Archrock, Inc. - Quarter Report: 2015 September (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

(MARK ONE)

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

FOR THE QUARTERLY PERIOD ENDED September 30, 2015

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

ARCHROCK, INC.*

(Exact name of registrant as specified in its charter)



Delaware		74-3204509
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

16666 Northchase Drive
Houston, Texas		77060
(Address of principal executive offices)		(Zip Code)

(281) 836-8000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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. (Check one):



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

Number of shares of the common stock of the registrant outstanding as of October 29, 2015: 69,446,031 shares.

* The registrant was formerly named Exterran Holdings, Inc. Effective as of November 3, 2015, the registrant changed its name to Archrock, Inc.

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TABLE OF CONTENTS



	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)	3
Condensed Consolidated Balance Sheets	3
Condensed Consolidated Statements of Operations	4
Condensed Consolidated Statements of Comprehensive Income (Loss)	5
Condensed Consolidated Statements of Equity	6
Condensed Consolidated Statements of Cash Flows	7
Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	42
Item 3. Quantitative and Qualitative Disclosures About Market Risk	67
Item 4. Controls and Procedures	68
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	69
Item 1A. Risk Factors	69
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	70
Item 3. Defaults Upon Senior Securities	70
Item 4. Mine Safety Disclosures	70
Item 5. Other Information	70
Item 6. Exhibits	71
SIGNATURES	72

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

EXTERRAN HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value and share amounts)

(unaudited)



	September 30, 2015			December 31, 2014
ASSETS

Current assets:
Cash and cash equivalents	$	32,516		$	39,739
Restricted cash	1,491			1,490
Accounts receivable, net of allowance of $5,593 and $4,419, respectively	492,609			558,042
Inventory, net	379,598			403,571
Costs and estimated earnings in excess of billings on uncompleted contracts	119,981			120,938
Current deferred income taxes	76,661			79,856
Other current assets	67,467			61,503
Current assets associated with discontinued operations	263			537
Total current assets	1,170,586			1,265,676
Property, plant and equipment, net	3,293,366			3,326,892
Goodwill	3,738			3,738
Intangible and other assets, net	215,232			243,372
Long-term assets associated with discontinued operations	15,996			17,469
Total assets	$	4,698,918		$	4,857,147

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable, trade	$	152,004		$	203,306
Accrued liabilities	229,690			259,759
Deferred revenue	41,454			69,310
Billings on uncompleted contracts in excess of costs and estimated earnings	41,355			76,277
Current liabilities associated with discontinued operations	677			2,066
Total current liabilities	465,180			610,718
Long-term debt	2,075,904			2,026,902
Deferred income taxes	154,335			187,445
Other long-term liabilities	102,290			78,720
Long-term liabilities associated with discontinued operations	162			317
Total liabilities	2,797,871			2,904,102
Commitments and contingencies (Note 16)
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; 74,545,474 and 73,808,200 shares issued, respectively	745			738
Additional paid-in capital	3,749,162			3,715,586
Accumulated other comprehensive income	12,160			15,865
Accumulated deficit	(1,873,115		)	(1,866,397		)
Treasury stock — 5,097,362 and 4,963,013 common shares, at cost, respectively	(72,215		)	(68,532		)
Total Exterran stockholders’ equity	1,816,737			1,797,260
Noncontrolling interest	84,310			155,785
Total equity	1,901,047			1,953,045
Total liabilities and equity	$	4,698,918		$	4,857,147

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

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EXTERRAN HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Revenues:
North America contract operations	$	191,692		$	191,000		$	592,212		$	529,463
International contract operations	114,104			124,355			350,045			369,787
Aftermarket services	82,443			96,005			260,133			284,412
Fabrication	261,262			312,472			860,025			922,448
	649,501			723,832			2,062,415			2,106,110
Costs and expenses:
Cost of sales (excluding depreciation and amortization expense):
North America contract operations	77,927			82,453			241,827			231,048
International contract operations	41,114			47,983			130,198			135,517
Aftermarket services	63,773			75,510			199,878			222,628
Fabrication	226,925			251,401			734,897			760,972
Selling, general and administrative	82,124			94,806			252,684			283,096
Depreciation and amortization	94,924			98,256			285,057			295,734
Long-lived asset impairment	23,708			12,385			51,860			26,039
Restructuring and other charges	11,998			219			36,392			5,394
Interest expense	28,577			25,737			84,273			86,767
Equity in income of non-consolidated affiliates	(5,084		)	(4,951		)	(15,152		)	(14,553		)
Other (income) expense, net	30,129			4,663			38,975			(1,442		)
	676,115			688,462			2,040,889			2,031,200
Income (loss) before income taxes	(26,614		)	35,370			21,526			74,910
Provision for (benefit from) income taxes	(3,605		)	11,215			14,628			31,494
Income (loss) from continuing operations	(23,009		)	24,155			6,898			43,416
Income from discontinued operations, net of tax	18,776			18,003			37,743			54,499
Net income (loss)	(4,233		)	42,158			44,641			97,915
Less: Net income attributable to the noncontrolling interest	(2,071		)	(8,108		)	(20,192		)	(18,892		)
Net income (loss) attributable to Exterran stockholders	$	(6,304	)	$	34,050		$	24,449		$	79,023
Basic income (loss) per common share:
Income (loss) from continuing operations attributable to Exterran common stockholders	$	(0.37	)	$	0.24		$	(0.20	)	$	0.37
Income from discontinued operations attributable to Exterran common stockholders	0.28			0.27			0.55			0.81
Net income (loss) attributable to Exterran common stockholders	$	(0.09	)	$	0.51		$	0.35		$	1.18
Diluted income (loss) per common share:
Income (loss) from continuing operations attributable to Exterran common stockholders	$	(0.37	)	$	0.23		$	(0.20	)	$	0.35
Income from discontinued operations attributable to Exterran common stockholders	0.28			0.25			0.55			0.77
Net income (loss) attributable to Exterran common stockholders	$	(0.09	)	$	0.48		$	0.35		$	1.12
Weighted average common shares outstanding used in income (loss) per common share:
Basic	68,560			66,432			68,441			65,861
Diluted	68,560			70,406			68,441			69,317
Dividends declared and paid per common share	$	0.15		$	0.15		$	0.45		$	0.45

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

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EXTERRAN HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Net income (loss)	$	(4,233	)	$	42,158		$	44,641		$	97,915
Other comprehensive income (loss), net of tax:
Derivative gain (loss), net of reclassifications to earnings	(4,076		)	1,201			(7,304		)	(1,019		)
Adjustments from changes in ownership of Partnership	—			—			(223		)	65
Amortization of terminated interest rate swaps	543			726			1,768			2,255
Foreign currency translation adjustment	4,949			(6,250		)	(1,754		)	(6,519		)
Total other comprehensive income (loss)	1,416			(4,323		)	(7,513		)	(5,218		)
Comprehensive income (loss)	(2,817		)	37,835			37,128			92,697
Less: Comprehensive (income) loss attributable to the noncontrolling interest	424			(9,415		)	(16,384		)	(19,389		)
Comprehensive income (loss) attributable to Exterran stockholders	$	(2,393	)	$	28,420		$	20,744		$	73,308

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

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EXTERRAN HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(In thousands)

(unaudited)



	Exterran Holdings, Inc. Stockholders
	Common Stock		Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Accumulated Deficit			Noncontrolling Interest			Total
Balance, January 1, 2014	$	725	$	3,769,429		$	30,078		$	(213,898	)	$	(1,924,244	)	$	151,338		$	1,813,428
Treasury stock purchased									(6,372		)							(6,372		)
Options exercised	6		11,631															11,637
Cash dividends												(30,047		)				(30,047		)
Shares issued in employee stock purchase plan			1,324															1,324
Stock-based compensation, net of forfeitures	5		14,382												902			15,289
Income tax benefit from stock-based compensation expense			7,937															7,937
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															(54,893		)	(54,893		)
Redemption of convertible debt	1		(234,219		)				219,211									(15,007		)
Shares acquired from exercise of call options			89,407						(89,407		)							—
Shares issued for exercise of warrants			(6,851		)				6,851									—
Comprehensive income (loss):
Net income												79,023			18,892			97,915
Derivatives gain (loss), net of reclassifications to earnings and tax						(1,516		)							497			(1,019		)
Adjustments from changes in ownership of Partnership						65												65
Amortization of terminated interest rate swaps, net of tax						2,255												2,255
Foreign currency translation adjustment						(6,519		)										(6,519		)
Balance, September 30, 2014	$	737	$	3,727,561		$	24,363		$	(83,615	)	$	(1,875,268	)	$	167,948		$	1,961,726

Balance, January 1, 2015	$	738	$	3,715,586		$	15,865		$	(68,532	)	$	(1,866,397	)	$	155,785		$	1,953,045
Treasury stock purchased									(3,771		)							(3,771		)
Options exercised	1		1,105															1,106
Cash dividends												(31,167		)				(31,167		)
Shares issued in employee stock purchase plan			910															910
Stock-based compensation, net of forfeitures	6		13,305												820			14,131
Income tax benefit from stock-based compensation expense			(42		)													(42		)
Adjustments from changes in ownership of Partnership			17,662												(27,634		)	(9,972		)
Net proceeds from the sale of Partnership units, net of tax			724															724
Cash distribution to noncontrolling unitholders of the Partnership															(61,045		)	(61,045		)
Shares issued for exercise of warrants			(88		)				88									—
Comprehensive income (loss):
Net income												24,449			20,192			44,641
Derivatives loss, net of reclassifications to earnings and tax						(3,496		)							(3,808		)	(7,304		)
Adjustments from changes in ownership of Partnership						(223		)										(223		)
Amortization of terminated interest rate swaps, net of tax						1,768												1,768
Foreign currency translation adjustment						(1,754		)										(1,754		)
Balance, September 30, 2015	$	745	$	3,749,162		$	12,160		$	(72,215	)	$	(1,873,115	)	$	84,310		$	1,901,047

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

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EXTERRAN HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)



	Nine Months Ended September 30,
	2015			2014
Cash flows from operating activities:
Net income	$	44,641		$	97,915
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	285,057			295,734
Long-lived asset impairment	51,860			26,039
Amortization of deferred financing costs	4,602			4,702
Income from discontinued operations, net of tax	(37,743		)	(54,499		)
Amortization of debt discount	871			12,099
Provision for doubtful accounts	3,240			1,691
Gain on sale of property, plant and equipment	(2,227		)	(5,582		)
Equity in income of non-consolidated affiliates	(15,152		)	(14,553		)
Amortization of terminated interest rate swaps	2,721			3,470
Interest rate swaps	269			258
(Gain) loss on remeasurement of intercompany balances	35,550			(116		)
Stock-based compensation expense	14,131			15,289
Deferred income tax provision	(38,091		)	(15,450		)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable and notes	58,993			(43,328		)
Inventory	23,457			(10,095		)
Costs and estimated earnings versus billings on uncompleted contracts	(34,393		)	(12,106		)
Other current assets	(9,583		)	(7,627		)
Accounts payable and other liabilities	(51,748		)	10,818
Deferred revenue	(9,494		)	(22,445		)
Other	(14,601		)	(6,046		)
Net cash provided by continuing operations	312,360			276,168
Net cash provided by discontinued operations	3,441			3,954
Net cash provided by operating activities	315,801			280,122

Cash flows from investing activities:
Capital expenditures	(350,253		)	(385,739		)
Proceeds from sale of property, plant and equipment	21,856			19,736
Payment for business acquisitions	—			(494,755		)
Return of investments in non-consolidated affiliates	15,185			14,750
Proceeds received from settlement of note receivable	5,357			—
Increase in restricted cash	(1		)	(245		)
Cash invested in non-consolidated affiliates	(33		)	(197		)
Net cash used in continuing operations	(307,889		)	(846,450		)
Net cash provided by discontinued operations	33,119			49,835
Net cash used in investing activities	(274,770		)	(796,615		)

Cash flows from financing activities:
Proceeds from borrowings of long-term debt	1,055,000			1,849,799
Repayments of long-term debt	(1,006,500		)	(1,406,000		)
Payments for debt issuance costs	(3,208		)	(6,923		)
Payments above face value for redemption of convertible debt	—			(15,007		)
Payments for settlement of interest rate swaps that include financing elements	(2,815		)	(2,844		)
Net proceeds from the sale of Partnership units	1,164			169,471
Proceeds from stock options exercised	1,106			11,637
Proceeds from stock issued pursuant to our employee stock purchase plan	910			1,324
Purchases of treasury stock	(3,771		)	(6,372		)
Dividends to Exterran stockholders	(31,167		)	(30,047		)
Stock-based compensation excess tax benefit	3,048			8,269
Distributions to noncontrolling partners in the Partnership	(61,045		)	(54,893		)
Net cash provided by (used in) financing activities	(47,278		)	518,414

Effect of exchange rate changes on cash and cash equivalents	(976		)	(3,797		)
Net decrease in cash and cash equivalents	(7,223		)	(1,876		)
Cash and cash equivalents at beginning of period	39,739			35,665
Cash and cash equivalents at end of period	$	32,516		$	33,789
Supplemental disclosure of non-cash transactions:
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	$	88		$	6,851

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

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EXTERRAN HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation and Summary of Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements of Exterran Holdings, Inc. (“Exterran,” “Archrock,” “our,” “we” or “us”) included herein have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.”) (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP are not required in these interim financial statements and have been condensed or omitted. Management believes that the information furnished includes all adjustments, consisting only of normal recurring adjustments, that are necessary to present fairly our consolidated financial position, results of operations and cash flows for the periods indicated. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements presented in our Annual Report on Form 10-K for the year ended December 31, 2014. That report contains a more comprehensive summary of our accounting policies. The interim results reported herein are not necessarily indicative of results for a full year.

On November 17, 2014, we announced that our board of directors had authorized management to pursue a plan to separate (the “Spin-off”) our international contract operations, international aftermarket services and global fabrication businesses into an independent, publicly traded company (“Exterran Corporation,” previously named Exterran SpinCo, Inc. prior to May 18, 2015). On November 3, 2015 (the “Distribution Date”), we completed the Spin-off of Exterran Corporation. Upon the completion of the Spin-off, we and Exterran Corporation are independent, publicly traded companies with separate public ownership, boards of directors and management, and we continue to own and operate the U.S. contract operations and U.S. aftermarket services businesses that we previously owned. Effective on November 3, 2015, we were renamed Archrock, Inc. and beginning on November 4, 2015 we trade on the New York Stock exchange under the symbol “AROC.” References to “Archrock,” “Exterran,” “our,” “we” or “us” refer to Archrock, Inc., including the Exterran Corporation businesses, for all periods prior to or ending on November 3, 2015. Additionally, we continue to hold interests in Exterran Partners, L.P. (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. Effective on November 3, 2015, the Partnership was renamed Archrock Partners, L.P. and trades on the Nasdaq Global Select Market under the symbol “APLP.” References to “Archrock Partners,” “Exterran Partners” or “the Partnership” refer to Archrock Partners, L.P., for all periods prior to or ending on November 3, 2015. To effect the Spin-off, we distributed on the Distribution Date, on a pro rata basis, all of the shares of Exterran Corporation common stock to our stockholders as of October 27, 2015 (the “Record Date”). Exterran Holdings shareholders received one share of Exterran Corporation common stock for every two shares of our common stock held at the close of business on the Record Date.

Unless otherwise indicated, the financial statements and related footnote disclosures within this report exclude the impact of the Spin-off. The effect of the Spin-off will significantly change and materially impact future disclosures, results of operations, balance sheet and cash flow positions. Financial results of Exterran Corporation prior to the Spin-off will be reported as discontinued operations beginning in our Annual Report on Form 10-K for the year ending December 31, 2015. See Note 2 for further discussion of the Spin-off.

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):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Income (loss) from continuing operations attributable to Exterran stockholders	$	(25,080	)	$	16,047		$	(13,294	)	$	24,524
Income from discontinued operations, net of tax	18,776			18,003			37,743			54,499
Less: Net income attributable to participating securities	(141		)	(448		)	(384		)	(1,157		)
Net income (loss) attributable to Exterran common stockholders	$	(6,445	)	$	33,602		$	24,065		$	77,866

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):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Weighted average common shares outstanding including participating securities	69,530		67,347		69,403		66,820
Less: Weighted average participating securities outstanding	(970	)	(915	)	(962	)	(959	)
Weighted average common shares outstanding — used in basic income (loss) per common share	68,560		66,432		68,441		65,861
Net dilutive potential common shares issuable:
On exercise of options and vesting of restricted stock units	*		468		*		527
On exercise of warrants	**		3,506		—		2,929
On conversion of 4.25% convertible senior notes due 2014	**		**		**		*
Weighted average common shares outstanding — used in diluted income (loss) per common share	68,560		70,406		68,441		69,317

________________________________


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


**	Not applicable as these instruments were 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 three and nine months ended September 30, 2015 and 2014.

