(3) Year ended December 31, 2014: As discussed in Note 2 to the Financial Statements, in November 2014, we announced that our board of directors had authorized management to pursue a plan to separate our international contract operations, international aftermarket services and global fabrication businesses into an independent, publicly traded company. During the year ended December 31, 2014, we incurred $2.2 million of costs associated with the planned Spinoff which were primarily related to legal and consulting fees. The costs incurred in conjunction with the planned Spinoff are included in restructuring charges in our consolidated statements of operations. This separation is expected to be completed in the second half of 2015.

In January 2014, we announced a plan to centralize our make-ready operations to improve the cost and efficiency of our shops and further enhance the competitiveness of our fleet of compressors. As part of this plan, we examined both recent and anticipated changes in the North America market, including the throughput demand of our shops and the addition of new equipment to our fleet. To better align our costs and capabilities with the current market, we determined to close several of our make-ready shops. The centralization of our make-ready operations was completed in the second quarter of 2014. During the year ended December 31, 2014, we incurred $5.4 million of restructuring charges primarily related to termination benefits and a non-cash write-down of inventory associated with the centralization of our make-ready operations.

Years ended December 31, 2012 and 2011: In November 2011, we announced a workforce cost reduction program across all of our business segments as a first step in a broader overall profit improvement initiative. These actions were the result of a review of our cost structure aimed at identifying ways to reduce our on-going operating costs and adjust the size of our workforce to be consistent with then current and expected activity levels.

(4) Year ended December 31, 2011: As a result of the level of decline in our stock price and corresponding market capitalization in the third quarter of 2011, we performed a goodwill impairment test of our aftermarket services and fabrication reporting units’ goodwill as of September 30, 2011. We determined the fair value of these reporting units using the expected present value of future cash flows. This decline in our market capitalization led us to increase the estimate of the market’s implied weighted average cost of capital and reduce the present value of the forecasted cash flows. The test indicated that our aftermarket services and fabrication reporting units’ goodwill was impaired and therefore we recorded a full impairment of our remaining goodwill during 2011 of $196.8 million.

(5) Years ended December 31, 2014, 2013 and 2012: As discussed in Note 9 to the Financial Statements, in March 2012, our Venezuelan joint ventures sold their assets to PDVSA Gas. We received an initial payment of $37.6 million in March 2012, and received installment payments, including an annual charge, totaling $14.7 million, $19.0 million and $14.1 million during the years ended December 31, 2014, 2013 and 2012, respectively. The remaining principal amount due to us of approximately $26 million as of December 31, 2014, is payable in quarterly cash installments through the first quarter of 2016. We have not recognized amounts payable to us by PDVSA Gas as a receivable and will therefore recognize quarterly payments received in the future as equity in (income) loss of non-consolidated affiliates in our consolidated statements of operations in the periods such payments are received. In connection with the sale of our Venezuelan joint ventures’ assets, the joint ventures and our joint venture partners have agreed to suspend their previously filed arbitration proceeding against Venezuela pending payment in full by PDVSA Gas of the purchase price for the assets.

(6) Years ended December 31, 2014, 2013 and 2012: As discussed in Note 3 to the Financial Statements, in August 2012, our Venezuelan subsidiary sold its previously nationalized assets to PDVSA Gas for a purchase price of approximately $441.7 million. We received an initial payment of $176.7 million in cash at closing, of which we remitted $50.0 million to repay the amount we collected in January 2010 under the terms of an insurance policy we maintained for the risk of expropriation. We received installment payments, including an annual charge, totaling $72.6 million, $69.3 million and $16.8 million during the years ended December 31, 2014, 2013, and 2012, respectively. The remaining principal amount due to us of approximately $116 million as of December 31, 2014, is payable in quarterly cash installments through the third quarter of 2016. We have not recognized amounts payable to us by PDVSA Gas as a receivable and will therefore recognize quarterly payments received in the future as income from discontinued operations in the periods such payments are received. The proceeds from the sale of the assets are not subject to Venezuelan national taxes due to an exemption allowed under the Venezuelan Reserve Law applicable to expropriation settlements. In addition, and in connection with the sale, we and the Venezuelan government agreed to waive rights to assert certain claims against each other. We therefore recorded a reduction in previously unrecognized tax benefits, resulting in a $15.5 million benefit reflected in income (loss) from discontinued operations, net of tax, in our consolidated statements of operations during the year ended December 31, 2012.

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In June 2012, we committed to a plan to sell our Canadian Operations as part of our continued emphasis on simplification and focus on our core businesses. Our Canadian Operations are reflected as discontinued operations in our Financial Statements. These operations were previously included in our North American contract operations and aftermarket services business segments. In connection with the planned disposition, we recorded impairment charges totaling $6.4 million and $80.2 million during the years ended December 31, 2013 and 2012, respectively. The impairment charges are reflected in income (loss) from discontinued operations, net of tax, in our consolidated statements of operations.

In July 2013, we completed the sale of our Canadian Operations. We received the following consideration for the sale of the Canadian Operations (specified in either U.S. dollars (“$”) or Canadian dollars (“CDN$”)): (i) cash proceeds of $12.3 million, net of transaction expenses, (ii) a note receivable of CDN$8.1 million, (iii) contingent consideration of CDN$5.0 million based upon the Canadian Operations reaching a specified performance threshold prior to December 31, 2016 and (iv) a potential tax refund related to the Canadian Operations of CDN$1.6 million if such amounts are received by the Canadian Operations.

In December 2013, we abandoned our contract water treatment business as part of our continued emphasis on simplification and focus on our core businesses. The abandonment of this business meets the criteria established for recognition as discontinued operations under GAAP. Therefore, our contract water treatment business is reflected as discontinued operations in our Financial Statements. This business was previously included in our North American contract operations business segment. During the years ended December 31, 2013 and 2012, we evaluated our contract water treatment business and recorded impairment charges of $2.4 million and $46.8 million, respectively. The impairment charges are reflected in income (loss) from discontinued operations, net of tax, in our consolidated statements of operations.

(7) EBITDA, as adjusted, a non-GAAP financial measure, is defined, reconciled to net income (loss) and discussed further below under “Non-GAAP Financial Measures.”

(8) Growth capital expenditures are made to expand or to replace partially or fully depreciated assets or to expand the operating capacity or revenue of existing or new assets, whether through construction, acquisition or modification. The majority of our growth capital expenditures are related to the acquisition cost of new compressor units and processing and treating equipment that we add to our fleet and installation costs on integrated projects. In addition, growth capital expenditures can also 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 that it previously was not suited for.

(9) Maintenance capital expenditures are made to maintain the existing operating capacity of our assets and related cash flows further extending the useful lives of the assets. Maintenance capital expenditures are related to the 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 that the compressor unit was designed for.

(10) Working capital is defined as current assets minus current liabilities.

Non-GAAP Financial Measures

We define gross margin as total revenue less cost of sales (excluding depreciation and amortization expense). Gross margin is included as a supplemental disclosure because it is a primary measure used by our management to evaluate the results of revenue and cost of sales (excluding depreciation and amortization expense), which are key components of our operations. We believe gross margin is important because it focuses on the current operating performance of our operations and excludes the impact of the prior historical costs of the assets acquired or constructed that are utilized in those operations, the indirect costs associated with our SG&A activities, the impact of our financing methods and income taxes. Depreciation and amortization expense may not accurately reflect the costs required to maintain and replenish the operational usage of our assets and therefore may not portray the costs from current operating activity. As an indicator of our operating performance, gross margin should not be considered an alternative to, or more meaningful than, net income (loss) as determined in accordance with accounting principles generally accepted in the U.S. (“GAAP”). Our gross margin may not be comparable to a similarly titled measure of another company because other entities may not calculate gross margin in the same manner.

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Gross margin has certain material limitations associated with its use as compared to net income (loss). These limitations are primarily due to the exclusion of interest expense, depreciation and amortization expense, SG&A expense, impairments and restructuring charges. Each of these excluded expenses is material to our consolidated statements of operations. Because we intend to finance a portion of our operations through borrowings, interest expense is a necessary element of our costs and our ability to generate revenue. Additionally, because we use capital assets, depreciation expense is a necessary element of our costs and our ability to generate revenue, and SG&A expenses are necessary to support our operations and required corporate activities. To compensate for these limitations, management uses this non-GAAP measure as a supplemental measure to other GAAP results to provide a more complete understanding of our performance.

The following table reconciles our net income (loss) to gross margin (in thousands):

	Years Ended December 31,
	2014			2013			2012			2011			2010
Net income (loss)	$	125,882		$	155,742		$	(37,169	)	$	(339,618	)	$	(113,241	)
Selling, general and administrative	377,754			358,173			375,647			352,096			350,709
Depreciation and amortization	386,071			327,505			346,177			352,793			387,571
Long-lived asset impairment	46,679			28,637			136,614			6,068			143,874
Restructuring charges	7,553			—			6,471			11,594			—
Goodwill impairment	—			—			—			196,807			—
Interest expense	114,178			115,745			134,376			149,473			136,149
Equity in (income) loss of non-consolidated affiliates	(14,553		)	(19,000		)	(51,483		)	471			609
Other (income) expense, net	1,747			(24,501		)	506			(5,597		)	(11,481		)
Provision for (benefit from) income taxes	58,657			84,719			(45,755		)	(11,717		)	(64,559		)
(Income) loss from discontinued operations, net of tax	(72,674		)	(64,014		)	(35,976		)	8,044			(44,924		)
Gross margin	$	1,031,294		$	963,006		$	829,408		$	720,414		$	784,707

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 and gain or loss on termination of interest rate swaps), depreciation and amortization expense, impairment charges, restructuring 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 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. 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 and other measures determined in accordance with GAAP. Items excluded from EBITDA, as adjusted, are significant and necessary components to the operations 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):

	Years Ended December 31,
	2014			2013			2012			2011			2010
Net income (loss)	$	125,882		$	155,742		$	(37,169	)	$	(339,618	)	$	(113,241	)
(Income) loss from discontinued operations, net of tax	(72,674		)	(64,014		)	(35,976		)	8,044			(44,924		)
Depreciation and amortization	386,071			327,505			346,177			352,793			387,571
Long-lived asset impairment	46,679			28,637			136,614			6,068			143,874
Restructuring charges	7,553			—			6,471			11,594			—
Goodwill impairment	—			—			—			196,807			—
Investment in non-consolidated affiliates impairment	197			—			224			471			609
Proceeds from sale of joint venture assets	(14,750		)	(19,000		)	(51,707		)	—			—
Interest expense	114,178			115,745			134,376			149,473			136,149
(Gain) loss on currency exchange rate remeasurement of intercompany balances	3,614			4,313			7,406			14,174			(6,255		)
Gain on sale of our investment in the subsidiary that owns the barge mounted processing plant and other related assets used on the Cawthorne Channel Project	—			—			—			—			(4,863		)
Loss on sale of businesses	961			—			—			—			—
Expensed acquisition costs	2,471			246			—			—			—
Provision for (benefit from) income taxes	58,657			84,719			(45,755		)	(11,717		)	(64,559		)
EBITDA, as adjusted	$	658,839		$	633,893		$	460,661		$	388,089		$	434,361

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Item 7. 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 Financial Statements, the notes thereto, and the other financial information appearing elsewhere in this report. The following discussion includes forward-looking statements that involve certain risks and uncertainties. See Part I (“Disclosure Regarding Forward-Looking Statements”) and Part I, Item 1A (“Risk Factors”) in this report.

Overview

Proposed Spinoff Transaction

On November 17, 2014, we announced that our board of directors had authorized management to pursue a plan to separate (the “Spinoff”) our international contract operations, international aftermarket services and global fabrication businesses into an independent, publicly traded company (“Spinco”). To effect the Spinoff, we intend to distribute, on a pro rata basis, all of the shares of Spinco common stock to our stockholders as of the record date for the Spinoff. The Spinoff is subject to market conditions, the receipt of an opinion of counsel as to the tax-free nature of the transaction, completion of a review by the U.S. Securities and Exchange Commission of a Form 10 to be filed by Spinco, the execution of separation and intercompany agreements and final approval of our board of directors. Upon completion of the Spinoff, we and Spinco will be independent, publicly traded companies with separate public ownership, boards of directors and management, and we will own and operate the remaining U.S. contract operations and U.S. aftermarket services businesses that we currently own. In addition, we will continue to hold interests in the Partnership, which include the sole general partner interest and certain limited partner interests, as well as all of the incentive distribution rights in the Partnership.

Unless otherwise indicated, this discussion in Part II, Item 7 (“Management’s Discussion and Analysis of Financial Condition and Results of Operations”) excludes the potential future impact of the proposed Spinoff transaction, if consummated. The effect of the proposed Spinoff transaction could significantly change and materially impact our business, financial condition, results of operations and cash flows.

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 is typically less impacted by 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.

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Natural gas consumption in the U.S. for the twelve months ended November 30, 2014 increased by approximately 5% compared to the twelve months ended November 30, 2013. The EIA forecasts that total U.S. natural gas consumption will increase by 1.4% in 2015 compared to 2014 and increase by an average of 0.7% per year thereafter until 2040. The EIA estimates that the U.S. natural gas consumption level will be approximately 30 trillion cubic feet in 2040, or 16% of the projected worldwide total of approximately 185 trillion cubic feet.

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 among using our products and services, using our competitors’ products and services or owning and operating the equipment themselves.

During 2014, we continued to see steady activity in North America shale plays and areas focused on the production of oil and natural gas liquids. This activity has increased the overall amount of compression horsepower in the industry; however, these increases continued to be partially offset by horsepower declines in more mature and predominantly dry gas markets, where we provide a significant amount of contract operations services. During 2014, excluding operating horsepower added through acquisitions, our operating horsepower increased at a higher rate in the shale plays and areas focused on the production of oil and natural gas liquids than the declines we experienced in the more mature and predominately dry gas plays in North America. Historically, oil and natural gas prices in North America have been volatile. Global oil prices have fallen significantly recently. West Texas Intermediate crude oil spot prices as of December 31, 2014 were approximately 41% and 46% lower than prices at September 30, 2014 and December 31, 2013, respectively, which is expected to lead to reduced drilling of oil wells in 2015. Because we provide a significant amount of contract operations services related to the production of associated gas from oil wells and a significant amount of contract operations services related to the use of gas lift to enhance production of oil from oil wells, our operations and our levels of operating horsepower are also impacted by crude oil drilling and production activity. In addition, the Henry Hub spot price for natural gas was approximately $3.10 per MMBtu at December 31, 2014, which was approximately 24% and 27% lower than prices at September 30, 2014 and December 31, 2013, respectively, and the U.S. natural gas liquid composite price was approximately $7.84 per MMBtu for the month of November 2014, which was approximately 20% and 27% lower than prices for the months of September 2014 and December 2013, respectively, which is expected to lead to reduced drilling of gas wells in North America in 2015. During periods of lower oil or natural gas prices, oil and natural gas production growth could moderate or decline in North America and internationally, and as a result the demand or pricing for our contract operations services and oil and natural gas production and processing equipment could be adversely affected. Booking activity levels for our fabricated products in North America during the year ended December 31, 2014 increased by approximately 46% compared to the year ended December 31, 2013 and our North America fabrication backlog increased by approximately 82% as of December 31, 2014 compared to December 31, 2013. Continued growth in North America requires capital investment by our customers in new projects over the long run. As a result of these low oil and gas prices, we believe there will be less oil and gas drilling activity in North America in 2015 compared to 2014. If capital investment in drilling activities remains low throughout 2015, we may see lower bookings in our North America fabrication business in 2015 and in future periods.

In international markets, we believe demand for our contract operations and fabricated projects will continue, and we expect to have opportunities to grow our international business through our contract operations, aftermarket services and fabrication business segments over the long term. Growth in our international services and products businesses is somewhat dependent on international infrastructure projects, many of which are based on longer-term plans of our customers that can be driven by their local market demand and, to some extent, local pricing for natural gas and can be less tied to near term commodity prices.

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 demand we see for contract operations, we anticipate investing more capital in our international contract operations business and less capital in our North America contract operations business in 2015 than we did in 2014. The increased investment in our international contract operations business during 2015 is driven by several large multi-year projects contracted in 2014 that are scheduled to start earning revenue in 2015 and 2016.

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Based on current market conditions, we expect that net cash provided by operating activities and availability under our credit facilities will be sufficient to finance our operating expenditures, capital expenditures, scheduled interest and debt repayments and anticipated dividends through December 31, 2015; however, to the extent it is not, we may seek additional debt or equity financing. We may from time to time seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity or other debt securities, in open market purchases, privately negotiated transactions or otherwise, and may from time to time seek to repurchase our equity. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.

We may contribute over time additional U.S. contract operations customer contracts and equipment to the Partnership in exchange for cash, the Partnership’s assumption of our debt and/or our receipt of additional interests in the Partnership. Such transactions depend on, among other things, market and economic conditions, our ability to agree with the Partnership regarding the terms of any purchase and the availability to the Partnership of debt and equity capital on reasonable terms.

Certain Key Challenges and Uncertainties

Market conditions in the oil and natural gas industry, competition in the natural gas compression industry and the risks inherent in international markets continue to represent key challenges and uncertainties. In addition to these challenges, we believe the following represent some of the key challenges and uncertainties we will face in the near future:

North America Market and Oil and Natural Gas Pricing. During 2014, we continued to see steady activity in North America shale plays and areas focused on the production of oil and natural gas liquids. This activity has increased the overall amount of compression horsepower in the industry; however, these increases continued to be partially offset by horsepower declines in more mature and predominantly dry gas markets, where we provide a significant amount of contract operations services. Historically, oil and natural gas prices in North America have been volatile. Global oil prices and North America natural gas prices have fallen significantly recently. During periods of lower oil or natural gas prices, oil and natural gas production growth could moderate or decline in North America, and as a result the demand or pricing for our natural gas compression and oil and natural gas production and processing equipment and services could be adversely affected. The recent investment of capital in new equipment by our competitors and other third parties could also create uncertainty in our business outlook. Many of our North America contract operations agreements with customers have short initial terms and are typically cancelable on short notice after the initial term, and we cannot be certain that these contracts will be extended or renewed after the end of the initial contractual term. Any such nonrenewals, or renewals at reduced rates, could adversely impact our results of operations.

Execution on Larger Contract Operations and Fabrication Projects. Some of our projects have a relatively larger size and scope than the majority of our projects, which can translate into more technically challenging conditions or performance specifications for our products and services. Contracts with our customers generally specify delivery dates, performance criteria and penalties for our failure to perform. Any failure to execute such larger projects in a timely and cost effective manner could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Execution of the Proposed Spinoff. Execution of the proposed Spinoff transaction will require significant expense and the time and attention of our management. The Spinoff could distract management from the operation of our business and the execution of our other strategic initiatives. Our employees may also be uncertain about their future roles within the separate companies pending the completion of the Spinoff, which could lead to departures. Further, if the Spinoff is completed, we may not realize the benefits we expect to realize. Any such difficulties could have an adverse effect on our business, results of operations and financial condition. If completed, the Spinoff may also expose us to certain risks that could have an adverse effect on our results of operations and financial condition. The Spinoff is contingent upon the final approval of our board of directors and other conditions, some of which are beyond our control. For this and other reasons, the Spinoff may not be completed in the expected timeframe or at all.

Personnel, Hiring, Training and Retention. Both in North America and internationally, we believe our ability to grow may be challenged by our ability to hire, train and retain qualified personnel. Although we have been able to satisfy our personnel needs thus far, retaining employees in our industry continues to be a challenge. Our ability to continue our growth will depend in part on our success in hiring, training and retaining these employees.

Activity in the Global Energy Markets. Our results of operations depend upon the level of activity in the global energy markets, including oil and natural gas development, production, processing and transportation. Oil and natural gas prices and the level of drilling and exploration activity can be volatile. For example, oil and natural gas exploration and development activity and the number of well completions typically decline when there is a significant reduction in oil or natural gas prices or significant instability in energy markets. Global oil prices and North America natural gas prices have fallen significantly recently, and, as a result, research analysts are forecasting declines in U.S. and worldwide capital spending for drilling activity in 2015, and producers in the U.S. and other parts of the world have begun to announce reduced capital budgets for this year. In addition, in international projects, some business activity is related to infrastructure development or regulatory requirements such as regulations to prevent the flaring of natural gas. The timing and financial impact of these projects is difficult to predict as they typically have longer lead times and larger scope, which can lead to variations in our results of operations internationally on a year over year basis.

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Summary of Results

As discussed in Note 3 to the Financial Statements, the results from continuing operations for all periods presented exclude the results of our Venezuelan contract operations business, Canadian Operations and contract water treatment business. Those results are reflected in discontinued operations for all periods presented.

Net Income (loss) attributable to Exterran stockholders and EBITDA, as adjusted. We generated net income attributable to Exterran stockholders of $98.2 million and $123.2 million during the years ended December 31, 2014 and 2013, respectively, and net loss attributable to Exterran stockholders of $39.5 million during the year ended December 31, 2012. The decrease in net income attributable to Exterran stockholders during the year ended December 31, 2014 compared to the year ended December 31, 2013 was primarily due to an increase in depreciation and amortization expense, a $20.0 million decrease in gain on sale of property, plant and equipment, an increase in SG&A expense and an increase in long-lived asset impairment, partially offset by an increase in gross margin and a decrease in income tax expense. The increase in net income attributable to Exterran stockholders during the year ended December 31, 2013 compared to the year ended December 31, 2012 was primarily due to an increase in gross margins in our fabrication and North America contract operations segments, a decrease in long-lived asset impairments, an increase in income from discontinued operations and a $22.8 million increase in gain on sale of property, plant and equipment, partially offset by a decrease of $32.7 million in cash payments received from the sale of our Venezuelan joint ventures’ assets and an increase in income tax expense. Our EBITDA, as adjusted, was $658.8 million, $633.9 million and $460.7 million during the years ended December 31, 2014, 2013 and 2012, respectively. EBITDA, as adjusted, during the year ended December 31, 2014 compared to the year ended December 31, 2013 increased primarily due to higher gross margin as discussed above, partially offset by a $20.0 million decrease in gain on sale of property, plant and equipment and an increase in SG&A expense. EBITDA, as adjusted, during the year ended December 31, 2013 compared to the year ended December 31, 2012 increased primarily due to higher gross margins as discussed above and a $22.8 million increase in gain on sale of property, plant and equipment as discussed above. 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 Part II, Item 6 (“Selected Financial Data — Non-GAAP Financial Measures”) of this report.

Results by Business Segment. The following table summarizes revenue, gross margin and gross margin percentages for each of our business segments (dollars in thousands):

	Years Ended December 31,
	2014			2013			2012
Revenue:
North America Contract Operations	$	729,103		$	627,844		$	596,011
International Contract Operations	493,853			476,016			463,957
Aftermarket Services	392,774			395,600			385,861
Fabrication	1,284,008			1,660,944			1,348,417
	$	2,899,738		$	3,160,404		$	2,794,246
Gross Margin(1):
North America Contract Operations	$	412,961		$	345,355		$	311,308
International Contract Operations	308,445			279,072			279,349
Aftermarket Services	84,342			86,182			82,271
Fabrication	225,546			252,397			156,480
	$	1,031,294		$	963,006		$	829,408
Gross Margin percentage(2):
North America Contract Operations	57		%	55		%	52		%
International Contract Operations	62		%	59		%	60		%
Aftermarket Services	21		%	22		%	21		%
Fabrication	18		%	15		%	12		%

(1) Defined as revenue less cost of sales, excluding depreciation and amortization expense. Gross margin, a non-GAAP financial measure, is reconciled, in total, to net income (loss), its most directly comparable financial measure calculated and presented in accordance with GAAP in Part II, Item 6 (“Selected Financial Data — Non-GAAP Financial Measures”) of this report.

(2) Defined as gross margin divided by revenue.

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Operating Highlights

The following tables summarize our total available horsepower, total operating horsepower, average operating horsepower, horsepower utilization percentages and fabrication backlog (in thousands, except percentages):

	Years Ended December 31,
	2014		2013		2012
Total Available Horsepower (at period end):
North America	4,209		3,429		3,376
International	1,236		1,255		1,265
Total	5,445		4,684		4,641
Total Operating Horsepower (at period end):
North America	3,700		2,884		2,900
International	976		986		1,007
Total	4,676		3,870		3,907
Average Operating Horsepower:
North America	3,346		2,871		2,839
International	969		995		991
Total	4,315		3,866		3,830
Horsepower Utilization (at period end):
North America	88	%	84	%	86	%
International	79	%	79	%	80	%
Total	86	%	83	%	84	%

	December 31,
	2014		2013		2012
Compressor and Accessory Fabrication Backlog	$	270,297	$	157,893	$	256,315
Production and Processing Equipment Fabrication Backlog	561,153		475,565		563,826
Installation Backlog	121,751		46,429		245,573
Fabrication Backlog	$	953,201	$	679,887	$	1,065,714

The Year Ended December 31, 2014 Compared to the Year Ended December 31, 2013

North America Contract Operations

(dollars in thousands)

	Years Ended December 31,						Increase
	2014			2013			(Decrease)
Revenue	$	729,103		$	627,844		16	%
Cost of sales (excluding depreciation and amortization expense)	316,142			282,489			12	%
Gross margin	$	412,961		$	345,355		20	%
Gross margin percentage	57		%	55		%	2	%

The increase in revenue during the year ended December 31, 2014 compared to the year ended December 31, 2013 was primarily attributable to a 17% increase in average operating horsepower, which included the assets acquired in the August 2014 MidCon Acquisition and the April 2014 MidCon Acquisition as well as organic growth in operating horsepower, and higher rates in the current year, partially offset by a $12.1 million decrease in revenue with little incremental cost due to the termination of three natural gas processing plant contracts during the second quarter of 2013. Gross margin (defined as revenue less cost of sales, excluding depreciation and amortization expense) and gross margin percentage increased during the year ended December 31, 2014 compared to the year ended December 31, 2013 primarily due to the revenue increase explained above. Gross margin, a non-GAAP financial measure, is reconciled, in total, to net income (loss), its most directly comparable financial measure calculated and presented in accordance with GAAP, in Part II, Item 6 (‘Selected Financial Data — Non GAAP Financial Measures’) to this report.

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International Contract Operations

(dollars in thousands)

	Years Ended December 31,						Increase
	2014			2013			(Decrease)
Revenue	$	493,853		$	476,016		4	%
Cost of sales (excluding depreciation and amortization expense)	185,408			196,944			(6	)%
Gross margin	$	308,445		$	279,072		11	%
Gross margin percentage	62		%	59		%	3	%

The increase in revenue during the year ended December 31, 2014 compared to the year ended December 31, 2013 was primarily due to a $16.1 million increase in revenue in Brazil primarily related to the start-up of a project in the current year with little incremental costs, an $8.0 million increase in revenue related to contracts that commenced in 2013 in Trinidad and Iraq, a $3.8 million increase in revenue in Mexico primarily due to accelerated revenues associated with a project that terminated in the second quarter of 2014 and a $3.8 million increase in revenue in Indonesia primarily due to an increase in production. These increases in revenue were partially offset by a $7.2 million decrease in revenue in Argentina driven by devaluation of the Argentine peso in the current year partially offset by higher rates in the current year period and a $6.1 million decrease in Colombia primarily due to recognition of revenue with no incremental cost on the termination of a contract during the year ended December 31, 2013. Gross margin and gross margin percentage increased during the year ended December 31, 2014 compared to the year ended December 31, 2013 primarily due to the revenue increase explained above, excluding the devaluation of the Argentine peso in the current year as the impact on gross margin and gross margin percentage was insignificant.

Aftermarket Services

(dollars in thousands)

	Years Ended December 31,						Increase
	2014			2013			(Decrease)
Revenue	$	392,774		$	395,600		(1	)%
Cost of sales (excluding depreciation and amortization expense)	308,432			309,418			0	%
Gross margin	$	84,342		$	86,182		(2	)%
Gross margin percentage	21		%	22		%	(1	)%

The decrease in revenue during the year ended December 31, 2014 compared to the year ended December 31, 2013 was due to a decrease in revenue in North America of $4.9 million, partially offset by increases in revenue in the Eastern Hemisphere and Latin America of $1.1 million and $1.0 million, respectively. Gross margin decreased during the year ended December 31, 2014 compared to the year ended December 31, 2013 primarily due to a decrease in gross margin in North America of $4.6 million, partially offset by an increase in gross margin in the Eastern Hemisphere of $2.6 million.

Fabrication

(dollars in thousands)

	Years Ended December 31,						Increase
	2014			2013			(Decrease)
Revenue	$	1,284,008		$	1,660,944		(23	)%
Cost of sales (excluding depreciation and amortization expense)	1,058,462			1,408,547			(25	)%
Gross margin	$	225,546		$	252,397		(11	)%
Gross margin percentage	18		%	15		%	3	%

The decrease in revenue during the year ended December 31, 2014 compared to the year ended December 31, 2013 was due to lower revenue in North America, Latin America and the Eastern Hemisphere of $229.0 million, $83.3 million and $64.6 million, respectively. The decrease in revenue in North America was due to a decrease of $143.6 million in installation revenue primarily due to a project for one customer that was completed in 2013 and a decrease of $122.4 million in production and processing equipment revenue, partially offset by a $37.0 million increase in compressor revenue. The decrease in Latin America revenue was due to decreases of $59.2 million, $14.0 million and $10.1 million in installation revenue, production and processing equipment revenue and compressor revenue, respectively. The decrease in revenue in the Eastern Hemisphere was due to a decrease of $106.4 million in compressor revenue, partially offset by increases of $24.0 million and $17.8 million in installation revenue and production and processing equipment revenue, respectively. The decrease in gross margin was primarily caused by the revenue decrease explained above and additional costs charged to a project in North America related to a warranty expense accrual during the year ended December 31, 2014, partially offset by cost overruns on three large turnkey projects recorded during the year ended December 31, 2013. The increase in gross margin percentage was primarily caused by cost overruns on three large turnkey projects recorded during the year ended December 31, 2013, partially offset by additional costs charged to a project in North America related to a warranty expense accrual during the year ended December 31, 2014.

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Costs and Expenses

(dollars in thousands)

	Years Ended December 31,						Increase
	2014			2013			(Decrease)
Selling, general and administrative	$	377,754		$	358,173		5	%
Depreciation and amortization	386,071			327,505			18	%
Long-lived asset impairment	46,679			28,637			63	%
Restructuring charges	7,553			—			n/a
Interest expense	114,178			115,745			(1	)%
Equity in income of non-consolidated affiliates	(14,553		)	(19,000		)	(23	)%
Other (income) expense, net	1,747			(24,501		)	(107	)%

The increase in SG&A expense during the year ended December 31, 2014 compared to the year ended December 31, 2013 was primarily due to a $14.5 million increase in compensation and benefits costs and a $5.9 million increase in state and local taxes. SG&A as a percentage of revenue was 13% and 11% during the years ended December 31, 2014 and 2013, respectively.

