Note 3 —Asset Impairments, Other Charges, and Inventory Valuation Provision

In light of continued low oil prices and the state of natural gas vehicle adoption, among other factors, during the third quarter of the year ended December 31, 2017, the Company undertook an evaluation of its operations with the intent of minimizing and eliminating assets it believed were underperforming. As a result of this evaluation, the Company identified certain of its fueling stations where the current and projected natural gas volume and profitability levels were not expected to be sufficient to support the Company’s investment in the fueling station assets, and the Company decided to close these stations. The Company also reduced its workforce and took other steps to reduce overhead costs as a result of this evaluation, in an effort to lower its operating expenses going forward. In addition, this evaluation resulted in a strategic shift in how the Company viewed its natural gas compressor manufacturing business, operated by CEC. In an effort to increase the scale and reach and improve the financial prospects of the Company’s investment in this business, the Company entered into an investment agreement with a strategic partner in November 2017, pursuant to which both parties combined their respective natural gas compressor manufacturing businesses (see Note 4 for more information). As a result of these decisions and the steps taken to implement them, during the year ended December 31, 2017, the Company incurred on a pre-tax basis, aggregate cash and non-cash charges related to asset impairments and other charges, and a non-cash inventory valuation charge. In addition, the Company incurred a cash charge for payments made as a result of temporary restrictions on its LCFS Credits account during the fourth quarter of 2017.

The following table summarizes these charges (in thousands):


	Year Ended
	December 31, 2017
Workforce reduction and related charges	$	3,057
CEC asset impairments		32,274
Station closures and related charges		25,557
LCFS Credits charge		7,046
Total asset impairments and other charges		67,934
Inventory valuation provision		13,158
Total charges	$	81,092

Cash Charges

The following table summarizes the charges related to the foregoing that have been or will be settled with cash payments and their related liability balances as of December 31, 2018 and 2019 (in thousands):


			Cash Payments			Cash Payments				Cash Payments
			Made in the			Made in the				Made in the
			Year Ended	Balance as of		Year Ended		Balance as of		Year Ended		Balance as of
	Charges		December 31, 2017	December 31, 2017		December 31, 2018		December 31, 2018		December 31, 2019		December 31, 2019
Employee severance	$	2,757	(2,757)	$	—	$	—	$	—	$	—	$	—
Lease termination fees and AROs for station closures		4,083	(70)		4,013		(1,810)		2,203		(249)		1,954
	$	6,840	(2,827)	$	4,013	$	(1,810)	$	2,203	$	(249)	$	1,954

Workforce Reduction and Related Charges

As a result of the workforce reduction in 2017, severance costs of $2.8 million were incurred in connection with employee terminations and $0.3 million in stock-based compensation expense was incurred for the associated acceleration of certain stock awards.

Impairments of Long-Lived Assets

CEC: Asset Impairment Charges

Due to the continued low global demand for compressors, and the decision to position CEC’s compressor manufacturing business for industry consolidation with a potential strategic partner, the Company’s management determined that an impairment indicator was present for the long-lived assets of CEC. Recoverability was tested using future cash flow projections based on management’s long-term estimates of market conditions. Based on the results of this test, the sum of the undiscounted future cash flows was less than the carrying value of the CEC asset group. As a result, these long-lived assets were written down to their respective fair values, resulting in an impairment charge of $32.3 million. Fair value was based on expected future cash flows using Level 3 inputs. The cash flows are those expected to be generated by market participants, discounted at an appropriate rate for the risks inherent in those cash flow projections.

Station Closures and Related Charges

During the third quarter of the year ended December 31, 2017, the Company decided to close 42 fueling stations by December 31, 2017, which were performing below management’s expectations based on volume and profitability levels. As a result, these station assets, which had an aggregate carrying value of $23.3 million, were written down to their respective fair values of $2.9 million on an aggregate basis, resulting in a charge of $20.4 million. The fair values of these assets were determined using the cost approach.

In addition, certain of these station closures triggered related other charges totaling $5.2 million, which consisted of write-offs for any deferred losses, lease termination fees, and an increase in asset retirement obligations (“AROs”).

Due to the closure of these stations, the Company’s management assessed whether impairment indicators were present for the long-lived assets of the Company’s other fueling stations. The Company determined there were no indicators of impairment present among its remaining fueling stations and no further steps were required for an impairment evaluation with respect to these stations.

Inventory Valuation Provision

As a result of the Company’s evaluation process to minimize and eliminate underperforming station assets, the Company determined that $27.2 million of certain station parts which were historically classified as construction in progress within “Land, property, and equipment, net” were to be reclassified as “Inventory” in the accompanying consolidated balance sheets because they will primarily be used for stations to be sold. Subsequent to the reclassification, the Company calculated and recorded a lower of cost or market non-cash charge of $7.8 million for these station parts. Additionally, in conjunction with its decision to seek a strategic partner for CEC, the Company incurred a lower of cost or market non-cash charge of $5.4 million for the inventory of CEC. The aggregate amount of $13.2 million is reported as “Inventory valuation provision” in the accompanying consolidated statements of operations for the year ended December 31, 2017.

LCFS Credits Cash Payments

The Company generates LCFS Credits when it sells RNG and conventional natural gas for use as a vehicle fuel and can sell and transfer these credits to third parties. The California Air Resources Board (“CARB”) restricted the Company’s ability to sell and transfer LCFS Credits during the third and fourth quarters of 2017 pending completion of an administrative review. The Company was, however, required to settle preexisting contractual obligations to transfer LCFS Credits to third parties by making cash payments totaling $7.0 million, the equivalent value of the LCFS Credits the Company would have otherwise transferred to satisfy its obligations. These payments are reported in “Asset impairments and other charges” in the accompanying consolidated statements of operations for the year ended December 31, 2017. In November 2017, CARB invalidated certain LCFS Credits the Company had generated in prior periods and released the restriction on the Company’s ability to sell and transfer LCFS Credits.