IMPAIRMENTS AND OTHER COSTS

3 Months Ended

Mar. 31, 2020

IMPAIRMENTS AND OTHER COSTS

IMPAIRMENT, REALIGNMENT AND OTHER

NOTE 3—IMPAIRMENTS AND OTHER COSTS

Significant challenges that emerged during the Current Quarter, and which are expected to continue into the foreseeable future, have had and will continue to have a negative impact on our results of operations. The COVID-19 outbreak, characterized as a pandemic by the World Health Organization on March 11, 2020, has caused significant disruptions in global oil demand as well as international and U.S. economies and financial markets. Additionally, the failure of Saudi Arabia and Russia to reach a decision to cut production of oil and gas along with the Organization of the Petroleum Exporting Countries (“OPEC”), and Saudi Arabia’s subsequent decision to reduce the prices at which it sells oil and increase production, combined with the continued outbreak of COVID-19, contributed to a sharp drop in prices for oil in the Current Quarter. While an agreement to cut production was reached in April 2020, oil prices have remained low, with storage capacity rapidly being reached, and global oil demand is expected to remain challenged at least until the COVID-19 outbreak can be contained. As a result of these market disruptions, oil prices have declined significantly and our Current Quarter results have been negatively impacted. With the significant recent drop in oil prices, the activity levels of our customers and the demand for our services will certainly decrease materially in the near-term; however, at this time, we believe it is too soon to determine the depth or magnitude of the declines.

We believe the ongoing effects of COVID-19 on our operations have had, and will continue to have, a material negative impact on our financial results, and such negative impact may continue well beyond the containment of such outbreak until oil demand and prices, recover. We cannot assure you that our assumptions used to estimate our future financial results will be correct given the unpredictable nature of the current market environment after the rapid decline in the demand for oil and demand for our services. As a consequence, our ability to accurately forecast our activity and profitability is uncertain.

The magnitude and duration of the COVID-19 pandemic is also uncertain. As a consequence, we cannot estimate the impact on our business, financial condition or near- or longer-term financial or operational results with reasonable certainty, but at this time, we expect a net loss for 2020. We are taking further actions to maintain our liquidity, including decreasing operating expenses by reducing headcount, reducing salaries, closing yard locations, reducing third party expenses and streamlining operations, as well as reducing capital expenditures. We are also deferring employer payroll tax payments for the remainder of 2020, in accordance with the provisions of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, and may take advantage of future legislation passed by the United States Congress in response to COVID-19.

As a result of the above mentioned economic conditions, we recorded impairment expenses in the first quarter related to goodwill, property and equipment and other intangible assets and there is no assurance that we will not have additional impairments in subsequent quarters.

A summary of impairment, severance, yard closure and lease abandonment costs for the Current Quarter and Prior Quarter were as follows:

	Three Months Ended March 31,
	2020		2019
	(in thousands)
Impairment of goodwill and trademark
Water Services	$	186,468	$	—
Water Infrastructure		80,466		—
Oilfield Chemicals		9,082		—
Other		—		4,396
Total impairment of goodwill and trademark	$	276,016	$	4,396

For a discussion of the impairments to goodwill and trademark, See Note 8—Goodwill and Other Intangible Assets.

	Three Months Ended March 31,
	2020		2019
	(in thousands)
Impairment of property and equipment
Water Services	$	2,498	$	—
Water Infrastructure		686		—
Other		—		519
Total impairment of property and equipment	$	3,184	$	519

During the Current Quarter, the Company determined that certain equipment was obsolete, and recorded a $3.2 million impairment of property and equipment. During the Prior Quarter, the Company recorded an impairment of $0.5 million of Canadian property and equipment to write down the carrying value based on the expected future sale proceeds at that time.

	Three Months Ended March 31,
	2020		2019
	(in thousands)
Severance
Water Services	$	1,823	$	—
Water Infrastructure		288		—
Oilfield Chemicals		120		—
Other		1,271		1,680
Total severance expense	$	3,502	$	1,680
Yard closure costs
Water Services	$	1,950	$	—
Total yard closure costs	$	1,950	$	—
Lease abandonment costs
Water Services	$	935	$	229
Water Infrastructure		51		—
Other		(33)		844
Total lease abandonment costs	$	953	$	1,073

During the Current Quarter, the Company recorded exit-disposal costs including $3.5 million of severance costs, with $2.9 million of accrued severance at March 31, 2020, $2.0 million in accrued yard closure costs, recognized within costs of revenue on the accompanying consolidated statements of operations, and $1.0 million of lease abandonment costs. Severance costs of $1.8 million and $1.7 million are recognized within costs of revenue and selling, general and administrative expenses, respectively, on the accompanying consolidated statements of operations. During the Prior Quarter, the Company recorded exit-disposal costs including $1.7 million of severance, recognized within selling, general and administrative expenses on the accompanying consolidated statements of operations, and $1.1 million of lease abandonment costs, both of which related to the Company’s divested service lines.