Depreciation and amortization expense during the year ended December 31, 2014 compared to the year ended December 31, 2013 increased primarily due to accelerated depreciation on contract operations projects in Brazil and an increase in property, plant and equipment and intangible asset additions, including the assets acquired in the August 2014 MidCon Acquisition and the April 2014 MidCon Acquisition.

During the year ended December 31, 2014, we evaluated the future deployment of our idle fleet and determined to retire and either sell or re-utilize the key components of approximately 310 idle compressor units, representing approximately 131,000 horsepower, previously used to provide services in our North America and international contract operations segments. As a result, we performed an impairment review and recorded a $33.3 million asset impairment to reduce the book value of each unit to its estimated fair value. The fair value of each unit was estimated based on either the expected net sale proceeds compared to other fleet units we recently sold and/or a review of other units recently offered for sale by third parties, or the estimated component value of the equipment we plan to use.

During the year ended December 31, 2014, we evaluated other long-lived assets for impairment and recorded long-lived asset impairments of $0.7 million on these assets.

During the year ended December 31, 2013, we evaluated the future deployment of our idle fleet and determined to retire and either sell or re-utilize the key components of approximately 280 idle compressor units, representing approximately 76,000 horsepower, previously used to provide services in our North America contract operations segment. As a result, we performed an impairment review and recorded a $14.9 million asset impairment to reduce the book value of each unit to its estimated fair value. The fair value of each unit was estimated based on either the expected net sale proceeds compared to other fleet units we recently sold and/or a review of other units recently offered for sale by third parties, or the estimated component value of the equipment we plan to use.

During the year ended December 31, 2013, we evaluated other long-lived assets for impairment and recorded long-lived asset impairments of $1.8 million on these assets.

As discussed in Note 2 to the Financial Statements, in November 2014, we announced that our board of directors had authorized management to pursue a plan to separate our international contract operations, international aftermarket services and global fabrication businesses into an independent, publicly traded company. During the year ended December 31, 2014, we incurred $2.2 million of costs associated with the planned Spinoff which were primarily related to legal and consulting fees. The costs incurred in conjunction with the planned Spinoff are included in restructuring charges in our consolidated statements of operations. This separation is expected to be completed in the second half of 2015. We cannot currently estimate the total restructuring costs that will be incurred as a result of the Spinoff. See Note 15 to the Financial Statements for further discussion of these charges.

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Interest expense during the year ended December 31, 2014 compared to the year ended December 31, 2013 decreased due to a decrease in the weighted average effective interest rate on our debt, partially offset by an increase in the average balance of long-term debt. The decrease in the weighted average effective interest rate was primarily due to the redemption of $355.0 million aggregate principal amount of 4.25% convertible senior notes (the “4.25% Notes”) in the second quarter of 2014 with borrowings from our revolving credit facility, including the impact of a decrease in amortization of the debt discount on the 4.25% Notes in the current year, partially offset by the issuance of the Partnership 2014 Notes in April 2014 and the issuance of $350.0 million aggregate principal amount of the Partnership’s 6% senior notes in March 2013 (the “Partnership 2013 Notes”).

In March 2012, our Venezuelan joint ventures sold their assets to PDVSA Gas. We received payments, including an annual charge, of $14.7 million and $19.0 million during the years ended December 31, 2014 and 2013, respectively. The remaining principal amount due to us of approximately $26 million as of December 31, 2014, is payable in quarterly cash installments through the first quarter of 2016. In January 2015, we received an installment payment, including an annual charge, of $5.0 million that was due to us in December 2014. Payments we receive from the sale will be recognized as equity in (income) loss of non-consolidated affiliates in our consolidated statements of operations in the periods such payments are received.

The change in other (income) expense, net, was primarily due to a $20.0 million decrease in gain on sale of property, plant and equipment and a $6.5 million loss recognized during the year ended December 31, 2014 on short-term investments related to the purchase of Argentine government issued U.S. dollar denominated bonds using Argentine pesos. The change in other (income) expense, net, was also due to foreign currency losses of $8.8 million and $3.0 million during the years ended December 31, 2014 and 2013, respectively. Foreign currency losses included translation losses of $3.6 million and $4.3 million during the years ended December 31, 2014 and 2013, respectively, related to the functional currency remeasurement of our foreign subsidiaries’ U.S. dollar denominated intercompany obligations.

Income Taxes

(dollars in thousands)

	Years Ended December 31,						Increase
	2014			2013			(Decrease)
Provision for (benefit from) income taxes	$	58,657		$	84,719		(31	)%
Effective tax rate	52.4		%	48.0		%	4.4	%

The decrease in income tax expense during the year ended December 31, 2014 compared to the year ended December 31, 2013 was primarily due to a reduction in pre-tax income in the current year period, a $9.0 million valuation allowance recorded in the prior year period against the deferred tax asset for Italy net operating losses and a $3.0 million state tax benefit recognized in the current year period for amendments to prior years’ tax returns. These activities were partially offset by a $7.2 million valuation allowance recorded in the fourth quarter 2014 against foreign tax credits expiring in 2015.

Discontinued Operations

(dollars in thousands)

	Years Ended December 31,				Increase
	2014		2013		(Decrease)
Income from discontinued operations, net of tax	$	72,674	$	64,014	14	%

Income from discontinued operations, net of tax, during the years ended December 31, 2014 and 2013 includes our operations in Venezuela that were expropriated in June 2009, including compensation for expropriation and costs associated with our arbitration proceeding, results from our Canadian Operations and results from our contract water treatment business.

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As discussed in Note 3 to the Financial Statements, in August 2012, our Venezuelan subsidiary sold its previously nationalized assets to PDVSA Gas. We received installment payments, including an annual charge, totaling $72.6 million and $69.3 million during the years ended December 31, 2014 and 2013, respectively. The remaining principal amount due to us of approximately $116 million as of December 31, 2014, is payable in quarterly cash installments through the third quarter of 2016. We have not recognized amounts payable to us by PDVSA Gas as a receivable and will therefore recognize quarterly payments received in the future as income from discontinued operations in the periods such payments are received. The proceeds from the sale of the assets are not subject to Venezuelan national taxes due to an exemption allowed under the Venezuelan Reserve Law applicable to expropriation settlements. In addition, and in connection with the sale, we and the Venezuelan government agreed to waive rights to assert certain claims against each other.

In June 2012, we committed to a plan to sell our Canadian Operations. In connection with the planned disposition, we recorded impairment charges totaling $6.4 million during the year ended December 31, 2013. As discussed in Note 3 to the Financial Statements, in July 2013, we completed the sale of our Canadian Operations.

In December 2013, we abandoned our contract water treatment business as part of our continued emphasis on simplification and focus on our core businesses. The abandonment of this business meets the criteria established for recognition as discontinued operations under GAAP. Therefore, our contract water treatment business is reflected as discontinued operations in our consolidated financial statements. This business was previously included in our North American contract operations business segment. During the year ended December 31, 2013, we evaluated our contract water treatment business and recorded impairment charges of $2.4 million.

Noncontrolling Interest

Noncontrolling interest comprises of the portion of the Partnership’s earnings that is applicable to the Partnership’s publicly-held limited partner interest. As of December 31, 2014, public unitholders held a 63% ownership interest in the Partnership.

The Year Ended December 31, 2013 Compared to the Year Ended December 31, 2012

North America Contract Operations

(dollars in thousands)

	Years Ended December 31,						Increase
	2013			2012			(Decrease)
Revenue	$	627,844		$	596,011		5	%
Cost of sales (excluding depreciation and amortization expense)	282,489			284,703			(1	)%
Gross margin	$	345,355		$	311,308		11	%
Gross margin percentage	55		%	52		%	3	%

The increase in revenue during the year ended December 31, 2013 compared to the year ended December 31, 2012 was primarily attributable to an increase in rates, a 1% increase in average operating horsepower and a $6.5 million increase in revenue with no incremental cost due to the termination of contracts resulting from the exercise of purchase options by our customer on two natural gas processing plants, partially offset by a $7.4 million decrease in revenue due to the termination of three natural gas processing plant contracts during the second quarter of 2013. The increases in gross margin (defined as revenue less cost of sales, excluding depreciation and amortization expense) and gross margin percentage during the year ended December 31, 2013 compared to the year ended December 31, 2012 were primarily caused by the revenue increase explained above and improved management of field operating expenses from the implementation of profitability improvement initiatives. Gross margin, a non-GAAP financial measure, is reconciled, in total, to net income (loss), its most directly comparable financial measure calculated and presented in accordance with GAAP in Part II, Item 6 (“Selected Financial Data — Non-GAAP Financial Measures”) of this report.

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International Contract Operations

(dollars in thousands)

	Years Ended December 31,						Increase
	2013			2012			(Decrease)
Revenue	$	476,016		$	463,957		3	%
Cost of sales (excluding depreciation and amortization expense)	196,944			184,608			7	%
Gross margin	$	279,072		$	279,349		0	%
Gross margin percentage	59		%	60		%	(1	)%

The increase in revenue during the year ended December 31, 2013 compared to the year ended December 31, 2012 was primarily due to rate increases in Argentina and Indonesia that provided $32.7 million of additional revenue in 2013 and increases in revenue in

Mexico and Bahrain of $17.7 million primarily due to contracts that commenced or were expanded in scope in 2012 and 2013. These increases were partially offset by a $37.1 million decrease in revenue in Brazil primarily as a result of the recognition of revenue with little incremental cost on terminated contracts during the prior year period. Gross margin percentage during the year ended December 31, 2013 compared to the year ended December 31, 2012 decreased due to the recognition of revenue on terminated contracts in Brazil during the year ended December 31, 2012 mentioned above, partially offset by the rate increases mentioned above.

Aftermarket Services

(dollars in thousands)

	Years Ended December 31,						Increase
	2013			2012			(Decrease)
Revenue	$	395,600		$	385,861		3	%
Cost of sales (excluding depreciation and amortization expense)	309,418			303,590			2	%
Gross margin	$	86,182		$	82,271		5	%
Gross margin percentage	22		%	21		%	1	%

The increase in revenue during the year ended December 31, 2013 compared to the year ended December 31, 2012 was primarily due to an increase in revenue in the Eastern Hemisphere of $8.9 million and an increase in revenue in Latin America of $6.7 million, partially offset by a decrease in revenue in North America of $5.9 million. Gross margin increased during the year ended December 31, 2013 compared to the year ended December 31, 2012 primarily due to increases in gross margin in Latin America and North America, partially offset by lower gross margins on work performed in the Eastern Hemisphere during the year ended December 31, 2013.

Fabrication

(dollars in thousands)

	Years Ended December 31,						Increase
	2013			2012			(Decrease)
Revenue	$	1,660,944		$	1,348,417		23	%
Cost of sales (excluding depreciation and amortization expense)	1,408,547			1,191,937			18	%
Gross margin	$	252,397		$	156,480		61	%
Gross margin percentage	15		%	12		%	3	%

The increase in revenue during the year ended December 31, 2013 compared to the year ended December 31, 2012 was due to $188.9 million of higher revenue in the Eastern Hemisphere, $74.6 million of higher revenue in North America and $49.0 million of higher revenue in Latin America. The increase in revenue in the Eastern Hemisphere was due to increases of $114.3 million, $38.9 million and $35.7 million in compressor revenue, production and processing equipment revenue and installation revenue, respectively. The increase in North America revenue was due to increases of $80.7 million and $88.4 million in installation revenue and production and processing equipment revenue, respectively, partially offset by a $94.5 million decrease in compressor revenue. The increase in Latin America revenue was primarily due to an increase in installation revenue of $54.4 million. The increases in gross margin and gross margin percentage were primarily caused by the revenue increase explained above, a reduction in operating expenses from the implementation of profitability improvement initiatives and improved pricing associated with projects in North America and the Eastern Hemisphere. These improvements in results were partially offset by cost overruns on three large turnkey projects during the year ended December 31, 2013.

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Costs and Expenses

(dollars in thousands)

	Years Ended December 31,						Increase
	2013			2012			(Decrease)
Selling, general and administrative	$	358,173		$	375,647		(5	)%
Depreciation and amortization	327,505			346,177			(5	)%
Long-lived asset impairment	28,637			136,614			(79	)%
Restructuring charges	—			6,471			(100	)%
Interest expense	115,745			134,376			(14	)%
Equity in income of non-consolidated affiliates	(19,000		)	(51,483		)	(63	)%
Other (income) expense, net	(24,501		)	506			(4,942	)%

The decrease in SG&A expense during the year ended December 31, 2013 compared to the year ended December 31, 2012 was primarily due to a $15.1 million decrease in state and local taxes primarily related to the impact of sales tax audits in North America recorded during the year ended December 31, 2012 and a $6.6 million decrease in bad debt expense, partially offset by a $5.2 million increase in professional, consulting and legal expenses. SG&A as a percentage of revenue was 11% and 13% during the years ended December 31, 2013 and 2012, respectively.

Depreciation and amortization expense during the year ended December 31, 2013 compared to the year ended December 31, 2012 decreased primarily due to reduced depreciation expense on terminated contract operations projects in Brazil and the impact of impairments recorded in 2012, which decreased depreciation expense during the year ended December 31, 2013. These decreases were partially offset by increased depreciation expense due to property, plant and equipment additions.

During the year ended December 31, 2013, we evaluated other long-lived assets for impairment and recorded long-lived asset impairments of $1.8 million on these assets.

During the year ended December 31, 2012, we evaluated the future deployment of our idle fleet and determined to retire and either sell or re-utilize the key components of approximately 930 idle compressor units, representing approximately 318,000 horsepower, previously used to provide services in our North America contract operations segment. As a result, we performed an impairment review and recorded a $97.1 million asset impairment to reduce the book value of each unit to its estimated fair value. The fair value of each unit was estimated based on either the expected net sale proceeds compared to other fleet units we recently sold and/or a review of other units recently offered for sale by third parties, or the estimated component value of the equipment we plan to use. The average age of the impaired idle units we impaired during the second quarter of 2012 was 24 years.

During the year ended December 31, 2012, we evaluated other long-lived assets for impairment and recorded long-lived asset impairments of $4.7 million on these assets.

In November 2011, we announced a workforce cost reduction program across all of our business segments as a first step in a broader overall profit improvement initiative. These actions were the result of a review of our cost structure aimed at identifying ways to reduce our ongoing operating costs and adjust the size of our workforce to be consistent with then current and expected activity levels. A significant portion of the workforce cost reduction program was completed in 2011, with the remainder completed in 2012. During the year ended December 31, 2012, we incurred $6.5 million of restructuring charges primarily related to termination benefits and consulting services. See Note 15 to the Financial Statements for further discussion of these charges.

The decrease in interest expense during the year ended December 31, 2013 compared to the year ended December 31, 2012 was primarily due to a lower average balance of long-term debt and a decrease in the weighted average effective rate on our debt. The decrease in the weighted average effective rate on our debt was primarily due to the expiration of certain interest rate swaps in the third quarter of 2012 and a decrease of $6.5 million in the amortization of terminated interest rate swaps. Additionally, during the year ended December 31, 2013, we expensed $1.6 million of unamortized deferred financing costs resulting from an amendment to the Partnership Credit Agreement and our redemption of our 4.75% convertible senior notes (the “4.75% Notes”). During the year ended December 31, 2012, we expensed $1.3 million of unamortized deferred financing costs resulting from the decrease in capacity of our revolving credit facility. The terminated interest rate swaps are being amortized into interest expense over the original terms of the swaps.

In March 2012, our Venezuelan joint ventures sold their assets to PDVSA Gas. We received payments, including an annual charge, of $19.0 million and $51.7 million during the years ended December 31, 2013 and 2012, respectively. The remaining principal amount due to us is payable in quarterly cash installments through the first quarter of 2016. Payments we receive from the sale will be recognized as equity in (income) loss of non-consolidated affiliates in our combined statements of operations in the periods such payments are received.

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The change in other (income) expense, net, during the year ended December 31, 2013 compared to the year ended December 31, 2012 was primarily due to a $22.8 million increase in gain on sale of property, plant and equipment.

Income Taxes

(dollars in thousands)

	Years Ended December 31,						Increase
	2013			2012			(Decrease)
Provision for (benefit from) income taxes	$	84,719		$	(45,755	)	285	%
Effective tax rate	48.0		%	38.5		%	9.5	%

The increase in our income tax expense during the year ended December 31, 2013 compared to the year ended December 31, 2012 was primarily attributable to a $295.3 million increase in pre-tax income which included a $119.9 million decrease in impairments of idle fleet assets, predominantly tax effected at the U.S. statutory rate. Additionally, a $9.0 million valuation allowance was recorded during the fourth quarter of 2013 against the deferred tax asset for Italy net operating loss carryforwards, which increased income tax expense.

Discontinued Operations

(dollars in thousands)

	Years Ended December 31,				Increase
	2013		2012		(Decrease)
Income from discontinued operations, net of tax	$	64,014	$	35,976	78	%

Income from discontinued operations, net of tax, during the years ended December 31, 2013 and 2012 includes our operations in Venezuela that were expropriated in June 2009, including compensation for expropriation and costs associated with our arbitration proceeding, results from our Canadian Operations and results from our contract water treatment business.

As discussed in Note 3 to the Financial Statements, in June 2009, PDVSA assumed control over substantially all of our assets and operations in Venezuela. In August 2012, our Venezuelan subsidiary sold its previously nationalized assets to PDVSA Gas for a purchase price of approximately $441.7 million. We received an initial payment of $176.7 million in cash at closing, of which we remitted $50.0 million to repay the amount we collected in January 2010 under the terms of an insurance policy we maintained for the risk of expropriation. We received installment payments, including an annual charge, totaling $69.3 million and $16.8 million during the years ended December 31, 2013 and 2012, respectively. The remaining principal amount due to us is payable in quarterly cash installments through the third quarter of 2016. We have not recognized amounts payable to us by PDVSA Gas as a receivable and will therefore recognize quarterly payments received in the future as income from discontinued operations in the periods such payments are received. The proceeds from the sale of the assets are not subject to Venezuelan national taxes due to an exemption allowed under the Venezuelan Reserve Law applicable to expropriation settlements. In addition, and in connection with the sale, we and the Venezuelan government agreed to waive rights to assert certain claims against each other. We therefore recorded a reduction in previously unrecognized tax benefits, resulting in a $15.5 million benefit reflected in income (loss) from discontinued operations, net of tax, in our consolidated statements of operations during the year ended December 31, 2012.

In June 2012, we committed to a plan to sell our Canadian Operations. In connection with the planned disposition, we recorded impairment charges totaling $6.4 million and $80.2 million during the years ended December 31, 2013 and 2012, respectively. As discussed in Note 3 to the Financial Statements, in July 2013, we completed the sale of our Canadian Operations.

In December 2013, we abandoned our contract water treatment business as part of our continued emphasis on simplification and focus on our core businesses. The abandonment of this business meets the criteria established for recognition as discontinued operations under GAAP. During the years ended December 31, 2013 and 2012, we evaluated our contract water treatment business and recorded impairment charges of $2.4 million and $46.8 million, respectively. The impairment charges are reflected in income (loss) from discontinued operations, net of tax, in our consolidated statements of operations.

Noncontrolling Interest

Noncontrolling interest comprises of the portion of the Partnership’s earnings that is applicable to the Partnership’s publicly-held limited partner interest. As of December 31, 2013, public unitholders held a 59% ownership interest in the Partnership.

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Liquidity and Capital Resources

Our unrestricted cash balance was $39.7 million at December 31, 2014 compared to $35.7 million at December 31, 2013. Working capital increased to $655.0 million at December 31, 2014 from $580.4 million at December 31, 2013. The increase in working capital was primarily due to an increase in accounts receivable, a decrease in deferred revenue and a decrease in accrued liabilities, partially offset by a decrease in current deferred income taxes and an increase in accounts payable. The increase in accounts receivable was primarily due to increased activity in North America in the current year period, including billings on contracts acquired in the August 2014 MidCon Acquisition and the April 2014 MidCon Acquisition, and increased activity on contract operations projects in Mexico in the current year period, partially offset by a payment received during the year ended December 31, 2014 relating to a rate adjustment in Argentina that was outstanding as of December 31, 2013. The decrease in deferred revenue was primarily related to timing of fabrication projects in North America and contract operations projects in Latin America.

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

	Years Ended December 31,
	2014			2013
Net cash provided by (used in) continuing operations:
Operating activities	$	373,780		$	348,668
Investing activities	(996,229		)	(271,400		)
Financing activities	558,481			(156,702		)
Effect of exchange rate changes on cash and cash equivalents	(3,925		)	(1,487		)
Discontinued operations	71,967			81,985
Net change in cash and cash equivalents	$	4,074		$	1,064

Operating Activities. The increase in net cash provided by operating activities during the year ended December 31, 2014 compared to the year ended December 31, 2013 was primarily due to lower current period increases in working capital and improved gross margins in our North America contract operations and international contract operations segments, partially offset by a decrease in gross margin in our fabrication segment.

Investing Activities. The increase in net cash used in investing activities during the year ended December 31, 2014 compared to the year ended December 31, 2013 was primarily attributable to $494.8 million paid for the August 2014 MidCon Acquisition and the April 2014 MidCon Acquisition, a $150.0 million increase in capital expenditures and a $76.9 million decrease in proceeds from sale of property, plant and equipment.

Financing Activities. The increase in net cash provided by financing activities was primarily due to $512.8 million in net borrowings during the year ended December 31, 2014 compared to $87.7 million of net repayments during the year ended December 31, 2013 of long-term debt and $169.5 million of net proceeds received during the year ended December 31, 2014 from a public offering by the Partnership of its common units. These activities were partially offset by dividends paid to Exterran stockholders of $40.3 million during the year ended December 31, 2014. We did not pay a dividend to Exterran stockholders prior to 2014.

Discontinued Operations. The decrease in net cash provided by discontinued operations during the year ended December 31, 2014 compared to year ended December 31, 2013 was primarily attributable to proceeds of $12.3 million received from the sale of our Canadian Operations during the year ended December 31, 2013, partially offset by a $3.3 million increase in proceeds received from the sale of our Venezuelan subsidiary’s assets to PDVSA Gas in the current year.

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 compression 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.

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The majority of our growth capital expenditures are related to the acquisition cost of new compressor units and processing and treating equipment that we add to our fleet and installation costs on integrated projects. In addition, growth capital expenditures can also 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 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.

Growth capital expenditures were $389.7 million, $231.2 million and $261.5 million during the years ended December 31, 2014, 2013 and 2012, respectively. The increase in growth capital expenditures during the year ended December 31, 2014 compared to the year ended December 31, 2013 was primarily due to an increase in investment in new compression equipment in North America and Latin America and an increase in installation expenditures on integrated projects in Brazil and Mexico. The decrease in growth capital expenditures during the year ended December 31, 2013 compared to the year ended December 31, 2012 was primarily due to decreases in installation expenditures on integrated projects in the Eastern Hemisphere and Latin America and a decrease in expenditures to upgrade major components on existing compressor units in Mexico, partially offset by an increase in investment in new compression equipment in North America. The increase in growth capital expenditures in North America since 2012 has been driven primarily by increased demand for natural gas compression in certain shale plays and areas focused on the production of oil and natural gas liquids. This activity has increased the utilization of our compressor units that are more suitable to these plays.

Maintenance capital expenditures were $96.1 million, $95.2 million and $100.2 million during the years ended December 31, 2014, 2013 and 2012, respectively. Maintenance capital expenditures remained relatively flat primarily as a result of routine scheduled overhaul activities. We intend to grow our business both organically and through third-party acquisitions. The Partnership completed the August 2014 MidCon Acquisition and the April 2014 MidCon Acquisition during the year ended December 31, 2014. If we are successful in growing our business in the future, we would expect our maintenance capital expenditures to increase over the long term.

We generally invest funds necessary to fabricate 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 exceeds our targeted return on capital. We currently plan to spend approximately $475 million to $525 million in net capital expenditures during 2015, including (1) approximately $300 million to $350 million on contract operations growth capital expenditures and (2) approximately $100 million to $110 million on equipment maintenance capital related to our contract operations business. Net capital expenditures are net of used fleet sales.

Long-Term Debt. As of December 31, 2014, we had approximately $2.0 billion in outstanding debt obligations, consisting of $375.5 million outstanding under our revolving credit facility, $350.0 million outstanding under our 7.25% senior notes, $460.0 million outstanding under the Partnership’s revolving credit facility, $150.0 million outstanding under the Partnership’s term loan facility, $345.5 million outstanding under the Partnership 2013 Notes and $344.8 million outstanding under the Partnership 2014 Notes.

In January 2013, we redeemed for cash all $143.8 million principal amount outstanding of our 4.75% Notes at a redemption price of 100% of the principal amount thereof plus accrued but unpaid interest to, but excluding, the redemption date. Upon redemption, the 4.75% Notes were no longer deemed outstanding, interest ceased to accrue thereon and all rights of the holders of the 4.75% Notes ceased to exist. We financed the redemption of the 4.75% Notes through borrowings under our revolving credit facility.

In July 2011, we entered into a five-year, $1.1 billion senior secured revolving credit facility (the “Credit Facility”). In March 2012, we decreased the borrowing capacity under this facility to $900.0 million. As of December 31, 2014, we had $375.5 million in outstanding borrowings and $93.9 million in outstanding letters of credit under the Credit Facility. At December 31, 2014, taking into account guarantees through letters of credit, we had undrawn and available capacity of $430.6 million under the Credit Facility.

Borrowings under the Credit Facility bear interest at a base rate or LIBOR, at our option, plus an applicable margin. Depending on our Total Leverage Ratio (as defined in the credit agreement), the applicable margin for revolving loans varies (i) in the case of LIBOR loans, from 1.50% to 2.50% and (ii) in the case of base rate loans, from 0.50% to 1.50%. The base rate is the highest of the prime rate announced by Wells Fargo Bank, National Association, the Federal Funds Rate plus 0.5% and one-month LIBOR plus 1.0%. At December 31, 2014, all amounts outstanding under the Credit Facility were LIBOR loans and the applicable margin was 1.5%. The weighted average annual interest rate at both December 31, 2014 and 2013 on the outstanding balance under the Credit Facility was 1.7%. During the years ended December 31, 2014 and 2013, the average daily debt balance under the Credit Facility was $274.9 million and $202.3 million, respectively.

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Our Significant Domestic Subsidiaries (as defined in the credit agreement) guarantee the debt under the Credit Facility. Borrowings under the Credit Facility are secured by substantially all of the personal property assets and certain real property assets of us and our Significant Domestic Subsidiaries, including all of the equity interests of our U.S. subsidiaries (other than certain excluded subsidiaries) and 65% of the equity interests in certain of our first-tier foreign subsidiaries. The Partnership does not guarantee the debt under the Credit Facility, its assets are not collateral under the Credit Facility and the general partner units in the Partnership are not pledged under the Credit Facility. Subject to certain conditions, at our request, and with the approval of the lenders, the aggregate commitments under the Credit Facility may be increased by up to an additional $300 million.

The Credit Facility contains various covenants with which we or certain of our subsidiaries must comply, including, but not limited to, restrictions on the use of proceeds from borrowings and limitations on our ability to incur additional indebtedness, enter into transactions with affiliates, merge or consolidate, sell assets, make certain investments and acquisitions, make loans, grant liens, repurchase equity and pay dividends and distributions. We are also subject to financial covenants, including a ratio of Adjusted EBITDA (as defined in the credit agreement) to Total Interest Expense (as defined in the credit agreement) of not less than 2.25 to 1.0, a ratio of consolidated Total Debt (as defined in the credit agreement) to Adjusted EBITDA of not greater than 5.0 to 1.0 and a ratio of Senior Secured Debt (as defined in the credit agreement) to Adjusted EBITDA of not greater than 4.0 to 1.0. As of December 31, 2014, we maintained a 14.8 to 1.0 Adjusted EBITDA to Total Interest Expense ratio, a 1.6 to 1.0 consolidated Total Debt to Adjusted EBITDA ratio and a 0.8 to 1.0 Senior Secured Debt to Adjusted EBITDA ratio. If we fail to remain in compliance with our financial covenants we would be in default under our debt agreements. In addition, if we experience a material adverse effect on our assets, liabilities, financial condition, business or operations that, taken as a whole, impacts our ability to perform our obligations under our debt agreements, this could lead to a default under our debt agreements. A default under one or more of our debt agreements would trigger cross-default provisions under certain of our other debt agreements, which would accelerate our obligation to repay our indebtedness under those agreements. As of December 31, 2014, we were in compliance with all financial covenants under the Credit Facility.

In November 2010, we issued $350.0 million aggregate principal amount of 7.25% senior notes (the “7.25% Notes”). The 7.25% Notes are guaranteed on a senior unsecured basis by all of our existing subsidiaries that guarantee indebtedness under the Credit Facility and certain of our future subsidiaries. The Partnership and its subsidiaries have not guaranteed the 7.25% Notes. The 7.25% Notes and the guarantees, respectively, are our and the guarantors’ general unsecured senior obligations, rank equally in right of payment with all of our and the guarantors’ other senior obligations, and are effectively subordinated to all of our and the guarantors’ existing and future secured debt to the extent of the value of the collateral securing such indebtedness. In addition, the 7.25% Notes and guarantees are structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables, of our non-guarantor subsidiaries. Effective December 1, 2014, we may redeem all or a part of the 7.25% Notes at redemption prices (expressed as percentages of principal amount) equal to 103.625% for the twelve-month period beginning on December 1, 2014, 101.813% for the twelve-month period beginning on December 1, 2015 and 100.000% for the twelve-month period beginning on December 1, 2016 and at any time thereafter, plus accrued and unpaid interest, if any, to the applicable redemption date of the 7.25% Notes.

In June 2009, we issued $355.0 million aggregate principal amount of the 4.25% Notes. The 4.25% Notes, after taking into consideration dividends declared, were convertible upon the occurrence of certain conditions into shares of our common stock at a conversion rate of 43.5084 shares of our common stock per $1,000 principal amount of the convertible notes, equivalent to a conversion price of approximately $22.98 per share of common stock. In June 2014, we completed our redemption of the 4.25% Notes in exchange for $370.0 million in cash and 6.8 million shares of our common stock. We financed the cash payment to redeem the 4.25% Notes through borrowings under our revolving credit facility.

In connection with the offering of the 4.25% Notes, we purchased call options on our stock at approximately $22.98 per share of common stock, after taking into consideration dividends declared, and sold warrants on our stock at approximately $32.19 per share of common stock, after taking into consideration dividends declared. These transactions economically adjust the effective conversion price to $32.19 for $325.0 million of the 4.25% Notes. In June 2014, we exercised our call options to acquire 6.5 million shares of our common stock. The cost of the common shares acquired was recorded as treasury stock in our consolidated balance sheets based on the original cost of the call options of $89.4 million. Counterparties to our warrants have the right to exercise the warrants in equal installments for 80 trading days which began in September 2014. During the year ended December 31, 2014, 1.6 million common shares were issued out of treasury stock pursuant to warrants exercised.