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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):



	Three Months Ended September 30,		Nine Months Ended September 30,
	2015	2014	2015	2014
Net dilutive potential common shares issuable:
On exercise of options where exercise price is greater than average market value for the period	503	326	482	470
On exercise of options and vesting of restricted stock units	172	—	248	—
On exercise of warrants	*	—	—	—
On conversion of 4.25% convertible senior notes due 2014	*	*	*	9,431
Net dilutive potential common shares issuable	675	326	730	9,901

________________________________


*	Not applicable as these instruments were not outstanding during the period.

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 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 table presents the changes in accumulated other comprehensive income (loss) by component, net of tax, and excluding noncontrolling interest, during the nine months ended September 30, 2014 and 2015 (in thousands):



	Derivatives Cash Flow Hedges				Foreign Currency Translation Adjustment				Total
Accumulated other comprehensive income (loss), January 1, 2014	$	(1,346	)		$	31,424			$	30,078
Loss recognized in other comprehensive income (loss), net of tax	(439		)	(1)	(6,519		)	(3)	(6,958		)
Loss reclassified from accumulated other comprehensive income (loss), net of tax	1,243			(2)	—				1,243
Other comprehensive income (loss) attributable to Exterran stockholders	804				(6,519		)		(5,715		)
Accumulated other comprehensive income (loss), September 30, 2014	$	(542	)		$	24,905			$	24,363
Accumulated other comprehensive income (loss), January 1, 2015	$	(911	)		$	16,776			$	15,865
Loss recognized in other comprehensive income (loss), net of tax	(3,553		)	(4)	(1,754		)	(6)	(5,307		)
Loss reclassified from accumulated other comprehensive income (loss), net of tax	1,602			(5)	—				1,602
Other comprehensive loss attributable to Exterran stockholders	(1,951		)		(1,754		)		(3,705		)
Accumulated other comprehensive income (loss), September 30, 2015	$	(2,862	)		$	15,022			$	12,160

________________________________

(1)

During the three months ended September 30, 2014, we recognized a gain of $0.3 million and a tax provision of $0.1 million, in other comprehensive income (loss), net of tax, related to changes in the fair value of derivative financial instruments. During the nine months ended September 30, 2014, we recognized a loss of $0.7 million and a tax benefit of $0.3 million, in other comprehensive income (loss), net of tax, related to changes in the fair value of derivative financial instruments.

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(2)

During the three months ended September 30, 2014, we reclassified a $0.7 million loss to interest expense and a tax benefit of $0.3 million to provision for income taxes in our condensed consolidated statements of operations from accumulated other comprehensive income (loss). During the nine months ended September 30, 2014, we reclassified a $1.9 million loss to interest expense and a tax benefit of $0.7 million to provision for income taxes in our condensed consolidated statements of operations from accumulated other comprehensive income (loss).


(3)	During the three and nine months ended September 30, 2014, we recognized a loss of $6.3 million and $6.5 million, respectively, in other comprehensive income (loss), net of tax, related to changes in foreign currency translation adjustment.

(4)

During the three months ended September 30, 2015, we recognized a loss of $2.5 million and a tax benefit of $0.8 million, in other comprehensive income (loss), net of tax, related to changes in the fair value of derivative financial instruments. During the nine months ended September 30, 2015, we recognized a loss of $5.4 million and a tax benefit of $1.8 million, in other comprehensive income (loss), net of tax, related to changes in the fair value of derivative financial instruments.

(5)

During the three months ended September 30, 2015, we reclassified a $0.9 million loss to interest expense and a tax benefit of $0.3 million to provision for income taxes in our condensed consolidated statements of operations from accumulated other comprehensive income (loss). During the nine months ended September 30, 2015, we reclassified a $2.5 million loss to interest expense and a tax benefit of $0.9 million to provision for income taxes in our condensed consolidated statements of operations from accumulated other comprehensive income (loss).


(6)	During the three and nine months ended September 30, 2015, we recognized a gain of $4.9 million and a loss of $1.8 million, respectively, in other comprehensive income (loss), net of tax, related to changes in foreign currency translation adjustment.

Financial Instruments

Our financial instruments consist of cash, restricted cash, receivables, payables, interest rate swaps and debt. At September 30, 2015 and December 31, 2014, the estimated fair values of these financial instruments approximated their carrying amounts as reflected in our condensed consolidated balance sheets. The fair value of our fixed rate debt was estimated based on quoted market yields in inactive 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 10 for additional information regarding the fair value hierarchy.

The following table summarizes the carrying amount and fair value of our debt as of September 30, 2015 and December 31, 2014 (in thousands):



	September 30, 2015				December 31, 2014
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Fixed rate debt	$	1,041,904	$	928,000	$	1,041,402	$	960,000
Floating rate debt	1,034,000		1,035,000		985,500		986,000
Total debt	$	2,075,904	$	1,963,000	$	2,026,902	$	1,946,000

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 income (loss) unless specific hedging criteria are met. Changes in the values of derivatives that meet these hedging criteria will ultimately offset related income effects of the hedged item pending recognition in income.

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2. Spin-off 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. On November 3, 2015, we completed the Spin-off of Exterran Corporation. To effect the Spin-off, we distributed on the Distribution Date, on a pro rata basis, all of the shares of Exterran Corporation common stock to our stockholders as of the Record Date. Exterran Holdings shareholders received one share of Exterran Corporation common stock for every two shares of our common stock held at the close of business on the Record Date. Upon completion of the Spin-off, we and Exterran Corporation are independent, publicly traded companies with separate public ownership, boards of directors and management, and we continue to own and operate the U.S. contract operations and U.S. aftermarket services businesses that we previously owned. Effective on November 3, 2015, we were renamed Archrock, Inc. and beginning on November 4, 2015 we trade on the New York Stock exchange under the symbol “AROC.” In addition, we 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. Effective on November 3, 2015, the Partnership was renamed Archrock Partners, L.P. and trades on the Nasdaq Global Select Market under the symbol “APLP.”

On July 10, 2015, we and our wholly owned subsidiary, Archrock Services, L.P. (the “Archrock Borrower”), entered into a credit agreement (the “Archrock Credit Agreement”) with Wells Fargo Bank, National Association (“Wells Fargo”), as the administrative agent, and various financial institutions as lenders, which provided for a $300.0 million revolving credit facility (the “Archrock Credit Facility”) to be made available to the Archrock Borrower. On October 5, 2015, the parties amended the terms of the Archrock Credit Facility to increase the borrowing capacity from $300.0 million to $350.0 million. Availability under the Archrock Credit Facility was subject to the satisfaction of certain conditions precedent, including (i) the payoff and termination of our existing Credit Facility and (ii) the consummation of the Spin-off on or before January 4, 2016 (the date on which those conditions are satisfied is referred to as the “Archrock Initial Availability Date”). No borrowings were outstanding under the Archrock Credit Facility as of September 30, 2015 because the Archrock Initial Availability Date had not yet occurred. As a result of the completion of the Spin-off, the Archrock Initial Availability Date was November 3, 2015.

On July 10, 2015, our wholly owned subsidiary Exterran Energy Solutions, L.P. (“EESLP”), which upon the completion of the Spin-off is a wholly owned subsidiary of Exterran Corporation, and Exterran Corporation entered into a $750.0 million credit agreement (the “Exterran Corporation Credit Agreement”) with Wells Fargo, as the administrative agent, and various financial institutions as lenders. On October 5, 2015, the parties amended and restated the terms of the Exterran Corporation Credit Agreement to provide for a new $925.0 million credit facility, consisting of a $680.0 million revolving credit facility and a $245.0 million term loan facility (collectively, the “Exterran Corporation Credit Facility”). Availability under the Exterran Corporation Credit Facility was subject to the satisfaction of certain conditions precedent, including the consummation of the Spin-off on or before January 4, 2016 (the date on which those conditions are satisfied is referred to as the “Initial Availability Date”). No borrowings were outstanding under the Exterran Corporation Credit Facility as of September 30, 2015 because the Initial Availability Date had not yet occurred. As a result of the completion of the Spin-off, the Initial Availability Date was November 3, 2015.

As contemplated in the separation and distribution agreement, EESLP will contribute to a subsidiary of Archrock the right to receive payments based on a notional amount corresponding to payments received by subsidiaries of Exterran Corporation from PDVSA Gas in respect of the sale of our previously nationalized assets promptly after such amounts are collected by subsidiaries of Exterran Corporation until Archrock's subsidiary has received an aggregate amount of such payments equal to the lesser of (x) $150.0 million, less the aggregate amount of installment payments received from PDVSA Gas by Exterran Holdings and its subsidiaries after August 31, 2015 but before November 3, 2015, plus the aggregate amount of all reimbursable expenses incurred by Archrock and its subsidiaries in connection with recovering any default installment payments directly from PDVSA Gas following the completion of the Spin-off or (y) $150.0 million.

As contemplated in the separation and distribution agreement, EESLP (in the case of debt offerings) or Exterran Corporation (in the case of equity issuances) will use its commercially reasonable efforts to complete one or more unsecured debt offerings or equity issuances resulting in aggregate gross cash proceeds of at least $250.0 million on the terms described in the Exterran Corporation Credit Agreement (such transaction, a “qualified capital raise”) on or before the maturity date of Exterran Corporation’s $245.0 million term loan facility, which is currently expected to be the second anniversary of the completion of the Spin-off or as soon as practicable thereafter. In addition, EESLP will contribute to a subsidiary of Archrock the right to receive, promptly following the occurrence of a qualified capital raise, a $25.0 million cash payment.

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3. Discontinued Operations

In August 2012, our Venezuelan subsidiary sold its previously nationalized assets to PDVSA Gas, S.A. (“PDVSA Gas”) for a purchase price of approximately $441.7 million. We received installment payments, including an annual charge, totaling $18.9 million and $18.2 million during the three months ended September 30, 2015 and 2014, respectively, and $37.6 million and $54.1 million during the nine months ended September 30, 2015 and 2014, respectively. The remaining principal amount due to us of approximately $83 million as of September 30, 2015, 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. In October 2015, we received an additional installment payment, including an annual charge, of $19.1 million. The proceeds from the sale of the assets are not subject to Venezuelan national taxes due to an exemption allowed under the Venezuelan Reserve Law applicable to expropriation settlements. In addition, and in connection with the sale, we and the Venezuelan government agreed to waive rights to assert certain claims against each other.

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

In 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 condensed consolidated financial statements. This business was previously included in our North American contract operations business segment.

The following tables summarize the operating results of discontinued operations (in thousands):



	Three Months Ended September 30, 2015									Three Months Ended September 30, 2014
	Venezuela			Contract Water Treatment Business			Total			Venezuela			Contract Water Treatment Business			Total
Revenue	$	—		$	—		$	—		$	—		$	—		$	—
Expenses and selling, general and administrative	132			(32		)	100			84			187			271
Loss (recovery) attributable to expropriation and impairments	(16,541		)	—			(16,541		)	(16,539		)	319			(16,220		)
Other (income) loss, net	(2,347		)	—			(2,347		)	(1,880		)	—			(1,880		)
Provision for (benefit from) income taxes	—			12			12			—			(174		)	(174		)
Income (loss) from discontinued operations, net of tax	$	18,756		$	20		$	18,776		$	18,335		$	(332	)	$	18,003



	Nine Months Ended September 30, 2015									Nine Months Ended September 30, 2014
	Venezuela			Contract Water Treatment Business			Total			Venezuela			Contract Water Treatment Business			Total
Revenue	$	—		$	—		$	—		$	—		$	—		$	—
Expenses and selling, general and administrative	366			227			593			329			364			693
Loss (recovery) attributable to expropriation and impairments	(33,523		)	—			(33,523		)	(49,523		)	319			(49,204		)
Other (income) loss, net	(4,721		)	—			(4,721		)	(5,738		)	(27		)	(5,765		)
Benefit from income taxes	—			(92		)	(92		)	—			(223		)	(223		)
Income (loss) from discontinued operations, net of tax	$	37,878		$	(135	)	$	37,743		$	54,932		$	(433	)	$	54,499

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



	September 30, 2015						December 31, 2014
	Venezuela		Contract Water Treatment Business		Total		Venezuela		Contract Water Treatment Business		Total
Cash	$	220	$	—	$	220	$	431	$	—	$	431
Accounts receivable	4		—		4		2		69		71
Other current assets	39		—		39		35		—		35
Total current assets associated with discontinued operations	263		—		263		468		69		537
Deferred tax assets	—		15,996		15,996		—		17,469		17,469
Total assets associated with discontinued operations	$	263	$	15,996	$	16,259	$	468	$	17,538	$	18,006
Accounts payable	$	—	$	—	$	—	$	214	$	1	$	215
Accrued liabilities	672		5		677		1,124		727		1,851
Total current liabilities associated with discontinued operations	672		5		677		1,338		728		2,066
Other long-term liabilities	162		—		162		317		—		317
Total liabilities associated with discontinued operations	$	834	$	5	$	839	$	1,655	$	728	$	2,383

4. Business Acquisitions

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 utilized 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. During the nine months ended September 30, 2014, the Partnership incurred transaction costs of approximately $0.9 million related to this acquisition, which is reflected in other (income) expense, net, in our condensed consolidated statements of operations.

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.”

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

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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, and consisted 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 and liabilities acquired in the August 2014 MidCon Acquisition have been included in our condensed consolidated financial statements as part of our North America contract operations segment since the date of 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. (formerly Access). During the nine months ended September 30, 2014, the Partnership incurred transaction costs of approximately $1.5 million related to this acquisition, which is reflected in other (income) expense, net, in our condensed consolidated statements of operations.

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.”

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

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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 and liabilities acquired in the April 2014 MidCon Acquisition have been included in our condensed consolidated financial statements as part of our North America contract operations segment since the date of acquisition.

Pro Forma Financial Information

Pro forma financial information for the three and nine months ended September 30, 2014 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 pro forma financial information as though these transactions occurred as of January 1, 2014. The 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;


•	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 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

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•	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 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 pro forma financial information below was derived by adjusting our historical financial statements.

The following table shows pro forma financial information for the three and nine months ended September 30, 2014 (in thousands, except per share amounts):



	Three Months Ended September 30, 2014		Nine Months Ended September 30, 2014
Revenue	$	726,144	$	2,143,918
Net income attributable to Exterran common stockholders	$	34,151	$	81,064
Basic net income per common share attributable to Exterran common stockholders	$	0.51	$	1.21
Diluted net income per common share attributable to Exterran common stockholders	$	0.48	$	1.15

5. Inventory, net

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



	September 30, 2015		December 31, 2014
Parts and supplies	$	255,008	$	269,370
Work in progress	77,933		100,499
Finished goods	46,657		33,702
Inventory, net	$	379,598	$	403,571

As of September 30, 2015 and December 31, 2014, we had inventory reserves of $31.8 million and $20.2 million, respectively. As discussed further in Note 12, $9.7 million of the increase in inventory reserves during the nine months ended September 30, 2015 related to restructuring and other charges.

6. Property, Plant and Equipment, net

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



	September 30, 2015			December 31, 2014
Compression equipment, facilities and other fleet assets	$	4,995,423		$	4,916,576
Land and buildings	206,257			206,257
Transportation and shop equipment	294,581			297,239
Other	205,732			197,114
	5,701,993			5,617,186
Accumulated depreciation	(2,408,627		)	(2,290,294		)
Property, plant and equipment, net	$	3,293,366		$	3,326,892

7. Investments in Non-Consolidated Affiliates

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

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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, Petroleos de Venezuela S.A. (“PDVSA”) assumed control over the assets of our Venezuelan joint ventures and transitioned the operations, including the hiring of their employees, to PDVSA. In March 2011, our Venezuelan joint ventures, together with the Netherlands’ parent company of our joint venture partners, filed a request for the institution of an arbitration proceeding against Venezuela with the International Centre for Settlement of Investment Disputes related to the seized assets and investments.

In March 2012, our Venezuelan joint ventures sold their assets to PDVSA Gas. We received installment payments, including an annual charge, totaling $5.1 million and $5.0 million during the three months ended September 30, 2015 and 2014, respectively, and $15.2 million and $14.7 million during the nine months ended September 30, 2015 and 2014, respectively. The remaining principal amount due to us of approximately $13 million as of September 30, 2015, 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 condensed 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.

8. Long-Term Debt

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



	September 30, 2015		December 31, 2014
Revolving credit facility due July 2017	$	330,000	$	375,500
Partnership’s revolving credit facility due May 2018	554,000		460,000
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 $4.0 million and $4.5 million, respectively)	345,982		345,528
Partnership’s 6% senior notes due October 2022 (presented net of the unamortized discount of $4.8 million and $5.2 million, respectively)	345,184		344,767
7.25% senior notes due December 2018	350,000		350,000
Other, interest at various rates, collateralized by equipment and other assets	738		1,107
Long-term debt	$	2,075,904	$	2,026,902

Exterran Senior Secured Credit Facility

In September 2015, we amended our senior secured revolving credit facility (the “Credit Facility”) to, among other things, extend the maturity date of the loans made by certain of our lenders (the “Consenting Lenders”) from July 8, 2016 to July 8, 2017, representing a one year extension of the availability period under the Credit Facility. The commitments of the Consenting Lenders total approximately $780.4 million. The maturity date of the loans made by lenders that are not Consenting Lenders will remain July 8, 2016, which was the original maturity date under the Credit Facility. The commitments of these lenders total approximately $119.6 million. As a result of the amendment, the Credit Facility provides for a $900 million revolving credit facility that will be available until July 8, 2016 and a revolving credit facility of approximately $780.4 million that will be available from July 8, 2016 to July 8, 2017. We incurred costs of approximately $0.9 million related to the amendment of the Credit Facility. These costs are included in intangible and other assets, net and are being amortized to interest expense over the term of the Credit Facility. Borrowings associated with the lenders that are not Consenting Lenders of approximately $43.9 million as of September 30, 2015 are classified as long-term because we have the intent and ability to refinance the maturity of these borrowings under the amended Credit Facility. As of September 30, 2015, we had $330.0 million in outstanding borrowings and $108.5 million in outstanding letters of credit under the Credit Facility. At September 30, 2015, taking into account guarantees through letters of credit, we had undrawn and available capacity of $461.5 million under the Credit Facility.

