Exterran cut debt by $177 million in 2016; eyes term loan refinancing with financial restatements concluded

By Paul Deckelman

New York, Jan. 5 – Exterran Corp. continued to cut debt in the fourth quarter, adding up to a total 2016 debt reduction of some $177 million.

And the Houston-based maker of equipment used in natural gas production and water treatment processes – having just completed a previously announced restatement of its financial results for the years 2011 through 2015 – is now in a position to move forward with the refinancing of its term loan scheduled to come due later this year.

Exterran’s president and chief executive officer, Andrew J. Way, told analysts on a Thursday conference call covering the results restatement and an update on the company’s operational performance that “with the restatement process behind us, we can now work on refinancing our $233 million term loan balance, which expires in November of 2017.

“While we have the capacity under our revolver to pay our entire term loan, we are currently analyzing several financial alternatives and intend to be opportunistic in our approach.”

Way said that the company’s balance sheet “remains strong.”

He said that Exterran repaid another $24 million of debt due in the 2016 fourth quarter ended Dec. 31, resulting in a total debt reduction for the year of $177 million.

That brought its year-end debt balance down to $349 million, which he said was “a 34% reduction in debt since year-end 2015,” when total long-term debt stood at some $525.593 million.

According to data contained in its updated filing with the Securities and Exchange Commission, Exterran had previously reduced long-term debt by some $94.371 million during the 2016 first quarter ended March 31, by another $32.293 million in the second quarter ended June 30, and by an additional $26.355 million during the third quarter ended Sept. 30.

Company restates some results

Exterran restated its results for 2011, 2012, 2013, 2014 and 2015 in an updated 2015 10-K filing with the SEC, and at the same time filed 10-Q quarterly reports for the first three quarters of last year, which had been delayed while it examined and restated its results from past years.

The company’s recently appointed senior vice president and chief financial officer, David A. Barta, recounted on the conference call that after Exterran had originally filed its 2015 10-K report last February, the company’s senior management identified errors relating to the application of percentage-of-completion accounting principles to certain business lines of its Italy-based Belleli EPC subsidiary. An internal investigation by a forensic accounting firm hired at the behest of the audit committee of Exterran’s board of directors determined that inaccuracies related to projects within the Belleli EPC product sales segment in estimating the total costs required to complete projects impacted the results for the years ended Dec. 31, 2015, 2014, 2013, 2012 and 2011, forcing the restatement.

The errors and inaccuracies uncovered resulted in the misstatement of accounts receivable, costs and estimated earnings in excess of billings on uncompleted contracts, billings on uncompleted contracts in excess of costs and estimated earnings, accrued liabilities and related income tax effects for each of the periods impacted.

The company separately identified prior period errors related to the miscalculation and recovery of non-income-based tax receivables owed to Exterran from the Brazilian government as of Dec. 31, 2011

Exterran ultimately decided to exit the Belleli business, which comprised engineering, procurement and construction for the manufacture of tanks for tank farms and the manufacture of evaporators and brine heaters for desalination plants in the Middle East, in order to focus on its core oil and gas equipment business, and completed the sale of Belleli this past August, reflecting its business as discontinued operations in its financial statements. Certain Belleli business lines are still being exited and will be reflected in Exterran’s accounting as discontinued operations when the contracts for such business lines are substantially complete, which Exterran anticipates will occur during the first half of 2018.

Way said on the conference call that “from a future cash-flow perspective, we anticipate some level of cash flows associated with ongoing Belleli EPC projects until we exit these business lines.”

He called those cash flows “a manageable amount” and said their anticipated loss once those contracts are complete “can be partially offset by the liquidation of working capital, improved project execution and the disposition of assets used in the business.”

Way praised Exterran’s lenders as having been “extremely supportive through this process,” saying that the lenders “recognize our ability to generate cash.”

He added that “we continue to emphasize operating cash-flow generation by reducing costs, staying focused on working capital and tightly controlling our capital expenditures. As such, we are better positioned to fund capital expenditures and working capital requirements as the opportunities arise.”

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.