In November 2010, the Partnership amended and restated its Partnership Credit Agreement to provide for a five-year $550.0 million senior secured credit facility, consisting of a $400.0 million revolving credit facility and a $150.0 million term loan facility. The revolving borrowing capacity under this facility increased to $550.0 million in March 2011 and to $750.0 million in March 2012. The Partnership amended the Partnership Credit Agreement in March 2013 to reduce the borrowing capacity under its revolving credit facility to $650.0 million and extend the maturity date of the term loan and revolving credit facilities to May 2018. As of December 31, 2014, the Partnership had undrawn and available capacity of $190.0 million under its revolving credit facility.

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The Partnership’s revolving credit and term loan facilities bear interest at a base rate or LIBOR, at the Partnership’s option, plus an applicable margin. Depending on the Partnership’s leverage ratio, the applicable margin for the revolving and term loans varies (i) in the case of LIBOR loans, from 2.0% to 3.0% and (ii) in the case of base rate loans, from 1.0% to 2.0%. The base rate is the highest of the prime rate announced by Wells Fargo Bank, National Association, the Federal Funds Effective Rate plus 0.5% and one-month LIBOR plus 1.0%. At December 31, 2014, all amounts outstanding under these facilities were LIBOR loans and the applicable margin was 2.5%. The weighted average annual interest rate on the outstanding balance under these facilities at December 31, 2014 and 2013, excluding the effect of interest rate swaps, was 2.7% and 2.2%, respectively. During the years ended December 31, 2014 and 2013, the average daily debt balance under these facilities was $438.5 million and $450.2 million, respectively.

Borrowings under the Partnership Credit Agreement are secured by substantially all of the U.S. personal property assets of the Partnership and its Significant Domestic Subsidiaries (as defined in the Partnership Credit Agreement), including all of the membership interests of the Partnership’s Domestic Subsidiaries (as defined in the Partnership Credit Agreement). As of December 31, 2014, subject to certain conditions, at our request, and with the approval of the lenders, the aggregate commitments under the Partnership Credit Agreement could be increased by up to an additional $300 million. In February 2015, the Partnership executed an amendment to the Partnership Credit Agreement, which among other things, increases the borrowing capacity under its revolving credit facility by $250.0 million to $900.0 million.

The Partnership Credit Agreement contains various covenants with which the Partnership must comply, including, but not limited to, restrictions on the use of proceeds from borrowings and limitations on the Partnership’s ability to incur additional indebtedness, engage in transactions with affiliates, merge or consolidate, sell assets, make certain investments and acquisitions, make loans, grant liens, repurchase equity and pay dividends and distributions. The Partnership Credit Agreement also contains various covenants requiring mandatory prepayments from the net cash proceeds of certain asset transfers. The Partnership must maintain various consolidated financial ratios, including a ratio of EBITDA (as defined in the Partnership Credit Agreement) to Total Interest Expense (as defined in the Partnership Credit Agreement) of not less than 2.75 to 1.0, a ratio of Total Debt (as defined in the Partnership Credit Agreement) to EBITDA of not greater than 5.25 to 1.0 (subject to a temporary increase to 5.5 to 1.0 for any quarter during which an acquisition meeting certain thresholds is completed and for the following two quarters after the acquisition closes) and a ratio of Senior Secured Debt (as defined in the Partnership Credit Agreement) to EBITDA of not greater than 4.0 to 1.0. Because the August 2014 MidCon Acquisition closed during the third quarter of 2014, the Partnership’s Total Debt to EBITDA ratio threshold was temporarily increased to 5.5 to 1.0 during the quarter ended September 30, 2014 and will continue at that level through March 31, 2015, reverting to 5.25 to 1.0 for the quarter ending June 30, 2015 and subsequent quarters. As of December 31, 2014, the Partnership maintained a 5.2 to 1.0 EBITDA to Total Interest Expense ratio, a 4.3 to 1.0 Total Debt to EBITDA ratio and a 2.0 to 1.0 Senior Secured Debt to EBITDA ratio. A material adverse effect with respect to the Partnership’s assets, liabilities, financial condition, business or operations that, taken as a whole, impacts the Partnership’s ability to perform its obligations under the Partnership Credit Agreement, could lead to a default under that agreement. A default under one of the Partnership’s debt agreements would trigger cross-default provisions under the Partnership’s other debt agreements, which would accelerate the Partnership’s obligation to repay its indebtedness under those agreements. As of December 31, 2014, the Partnership was in compliance with all financial covenants under the Partnership Credit Agreement.

In March 2013, the Partnership issued $350.0 million aggregate principal amount of the Partnership 2013 Notes. The Partnership used the net proceeds of $336.9 million, after original issuance discount and issuance costs, to repay borrowings outstanding under its revolving credit facility. The Partnership 2013 Notes were issued at an original issuance discount of $5.5 million, which is being amortized using the effective interest method at an interest rate of 6.25% over their term. In January 2014, holders of the Partnership 2013 Notes exchanged their Partnership 2013 Notes for registered notes with the same terms.

Prior to April 1, 2017, the Partnership may redeem all or a part of the Partnership 2013 Notes at a redemption price equal to the sum of (i) the principal amount thereof, plus (ii) a make-whole premium at the redemption date, plus accrued and unpaid interest, if any, to the redemption date. In addition, the Partnership may redeem up to 35% of the aggregate principal amount of the Partnership 2013 Notes prior to April 1, 2016 with the net proceeds of one or more equity offerings at a redemption price of 106.000% of the principal amount of the Partnership 2013 Notes, plus any accrued and unpaid interest to the date of redemption, if at least 65% of the aggregate principal amount of the Partnership 2013 Notes issued under the indenture remains outstanding after such redemption and the redemption occurs within 180 days of the date of the closing of such equity offering. On or after April 1, 2017, the Partnership may redeem all or a part of the Partnership 2013 Notes at redemption prices (expressed as percentages of principal amount) equal to 103.000% for the twelve-month period beginning on April 1, 2017, 101.500% for the twelve-month period beginning on April 1, 2018 and 100.000% for the twelve-month period beginning on April 1, 2019 and at any time thereafter, plus accrued and unpaid interest, if any, to the applicable redemption date of the Partnership 2013 Notes.

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Prior to April 1, 2018, the Partnership may redeem all or a part of the Partnership 2014 Notes at a redemption price equal to the sum of (i) the principal amount thereof, plus (ii) a make-whole premium at the redemption date, plus accrued and unpaid interest, if any, to the redemption date. In addition, the Partnership may redeem up to 35% of the aggregate principal amount of the Partnership 2014 Notes prior to April 1, 2017 with the net proceeds of one or more equity offerings at a redemption price of 106.000% of the principal amount of the Partnership 2014 Notes, plus any accrued and unpaid interest to the date of redemption, if at least 65% of the aggregate principal amount of the Partnership 2014 Notes issued under the indenture remains outstanding after such redemption and the redemption occurs within 180 days of the date of the closing of such equity offering. On or after April 1, 2018, the Partnership may redeem all or a part of the Partnership 2014 Notes at redemption prices (expressed as percentages of principal amount) equal to 103.000% for the twelve-month period beginning on April 1, 2018, 101.500% for the twelve-month period beginning on April 1, 2019 and 100.000% for the twelve-month period beginning on April 1, 2020 and at any time thereafter, plus accrued and unpaid interest, if any, to the applicable redemption date of the Partnership 2014 Notes.

The Partnership 2013 Notes and the Partnership 2014 Notes are guaranteed on a senior unsecured basis by all of the Partnership’s existing subsidiaries (other than EXLP Finance Corp., which is a co-issuer of the Partnership 2013 Notes and the Partnership 2014 Notes) and certain of the Partnership’s future subsidiaries. The Partnership 2013 Notes and the Partnership 2014 Notes and the guarantees, respectively, are the Partnership’s and the guarantors’ general unsecured senior obligations, rank equally in right of payment with all of the Partnership’s and the guarantors’ other senior obligations, and are effectively subordinated to all of the Partnership’s and the guarantors’ existing and future secured debt to the extent of the value of the collateral securing such indebtedness. In addition, the Partnership 2013 Notes and the Partnership 2014 Notes and guarantees are effectively subordinated to all existing and future indebtedness and other liabilities of any future non-guarantor subsidiaries.

The Partnership has entered into interest rate swap agreements to offset changes in expected cash flows due to fluctuations in the interest rates associated with its variable rate debt. At December 31, 2014, the Partnership was a party to interest rate swaps with a notional value of $400.0 million pursuant to which it makes fixed payments and receives floating payments. The Partnership’s interest rate swaps expire over varying dates, with interest rate swaps having a notional amount of $300.0 million expiring in May 2018 and the remaining interest rate swaps having a notional amount of $100.0 million expiring in May 2019. As of December 31, 2014, the weighted average effective fixed interest rate on the interest rate swaps was 1.6%. See Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” of this report for further discussion of the interest rate swap agreements.

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 with a combination of net cash provided by operating and financing activities. Our ability to access the capital markets may be restricted at a 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 our credit facilities, our borrowing capacity under these facilities could be reduced. Inability to borrow additional amounts under those facilities 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 credit facilities will be sufficient to finance our operating expenditures, capital expenditures, scheduled interest and debt repayments and anticipated dividends through December 31, 2014; however, to the extent it is not, we may seek additional debt or equity financing.

Argentina’s current regulations restrict foreign exchange, including exchanging Argentine pesos for U.S. dollars in certain cases. As a result, we are unable to freely repatriate earnings from Argentina and therefore the cash flow from our operations in Argentina may not be a reliable source of funding for our operations outside of Argentina, which could limit our ability to grow. In addition, our inability to exchange Argentine pesos for U.S. dollars subjects us to risk of currency devaluation on future earnings in Argentina. During 2014, we used Argentine pesos to purchase certain short-term investments in Argentine government issued U.S. dollar denominated bonds. The effective peso to U.S. dollar exchange rate embedded in the purchase price of these bonds resulted in our recognition of a loss during the year ended December 31, 2014 of $6.5 million, which is included in other (income) expense, net, in our consolidated statements of operations. As of December 31, 2014, $16.0 million of our cash was in Argentina.

Dividends. On January 30, 2015, our board of directors declared a quarterly dividend of $0.15 per share of common stock, which was paid on February 17, 2015 to stockholders of record at the close of business on February 9, 2015. Any future determinations to pay cash dividends to our stockholders will be at the discretion of our board of directors and will be dependent upon our financial condition and results of operations, credit and loan agreements in effect at that time and other factors deemed relevant by our board of directors.

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Partnership Distributions to Unitholders. The Partnership’s partnership agreement requires it to distribute all of its “available cash” quarterly. Under the partnership agreement, available cash is defined generally to mean, for each fiscal quarter, (i) cash on hand at the Partnership at the end of the quarter in excess of the amount of reserves its general partner determines is necessary or appropriate to provide for the conduct of its business, to comply with applicable law, any of its debt instruments or other agreements or to provide for future distributions to its unitholders for any one or more of the upcoming four quarters, plus, (ii) if the Partnership’s general partner so determines, all or a portion of the Partnership’s cash on hand on the date of determination of available cash for the quarter.

Through our ownership of common units and all of the equity interests in the Partnership’s general partner, we expect to receive cash distributions from the Partnership.

Under the terms of the partnership agreement, there is no guarantee that unitholders will receive quarterly distributions from the Partnership. The Partnership’s distribution policy, which may be changed at any time, is subject to certain restrictions, including (i) restrictions contained in the Partnership’s revolving credit facility, (ii) the Partnership’s general partner’s establishment of reserves to fund future operations or cash distributions to the Partnership’s unitholders, (iii) restrictions contained in the Delaware Revised Uniform Limited Partnership Act and (iv) the Partnership’s lack of sufficient cash to pay distributions.

On January 29, 2015, Exterran GP LLC’s board of directors approved a cash distribution by the Partnership of $0.5575 per limited partner unit, or approximately $35.3 million, including distributions to the Partnership’s general partner on its incentive distribution rights. The distribution covers the period from October 1, 2014 through December 31, 2014. The record date for this distribution was February 9, 2015 and payment was made on February 13, 2015.

Contractual Obligations. The following table summarizes our cash contractual obligations as of December 31, 2014 and the effect such obligations are expected to have on our liquidity and cash flow in future periods (in thousands):

	Total		2015		2016-2017		2018-2019		Thereafter
Long-term debt(1):
Revolving credit facility due July 2016	$	375,500	$	—	$	375,500	$	—	$	—
Partnership’s revolving credit facility due May 2018	460,000		—		—		460,000		—
Partnership’s term loan facility due May 2018	150,000		—		—		150,000		—
Partnership’s 6% senior notes due April 2021(2)	350,000		—		—		—		350,000
Partnership’s 6% senior notes due October 2022(3)	350,000		—		—		—		350,000
7.25% senior notes due December 2018	350,000		—		—		350,000		—
Other	1,107		—		463		468		176
Total long-term debt	2,036,607		—		375,963		960,468		700,176
Interest on long-term debt(4)	482,552		97,912		184,806		115,834		84,000
Purchase commitments	528,069		527,159		910		—		—
Facilities and other operating leases	62,669		14,479		20,571		8,978		18,641
Total contractual obligations	$	3,109,897	$	639,550	$	582,250	$	1,085,280	$	802,817

(1) For more information on our long-term debt, see Note 11 to the Financial Statements.

(2) Amounts represent the full face value of the Partnership 2013 Notes and are not reduced by the unamortized discount of $4.5 million as of December 31, 2014.

(3) Amounts represent the full face value of the Partnership 2014 Notes and are not reduced by the unamortized discount of $5.2 million as of December 31, 2014.

(4) Interest amounts calculated using interest rates in effect as of December 31, 2014, including the effect of interest rate swaps.

At December 31, 2014, $14.6 million of unrecognized tax benefits (including discontinued operations) have been recorded as liabilities in accordance with the accounting standard for income taxes related to uncertain tax positions and we are uncertain as to if or when such amounts may be settled. Related to these unrecognized tax benefits, we have also recorded a liability for potential penalties and interest of $3.3 million (including discontinued operations).

Off-Balance Sheet Arrangements

We have no material off-balance sheet arrangements.

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Effects of Inflation

Our revenues and results of operations have not been materially impacted by inflation in the past three fiscal years.

Critical Accounting Estimates

This discussion and analysis of our financial condition and results of operations is based upon the Financial Statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and accounting policies, including those related to bad debt, inventories, fixed assets, investments, intangible assets, income taxes, revenue recognition and contingencies and litigation. We base our estimates on historical experience and on other assumptions that we believe are reasonable under the circumstances. The results of this process form the basis of our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and these differences can be material to our financial condition, results of operations and liquidity. We describe our significant accounting policies more fully in Note 1 to our Financial Statements.

Allowances and Reserves

We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. The determination of the collectibility of amounts due from our customers requires us to use estimates and make judgments regarding future events and trends, including monitoring our customers’ payment history and current creditworthiness to determine that collectibility is reasonably assured, as well as consideration of the overall business climate in which our customers operate. Inherently, these uncertainties require us to make judgments and estimates regarding our customers’ ability to pay amounts due to us in order to determine the appropriate amount of valuation allowances required for doubtful accounts. We review the adequacy of our allowance for doubtful accounts quarterly. We determine the allowance needed based on historical write-off experience and by evaluating significant balances aged greater than 90 days individually for collectibility. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. During the years ended December 31, 2014, 2013 and 2012, we recorded bad debt expense of $2.4 million, $2.2 million and $8.8 million, respectively. A five percent change in the allowance for doubtful accounts would have had an impact on income (loss) before income taxes of approximately $0.2 million during the year ended December 31, 2014.

Inventory is a significant component of current assets and is stated at the lower of cost or market. This requires us to record provisions and maintain reserves for excess, slow moving and obsolete inventory. To determine these reserve amounts, we regularly review inventory quantities on hand and compare them to estimates of future product demand, market conditions and production requirements. These estimates and forecasts inherently include uncertainties and require us to make judgments regarding potential outcomes. During 2014, 2013, and 2012, we recorded $8.0 million, $4.5 million and $1.0 million, respectively, in inventory write-downs and reserves for inventory which was obsolete, excess or carried at a price above market value. Significant or unanticipated changes to our estimates and forecasts could impact the amount and timing of any additional provisions for excess or obsolete inventory that may be required. A five percent change in this inventory reserve balance would have had an impact on income (loss) before income taxes of approximately $1.0 million during the year ended December 31, 2014.

Depreciation

Property, plant and equipment are carried at cost. Depreciation for financial reporting purposes is computed on the straight-line basis using estimated useful lives and salvage values. The assumptions and judgments we use in determining the estimated useful lives and salvage values of our property, plant and equipment reflect both historical experience and expectations regarding future use of our assets. The use of different estimates, assumptions and judgments in the establishment of property, plant and equipment accounting policies, especially those involving their useful lives, would likely result in significantly different net book values of our assets and results of operations.

Long-Lived Assets

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. The determination that the carrying amount of an asset may not be recoverable requires us to make judgments regarding long-term forecasts of future revenue and costs related to the assets subject to review. These forecasts are uncertain as they require significant assumptions about future market conditions. Significant and unanticipated changes to these assumptions could require a provision for impairment in a future period. Given the nature of these evaluations and their application to specific assets and specific times, it is not possible to reasonably quantify the impact of changes in these assumptions. An impairment loss exists when estimated undiscounted cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. When necessary, an impairment loss is recognized and represents the excess of the asset’s carrying value as compared to its estimated fair value and is charged to the period in which the impairment occurred.

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Income Taxes

Our income tax expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect management’s best assessment of estimated current and future taxes to be paid. We operate in approximately 30 countries and, as a result, are subject to income taxes in both the U.S. and numerous foreign jurisdictions. Significant judgments and estimates are required in determining consolidated income tax expense.

Deferred income taxes arise from temporary differences between the financial statements and tax basis of assets and liabilities. In evaluating our ability to recover our deferred tax assets within the jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations. In projecting future taxable income, we begin with historical results adjusted for the results of discontinued operations and changes in accounting policies and incorporate assumptions including the amount of future U.S. federal, state and foreign pretax operating income, the reversal of temporary differences and the implementation of feasible and prudent tax-planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we are using to manage the underlying businesses. In evaluating the objective evidence that historical results provide, we consider three years of cumulative operating income (loss).

Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future. Management is not aware of any such changes that would have a material effect on the Company’s financial position, results of operations or cash flows. The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across our global operations.

The accounting standard for income taxes provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits. In addition, guidance is provided on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. We adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available.

We consider the earnings of certain non-U.S. subsidiaries to be indefinitely invested outside the U.S. on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs. We have not recorded a deferred tax liability related to these unremitted foreign earnings as it is not practicable to estimate the amount of unrecognized deferred tax liabilities. Should we decide to repatriate any unremitted foreign earnings, we would have to adjust the income tax provision in the period we determined that such earnings will no longer be indefinitely invested outside the U.S.

Revenue Recognition — Percentage-of-Completion Accounting

We recognize revenue and profit for our fabrication operations as work progresses on long-term contracts using the percentage-of-completion method when the applicable criteria are met, which relies on estimates of total expected contract revenue and costs. We follow this method because reasonably dependable estimates of the revenue and costs applicable to various stages of a contract can be made and because the fabrication projects usually last several months. Recognized revenues and profit 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. The typical duration of these projects is three to 24 months. Due to the long-term nature of some of our jobs, developing the estimates of cost often requires significant judgment.

We estimate percentage-of-completion for compressor and accessory fabrication on a direct labor hour to total labor hour basis. This calculation requires management to estimate the number of total labor hours required for each project and to estimate the profit expected on the project. Production and processing equipment fabrication percentage-of-completion is estimated using the direct labor hour to total labor hour basis and the cost to total cost basis. The cost to total cost basis requires us to estimate the amount of total costs (labor and materials) required to complete each project. Because we have many fabrication projects in process at any given time, we do not believe that materially different results would be achieved if different estimates, assumptions or conditions were used for any single project.

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Factors that must be considered in estimating the work to be completed and ultimate profit include labor productivity and availability, the nature and complexity of work to be performed, the impact of change orders, availability of raw materials and the impact of delayed performance. If the aggregate combined cost estimates for uncompleted contracts that are recognized using the percentage-of-completion method in our fabrication businesses had been higher or lower by 1% in 2014, our income before income taxes would have decreased or increased by approximately $8.1 million. As of December 31, 2014, we had recognized approximately $134.6 million in estimated earnings on uncompleted contracts.

Contingencies and Litigation

We are substantially self-insured for workers’ compensation, employer’s liability, property, auto liability, general liability and employee group health claims in view of the relatively high per-incident deductibles we absorb under our insurance arrangements for these risks. In addition, we currently have a minimal amount of insurance on our offshore assets. Losses up to deductible amounts are estimated and accrued based upon known facts, historical trends and industry averages. We review these estimates quarterly and believe such accruals to be adequate. However, insurance liabilities are difficult to estimate due to unknown factors, including the severity of an injury, the determination of our liability in proportion to other parties, the timeliness of reporting of occurrences, ongoing treatment or loss mitigation, general trends in litigation recovery outcomes and the effectiveness of safety and risk management programs. Therefore, if our actual experience differs from the assumptions and estimates used for recording the liabilities, adjustments may be required and would be recorded in the period in which the difference becomes known. As of December 31, 2014 and 2013, we had recorded approximately $6.4 million and $8.7 million, respectively, in insurance claim reserves.

In the ordinary course of business, we are involved in various pending or threatened legal actions. While we are unable to predict the ultimate outcome of these actions, the accounting standard for contingencies requires management to make judgments about future events that are inherently uncertain. We are required to record (and have recorded) a loss during any period in which we believe a contingency is probable and can be reasonably estimated. In making determinations of likely outcomes of pending or threatened legal matters, we consider the evaluation of counsel knowledgeable about each matter.

The impact of an uncertain tax position taken or expected to be taken on an income tax return must be recognized in the financial statements at the largest amount that is more likely than not to be sustained upon examination by the relevant taxing authority. We regularly assess and, if required, establish accruals for income tax as well as non-income tax contingencies pursuant to the applicable accounting standards that could result from assessments of additional tax by taxing jurisdictions in countries where we operate. Tax contingencies are subject to a significant amount of judgment and are reviewed and adjusted on a quarterly basis in light of changing facts and circumstances considering the outcome expected by management. As of December 31, 2014 and 2013, we had recorded approximately $27.1 million and $30.7 million (including penalties and interest and discontinued operations), respectively, of accruals for tax contingencies. Of these amounts, $17.9 million and $14.6 million, respectively, are accrued for income taxes and $9.2 million and $16.1 million, respectively, are accrued for non-income based taxes. If our actual experience differs from the assumptions and estimates used for recording the liabilities, adjustments may be required and would be recorded in the period in which the difference becomes known.

Recent Accounting Pronouncements

See Note 23 to the Financial Statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risks primarily associated with foreign currency exchange rates and changes in interest rates under our financing arrangements. We use derivative financial instruments to minimize the risks and/or costs associated with financial activities by managing our exposure to interest rate fluctuations on a portion of our debt obligations. We do not use derivative financial instruments for trading or other speculative purposes.

We have 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 recorded a foreign currency loss of $8.8 million and $3.0 million in our consolidated statements of operations during the years ended December 31, 2014 and 2013, 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. 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.

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Argentina’s current regulations restrict foreign exchange, including exchanging Argentine pesos for U.S. dollars in certain cases. As a result, we are unable to freely repatriate earnings from Argentina and therefore the cash flow from our operations in Argentina may not be a reliable source of funding for our operations outside of Argentina, which could limit our ability to grow. In addition, our inability to exchange Argentine pesos for U.S. dollars subjects us to risk of currency devaluation on future earnings in Argentina. During 2014, we used Argentine pesos to purchase certain short-term investments in Argentine government issued U.S. dollar denominated bonds. The effective peso to U.S. dollar exchange rate embedded in the purchase price of these bonds resulted in our recognition of a loss during the year ended December 31, 2014 of $6.5 million, which is included in other (income) expenses, net, in our consolidated statements of operations. As of December 31, 2014, $16.0 million of our cash was in Argentina.

As of December 31, 2014, after taking into consideration interest rate swaps, we had $585.5 million of outstanding indebtedness that was effectively subject to floating interest rates. A 1% increase in the effective interest rate on our outstanding debt subject to floating interest rates at December 31, 2014 would result in an annual increase in our interest expense of approximately $5.9 million.

For further information regarding our use of interest rate swap agreements to manage our exposure to interest rate fluctuations on a portion of our debt obligations, see Note 12 to the Financial Statements.

Item 8. Financial Statements and Supplementary Data

The financial statements and supplementary information specified by this Item are presented in Part IV, Item 15 of this report.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Management’s Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, our principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act), which are designed to provide reasonable assurance that we are able to record, process, summarize and report the information required to be disclosed in our reports under the Exchange Act within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based on the evaluation, as of December 31, 2014 our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed in reports that we file or submit under the Exchange Act is accumulated and communicated to management, and made known to our principal executive officer and principal financial officer, on a timely basis to ensure that it is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Management’s Annual Report on Internal Control Over Financial Reporting

As required by Exchange Act Rules 13a-15(c) and 15d-15(c), our management, including the Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting. Management conducted an evaluation of the effectiveness of internal control over financial reporting based on the Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness as to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Based on the results of management’s evaluation described above, management concluded that our internal control over financial reporting was effective as of December 31, 2014.

The effectiveness of internal control over financial reporting as of December 31, 2014 was audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in its report found within this report.

Changes in Internal Control over Financial Reporting

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.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Exterran Holdings, Inc.

Houston, Texas

We have audited the internal control over financial reporting of Exterran Holdings, Inc. and subsidiaries (the “Company”) as of December 31, 2014, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that 1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; 2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and 3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2014 of the Company and our report dated February 26, 2015 expressed an unqualified opinion on those financial statements and financial statement schedule.

/s/ DELOITTE & TOUCHE LLP

Houston, Texas
February 26, 2015

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Item 9B. Other Information

Fifth Amendment to Third Amended and Restated Omnibus Agreement

On February 23, 2015, we entered into a Fifth Amendment to Third Amended and Restated Omnibus Agreement (the “Omnibus Amendment”) with Exterran Energy Solutions, L.P., Exterran GP LLC (“GP LLC”), Exterran General Partner, L.P. (“GP”), EXLP Operating LLC and the Partnership. The omnibus agreement governs several relationships between us and the Partnership, including:

· Certain agreements not to compete between us and our affiliates, on the one hand, and the Partnership and its affiliates, on the other hand;

· Our obligation to provide all operational staff, corporate staff and support services reasonably necessary to run the Partnership’s business and the Partnership’s obligation to reimburse us for the provision of such services;

· The terms under which we, the Partnership and our respective affiliates may transfer, exchange or lease compression equipment;

· The terms under which the Partnership may purchase newly-fabricated compression equipment from our affiliates;

· Our licensing of certain intellectual property to the Partnership, including our and the Partnership’s logos; and

· The Partnership’s obligation to indemnify us for certain liabilities, and our obligation to indemnify the Partnership for certain liabilities.

The omnibus agreement, as amended, is hereby incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 and Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2014.

The Omnibus Amendment amends the omnibus agreement to, among other things, extend the terms of certain non-competition and equipment transfer provisions such that they will now terminate on December 31, 2015.

Each of the parties to the omnibus agreement, other than us, is our direct or indirect subsidiary. As a result, certain individuals, including our officers and officers and directors of GP LLC, serve as officers and/or directors of more than one of such entities. Also, we hold an approximate 35% limited partner interest in the Partnership through our subsidiaries and an approximate 2% general partner interest and incentive distribution rights in the Partnership through our indirect ownership of GP, the general partner of the Partnership.

The Omnibus Amendment is filed as Exhibit 10.24 to this report and incorporated herein by reference.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required in Part III, Item 10 of this report is incorporated by reference to the sections entitled “Election of Directors,” “Corporate Governance,” “Executive Officers” and “Beneficial Ownership of Common Stock” in our definitive proxy statement, to be filed with the SEC within 120 days of the end of our fiscal year.

Item 11. Executive Compensation

The information required in Part III, Item 11 of this report is incorporated by reference to the sections entitled “Compensation Discussion and Analysis” and “Information Regarding Executive Compensation” in our definitive proxy statement, to be filed with the SEC within 120 days of the end of our fiscal year.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Portions of the information required in Part III, Item 12 of this report are incorporated by reference to the section entitled “Beneficial Ownership of Common Stock” in our definitive proxy statement, to be filed with the SEC within 120 days of the end of our fiscal year.

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Securities Authorized for Issuance under Equity Compensation Plans

The following table sets forth information as of December 31, 2014, with respect to the Exterran compensation plans under which our common stock is authorized for issuance, aggregated as follows:

			(c)
	(a)		Number of Securities
	Number of Securities	(b)	Remaining Available for
	to be Issued Upon	Weighted-Average	Future Issuance Under
	Exercise of	Exercise Price of	Equity Compensation Plans
	Outstanding Options,	Outstanding Options,	(Excluding Securities
	Warrants and Rights	Warrants and Rights	Reflected in Column (a))
Plan Category	(#)	($)	(#)
Equity compensation plans approved by security holders(1)	1,106,031	30.18	5,759,107
Equity compensation plans not approved by security holders(2)	71,376	10.21	54,847
Total	1,177,407		5,813,954

(1) Comprised of the Exterran Holdings, Inc. 2013 Stock Incentive Plan (the “2013 Plan”), the Exterran Holdings, Inc. 2007 Stock Incentive Plan (the “2007 Plan”) and the Exterran Holdings, Inc. Employee Stock Purchase Plan. In addition to the outstanding options, as of December 31, 2014 there were 148,234 restricted stock units, payable in common stock upon vesting, outstanding under the 2007 Plan and the 2013 Plan. No additional grants may be made under the 2007 Plan.

(2) Comprised of the Exterran Holdings, Inc. Directors’ Stock and Deferral Plan and the 2011 Employment Inducement Long-Term Incentive Plan (the “Employment Inducement Plan”). No additional grants may be made under the Employment Inducement Plan.

The table above does not include information with respect to equity plans we assumed from Hanover or Universal (the “Legacy Plans”). No additional grants may be made under the Legacy Plans.

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The following equity grants are outstanding under Legacy Plans that were approved by security holders:

	Number of Shares
	Reserved for Issuance
	Upon the Exercise of	Weighted-
	Outstanding Stock	Average	Shares Available
	Options	Exercise Price	for Future Grants
Plan Category	(#)	($)	(#)
Hanover Compressor Company 2003 Stock Incentive Plan	22,696	36.86	None
Universal Compression Holdings, Inc. Incentive Stock Option Plan	294,970	50.76	None

Item 13. Certain Relationships and Related Transactions and Director Independence

The information required in Part III, Item 13 of this report is incorporated by reference to the sections entitled “Certain Relationships and Related Transactions” and “Corporate Governance” in our definitive proxy statement, to be filed with the SEC within 120 days of the end of our fiscal year.