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The Partnership Revolving Credit Facility and Term Loan

In February 2015, the Partnership amended its senior secured credit agreement (the “Partnership Credit Agreement”), which among other things, increased 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. During the nine months ended September 30, 2015, the Partnership incurred transaction costs of $1.3 million related to the amendment of the Partnership Credit Agreement. These costs were included in intangible and other assets, net, and are being amortized to interest expense over the term of the facility. As of September 30, 2015, the Partnership had undrawn and available capacity of $346.0 million under its revolving credit facility.

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. In February 2015, holders of the Partnership 2014 Notes exchanged their Partnership 2014 Notes for registered notes with the same terms.

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.

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 condensed consolidated balance sheets based on the original cost of the call options of $89.4 million. Counterparties to our warrants had the right to exercise the warrants in equal installments for 80 trading days which began in September 2014. During the third quarter of 2014, 498,254 common shares were issued out of treasury stock pursuant to warrants exercised.

Archrock Credit Facility

On July 10, 2015, we and our wholly owned subsidiary, Archrock Services, L.P., entered into the Archrock Credit Agreement with Wells Fargo, as the administrative agent, and various financial institutions as lenders, which provided for a $300.0 million revolving credit facility. On October 5, 2015, the parties amended the terms of the Archrock Credit Facility to increase the borrowing capacity from $300.0 million to $350.0 million. No borrowings were outstanding under the Archrock Credit Facility as of September 30, 2015 because the Archrock Initial Availability Date had not yet occurred. As a result of the completion of the Spin-off, the Archrock Initial Availability Date was November 3, 2015. See Note 2 for additional information regarding the Archrock Credit Facility.

Exterran Corporation Credit Facility

On July 10, 2015, EESLP and Exterran Corporation entered into a $750.0 million credit agreement with Wells Fargo, as the administrative agent, and various financial institutions as lenders. On October 5, 2015, the parties amended and restated the terms of the Exterran Corporation Credit Agreement to provide for a new $925.0 million credit facility, consisting of a $680.0 million revolving credit facility and a $245.0 million term loan facility. No borrowings were outstanding under the Exterran Corporation Credit Facility as of September 30, 2015 because the Initial Availability Date had not yet occurred. As a result of the completion of the Spin-off, the Initial Availability Date was November 3, 2015. See Note 2 for additional information regarding the Exterran Corporation Credit Facility.

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9. 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

During the nine months ended September 30, 2015, the Partnership entered into an interest rate swap with a notional value of $100.0 million. At September 30, 2015, the Partnership was a party to interest rate swaps with a total notional value of $500.0 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, interest rate swaps having a notional amount of $100.0 million expiring in May 2019 and the remaining interest rate swaps having a notional amount of $100.0 million expiring in May 2020. As of September 30, 2015, 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. We recorded $0.4 million of interest income during the nine months ended September 30, 2015 due to ineffectiveness related to interest rate swaps. There was no ineffectiveness related to interest rate swaps during the nine months ended September 30, 2014. We estimate that $4.7 million of deferred pre-tax losses attributable to interest rate swaps and included in our accumulated other comprehensive income (loss) at September 30, 2015, 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 condensed 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 condensed consolidated statements of cash flows.

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



	September 30, 2015
	Balance Sheet Location	Fair Value Asset (Liability)
Derivatives designated as hedging instruments:
Interest rate swaps	Accrued liabilities	$	(5,976	)
Interest rate swaps	Other long-term liabilities	(5,012		)
Total derivatives		$	(10,988	)



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

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	Pre-tax Gain (Loss) Recognized in Other Comprehensive Income (Loss) on Derivatives			Location of Pre-tax Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (Loss)	Pre-tax Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (Loss)
Derivatives designated as cash flow hedges:
Interest rate swaps
Three months ended September 30, 2015	$	(6,100	)	Interest expense	$	(2,006	)
Three months ended September 30, 2014	846			Interest expense	(1,414		)
Nine months ended September 30, 2015	(12,098		)	Interest expense	(5,697		)
Nine months ended September 30, 2014	(2,283		)	Interest expense	(3,917		)

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.

10. 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 September 30, 2015 and December 31, 2014, with pricing levels as of the date of valuation (in thousands):



	September 30, 2015							December 31, 2014
	(Level 1)		(Level 2)			(Level 3)		(Level 1)		(Level 2)			(Level 3)
Interest rate swaps asset	$	—	$	—		$	—	$	—	$	712		$	—
Interest rate swaps liability	—		(10,988		)	—		—		(5,108		)	—

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.

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The following table presents our assets and liabilities measured at fair value on a nonrecurring basis during the nine months ended September 30, 2015 and 2014, with pricing levels as of the date of valuation (in thousands):



	Nine Months Ended September 30, 2015						Nine Months Ended September 30, 2014
	(Level 1)		(Level 2)		(Level 3)		(Level 1)		(Level 2)		(Level 3)
Impaired long-lived assets	$	—	$	—	$	6,156	$	—	$	—	$	2,472
Long-term receivable from the sale of our Canadian Operations	—		—		5,100		—		—		—

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 10% and 9% for the nine months ended September 30, 2015 and 2014, respectively. In April 2015, we accepted an offer to early settle the outstanding note receivable due to us relating to the previous sale of our Canadian contract operations and aftermarket services businesses (“Canadian Operations”) for $5.1 million.

11. Long-Lived Asset Impairment

We review long-lived assets, including property, plant and equipment and identifiable intangibles that are being amortized, for impairment whenever events or changes in circumstances, including the removal of compressor units from our active fleet, indicate that the carrying amount of an asset may not be recoverable.

During the three and nine months ended September 30, 2015, we reviewed the future deployment of our idle compression assets used in our North America contract operations and international contract operations segments for units that were not of the type, configuration, condition, make or model that are cost efficient to maintain and operate. Based on this review, we determined that approximately 155 and 315 idle compressor units totaling approximately 54,000 and 136,000 horsepower would be retired from the active fleet during the three and nine months ended September 30, 2015, respectively. The retirement of these units from the active fleet triggered a review of these assets for impairment. As a result, we recorded an $11.9 million and a $37.7 million asset impairment to reduce the book value of each unit to its estimated fair value during the three and nine months ended September 30, 2015, respectively. 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 the three and nine months ended September 30, 2015, 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 $11.8 million and $12.8 million during the three and nine months ended September 30, 2015, respectively, to reduce the book value of each unit to its estimated fair value.

During the first quarter of 2015, we evaluated a long-term note receivable from the purchaser of our Canadian Operations for impairment. This review was triggered by an offer from the purchaser of our Canadian Operations to prepay the note receivable at a discount to its current book value. The fair value of the note receivable as of March 31, 2015 was based on the amount offered by the purchaser of our Canadian Operations to prepay the note receivable. The difference between the book value of the note receivable at March 31, 2015 and its fair value resulted in the recording of an impairment of long-lived assets of $1.4 million during the nine months ended September 30, 2015. In April 2015, we accepted the offer to early settle this note receivable.

During the three and nine months ended September 30, 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 70 and 240 idle compressor units, respectively, representing approximately 26,000 and 72,000 horsepower, respectively, previously used to provide services in our North America contract operations segment. As a result, we performed an impairment review and recorded a $7.9 million and $21.5 million asset impairment to reduce the book value of each unit to its estimated fair value, during the three and nine months ended September 30, 2014, respectively. 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.

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In connection with our fleet review during the three and nine months ended September 30, 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 $4.5 million during both the three and nine months ended September 30, 2014 to reduce the book value of each unit to its estimated fair value.

12. Restructuring and Other 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. On November 3, 2015, we completed the Spin-off of Exterran Corporation. During the three and nine months ended September 30, 2015, we incurred $6.4 million and $24.8 million, respectively, of costs associated with the Spin-off which were primarily related to legal, consulting, audit and professional fees, a one-time cash signing bonus paid to an employee and non-cash inventory write-downs. Non-cash inventory write-downs, which primarily related to the decentralization of shared inventory components between the North America contract operations business and the international contract operations business, totaled $5.7 million during the nine months ended September 30, 2015, of which approximately $4.2 million related to our international contract operations segment, $1.0 million related to our North America contract operations segment and $0.5 million related to our fabrication segment. The separation costs relating to expenditures settled in cash have not been allocated to the segments because they consist mostly of professional service fees within the corporate, finance and legal functions. The costs incurred in conjunction with the Spin-off are included in restructuring and other charges in our condensed consolidated statements of operations. We expect to incur additional restructuring costs as a result of the Spin-off ranging from approximately $20 million to $30 million that is primarily related to legal, consulting, audit and professional fees and retention payments to certain employees. The range of additional restructuring costs excludes costs that may be incurred by Exterran Corporation after the completion of the Spin-off. As of September 30, 2015, we had an accrued liability balance of $1.1 million for planned separation charges incurred.

As a result of the current market conditions in North America, combined with the impact of lower international activity due to customer budget cuts driven by lower oil prices, in the second quarter of 2015 we announced a cost reduction plan primarily focused on workforce reductions and the reorganization of certain fabrication facilities. During the three and nine months ended September 30, 2015, we incurred $5.6 million and $11.6 million, respectively, of restructuring and other charges as a result of this plan. Included in these amounts are $5.6 million and $7.6 million recorded during the three and nine months ended September 30, 2015, respectively, related to termination benefits and consulting fees and $4.0 million recorded during the nine months ended September 30, 2015 related to non-cash write-downs of inventory. The non-cash inventory write-downs were the result of our decision to exit the manufacturing of cold weather packages, which had historically been performed at a fabrication facility in North America we recently decided to close. These charges are reflected as restructuring and other charges in our condensed consolidated statements of operations. We currently estimate that we will incur additional charges with respect to this cost reduction plan of approximately $2.5 million. We expect the majority of the estimated additional charges will result in cash expenditures. As of September 30, 2015, we had an accrued liability balance of $0.5 million for charges incurred relating to the cost reduction plan.

The following table summarizes the changes to our accrued liability balance related to restructuring and other charges for the nine months ended September 30, 2015 (in thousands):



	Spin-off			Cost Reduction Plan			Total
Beginning balance at January 1, 2015	$	1,089		$	—		$	1,089
Additions for costs expensed	24,810			11,582			36,392
Less non-cash expense	(5,700		)	(4,007		)	(9,707		)
Reductions for payments	(19,055		)	(7,055		)	(26,110		)
Ending balance at September 30, 2015	$	1,144		$	520		$	1,664

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The following table summarizes the components of charges included in restructuring and other charges in our condensed consolidated statements of operations for the three and nine months ended September 30, 2015 (in thousands):



	Three Months Ended September 30, 2015		Nine Months Ended September 30, 2015
Legal fees	$	1,080	$	3,960
Consulting, audit and professional fees	3,520		12,046
Employee Signing bonus	2,000		2,000
Non-cash inventory write-downs	—		9,707
Employee termination benefits	4,213		6,246
Other	1,185		2,433
Total restructuring and other charges	$	11,998	$	36,392

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 closed several of our make-ready shops. The centralization of our make-ready operations was completed in the second quarter of 2014. During the nine months ended September 30, 2014, we incurred $5.4 million of restructuring and other 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 and other charges in our condensed consolidated statements of operations and are related to our North America contract operations and aftermarket services segments.

13. Income Taxes

As of December 31, 2014, we had $136.9 million in foreign tax credit carryforward deferred tax assets. We recorded a valuation allowance of $7.2 million against these deferred tax assets in the fourth quarter of 2014 for foreign tax credits that expire in the year 2015. As of September 30, 2015, these deferred tax assets related to foreign tax credit carryforwards that can be used to reduce our income taxes payable in future periods. The foreign tax credit carryforwards will expire if they are not used within the 10-year carryforward period. Had the Spin-off not been completed, we consider it more likely than not that we would have had sufficient taxable income and foreign source taxable income in the future that would have allowed us to realize these deferred tax assets, net of the valuation allowance. However, upon completion of the Spin-off many of the foreign tax credit carryforwards will ultimately expire unused. Therefore, since we do not expect Exterran Corporation to generate sufficient taxable income and foreign source taxable income following the Spin-off, an additional valuation allowance ranging from $45 million to $65 million to reduce our foreign tax credit carryforward deferred tax assets is expected to be recorded in the fourth quarter of 2015.

14. Stock-Based Compensation

Stock Incentive Plan

In April 2013, we adopted the Exterran Holdings, Inc. 2013 Stock Incentive Plan (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. Upon effectiveness of the 2013 Plan, no additional grants may be made under the Exterran Holdings, Inc. 2007 Amended and Restated Stock Incentive Plan (the “2007 Plan”) or 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 following table presents stock option activity during the nine months ended September 30, 2015:



	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, 2015	1,495		$	33.39
Granted	—		—
Exercised	(90	)	12.29
Cancelled	(300	)	59.91
Options outstanding, September 30, 2015	1,105		27.91		2.6	$	2,207
Options exercisable, September 30, 2015	984		27.08		2.4	2,207

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 the nine months ended September 30, 2015 was $1.5 million. As of September 30, 2015, we expect $0.9 million of unrecognized compensation cost related to unvested stock options to be recognized over the weighted-average period of 1.2 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 condensed 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.

The following table presents restricted stock, restricted stock unit, performance unit, cash settled restricted stock unit and cash settled performance unit activity during the nine months ended September 30, 2015:



	Shares (in thousands)		Weighted Average Grant-Date Fair Value Per Share
Non-vested awards, January 1, 2015	1,170		$	27.37
Granted	697		31.93
Vested	(731	)	23.89
Cancelled	(35	)	33.25
Non-vested awards, September 30, 2015 (1)	1,101		32.38

________________________________


(1)	Non-vested awards as of September 30, 2015 are comprised of 57,000 cash settled restricted stock units and cash settled performance units and 1,044,000 restricted shares, restricted stock units and performance units.

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As of September 30, 2015, we expect $24.8 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 2.0 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. Due to a plan to separate our international contract operations, international aftermarket services and global fabrication businesses into an independent, publicly traded company (as discussed in Note 2), the ESPP was suspended after the second quarter 2015 purchase period.

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.

Partnership Phantom Units

The following table presents phantom unit activity during the nine months ended September 30, 2015:



	Phantom Units (in thousands)		Weighted Average Grant-Date Fair Value per Unit
Phantom units outstanding, January 1, 2015	92		$	27.38
Granted	45		24.87
Vested	(52	)	25.67
Phantom units outstanding, September 30, 2015	85		27.10

As of September 30, 2015, 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.

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15. 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
January 30, 2015	February 17, 2015	0.15		10.3		million
April 28, 2015	May 18, 2015	0.15		10.4		million
July 30, 2015	August 17, 2015	0.15		10.5		million

On October 18, 2015, our board of directors declared a quarterly dividend of $0.15 per share of common stock, which is expected to be paid on October 30, 2015 to stockholders of record at the close of business on October 26, 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.

16. Commitments and Contingencies

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 September 30, 2015
Performance guarantees through letters of credit(1)	2015-2021	$	173,502
Standby letters of credit	2015-2016	10,950
Commercial letters of credit	2016	3,607
Bid bonds and performance bonds(1)	2015-2023	42,016
Maximum potential undiscounted payments		$	230,075

________________________________


(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 7 for a discussion of our gain contingencies related to assets that were expropriated in Venezuela.

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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 September 30, 2015 and December 31, 2014, we had accrued $5.2 million and $9.2 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

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. As of September 30, 2015, only five of these cases have advanced to the point of trial or submission of summary judgment motions on the merits.

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 we appealed the courts’ decisions in all three cases.

On August 25, 2015, the Fourteenth Court of Appeals in Houston, Texas issued a ruling in the first appeal, stating that additional evidence is required to determine whether the Heavy Equipment Statutes is constitutional. The case was remanded to the district court for further proceedings. We plan to file a petition asking the Texas Supreme Court to review this decision.

On September 23, 2015, the Eighth Court of Appeals in El Paso, Texas decided the other two appellate cases in our favor by affirming the district court’s ruling that the Heavy Equipment Statutes apply to natural gas compressors, and overturning the district court’s ruling that the Heavy Equipment Statutes are unconstitutional as applied to natural gas compressors.

