IMPAIRMENTS AND OTHER COSTS

6 Months Ended

Jun. 30, 2020

IMPAIRMENTS AND OTHER COSTS

IMPAIRMENT, REALIGNMENT AND OTHER

NOTE 3—IMPAIRMENTS AND OTHER COSTS

Significant challenges that emerged during the Current Period and that are expected to continue have had and will continue to have a negative impact on our results of operations. The COVID-19 pandemic has caused a worldwide slowdown in economic activity, resulting in a sharp decline in global oil demand and therefore, lower oil and natural gas prices. Global oil demand is expected to remain challenged at least until the COVID-19 pandemic can be contained. In response to lower oil and gas prices, our E&P customers have cut capital spending, resulting in a sharp drop in the number of wells drilled and completed in all of our markets. Reduced demand for our services has had a material, negative impact on our Current Quarter and Current Period financial results. While oil prices have recovered from the recent lows, given the continued uncertainty around the COVID-19 pandemic and the associated impact on oil demand, we are unable to predict if, when, and by how much the demand for our services and therefore our financial performance will improve.

Because the magnitude and duration of the COVID-19 pandemic is unknown, we cannot forecast with reasonable certainty its impact on our business, financial condition or near or longer-term financial or operational results. However, we currently expect that our 2020 net income will be negative. During the Current Period, we have taken actions to protect our balance sheet and maintain our liquidity, including significantly decreasing our operating expenses by reducing headcount, reducing salaries and director compensation, idling facilities, 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 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 downturn in our business, we recorded impairment expenses in the first quarter of 2020 related to goodwill, property and equipment and other intangible assets and recorded additional impairment expense related to the abandonment of property and equipment in the Current Quarter. 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, Prior Quarter, Current Period and Prior Period were as follows:

	Three Months Ended June 30,				Six months ended June 30,
	2020		2019		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 June 30,				Six months ended June 30,
	2020		2019		2020		2019
	(in thousands)
Impairment and abandonment of property and equipment
Water Services	$	1,396	$	—	$	3,894	$	—
Water Infrastructure		3,330		—		4,016		—
Other		—		374		—		893
Total impairment and abandonment of property and equipment	$	4,726	$	374	$	7,910	$	893

During the Current Quarter and Current Period, the Company recorded an impairment of $4.7 million and $7.9 million, respectively, related to certain equipment that was determined to be obsolete. During the Prior Quarter and Prior Period, the Company recorded an impairment of $0.4 million and $0.9 million, respectively, of Canadian property and equipment to write down the carrying value based on the expected future sale proceeds at that time.

	Three Months Ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
	(in thousands)
Severance
Water Services	$	2,746	$	—	$	4,569	$	—
Water Infrastructure		212		—		500		—
Oilfield Chemicals		693		—		813		—
Other		15		—		1,286		1,680
Total severance expense	$	3,666	$	—	$	7,168	$	1,680
Yard closure costs
Water Services	$	695	$	—	$	2,645	$	—
Oilfield Chemicals		316		—		316		—
Total yard closure costs	$	1,011	$	—	$	2,961	$	—
Lease abandonment costs
Water Services	$	848	$	218	$	1,783	$	447
Water Infrastructure		—		—		51		—
Oilfield Chemicals		42		7		42		7
Other		(22)		(42)		(55)		802
Total lease abandonment costs	$	868	$	183	$	1,821	$	1,256

During the Current Quarter, the Company recorded exit-disposal costs including $3.7 million of severance costs, $1.0 million in accrued yard closure costs recognized within costs of revenue on the accompanying consolidated statements of operations, and $0.9 million of lease abandonment costs. Severance costs of $2.2 million and $1.5 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 $0.2 million of exit-disposal costs related to accretion of expenses for previously abandoned facilities.    

During the Current Period, the Company recorded exit-disposal costs including $7.2 million of severance costs, with $1.8 million of accrued severance at June 30, 2020, $3.0 million in accrued yard closure costs recognized within costs of revenue on the accompanying consolidated statements of operations, and $1.8 million of lease abandonment

costs. Severance costs of $4.0 million and $3.2 million are recognized within costs of revenue and selling, general and administrative expenses, respectively, on the accompanying consolidated statements of operations. During the Prior Period, 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 $1.3 million of lease abandonment costs, both of which primarily related to the Company’s divested service lines.