Item 14. Principal Accountant Fees and Services

The information required in Part III, Item 14 of this report is incorporated by reference to the section entitled “Ratification of the Appointment of Independent Registered Public Accounting Firm” in our definitive proxy statement, to be filed with the SEC within 120 days of the end of our fiscal year.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) Documents filed as a part of this report.

1. Financial Statements. The following financial statements are filed as a part of this report.

Report of Independent Registered Public Accounting Firm	F-1
Consolidated Balance Sheets	F-2
Consolidated Statements of Operations	F-3
Consolidated Statements of Comprehensive Income (Loss)	F-4
Consolidated Statements of Equity	F-5
Consolidated Statements of Cash Flows	F-6
Notes to Consolidated Financial Statements	F-7

2. Financial Statement Schedule

Schedule II — Valuation and Qualifying Accounts

S-1

All other schedules have been omitted because they are not required under the relevant instructions.

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3. Exhibits

Exhibit No.		Description
2.1		Contribution, Conveyance and Assumption Agreement, dated March 7, 2013, by and among Exterran Holdings, Inc., Exterran General Holdings LLC, Exterran Energy Solutions, L.P., EES Leasing LLC, EXH GP LP LLC, Exterran GP LLC, EXH MLP LP LLC, Exterran General Partner, L.P., EXLP Operating LLC, EXLP Leasing LLC and Exterran Partners, L.P., incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on March 8, 2013
2.2		Asset Transfer Contract, dated August 7, 2012, between Exterran Venezuela, C.A. and PDVSA Gas, S.A., incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on August 13, 2012
3.1		Restated Certificate of Incorporation of Exterran Holdings, Inc., incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed on August 20, 2007
3.2		Second Amended and Restated Bylaws of Exterran Holdings, Inc., incorporated by reference to Exhibit 3.2 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008
4.1		Ninth Supplemental Indenture, dated as of June 27, 2012, by and among Exterran Holdings, Inc., Exterran Energy LLC and U.S. Bank National Association, as trustee, for the 4.75% Convertible Senior Notes due 2014, incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on July 2, 2012
4.2		Indenture, dated as of June 10, 2009, between Exterran Holdings, Inc. and Wells Fargo Bank, National Association, as trustee, incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K filed on June 16, 2009
4.3		Supplemental Indenture, dated as of June 10, 2009, between Exterran Holdings, Inc. and Wells Fargo Bank, National Association, as trustee, incorporated by reference to Exhibit 4.2 of the Registrant’s Current Report on Form 8-K filed on June 16, 2009
4.4		Indenture, dated as of November 23, 2010, by and among Exterran Holdings, Inc., the Guarantors named therein and Wells Fargo Bank, National Association, incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on November 24, 2010
10.1		Senior Secured Credit Agreement, dated as of July 8, 2011, by and among Exterran Holdings, Inc., as Borrower, Wells Fargo Bank, National Association, as Administrative Agent, BNP Paribas, Credit Agricole Corporate and Investment Bank, Royal Bank of Canada and The Royal Bank of Scotland plc, as Co-Syndication Agents, and the other lenders signatory thereto, incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on July 14, 2011 (portions of this exhibit have been omitted by redacting a portion of the text (indicated by asterisks in the text) and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment)
10.2		Guaranty Agreement, dated as of July 8, 2011, made by EES Leasing LLC, EXH GP LP LLC, EXH MLP LP LLC and Exterran Energy Solutions, L.P. in favor of Wells Fargo Bank, National Association, as Administrative Agent, incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on July 14, 2011
10.3		Collateral Agreement, dated as of July 8, 2011, made by Exterran Holdings, Inc., EES Leasing LLC, EXH GP LP LLC, EXH MLP LP LLC and Exterran Energy Solutions, L.P. in favor of Wells Fargo Bank, National Association, as Administrative Agent, incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on July 14, 2011
10.4		Pledge Agreement, dated as of July 8, 2011, made by Exterran Holdings, Inc., EES GP, L.P., Enterra Compression Investment Company, EXH GP LP LLC, EXH MLP LP LLC, Exterran Energy Corp., Exterran Energy Solutions, L.P., Exterran General Holdings LLC, Exterran HL LLC, Exterran Holdings HL LLC, Hanover Asia, Inc., Universal Compression International, Inc. and Universal Compression Services LLC in favor of Wells Fargo Bank, National Association, as Administrative Agent, incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed on July 14, 2011
10.5		Call Option Transaction Confirmation, dated June 4, 2009, between Exterran Holdings, Inc. and J.P. Morgan Chase Bank, National Association, London Branch, as dealer, incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed on June 10, 2009
10.6		Call Option Transaction Confirmation, dated June 4, 2009, between Exterran Holdings, Inc. and Bank of America, N.A., as dealer, incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed on June 10, 2009
10.7		Call Option Transaction Confirmation, dated June 4, 2009, between Exterran Holdings, Inc. and Wachovia Bank, National Association, as dealer, incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K filed on June 10, 2009
10.8		Call Option Transaction Confirmation, dated June 4, 2009, between Exterran Holdings, Inc. and Credit Suisse International, as dealer, incorporated by reference to Exhibit 10.4 of the Registrant’s Current Report on Form 8-K filed on June 10, 2009
10.9		Warrants Confirmation, dated June 4, 2009, between Exterran Holdings, Inc. and J.P. Morgan Chase Bank, National Association, London Branch, as dealer, incorporated by reference to Exhibit 10.5 of the Registrant’s Current Report on Form 8-K filed on June 10, 2009
10.10		Warrants Confirmation, dated June 4, 2009, between Exterran Holdings, Inc. and Bank of America, N.A., as dealer, incorporated by reference to Exhibit 10.6 of the Registrant’s Current Report on Form 8-K filed on June 10, 2009
10.11		Warrants Confirmation, dated June 4, 2009, between Exterran Holdings, Inc. and Wachovia Bank, National Association, as dealer, incorporated by reference to Exhibit 10.7 of the Registrant’s Current Report on Form 8-K filed on June 10, 2009
10.12		Warrants Confirmation, dated June 4, 2009, between Exterran Holdings, Inc. and Credit Suisse International, as dealer, incorporated by reference to Exhibit 10.8 of the Registrant’s Current Report on Form 8-K filed on June 10, 2009
10.13		Amended and Restated Senior Secured Credit Agreement, dated as of November 3, 2010, by and among EXLP Operating LLC, as Borrower, Exterran Partners, L.P., as Guarantor, Wells Fargo Bank, National Association, as Administrative Agent, Bank of America, N.A. and JPMorgan Chase Bank, N.A., as Co-Syndication Agents, Barclays Bank plc and The Royal Bank of Scotland plc, as Co-Documentation Agents, and the lenders signatory thereto, incorporated by reference to Exhibit 10.1 to Exterran Partners L.P.’s Current Report on Form 8-K filed on November 9, 2010

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Exhibit No.		Description
10.14		First Amendment to Amended and Restated Senior Secured Credit Agreement, dated March 7, 2012, among EXLP Operating LLC, as Borrower, Exterran Partners, L.P., as Guarantor, Wells Fargo Bank, National Association, as Administrative Agent and Swingline Lender, and the other lenders signatory thereto, incorporated by reference to Exhibit 10.1 to Exterran Partners, L.P.’s Current Report on Form 8-K filed on March 13, 2012
10.15		Third Amendment to Amended and Restated Senior Secured Credit Agreement, dated March 27, 2013, among EXLP Operating LLC, as Borrower, Exterran Partners, L.P., as Guarantor, Wells Fargo Bank, National Association, as Administrative Agent, and the other lenders signatory thereto, incorporated by reference to Exhibit 10.1 to Exterran Partners, L.P.’s Current Report on Form 8-K filed on March 28, 2013
10.16		Fourth Amendment to Amended and Restated Senior Secured Credit Agreement, dated February 4, 2015, among EXLP Operating LLC, as Borrower, Exterran Partners, L.P., as Guarantor, Wells Fargo Bank, National Association, as Administrative Agent, and the other lenders signatory thereto, incorporated by reference to Exhibit 10.1 to Exterran Partners, L.P.’s Current Report on Form 8-K filed on February 5, 2015
10.17		Amended and Restated Guaranty Agreement, dated as of November 3, 2010, made by Exterran Partners, L.P. and EXLP Leasing LLC in favor of Wells Fargo Bank, National Association, as Administrative Agent, incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on November 9, 2010
10.18		Amended and Restated Collateral Agreement, dated as of November 3, 2010, made by EXLP Operating LLC, Exterran Partners, L.P. and EXLP Leasing LLC in favor of Wells Fargo Bank, National Association, as Administrative Agent, incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on November 9, 2010
10.19		Third Amended and Restated Omnibus Agreement, dated June 10, 2011, by and among Exterran Holdings, Inc., Exterran Energy Solutions, L.P., Exterran GP LLC, Exterran General Partner, L.P., EXLP Operating LLC and Exterran Partners, L.P., incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 (portions of this exhibit have been omitted by redacting a portion of the text (indicated by asterisks in the text) and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment)
10.20		First Amendment to Third Amended and Restated Omnibus Agreement, dated March 8, 2012, by and among Exterran Holdings, Inc., Exterran Energy Solutions, L.P., Exterran GP LLC, Exterran General Partner, L.P., EXLP Operating LLC and Exterran Partners, L.P. (portions of this exhibit have been omitted by redacting a portion of the text (indicated by asterisks in the text) and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment), incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012
10.21		Second Amendment to Third Amended and Restated Omnibus Agreement, dated March 31, 2013, by and among Exterran Holdings, Inc., Exterran Energy Solutions, L.P., Exterran GP LLC, Exterran General Partner, L.P., Exterran Partners, L.P. and EXLP Operating LLC (portions of this exhibit have been omitted by redacting a portion of the text (indicated by asterisks in the text) and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment), incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-Q for the quarter ended March 31, 2013
10.22		Third Amendment to Third Amended and Restated Omnibus Agreement, dated April 10, 2014, by and among Exterran Holdings, Inc., Exterran Energy Solutions, L.P., Exterran GP LLC, Exterran General Partner, L.P., Exterran Partners, L.P. and EXLP Operating LLC, incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014
10.23		Fourth Amendment to Third Amended and Restated Omnibus Agreement, dated August 15, 2014, by and among Exterran Holdings, Inc., Exterran Energy Solutions, L.P., Exterran GP LLC, Exterran General Partner, L.P., Exterran Partners, L.P. and EXLP Operating LLC, incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014 (portions of this exhibit have been omitted by redacting a portion of the text (indicated by asterisks in the text) and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment)
10.24*		Fifth Amendment to Third Amended and Restated Omnibus Agreement, dated February 23, 2015, by and among Exterran Holdings, Inc., Exterran Energy Solutions, L.P., Exterran GP LLC, Exterran General Partner, L.P., Exterran Partners, L.P. and EXLP Operating LLC
10.25		Office Lease Agreement by and between RFP Lincoln Greenspoint, LLC and Exterran Energy Solutions, L.P., incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed on August 30, 2007
10.26†		Exterran Holdings, Inc. 2013 Stock Incentive Plan, incorporated by reference to Annex A to the Registrant’s Definitive Proxy Statement on Schedule 14A filed on March 19, 2013
10.27†		Exterran Holdings, Inc. Amended and Restated 2007 Stock Incentive Plan, incorporated by reference to Annex B to the Registrant’s Definitive Proxy Statement on Schedule 14A filed on March 26, 2009
10.28†		Amendment No. 1 to Exterran Holdings, Inc. Amended and Restated 2007 Stock Incentive Plan, incorporated by reference to Annex A to the Registrant’s Definitive Proxy Statement on Schedule 14A filed on March 26, 2009
10.29†		Amendment No. 2 to Exterran Holdings, Inc. Amended and Restated 2007 Stock Incentive Plan, incorporated by reference to Exhibit 10.10 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009

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Exhibit No.		Description
10.30†		Amendment No. 3 to the Exterran Holdings, Inc. Amended and Restated 2007 Stock Incentive Plan, incorporated by reference to Annex A to the Registrant’s Definitive Proxy Statement on Schedule 14A filed on March 29, 2010
10.31†		Amendment No. 4 to the Exterran Holdings, Inc. Amended and Restated 2007 Stock Incentive Plan, incorporated by reference to Annex A to the Registrant’s Definitive Proxy Statement on Schedule 14A, filed March 29, 2011
10.32†		Exterran Holdings, Inc. 2011 Employment Inducement Long-Term Equity Plan, incorporated by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form S-8, filed November 4, 2011
10.33†		Exterran Holdings, Inc. Directors’ Stock and Deferral Plan, incorporated by reference to Exhibit 10.16 of the Registrant’s Current Report on Form 8-K filed on August 23, 2007
10.34†		First Amendment to Exterran Holdings, Inc. Directors’ Stock and Deferral Plan, incorporated by reference to Exhibit 10.22 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008
10.35†		Exterran Holdings, Inc. Employee Stock Purchase Plan, incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed on August 23, 2007
10.36†		Amendment No. 1 to the Exterran Holdings, Inc. Employee Stock Purchase Plan, incorporated by reference to Annex D to the Registrant’s Definitive Proxy Statement on Schedule 14A, filed March 29, 2011
10.37†		Amendment No. 2 to the Exterran Holdings, Inc. Employee Stock Purchase Plan, incorporated by reference to Annex C to the Registrant’s Definitive Proxy Statement on Schedule 14A, filed March 29, 2011
10.38†		Exterran Holdings, Inc. Deferred Compensation Plan, incorporated by reference to Exhibit 10.29 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2007
10.39†		Exterran Employees’ Supplemental Savings Plan, incorporated by reference to Exhibit 10.30 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2007
10.40†		First Amendment to Universal Compression, Inc. 401(k) Retirement and Savings Plan, incorporated by reference to Exhibit 10.2 of Universal Compression Holdings, Inc.’s Current Report on Form 8-K filed on August 3, 2007
10.41†		Form of Exterran Holdings, Inc. Award Notice for Time-Vested Incentive Stock Option, incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009
10.42†		Form of Exterran Holdings, Inc. Award Notice for Time-Vested Non-Qualified Stock Option, incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009
10.43†		Form of Exterran Holdings, Inc. Award Notice for Time-Vested Stock Option for Officers, incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010
10.44†		Form of Exterran Holdings, Inc. Award Notice for Time-Vested Non-Qualified Stock Option, incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010
10.45†		Form of Exterran Holdings, Inc. Award Notice for Time-Vested Stock Option for Officers, incorporated by reference to Exhibit 10.63 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2010
10.46†		Form of Exterran Holdings, Inc. Award Notice for Time-Vested Non-Qualified Stock Option, incorporated by reference to Exhibit 10.64 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2010
10.47†		Form of Exterran Holdings, Inc. Award Notice for Performance Shares, incorporated by reference to Exhibit 10.65 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2010
10.48†		Form of Exterran Holdings, Inc. Award Notice for Time-Vested Restricted Stock, incorporated by reference to Exhibit 10.66 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2010
10.49†		Form of Exterran Holdings, Inc. Award Notice for Time-Vested Restricted Stock (Directors), incorporated by reference to Exhibit 10.67 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2010
10.50†		Form of Exterran Holdings, Inc. Award Notice for Time-Vested Stock-Settled Restricted Stock Units, incorporated by reference to Exhibit 10.68 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2010
10.51†		Form of Exterran Holdings, Inc. Award Notice for Time-Vested Cash-Settled Restricted Stock Units, incorporated by reference to Exhibit 10.69 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2010
10.52†		Form of Exterran Holdings, Inc. Award Notice for Time-Vested Restricted Stock under the 2011 Employment Inducement Long-Term Equity Plan, incorporated by reference to Exhibit 10.54 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011
10.53†		Form of Exterran Holdings, Inc. Award Notice for Time-Vested Non-qualified Stock Option under the 2011 Employment Inducement Long-Term Equity Plan, incorporated by reference to Exhibit 10.55 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011
10.54†		Form of Exterran Holdings, Inc. Award Notice and Agreement for Performance Units, incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012
10.55†		Form of Indemnification Agreement, incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed on August 23, 2007
10.56†		Form of Exterran Holdings, Inc. Change of Control Agreement (Messrs. Schlanger and Wayne), incorporated by reference to Exhibit 10.19 of the Registrant’s Current Report on Form 8-K filed on August 23, 2007
10.57†		Form of First Amendment to Exterran Holdings, Inc. Change of Control Agreement (Messrs. Schlanger and Wayne), incorporated by reference to Exhibit 10.2 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008
10.58†		Form of Second Amendment to Exterran Holdings, Inc. Change of Control Agreement (Messrs. Schlanger and Wayne), incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013

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Exhibit No.		Description
10.59†		Change of Control Agreement, effective December 12, 2011, between Exterran Holdings, Inc. and D. Bradley Childers, incorporated by reference to Exhibit 10.59 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011
10.60†		Change of Control Agreement, effective December 12, 2011, between Exterran Holdings, Inc. and William M. Austin, incorporated by reference to Exhibit 10.60 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011
10.61†		Form of Exterran Holdings, Inc. Change of Control Agreement (Mr. Reimer), incorporated by reference to Exhibit 10.57 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2013
10.62†		Form of First Amendment to Exterran Holdings, Inc. Change of Control Agreement (Messrs. Austin, Childers and Reimer), incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013
10.63†		Form of Exterran Holdings, Inc. Severance Benefit Agreement (Messrs. Childers, Reimer, Schlanger and Wayne), incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013
10.64†		Form of Exterran Holdings, Inc. Award Notice and Agreement for Time-Vested Incentive Stock Option for Officers, incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on March 10, 2014
10.65†		Form of Exterran Holdings, Inc. Award Notice and Agreement for Time-Vested Non-Qualified Stock Option, incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on March 10, 2014
10.66†		Form of Exterran Holdings, Inc. Award Notice and Agreement for Time-Vested Restricted Stock, incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on March 10, 2014
10.67†		Form of Exterran Holdings, Inc. Award Notice and Agreement for Time-Vested Cash-Settled Restricted Stock Units, incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed on March 10, 2014
10.68†		Form of Exterran Holdings, Inc. Award Notice and Agreement for Time-Vested Stock-Settled Restricted Stock Units, incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed on March 10, 2014
10.69†		Form of Exterran Holdings, Inc. Award Notice and Agreement for Performance Units, incorporated by reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K filed on March 10, 2014
10.70†		Form of Exterran Holdings, Inc. Award Notice and Agreement for Common Stock Award for Non-Employee Directors, incorporated by reference to Exhibit 10.7 to the Registrant’s Current Report on Form 8-K filed on March 10, 2014
10.71†		Offer Letter, dated December 6, 2011, to D. Bradley Childers, incorporated by reference to Exhibit 10.64 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011
10.72†		Offer Letter, dated September 10, 2014, to Jon C. Biro, incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014
21.1*		List of Subsidiaries
23.1*		Consent of Deloitte & Touche LLP
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
101.1*		Interactive data files pursuant to Rule 405 of Regulation S-T

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

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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 Holdings, Inc.

	/s/ D. BRADLEY CHILDERS
	Name: D. Bradley Childers
	Title: President and Chief Executive Officer

	Date: February 26, 2015

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POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints D. Bradley Childers, Jon C. Biro, Kenneth R. Bickett and Donald C. Wayne, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done as fully to all said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 26, 2015.

Signature		Title

/s/ D. BRADLEY CHILDERS		President and Chief Executive Officer and Director
D. Bradley Childers		(Principal Executive Officer)

/s/ JON C. BIRO		Senior Vice President and Chief Financial
Jon C. Biro		Officer (Principal Financial Officer)

/s/ KENNETH R. BICKETT		Vice President and Controller
Kenneth R. Bickett		(Principal Accounting Officer)

/s/ WILLIAM M. GOODYEAR		Director
William M. Goodyear

/s/ GORDON T. HALL		Director
Gordon T. Hall

/s/ J.W.G. HONEYBOURNE		Director
J.W.G. Honeybourne

/s/ MARK A. MCCOLLUM		Director
Mark A. McCollum

/s/ STEPHEN M. PAZUK		Director
Stephen M. Pazuk

/s/ JOHN P. RYAN		Director
John P. Ryan

/s/ CHRISTOPHER T. SEAVER		Director
Christopher T. Seaver

/s/ MARK R. SOTIR		Director
Mark R. Sotir

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Exterran Holdings, Inc.

Houston, Texas

We have audited the accompanying consolidated balance sheets of Exterran Holdings, Inc. and subsidiaries (the “Company”) as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the three years in the period ended December 31, 2014. Our audits also included the financial statement schedule for each of the three years in the period ended December 31, 2014 listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2014, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 2015 expressed an unqualified opinion on the Company’s internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

Houston, Texas
February 26, 2015

F-1

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EXTERRAN HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except par value and share amounts)

	December 31,
	2014			2013
ASSETS

Current assets:
Cash and cash equivalents	$	39,739		$	35,665
Restricted cash	1,490			1,269
Accounts receivable, net of allowance of $4,419 and $8,605, respectively	558,042			476,792
Inventory, net	403,571			413,927
Costs and estimated earnings in excess of billings on uncompleted contracts	120,938			117,175
Current deferred income taxes	79,856			117,576
Other current assets	61,503			58,285
Current assets associated with discontinued operations	537			442
Total current assets	1,265,676			1,221,131
Property, plant and equipment, net	3,326,892			2,820,272
Goodwill	3,738			—
Intangible and other assets, net	243,372			164,836
Long-term assets associated with discontinued operations	17,469			20,918
Total assets	$	4,857,147		$	4,227,157

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable, trade	$	203,306		$	177,289
Accrued liabilities	259,759			278,949
Deferred revenue	69,310			93,310
Billings on uncompleted contracts in excess of costs and estimated earnings	76,277			87,925
Current liabilities associated with discontinued operations	2,066			3,233
Total current liabilities	610,718			640,706
Long-term debt	2,026,902			1,502,155
Deferred income taxes	187,445			198,353
Other long-term liabilities	78,720			72,068
Long-term liabilities associated with discontinued operations	317			447
Total liabilities	2,904,102			2,413,729
Commitments and contingencies (Note 22)
Equity:
Preferred stock, $0.01 par value per share; 50,000,000 shares authorized; zero issued	—			—
Common stock, $0.01 par value per share; 250,000,000 shares authorized; 73,808,200 and 72,500,773 shares issued, respectively	738			725
Additional paid-in capital	3,715,586			3,769,429
Accumulated other comprehensive income	15,865			30,078
Accumulated deficit	(1,866,397		)	(1,924,244		)
Treasury stock — 4,963,013 and 6,582,068 common shares, at cost, respectively	(68,532		)	(213,898		)
Total Exterran stockholders’ equity	1,797,260			1,662,090
Noncontrolling interest	155,785			151,338
Total equity	1,953,045			1,813,428
Total liabilities and equity	$	4,857,147		$	4,227,157

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

F-2

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EXTERRAN HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

	Years Ended December 31,
	2014			2013			2012
Revenues:
North America contract operations	$	729,103		$	627,844		$	596,011
International contract operations	493,853			476,016			463,957
Aftermarket services	392,774			395,600			385,861
Fabrication	1,284,008			1,660,944			1,348,417
	2,899,738			3,160,404			2,794,246
Costs and expenses:
Cost of sales (excluding depreciation and amortization expense):
North America contract operations	316,142			282,489			284,703
International contract operations	185,408			196,944			184,608
Aftermarket services	308,432			309,418			303,590
Fabrication	1,058,462			1,408,547			1,191,937
Selling, general and administrative	377,754			358,173			375,647
Depreciation and amortization	386,071			327,505			346,177
Long-lived asset impairment	46,679			28,637			136,614
Restructuring charges	7,553			—			6,471
Interest expense	114,178			115,745			134,376
Equity in income of non-consolidated affiliates	(14,553		)	(19,000		)	(51,483		)
Other (income) expense, net	1,747			(24,501		)	506
	2,787,873			2,983,957			2,913,146
Income (loss) before income taxes	111,865			176,447			(118,900		)
Provision for (benefit from) income taxes	58,657			84,719			(45,755		)
Income (loss) from continuing operations	53,208			91,728			(73,145		)
Income from discontinued operations, net of tax	72,674			64,014			35,976
Net income (loss)	125,882			155,742			(37,169		)
Less: Net income attributable to the noncontrolling interest	(27,716		)	(32,578		)	(2,317		)
Net income (loss) attributable to Exterran stockholders	$	98,166		$	123,164		$	(39,486	)

Basic income (loss) per common share:
Income (loss) from continuing operations attributable to Exterran common stockholders	$	0.38		$	0.90		$	(1.19	)
Income from discontinued operations attributable to Exterran common stockholders	1.08			0.98			0.57
Net income (loss) attributable to Exterran common stockholders	$	1.46		$	1.88		$	(0.62	)

Diluted income (loss) per common share:
Income (loss) from continuing operations attributable to Exterran common stockholders	$	0.36		$	0.89		$	(1.19	)
Income from discontinued operations attributable to Exterran common stockholders	1.04			0.97			0.57
Net income (loss) attributable to Exterran common stockholders	$	1.40		$	1.86		$	(0.62	)

Weighted average common shares outstanding used in income (loss) per common share:
Basic	66,234			64,454			63,436
Diluted	69,090			65,003			63,436

Dividends declared and paid per common share	$	0.60		$	—		$	—

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

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EXTERRAN HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

	Years Ended December 31,
	2014			2013			2012
Net income (loss)	$	125,882		$	155,742		$	(37,169	)
Other comprehensive income (loss), net of tax:
Derivative gain (loss), net of reclassifications to earnings	(3,366		)	5,207			5,879
Adjustments from changes in ownership of Partnership	65			(703		)	360
Amortization of terminated interest rate swaps	2,944			2,713			6,947
Foreign currency translation adjustment	(14,648		)	4,531			3,762
Total other comprehensive income (loss)	(15,005		)	11,748			16,948
Comprehensive income (loss)	110,877			167,490			(20,221		)
Less: Comprehensive income attributable to the noncontrolling interest	(26,924		)	(38,157		)	(1,415		)
Comprehensive income (loss) attributable to Exterran stockholders	$	83,953		$	129,333		$	(21,636	)

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

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EXTERRAN HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(In thousands, except share data)

	Exterran Holding, Inc. Stockholders
							Accumulated
				Additional			Other
	Common Stock			Paid-in			Comprehensive			Treasury Stock					Accumulated			Noncontrolling
	Shares	Amount		Capital			Income (Loss)			Shares		Amount			Deficit			Interest			Total
Balance, January 1, 2012	70,407,010	$	704	$	3,645,332		$	6,059		(6,143,589	)	$	(206,937	)	$	(2,007,922	)	$	242,806		$	1,680,042
Treasury stock purchased										(157,233	)	(2,422		)							(2,422		)
Options exercised	34,285			562																	562
Shares issued in employee stock purchase plan	132,784	1		1,634																	1,635
Stock-based compensation, net of forfeitures	717,151	8		15,373						(75,604	)							589			15,970
Income tax benefit from stock-based compensation expense				(1,345		)															(1,345		)
Net proceeds from the sale of Partnership units, net of tax				49,202														35,920			85,122
Cash distribution to noncontrolling unitholders of the Partnership																		(57,084		)	(57,084		)
Comprehensive income (loss):
Net income (loss)															(39,486		)	2,317			(37,169		)
Derivatives gain (loss), net of reclassifications to earnings and tax							6,781											(902		)	5,879
Adjustments from changes in ownership of Partnership							360														360
Amortization of terminated interest rate swaps, net of tax							6,947														6,947
Foreign currency translation adjustment							3,762														3,762
Balance at December 31, 2012	71,291,230	$	713	$	3,710,758		$	23,909		(6,376,426	)	$	(209,359	)	$	(2,047,408	)	$	223,646		$	1,702,259
Treasury stock purchased										(173,267	)	(4,539		)							(4,539		)
Options exercised	459,416	4		8,317																	8,321
Shares issued in employee stock purchase plan	66,259	1		1,631																	1,632
Stock-based compensation, net of forfeitures	683,868	7		15,509						(32,375	)							732			16,248
Income tax benefit from stock-based compensation expense				1,782																	1,782
Adjustments from changes in ownership of Partnership				31,573														(49,238		)	(17,665		)
Cash distribution to noncontrolling unitholders of the Partnership																		(61,959		)	(61,959		)
Other				(141		)															(141		)
Comprehensive income (loss):
Net income															123,164			32,578			155,742
Derivatives gain (loss), net of reclassifications to earnings and tax							(372		)									5,579			5,207
Adjustments from changes in ownership of Partnership							(703		)												(703		)
Amortization of terminated interest rate swaps, net of tax							2,713														2,713
Foreign currency translation adjustment							4,531														4,531
Balance at December 31, 2013	72,500,773	$	725	$	3,769,429		$	30,078		(6,582,068	)	$	(213,898	)	$	(1,924,244	)	$	151,338		$	1,813,428
Treasury stock purchased										(172,232	)	(7,044		)							(7,044		)
Options exercised	729,685	7		12,812																	12,819
Cash dividends															(40,319		)				(40,319		)
Shares issued in employee stock purchase plan	50,232			1,812																	1,812
Stock-based compensation, net of forfeitures	466,011	5		17,844						(42,213	)							1,167			19,016
Income tax benefit from stock-based compensation expense				6,586																	6,586
Net proceeds from the sale of Partnership units, net of tax				74,521														51,212			125,733
Cash distribution to noncontrolling unitholders of the Partnership																		(74,856		)	(74,856		)
Redemption of convertible debt	61,499	1		(234,219		)				6,711,587		219,211									(15,007		)
Shares acquired from exercise of call options				89,407						(6,522,301	)	(89,407		)							—
Shares issued for exercise of warrants				(22,606		)				1,644,214		22,606									—
Comprehensive income (loss):
Net income															98,166			27,716			125,882
Derivatives loss, net of reclassifications to earnings and tax							(2,574		)									(792		)	(3,366		)
Adjustments from changes in ownership of Partnership							65														65
Amortization of terminated interest rate swaps, net of tax							2,944														2,944
Foreign currency translation adjustment							(14,648		)												(14,648		)
Balance at December 31, 2014	73,808,200	$	738	$	3,715,586		$	15,865		(4,963,013	)	$	(68,532	)	$	(1,866,397	)	$	155,785		$	1,953,045