As of September 30, 2015, two cases still pending in district courts have reached the point of submission on motions for summary judgment. In the first case, both parties filed motions for summary judgment, and we have yet to receive the court’s decision. In the second case, the court denied both parties respective motions for summary judgment concerning the 2012 tax year, and consolidated the 2012 tax year case with a 2013 tax year case. On August 27, 2015, the court abated the consolidated case until the final resolution of the appellate cases considering the constitutionality of the Heavy Equipment Statutes, or further order of the court.

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As a result of the new methodology, our ad valorem tax expense (which is reflected in our condensed consolidated statements of operations as a component of cost of sales (excluding depreciation and amortization expense)) includes a benefit of $11.4 million during the nine months ended September 30, 2015. Since the change in methodology became effective in 2012, we have recorded an aggregate benefit of $38.3 million as of September 30, 2015, of which approximately $10.2 million has been agreed to by a number of appraisal review boards and county appraisal districts and $28.1 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 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.

17. Recent Accounting Developments

In July 2015, the Financial Accounting Standards Board (“FASB”) issued an update which will require an entity to measure inventory at the lower of cost and net realizable value. Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. For public business entities, this update is effective on a prospective basis for interim and annual periods beginning after December 15, 2016, with early adoption permitted. We are currently evaluating the impact of this update on our financial statements.

In April 2015, the FASB issued an update that addresses the presentation of debt issuance costs. The update requires an entity to present such costs in the balance sheet as a direct deduction from the carrying amount of the related debt liability rather than as an asset. Amortization of the costs will continue to be reported as interest expense. In August 2015, the FASB issued a subsequent update which clarifies that the guidance in the previous update does not apply to line-of-credit arrangements. Per the subsequent update, line-of-credit arrangements will continue to defer and present debt issuance costs as an asset and subsequently amortize the deferred debt costs ratably over the term of the arrangement. Upon transition, an entity is required to comply with the applicable disclosures for a change in an accounting principle. The update will be effective for reporting periods beginning after December 15, 2015 on a retrospective basis. Early adoption is permitted. Other than the revised balance sheet presentation of debt issuance costs from an asset to a deduction from the carrying amount of the debt liability and related disclosures, the adoption of this update is not expected to have an impact on our financial statements.

In February 2015, the FASB issued an update which revises the consolidation model. The update modifies the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities, eliminates the presumption that a general partner should consolidate a limited partnership and affects the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships. The update will be effective for reporting periods beginning after December 15, 2015. Early adoption is permitted. We do not believe the adoption of this update will have a material impact on our financial statements.

In May 2014, the FASB issued an update 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 the 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, 2017, including interim periods within the reporting period. Early adoption is permitted for reporting periods beginning after December 15, 2016. Companies may use either a full retrospective or a modified retrospective approach to adopt this update. We are currently evaluating the potential impact of the update on our financial statements.

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18. Reportable Segments

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.

The following tables present revenue and other financial information by reportable segment during the three and nine months ended September 30, 2015 and 2014 (in thousands):



Three Months Ended	North America Contract Operations		International Contract Operations		Aftermarket Services		Fabrication		Reportable Segments Total
September 30, 2015:
Revenue from external customers	$	191,692	$	114,104	$	82,443	$	261,262	$	649,501
Gross margin(1)	113,765		72,990		18,670		34,337		239,762
September 30, 2014:
Revenue from external customers	$	191,000	$	124,355	$	96,005	$	312,472	$	723,832
Gross margin(1)	108,547		76,372		20,495		61,071		266,485



Nine Months Ended	North America Contract Operations		International Contract Operations		Aftermarket Services		Fabrication		Reportable Segments Total
September 30, 2015:
Revenue from external customers	$	592,212	$	350,045	$	260,133	$	860,025	$	2,062,415
Gross margin(1)	350,385		219,847		60,255		125,128		755,615
September 30, 2014:
Revenue from external customers	$	529,463	$	369,787	$	284,412	$	922,448	$	2,106,110
Gross margin(1)	298,415		234,270		61,784		161,476		755,945

________________________________


(1)	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 GAAP, below.

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



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Net income (loss)	$	(4,233	)	$	42,158		$	44,641		$	97,915
Selling, general and administrative	82,124			94,806			252,684			283,096
Depreciation and amortization	94,924			98,256			285,057			295,734
Long-lived asset impairment	23,708			12,385			51,860			26,039
Restructuring and other charges	11,998			219			36,392			5,394
Interest expense	28,577			25,737			84,273			86,767
Equity in income of non-consolidated affiliates	(5,084		)	(4,951		)	(15,152		)	(14,553		)
Other (income) expense, net	30,129			4,663			38,975			(1,442		)
Provision for (benefit from) income taxes	(3,605		)	11,215			14,628			31,494
Income from discontinued operations, net of tax	(18,776		)	(18,003		)	(37,743		)	(54,499		)
Gross margin	$	239,762		$	266,485		$	755,615		$	755,945

19. Transactions Related to the Partnership

In May 2015, the Partnership entered into an At-The-Market Equity Offering Sales Agreement (the “ATM Agreement”) with Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc., J.P. Morgan Securities LLC, RBC Capital Markets, LLC and Wells Fargo Securities, LLC (the “Sales Agents”). Pursuant to the ATM Agreement, the Partnership may sell from time to time through the Sales Agents common units representing limited partner interests in the Partnership having an aggregate offering price of up to $100.0 million. Under the terms of the ATM Agreement, the Partnership may also sell common units from time to time to any Sales Agent as principal for its own account at a price to be agreed upon at the time of sale. Any sale of common units to a Sales Agent as principal would be pursuant to the terms of a separate terms agreement between the Partnership and such Sales Agent. The Partnership intends to use the net proceeds of this offering, after deducting the Sales Agents’ commission and its offering expenses, for general partnership purposes, which may include, among other things paying or refinancing a portion of its outstanding debt. During the nine months ended September 30, 2015, the Partnership sold 49,774 common units for net proceeds of $1.2 million pursuant to the ATM Agreement.

In April 2015, we sold to the Partnership contract operations customer service agreements with 60 customers and a fleet of 238 compressor units used to provide compression services under those agreements, comprising approximately 148,000 horsepower, or 3% (by then available horsepower) of our and the Partnership’s combined U.S. contract operations business. The assets sold also included 179 compressor units, comprising approximately 66,000 horsepower, previously leased by us to the Partnership. Total consideration for the transaction was approximately $102.3 million, excluding transaction costs, and consisted of the Partnership’s issuance to us of approximately 4.0 million common units and approximately 80,000 general partner units. Based on the terms of the contribution, conveyance and assumption agreement, the common units and general partner units, including incentive distribution rights, we received from this sale were not entitled to receive a cash distribution relating to the quarter ended March 31, 2015. 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 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.

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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):



	Nine Months Ended September 30,
	2015		2014
Net income attributable to Exterran stockholders	$	24,449	$	79,023
Increase in Exterran stockholders’ additional paid-in capital for change in ownership of Partnership units	18,386		74,521
Change from net income attributable to Exterran stockholders and transfers to/from the noncontrolling interest	$	42,835	$	153,544

20. 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. 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

September 30, 2015

(In thousands)



	Parent		Guarantor Subsidiaries		Other Subsidiaries		Eliminations			Consolidation
ASSETS

Current assets	$	792	$	612,488	$	557,043	$	—		$	1,170,323
Current assets associated with discontinued operations	—		—		263		—			263
Total current assets	792		612,488		557,306		—			1,170,586
Property, plant and equipment, net	—		922,974		2,370,392		—			3,293,366
Investments in affiliates	1,810,278		1,725,780		—		(3,536,058		)	—
Goodwill	—		—		3,738		—			3,738
Intangible and other assets, net	5,784		31,020		178,543		(115		)	215,232
Intercompany receivables	688,672		18,957		432,400		(1,140,029		)	—
Long-term assets associated with discontinued operations	—		—		15,996		—			15,996
Total long-term assets	2,504,734		2,698,731		3,001,069		(4,676,202		)	3,528,332
Total assets	$	2,505,526	$	3,311,219	$	3,558,375	$	(4,676,202	)	$	4,698,918

LIABILITIES AND EQUITY

Current liabilities	$	8,789	$	235,346	$	220,368	$	—		$	464,503
Current liabilities associated with discontinued operations	—		—		677		—			677
Total current liabilities	8,789		235,346		221,045		—			465,180
Long-term debt	680,000		738		1,395,166		—			2,075,904
Intercompany payables	—		1,121,072		18,957		(1,140,029		)	—
Other long-term liabilities	—		143,785		112,955		(115		)	256,625
Long-term liabilities associated with discontinued operations	—		—		162		—			162
Total liabilities	688,789		1,500,941		1,748,285		(1,140,144		)	2,797,871
Total equity	1,816,737		1,810,278		1,810,090		(3,536,058		)	1,901,047
Total liabilities and equity	$	2,505,526	$	3,311,219	$	3,558,375	$	(4,676,202	)	$	4,698,918

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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 Statement of Operations and Comprehensive Income (Loss)

Three Months Ended September 30, 2015

(In thousands)



	Parent			Guarantor Subsidiaries			Other Subsidiaries			Eliminations			Consolidation
Revenues	$	—		$	314,478		$	404,343		$	(69,320	)	$	649,501
Costs of sales (excluding depreciation and amortization expense)	—			238,327			240,732			(69,320		)	409,739
Selling, general and administrative	159			38,569			43,396			—			82,124
Depreciation and amortization	—			29,900			65,024			—			94,924
Long-lived asset impairment	—			15,080			8,628			—			23,708
Restructuring and other charges	—			10,220			1,778			—			11,998
Interest expense	9,219			234			19,124			—			28,577
Intercompany charges, net	(8,653		)	8,013			640			—			—
Equity in (income) loss of affiliates	5,823			(208		)	(5,084		)	(5,615		)	(5,084		)
Other (income) expense, net	10			2,735			27,384			—			30,129
Income (loss) before income taxes	(6,558		)	(28,392		)	2,721			5,615			(26,614		)
Provision for (benefit from) income taxes	(254		)	(22,569		)	19,218			—			(3,605		)
Loss from continuing operations	(6,304		)	(5,823		)	(16,497		)	5,615			(23,009		)
Income from discontinued operations, net of tax	—			—			18,776			—			18,776
Net income (loss)	(6,304		)	(5,823		)	2,279			5,615			(4,233		)
Less: Net income attributable to the noncontrolling interest	—			—			(2,071		)	—			(2,071		)
Net income (loss) attributable to Exterran stockholders	(6,304		)	(5,823		)	208			5,615			(6,304		)
Other comprehensive income attributable to Exterran stockholders	3,911			3,058			3,239			(6,297		)	3,911
Comprehensive income (loss) attributable to Exterran stockholders	$	(2,393	)	$	(2,765	)	$	3,447		$	(682	)	$	(2,393	)

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Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)

Three Months Ended September 30, 2014

(In thousands)



	Parent			Guarantor Subsidiaries			Other Subsidiaries			Eliminations			Consolidation
Revenues	$	—		$	367,326		$	408,847		$	(52,341	)	$	723,832
Costs of sales (excluding depreciation and amortization expense)	—			260,530			249,158			(52,341		)	457,347
Selling, general and administrative	61			43,437			51,308			—			94,806
Depreciation and amortization	—			32,040			66,216			—			98,256
Long-lived asset impairment	—			7,783			4,602			—			12,385
Restructuring and other charges	—			94			125			—			219
Interest expense	9,593			396			15,748			—			25,737
Intercompany charges, net	(9,006		)	8,026			980			—			—
Equity in income of affiliates	(34,481		)	(28,290		)	(4,951		)	62,771			(4,951		)
Other (income) expense, net	10			1,301			3,352			—			4,663
Income before income taxes	33,823			42,009			22,309			(62,771		)	35,370
Provision for (benefit from) income taxes	(227		)	7,528			3,914			—			11,215
Income from continuing operations	34,050			34,481			18,395			(62,771		)	24,155
Income from discontinued operations, net of tax	—			—			18,003			—			18,003
Net income	34,050			34,481			36,398			(62,771		)	42,158
Less: Net income attributable to the noncontrolling interest	—			—			(8,108		)	—			(8,108		)
Net income attributable to Exterran stockholders	34,050			34,481			28,290			(62,771		)	34,050
Other comprehensive loss attributable to Exterran stockholders	(5,630		)	(5,687		)	(5,498		)	11,185			(5,630		)
Comprehensive income attributable to Exterran stockholders	$	28,420		$	28,794		$	22,792		$	(51,586	)	$	28,420

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Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)

Nine Months Ended September 30, 2015

(In thousands)



	Parent			Guarantor Subsidiaries			Other Subsidiaries			Eliminations			Consolidation
Revenues	$	—		$	1,039,414		$	1,231,878		$	(208,877	)	$	2,062,415
Costs of sales (excluding depreciation and amortization expense)	—			789,565			726,112			(208,877		)	1,306,800
Selling, general and administrative	268			116,262			136,154			—			252,684
Depreciation and amortization	—			91,912			193,145			—			285,057
Long-lived asset impairment	—			36,521			15,339			—			51,860
Restructuring and other charges	—			29,206			7,186			—			36,392
Interest expense	27,839			459			55,975			—			84,273
Intercompany charges, net	(26,098		)	23,845			2,253			—			—
Equity in income of affiliates	(25,783		)	(56,298		)	(15,152		)	82,081			(15,152		)
Other (income) expense, net	30			2,308			36,637			—			38,975
Income before income taxes	23,744			5,634			74,229			(82,081		)	21,526
Provision for (benefit from) income taxes	(705		)	(20,149		)	35,482			—			14,628
Income from continuing operations	24,449			25,783			38,747			(82,081		)	6,898
Income from discontinued operations, net of tax	—			—			37,743			—			37,743
Net income	24,449			25,783			76,490			(82,081		)	44,641
Less: Net income attributable to the noncontrolling interest	—			—			(20,192		)	—			(20,192		)
Net income attributable to Exterran stockholders	24,449			25,783			56,298			(82,081		)	24,449
Other comprehensive loss attributable to Exterran stockholders	(3,705		)	(5,522		)	(4,732		)	10,254			(3,705		)
Comprehensive income attributable to Exterran stockholders	$	20,744		$	20,261		$	51,566		$	(71,827	)	$	20,744

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Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)

Nine Months Ended September 30, 2014

(In thousands)



	Parent			Guarantor Subsidiaries			Other Subsidiaries			Eliminations			Consolidation
Revenues	$	—		$	1,085,562		$	1,183,139		$	(162,591	)	$	2,106,110
Costs of sales (excluding depreciation and amortization expense)	—			798,368			714,388			(162,591		)	1,350,165
Selling, general and administrative	211			131,668			151,217			—			283,096
Depreciation and amortization	—			102,651			193,083			—			295,734
Long-lived asset impairment	—			16,960			9,079			—			26,039
Restructuring and other charges	—			4,692			702			—			5,394
Interest expense	45,208			1,634			39,925			—			86,767
Intercompany charges, net	(27,177		)	24,568			2,609			—			—
Equity in income of affiliates	(90,910		)	(102,779		)	(14,553		)	193,689			(14,553		)
Other (income) expense, net	30			3,082			(4,554		)	—			(1,442		)
Income before income taxes	72,638			104,718			91,243			(193,689		)	74,910
Provision for (benefit from) income taxes	(6,385		)	13,808			24,071			—			31,494
Income from continuing operations	79,023			90,910			67,172			(193,689		)	43,416
Income from discontinued operations, net of tax	—			—			54,499			—			54,499
Net income	79,023			90,910			121,671			(193,689		)	97,915
Less: Net income attributable to the noncontrolling interest	—			—			(18,892		)	—			(18,892		)
Net income attributable to Exterran stockholders	79,023			90,910			102,779			(193,689		)	79,023
Other comprehensive loss attributable to Exterran stockholders	(5,715		)	(6,531		)	(6,071		)	12,602			(5,715		)
Comprehensive income attributable to Exterran stockholders	$	73,308		$	84,379		$	96,708		$	(181,087	)	$	73,308

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Condensed Consolidating Statement of Cash Flows

Nine Months Ended September 30, 2015

(In thousands)