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

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EXTERRAN HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Years Ended December 31,
	2014			2013			2012
Cash flows from operating activities:
Net income (loss)	$	125,882		$	155,742		$	(37,169	)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation and amortization	386,071			327,505			346,177
Long-lived asset impairment	46,679			28,637			136,614
Amortization of deferred financing costs	5,994			7,690			7,243
Income from discontinued operations, net of tax	(72,674		)	(64,014		)	(35,976		)
Amortization of debt discount	12,380			23,407			20,523
Provision for doubtful accounts	2,503			2,859			8,754
Gain on sale of property, plant and equipment	(7,479		)	(27,433		)	(4,677		)
Loss on sale of businesses	961			—			—
Equity in income of non-consolidated affiliates	(14,553		)	(19,000		)	(51,483		)
Amortization of terminated interest rate swaps	4,530			4,174			10,688
Interest rate swaps	397			334			—
Loss on remeasurement of intercompany balances	3,614			4,313			7,406
Stock-based compensation expense	19,016			16,248			15,381
Deferred income tax provision	(8,595		)	21,862			(77,264		)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable and notes	(88,549		)	(31,384		)	(11,531		)
Inventory	17,115			(27,269		)	(34,800		)
Costs and estimated earnings versus billings on uncompleted contracts	(17,078		)	(36,539		)	44,359
Other current assets	(4,901		)	33,149			9,452
Accounts payable and other liabilities	(7,555		)	(34,143		)	30,067
Deferred revenue	(11,012		)	(16,426		)	5,288
Other	(18,966		)	(21,044		)	(5,790		)
Net cash provided by continuing operations	373,780			348,668			383,262
Net cash provided by discontinued operations	5,589			7,036			6,663
Net cash provided by operating activities	379,369			355,704			389,925

Cash flows from investing activities:
Capital expenditures	(541,695		)	(391,725		)	(428,731		)
Proceeds from sale of property, plant and equipment	24,373			101,311			35,989
Proceeds from sale of businesses	1,516			—			—
Payments for business acquisitions	(494,755		)	—			—
Return of investments in non-consolidated affiliates	14,750			19,000			51,707
(Increase) decrease in restricted cash	(221		)	14			(162		)
Cash invested in non-consolidated affiliates	(197		)	—			(224		)
Net cash used in continuing operations	(996,229		)	(271,400		)	(341,421		)
Net cash provided by discontinued operations	66,378			74,949			135,970
Net cash used in investing activities	(929,851		)	(196,451		)	(205,451		)

Cash flows from financing activities:
Proceeds from borrowings of long-term debt	2,240,299			2,108,037			1,878,000
Repayments of long-term debt	(1,727,500		)	(2,195,750		)	(2,106,639		)
Payments for debt issuance costs	(6,986		)	(12,147		)	(1,011		)
Payments above face value for redemption of convertible debt	(15,007		)	—			—
Payments for settlement of interest rate swaps that include financing elements	(3,793		)	(2,207		)	—
Net proceeds from the sale of Partnership units	169,471			—			114,530
Proceeds from stock options exercised	12,819			8,321			562
Proceeds from stock issued pursuant to our employee stock purchase plan	1,812			1,632			1,635
Purchases of treasury stock	(7,044		)	(4,539		)	(2,422		)
Dividends to Exterran stockholders	(40,319		)	—			—
Stock-based compensation excess tax benefit	9,585			1,910			1,139
Distributions to noncontrolling partners in the Partnership	(74,856		)	(61,959		)	(57,084		)
Net cash provided by (used in) financing activities	558,481			(156,702		)	(171,290		)

Effect of exchange rate changes on cash and cash equivalents	(3,925		)	(1,487		)	(486		)
Net increase in cash and cash equivalents	4,074			1,064			12,698
Cash and cash equivalents at beginning of period	35,665			34,601			21,903
Cash and cash equivalents at end of period	$	39,739		$	35,665		$	34,601

Supplemental disclosure of cash flow information:
Interest paid, net of capitalized amounts	$	89,312		$	80,775		$	95,416
Income taxes paid, net	$	57,920		$	54,478		$	29,089

Supplemental disclosure of non-cash transactions:
Accrued capital expenditures	$	31,994		$	13,360		$	21,692
Treasury shares issued for redemption of convertible debt	$	219,211		$	—		$	—
Shares acquired from exercise of call options	$	(89,407	)	$	—		$	—
Treasury shares issued for exercise of warrants	$	22,606		$	—		$	—

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

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EXTERRAN HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Background and Significant Accounting Policies

Exterran Holdings, Inc., together with its subsidiaries (“Exterran”, “our”, “we” or “us”) is a global market leader in the full service natural gas compression business and a premier provider of operations, maintenance, service and equipment for oil and natural gas production, processing and transportation applications. Our global customer base consists 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 producers and natural gas processors, gatherers and pipelines. We operate in three primary business lines: contract operations, aftermarket services and fabrication. In our contract operations business line, we use our fleet of natural gas compression equipment and crude oil and natural gas production and processing equipment to provide operations services to our customers. In our aftermarket services business line, we sell parts and components and provide operations, maintenance, overhaul and reconfiguration services to customers who own compression, production, processing, treating and other equipment. In our fabrication business line, we fabricate natural gas compression and oil and natural gas production and processing equipment for sale to our customers and for use in our contract operations services. In addition, our fabrication business line provides engineering, procurement and fabrication services related to the manufacturing of critical process equipment for refinery and petrochemical facilities, the fabrication of tank farms and the fabrication of evaporators and brine heaters for desalination plants. We 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.

We were incorporated in February 2007 as a wholly-owned subsidiary of Universal Compression Holdings, Inc. (“Universal”). On August 20, 2007, in accordance with their merger agreement, Universal and Hanover Compressor Company (“Hanover”) merged into our wholly-owned subsidiaries, and we became the parent entity of Universal and Hanover. Immediately following the completion of the merger, Universal merged with and into us.

Principles of Consolidation

The accompanying consolidated financial statements include Exterran and its wholly-owned and majority-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Investments in affiliated entities in which we own more than a 20% interest and do not have a controlling interest are accounted for using the equity method.

For financial reporting purposes, we consolidate the financial statements of Exterran Partners, L.P. (together with its subsidiaries, the “Partnership”) with those of our own and reflect its operations in our North America contract operations business segment. We control the Partnership through our ownership of its general partner. Public ownership of the Partnership’s net assets and earnings is presented as a component of noncontrolling interest in our consolidated financial statements. The borrowings of the Partnership are presented as part of our consolidated debt. However, we do not have any obligation for the payment of interest or repayment of borrowings incurred by the Partnership.

Use of Estimates in the Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S.”) (“GAAP”) requires management to make estimates and assumptions that affect the reported amount of assets, liabilities, revenue and expenses, as well as the disclosures of contingent assets and liabilities. Because of the inherent uncertainties in this process, actual future results could differ from those expected at the reporting date. Management believes that the estimates and assumptions used are reasonable.

Cash and Cash Equivalents

We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

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Restricted Cash

Restricted cash as of December 31, 2014 and 2013 consists of cash that contractually is not available for immediate use. Restricted cash is presented separately from cash and cash equivalents in the consolidated balance sheets and statements of cash flows.

Revenue Recognition

Contract operations revenue is recognized when earned, which generally occurs monthly when service is provided under our customer contracts. Aftermarket services revenue is recognized as products are delivered and title is transferred or services are performed for the customer.

Fabrication revenue is recognized using the percentage-of-completion method when the applicable criteria are met. We estimate percentage-of-completion for compressor and accessory fabrication on a direct labor hour to total labor hour basis. We estimate production and processing equipment fabrication percentage-of-completion using the direct labor hour to total labor hour basis and the cost to total cost basis. The duration of these projects is typically between three and 24 months. Fabrication revenue is recognized using the completed contract method when the applicable criteria of the percentage-of-completion method are not met. Fabrication revenue from a claim is recognized to the extent that costs related to the claim have been incurred, when collection is probable and can be reliably estimated.

Concentrations of Credit Risk

Financial instruments that potentially subject us to concentrations of credit risk consist of cash and cash equivalents and accounts receivable. We believe that the credit risk in temporary cash investments is limited because our cash is held in accounts with multiple financial institutions. Trade accounts receivable are due from companies of varying size engaged principally in oil and natural gas activities throughout the world. We review the financial condition of customers prior to extending credit and generally do not obtain collateral for trade receivables. Payment terms are on a short-term basis and in accordance with industry practice. We consider this credit risk to be limited due to these companies’ financial resources, the nature of products and services we provide and the terms of our contract operations customer service agreements.

We maintain allowances for doubtful accounts for estimated losses resulting from our customers’ inability to make required payments. The determination of the collectibility of amounts due from our customers requires us to use estimates and make judgments regarding future events and trends, including monitoring our customers’ payment history and current creditworthiness to determine that collectibility is reasonably assured, as well as consideration of the overall business climate in which our customers operate. Inherently, these uncertainties require us to make judgments and estimates regarding our customers’ ability to pay amounts due to us in order to determine the appropriate amount of valuation allowances required for doubtful accounts. We review the adequacy of our allowance for doubtful accounts quarterly. We determine the allowance needed based on historical write-off experience and by evaluating significant balances aged greater than 90 days individually for collectibility. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. During the years ended December 31, 2014, 2013 and 2012, we recorded bad debt expense of $2.4 million, $2.2 million and $8.8 million, respectively.

Inventory

Inventory consists of parts used for fabrication or maintenance of natural gas compression equipment and facilities, processing and production equipment and also includes compression units and production equipment that are held for sale. Inventory is stated at the lower of cost or market using the average-cost method. A reserve is recorded against inventory balances for estimated obsolescence based on specific identification and historical experience.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives as follows:

Compression equipment, facilities and other fleet assets		3 to 30 years
Buildings		20 to 35 years
Transportation, shop equipment and other		3 to 12 years

Major improvements that extend the useful life of an asset are capitalized. Repairs and maintenance are expensed as incurred. When property, plant and equipment is sold, retired or otherwise disposed of, the gain or loss is recorded in other (income) expense, net. Interest is capitalized during the construction period on equipment and facilities that are constructed for use in our operations. The capitalized interest is included as part of the cost of the asset to which it relates and is amortized over the asset’s estimated useful life.

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Computer software

Certain costs related to the development or purchase of internal-use software are capitalized and amortized over the estimated useful life of the software, which ranges from three to five years. Costs related to the preliminary project stage and the post-implementation/operation stage of an internal-use computer software development project are expensed as incurred.

Long-Lived Assets

Goodwill

Goodwill acquired in connection with business combinations represents the excess of consideration over the fair value of tangible and identifiable intangible net assets acquired. Certain assumptions and estimates are employed in determining the fair value of assets acquired and liabilities assumed, as well as in determining the allocation of goodwill to the appropriate reporting unit.

We review the carrying value of our goodwill in the fourth quarter of every year, or whenever events indicate impairment may have occurred, to determine if the estimated recoverable value of the reporting unit exceeds its net carrying value (including the applicable goodwill).

A qualitative assessment is performed to determine whether it is more likely than not that the fair value of the reporting unit is impaired. If it is more likely than not, we perform a goodwill impairment test. We determine the fair value of the reporting unit using both the expected present value of future cash flows and a market approach. Each approach is weighted 50% in determining our calculated fair value. The present value of future cash flows is estimated using our most recent forecast and the weighted average cost of capital. The market approach uses a market multiple on the reporting unit’s earnings before interest expense, provision for income taxes and depreciation and amortization expense. Significant estimates for the reporting unit included in our impairment analysis are our cash flow forecasts, our estimate of the market’s weighted average cost of capital and market multiples. Changes in forecasts, cost of capital and market multiples could affect the estimated fair value of the reporting unit and result in a goodwill impairment charge in a future period.

Management must apply judgment in determining the estimated fair value of the reporting unit for purposes of performing a goodwill impairment test. Management uses all available information to make this fair value determination, including the present values of expected future cash flows using discount rates commensurate with the risks involved in the assets.

For the year ended December 31, 2014, we determined that there was no impairment of goodwill.

Deferred Revenue

Deferred revenue is primarily comprised of billings related to jobs where revenue is recognized on the percentage-of-completion method that have not begun, milestone billings related to jobs where revenue is recognized on the completed contract method and deferred revenue on contract operations jobs.

Other (Income) Expense, Net

Other (income) expense, net, is primarily comprised of gains and losses from the remeasurement of our international subsidiaries’ net assets exposed to changes in foreign currency rates and on the sale of used assets.

Income Taxes

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

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We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies and results of recent operations. In the event we were to determine that we would be able to realize our deferred income tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

We record uncertain tax positions in accordance with the accounting standard on income taxes under a two-step process whereby (1) we determine whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is greater than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

Foreign Currency Translation

The financial statements of subsidiaries outside the U.S., except those for which we have determined that the U.S. dollar is the functional currency, are measured using the local currency as the functional currency. Assets and liabilities of these subsidiaries are translated at the rates of exchange in effect at the balance sheet date. Income and expense items are translated at average monthly rates of exchange. The resulting gains and losses from the translation of accounts into U.S. dollars are included in accumulated other comprehensive income (loss) on our consolidated balance sheets. For all subsidiaries, gains and losses from remeasuring foreign currency accounts into the functional currency are included in other (income) expense, net, in our consolidated statements of operations. We recorded a foreign currency loss of $8.8 million, $3.0 million and $8.2 million during the years ended December 31, 2014, 2013 and 2012, respectively. Included in our foreign currency loss was $3.6 million, $4.3 million and $7.4 million of non-cash losses from foreign currency exchange rate changes recorded on intercompany obligations during the years ended December 31, 2014, 2013 and 2012, respectively.

Argentina’s current regulations restrict foreign exchange, including exchanging Argentine pesos for U.S. dollars in certain cases, which has impacted our ability to freely repatriate cash generated in Argentina to fund our other operations. During 2014, we used Argentine pesos to purchase certain short-term investments in Argentine government issued U.S. dollar denominated bonds. The effective peso to U.S. dollar exchange rate embedded in the purchase price of these bonds resulted in our recognition of a loss during the year ended December 31, 2014 of $6.5 million, which is included in other (income) expense, net, in our consolidated statements of operations.

Hedging and Use of Derivative Instruments

We use derivative financial instruments to minimize the risks and/or costs associated with financial activities by managing our exposure to interest rate fluctuations on a portion of our debt obligations. We do not use derivative financial instruments for trading or other speculative purposes. We record interest rate swaps on the balance sheet as either derivative assets or derivative liabilities measured at their fair value. The fair value of our derivatives is estimated using a combination of the market and income approach based on forward LIBOR curves. Changes in the fair value of the derivatives designated as cash flow hedges are deferred in accumulated other comprehensive income (loss), net of tax, to the extent the contracts are effective as hedges until settlement of the underlying hedged transaction. To qualify for hedge accounting treatment, we must formally document, designate and assess the effectiveness of the transactions. If the necessary correlation ceases to exist or if the anticipated transaction becomes improbable, we would discontinue hedge accounting and apply mark-to-market accounting. Amounts paid or received from interest rate swap agreements are charged or credited to interest expense and matched with the cash flows and interest expense of the debt being hedged, resulting in an adjustment to the effective interest rate.

Earnings (Loss) Attributable to Exterran Common Stockholders Per Common Share

Basic income (loss) attributable to Exterran common stockholders per common share is computed using the two-class method, which is an earnings allocation formula that determines net income per share for each class of common stock and participating security according to dividends declared and participation rights in undistributed earnings. Under the two-class method, basic income (loss) attributable to Exterran common stockholders per common share is determined by dividing income (loss) attributable to Exterran common stockholders after deducting amounts allocated to participating securities, by the weighted average number of common shares outstanding for the period. Participating securities include our 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, no effect is given to participating securities because they do not have a contractual obligation to participate in our losses.

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Diluted income (loss) attributable to Exterran common stockholders per common share is computed using the weighted average number of shares outstanding adjusted for the incremental common stock equivalents attributed to outstanding options and warrants to purchase common stock, restricted stock units, stock to be issued pursuant to our employee stock purchase plan and convertible senior notes, unless their effect would be anti-dilutive.

The following table summarizes net income (loss) attributable to Exterran common stockholders used in the calculation of basic and diluted income (loss) per common share (in thousands):

	Years Ended December 31,
	2014			2013			2012
Income (loss) from continuing operations attributable to Exterran stockholders	$	25,492		$	59,150		$	(75,462	)
Income from discontinued operations, net of tax	72,674			64,014			35,976
Less: Net income attributable to participating securities	(1,513		)	(2,253		)	—
Net income (loss) attributable to Exterran common stockholders	$	96,653		$	120,911		$	(39,486	)

The following table shows the potential shares of common stock that were included in computing diluted income (loss) attributable to Exterran common stockholders per common share (in thousands):

	Years Ended December 31,
	2014		2013		2012
Weighted average common shares outstanding including participating securities	67,175		65,655		64,737
Less: Weighted average participating securities outstanding	(941	)	(1,201	)	(1,301	)
Weighted average common shares outstanding — used in basic income (loss) per common share	66,234		64,454		63,436
Net dilutive potential common shares issuable:
On exercise of options and vesting of restricted stock units	490		547		*
On settlement of employee stock purchase plan shares	1		2		*
On exercise of warrants	2,365		*		*
On conversion of 4.25% convertible senior notes due 2014	*		*		*
On conversion of 4.75% convertible senior notes due 2014	**		*		*
Weighted average common shares outstanding — used in diluted income (loss) per common share	69,090		65,003		63,436

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

** Not applicable as the debt instrument was not outstanding during the period.

There were no adjustments to net income (loss) attributable to Exterran common stockholders for the diluted earnings (loss) per common share calculation during the years ended December 31, 2014, 2013 and 2012.

The following table shows the potential shares of common stock issuable that were excluded from computing diluted income (loss) attributable to Exterran common stockholders per common share as their inclusion would have been anti-dilutive (in thousands):

	Years Ended December 31,
	2014	2013	2012
Net dilutive potential common shares issuable:
On exercise of options where exercise price is greater than average market value for the period	515	734	1,858
On exercise of options and vesting of restricted stock units	—	—	181
On settlement of employee stock purchase plan shares	—	—	9
On exercise of warrants	—	12,426	12,426
On conversion of 4.25% convertible senior notes due 2014	7,073	15,334	15,334
On conversion of 4.75% convertible senior notes due 2014	—	119	3,114
Net dilutive potential common shares issuable	7,588	28,613	32,922

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Comprehensive Income (Loss)

Components of comprehensive income (loss) are net income (loss) and all changes in equity during a period except those resulting from transactions with owners. Our accumulated other comprehensive income (loss) consists of foreign currency translation adjustments, changes in the fair value of derivative financial instruments, net of tax, that are designated as cash flow hedges and to the extent the hedge is effective, amortization of terminated interest rate swaps and adjustments related to changes in our ownership of the Partnership.

The following tables present the changes in accumulated other comprehensive income (loss) by component, net of tax and excluding noncontrolling interest, during the years ended December 31, 2012, 2013 and 2014:

	Derivatives				Foreign Currency
	Cash Flow Hedges				Translation Adjustment				Total
Accumulated other comprehensive income (loss), January 1, 2012	$	(17,072	)		$	23,131			$	6,059
Income (loss) recognized in other comprehensive income (loss), net of tax	(879		)	(1)	3,762				2,883
Loss reclassified from accumulated other comprehensive income (loss), net of tax	14,967			(2)	—				14,967
Other comprehensive income attributable to Exterran stockholders	14,088				3,762				17,850
Accumulated other comprehensive income (loss), December 31, 2012	(2,984		)		26,893				23,909
Loss recognized in other comprehensive income (loss), net of tax	(476		)	(3)	(2,960		)		(3,436		)
Loss reclassified from accumulated other comprehensive income (loss), net of tax	2,114			(4)	7,491			(5)	9,605
Other comprehensive income attributable to Exterran stockholders	1,638				4,531				6,169
Accumulated other comprehensive income (loss), December 31, 2013	(1,346		)		31,424				30,078
Loss recognized in other comprehensive income (loss), net of tax	(1,295		)	(6)	(11,871		)		(13,166		)
(Gain) loss reclassified from accumulated other comprehensive income (loss), net of tax	1,730			(7)	(2,777		)	(8)	(1,047		)
Other comprehensive income (loss) attributable to Exterran stockholders	435				(14,648		)		(14,213		)
Accumulated other comprehensive income (loss), December 31, 2014	$	(911	)		$	16,776			$	15,865

(1) During the year ended December 31, 2012, we recognized a loss of $1.5 million and a tax benefit of $0.6 million, in other comprehensive income (loss), net of tax, related to changes in the fair value of derivative financial instruments.

(2) During the year ended December 31, 2012, we reclassified a $23.0 million loss to interest expense and a tax benefit of $8.0 million to provision for (benefit from) income taxes in our consolidated statements of operations from accumulated other comprehensive income (loss).

(3) During the year ended December 31, 2013, we recognized a loss of $0.5 million and a tax benefit of $0.1 million, in other comprehensive income (loss), net of tax, related to changes in the fair value of derivative financial instruments.

(4) During the year ended December 31, 2013, we reclassified a $3.2 million loss to interest expense and a tax benefit of $1.1 million to provision for (benefit from) income taxes in our consolidated statements of operations from accumulated other comprehensive income (loss).

(5) During the year ended December 31, 2013, we reclassified losses of $5.1 million and $2.4 million related to foreign currency translation adjustments to income from discontinued operations, net of tax, and long-lived asset impairment, respectively, in our consolidated statements of operations. These amounts represent cumulative foreign currency translation adjustments associated with our contract operations and aftermarket services businesses in Canada (“Canadian Operations”) and a United Kingdom entity that previously had been recognized in accumulated other comprehensive income (loss). See Note 3 for further discussion of the sale of our Canadian Operations. Additionally, as discussed in Note 14, we sold the entity that owned our fabrication facility in the United Kingdom in July 2013 and, we recognized impairment during the year ended December 31, 2013 based on the net transaction value set forth in our agreement to sell this entity.

(6) During the year ended December 31, 2014, we recognized a loss of $2.0 million and a tax benefit of $0.7 million, in other comprehensive income (loss), net of tax, related to changes in the fair value of derivative financial instruments.

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(7) During the year ended December 31, 2014, we reclassified a $2.6 million loss to interest expense and a tax benefit of $0.9 million to provision for (benefit from) income taxes in our consolidated statements of operations from accumulated other comprehensive income (loss).

(8) During the year ended December 31, 2014, we reclassified a gain of $2.8 million related to foreign currency translation adjustments to other (income) expense, net, in our consolidated statements of operations. This amount represents cumulative foreign currency translation adjustments associated with our contract operations and aftermarket services businesses in Australia, which were sold in December 2014, that previously had been recognized in accumulated other comprehensive income (loss).

Financial Instruments

Our financial instruments consist of cash, restricted cash, receivables, payables, interest rate swaps and debt. At December 31, 2014 and 2013, the estimated fair values of these financial instruments approximated their carrying amounts as reflected in our consolidated balance sheets. The fair value of our fixed rate debt was estimated based on quoted market yields in inactive markets or model derived calculations using market yields observed in active markets, which are Level 2 inputs. The fair value of our floating rate debt was estimated using a discounted cash flow analysis based on interest rates offered on loans with similar terms to borrowers of similar credit quality, which are Level 3 inputs. See Note 13 for additional information regarding the fair value hierarchy.

The following table summarizes the carrying amount and fair value of our debt as of December 31, 2014 and 2013 (in thousands):

	December 31, 2014				December 31, 2013
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Fixed rate debt	$	1,041,402	$	960,000	$	1,040,155	$	1,070,000
Floating rate debt	985,500		986,000		462,000		462,000
Total debt	$	2,026,902	$	1,946,000	$	1,502,155	$	1,532,000

GAAP requires that all derivative instruments (including certain derivative instruments embedded in other contracts) be recognized in the balance sheet at fair value and that changes in such fair values be recognized in earnings (loss) unless specific hedging criteria are met. Changes in the values of derivatives that meet these hedging criteria will ultimately offset related earnings effects of the hedged item pending recognition in earnings.

2. Proposed Spinoff Transaction

On November 17, 2014, we announced that our board of directors had authorized management to pursue a plan to separate our international contract operations, international aftermarket services and global fabrication businesses into an independent, publicly traded company. To effect the Spinoff, we intend to distribute, on a pro rata basis, all of the shares of Spinco common stock to our stockholders as of the record date for the Spinoff. The Spinoff is subject to market conditions, the receipt of an opinion of counsel as to the tax-free nature of the transaction, completion of a review by the U.S. Securities and Exchange Commission of a Form 10 to be filed by Spinco, the execution of separation and intercompany agreements and final approval of our board of directors. Upon completion of the Spinoff, we and Spinco will be independent, publicly traded companies with separate public ownership, boards of directors and management, and we will own and operate the remaining U.S. contract operations and U.S. aftermarket services businesses that we currently own. In addition, we will continue to hold interests in the Partnership, which include the sole general partner interest and certain limited partner interests, as well as all of the incentive distribution rights in the Partnership. Although our current goal is to complete the Spinoff in the second half of 2015, there are no assurances as to when the proposed Spinoff will be completed, if at all, or if the Spinoff will be completed based on the expected plans.

3. Discontinued Operations

In May 2009, the Venezuelan government enacted a law that reserves to the State of Venezuela certain assets and services related to hydrocarbon activities, which included substantially all of our assets and services in Venezuela. The law provides that the reserved activities are to be performed by the State, by the State-owned oil company, Petroleos de Venezuela S.A. (“PDVSA”), or its affiliates, or through mixed companies under the control of PDVSA or its affiliates. The law authorizes PDVSA or its affiliates to take possession of the assets and take over control of those operations related to the reserved activities as a step prior to the commencement of an expropriation process, and permits the national executive of Venezuela to decree the total or partial expropriation of shares or assets of companies performing those services.

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In June 2009, PDVSA commenced taking possession of our assets and operations in a number of our locations in Venezuela and by the end of the second quarter of 2009, PDVSA had assumed control over substantially all of our assets and operations in Venezuela. The expropriation of our business in Venezuela meets the criteria established for recognition as discontinued operations under GAAP. Therefore, our Venezuelan contract operations business is reflected as discontinued operations in our consolidated financial statements.

In March 2010, our Spanish subsidiary filed a request for the institution of an arbitration proceeding against Venezuela with the International Centre for Settlement of Investment Disputes (“ICSID”) related to the seized assets and investments under the agreement between Spain and Venezuela for the Reciprocal Promotion and Protection of Investments and under Venezuelan law. The arbitration hearing occurred in July 2012.

In August 2012, our Venezuelan subsidiary sold its previously nationalized assets to PDVSA Gas, S.A. (“PDVSA Gas”) for a purchase price of approximately $441.7 million. We received an initial payment of $176.7 million in cash at closing, of which we remitted $50.0 million to repay the amount we collected in January 2010 under the terms of an insurance policy we maintained for the risk of expropriation. We received installment payments, including an annual charge, totaling $72.6 million, $69.3 million and $16.8 million during the years ended December 31, 2014, 2013 and 2012, respectively. The remaining principal amount due to us of approximately $116 million as of December 31, 2014, is payable in quarterly cash installments through the third quarter of 2016. We have not recognized amounts payable to us by PDVSA Gas as a receivable and will therefore recognize quarterly payments received in the future as income from discontinued operations in the periods such payments are received. The proceeds from the sale of the assets are not subject to Venezuelan national taxes due to an exemption allowed under the Venezuelan Reserve Law applicable to expropriation settlements. In addition, and in connection with the sale, we and the Venezuelan government agreed to waive rights to assert certain claims against each other. We therefore recorded a reduction in previously unrecognized tax benefits, resulting in a $15.5 million benefit reflected in income from discontinued operations, net of tax, in our consolidated statements of operations during the year ended December 31, 2012.

In connection with the sale of these assets, we have agreed to suspend the arbitration proceeding previously filed by our Spanish subsidiary against Venezuela pending payment in full by PDVSA Gas of the purchase price for these nationalized assets.

In June 2012, we committed to a plan to sell our Canadian Operations as part of our continued emphasis on simplification and focus on our core businesses. Our Canadian Operations are reflected as discontinued operations in our consolidated financial statements. These operations were previously included in our North American contract operations and aftermarket services business segments. In connection with the planned disposition, we recorded impairment charges totaling $6.4 million and $80.2 million during the years ended December 31, 2013 and 2012, respectively. The impairment charges are reflected in income from discontinued operations, net of tax, in our consolidated statements of operations.

In July 2013, we completed the sale of our Canadian Operations to Ironline Compression Holdings LLC, an affiliate of Staple Street Capital L.L.C. We received the following consideration for the sale of the Canadian Operations (specified in either U.S. dollars (“$”) or Canadian dollars (“CDN$”)): (i) cash proceeds of $12.3 million, net of transaction expenses, (ii) a note receivable of CDN$8.1 million, (iii) contingent consideration of CDN$5.0 million based upon the Canadian Operations reaching a specified performance threshold prior to December 31, 2016 and (iv) a potential tax refund related to the Canadian Operations of CDN$1.6 million if such amounts are received by the Canadian Operations.

In December 2013, we abandoned our contract water treatment business as part of our continued emphasis on simplification and focus on our core businesses. The abandonment of this business meets the criteria established for recognition as discontinued operations under GAAP. Therefore, our contract water treatment business is reflected as discontinued operations in our consolidated financial statements. This business was previously included in our North American contract operations business segment. During the years ended December 31, 2013 and 2012, we evaluated our contract water treatment business and recorded impairment charges of $2.4 million and $46.8 million, respectively. The impairment charges are reflected in income from discontinued operations, net of tax, in our consolidated statements of operations.

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

	Years Ended December 31,
	2014									2013												2012
	Venezuela			Contract Water Treatment Business			Total			Venezuela			Canada			Contract Water Treatment Business			Total			Venezuela			Canada			Contract Water Treatment Business			Total
Revenue	$	—		$	—		$	—		$	—		$	24,458		$	3,425		$	27,883		$	—		$	50,557		$	9,356		$	59,913
Expenses and selling, general and administrative	479			509			988			883			21,810			3,352			26,045			1,275			50,521			10,088			61,884
Loss (recovery) attributable to expropriation and impairments	(66,040		)	319			(65,721		)	(66,344		)	6,376			2,355			(57,613		)	(136,947		)	80,159			46,831			(9,957		)
Other (income) loss, net	(7,637		)	(27		)	(7,664		)	(4,552		)	(30		)	1,002			(3,580		)	(219		)	(130		)	(76		)	(425		)
Provision for (benefit from) income taxes	—			(277		)	(277		)	—			166			(1,149		)	(983		)	(13,509		)	2,564			(16,620		)	(27,565		)
Income (loss) from discontinued operations, net of tax	$	73,198		$	(524	)	$	72,674		$	70,013		$	(3,864	)	$	(2,135	)	$	64,014		$	149,400		$	(82,557	)	$	(30,867	)	$	35,976

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

	December 31, 2014						December 31, 2013
	Venezuela		Contract Water Treatment Business		Total		Venezuela		Contract Water Treatment Business		Total
Cash	$	431	$	—	$	431	$	74	$	—	$	74
Accounts receivable	2		69		71		1		287		288
Inventory	—		—		—		—		50		50
Other current assets	35		—		35		16		14		30
Total current assets associated with discontinued operations	468		69		537		91		351		442
Property, plant and equipment	—		—		—		—		560		560
Deferred tax assets	—		17,469		17,469		—		20,358		20,358
Total assets associated with discontinued operations	$	468	$	17,538	$	18,006	$	91	$	21,269	$	21,360

Accounts payable	$	214	$	1	$	215	$	366	$	2	$	368
Accrued liabilities	1,124		727		1,851		1,998		867		2,865
Total current liabilities associated with discontinued operations	1,338		728		2,066		2,364		869		3,233
Other long-term liabilities	317		—		317		447		—		447
Total liabilities associated with discontinued operations	$	1,655	728		2,383		$	2,811	$	869	$	3,680

4. Business Acquisitions

August 2014 MidCon Acquisition

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We accounted for the August 2014 MidCon Acquisition using the acquisition method, which requires, among other things, assets acquired and liabilities assumed to be recorded at their fair value on the acquisition date. The excess of the consideration transferred over those fair values is recorded as goodwill. The following table summarizes the purchase price allocation based on estimated fair values of the acquired assets and liabilities as of the acquisition date (in thousands):

	Fair Value
Inventory	$	2,302
Property, plant and equipment	80,154
Goodwill	3,738
Intangible assets	48,373
Current liabilities	(372		)
Purchase price	$	134,195

Property, Plant and Equipment, Goodwill and Intangible Assets Acquired

Property, plant and equipment is primarily comprised of compression equipment that will be depreciated on a straight-line basis over an estimated average remaining useful life of 24 years.