	Parent			Guarantor Subsidiaries			Other Subsidiaries			Eliminations			Consolidation
Cash flows from operating activities:
Net cash provided by continuing operations	$	3,629		$	2,269		$	306,462		$	—		$	312,360
Net cash provided by discontinued operations	—			—			3,441			—			3,441
Net cash provided by operating activities	3,629			2,269			309,903			—			315,801
Cash flows from investing activities:
Capital expenditures	—			(77,179		)	(273,074		)	—			(350,253		)
Proceeds from sale of property, plant and equipment	—			4,630			17,226			—			21,856
Capital distributions received from consolidated subsidiaries	—			49,265			—			(49,265		)	—
Return of investments in non-consolidated affiliates	—			—			15,185			—			15,185
Proceeds received from settlement of note receivable	—			—			5,357			—			5,357
Increase in restricted cash	—			—			(1		)	—			(1		)
Cash invested in non-consolidated affiliates	—			—			(33		)	—			(33		)
Return of investments in consolidated subsidiaries	31,167			—			—			(31,167		)	—
Net cash provided by (used in) continuing operations	31,167			(23,284		)	(235,340		)	(80,432		)	(307,889		)
Net cash provided by discontinued operations	—			—			33,119			—			33,119
Net cash provided by (used in) investing activities	31,167			(23,284		)	(202,221		)	(80,432		)	(274,770		)
Cash flows from financing activities:
Proceeds from borrowings of long-term debt	722,500			—			332,500			—			1,055,000
Repayments of long-term debt	(768,000		)	—			(238,500		)	—			(1,006,500		)
Payments for debt issuance costs	(874		)	(1,023		)	(1,311		)	—			(3,208		)
Payments for settlement of interest rate swaps that include financing elements	—			—			(2,815		)	—			(2,815		)
Net proceeds from the sale of Partnership units	—			—			1,164			—			1,164
Proceeds from stock options exercised	1,106			—			—			—			1,106
Proceeds from stock issued pursuant to our employee stock purchase plan	910			—			—			—			910
Purchases of treasury stock	(3,771		)	—			—			—			(3,771		)
Dividends to Exterran stockholders	(31,167		)	—			—			—			(31,167		)
Stock-based compensation excess tax benefit	3,048			—			—			—			3,048
Distributions to noncontrolling partners in the Partnership	—			—			(110,310		)	49,265			(61,045		)
Capital distributions to affiliates	—			(31,167		)	—			31,167			—
Borrowings (repayments) between consolidated subsidiaries, net	41,550			53,531			(95,081		)	—			—
Net cash provided by (used in) financing activities	(34,698		)	21,341			(114,353		)	80,432			(47,278		)
Effect of exchange rate changes on cash and cash equivalents	—			—			(976		)	—			(976		)
Net increase (decrease) in cash and cash equivalents	98			326			(7,647		)	—			(7,223		)
Cash and cash equivalents at beginning of period	42			655			39,042			—			39,739
Cash and cash equivalents at end of period	$	140		$	981		$	31,395		$	—		$	32,516

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Condensed Consolidating Statement of Cash Flows

Nine Months Ended September 30, 2014

(In thousands)



	Parent			Guarantor Subsidiaries			Other Subsidiaries			Eliminations			Consolidation
Cash flows from operating activities:
Net cash provided by (used in) continuing operations	$	(1,743	)	$	79,455		$	198,456		$	—		$	276,168
Net cash provided by discontinued operations	—			—			3,954			—			3,954
Net cash provided by (used in) operating activities	(1,743		)	79,455			202,410			—			280,122
Cash flows from investing activities:
Capital expenditures	—			(116,458		)	(269,281		)	—			(385,739		)
Proceeds from sale of property, plant and equipment	—			8,274			11,462			—			19,736
Payment for business acquisitions	—			(11,743		)	(483,012		)	—			(494,755		)
Capital distributions received from consolidated subsidiaries	—			40,688			—			(40,688		)	—
Increase in restricted cash	—			—			(245		)	—			(245		)
Return of investments in non-consolidated affiliates	—			—			14,750			—			14,750
Investment in consolidated subsidiaries	—			(13,813		)	—			13,813			—
Cash invested in non-consolidated affiliates	—			—			(197		)	—			(197		)
Return of investments in consolidated subsidiaries	252,482			—			—			(252,482		)	—
Net cash provided by (used in) continuing operations	252,482			(93,052		)	(726,523		)	(279,357		)	(846,450		)
Net cash provided by discontinued operations	—			—			49,835			—			49,835
Net cash provided by (used in) investing activities	252,482			(93,052		)	(676,688		)	(279,357		)	(796,615		)
Cash flows from financing activities:
Proceeds from borrowings of long-term debt	1,056,001			—			793,798			—			1,849,799
Repayments of long-term debt	(1,073,500		)	—			(332,500		)	—			(1,406,000		)
Payments for debt issuance costs	—			—			(6,923		)	—			(6,923		)
Payments above face value for redemption of convertible debt	(15,007		)	—			—			—			(15,007		)
Payments for settlement of interest rate swaps that include financing elements	—			—			(2,844		)	—			(2,844		)
Net proceeds from the sale of Partnership units	—			—			169,471			—			169,471
Proceeds from stock options exercised	11,637			—			—			—			11,637
Proceeds from stock issued pursuant to our employee stock purchase plan	1,324			—			—			—			1,324
Purchases of treasury stock	(6,372		)	—			—			—			(6,372		)
Dividends to Exterran stockholders	(30,047		)	—			—			—			(30,047		)
Stock-based compensation excess tax benefit	8,269			—			—			—			8,269
Distributions to noncontrolling partners in the Partnership	—			—			(95,581		)	40,688			(54,893		)
Net proceeds from sale of general partner units	—			—			3,573			(3,573		)	—
Capital distributions to affiliates	—			(252,482		)	—			252,482			—
Capital contributions received from parent	—			—			10,240			(10,240		)	—
Borrowings (repayments) between consolidated subsidiaries, net	(203,025		)	264,974			(61,949		)	—			—
Net cash provided by (used in) financing activities	(250,720		)	12,492			477,285			279,357			518,414
Effect of exchange rate changes on cash and cash equivalents	—			—			(3,797		)	—			(3,797		)
Net increase (decrease) in cash and cash equivalents	19			(1,105		)	(790		)	—			(1,876		)
Cash and cash equivalents at beginning of period	11			1,554			34,100			—			35,665
Cash and cash equivalents at end of period	$	30		$	449		$	33,310		$	—		$	33,789

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21. Subsequent Events

On October 5, 2015, we and our wholly owned subsidiary, Archrock Services, L.P., amended the terms of the Archrock Credit Agreement to increase the borrowing capacity from $300.0 million to $350.0 million. Availability under the Archrock Credit Facility was subject to the satisfaction of certain conditions precedent, including (i) the payoff and termination of our existing Credit Facility and (ii) the consummation of the Spin-off on or before January 4, 2016 (the date on which those conditions are satisfied is referred to as the “Archrock Initial Availability Date”). As a result of the completion of the Spin-off, the Archrock Initial Availability Date was November 3, 2015. See Note 2 and discussion below for additional information regarding the Spin-off.

On October 5, 2015, EESLP and Exterran Corporation amended and restated the Exterran Corporation Credit Agreement to provide for a new $925.0 million credit facility, consisting of a $680.0 million revolving credit facility and a $245.0 million term loan facility. Availability under the Exterran Corporation Credit Facility was subject to the satisfaction of certain conditions precedent, including the consummation of the Spin-off on or before January 4, 2016 (the date on which those conditions are satisfied is referred to as the “Initial Availability Date”). As a result of the completion of the Spin-off, the Initial Availability Date was November 3, 2015. See Note 2 and discussion below for additional information regarding the Spin-off.

In October 2015, we received an additional installment payment, including an annual charge, of $19.1 million from PDVSA Gas relating to the 2012 sale of our Venezuelan subsidiary’s previously nationalized assets. As we have not recognized amounts payable to us by PDVSA Gas relating to the 2012 sale of our Venezuelan subsidiary’s previously nationalized assets as a receivable but rather as income from discontinued operations in the periods such payments are received, the installment payment received in October 2015 will be recognized as income from discontinued operations in the fourth quarter of 2015.

On November 3, 2015, we completed the Spin-off of our international contract operations, international aftermarket services and global fabrication businesses into an independent, publicly traded company. Upon the completion of the Spin-off, we and Exterran Corporation are independent, publicly traded companies with separate public ownership, boards of directors and management, and we continue to own and operate the U.S. contract operations and U.S. aftermarket services businesses that we previously owned. Effective on November 3, 2015, we were renamed Archrock, Inc. and beginning on November 4, 2015 we trade on the New York Stock exchange under the symbol “AROC.” Additionally, we 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. Effective on November 3, 2015, the Partnership was renamed Archrock Partners, L.P. and trades on the Nasdaq Global Select Market under the symbol “APLP.” To effect the Spin-off, we distributed on the Distribution Date, on a pro rata basis, all of the shares of Exterran Corporation common stock to our stockholders as of the Record Date. Exterran Holdings shareholders received one share of Exterran Corporation common stock for every two shares of our common stock held at the close of business on the Record Date. Financial results of Exterran Corporation prior to the Spin-off will be reported as discontinued operations beginning in our Annual Report on Form 10-K for the year ending December 31, 2015.

In connection with the completion of the Spin-off, we received $532.6 million from subsidiaries of Exterran Corporation in accordance with the separation and distribution agreement. On November 3, 2015, we terminated our existing Credit Facility and repaid all borrowings and accrued and unpaid interest outstanding on the repayment date. On November 4, 2015, we called the principal amount and accrued and unpaid interest outstanding under our 7.25% Notes. The cash received from Exterran Corporation and borrowings under our Archrock Credit Facility were used to repay the outstanding borrowings and accrued but unpaid interest on our existing Credit Facility and will be used to redeem our 7.25% Notes, which are expected to be redeemed 30 days after the call date.

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and the notes thereto included in the Condensed Consolidated Financial Statements in Part I, Item 1 (“Financial Statements”) of this report and in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2014.

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 materially from the expectations reflected in these forward-looking statements include the risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2014, and those set forth from time to time in our filings with the Securities and Exchange Commission (“SEC”), which are available through our website at www.archrock.com and through the SEC’s website at www.sec.gov, as well as the following risks and uncertainties:


•	conditions in the oil and natural gas industry, including a sustained 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 continue to depress or further decrease 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”);


•	the success of our separation (the “Spin-off”) of our international contract operations, international aftermarket services and global fabrication businesses into an independent, publicly traded company (“Exterran Corporation,” previously named Exterran SpinCo, Inc. prior to May 18, 2015);


•	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;

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


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


•	our ability to implement 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.

General

Exterran Holdings, Inc., together with its subsidiaries (“Exterran,” “Archrock,” “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.

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Spin-off 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. On November 3, 2015 (the “Distribution Date”), we completed the Spin-off of Exterran Corporation. To effect the Spin-off, we distributed on the Distribution Date, on a pro rata basis, all of the shares of Exterran Corporation common stock to our stockholders as of October 27, 2015 (the “Record Date”). Exterran Holdings shareholders received one share of Exterran Corporation common stock for every two shares of our common stock held at the close of business on the Record Date. Upon completion of the Spin-off, we and Exterran Corporation are independent, publicly traded companies with separate public ownership, boards of directors and management, and we continue to own and operate the U.S. contract operations and U.S. aftermarket services businesses that we previously owned. Effective on November 3, 2015, we were renamed Archrock, Inc. and beginning on November 4, 2015 we trade on the New York Stock exchange under the symbol “AROC.” References to “Archrock,” “Exterran,” “our,” “we” or “us” refer to Archrock, Inc., including the Exterran Corporation businesses, for all periods prior to or ending on November 3, 2015. Additionally, we 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. Effective on November 3, 2015, the Partnership was renamed Archrock Partners, L.P. and trades on the Nasdaq Global Select Market under the symbol “APLP.” References to “Archrock Partners,” “Exterran Partners” or “the Partnership” refer to Archrock Partners, L.P., for all periods prior to or ending on November 3, 2015.

Exterran Corporation’s new capital structure includes a new $925.0 million credit facility, consisting of a $680.0 million revolving credit facility and a $245.0 million term loan facility (collectively, the “Exterran Corporation Credit Facility”) that became available on November 3, 2015. Exterran Corporation transferred the net proceeds from the borrowings under the Exterran Corporation Credit Facility to us to allow for our repayment of a portion of our indebtedness prior to the internal distribution. Our new capital structure includes a new $350.0 million revolving credit facility that became available on November 3, 2015.

Unless otherwise indicated, this discussion in Part I, Item 2 (“Management’s Discussion and Analysis of Financial Condition and Results of Operations”) excludes the potential future impact of the Spin-off transaction. The effect of the Spin-off transaction will significantly change and materially impact our business, financial condition, results of operations and cash flows. Financial results of Exterran Corporation prior to the Spin-off will be reported as discontinued operations beginning in our Annual Report on Form 10-K for the year ending December 31, 2015.

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 September 30, 2015, public unitholders held a 59% 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 September 30, 2015, the Partnership’s fleet included 6,656 compressor units comprising approximately 3,383,000 horsepower, or 79% of our and the Partnership’s combined total U.S. horsepower.

April 2015 Contract Operations Acquisition

On April 17, 2015, we sold to the Partnership contract operations customer service agreements with 60 customers and a fleet of 238 compressor units used to provide compression services under those agreements, comprising approximately 148,000 horsepower, or 3% (by then available horsepower) of our and the Partnership’s combined U.S. contract operations business. The assets sold also included 179 compressor units, comprising approximately 66,000 horsepower, previously leased by us to the Partnership. Total consideration for the transaction was approximately $102.3 million, excluding transaction costs, and consisted of the Partnership’s issuance to us of approximately 4.0 million common units and approximately 80,000 general partner units. Based on the terms of the contribution, conveyance and assumption agreement, the common units and general partner units, including incentive distribution rights, we received from this sale were not entitled to receive a cash distribution relating to the quarter ended March 31, 2015. The acquisition of the assets by the Partnership from us is referred to as the “April 2015 Contract Operations Acquisition.”

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August 2014 MidCon Acquisition

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.”

Overview

Industry Conditions and Trends

Our business environment and corresponding operating results are affected by the level of energy industry spending for the exploration, development and production of oil and natural gas reserves. Spending by oil and natural gas exploration and production companies is dependent upon these companies’ forecasts regarding the expected future supply, demand and pricing of oil and natural gas products as well as their estimates of risk-adjusted costs to find, develop and produce reserves. Although we believe our contract operations business 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.

Natural gas consumption in the U.S. for the twelve months ended July 31, 2015 increased by approximately 2% compared to the twelve months ended July 31, 2014. The U.S. Energy Information Administration (“EIA”) forecasts that total U.S. natural gas consumption will increase by 4.2% 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 July 31, 2015 increased by approximately 8% compared to the twelve months ended July 31, 2014. The EIA forecasts that total U.S. natural gas marketed production will increase by 5.6% 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.

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Global oil and U.S. natural gas prices have declined significantly since the third quarter of 2014, and, as a result, research analysts have forecasted declines in U.S. and worldwide capital spending for drilling activity in 2015, and U.S. producers and other producers around the world have announced reduced capital budgets for this year.

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.

Historically, oil and natural gas prices in North America have been volatile. For example, the Henry Hub spot price for natural gas was $2.47 per MMBtu at September 30, 2015, which was approximately 21% and 40% lower than prices at December 31, 2014 and September 30, 2014, respectively, and the U.S. natural gas liquid composite price was approximately $4.73 per MMBtu for the month of July 2015, which was approximately 16% and 52% lower than prices for the months of December 2014 and September 2014, respectively, which has led to reduced drilling of gas wells in North America in 2015. In addition, the West Texas Intermediate crude oil spot price as of September 30, 2015 was approximately 16% and 51% lower than prices at December 31, 2014 and September 30, 2014, respectively, which has led 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. During periods of lower oil or natural gas prices, our customers typically decrease their capital expenditures, which generally results in lower activity levels, and as a result the demand or pricing for our contract operations services and fabricated equipment could be adversely affected. As a result of the low oil and natural gas price environment in North America, our operating horsepower in North America decreased by 3% during the nine months ended September 30, 2015. In addition, our customers have sought to reduce their capital and operating expenditure requirements due to lower oil and natural gas prices, and as a result, the demand and pricing for our fabricated equipment in North America have been adversely impacted. Booking activity levels for our fabricated products in North America during the three months ended September 30, 2015 were $90.3 million, which represents a decrease of approximately 71% and 69% compared to the three months ended December 31, 2014 and September 30, 2014, respectively, and our North America fabrication backlog as of September 30, 2015 was $225.8 million, which represents a decrease of approximately 58% and 49% compared to December 31, 2014 and September 30, 2014, respectively. We believe these booking levels reflect both our customers’ reduced activity levels in response to the decline in commodity prices and caution on the part of our customers as they reset capital budgets and seek to reduce costs.

Similarly, in international markets, lower oil and gas prices may have a negative impact on the amount of capital investment by our customers in new projects. However, we believe the impact will be less than we expect to experience in North America for two reasons: first, the longer-term fundamentals influencing our international customers’ demand and, second, the long-term contracts we have in place with some of those international customers, including for our contract operations services. Growth in our international markets depends in part 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 local pricing for natural gas. As a result, we believe our international customers make decisions based on longer-term fundamentals that can be less tied to near term commodity prices than our North American customers. Therefore, we believe the demand for our services and products in international markets will continue, and we expect to have opportunities to grow our international businesses over the long term. In the short term, however, our customers have sought to reduce their capital and operating expenditure requirements due to lower oil and natural gas prices. As a result, the demand and pricing for our services and products in international markets have been adversely impacted. Booking activity levels for our fabricated products in international markets during the three months ended September 30, 2015 were $86.7 million, which represents a decrease of approximately 46% and an increase of approximately 93% compared to the three months ended December 31, 2014 and September 30, 2014, respectively, and our international market fabrication backlog as of September 30, 2015 was $290.4 million, which represents a decrease of approximately 30% and 26% compared to December 31, 2014 and September 30, 2014, respectively.

Aggregate booking activity levels for our fabricated products in North America and international markets during the three months ended September 30, 2015 were $177.0 million, which represents a decrease of approximately 63% and 47% compared to the three months ended December 31, 2014 and September 30, 2014, respectively. The aggregate fabrication backlog for our fabricated products in North America and international markets as of September 30, 2015 was $516.2 million, which represents a decrease of approximately 46% and 39% compared to December 31, 2014 and September 30, 2014, respectively.

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The timing of any change in activity levels by our customers is difficult to predict. As a result, our ability to project the anticipated activity level for our business, and particularly our fabrication segment, is limited. If capital spending by our customers remains low, we expect bookings in our fabrication business in 2016 to be comparable to or lower than our bookings in 2015. If these reduced booking levels persist for a sustained period, we could experience a material adverse effect on our business, financial condition, results of operations and cash flows.

Our level of capital spending depends on our forecast for the demand for our products and services and the equipment required to provide services to our customers. Based on 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 large multi-year projects contracted in 2014 that are scheduled to start earning revenue in 2015 and 2016.

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. Any such transaction depends 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.

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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):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Total Available Horsepower (at period end):
North America	4,267		4,125		4,267		4,125
International	1,209		1,268		1,209		1,268
Total	5,476		5,393		5,476		5,393
Total Operating Horsepower (at period end):
North America	3,580		3,588		3,580		3,588
International	961		952		961		952
Total	4,541		4,540		4,541		4,540
Average Operating Horsepower:
North America	3,600		3,514		3,649		3,249
International	952		952		957		967
Total	4,552		4,466		4,606		4,216
Horsepower Utilization (at period end):
North America	84	%	87	%	84	%	87	%
International	79	%	75	%	79	%	75	%
Total	83	%	84	%	83	%	84	%



	September 30, 2015		December 31, 2014		September 30, 2014
Compressor and Accessory Fabrication Backlog	$	110,586	$	270,297	$	174,540
Production and Processing Equipment Fabrication Backlog	379,187		561,153		549,961
Installation Backlog	26,419		121,751		115,374
Total Fabrication Backlog (1)	$	516,192	$	953,201	$	839,875

________________________________


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

Financial Results of Operations

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 and our contract water treatment business. Those results are reflected in discontinued operations for all periods presented.

Revenue. Revenue during the three months ended September 30, 2015 was $649.5 million compared to $723.8 million during the three months ended September 30, 2014. Revenue during the nine months ended September 30, 2015 was $2,062.4 million compared to $2,106.1 million during the nine months ended September 30, 2014. The decrease in revenue during the three months ended September 30, 2015 compared to the three months ended September 30, 2014 was primarily caused by decreases in fabrication, aftermarket services and international contract operations revenues. The decrease in revenue during the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014 was caused by decreases in fabrication, aftermarket services and international contract operations revenues, partially offset by an increase in North America contract operations revenue.

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Net income (loss) attributable to Exterran stockholders. We generated net loss attributable to Exterran stockholders of $6.3 million and net income attributable to Exterran stockholders of $34.1 million during the three months ended September 30, 2015 and 2014, respectively. We generated net income attributable to Exterran stockholders of $24.4 million and $79.0 million during the nine months ended September 30, 2015 and 2014, respectively. The decrease in net income attributable to Exterran stockholders during the three months ended September 30, 2015 compared to the three months ended September 30, 2014 was primarily driven by a decrease in fabrication gross margin, a $24.8 million increase in translation losses related to the functional currency remeasurement of our foreign subsidiaries’ U.S. dollar denominated intercompany obligations, an increase in long-lived asset impairment and an increase in restructuring and other charges, including costs associated with the Spin-off. These activities were partially offset by a decrease in selling, general and administrative (“SG&A”) expense and a decrease in income tax expense. The decrease in net income attributable to Exterran stockholders during the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014 was primarily due to decreases in fabrication and international contract operations gross margin, a $35.6 million increase in translation losses related to the functional currency remeasurement of our foreign subsidiaries’ U.S. dollar denominated intercompany obligations, an increase in restructuring and other charges, including costs associated with the Spin-off, an increase in long-lived asset impairment and a $16.5 million decrease in proceeds received from the sale of our Venezuelan subsidiary’s assets to PDVSA Gas S.A. (“PDVSA Gas”). These activities were partially offset by an increase in North America contract operations gross margin, a decrease in SG&A expense, a decrease in income tax expense and a decrease in depreciation and amortization expense.

EBITDA, as adjusted. Our EBITDA, as adjusted, was $155.1 million and $170.6 million during the three months ended September 30, 2015 and 2014, respectively, and $499.5 million and $476.6 million during the nine months ended September 30, 2015 and 2014, respectively. EBITDA, as adjusted, during the three months ended September 30, 2015 compared to the three months ended September 30, 2014 decreased primarily due to lower gross margin in our fabrication segment, partially offset by a decrease in SG&A expense. EBITDA, as adjusted, during the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014 increased primarily due to higher gross margin in our North America contract operations segment and a decrease in SG&A expense, partially offset by lower gross margin in our fabrication and international contract operations segments and a $3.4 million decrease in gain on sale of property, plant and equipment. For a reconciliation of EBITDA, as adjusted, to net income (loss), its most directly comparable financial measure calculated and presented in accordance with accounting principles generally accepted in the U.S. (“GAAP”), please read “— Non-GAAP Financial Measures.”

The Three Months Ended September 30, 2015 Compared to the Three Months Ended September 30, 2014

North America Contract Operations

(dollars in thousands)



	Three Months Ended September 30,						Increase
	2015			2014			(Decrease)
Revenue	$	191,692		$	191,000		—	%
Cost of sales (excluding depreciation and amortization expense)	77,927			82,453			(5	)%
Gross margin	$	113,765		$	108,547		5	%
Gross margin percentage(1)	59		%	57		%	2	%

_______________________________________


⁽¹⁾	Defined as gross margin divided by revenue.

Revenue during the three months ended September 30, 2015 compared to the three months ended September 30, 2014 remained relatively flat. Gross margin (defined as revenue less cost of sales, excluding depreciation and amortization expense) and gross margin percentage increased during the three months ended September 30, 2015 compared to the three months ended September 30, 2014 primarily due to a decrease of $3.2 million in lube oil expenses driven by a decrease in commodity prices and efficiency gains in lube oil consumption in the current year. 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 Note 18 to the Financial Statements.

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International Contract Operations

(dollars in thousands)



	Three Months Ended September 30,						Increase
	2015			2014			(Decrease)
Revenue	$	114,104		$	124,355		(8	)%
Cost of sales (excluding depreciation and amortization expense)	41,114			47,983			(14	)%
Gross margin	$	72,990		$	76,372		(4	)%
Gross margin percentage	64		%	61		%	3	%

The decrease in revenue during the three months ended September 30, 2015 compared to the three months ended September 30, 2014 was primarily due to a $6.8 million decrease in revenue in Brazil primarily related to a project which had little incremental costs that commenced and terminated operations in 2014 and a $3.7 million decrease in revenue in the Eastern Hemisphere primarily driven by decreases in Nigeria and Indonesia. Gross margin decreased primarily as a result of the revenue decrease explained above, partially offset by a reduction in labor expenses in Mexico during the current year period. Gross margin percentage increased during the three months ended September 30, 2015 compared to the three months ended September 30, 2014 primarily due to the reduction in labor expenses in Mexico during the current year period mentioned above, partially offset by the revenue decrease explained above. While our gross margin during the three months ended September 30, 2014 benefited from the start-up of a Brazilian project, our contract operations business is capital intensive, and as such, we did have additional costs in the form of depreciation expense, which is excluded from gross margin.

Aftermarket Services

(dollars in thousands)



	Three Months Ended September 30,						Increase
	2015			2014			(Decrease)
Revenue	$	82,443		$	96,005		(14	)%
Cost of sales (excluding depreciation and amortization expense)	63,773			75,510			(16	)%
Gross margin	$	18,670		$	20,495		(9	)%
Gross margin percentage	23		%	21		%	2	%

The decrease in revenue during the three months ended September 30, 2015 compared to the three months ended September 30, 2014 was primarily due to decreases in revenue in the Eastern Hemisphere and Latin America of $10.0 million and $4.3 million, respectively. The decrease in revenue in the Eastern Hemisphere was primarily caused by a $3.6 million decrease in revenue in Gabon driven by our cessation of activities in the Gabon market in the current year period and a decrease in revenue of $3.1 million as a result of the sale of our Australian business in December 2014. Gross margin decreased during the three months ended September 30, 2015 compared to the three months ended September 30, 2014 primarily due to a $1.7 million decrease in gross margin in the Eastern Hemisphere primarily driven by the revenue decreases discussed above. The increase in gross margin percentage during the three months ended September 30, 2015 compared to the three months ended September 30, 2014 was primarily due to our cessation of activities in the Gabon market in the current year period and a $0.5 million decrease in expense for inventory reserves.

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Fabrication

(dollars in thousands)



	Three Months Ended September 30,						Increase
	2015			2014			(Decrease)
Revenue	$	261,262		$	312,472		(16	)%
Cost of sales (excluding depreciation and amortization expense)	226,925			251,401			(10	)%
Gross margin	$	34,337		$	61,071		(44	)%
Gross margin percentage	13		%	20		%	(7	)%

The decrease in revenue during the three months ended September 30, 2015 compared to the three months ended September 30, 2014 was due to decreases in revenue in North America and the Eastern Hemisphere of $60.0 million and $3.4 million, respectively, partially offset by an increase in revenue in Latin America of $12.2 million. The decrease in revenue in North America was primarily due to decreases of $33.1 million and $27.5 million in production and processing equipment revenue and compression equipment revenue, respectively. The decrease in the Eastern Hemisphere revenue was primarily due to decreases of $5.2 million and $4.8 million in production and processing equipment revenue and compression equipment revenue, respectively, partially offset by a $6.6 million increase in installation revenue. The increase in Latin America revenue was primarily due to an increase of $5.9 million and $5.4 million in production and processing equipment revenue and installation revenue, respectively. The decrease in gross margin and gross margin percentage was primarily caused by the decrease in revenue explained above, weakening market conditions over the past year resulting in lower bookings at more competitive prices in North America and a $5.1 million reduction in gross margin during the three months ended September 30, 2015 resulting from schedule delays on projects in the Eastern Hemisphere.

Costs and Expenses

(dollars in thousands)



	Three Months Ended September 30,						Increase
	2015			2014			(Decrease)
Selling, general and administrative	$	82,124		$	94,806		(13	)%
Depreciation and amortization	94,924			98,256			(3	)%
Long-lived asset impairment	23,708			12,385			91	%
Restructuring and other charges	11,998			219			5,379	%
Interest expense	28,577			25,737			11	%
Equity in income of non-consolidated affiliates	(5,084		)	(4,951		)	3	%
Other (income) expense, net	30,129			4,663			546	%

The decrease in SG&A expense during the three months ended September 30, 2015 compared to the three months ended September 30, 2014 was primarily due to an $8.9 million decrease in compensation and benefits costs and a $4.3 million decrease in professional and legal expenses. SG&A expense as a percentage of revenue was 13% during each of the three month periods ended September 30, 2015 and 2014.

Depreciation and amortization expense during the three months ended September 30, 2015 compared to the three months ended September 30, 2014 decreased primarily due to $9.6 million in depreciation of installation costs recognized during the three months ended September 30, 2014 on a contract operations project in Brazil that commenced and terminated operations in 2014. Prior to the start-up of this project, we capitalized $1.9 million and $24.5 million of installation costs during the years ended December 31, 2014 and 2013, respectively. Capitalized installation costs included, among other things, civil engineering, piping, electrical instrumentation and project management costs. Installation costs capitalized on contract operations projects are depreciated over the life of the underlying contract. This decrease was partially offset by an increase in property, plant and equipment additions in North America and an increase of $2.5 million in depreciation of installation costs on contract operations projects in Mexico.

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During the three months ended September 30, 2015, we reviewed the future deployment of our idle compression assets used in our North America contract operations and international contract operations segments for units that were not of the type, configuration, condition, make or model that are cost efficient to maintain and operate. Based on this review, we determined that approximately 155 idle compressor units totaling approximately 54,000 horsepower would be retired from the active fleet. The retirement of these units from the active fleet triggered a review of these assets for impairment. As a result, we recorded an $11.9 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 connection with our fleet review during the three months ended September 30, 2015, 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 $11.8 million to reduce the book value of each unit to its estimated fair value.

During the three months ended September 30, 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 70 idle compressor units, representing approximately 26,000 horsepower, previously used to provide services in our North America contract operations segment. As a result, we performed an impairment review and recorded a $7.9 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 connection with our fleet review during the three months ended September 30, 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 $4.5 million to reduce the book value of each unit to its estimated fair value.

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. On November 3, 2015, we completed the Spin-off of Exterran Corporation. During the three months ended September 30, 2015, we incurred $6.4 million of costs associated with the Spin-off which were primarily related to legal, consulting, audit and professional fees and a one-time cash signing bonus paid to an employee. Additionally, in the second quarter of 2015 we announced a cost reduction plan, primarily focused on workforce reductions and the reorganization of certain fabrication facilities. These actions were in response to market conditions in North America combined with the impact of lower international activity due to customer budget cuts driven by lower oil prices. As a result of this plan, during the three months ended September 30, 2015 we incurred $5.6 million of restructuring and other charges as a result of this plan related to termination benefits and consulting fees. The costs incurred in conjunction with the Spin-off and cost reduction plan are included in restructuring and other charges in our condensed consolidated statements of operations. See Note 12 to the Financial Statements for further discussion of these charges.

The increase in interest expense during the three months ended September 30, 2015 compared to the three months ended September 30, 2014 was primarily due to an increase in the average balance of long-term debt.

In March 2012, our Venezuelan joint ventures sold their assets to PDVSA Gas. We received payments, including an annual charge, of $5.1 million and $5.0 million during the three months ended September 30, 2015 and 2014, respectively. The remaining principal amount due to us of approximately $13 million as of September 30, 2015, 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 consolidated statements of operations in the periods such payments are received.

The change in other (income) expense, net, was primarily due to foreign currency losses of $28.5 million and $4.2 million during the three months ended September 30, 2015 and 2014, respectively. Our foreign currency losses included translation losses of $27.6 million and $2.8 million during the three months ended September 30, 2015 and 2014, respectively, related to the functional currency remeasurement of our foreign subsidiaries’ U.S. dollar denominated intercompany obligations. Of the foreign currency losses recognized during the three months ended September 30, 2015, $26.7 million was attributable to our Brazil subsidiary’s U.S. dollar denominated intercompany obligations and were the result of a currency devaluation in Brazil and increases in our Brazil subsidiary’s intercompany payables during the current year period.

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Income Taxes

(dollars in thousands)



	Three Months Ended September 30,						Increase
	2015			2014			(Decrease)
Provision for (benefit from) income taxes	$	(3,605	)	$	11,215		(132	)%
Effective tax rate	13.5		%	31.7		%	(18.2	)%

The decrease in our income tax expense during the three months ended September 30, 2015 compared to the three months ended September 30, 2014 was primarily attributable to a $20.7 million tax benefit recognized for the credit for increasing research activities (the “R&D Credit”) during the three months ended September 30, 2015. We claimed the R&D Credit in our recently filed 2014 U.S. federal tax return and intend to file amended tax returns for years prior to 2014. The decrease was partially offset by valuation allowances on net operating losses in our Brazil, Italy and Netherlands subsidiaries in the current year period and a $3.0 million state tax benefit recognized during the three months ended September 30, 2014 for amendments to prior years’ tax returns.

Discontinued Operations

(dollars in thousands)



	Three Months Ended September 30,				Increase
	2015		2014		(Decrease)
Income from discontinued operations, net of tax	$	18,776	$	18,003	4	%

Income from discontinued operations, net of tax, during the three months ended September 30, 2015 and 2014 includes our operations in Venezuela that were expropriated in June 2009, including compensation for expropriation and costs associated with our arbitration proceeding, 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. We received an installment payment, including an annual charge, totaling $18.9 million and $18.2 million during the three months ended September 30, 2015 and 2014, respectively. The remaining principal amount due to us of approximately $83 million as of September 30, 2015, 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.

Net Income Attributable to the Noncontrolling Interest

(dollars in thousands)



	Three Months Ended September 30,						Increase
	2015			2014			(Decrease)
Net income attributable to the noncontrolling interest	$	(2,071	)	$	(8,108	)	(74	)%

Noncontrolling interest comprises the portion of the Partnership’s earnings that are applicable to the Partnership’s publicly-held limited partner interest. As of September 30, 2015 and 2014, public unitholders held an ownership interest in the Partnership of 59% and 63%, respectively. The decrease in net income attributable to the noncontrolling interest during the three months ended September 30, 2015 compared to the three months ended September 30, 2014 was primarily due to a decrease in earnings of the Partnership as a result of increases in long-lived asset impairment and interest expense and our increased ownership percentage in the Partnership, partially offset by the impact of the April 2015 Contract Operations Acquisition and the August 2014 MidCon Acquisition. Our ownership percentage of the Partnership increased during the three months ended September 30, 2015 compared to the three months ended September 30, 2014 as a result of the April 2015 Contract Operations Acquisition.