Goodwill of $3.7 million resulting from the acquisition is attributable to the expansion of our services in the region and was assigned to our North America contract operations segment. The goodwill recorded is considered to have an indefinite life and will be reviewed annually for impairment or more frequently if indicators of impairment exist.

The amount of finite life intangible assets, and their associated average useful lives, was determined based on the period which the assets are expected to contribute directly or indirectly to our future cash flows, consisting of the following:

	Amount (In thousands)		Average Useful Life
Customer related	$	21,590	25 years
Contract based	26,783		5 years
Total acquired identifiable intangible assets	$	48,373

The results of operations attributable to the assets acquired in the August 2014 MidCon Acquisition have been included in our consolidated financial statements as part of our North America contract operations segment since the date of acquisition. Revenue attributable to the assets acquired in the August 2014 MidCon Acquisition was $9.2 million from the date of acquisition through December 31, 2014. We are unable to provide earnings attributable to the assets acquired in the August 2014 MidCon Acquisition since the date of acquisition as we do not prepare full stand-alone earnings reports for those assets.

April 2014 MidCon Acquisition

In accordance with the terms of the Purchase and Sale Agreement between the Partnership and MidCon relating to this acquisition, the Partnership directed MidCon to sell a tract of real property and the facility located thereon, a fleet of vehicles, personal property and parts inventory to our wholly-owned subsidiary EESLP, an indirect parent company of the Partnership, for $7.7 million. The assets acquired by EESLP are used in conjunction with the compression units the Partnership acquired from MidCon to provide compression services. The acquisition of the assets by the Partnership and EESLP from MidCon is referred to as the “April 2014 MidCon Acquisition.”

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We accounted for the April 2014 MidCon Acquisition using the acquisition method, which requires, among other things, assets acquired and liabilities assumed to be recorded at their fair value on the acquisition date. The following table summarizes the purchase price allocation based on estimated fair values of the acquired assets and liabilities as of the acquisition date (in thousands):

	Fair Value
Inventory	$	4,357
Property, plant and equipment	314,556
Intangible assets	42,474
Current liabilities	(827		)
Purchase price	$	360,560

Property, Plant and Equipment and Intangible Assets Acquired

Property, plant and equipment is primarily comprised of compression equipment that will be depreciated on a straight-line basis over an estimated average remaining useful life of 25 years.

	Amount (In thousands)		Average Useful Life
Customer related	$	4,701	25 years
Contract based	37,773		7 years
Total acquired identifiable intangible assets	$	42,474

The results of operations attributable to the assets acquired in the April 2014 MidCon Acquisition have been included in our consolidated financial statements as part of our North America contract operations segment since the date of acquisition. Revenue attributable to the assets acquired in the April 2014 MidCon Acquisition was $64.5 million from the date of acquisition through December 31, 2014. We are unable to provide earnings attributable to the assets acquired in the April 2014 MidCon Acquisition since the date of acquisition as we do not prepare full stand-alone earnings reports for those assets.

Unaudited Pro Forma Financial Information

The unaudited Pro forma financial information for the years ended December 31, 2014 and 2013 has been included to give effect to the additional assets acquired in the August 2014 MidCon Acquisition and the April 2014 MidCon Acquisition. The August 2014 MidCon Acquisition and the April 2014 MidCon Acquisition are presented in the unaudited pro forma financial information as though these transactions occurred as of January 1, 2013. The unaudited pro forma financial information reflects the following transactions:

As related to the August 2014 MidCon Acquisition:

· the Partnership’s acquisition in August 2014 of natural gas compression assets and identifiable intangible assets from MidCon;

· our wholly-owned subsidiary EESLP’s, an indirect parent company of the Partnership, acquisition from MidCon, as directed by the Partnership, of a tract of real property and the facility located thereon, a fleet of vehicles, personal property and parts inventory;

· the Partnership’s borrowings under its revolving credit facility to pay $130.1 million to MidCon for the August 2014 MidCon Acquisition; and

· our borrowings under our revolving credit facility to pay $4.1 million to MidCon for assets acquired by EESLP in the August 2014 MidCon Acquisition.

As related to the April 2014 MidCon Acquisition:

· the Partnership’s acquisition in April 2014 of natural gas compression assets and identifiable intangible assets from MidCon;

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· the Partnership’s issuance of 6.2 million common units to the public and approximately 126,000 general partner units to us;

· the Partnership’s issuance of $350.0 million aggregate principal amount of the Partnership 2014 Notes;

· the Partnership’s use of proceeds from the issuance of common units, general partner units and the Partnership 2014 Notes to pay $352.9 million to MidCon for the April 2014 MidCon Acquisition and to pay down $157.5 million on its revolving credit facility; and

· our borrowings under our revolving credit facility to pay $7.7 million to MidCon for assets acquired by EESLP in the April 2014 MidCon Acquisition.

The unaudited pro forma financial information below is presented for informational purposes only and is not necessarily indicative of our results of operations that would have occurred had each transaction been consummated at the beginning of the period presented, nor is it necessarily indicative of future results. The unaudited pro forma financial information below was derived by adjusting our historical financial statements.

The following table shows unaudited pro forma financial information for the years ended December 31, 2014 and 2013 (in thousands, except per share amounts):

	Years Ended December 31,
	2014		2013
Revenue	$	2,937,546	$	3,272,150
Net income attributable to Exterran common stockholders	$	100,208	$	127,028
Basic net income per common share attributable to Exterran common stockholders	$	1.49	$	1.93
Diluted net income per common share attributable to Exterran common stockholders	$	1.43	$	1.92

5. Inventory, net

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

	December 31,
	2014		2013
Parts and supplies	$	269,370	$	233,216
Work in progress	100,499		139,763
Finished goods	33,702		40,948
Inventory, net	$	403,571	$	413,927

During the years ended December 31, 2014, 2013 and 2012, we recorded $8.0 million, $4.5 million and $1.0 million, respectively, in inventory write-downs and reserves for inventory which was obsolete, excess or carried at a price above market value. As of December 31, 2014 and 2013, we had inventory reserves of $20.2 million and $14.1 million, respectively.

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6. Fabrication Contracts

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

	December 31,
	2014			2013
Costs incurred on uncompleted contracts	$	811,977		$	713,889
Estimated earnings	134,569			109,494
	946,546			823,383
Less — billings to date	(901,885		)	(794,133		)
	$	44,661		$	29,250

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

	December 31,
	2014			2013
Costs and estimated earnings in excess of billings on uncompleted contracts	$	120,938		$	117,175
Billings on uncompleted contracts in excess of costs and estimated earnings	(76,277		)	(87,925		)
	$	44,661		$	29,250

7. Property, Plant and Equipment, net

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

	December 31,
	2014			2013
Compression equipment, facilities and other fleet assets	$	4,916,576		$	4,304,019
Land and buildings	206,257			197,778
Transportation and shop equipment	297,239			288,042
Other	197,114			181,411
	5,617,186			4,971,250
Accumulated depreciation	(2,290,294		)	(2,150,978		)
Property, plant and equipment, net	$	3,326,892		$	2,820,272

Depreciation expense was $367.3 million, $312.4 million and $328.1 million during the years ended December 31, 2014, 2013 and 2012, respectively. Assets under construction of $153.3 million and $130.5 million were primarily included in compression equipment, facilities and other fleet assets at December 31, 2014 and 2013, respectively. We capitalized $0.2 million, $0.3 million and $1.2 million of interest related to construction in process during the years ended December 31, 2014, 2013 and 2012, respectively.

8. Intangible and Other Assets, net

Intangible and other assets, net, consisted of the following (in thousands):

	December 31,
	2014		2013
Deferred financing costs, net	$	23,795	$	22,805
Intangible assets, net	141,703		69,243
Deferred taxes	23,540		28,050
Other	54,334		44,738
Intangibles and other assets, net	$	243,372	$	164,836

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Intangible assets and deferred financing costs consisted of the following (in thousands):

	December 31, 2014					December 31, 2013
	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Deferred financing costs	$	41,790	$	(17,995	)	$	56,192	$	(33,387	)
Marketing related (5-20 year life)	2,968		(2,015		)	3,021		(1,873		)
Customer related (10-25 year life)	188,096		(107,777		)	163,051		(98,336		)
Technology based (20 year life)	3,843		(3,480		)	4,149		(3,604		)
Contract based (2-11 year life)	119,319		(59,251		)	55,251		(52,416		)
Intangible assets and deferred financing costs	$	356,016	$	(190,518	)	$	281,664	$	(189,616	)

Amortization of deferred financing costs totaled $6.0 million, $7.7 million and $7.2 million in 2014, 2013 and 2012, respectively, and was recorded to interest expense in our consolidated statements of operations. Amortization of intangible assets totaled $18.8 million, $15.1 million and $18.1 million during the years ended December 31, 2014, 2013 and 2012, respectively.

Estimated future intangible amortization expense is as follows (in thousands):

2015	$	22,374
2016	20,868
2017	19,240
2018	18,245
2019	15,166
Thereafter	45,810
Total	$	141,703

9. Investments in Non-Consolidated Affiliates

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

We own a 30.0% interest in WilPro Energy Services (PIGAP II) Limited and 33.3% interest in WilPro Energy Services (El Furrial) Limited which are joint ventures that provided natural gas compression and injection services in Venezuela. In May 2009, PDVSA assumed control over the assets of our Venezuelan joint ventures and transitioned the operations, including the hiring of their employees, to PDVSA. In March 2011, our Venezuelan joint ventures, together with the Netherlands’ parent company of our joint venture partners, filed a request for the institution of an arbitration proceeding against Venezuela with ICSID related to the seized assets and investments.

In March 2012, our Venezuelan joint ventures sold their assets to PDVSA Gas. We received an initial payment of $37.6 million in March 2012, and received installment payments, including an annual charge, totaling $14.7 million, $19.0 million and $14.1 million during the years ended December 31, 2014, 2013 and 2012, respectively. The remaining principal amount due to us of approximately $26 million as of December 31, 2014, is payable in quarterly cash installments through the first quarter of 2016. In January 2015, we received an installment payment, including an annual charge, of $5.0 million that was due to us in December 2014. We have not recognized amounts payable to us by PDVSA Gas as a receivable and will therefore recognize quarterly payments received in the future as equity in (income) loss of non-consolidated affiliates in our consolidated statements of operations in the periods such payments are received. In connection with the sale of our Venezuelan joint ventures’ assets, the joint ventures and our joint venture partners have agreed to suspend their previously filed arbitration proceeding against Venezuela pending payment in full by PDVSA Gas of the purchase price for the assets.

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10. Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

	December 31,
	2014		2013
Accrued salaries and other benefits	$	114,817	$	99,686
Accrued income and other taxes	68,213		77,882
Accrued warranty expense	11,203		4,644
Accrued interest	14,286		9,070
Interest rate swaps fair value	4,958		3,374
Deferred income taxes	635		1,331
Accrued start-up and commissioning expenses	3,630		8,445
Accrued other liabilities	42,017		74,517
Accrued liabilities	$	259,759	$	278,949

11. Long-Term Debt

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

	December 31,
	2014		2013
Revolving credit facility due July 2016	$	375,500	$	49,000
Partnership’s revolving credit facility due May 2018	460,000		263,000
Partnership’s term loan facility due May 2018	150,000		150,000
Partnership’s 6% senior notes due April 2021 (presented net of the unamortized discount of $4.5 million and $5.0 million, respectively)	345,528		344,955
Partnership’s 6% senior notes due October 2022 (presented net of the unamortized discount of $5.2 million as of December 31, 2014)	344,767		—
4.25% convertible senior notes due June 2014 (presented net of the unamortized discount of $11.3 million as of December 31, 2013)	—		343,661
7.25% senior notes due December 2018	350,000		350,000
Other, interest at various rates, collateralized by equipment and other assets	1,107		1,539
Long-term debt	$	2,026,902	$	1,502,155

Exterran Senior Secured Credit Facility

In July 2011, we entered into a credit agreement providing for a five-year, $1.1 billion senior secured revolving credit facility (the “Credit Facility”), which matures in July 2016 and replaced our former senior secured credit facility. In March 2012, we amended the Credit Facility to decrease the borrowing capacity under our revolving credit facility to $900.0 million. As a result, we expensed $1.3 million of unamortized deferred financing costs associated with our revolving credit facility in the first quarter of 2012, which is reflected in interest expense in our consolidated statements of operations.

As of December 31, 2014, we had $375.5 million in outstanding borrowings and $93.9 million in outstanding letters of credit under the Credit Facility. At December 31, 2014, taking into account guarantees through letters of credit, we had undrawn and available capacity of $430.6 million under the Credit Facility.

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The Partnership Revolving Credit Facility and Term Loan

In November 2010, the Partnership entered into an amendment and restatement of its senior secured credit agreement (the “Partnership Credit Agreement”) to provide for a five-year $550.0 million senior secured credit facility, consisting of a $400.0 million revolving credit facility and a $150.0 million term loan facility. The revolving borrowing capacity under this facility was increased to $550.0 million in March 2011 and to $750.0 million in March 2012. In March 2013, the Partnership Credit Agreement was amended to reduce the borrowing capacity under its revolving credit facility to $650.0 million and extend the maturity date of the term loan and revolving credit facilities to May 2018. As a result of the March 2013 amendment, we expensed $0.7 million of unamortized deferred financing costs, which is reflected in interest expense in our consolidated statements of operations. During the years ended December 31, 2013 and 2012 the Partnership incurred transaction costs of approximately $4.3 million and $0.5 million, respectively, related to the amendments to the Partnership Credit Agreement. These costs were included in intangible and other assets, net, and are being amortized over the terms of the facilities. As of December 31, 2014, the Partnership had undrawn and available capacity of $190.0 million under its revolving credit facility.

The Partnership’s revolving credit and term loan facilities bear interest at a base rate or LIBOR, at the Partnership’s option, plus an applicable margin. Depending on the Partnership’s leverage ratio, the applicable margin for the revolving and term loans varies (i) in the case of LIBOR loans, from 2.0% to 3.0% and (ii) in the case of base rate loans, from 1.0% to 2.0%. The base rate is the highest of the prime rate announced by Wells Fargo Bank, National Association, the Federal Funds Effective Rate plus 0.5% and one-month LIBOR plus 1.0%. At December 31, 2014, all amounts outstanding under these facilities were LIBOR loans and the applicable margin was 2.5%. The weighted average annual interest rate on the outstanding balance of these facilities at December 31, 2014 and 2013, excluding the effect of interest rate swaps, was 2.7% and 2.2%, respectively.

The Partnership Credit Agreement contains various covenants with which the Partnership must comply, including, but not limited to, restrictions on the use of proceeds from borrowings and limitations on the Partnership’s ability to incur additional indebtedness, engage in transactions with affiliates, merge or consolidate, sell assets, make certain investments and acquisitions, make loans, grant liens, repurchase equity and pay dividends and distributions. The Partnership Credit Agreement also contains various covenants requiring mandatory prepayments from the net cash proceeds of certain asset transfers. The Partnership must maintain various consolidated financial ratios, including a ratio of EBITDA (as defined in the Partnership Credit Agreement) to Total Interest Expense (as defined in the Partnership Credit Agreement) of not less than 2.75 to 1.0, a ratio of Total Debt (as defined in the Partnership Credit Agreement) to EBITDA of not greater than 5.25 to 1.0 (subject to a temporary increase to 5.5 to 1.0 for any quarter during which an acquisition meeting certain thresholds is completed and for the following two quarters after the acquisition closes) and a ratio of Senior Secured Debt (as defined in the Partnership Credit Agreement) to EBITDA of not greater than 4.0 to 1.0. Because the August 2014 MidCon Acquisition closed during the third quarter of 2014, the Partnership’s Total Debt to EBITDA ratio threshold was temporarily increased to 5.5 to 1.0 during the quarter ended September 30, 2014 and will continue at that level through March 31, 2015, reverting to 5.25 to 1.0 for the quarter ending June 30, 2015 and subsequent quarters. A material adverse effect with respect to the Partnership’s assets, liabilities, financial condition, business or operations that, taken as a whole, impacts the Partnership’s ability to perform its obligations under the Partnership Credit Agreement, could lead to a default under that agreement. A default under one of the Partnership’s debt agreements would trigger cross-default provisions under the Partnership’s other debt agreements, which would accelerate the Partnership’s obligation to repay its indebtedness under those agreements. As of December 31, 2014, the Partnership was in compliance with all financial covenants under the Partnership Credit Agreement.

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The Partnership 6% Senior Notes Due April 2021

In March 2013, the Partnership issued $350.0 million aggregate principal amount of 6% senior notes due April 2021 (the “Partnership 2013 Notes”). The Partnership used the net proceeds of $336.9 million, after original issuance discount and issuance costs, to repay borrowings outstanding under its revolving credit facility. The Partnership incurred $7.8 million in transaction costs related to this issuance. These costs were included in intangible and other assets, net, and are being amortized to interest expense over the term of the Partnership 2013 Notes. The Partnership 2013 Notes were issued at an original issuance discount of $5.5 million, which is being amortized using the effective interest method at an interest rate of 6.25% over their term. During the years ended December 31, 2014 and 2013, the Partnership recognized $0.5 million and $0.4 million, respectively, of interest expense related to amortization of the debt discount. In January 2014, holders of the Partnership 2013 Notes exchanged their Partnership 2013 Notes for registered notes with the same terms.

The Partnership 2013 Notes are guaranteed on a senior unsecured basis by all of the Partnership’s existing subsidiaries (other than EXLP Finance Corp., which is a co-issuer of the Partnership 2013 Notes) and certain of the Partnership’s future subsidiaries. The Partnership 2013 Notes and the guarantees, respectively, are the Partnership’s and the guarantors’ general unsecured senior obligations, rank equally in right of payment with all of the Partnership’s and the guarantors’ other senior obligations, and are effectively subordinated to all of the Partnership’s and the guarantors’ existing and future secured debt to the extent of the value of the collateral securing such indebtedness. In addition, the Partnership 2013 Notes and guarantees are effectively subordinated to all existing and future indebtedness and other liabilities of any future non-guarantor subsidiaries.

The Partnership 6% Senior Notes Due October 2022

In April 2014, the Partnership issued $350.0 million aggregate principal amount of the Partnership 2014 Notes. The Partnership received net proceeds of $337.4 million, after original issuance discount and issuance costs, from this offering, which it used to fund a portion of the April 2014 MidCon Acquisition and repay borrowings under its revolving credit facility. The Partnership incurred $6.9 million in transaction costs related to this issuance. These costs were included in intangible and other assets, net, and are being amortized to interest expense over the term of the Partnership 2014 Notes. The Partnership 2014 Notes were issued at an original issuance discount of $5.7 million, which is being amortized using the effective interest method at an interest rate of 6.25% over their term. During the year ended December 31, 2014, the Partnership recognized $0.5 million of interest expense related to amortization of the debt discount. In February 2015, holders of the Partnership 2014 Notes exchanged their Partnership 2014 Notes for registered notes with the same terms.

The Partnership 2014 Notes are guaranteed on a senior unsecured basis by all of the Partnership’s existing subsidiaries (other than EXLP Finance Corp., which is a co-issuer of the Partnership 2014 Notes) and certain of the Partnership’s future subsidiaries. The Partnership 2014 Notes and the guarantees, respectively, are the Partnership’s and the guarantors’ general unsecured senior obligations, rank equally in right of payment with all of the Partnership’s and the guarantors’ other senior obligations, and are effectively subordinated to all of the Partnership’s and the guarantors’ existing and future secured debt to the extent of the value of the collateral securing such indebtedness. In addition, the Partnership 2014 Notes and guarantees are effectively subordinated to all existing and future indebtedness and other liabilities of any future non-guarantor subsidiaries.

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7.25% Senior Notes

In November 2010, we issued $350.0 million aggregate principal amount of 7.25% senior notes due December 2018 (the “7.25% Notes”). The 7.25% Notes are guaranteed on a senior unsecured basis by all of our existing subsidiaries that guarantee indebtedness under the Credit Facility and certain of our future subsidiaries. These guarantees are full and unconditional, subject to customary release provisions including:

(1) in connection with any sale or other disposition of all or substantially all of a subsidiary guarantor’s assets (including by way of merger or consolidation) to a third party or unrestricted subsidiary, if the transaction does not violate the asset sale provisions of the indenture;

(2) in connection with any sale or other disposition of the equity interests of a subsidiary guarantor to a third party or unrestricted subsidiary, if the transaction does not violate the asset sale provisions of the indenture and the subsidiary guarantor is no longer a restricted subsidiary of Exterran;

(3) if Exterran designates any subsidiary guarantor as an unrestricted subsidiary in accordance with the terms of the indenture;

(4) upon legal defeasance, covenant defeasance or discharge in accordance with the terms of the indenture;

(5) upon the liquidation or dissolution of a subsidiary guarantor, provided no default has occurred that is continuing; or

(6) at such time as a subsidiary guarantor no longer guarantees any other indebtedness of Exterran and any other guarantor.

The Partnership and its subsidiaries have not guaranteed the 7.25% Notes. The 7.25% Notes and the guarantees, respectively, are our and the guarantors’ general unsecured senior obligations, rank equally in right of payment with all of our and the guarantors’ other senior obligations, and are effectively subordinated to all of our and the guarantors’ existing and future secured debt to the extent of the value of the collateral securing such indebtedness. In addition, the 7.25% Notes and guarantees are structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables, of our non-guarantor subsidiaries.

Effective December 1, 2014, we may redeem all or a part of the 7.25% Notes at redemption prices (expressed as percentages of principal amount) equal to 103.625% for the twelve-month period beginning on December 1, 2014, 101.813% for the twelve-month period beginning on December 1, 2015 and 100.000% for the twelve-month period beginning on December 1, 2016 and at any time thereafter, plus accrued and unpaid interest, if any, to the applicable redemption date of the 7.25% Notes.

4.25% Convertible Senior Notes

In June 2009, we issued $355.0 million aggregate principal amount of 4.25% convertible senior notes due June 2014 (the “4.25% Notes”). The 4.25% Notes, after taking into consideration dividends declared, were convertible upon the occurrence of certain conditions into shares of our common stock at a conversion rate of 43.5084 shares of our common stock per $1,000 principal amount of the convertible notes, equivalent to a conversion price of approximately $22.98 per share of common stock. In June 2014, we completed our redemption of the 4.25% Notes in exchange for $370.0 million in cash and 6.8 million shares of our common stock. We financed the cash payment to redeem the 4.25% Notes through borrowings under our revolving credit facility.

GAAP requires that the liability and equity components of certain convertible debt instruments that may be settled in cash upon conversion be separately accounted for in a manner that reflects an issuer’s nonconvertible debt borrowing rate. Upon issuance of our 4.25% Notes, $97.9 million was recorded as a debt discount and reflected in equity related to the convertible feature of these notes. The discount on the 4.25% Notes was amortized using the effective interest method through June 30, 2014. During the years ended December 31, 2014, 2013 and 2012, we recognized $6.9 million, $15.1 million and $15.1 million of interest expense related to the contractual interest coupon, respectively. During the years ended December 31, 2014, 2013 and 2012, we recognized $11.3 million, $23.0 million and $20.5 million, respectively, of interest expense related to the amortization of the debt discount. The effective interest rate on the debt component of these notes was 11.67%.

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4.75% Convertible Senior Notes

In January 2013, we redeemed for cash all $143.8 million principal amount outstanding of our 4.75% convertible senior notes (the “4.75% Notes”) at a redemption price of 100% of the principal amount thereof plus accrued but unpaid interest to, but excluding, the redemption date. Upon redemption, the 4.75% Notes were no longer deemed outstanding, interest ceased to accrue thereon and all rights of the holders of the 4.75% Notes ceased to exist. We financed the redemption of the 4.75% Notes through borrowings under our revolving credit facility. As a result of the redemption, we expensed $0.9 million of unamortized deferred financing costs in the first quarter of 2013, which is reflected in interest expense in our consolidated statements of operations.

Debt Compliance

We were in compliance with our debt covenants as of December 31, 2014. If we fail to remain in compliance with our financial covenants we would be in default under our credit agreements. In addition, if we experience a material adverse effect on our assets, liabilities, financial condition, business or operations that, taken as a whole, impact our ability to perform our obligations under our debt agreements, this could lead to a default under our debt agreements. A default under one or more of our debt agreements would trigger cross-default provisions under certain of our other debt agreements, which would accelerate our obligation to repay our indebtedness under those agreements.

Long-Term Debt Maturity Schedule

Contractual maturities of long-term debt (excluding interest to be accrued thereon) at December 31, 2014 are as follows (in thousands):

	December 31,
	2014
2015	$	—
2016	375,729
2017	234
2018	960,234
2019	234
Thereafter	700,176		(1)
Total debt	$	2,036,607	(1)

(1) These amounts include the full face value of the Partnership 2013 Notes and the Partnership 2014 Notes and have not been reduced by the aggregate unamortized discount of $9.7 million as of December 31, 2014.

12. Accounting for Derivatives

We are exposed to market risks associated with changes in interest rates. We use derivative financial instruments to minimize the risks and/or costs associated with financial activities by managing our exposure to interest rate fluctuations on a portion of our debt obligations. We do not use derivative financial instruments for trading or other speculative purposes.

Interest Rate Risk

At December 31, 2014, the Partnership was a party to interest rate swaps with a total notional value of $400.0 million, pursuant to which it makes fixed payments and receives floating payments. The Partnership entered into these swaps to offset changes in expected cash flows due to fluctuations in the associated variable interest rates. The Partnership’s interest rate swaps expire over varying dates, with interest rate swaps having a notional amount of $300.0 million expiring in May 2018 and the remaining interest rate swaps having a notional amount of $100.0 million expiring in May 2019. As of December 31, 2014, the weighted average effective fixed interest rate on the interest rate swaps was 1.6%. We have designated these interest rate swaps as cash flow hedging instruments so that any change in their fair values is recognized as a component of comprehensive income (loss) and is included in accumulated other comprehensive income (loss) to the extent the hedge is effective. As the swap terms substantially coincide with the hedged item and are expected to offset changes in expected cash flows due to fluctuations in the variable rate, we currently do not expect a significant amount of ineffectiveness on these hedges. We perform quarterly calculations to determine whether the swap agreements are still effective and to calculate any ineffectiveness. There was no ineffectiveness related to interest rate swaps during the years ended December 31, 2014, 2013 and 2012. We estimate that $5.3 million of deferred pre-tax losses attributable to interest rate swaps and included in our accumulated other comprehensive income (loss) at December 31, 2014, will be reclassified into earnings as interest expense at then current values during the next twelve months as the underlying hedged transactions occur. Cash flows from derivatives designated as hedges are classified in our consolidated statements of cash flows under the same category as the cash flows from the underlying assets, liabilities or anticipated transactions, unless the derivative contract contains a significant financing element; in this case, the cash settlements for these derivatives are classified as cash flows from financing activities in our consolidated statements of cash flows.

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In May 2013, the Partnership amended its interest rate swap agreements with a notional value of $250.0 million to adjust the fixed interest rates and extend the maturity dates to May 2018 consistent with the maturity date of the Partnership Credit Agreement. These amendments effectively created new derivative contracts and terminated the old derivative contracts. As a result, we designated the new hedge relationships under the amended terms and de-designated the original hedge relationships as of the termination date. The original hedge relationships qualified for hedge accounting and were included at their fair value in our balance sheet as a liability and accumulated other comprehensive income (loss). The fair value of the interest rate swap agreements immediately prior to the execution of the amendments was a liability of $8.8 million. The associated amount in accumulated other comprehensive income (loss) is being amortized into interest expense over the original terms of the swaps.

The following tables present the effect of derivative instruments on our consolidated financial position and results of operations (in thousands):

	December 31, 2014
	Balance Sheet Location	Fair Value Asset (Liability)
Derivatives designated as hedging instruments:
Interest rate hedges	Intangible and other assets, net	$	712
Interest rate hedges	Accrued liabilities	(4,958		)
Interest rate hedges	Other long-term liabilities	(150		)
Total derivatives		$	(4,396	)

	December 31, 2013
	Balance Sheet Location	Fair Value Asset (Liability)
Derivatives designated as hedging instruments:
Interest rate hedges	Intangible and other assets, net	$	322
Interest rate hedges	Accrued liabilities	(3,374		)
Total derivatives		$	(3,052	)

				Location of Pre-tax
				Gain (Loss)	Pre-tax Gain (Loss)
	Pre-tax Gain (Loss)			Reclassified from	Reclassified from
	Recognized in Other			Accumulated Other	Accumulated Other
	Comprehensive			Comprehensive	Comprehensive
	Income (Loss) on			Income (Loss)	Income (Loss)
	Derivatives			into Income (Loss)	into Income (Loss)
Derivatives designated as cash flow hedges:
Interest rate hedges
Year Ended December 31, 2014	$	(5,879	)	Interest expense	$	(5,657	)
Year Ended December 31, 2013	$	3,057		Interest expense	$	(6,124	)
Year Ended December 31, 2012	$	(6,066	)	Interest expense	$	(26,284	)

The counterparties to the derivative agreements are major international financial institutions. We monitor the credit quality of these financial institutions and do not expect non-performance by any counterparty, although such non-performance could have a material adverse effect on us. The Partnership has no specific collateral posted for its derivative instruments. The counterparties to the interest rate swaps are also lenders under the Partnership’s senior secured credit facility and, in that capacity, share proportionally in the collateral pledged under the related facility.

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13. Fair Value Measurements

The accounting standard for fair value measurements and disclosures establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into the following three broad categories:

· Level 1 — Quoted unadjusted prices for identical instruments in active markets to which we have access at the date of measurement.

· Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. Level 2 inputs are those in markets for which there are few transactions, the prices are not current, little public information exists or prices vary substantially over time or among brokered market makers.

· Level 3 — Model derived valuations in which one or more significant inputs or significant value drivers are unobservable. Unobservable inputs are those inputs that reflect our own assumptions regarding how market participants would price the asset or liability based on the best available information.

The following table presents our assets and liabilities measured at fair value on a recurring basis as of December 31, 2014 and 2013, with pricing levels as of the date of valuation (in thousands):

	December 31, 2014							December 31, 2013
	(Level 1)		(Level 2)			(Level 3)		(Level 1)		(Level 2)			(Level 3)
Interest rate swaps asset	$	—	$	712		$	—	$	—	$	322		$	—
Interest rate swaps liability	—		(5,108		)	—		—		(3,374		)	—

On a quarterly basis, the interest rate swaps are recorded at fair value utilizing a combination of the market approach and income approach to estimate fair value based on forward LIBOR curves.

The following table presents our assets and liabilities measured at fair value on a nonrecurring basis during the years ended December 31, 2014 and 2013, with pricing levels as of the date of valuation (in thousands):

	Year Ended December 31, 2014						Year Ended December 31, 2013
	(Level 1)		(Level 2)		(Level 3)		(Level 1)		(Level 2)		(Level 3)
Impaired long-lived assets	$	—	$	—	$	3,359	$	—	$	—	$	5,475
Inventory write-down — Restructuring	—		—		$	2,331	—		—		—
Impaired long-lived assets — Discontinued operations	—		—		—		—		—		762
Long-term receivable from the sale of our Canadian Operations	—		—		—		—		—		7,300

Our estimate of the impaired long-lived assets’ fair value was primarily based on either the expected net sale proceeds compared to other fleet units we recently sold and/or a review of other units recently offered for sale by third parties, or the estimated component value of the equipment we plan to use. We discounted the expected proceeds, net of selling and other carrying costs, using a weighted average disposal period of four years and a weighted average discount rate of 9%. Impaired long-lived assets in the table above also includes our estimate of the fair value of the impaired assets of the entity that owned our fabrication facility in the United Kingdom, which was based on the net transaction value set forth in our July 2013 agreement to sell this entity. Our estimate of the fair value of the inventory associated with the restructuring of our make-ready operations was based on expected net sale proceeds. See Note 15 for further discussion of the restructuring of our make-ready operations. Our estimate of the fair value of the impaired assets that are classified as discontinued operations was based on our expected proceeds, net of selling costs. Our estimate of the fair value of the long-term receivable from the sale of our Canadian Operations, which included a note receivable and contingent consideration, was discounted based on a settlement period of 5.5 years, a discount rate of 13% and a probability weighted factor of the achievement of the specified performance threshold.

14. Long-Lived Asset Impairment

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During the year ended December 31, 2014, we evaluated other long-lived assets for impairment and recorded long-lived asset impairments of $0.7 million on these assets.

During the year ended December 31, 2013, we evaluated other long-lived assets for impairment and recorded long-lived asset impairments of $1.8 million on these assets.

During the year ended December 31, 2012, we evaluated other long-lived assets for impairment and recorded long-lived asset impairments of $4.7 million on these assets.

15. Restructuring Charges

As discussed in Note 2, in November 2014, we announced that our board of directors had authorized management to pursue a plan to separate our international contract operations, international aftermarket services and global fabrication businesses into an independent, publicly traded company. During the year ended December 31, 2014, we incurred $2.2 million of costs associated with the planned Spinoff which were primarily related to legal and consulting fees. The separation costs have not been allocated to the segments because they consist mostly of professional service fees within the finance and legal functions. The costs incurred in conjunction with the planned Spinoff are included in restructuring charges in our consolidated statements of operations. This separation is expected to be completed in the second half of 2015. We cannot currently estimate the total restructuring costs that will be incurred as a result of the Spinoff.

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During the year ended December 31, 2014, we incurred $5.4 million of restructuring charges primarily related to termination benefits and a non-cash write-down of inventory associated with the centralization of our make-ready operations. These charges are reflected as restructuring charges in our consolidated statements of operations and are related to our North America contract operations and aftermarket services segments.

The following table summarizes the changes to our accrued liability balance related to restructuring charges for the year ended December 31, 2014 (in thousands):

	Restructuring Charges Accrual
Beginning balance at January 1, 2014	$	—
Additions for costs expensed	5,394
Less non-cash expense	(4,103		)
Reductions for payments	(1,291		)
Ending balance at December 31, 2014	$	—

In November 2011, we announced a workforce cost reduction program across all of our business segments as a first step in a broader overall profit improvement initiative. These actions were the result of a review of our cost structure aimed at identifying ways to reduce our ongoing operating costs and adjust the size of our workforce to be consistent with then current and expected activity levels. A significant portion of the workforce cost reduction program was completed in 2011, with the remainder completed in 2012. During the year ended December 31, 2012, we incurred $6.5 million of restructuring charges primarily related to termination benefits and consulting services. These charges are reflected as restructuring charges in our consolidated statements of operations.

16. Income Taxes

The components of income (loss) before income taxes were as follows (in thousands):

	Years Ended December 31,
	2014		2013		2012
United States	$	39,266	$	127,907	$	(152,518	)
Foreign	72,599		48,540		33,618
Income (loss) before income taxes	$	111,865	$	176,447	$	(118,900	)

The provision for (benefit from) income taxes consisted of the following (in thousands):

	Years Ended December 31,
	2014			2013			2012
Current tax provision (benefit):
U.S. federal	$	40		$	(310	)	$	(7,050	)
State	1,598			5,461			2,182
Foreign	56,029			55,796			35,238
Total current	57,667			60,947			30,370
Deferred tax provision (benefit):
U.S. federal	3,606			17,292			(55,327		)
State	(4,406		)	(931		)	(5,043		)
Foreign	1,790			7,411			(15,755		)
Total deferred	990			23,772			(76,125		)
Provision for (benefit from) income taxes	$	58,657		$	84,719		$	(45,755	)

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The provision for (benefit from) income taxes for 2014, 2013 and 2012 resulted in effective tax rates on continuing operations of 52.4%, 48.0% and 38.5%, respectively. The reasons for the differences between these effective tax rates and the U.S. statutory rate of 35% are as follows (in thousands):

	Years Ended December 31,
	2014			2013			2012
Income taxes at U.S. federal statutory rate of 35%	$	39,153		$	61,756		$	(41,615	)
Net state income taxes	(4,281		)	3,318			(2,836		)
Foreign taxes	31,289			28,470			14,607
Noncontrolling interest	(11,166		)	(12,685		)	(1,772		)
Foreign tax credits	(12,014		)	(14,659		)	(9,925		)
Unrecognized tax benefits	4,466			2,889			(166		)
Valuation allowances	15,109			21,486			14,649
Proceeds from sale of joint venture assets	(5,162		)	(6,650		)	(18,019		)
Other	1,263			794			(678		)
Provision for (benefit from) income taxes	$	58,657		$	84,719		$	(45,755	)

Deferred income tax balances are the direct effect of temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities at the enacted tax rates expected to be in effect when the taxes are actually paid or recovered. The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities are as follows (in thousands):

	December 31,
	2014			2013
Deferred tax assets:
Net operating loss carryforwards	$	142,401		$	169,533
Inventory	6,525			6,684
Alternative minimum tax credit carryforwards	5,685			5,615
Accrued liabilities	16,260			14,446
Foreign tax credit carryforwards	136,864			124,850
Other	38,901			40,608
Subtotal	346,636			361,736
Valuation allowances	(112,995		)	(102,418		)
Total deferred tax assets	233,641			259,318
Deferred tax liabilities:
Property, plant and equipment	(181,887		)	(209,297		)
Basis difference in the Partnership	(136,438		)	(104,079		)
Total deferred tax liabilities	(318,325		)	(313,376		)
Net deferred tax liabilities	$	(84,684	)	$	(54,058	)

Tax balances are presented in the accompanying consolidated balance sheets as follows (in thousands):

	December 31,
	2014			2013
Current deferred income tax assets	$	79,856		$	117,576
Intangibles and other assets	23,540			28,050
Accrued liabilities	(635		)	(1,331		)
Deferred income tax liabilities	(187,445		)	(198,353		)
Net deferred tax liabilities	$	(84,684	)	$	(54,058	)

At December 31, 2014, we had U.S. federal net operating loss carryforwards of approximately $93.3 million that are available to offset future taxable income. If not used, the carryforwards will begin to expire in 2023. We also had approximately $360.0 million of net operating loss carryforwards in certain foreign jurisdictions (excluding discontinued operations), approximately $205.4 million of which has no expiration date, $44.1 million of which is subject to expiration from 2015 to 2019, and the remainder of which expires in future years through 2034. Foreign tax credit carryforwards of $136.9 million and alternative minimum tax credit carryforwards of $5.7 million are available to offset future payments of U.S. federal income tax. The foreign tax credits will expire in varying amounts beginning in 2015, whereas the alternative minimum tax credits may be carried forward indefinitely under current U.S. tax law.

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Pursuant to Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, utilization of loss carryforwards and credit carryforwards, such as foreign tax credits, will be subject to annual limitations due to the ownership changes of both Hanover and Universal. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50 percentage points over a three-year period. The merger resulted in such an ownership change for both Hanover and Universal. Our ability to utilize loss carryforwards and credit carryforwards against future U.S. federal taxable income and future U.S. federal income tax may be limited. The limitations may cause us to pay U.S. federal income taxes earlier; however, we do not currently expect that any loss carryforwards or credit carryforwards will expire as a result of these limitations.

On September 13, 2013, the U.S. Treasury Department and the IRS issued final regulations that address costs incurred in acquiring, producing, or improving tangible property (the “tangible property regulations”). The tangible property regulations are generally effective for tax years beginning on or after January 1, 2014. The tangible property regulations require us to make tax accounting method changes or file election statements with our U.S. federal tax return for our tax year beginning on January 1, 2014; however, these new requirements did not have a material impact on our consolidated financial statements.

We record valuation allowances when it is more likely than not that some portion or all of our deferred tax assets will not be realized. The ultimate realization of the deferred tax assets depends on the ability to generate sufficient taxable income of the appropriate character and in the appropriate taxing jurisdictions in the future. If we do not meet our expectations with respect to taxable income, we may not realize the full benefit from our deferred tax assets which would require us to record a valuation allowance in our tax provision in future years.

In the fourth quarter of 2014, we recorded a valuation allowance of $7.2 million against our foreign tax credit carryforwards deferred tax asset. While we expect to generate sufficient foreign source taxable income in the future, we no longer expect to generate sufficient overall taxable income after fully utilizing our net operating loss carryforwards in 2015 and a portion of our foreign tax credit carryforwards will go unutilized. The foreign tax credits that expire in the year 2015 therefore are no longer more likely than not to be realized within the 10-year carryforward period.

In the fourth quarter of 2013, a $9.0 million valuation allowance was recorded against the deferred tax asset for Italy net operating loss carryforwards. Although the net operating losses have an unlimited carryforward period, cumulative losses in recent years and losses expected in the near term result in it no longer being more likely than not that we will realize the deferred tax asset in the foreseeable future. Due to annual limitations on the utilization of Italy net operating loss carryforwards, we would need to generate more than $40.0 million of taxable income in Italy to fully realize the deferred tax asset.

We have not provided U.S. federal income taxes on indefinitely (or permanently) reinvested cumulative earnings of approximately $705.4 million generated by our non-U.S. subsidiaries. Such earnings are from ongoing operations which will be used to fund international growth. We have not recorded a deferred tax liability related to these unremitted foreign earnings as it is not practicable to estimate the amount of unrecognized deferred tax liabilities. In the event of a distribution of those 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.

A reconciliation of the beginning and ending amount of unrecognized tax benefits (including discontinued operations) is shown below (in thousands):

	Years Ended December 31,
	2014			2013			2012
Beginning balance	$	11,259		$	9,597		$	14,745
Additions based on tax positions related to current year	954			365			289
Additions based on tax positions related to prior years	2,597			1,710			1,579
Reductions based on settlement with government authority	—			—			(5,753		)
Reductions based on lapse of statute of limitations	(215		)	(97		)	(1,263		)
Reductions based on tax positions related to prior years	—			(316		)	—
Ending balance	$	14,595		$	11,259		$	9,597

We had $14.6 million, $11.3 million and $9.6 million of unrecognized tax benefits at December 31, 2014, 2013 and 2012, respectively, which if recognized, would affect the effective tax rate (except for amounts that would be reflected in income from discontinued operations, net of tax). We also have recorded $3.3 million, $3.4 million and $2.4 million of potential interest expense and penalties related to unrecognized tax benefits associated with uncertain tax positions (including discontinued operations) as of December 31, 2014, 2013 and 2012, respectively. To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as reductions in income tax expense.

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We and our subsidiaries file consolidated and separate income tax returns in the U.S. federal jurisdiction and in numerous state and foreign jurisdictions. We are subject to U.S. federal income tax examinations for tax years beginning from 1997 onward and, early in the second quarter of 2011, the Internal Revenue Service (“IRS”) commenced an examination of our U.S. federal income tax returns for the tax years 2006, 2008 and 2009. In October 2012, the IRS completed its examination and issued Revenue Agent’s Reports (“RARs”) that reflected an aggregate over-assessment of $0.9 million. All of the adjustments proposed in the RARs were agreed, except for the disallowance of our telephone excise tax refund (“TETR”) claims of $0.5 million related to the 2006 tax year, for which we filed protests with the Appeals Division of the IRS. We settled with the IRS Appeals Division in December 2013 for more than 90% of our TETR claims and received refunds in the first quarter of 2014. The $0.9 million over-assessment was approved for refund by the Joint Committee on Taxation and was received in the third quarter of 2014. We do not expect any tax adjustments from later tax years that would have a material impact on our financial position or results of operations.

State income tax returns are generally subject to examination for a period of three to five years after filing the returns. However, the state impact of any U.S. federal audit adjustments and amendments remains subject to examination by various states for up to one year after formal notification to the states. As of December 31, 2014, we did not have any state audits underway that would have a material impact on our financial position or results of operations.

We are subject to examination by taxing authorities throughout the world, including major foreign jurisdictions such as Argentina, Brazil, Italy and Mexico. With few exceptions, we and our subsidiaries are no longer subject to foreign income tax examinations for tax years before 2005. Several foreign audits are currently in progress and we do not expect any tax adjustments that would have a material impact on our financial position or results of operations.

We believe it is reasonably possible that a decrease of up to $0.1 million in unrecognized tax benefits may be necessary on or before December 31, 2015 due to the settlement of audits and the expiration of statutes of limitations. However, due to the uncertain and complex application of tax regulations, it is possible that the ultimate resolution of these matters may result in liabilities which could materially differ from these estimates.

17. Common Stockholders’ Equity

The Exterran Holdings, Inc. 2007 Amended and Restated Stock Incentive Plan (the “2007 Plan”) and the Exterran Holdings, Inc. 2013 Stock Incentive Plan (the “2013 Plan”) allows us to withhold shares to use upon vesting of restricted stock at the then current market price to cover taxes required to be withheld on the vesting date. We purchased 172,232 of our shares from participants for approximately $7.0 million during 2014 to cover tax withholding. The 2007 Plan and 2013 Plan are administered by the compensation committee of our board of directors.

18. Stock-Based Compensation and Awards

The following table presents the stock-based compensation expense included in our results of operations (in thousands):

	Years Ended December 31,
	2014		2013		2012
Stock options	$	1,714	$	2,241	$	2,552
Restricted stock, restricted stock units, performance units, cash settled restricted stock units, cash settled performance units and phantom units	25,087		20,518		16,583
Employee stock purchase plan	175		142		114
Total stock-based compensation expense	$	26,976	$	22,901	$	19,249

Stock Incentive Plan

In April 2013, we adopted the 2013 Plan to provide for the granting of stock options, restricted stock, restricted stock units, stock appreciation rights, performance units, other stock-based awards and dividend equivalent rights to employees, directors and consultants of Exterran. Under the 2013 Plan, the maximum number of shares of common stock available for issuance pursuant to awards is 6,500,000. Each option and stock appreciation right granted counts as one share against the aggregate share limit, and any share subject to a stock settled award other than a stock option, stock appreciation right or other award for which the recipient pays intrinsic value counts as 1.75 shares against the aggregate share limit. Awards granted under the 2013 Plan that are subsequently cancelled, terminated or forfeited are available for future grant. Cash settled awards are not counted against the aggregate share limit. No additional grants may be made under the 2007 Plan and the Exterran Holdings, Inc. 2011 Employment Inducement Long-Term Equity Plan (the “Employment Inducement Plan”). Previous grants made under the 2007 Plan and the Employment Inducement Plan will continue to be governed by their respective plans.

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Stock Options

Stock options are granted at fair market value at the grant date, are exercisable according to the vesting schedule established by the compensation committee of our board of directors in its sole discretion and expire no later than seven years after the grant date. Stock options generally vest one-third per year on each of the first three anniversaries of the grant date.

The weighted average grant date fair value for stock options granted during the years ended December 31, 2014, 2013 and 2012 was $14.47, $10.19 and $5.74, respectively, and was estimated using the Black-Scholes option valuation model with the following weighted average assumptions:

	Years Ended December 31,
	2014		2013		2012
Expected life in years	4.5		4.5		4.5
Risk-free interest rate	1.33	%	0.66	%	0.78	%
Volatility	46.51	%	49.19	%	47.96	%
Dividend yield	1.5	%	0.0	%	0.0	%

The risk-free interest rate is based on the U.S. Treasury yield curve in effect on the grant date for a period commensurate with the estimated expected life of the stock options. Expected volatility is based on the historical volatility of our stock over the period commensurate with the expected life of the stock options and other factors. The dividend yield is based on the current annualized dividend rate in effect during the quarter in which the grant was made. At the time of the stock option grants during each of the years ended December 31, 2013 and 2012, we had not historically paid any dividends and did not expect to pay any dividends during the expected life of the stock options.

The following table presents stock option activity during the year ended December 31, 2014:

	Stock Options (in thousands)		Weighted Average Exercise Price Per Share		Weighted Average Remaining Life (in years)	Aggregate Intrinsic Value (in thousands)
Options outstanding, January 1, 2014	2,152		$	28.27
Granted	107		41.18
Exercised	(730	)	17.57
Cancelled	(34	)	73.54
Options outstanding, December 31, 2014	1,495		33.39		2.6	$	12,993
Options exercisable, December 31, 2014	1,251		33.95		2.1	11,567

Intrinsic value is the difference between the market value of our stock and the exercise price of each stock option multiplied by the number of stock options outstanding for those stock options where the market value exceeds their exercise price. The total intrinsic value of stock options exercised during 2014, 2013 and 2012 was $16.6 million, $4.4 million and $0.1 million, respectively. As of December 31, 2014, we expect $1.7 million of unrecognized compensation cost related to unvested stock options to be recognized over the weighted-average period of 1.7 years.

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 vesting period equal to the fair value of our common stock at the grant date. Our restricted stock and certain of our stock settled restricted stock units include nonforfeitable rights to receive dividends or dividend equivalents. 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 consolidated balance sheets. Restricted stock, restricted stock units, performance units, cash settled restricted stock units and cash settled performance units generally vest one-third per year on each of the first three anniversaries of the grant date.

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The following table presents restricted stock, restricted stock unit, performance unit, cash settled restricted stock unit and cash settled performance unit activity during the year ended December 31, 2014:

	Shares (in thousands)		Weighted Average Grant-Date Fair Value Per Share
Non-vested awards, January 1, 2014	1,672		$	18.97
Granted	459		41.35
Vested	(897	)	18.98
Cancelled	(64	)	25.86
Non-vested awards, December 31, 2014(1)	1,170		27.37

(1) Non-vested awards as of December 31, 2014 are comprised of 208,000 cash settled restricted stock units and cash settled performance units and 962,000 restricted shares, restricted stock units and performance units.

As of December 31, 2014, we expect $19.6 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 to be recognized over the weighted-average period of 1.7 years.

Employee Stock Purchase Plan

In August 2007, we adopted the Exterran Holdings, Inc. Employee Stock Purchase Plan (“ESPP”), which is intended to provide employees with an opportunity to participate in our long-term performance and success through the purchase of shares of common stock at a price that may be less than fair market value. The ESPP is designed to comply with Section 423 of the Internal Revenue Code of 1986, as amended. Each quarter, an eligible employee may elect to withhold a portion of his or her salary up to the lesser of $25,000 per year or 10% of his or her eligible pay to purchase shares of our common stock at a price equal to 85% to 100% of the fair market value of the stock as of the first trading day of the quarter, the last trading day of the quarter or the lower of the first trading day of the quarter and the last trading day of the quarter, as the compensation committee of our board of directors may determine. The ESPP will terminate on the date that all shares of common stock authorized for sale under the ESPP have been purchased, unless it is extended. In May 2011, we amended the ESPP to increase the maximum number of shares of common stock available for purchase under the ESPP to 1,000,000. At December 31, 2014, 188,049 shares remained available for purchase under the ESPP. Our ESPP is compensatory and, as a result, we record an expense in our consolidated statements of operations related to the ESPP. The purchase discount under the ESPP is 5% of the fair market value of our common stock on the first trading day of the quarter or the last trading day of the quarter, whichever is lower.

Directors’ Stock and Deferral Plan

On August 20, 2007, we adopted the Exterran Holdings, Inc. Directors’ Stock and Deferral Plan to provide non-employee members of the board of directors with an opportunity to elect to receive our common stock as payment for a portion or all of their retainer and meeting fees. The number of shares paid each quarter is determined by dividing the dollar amount of fees elected to be paid in common stock by the closing sales price per share of the common stock on the last day of the quarter. In addition, directors who elect to receive a portion or all of their fees in the form of common stock may also elect to defer, until a later date, the receipt of a portion or all of their fees to be received in common stock. We have reserved 100,000 shares under the Directors’ Stock and Deferral Plan, and as of December 31, 2014, 54,847 shares remain available to be issued under the plan.

Partnership Long-Term Incentive Plan

The Partnership’s Long-Term Incentive Plan (the “Partnership Plan”) was adopted, in October 2006 for employees, directors and consultants of the Partnership, us and our respective affiliates. A maximum of 1,035,378 common units, common unit options, restricted units and phantom units are available under the Partnership Plan. The Partnership Plan is administered by the board of directors of Exterran GP LLC, the general partner of the Partnership’s general partner, or a committee thereof (the “Partnership Plan Administrator”).

Phantom units are notional units that entitle the grantee to receive a common unit upon the vesting of a phantom unit or, at the discretion of the Partnership Plan Administrator, cash equal to the fair market value of a common unit. Phantom units granted under the Partnership Plan may include nonforfeitable tandem distribution equivalent rights to receive cash distributions on unvested phantom units in the quarter in which distributions are paid on common units. Phantom units generally vest one-third per year on each of the first three anniversaries of the grant date.

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Partnership Phantom Units

The following table presents phantom unit activity during the year ended December 31, 2014:

	Phantom Units (in thousands)		Weighted Average Grant-Date Fair Value per Unit
Phantom units outstanding, January 1, 2014	85		$	23.72
Granted	55		30.50
Vested	(48	)	24.47
Phantom units outstanding, December 31, 2014	92		27.38

As of December 31, 2014, we expect $1.6 million of unrecognized compensation cost related to unvested phantom units to be recognized over the weighted-average period of 1.8 years.

19. Cash Dividends

The following table summarizes our dividends per common share:

Declaration Date	Payment Date	Dividends per Common Share		Total Dividends
February 25, 2014	March 28, 2014	$	0.15	$	10.0 million
April 29, 2014	May 16, 2014	0.15		10.0 million
July 31, 2014	August 18, 2014	0.15		10.0 million
October 30, 2014	November 17, 2014	0.15		10.3 million

20. Retirement Benefit Plan

Our 401(k) retirement plan provides for optional employee contributions up to the Internal Revenue Service limit and discretionary employer matching contributions. We make discretionary matching contributions to each participant’s account at a rate of (i) 100% of each participant’s first 1% of contributions plus (ii) 50% of each participant’s contributions up to the next 5% of eligible compensation. We recorded matching contributions of $9.7 million, $8.2 million and $7.5 million during 2014, 2013 and 2012, respectively.

21. Transactions Related to the Partnership

In April 2014, the Partnership sold, pursuant to a public underwritten offering, 6,210,000 common units, including 810,000 common units pursuant to an over-allotment option. The Partnership received net proceeds of $169.5 million, after deducting underwriting discounts, commissions and offering expenses, which it used to fund a portion of the April 2014 MidCon Acquisition. In connection with this sale and as permitted under its partnership agreement, the Partnership issued and sold to Exterran General Partner, L.P. (“GP”), our wholly-owned subsidiary and the Partnership’s general partner, in exchange for $3.6 million, approximately 126,000 general partner units to maintain GP’s approximate 2.0% general partner interest in the Partnership. As a result, adjustments were made to noncontrolling interest, accumulated other comprehensive income (loss), deferred income taxes and additional paid-in capital to reflect our new ownership percentage in the Partnership.

In March 2013, we sold to the Partnership contract operations customer service agreements with 50 customers and a fleet of 363 compressor units used to provide compression services under those agreements, comprising approximately 256,000 horsepower, or 8% (by then available horsepower) of our and the Partnership’s combined U.S. contract operations business. The assets sold also included 204 compressor units, comprising approximately 99,000 horsepower, previously leased to the Partnership and contracts relating to approximately 6,000 horsepower of compressor units the Partnership already owned and previously leased to us. Total consideration for the transaction was approximately $174.0 million, excluding transaction costs, and consisted of the Partnership’s issuance to us of approximately 7.1 million common units and approximately 145,000 general partner units. As a result, adjustments were made to noncontrolling interest, accumulated other comprehensive income (loss), deferred income taxes and additional paid-in capital to reflect our new ownership percentage in the Partnership.

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In March 2012, we sold to the Partnership contract operations customer service agreements with 39 customers and a fleet of 406 compressor units used to provide compression services under those agreements, comprising approximately 188,000 horsepower, or 5% (by then available horsepower) of our and the Partnership’s combined U.S. contract operations business. The assets sold also included 139 compressor units, comprising approximately 75,000 horsepower, previously leased to the Partnership, and a natural gas processing plant with a capacity of 10 million cubic feet per day used to provide processing services. Total consideration for the transaction was approximately $182.8 million, excluding transaction costs, and consisted of the Partnership’s payment of $77.4 million in cash and assumption of $105.4 million of our long-term debt.

In March 2012, the Partnership sold, pursuant to a public underwritten offering, 4,965,000 common units representing limited partner interests in the Partnership, including 465,000 common units sold pursuant to an over-allotment option. The Partnership used the $114.5 million of net proceeds from this offering to repay borrowings outstanding under its revolving credit facility. In connection with this sale and as permitted under the Partnership’s partnership agreement, the Partnership issued and sold to GP, our wholly-owned subsidiary and the Partnership’s general partner, approximately 101,000 general partner units to maintain GP’s approximate 2.0% general partner interest in the Partnership. As a result, adjustments were made to noncontrolling interest, accumulated other comprehensive income (loss), deferred income taxes and additional paid-in capital to reflect our new ownership percentage in the Partnership.

The following table presents the effects of changes from net income attributable to Exterran stockholders and changes in our equity interest of the Partnership on our equity attributable to Exterran stockholders (in thousands):

	Years Ended December 31,
	2014		2013		2012
Net income (loss) attributable to Exterran stockholders	$	98,166	$	123,164	$	(39,486	)
Increase in Exterran stockholders’ additional paid in capital for change in ownership of Partnership units	74,521		31,573		49,202
Change from net income (loss) attributable to Exterran stockholders and transfers to/from the noncontrolling interest	$	172,687	$	154,737	$	9,716

22. Commitments and Contingencies

Rent expense for 2014, 2013 and 2012 was approximately $25.2 million, $25.0 million and $22.0 million, respectively. Commitments for future minimum rental payments with terms in excess of one year at December 31, 2014 are as follows (in thousands):

	December 31,
	2014
2015	$	14,479
2016	11,040
2017	9,531
2018	5,544
2019	3,434
Thereafter	18,641
Total	$	62,669

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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 December 31, 2014
Performance guarantees through letters of credit(1)	2015-2019	$	142,785
Standby letters of credit	2015	12,910
Commercial letters of credit	2015	9,192
Bid bonds and performance bonds(1)	2015-2023	86,378
Maximum potential undiscounted payments		$	251,265

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

As part of an acquisition in 2001, we may be required to make contingent payments of up to $46 million to the seller, depending on our realization of certain U.S. federal tax benefits through the year 2015. To date, we have not realized any such benefits that would require a payment and we do not anticipate realizing any such benefits that would require a payment before the year 2016.

See Note 3 and Note 9 for a discussion of our gain contingencies related to assets that were expropriated in Venezuela.

In addition to U.S. federal, state, 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 December 31, 2014 and 2013, we had accrued $9.2 million and $16.1 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 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 consolidated 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 and commercial automobile liability and other coverage we believe is appropriate. In addition, we have a minimal amount of insurance on our offshore assets. 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.

Litigation and Claims

During 2013 and 2014, we were party to three Heavy Equipment Statutes cases tried and completed in Texas state district courts. In each case the court held that the revised Heavy Equipment Statutes apply to natural gas compressors. However, in each case the court further held that the revised Heavy Equipment Statutes are unconstitutional as applied to natural gas compressors, which is favorable to the county appraisal districts. We continue to believe that the revised statutes are constitutional as applied to natural gas compressors and have appealed the courts’ decisions in our cases. All three of these cases have been appealed. For two of these appeals, oral arguments were made before the Eighth Court of Appeals in El Paso, Texas on October 9, 2014. No decision has been issued. The third appeal was argued before the Fourteenth Court of Appeals in Houston, Texas on February 12, 2015. No decision has been issued. In a fourth state district court case, both parties’ respective motions for summary judgment are pending and we have yet to receive the court’s decision. In a fifth state district court case, the court denied both parties’ respective motions for summary judgment concerning the 2012 tax year, consolidated the 2012 tax year case with a 2013 tax year case, and set a trial date for the consolidated case of August 10-11, 2015.

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In the ordinary course of business, we are also involved in various other 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 other actions will not have a material adverse effect on our consolidated 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 consolidated financial position, results of operations or cash flows.

23. Recent Accounting Developments

In May 2014, the Financial Accounting Standards Board (“FASB”) issued an update to the authoritative guidance related to revenue recognition. The update outlines a single comprehensive model for companies to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange 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. The update will be effective for reporting periods beginning after December 15, 2016. Early adoption is not permitted. We are currently evaluating the potential impact of the update on our financial statements.