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The Nine Months Ended September 30, 2015 Compared to the Nine Months Ended September 30, 2014

North America Contract Operations

(dollars in thousands)



	Nine Months Ended September 30,						Increase
	2015			2014			(Decrease)
Revenue	$	592,212		$	529,463		12	%
Cost of sales (excluding depreciation and amortization expense)	241,827			231,048			5	%
Gross margin	$	350,385		$	298,415		17	%
Gross margin percentage	59		%	56		%	3	%

The increase in revenue during the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014 was primarily attributable to a 12% 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. Gross margin (defined as revenue less cost of sales, excluding depreciation and amortization expense) and gross margin percentage increased during the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014 primarily due to the revenue increase explained above and a decrease of $5.6 million in lube oil expenses driven by a decrease in commodity prices and efficiency gains in lube oil consumption in the current year. 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 Note 18 to the Financial Statements.

International Contract Operations

(dollars in thousands)



	Nine Months Ended September 30,						Increase
	2015			2014			(Decrease)
Revenue	$	350,045		$	369,787		(5	)%
Cost of sales (excluding depreciation and amortization expense)	130,198			135,517			(4	)%
Gross margin	$	219,847		$	234,270		(6	)%
Gross margin percentage	63		%	63		%	—	%

The decrease in revenue during the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014 was primarily due to a $24.6 million decrease in revenue in Brazil primarily related to a project which had little incremental costs that commenced and terminated operations in 2014 and a $8.1 million decrease in revenue in the Eastern Hemisphere primarily driven by decreases in Nigeria and Indonesia. These decreases were partially offset by a $9.7 million increase in revenue in Mexico primarily driven by contracts that commenced or were expanded in scope in 2014 and 2015 and a $6.1 million increase in revenue in Argentina primarily due to higher rates and inflationary cost recoveries billed to customers in the current year period partially offset by the devaluation of the Argentine peso in the current year period. Gross margin decreased during the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014 primarily due to the revenue decrease explained above, excluding the devaluation of the Argentine peso in the current year as the impact on gross margin was insignificant. Gross margin percentage remained relatively flat primarily due to the revenue decrease explained above, excluding the devaluation of the Argentine peso in the current year as the impact on gross margin percentage was insignificant, partially offset by a reduction in labor expenses in Mexico during the current year period. While our gross margin during the nine months ended September 30, 2014 benefited from the start-up of a Brazilian project, our contract operations business is capital intensive, and as such, we did have additional costs in the form of depreciation expense, which is excluded from gross margin. Additionally, excluded from cost of sales and recorded to restructuring and other charges in our condensed consolidated statements of operations during the nine months ended September 30, 2015 were non-cash inventory write-downs of $4.2 million associated with the Spin-off primarily related to the decentralization of shared inventory components between the North America contract operations business and the international contract operations business.

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Aftermarket Services

(dollars in thousands)



	Nine Months Ended September 30,						Increase
	2015			2014			(Decrease)
Revenue	$	260,133		$	284,412		(9	)%
Cost of sales (excluding depreciation and amortization expense)	199,878			222,628			(10	)%
Gross margin	$	60,255		$	61,784		(2	)%
Gross margin percentage	23		%	22		%	1	%

The decrease in revenue during the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014 was due to decreases in revenue in the Eastern Hemisphere, Latin America and North America of $16.2 million, $5.8 million and $2.3 million, respectively. The decrease in revenue in the Eastern Hemisphere was primarily caused by a decrease in revenue of $5.4 million as a result of the sale of our Australian business in December 2014 and a $4.6 million decrease in revenue in Gabon driven by our cessation of activities in the Gabon market in the current year period. Gross margin decreased during the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014 primarily due to decreases in gross margin in Latin America and the Eastern Hemisphere of $1.5 million and $0.9 million, respectively partially offset by a $0.9 million increase in gross margin in North America. Gross margin percentage during the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014 remained relatively flat.

Fabrication

(dollars in thousands)



	Nine Months Ended September 30,						Increase
	2015			2014			(Decrease)
Revenue	$	860,025		$	922,448		(7	)%
Cost of sales (excluding depreciation and amortization expense)	734,897			760,972			(3	)%
Gross margin	$	125,128		$	161,476		(23	)%
Gross margin percentage	15		%	18		%	(3	)%

The decrease in revenue during the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014 was due to a decrease in revenue in North America and the Eastern Hemisphere of $58.6 million and $32.4 million, respectively, partially offset by higher revenue in Latin America of $28.6 million. The decrease in revenue in North America was due to decreases of $47.8 million and $43.5 million in compression equipment revenue and production and processing equipment revenue, respectively, partially offset by an increase of $32.7 million in installation revenue. The decrease in Eastern Hemisphere revenue was due to decreases of $21.8 million and $17.3 million in compression equipment revenue and installation revenue, respectively, partially offset by an increase of $6.7 million in production and processing equipment revenue. The increase in Latin America revenue was primarily due to an increase of $25.7 million in compression equipment revenue. The decreases in gross margin and gross margin percentage were primarily caused by the revenue decrease explained above, weakening market conditions over the past year resulting in lower bookings at more competitive prices in North America, a $10.8 million reduction in gross margin during the nine months ended September 30, 2015 resulting from schedule delays on projects in the Eastern Hemisphere, an increase of $3.0 million in expense for inventory reserves during the current year period and a shift in product mix in North America during the current year period. These decreases were partially offset by costs charged to one project in North America related to a warranty expense accrual of approximately $11.0 million during the nine months ended September 30, 2014. Excluded from cost of sales and recorded to restructuring and other charges in our condensed consolidated statements of operations during the nine months ended September 30, 2015 were non-cash inventory write-downs of $4.5 million primarily related to our decision to exit the manufacturing of cold weather packages, which had historically been performed at a fabrication facility in North America we recently decided to close.

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Costs and Expenses

(dollars in thousands)



	Nine Months Ended September 30,						Increase
	2015			2014			(Decrease)
Selling, general and administrative	$	252,684		$	283,096		(11	)%
Depreciation and amortization	285,057			295,734			(4	)%
Long-lived asset impairment	51,860			26,039			99	%
Restructuring and other charges	36,392			5,394			575	%
Interest expense	84,273			86,767			(3	)%
Equity in income of non-consolidated affiliates	(15,152		)	(14,553		)	4	%
Other (income) expense, net	38,975			(1,442		)	(2,803	)%

The decrease in SG&A expense during the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014 was primarily due to a $20.3 million decrease in compensation and benefits costs, a $6.0 million decrease in professional and legal fees and a $3.1 million decrease in state and local taxes. SG&A as a percentage of revenue was 12% and 13% during the nine months ended September 30, 2015 and 2014, respectively.

Depreciation and amortization expense during the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014 decreased primarily due to $29.2 million in depreciation of installation costs recognized during the nine months ended September 30, 2014 on a contract operations project in Brazil that commenced and terminated operations in 2014. Prior to the start-up of this project, we capitalized $1.9 million and $24.5 million of installation costs during the years ended December 31, 2014 and 2013, respectively. Capitalized installation costs included, among other things, civil engineering, piping, electrical instrumentation and project management costs. Installation costs capitalized on contract operations projects are depreciated over the life of the underlying contract. This decrease was partially offset by an increase in property, plant and equipment and intangible asset additions in North America, including the assets acquired in the August 2014 MidCon Acquisition and the April 2014 MidCon Acquisition, and an increase of $6.1 million in depreciation of installation costs on contract operations projects in Mexico.

During the nine months ended September 30, 2015, we reviewed the future deployment of our idle compression assets used in our North America contract operations and international contract operations segments for units that were not of the type, configuration, condition, make or model that are cost efficient to maintain and operate. Based on this review, we determined that approximately 315 idle compressor units totaling approximately 136,000 horsepower would be retired from the active fleet. The retirement of these units from the active fleet triggered a review of these assets for impairment. As a result, we recorded a $37.7 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.

In connection with our fleet review during the nine months ended September 30, 2015, 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 $12.8 million to reduce the book value of each unit to its estimated fair value.

During the first quarter of 2015, we evaluated a long-term note receivable from the purchaser of our Canadian contract operations and aftermarket services businesses (“Canadian Operations”) for impairment. This review was triggered by an offer from the purchaser of our Canadian Operations to prepay the note receivable at a discount to its current book value. The fair value of the note receivable as of March 31, 2015 was based on the amount offered by the purchaser of our Canadian Operations to prepay the note receivable. The difference between the book value of the note receivable at March 31, 2015 and its fair value resulted in the recording of an impairment of long-lived assets of $1.4 million during the nine months ended September 30, 2015. In April 2015, we accepted the offer to early settle this note receivable.

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During the nine months ended September 30, 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 240 idle compressor units, representing approximately 72,000 horsepower, previously used to provide services in our North America contract operations segment. As a result, we performed an impairment review and recorded a $21.5 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 the nine months ended September 30, 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 $4.5 million to reduce the book value of each unit to its estimated fair value.

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. On November 3, 2015, we completed the Spin-off of Exterran Corporation. During the nine months ended September 30, 2015, we incurred $24.8 million of costs associated with the Spin-off which were primarily related to legal, consulting, audit and professional fees, a one-time cash signing bonus paid to an employee and non-cash inventory write-downs. Non-cash inventory write-downs, which primarily related to the decentralization of shared inventory components between the North America contract operations business and the international contract operations business, totaled $5.7 million during the nine months ended September 30, 2015. Additionally, in the second quarter of 2015 we announced a cost reduction plan, primarily focused on workforce reductions and the reorganization of certain fabrication facilities. These actions were in response to market conditions in North America combined with the impact of lower international activity due to customer budget cuts driven by lower oil prices. During the nine months ended September 30, 2015, we incurred $11.6 million of restructuring and other charges as a result of this plan, of which $7.6 million related to termination benefits and consulting fees and $4.0 million related to non-cash write-downs of inventory. The non-cash inventory write-downs were the result of our decision to exit the manufacturing of cold weather packages, which had historically been performed at a fabrication facility in North America we recently decided to close. The costs incurred in conjunction with the Spin-off and cost reduction plan are included in restructuring and other charges in our condensed consolidated statements of operations. See Note 12 to the Financial Statements for further discussion of these charges.

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 closed several of our make-ready shops. The centralization of our make-ready operations was completed in the second quarter of 2014. During the nine months ended September 30, 2014, we incurred $5.4 million of restructuring and other charges primarily related to termination benefits and a non-cash write-down of inventory associated with the centralization of our make-ready operations. See Note 12 to the Financial Statements for further discussion of these charges.

The decrease in interest expense during the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014 was due to a decrease in the average effective interest rate on our debt, partially offset by an increase in the average balance of long-term debt. The decrease in the average effective interest rate was primarily due to the redemption of $355.0 million aggregate principal amount of 4.25% convertible senior notes, which including the debt discount had an effective interest rate of 11.67%, in the second quarter of 2014 with borrowings from our revolving credit facility.

In March 2012, our Venezuelan joint ventures sold their assets to PDVSA Gas. We received payments, including an annual charge, of $15.2 million and $14.7 million during the nine months ended September 30, 2015 and 2014, respectively. The remaining principal amount due to us of approximately $13 million as of September 30, 2015, 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 consolidated statements of operations in the periods such payments are received.

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The change in other (income) expense, net, was primarily due to foreign currency losses of $39.6 million and $2.0 million during the nine months ended September 30, 2015 and 2014, respectively. Our foreign currency losses included a translation loss of $35.5 million during the nine months ended September 30, 2015 compared to a translation gain of $0.1 million during the nine months ended September 30, 2014 related to the functional currency remeasurement of our foreign subsidiaries’ U.S. dollar denominated intercompany obligations. Of the foreign currency losses recognized during the nine months ended September 30, 2015, $35.3 million was attributable to our Brazil subsidiary’s U.S. dollar denominated intercompany obligations and were the result of a currency devaluation in Brazil and increases in our Brazil subsidiary’s intercompany payables during the current year period. The change in other (income) expense, net, was also due to a $3.4 million decrease in gain on sale of property, plant and equipment.

Income Taxes

(dollars in thousands)



	Nine Months Ended September 30,						Increase
	2015			2014			(Decrease)
Provision for income taxes	$	14,628		$	31,494		(54	)%
Effective tax rate	68.0		%	42.0		%	26.0	%

The decrease in our income tax expense during the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014 was primarily attributable to a $20.7 million benefit recognized for the R&D Credit and a $1.1 million benefit recognized for the Texas Margin Tax rate reduction during the nine months ended September 30, 2015. We claimed the R&D credit in our recently filed 2014 U.S. federal tax return and intend to file amended tax returns for years prior to 2014. The decrease was partially offset by valuation allowances on net operating losses in our Brazil, Italy and Netherlands subsidiaries in the current year period and a $3.0 million state tax benefit recognized during the nine months ended September 30, 2014 for amendments to prior years’ tax returns. Additionally, the effective tax rate during the nine months ended September 30, 2015 was negatively impacted by lower income or losses in low or no tax jurisdictions.

Discontinued Operations

(dollars in thousands)



	Nine Months Ended September 30,				Increase
	2015		2014		(Decrease)
Income from discontinued operations, net of tax	$	37,743	$	54,499	(31	)%

Income from discontinued operations, net of tax, during the nine months ended September 30, 2015 and 2014 includes our operations in Venezuela that were expropriated in June 2009, including compensation for expropriation and costs associated with our arbitration proceeding, and results from our contract water treatment business.

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 $37.6 million and $54.1 million during the nine months ended September 30, 2015 and 2014, respectively. The remaining principal amount due to us of approximately $83 million as of September 30, 2015, 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. In October 2015, we received an additional installment payment, including an annual charge, of $19.1 million. 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.

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Net Income Attributable to the Noncontrolling Interest

(dollars in thousands)



	Nine Months Ended September 30,						Increase
	2015			2014			(Decrease)
Net income attributable to the noncontrolling interest	$	(20,192	)	$	(18,892	)	7	%

Noncontrolling interest comprises the portion of the Partnership’s earnings that are applicable to the Partnership’s publicly-held limited partner interest. As of September 30, 2015 and 2014 public unitholders held an ownership interest in the Partnership of 59% and 63%, respectively. The increase in net income attributable to the noncontrolling interest during the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014 was primarily due to an increase in earnings of the Partnership as a result of the April 2015 Contract Operations Acquisition, the August 2014 MidCon Acquisition and the April 2014 MidCon Acquisition as well as organic growth in operating horsepower, partially offset by increases in interest expense and long-lived asset impairment and our increased ownership percentage in the Partnership. Our ownership percentage of the Partnership increased during the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014 as a result of the April 2015 Contract Operations Acquisition.

Liquidity and Capital Resources

Our unrestricted cash balance was $32.5 million at September 30, 2015, compared to $39.7 million at December 31, 2014. Working capital increased to $705.4 million at September 30, 2015 from $655.0 million at December 31, 2014. The increase in working capital was primarily due to decreases in accounts payable, billings on uncompleted contracts in excess of costs and estimated earnings, accrued liabilities and deferred revenue, partially offset by decreases in accounts receivable and inventory. The decrease in accounts payable was primarily caused by lower fabrication activity in North America and a reduction in capital expenditures in North America. The decrease in billings on uncompleted contracts in excess of costs and estimated earnings was due to lower fabrication activity in North America. The decrease in accrued liabilities was primarily due to a decrease in accrued compensation and benefits and a decrease in income taxes payable and other accrued taxes, partially offset by an increase in accrued interest. The decrease in deferred revenue was primarily due to the timing of fabrication projects in North America and the Eastern Hemisphere and the timing of contract operations projects in Mexico. The decrease in accounts receivable was primarily driven by the timing of payments from customers in North America and Mexico.

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



	Nine Months Ended September 30,
	2015			2014
Net cash provided by (used in) continuing operations:
Operating activities	$	312,360		$	276,168
Investing activities	(307,889		)	(846,450		)
Financing activities	(47,278		)	518,414
Effect of exchange rate changes on cash and cash equivalents	(976		)	(3,797		)
Discontinued operations	36,560			53,789
Net change in cash and cash equivalents	$	(7,223	)	$	(1,876	)

Operating Activities. The increase in net cash provided by operating activities during the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014 was primarily driven by a decrease of $59.0 million in accounts receivable during the nine months ended September 30, 2015 compared to an increase of $43.3 million in accounts receivable during the nine months ended September 30, 2014, partially offset by a decrease of $51.7 million in accounts payable and other liabilities during the nine months ended September 30, 2015 compared to an increase of $10.8 million in accounts payable and other liabilities during the nine months ended September 30, 2014.

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Investing Activities. The decrease in net cash used in investing activities during the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014 was primarily attributable to $494.8 million paid for the August 2014 MidCon Acquisition and April 2014 MidCon Acquisition during the nine months ended September 30, 2014 and a decrease of $35.5 million in capital expenditures during the current year period.