In April 2014, the FASB issued an update to the authoritative guidance related to reporting requirements for discontinued operations. The update requires a disposal of a component or a group of components of an entity to meet a higher threshold in order to be reported as a discontinued operation in an entity’s financial statements. Discontinued operations reporting will be limited to disposal transactions that represent a strategic shift that has or will have a major effect on an entity’s operations and financial results when the component meets the criteria to be classified as held-for-sale or is disposed. The amended guidance also expands the disclosures for discontinued operations and requires new disclosures related to individually material disposals that do not meet the definition of a discontinued operation. The amendments in the update are effective prospectively for reporting periods beginning on or after December 15, 2014. We elected early application as permitted by the guidance. The adoption of this update did not have a material impact on our consolidated financial statements.

In July 2013, the FASB issued an update to the authoritative guidance related to presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The update clarifies that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed. In situations where a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction or the jurisdiction’s tax law does not require, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The amendments in the update are effective for reporting periods beginning after December 15, 2013. The adoption of this update did not have a material impact on our consolidated financial statements.

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24. Reportable Segments and Geographic Information

We manage our business segments primarily based upon the type of product or service provided. We have four reportable segments: North America contract operations, international contract operations, aftermarket services and fabrication. The North America and international contract operations segments primarily provide natural gas compression services, production and processing equipment services and maintenance services to meet specific customer requirements on Exterran-owned assets. The aftermarket services segment provides a full range of services to support the surface production, compression and processing needs of customers, from parts sales and normal maintenance services to full operation of a customer’s owned assets. The fabrication segment provides (i) design, engineering, fabrication, installation and sale of natural gas compression units and accessories and equipment used in the production, treating and processing of crude oil and natural gas and (ii) engineering, procurement and fabrication services related to the manufacturing of critical process equipment for refinery and petrochemical facilities, the fabrication of tank farms and evaporators and brine heaters for desalination plants.

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

During each of the years ended December 31, 2014, 2013 and 2012, no individual customer accounted for more than 10% of our consolidated revenues.

The following table presents sales and other financial information by reportable segment during the years ended December 31, 2014, 2013 and 2012 (in thousands):

	North
	America		International						Reportable
	Contract		Contract		Aftermarket				Segments
	Operations		Operations		Services		Fabrication		Total		Other(1)		Total(2)
2014:
Revenue from external customers	$	729,103	$	493,853	$	392,774	$	1,284,008	$	2,899,738	$	—	$	2,899,738
Gross margin(3)	412,961		308,445		84,342		225,546		1,031,294		—		1,031,294
Total assets	2,446,633		811,831		99,685		432,726		3,790,875		1,048,266		4,839,141
Capital expenditures	371,734		130,248		1,920		22,668		526,570		15,125		541,695

2013:
Revenue from external customers	$	627,844	$	476,016	$	395,600	$	1,660,944	$	3,160,404	$	—	$	3,160,404
Gross margin(3)	345,355		279,072		86,182		252,397		963,006		—		963,006
Total assets	1,907,097		820,686		101,667		456,536		3,285,986		919,811		4,205,797
Capital expenditures	275,408		66,116		2,082		27,032		370,638		21,087		391,725

2012:
Revenue from external customers	$	596,011	$	463,957	$	385,861	$	1,348,417	$	2,794,246	$	—	$	2,794,246
Gross margin(3)	311,308		279,349		82,271		156,480		829,408		—		829,408
Total assets	1,841,755		918,187		98,104		469,520		3,327,566		876,934		4,204,500
Capital expenditures	247,021		138,694		3,304		23,518		412,537		16,194		428,731

(1) Includes corporate related items.

(2) Totals exclude assets, capital expenditures and the operating results of discontinued operations.

(3) Gross margin, a non-GAAP financial measure, is reconciled, in total, to net income (loss), its most directly comparable measure calculated and presented in accordance with U.S. GAAP, below.

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The following table presents assets from reportable segments to total assets as of December 31, 2014 and 2013 (in thousands):

	December 31,
	2014		2013
Assets from reportable segments	$	3,790,875	$	3,285,986
Other assets(1)	1,048,266		919,811
Assets associated with discontinued operations	18,006		21,360
Consolidated assets	$	4,857,147	$	4,227,157

(1) Includes corporate related items.

The following table presents geographic data as of and during the years ended December 31, 2014, 2013 and 2012 (in thousands):

	U.S.		International		Consolidated
2014:
Revenues from external customers	$	1,778,808	$	1,120,930	$	2,899,738
Property, plant and equipment, net	$	2,471,674	$	855,218	$	3,326,892

2013:
Revenues from external customers	$	1,911,425	$	1,248,979	$	3,160,404
Property, plant and equipment, net	$	1,945,991	$	874,281	$	2,820,272

2012:
Revenues from external customers	$	1,810,713	$	983,533	$	2,794,246
Property, plant and equipment, net	$	1,879,268	$	959,451	$	2,838,719

The following table reconciles net income (loss) to gross margin (in thousands):

	Years Ended December 31,
	2014			2013			2012
Net income (loss)	$	125,882		$	155,742		$	(37,169	)
Selling, general and administrative	377,754			358,173			375,647
Depreciation and amortization	386,071			327,505			346,177
Long-lived asset impairment	46,679			28,637			136,614
Restructuring charges	7,553			—			6,471
Interest expense	114,178			115,745			134,376
Equity in income of non-consolidated affiliates	(14,553		)	(19,000		)	(51,483		)
Other (income) expense, net	1,747			(24,501		)	506
Provision for (benefit from) income taxes	58,657			84,719			(45,755		)
Income from discontinued operations, net of tax	(72,674		)	(64,014		)	(35,976		)
Gross margin	$	1,031,294		$	963,006		$	829,408

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25. Supplemental Guarantor Financial Information

Exterran Holdings, Inc. (“Parent”) is the issuer of our 7.25% senior notes with an aggregate principal amount of $350.0 million due December 2018 (the “7.25% Notes”). EESLP, EES Leasing LLC, EXH GP LP LLC and EXH MLP LP LLC (each a 100% owned subsidiary; together, the “Guarantor Subsidiaries”), have agreed to fully and unconditionally (subject to customary release provisions) on a joint and several senior unsecured basis guarantee Parent’s obligations relating to the 7.25% Notes. See Note 11 for further discussion of guarantee release provisions. As a result of these guarantees, we are presenting the following condensed consolidating financial information pursuant to Rule 3-10 of Regulation S-X. These schedules are presented using the equity method of accounting for all periods presented. 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. The Other Subsidiaries column includes financial information for those subsidiaries that do not guarantee the 7.25% Notes.

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Condensed Consolidating Balance Sheet

December 31, 2014

(In thousands)

	Parent		Guarantor Subsidiaries		Other Subsidiaries		Eliminations			Consolidation
ASSETS

Current assets	$	4,846	$	649,719	$	610,574	$	—		$	1,265,139
Current assets associated with discontinued operations	—		—		537		—			537
Total current assets	4,846		649,719		611,111		—			1,265,676
Property, plant and equipment, net	—		1,124,786		2,202,106		—			3,326,892
Investments in affiliates	1,786,572		1,744,614		—		(3,531,186		)	—
Goodwill	—		—		3,738		—			3,738
Intangible and other assets, net	5,966		33,292		204,114		—			243,372
Intercompany receivables	727,896		12,023		529,274		(1,269,193		)	—
Long-term assets associated with discontinued operations	—		—		17,469		—			17,469
Total long-term assets	2,520,434		2,914,715		2,956,701		(4,800,379		)	3,591,471
Total assets	$	2,525,280	$	3,564,434	$	3,567,812	$	(4,800,379	)	$	4,857,147

LIABILITIES AND EQUITY

Current liabilities	$	2,520	$	353,851	$	252,281	$	—		$	608,652
Current liabilities associated with discontinued operations	—		—		2,066		—			2,066
Total current liabilities	2,520		353,851		254,347		—			610,718
Long-term debt	725,500		1,107		1,300,295		—			2,026,902
Intercompany payables	—		1,257,170		12,023		(1,269,193		)	—
Other long-term liabilities	—		165,734		100,431		—			266,165
Long-term liabilities associated with discontinued operations	—		—		317		—			317
Total liabilities	728,020		1,777,862		1,667,413		(1,269,193		)	2,904,102
Total equity	1,797,260		1,786,572		1,900,399		(3,531,186		)	1,953,045
Total liabilities and equity	$	2,525,280	$	3,564,434	$	3,567,812	$	(4,800,379	)	$	4,857,147

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Condensed Consolidating Balance Sheet

December 31, 2013

(In thousands)

	Parent		Guarantor Subsidiaries		Other Subsidiaries		Eliminations			Consolidation
ASSETS

Current assets	$	141	$	710,801	$	509,747	$	—		$	1,220,689
Current assets associated with discontinued operations	—		—		442		—			442
Total current assets	141		710,801		510,189		—			1,221,131
Property, plant and equipment, net	—		1,143,111		1,677,161		—			2,820,272
Investments in affiliates	1,851,131		1,680,215		—		(3,531,346		)	—
Intangible and other assets, net	20,060		29,555		126,451		(11,230		)	164,836
Intercompany receivables	536,382		14,818		633,678		(1,184,878		)	—
Long-term assets associated with discontinued operations	—		—		20,918		—			20,918
Total long-term assets	2,407,573		2,867,699		2,458,208		(4,727,454		)	3,006,026
Total assets	$	2,407,714	$	3,578,500	$	2,968,397	$	(4,727,454	)	$	4,227,157

LIABILITIES AND EQUITY

Current liabilities	$	2,963	$	369,829	$	264,681	$	—		$	637,473
Current liabilities associated with discontinued operations	—		—		3,233		—			3,233
Total current liabilities	2,963		369,829		267,914		—			640,706
Long-term debt	742,661		1,539		757,955		—			1,502,155
Intercompany payables	—		1,170,060		14,818		(1,184,878		)	—
Other long-term liabilities	—		185,941		95,710		(11,230		)	270,421
Long-term liabilities associated with discontinued operations	—		—		447		—			447
Total liabilities	745,624		1,727,369		1,136,844		(1,196,108		)	2,413,729
Total equity	1,662,090		1,851,131		1,831,553		(3,531,346		)	1,813,428
Total liabilities and equity	$	2,407,714	$	3,578,500	$	2,968,397	$	(4,727,454	)	$	4,227,157

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Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)

Year Ended December 31, 2014

(In thousands)

	Parent			Guarantor Subsidiaries			Other Subsidiaries			Eliminations			Consolidation
Revenues	$	—		$	1,468,314		$	1,652,704		$	(221,280	)	$	2,899,738
Costs of sales (excluding depreciation and amortization expense)	—			1,090,198			999,526			(221,280		)	1,868,444
Selling, general and administrative	241			174,950			202,563			—			377,754
Depreciation and amortization	—			140,071			246,000			—			386,071
Long-lived asset impairment	—			30,018			16,661			—			46,679
Restructuring charges	—			6,851			702			—			7,553
Interest expense	54,617			2,016			57,545			—			114,178
Intercompany charges, net	(35,998		)	39,874			(3,876		)	—			—
Equity in income of affiliates	(110,465		)	(145,917		)	(14,553		)	256,382			(14,553		)
Other (income) expense, net	40			3,364			(1,657		)	—			1,747
Income before income taxes	91,565			126,889			149,793			(256,382		)	111,865
Provision for (benefit from) income taxes	(6,601		)	16,424			48,834			—			58,657
Income from continuing operations	98,166			110,465			100,959			(256,382		)	53,208
Income from discontinued operations, net of tax	—			—			72,674			—			72,674
Net income	98,166			110,465			173,633			(256,382		)	125,882
Less: Net income attributable to the noncontrolling interest	—			—			(27,716		)	—			(27,716		)
Net income attributable to Exterran stockholders	98,166			110,465			145,917			(256,382		)	98,166
Other comprehensive loss attributable to Exterran stockholders	(14,213		)	(15,599		)	(14,941		)	30,540			(14,213		)
Comprehensive income attributable to Exterran stockholders	$	83,953		$	94,866		$	130,976		$	(225,842	)	$	83,953

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Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)

Year Ended December 31, 2013

(In thousands)

	Parent			Guarantor Subsidiaries			Other Subsidiaries			Eliminations			Consolidation
Revenues	$	—		$	1,890,064		$	1,555,835		$	(285,495	)	$	3,160,404
Costs of sales (excluding depreciation and amortization expense)	—			1,453,000			1,029,893			(285,495		)	2,197,398
Selling, general and administrative	252			176,210			181,711			—			358,173
Depreciation and amortization	—			130,478			197,027			—			327,505
Long-lived asset impairment	—			11,134			17,503			—			28,637
Interest expense	76,160			1,837			37,748			—			115,745
Intercompany charges, net	(35,126		)	32,232			2,894			—			—
Equity in income of affiliates	(150,351		)	(96,473		)	(19,000		)	246,824			(19,000		)
Other (income) expense, net	39			(17,635		)	(6,905		)	—			(24,501		)
Income before income taxes	109,026			199,281			114,964			(246,824		)	176,447
Provision for (benefit from) income taxes	(14,138		)	48,930			49,927			—			84,719
Income from continuing operations	123,164			150,351			65,037			(246,824		)	91,728
Income from discontinued operations, net of tax	—			—			64,014			—			64,014
Net income	123,164			150,351			129,051			(246,824		)	155,742
Less: Net income attributable to the noncontrolling interest	—			—			(32,578		)	—			(32,578		)
Net income attributable to Exterran stockholders	123,164			150,351			96,473			(246,824		)	123,164
Other comprehensive income attributable to Exterran stockholders	6,169			5,966			6,693			(12,659		)	6,169
Comprehensive income attributable to Exterran stockholders	$	129,333		$	156,317		$	103,166		$	(259,483	)	$	129,333

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Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)

Year Ended December 31, 2012

(In thousands)

	Parent			Guarantor Subsidiaries			Other Subsidiaries			Eliminations			Consolidation
Revenues	$	—		$	1,766,798		$	1,219,072		$	(191,624	)	$	2,794,246
Costs of sales (excluding depreciation and amortization expense)	—			1,393,194			763,268			(191,624		)	1,964,838
Selling, general and administrative	788			203,067			171,792			—			375,647
Depreciation and amortization	—			136,236			209,941			—			346,177
Long-lived asset impairment	—			100,617			35,997			—			136,614
Restructuring charges	—			4,019			2,452			—			6,471
Interest expense	99,236			9,551			25,589			—			134,376
Intercompany charges, net	(57,651		)	49,753			7,898			—			—
Equity in (income) loss of affiliates	11,744			(49,638		)	(51,483		)	37,894			(51,483		)
Other (income) expense, net	40			(9,848		)	10,314			—			506
Income (loss) before income taxes	(54,157		)	(70,153		)	43,304			(37,894		)	(118,900		)
Provision for (benefit from) income taxes	(14,671		)	(58,409		)	27,325			—			(45,755		)
Income (loss) from continuing operations	(39,486		)	(11,744		)	15,979			(37,894		)	(73,145		)
Income from discontinued operations, net of tax	—			—			35,976			—			35,976
Net income (loss)	(39,486		)	(11,744		)	51,955			(37,894		)	(37,169		)
Less: Net income attributable to the noncontrolling interest	—			—			(2,317		)	—			(2,317		)
Net income (loss) attributable to Exterran stockholders	(39,486		)	(11,744		)	49,638			(37,894		)	(39,486		)
Other comprehensive income attributable to Exterran stockholders	17,850			10,292			3,888			(14,180		)	17,850
Comprehensive income (loss) attributable to Exterran stockholders	$	(21,636	)	$	(1,452	)	$	53,526		$	(52,074	)	$	(21,636	)

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Condensed Consolidating Statement of Cash Flows

Year Ended December 31, 2014

(In thousands)

	Parent			Guarantor Subsidiaries			Other Subsidiaries			Eliminations			Consolidation
Cash flows from operating activities:
Net cash provided by (used in) continuing operations	$	(9,613	)	$	146,923		$	236,470		$	—		$	373,780
Net cash provided by discontinued operations	—			—			5,589			—			5,589
Net cash provided by (used in) operating activities	(9,613		)	146,923			242,059			—			379,369
Cash flows from investing activities:
Capital expenditures	—			(152,847		)	(388,848		)	—			(541,695		)
Proceeds from sale of property, plant and equipment	—			9,767			14,606			—			24,373
Proceeds from sale of businesses	—			—			1,516			—			1,516
Payment for business acquisitions	—			(11,743		)	(483,012		)	—			(494,755		)
Capital distributions received from consolidated subsidiaries	—			55,489			—			(55,489		)	—
Increase in restricted cash	—			—			(221		)	—			(221		)
Return of investments in non-consolidated affiliates	—			—			14,750			—			14,750
Investment in consolidated subsidiaries	—			(17,423		)	—			17,423			—
Cash invested in non-consolidated affiliates	—			—			(197		)	—			(197		)
Return of investments in consolidated subsidiaries	262,754			—			—			(262,754		)	—
Net cash provided by (used in) continuing operations	262,754			(116,757		)	(841,406		)	(300,820		)	(996,229		)
Net cash provided by discontinued operations	—			—			66,378			—			66,378
Net cash provided by (used in) investing activities	262,754			(116,757		)	(775,028		)	(300,820		)	(929,851		)
Cash flows from financing activities:
Proceeds from borrowings of long-term debt	1,312,501			—			927,798			—			2,240,299
Repayments of long-term debt	(1,341,000		)	—			(386,500		)	—			(1,727,500		)
Payments for debt issuance costs	—			—			(6,986		)	—			(6,986		)
Payments above face value for redemption of convertible debt	(15,007		)	—			—			—			(15,007		)
Payments for settlement of interest rate swaps that include financing elements	—			—			(3,793		)	—			(3,793		)
Net proceeds from the sale of Partnership units	—			—			169,471			—			169,471
Proceeds from stock options exercised	12,819			—			—			—			12,819
Proceeds from stock issued pursuant to our employee stock purchase plan	1,812			—			—			—			1,812
Purchases of treasury stock	(7,044		)	—			—			—			(7,044		)
Dividends to Exterran stockholders	(40,319		)	—			—			—			(40,319		)
Stock-based compensation excess tax benefit	9,585			—			—			—			9,585
Distributions to noncontrolling partners in the Partnership	—			—			(130,345		)	55,489			(74,856		)
Net proceeds from sale of general partner units	—			—			3,573			(3,573		)	—
Capital distributions to affiliates	—			(262,754		)	—			262,754			—
Capital contributions received from parent	—			—			13,850			(13,850		)	—
Borrowings (repayments) between consolidated subsidiaries, net	(186,457		)	231,689			(45,232		)	—			—
Net cash provided by (used in) financing activities	(253,110		)	(31,065		)	541,836			300,820			558,481
Effect of exchange rate changes on cash and cash equivalents	—			—			(3,925		)	—			(3,925		)
Net increase (decrease) in cash and cash equivalents	31			(899		)	4,942			—			4,074
Cash and cash equivalents at beginning of period	11			1,554			34,100			—			35,665
Cash and cash equivalents at end of period	42			$	655		$	39,042		$	—		$	39,739

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Condensed Consolidating Statement of Cash Flows

Year Ended December 31, 2013

(In thousands)

	Parent			Guarantor Subsidiaries			Other Subsidiaries			Eliminations			Consolidation
Cash flows from operating activities:
Net cash provided by (used in) continuing operations	$	(5,873	)	$	189,563		$	164,978		$	—		$	348,668
Net cash provided by discontinued operations	—			—			7,036			—			7,036
Net cash provided by (used in) operating activities	(5,873		)	189,563			172,014			—			355,704
Cash flows from investing activities:
Capital expenditures	—			(167,632		)	(231,431		)	7,338			(391,725		)
Proceeds from sale of property, plant and equipment	—			28,274			80,375			(7,338		)	101,311
Capital distributions received from consolidated subsidiaries	—			45,237			—			(45,237		)	—
Decrease in restricted cash	—			—			14			—			14
Return of investments in non-consolidated affiliates	—			—			19,000			—			19,000
Investment in consolidated subsidiaries	—			(25,180		)	—			25,180			—
Net cash used in continuing operations	—			(119,301		)	(132,042		)	(20,057		)	(271,400		)
Net cash provided by discontinued operations	—			—			74,949			—			74,949
Net cash used in investing activities	—			(119,301		)	(57,093		)	(20,057		)	(196,451		)
Cash flows from financing activities:
Proceeds from borrowings of long-term debt	1,102,500			—			1,005,537			—			2,108,037
Repayments of long-term debt	(1,267,250		)	—			(928,500		)	—			(2,195,750		)
Payments for debt issuance costs	—			—			(12,147		)	—			(12,147		)
Payments for settlement of interest rate swaps that include financing elements	—			—			(2,207		)	—			(2,207		)
Proceeds from stock options exercised	8,321			—			—			—			8,321
Proceeds from stock issued pursuant to our employee stock purchase plan	1,632			—			—			—			1,632
Purchases of treasury stock	(4,539		)	—			—			—			(4,539		)
Stock-based compensation excess tax benefit	1,910			—			—			—			1,910
Distributions to noncontrolling partners in the Partnership	—			—			(107,196		)	45,237			(61,959		)
Capital contributions received from parent	—			—			25,180			(25,180		)	—
Borrowings (repayments) between consolidated subsidiaries, net	163,286			(79,169		)	(84,117		)	—			—
Net cash provided by (used in) financing activities	5,860			(79,169		)	(103,450		)	20,057			(156,702		)
Effect of exchange rate changes on cash and cash equivalents	—			—			(1,487		)	—			(1,487		)
Net increase (decrease) in cash and cash equivalents	(13		)	(8,907		)	9,984			—			1,064
Cash and cash equivalents at beginning of period	24			10,461			24,116			—			34,601
Cash and cash equivalents at end of period	$	11		$	1,554		$	34,100		$	—		$	35,665

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Condensed Consolidating Statement of Cash Flows

Year Ended December 31, 2012

(In thousands)

	Parent			Guarantor Subsidiaries			Other Subsidiaries			Eliminations			Consolidation
Cash flows from operating activities:
Net cash provided by (used in) continuing operations	$	(6,877	)	$	127,305		$	262,834		$	—		$	383,262
Net cash provided by discontinued operations	—			—			6,663			—			6,663
Net cash provided by (used in) operating activities	(6,877		)	127,305			269,497			—			389,925
Cash flows from investing activities:
Capital expenditures	—			(205,356		)	(223,375		)	—			(428,731		)
Contract operations acquisition	—			77,415			(77,415		)	—			—
Proceeds from sale of property, plant and equipment	—			14,511			21,478			—			35,989
Capital distributions received from consolidated subsidiaries	—			30,782			—			(30,782		)	—
Increase in restricted cash	—			—			(162		)	—			(162		)
Return of investments in non-consolidated affiliates	—			—			51,707			—			51,707
Cash invested in non-consolidated affiliates	—			—			(224		)	—			(224		)
Investment in consolidated subsidiaries	—			(27,184		)	—			27,184			—
Net cash used in continuing operations	—			(109,832		)	(227,991		)	(3,598		)	(341,421		)
Net cash provided by discontinued operations	—			—			135,970			—			135,970
Net cash used in investing activities	—			(109,832		)	(92,021		)	(3,598		)	(205,451		)
Cash flows from financing activities:
Proceeds from borrowings of long-term debt	1,164,000			—			714,000			—			1,878,000
Repayments of long-term debt	(1,422,150		)	—			(684,489		)	—			(2,106,639		)
Payments for debt issuance costs	—			—			(1,011		)	—			(1,011		)
Net proceeds from the sale of Partnership units	—			—			114,530			—			114,530
Proceeds from stock options exercised	562			—			—			—			562
Proceeds from stock issued pursuant to our employee stock purchase plan	1,635			—			—			—			1,635
Purchases of treasury stock	(2,422		)	—			—			—			(2,422		)
Stock-based compensation excess tax benefit	1,139			—			—			—			1,139
Distributions to noncontrolling partners in the Partnership	—			—			(87,866		)	30,782			(57,084		)
Net proceeds from sale of general partner units	—			—			2,426			(2,426		)	—
Capital contributions received from parent	—			—			24,758			(24,758		)	—
Borrowings (repayments) between consolidated subsidiaries, net	264,044			(9,822		)	(254,222		)	—			—
Net cash provided by (used in) financing activities	6,808			(9,822		)	(171,874		)	3,598			(171,290		)
Effect of exchange rate changes on cash and cash equivalents	—			—			(486		)	—			(486		)
Net increase (decrease) in cash and cash equivalents	(69		)	7,651			5,116			—			12,698
Cash and cash equivalents at beginning of period	93			2,810			19,000			—			21,903
Cash and cash equivalents at end of period	$	24		$	10,461		$	24,116		$	—		$	34,601

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26. Selected Quarterly Financial Data (Unaudited)

In management’s opinion, the summarized quarterly financial data below (in thousands, except per share amounts) contains all appropriate adjustments, all of which are normally recurring adjustments, considered necessary to present fairly our financial position and results of operations for the respective periods.

	March 31,		June 30,		September 30,		December 31,
	2014(1)		2014(2)		2014(3)		2014(4)

Revenue from external customers	$	643,008	$	739,270	$	723,832	$	793,628
Gross profit(9)	152,060		143,390		165,593		175,708
Net income attributable to Exterran stockholders	32,596		12,377		34,050		19,143
Net income attributable to Exterran common stockholders per share:
Basic	$	0.49	$	0.19	$	0.51	$	0.28
Diluted	0.47		0.19		0.48		0.27

	March 31,		June 30,		September 30,		December 31,
	2013(5)		2013(6)		2013(7)		2013(8)

Revenue from external customers	$	809,896	$	835,906	$	775,584	$	739,018
Gross profit(9)	145,808		166,145		167,049		159,092
Net income attributable to Exterran stockholders	50,205		9,335		40,977		22,647
Net income attributable to Exterran common stockholders per share:
Basic	$	0.77	$	0.14	$	0.62	$	0.34
Diluted	0.76		0.14		0.62		0.34

(1) In the first quarter of 2014, we recorded $17.8 million of net proceeds from the sale of previously nationalized Venezuelan assets to PDVSA Gas (see Note 3), $4.9 million of equity in income of non-consolidated affiliates from the sale of our Venezuelan joint ventures’ assets (see Note 9), $4.8 million of restructuring charges (see Note 15) and $3.8 million of long-lived asset impairments (see Note 14).

(2) In the second quarter of 2014 we completed the April 2014 MidCon Acquisition (see Note 4). Additionally, we recorded $18.1 million of net proceeds from the sale of previously nationalized Venezuelan assets to PDVSA Gas (see Note 3), $9.8 million of long-lived asset impairments (see Note 14) and $4.9 million of equity in income of non-consolidated affiliates from the sale of our Venezuelan joint ventures’ assets (see Note 9).

(3) In the third quarter of 2014 we completed the August 2014 MidCon Acquisition (see Note 4). Additionally, we recorded $18.2 million of net proceeds from the sale of previously nationalized Venezuelan assets to PDVSA Gas (see Note 3), $12.4 million of long-lived asset impairments (see Note 14) and $5.0 million of equity in income of non-consolidated affiliates from the sale of our Venezuelan joint ventures’ assets (see Note 9).

(4) In the fourth quarter of 2014, we recorded $18.5 million of net proceeds from the sale of previously nationalized Venezuelan assets to PDVSA Gas (see Note 3), $20.7 million of long-lived asset impairments (see Note 14) and $2.2 million of restructuring charges (see Note 15).

(5) In the first quarter of 2013, we recorded $34.3 million of net proceeds from the sale of previously nationalized Venezuelan assets to PDVSA Gas, which included a prepayment of $17.2 million for the second quarter 2013 installment payment due to us (see Note 3), $4.7 million of equity in income of non-consolidated affiliates from the sale of our Venezuelan joint ventures’ assets (see Note 9), $3.6 million of long-lived asset impairments (see Note 14) and $2.1 million of impairments related to Canadian discontinued operations (see Note 3).

(6) In the second quarter of 2013, we recorded $16.6 million of long-lived asset impairments, including $11.9 million related to the entity that owned our fabrication facility in the United Kingdom which we sold in July 2013 (see Note 14), $4.7 million of equity in income of non-consolidated affiliates from the sale of our Venezuelan joint ventures’ assets (see Note 9) and $3.9 million of impairments related to Canadian discontinued operations (see Note 3).

(7) In the third quarter of 2013, we recorded $17.4 million of net proceeds from the sale of previously nationalized Venezuelan assets to PDVSA Gas (see Note 3), $4.5 million of long-lived asset impairments (see Note 14), $4.8 million of equity in income of non-consolidated affiliates from the sale of our Venezuelan joint ventures’ assets (see Note 9) and $2.4 million of long-lived asset impairments related to our contract water treatment business which is reflected in discontinued operations (see Note 3).

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(8) In the fourth quarter of 2013, we recorded $17.6 million of net proceeds from the sale of previously nationalized Venezuelan assets to PDVSA Gas (see Note 3), $4.8 million of equity in income of non-consolidated affiliates from the sale of our Venezuelan joint ventures’ assets (see Note 9) and $3.9 million of long-lived asset impairments (see Note 14).

(9) Gross profit is defined as revenue less cost of sales, direct depreciation and amortization expense and long-lived asset impairment charges.

27. Subsequent Event

On February 4, 2015, the Partnership executed an amendment to the Partnership Credit Agreement, which among other things, increases the borrowing capacity under its revolving credit facility by $250.0 million to $900.0 million. The Partnership Credit Agreement, which matures in May 2018, also includes a $150.0 million term loan facility.

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EXTERRAN HOLDINGS, INC.

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

(In thousands)

Description	Balance at Beginning of Period		Charged to Costs and Expenses		Deductions			Balance at End of Period
Allowance for doubtful accounts deducted from accounts receivable in the balance sheet
December 31, 2014	$	8,605	$	2,422	$	6,608	(1)	$	4,419
December 31, 2013	15,011		2,174		8,580		(1)	8,605
December 31, 2012	11,229		8,754		4,972		(1)	15,011
Allowance for obsolete and slow moving inventory deducted from inventories in the balance sheet
December 31, 2014	$	14,102	$	7,979	$	1,921	(2)	$	20,160
December 31, 2013	11,736		4,535		2,169		(2)	14,102
December 31, 2012	14,011		1,005		3,280		(2)	11,736
Allowance for deferred tax assets not expected to be realized
December 31, 2014	$	102,418	$	38,168	$	27,591	(3)	$	112,995
December 31, 2013	86,054		31,978		15,614		(3)	102,418
December 31, 2012	76,056		29,132		19,134		(3)	86,054

(1) Uncollectible accounts written off.

(2) Obsolete inventory written off at cost, net of value received.

(3) Reflects expected realization of deferred tax assets and amounts credited to other accounts for stock-based compensation excess tax benefits, expiring net operating losses, changes in tax rates and changes in currency exchange rates.

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