Financing Activities. The decrease in net cash provided by financing activities during the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014 was primarily due to a $395.3 million decrease in net borrowings of long-term debt and a $168.3 million decrease in net proceeds received from public offerings by the Partnership of its common units.

Discontinued Operations. The decrease in net cash provided by discontinued operations during the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014 was primarily attributable to a $16.5 million decrease in proceeds received from the sale of our Venezuelan subsidiary’s assets to PDVSA Gas.

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.

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.

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 exceed our targeted return on capital. We currently plan to spend approximately $380 million to $410 million in net capital expenditures during 2015, including (1) approximately $260 million to $280 million on contract operations growth capital expenditures and (2) approximately $95 million to $105 million on equipment maintenance capital related to our contract operations business. Net capital expenditures are net of proceeds from used fleet sales.

Long-Term Debt. As of September 30, 2015, we had approximately $2.1 billion in outstanding debt obligations, consisting of $330.0 million outstanding under our revolving credit facility, $350.0 million outstanding under our 7.25% senior notes, $554.0 million outstanding under the Partnership’s revolving credit facility, $150.0 million outstanding under the Partnership’s term loan facility, $346.0 million outstanding under the Partnership’s 6% senior notes due April 2021 and $345.2 million outstanding under the Partnership 2014 Notes.

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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. In September 2015, we amended the Credit Facility to, among other things, extend the maturity date of the loans made by certain of our lenders (the “Consenting Lenders”) from July 8, 2016 to July 8, 2017, representing a one-year extension of the availability period under the Credit Facility. The commitments of the Consenting Lenders total approximately $780.4 million. The maturity date of the loans made by lenders that are not Consenting Lenders will remain July 8, 2016, which was the original maturity date under the Credit Facility. The commitments of these lenders total approximately $119.6 million. As a result of these amendments, the Credit Facility provides for a $900 million revolving credit facility that will be available until July 8, 2016 and a revolving credit facility of approximately $780.4 million that will be available from July 8, 2016 to July 8, 2017. Borrowings associated with the lenders that are not Consenting Lenders of approximately $43.9 million as of September 30, 2015 are classified as long-term because we have the intent and ability to refinance the maturity of these borrowings under the amended Credit Facility. As of September 30, 2015, we had $330 million in outstanding borrowings and $108.5 million in outstanding letters of credit under the Credit Facility. At September 30, 2015, taking into account guarantees through letters of credit, we had undrawn and available capacity of $461.5 million under the Credit Facility. Subsequent to September 30, 2015 and prior to the completion of the Spin-off, we expect to incur additional borrowings under our Credit Facility of between $25 million and $30 million to finance expenses related to the completion of the Spin-off and related debt financings.

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 September 30, 2015, all amounts outstanding under the Credit Facility were LIBOR loans and the applicable margin was 1.5%. The weighted average annual interest rate at September 30, 2015 and September 30, 2014 on the outstanding balance under the Credit Facility was 1.7%. During the nine months ended September 30, 2015 and 2014, the average daily debt balance under the Credit Facility was $381.8 million and $231.6 million, respectively.

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 September 30, 2015 we maintained a 15.0 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 September 30, 2015, we were in compliance with all financial covenants under the Credit Facility. On November 3, 2015, we terminated the Credit Facility and repaid all borrowings and accrued and unpaid interest outstanding on the repayment date.

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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. On November 4, 2015, we called the principal amount and accrued and unpaid interest outstanding under our 7.25% Notes.

In November 2010, the Partnership amended and restated 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 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. In February 2015, the Partnership amended its Partnership Credit Agreement, which among other things, increased the borrowing capacity under its revolving credit facility by $250.0 million to $900.0 million. As of September 30, 2015, the Partnership had undrawn and available capacity of $346.0 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 September 30, 2015, 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 September 30, 2015 and 2014, excluding the effect of interest rate swaps, was 2.7%. During the nine months ended September 30, 2015 and 2014, the average daily debt balance under these facilities was $659.1 million and 397.1 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). Subject to certain conditions, at the Partnership’s request, and with the approval of the lenders, the aggregate commitments under the Partnership Credit Agreement may be increased by up to an additional $50 million.

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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 April 2015 Contract Operations Acquisition closed during the second quarter of 2015, the Partnership’s Total Debt to EBITDA ratio threshold was temporarily increased to 5.5 to 1.0 during the quarter ended June 30, 2015 and will continue at that level through December 31, 2015, reverting to 5.25 to 1.0 for the quarter ending March 31, 2016 and subsequent quarters. As of September 30, 2015, the Partnership maintained a 4.8 to 1.0 EBITDA to Total Interest Expense ratio, a 4.2 to 1.0 Total Debt to EBITDA ratio and a 2.1 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 September 30, 2015, 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 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 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.

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 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. In February 2015, holders of the Partnership 2014 Notes exchanged their Partnership 2014 Notes for registered notes with the same terms.

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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 September 30, 2015, the Partnership was a party to interest rate swaps with a notional value of $500.0 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, interest rate swaps having a notional amount of $100.0 million expiring in May 2019 and the remaining interest rate swaps having a notional amount of $100.0 million expiring in May 2020. As of September 30, 2015, the weighted average effective fixed interest rate on the interest rate swaps was 1.6%. See Part I, Item 3 “Quantitative and Qualitative Disclosures About Market Risk” of this report for further discussion of the interest rate swap agreements.

On July 10, 2015, our wholly owned subsidiary Exterran Energy Solutions, L.P. (“EESLP”), which upon the completion of the Spin-off is a wholly owned subsidiary of Exterran Corporation, and Exterran Corporation entered into a $750.0 million credit agreement (the “Exterran Corporation Credit Agreement”) with Wells Fargo, as the administrative agent, and various financial institutions as lenders. On October 5, 2015, the parties amended and restated the terms of the Exterran Corporation Credit Agreement to provide for a new $925.0 million credit facility, consisting of a $680.0 million revolving credit facility and a $245.0 million term loan facility. Availability under the Exterran Corporation Credit Facility was subject to the satisfaction of certain conditions precedent, including the consummation of the Spin-off on or before January 4, 2016 (the date on which those conditions are satisfied is referred to as the “Initial Availability Date”). No borrowings were outstanding under the Exterran Corporation Credit Facility as of September 30, 2015 because the Initial Availability Date had not yet occurred. As a result of the completion of the Spin-off, the Initial Availability Date was November 3, 2015.

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.

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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, 2015; 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, and we are unable to freely repatriate cash from Argentina. 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. Restrictions on our ability to exchange Argentine pesos for U.S. dollars subject us to risk of currency devaluation on future earnings in Argentina. During the nine months ended September 30, 2015 and 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 $15.3 million and $24.3 million of bonds purchased during the nine months ended September 30, 2015 and 2014, respectively, resulted in our recognition of a loss of $3.9 million and $6.5 million, respectively, which is included in other (income) expense, net, in our condensed consolidated statements of operations. In future periods, we may seek to use Argentine pesos to purchase certain short-term investments in Argentine government issued U.S. dollar denominated bonds, which may result in transaction losses due to the effective peso to U.S. dollar exchange rate embedded in the purchase price of such bonds. As of September 30, 2015, $9.5 million of our cash was in Argentina.

Dividends. On October 18, 2015 our board of directors declared a quarterly dividend of $0.15 per share of common stock, which is expected to be paid on October 30, 2015 to stockholders of record at the close of business on October 26, 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.

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 October 25, 2015, Exterran GP LLC’s board of directors approved a cash distribution by the Partnership of $0.5725 per limited partner unit, or approximately $39.7 million, including distributions to the Partnership’s general partner on its incentive distribution rights. The distribution covers the period from July 1, 2015 through September 30, 2015. The record date for this distribution is November 9, 2015 and payment is expected to occur on November 13, 2015.

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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 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.

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 and other charges. Each of these excluded expenses is material to our condensed 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.

For a reconciliation of gross margin to net income (loss), see Note 18 to the Financial Statements.

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 and other charges, non-cash gains or losses from foreign currency exchange rate changes recorded on intercompany obligations, expensed acquisition costs and other items. We believe EBITDA, as adjusted, is an important measure of operating performance because it allows management, investors and others to evaluate and compare our core operating results from period to period by removing the impact of our capital structure (interest expense from our outstanding debt), asset base (depreciation and amortization), our subsidiaries’ capital structure (non-cash gains or losses from foreign currency exchange rate changes on intercompany obligations), tax consequences, impairment charges, restructuring and other charges, expensed acquisition costs and other items. Management uses EBITDA, as adjusted, as a supplemental measure to review current period operating performance, comparability measures and performance measures for period to period comparisons. 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):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Net income (loss)	$	(4,233	)	$	42,158		$	44,641		$	97,915
Income from discontinued operations, net of tax	(18,776		)	(18,003		)	(37,743		)	(54,499		)
Depreciation and amortization	94,924			98,256			285,057			295,734
Long-lived asset impairment	23,708			12,385			51,860			26,039
Restructuring and other charges	11,998			219			36,392			5,394
Investment in non-consolidated affiliates impairment	33			—			33			197
Proceeds from sale of joint venture assets	(5,117		)	(4,951		)	(15,185		)	(14,750		)
Interest expense	28,577			25,737			84,273			86,767
(Gain) loss on currency exchange rate remeasurement of intercompany balances	27,551			2,766			35,550			(116		)
Expensed acquisition costs	—			866			—			2,410
Provision for (benefit from) income taxes	(3,605		)	11,215			14,628			31,494
EBITDA, as adjusted	$	155,060		$	170,648		$	499,506		$	476,585

Off-Balance Sheet Arrangements

We have no material off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risks primarily associated with changes in foreign currency exchange rates and 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 foreign currency losses of $39.6 million and $2.0 million in our condensed consolidated statements of operations during the nine months ended September 30, 2015 and 2014, respectively. Our foreign currency gains and losses are primarily due to exchange rate fluctuations related to monetary asset balances denominated in currencies other than the functional currency, including foreign currency exchange rate changes recorded on intercompany obligations. Our material exchange rate exposure relates to intercompany loans denominated in U.S. dollars to subsidiaries whose functional currencies are the Brazilian Real and the Euro, which loans carried balances of $84.6 million and $32.0 million U.S. dollars, respectively, as of September 30, 2015. Our foreign currency losses included a translation loss of $35.5 million and a translation gain of $0.1 million during the nine months ended September 30, 2015 and 2014, respectively, related to the functional currency remeasurement of our foreign subsidiaries’ U.S. dollar denominated intercompany obligations. Of the foreign currency losses recognized during the nine months ended September 30, 2015, $35.3 million was attributable to our Brazil subsidiary’s U.S. dollar denominated intercompany obligations and were the result of a currency devaluation in Brazil and increases in our Brazil subsidiary’s intercompany payables during the current year period. 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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As of September 30, 2015, after taking into consideration interest rate swaps, we had $534.0 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 September 30, 2015 would result in an annual increase in our interest expense of approximately $5.3 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 9 to the Financial Statements.

Item 4. 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 September 30, 2015 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.

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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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

A description of certain legal proceedings can be found in Litigation and Claims in Note 16 (“Commitments and Contingencies”) to the Financial Statements included in this report and is incorporated by reference into this Item 1.

Item 1A. Risk Factors

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2014 and in Part II, “Item 1A. Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, as well as the risk factors set forth below.

Exterran Corporation is due to receive a substantial amount in installment payments from the purchaser of our previously nationalized Venezuelan assets, the nonpayment of which would render Exterran Corporation unable to contribute amounts corresponding to those funds to us, which would negatively impact our liquidity and financial condition.

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., or PDVSA Gas, a subsidiary of PDVSA, for aggregate consideration of approximately $550 million. As of September 30, 2015, we have received payments, including annual charges, of approximately $474 million ($50 million of which was used to repay insurance proceeds previously collected under the policy we maintained for the risk of expropriation). Pursuant to the separation and distribution agreement we entered into in connection with the Spin-off, Exterran Corporation or its subsidiary is due to receive the remaining principal amount as of October 31, 2015 of approximately $79 million in installments through the third quarter of 2016. As these remaining proceeds are received, Exterran Corporation intends to contribute to us an amount equal to such proceeds pursuant to the terms of the separation and distribution agreement.

PDVSA’s payments to many of its suppliers and partners are currently significantly in arrears, and PDVSA’s payments to us have been in arrears from time to time in the past. 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, Exterran Corporation’s ability to recover in full, and our ability to receive additional contributions corresponding to, the remaining proceeds to be paid from PDVSA Gas to Exterran Corporation could be adversely impacted. If Exterran Corporation or its subsidiary does not receive these remaining proceeds and we do not receive additional contributions from Exterran Corporation corresponding to the amount of such proceeds, our liquidity and financial condition would be negatively impacted.

In addition, in the event that PDVSA Gas defaults on any installment payment and Exterran Corporation is unwilling or unable to recover such installment payment, we may incur significant costs and expenses and expend significant resources, including the time and attention of our management team, in pursuing the recovery of such installment payment, which may negatively impact our business and financial condition.

We have the right to receive a cash payment from Exterran Corporation upon the refinancing of its term loan under certain conditions, which if not met would negatively impact our liquidity and financial condition.

In October 2015, a subsidiary of Exterran Corporation entered into a new $245.0 million term loan, which will mature on November 3, 2017. Exterran Corporation or its subsidiary will be required to refinance its term loan at or prior to its maturity date by entering into one or more new facilities or otherwise raising the funds necessary to repay the outstanding principal amount under the term loan. In the event that Exterran Corporation or its subsidiary refinances the term loan with the proceeds of a qualified capital raise, as that term is used in the separation and distribution agreement, Exterran Corporation's operating subsidiary will contribute to one of our subsidiaries the right to receive, promptly following the occurrence of such qualified capital raise, a $25.0 million cash payment. No assurance can be given that Exterran Corporation or its subsidiary will be able to enter into new facilities or issue equity in the future on attractive terms or at all. If Exterran Corporation or its subsidiary is unable to consummate a qualified capital raise, we will not receive the $25.0 million cash payment, which would negatively impact our liquidity and financial condition.

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

(a) Not applicable.

(b) Not applicable.

(c) The following table summarizes our repurchases of equity securities during the three months ended September 30, 2015:



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
July 1, 2015 - July 31, 2015	—	$	—	N/A	N/A
August 1, 2015 - August 31, 2015	864	22.32		N/A	N/A
September 1, 2015 - September 30, 2015	793	20.44		N/A	N/A
Total	1,657	$	21.42	N/A	N/A

________________________________


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

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Item 6. Exhibits



Exhibit No.		Description
2.1		Contribution, Conveyance and Assumption Agreement, dated April 17, 2015, by and among Exterran Holdings, Inc., 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 April 20, 2015
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		Third Amended and Restated Bylaws of Exterran Holdings, Inc., incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed on March 20, 2013
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, for the 4.25% Convertible Senior Notes due 2014, 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, as trustee, for the 7.25% Senior Notes due 2018, incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on November 24, 2010
10.1		First Amendment to Senior Secured Credit Agreement, dated as of September 11, 2015, by and among Exterran Holdings, Inc., as Borrower, Wells Fargo Bank, National Association, as Administrative Agent, and the lenders party thereto, incorporated by reference to Exhibit 10.14 to the Registrant’s Current Report on Form 8-K filed on September 17, 2015
10.2		First Amendment to Credit Agreement, dated as of October 5, 2015, by and among Exterran Holdings, Inc., Archrock Services, L.P., the lenders signatory thereto and 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 October 6, 2015
10.3		Amended and Restated Credit Agreement, dated as of October 5, 2015, by and among Exterran Corporation, Exterran Energy Solutions, L.P., the lenders from time to time party thereto and Wells Fargo Bank, National Association, as administrative agent, incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed on October 6, 2015
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 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.



	ARCHROCK, INC.

Date: November 5, 2015	By:	/s/ JON C. BIRO
		Jon C. Biro
		Senior Vice President and Chief Financial Officer
		(Principal Financial Officer)

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

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EXHIBIT INDEX



Exhibit No.		Description
2.1		Contribution, Conveyance and Assumption Agreement, dated April 17, 2015, by and among Exterran Holdings, Inc., 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 April 20, 2015
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		Third Amended and Restated Bylaws of Exterran Holdings, Inc., incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed on March 20, 2013
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, for the 4.25% Convertible Senior Notes due 2014, 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, as trustee, for the 7.25% Senior Notes due 2018, incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on November 24, 2010
10.1		First Amendment to Senior Secured Credit Agreement, dated as of September 11, 2015, by and among Exterran Holdings, Inc., as Borrower, Wells Fargo Bank, National Association, as Administrative Agent, and the lenders party thereto, incorporated by reference to Exhibit 10.14 to the Registrant’s Current Report on Form 8-K filed on September 17, 2015
10.2		First Amendment to Credit Agreement, dated as of October 5, 2015, by and among Exterran Holdings, Inc., Archrock Services, L.P., the lenders signatory thereto and 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 October 6, 2015
10.3		Amended and Restated Credit Agreement, dated as of October 5, 2015, by and among Exterran Corporation, Exterran Energy Solutions, L.P., the lenders from time to time party thereto and Wells Fargo Bank, National Association, as administrative agent, incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed on October 6, 2015
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.