Property and Equipment, Identifiable Intangible Assets and Goodwill

3 Months Ended

Mar. 31, 2021

Property and Equipment and Identifiable Intangible Assets

Property and Equipment, Identifiable Intangible Assets and Goodwill

Property and Equipment

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


	March 31, 2021		December 31, 2020
Compression and treating equipment	$	3,482,751	$	3,480,660
Computer equipment	53,981		53,887
Automobiles and vehicles	33,276		33,412
Leasehold improvements	8,238		8,218
Buildings	5,334		5,334
Furniture and fixtures	1,111		1,110
Land	77		77
Total property and equipment, gross	3,584,768		3,582,698
Less: accumulated depreciation and amortization	(1,252,556)		(1,202,065)
Total property and equipment, net	$	2,332,212	$	2,380,633

Depreciation is calculated using the straight-line method over the estimated useful lives of the assets as follows:


Compression equipment, acquired new			25 years
Compression equipment, acquired used			5 - 25 years
Furniture and fixtures			3 - 10 years
Vehicles and computer equipment			1 - 10 years
Buildings			5 years
Leasehold improvements			5 years

Depreciation expense on property and equipment and gain on disposition of assets were as follows (in thousands):


	Three Months Ended March 31,
	2021		2020
Depreciation expense	$	53,685	$	51,417
Gain on disposition of assets	1,255		1,014

As of March 31, 2021 and December 31, 2020, there was $2.0 million and $2.8 million, respectively, of property and equipment purchases in accounts payable and accrued liabilities.

On a quarterly basis, we evaluate the future deployment of our idle fleet under current market conditions. For the three months ended March 31, 2021, we determined to retire 12 compressor units for a total of approximately 5,600 horsepower that were previously used to provide compression services in our business. As a result, we recorded an impairment of compression equipment of $2.6 million for the three months ended March 31, 2021.

The primary causes for these impairments were: (i) units were not considered marketable in the foreseeable future, (ii) units were subject to excessive maintenance costs or (iii) units were unlikely to be accepted by customers due to certain performance characteristics of the unit, such as the inability to meet current quoting criteria without excessive retrofitting costs. These compression units were written down to their respective estimated salvage values, if any.

No impairment was recorded for the three months ended March 31, 2020.

Identifiable Intangible Assets

Identifiable intangible assets, net consisted of the following (in thousands):


	Customer Relationships		Trade Names		Total
Net balance as of December 31, 2020	$	302,952	$	30,839	$	333,791
Amortization expense	(6,526)		(819)		(7,345)
Net balance as of March 31, 2021	$	296,426	$	30,020	$	326,446

Accumulated amortization of intangible assets was $224.2 million and $216.9 million as of March 31, 2021 and December 31, 2020, respectively. The expected amortization of the intangible assets for each of the five succeeding years is $29.4 million.

Goodwill

During the first quarter of 2020 certain potential impairment indicators were identified, specifically (i) the decline in the market price of our common units, (ii) the decline in global commodity prices and (iii) the COVID-19 pandemic; which together indicated the fair value of the reporting unit was less than its carrying amount as of March 31, 2020.

We performed a quantitative goodwill impairment test as of March 31, 2020 and determined fair value using a weighted combination of the income approach and the market approach. Determining fair value of a reporting unit requires judgment and use of significant estimates and assumptions. Such estimates and assumptions include revenue growth rates, EBITDA margins, weighted average costs of capital and future market conditions, among others. We believe the estimates and assumptions used were reasonable and based on available market information, but variations in any of the assumptions could have resulted in materially different calculations of fair value and determinations of whether or not an impairment is indicated. Under the income approach, we determined fair value based on estimated future cash flows, including estimates for capital expenditures, discounted to present value using the risk-adjusted industry rate, which reflects the overall level of inherent risk of the Partnership. Cash flow projections were derived from four-year operating forecasts plus an estimate of later period cash flows, all of which were developed by management. Subsequent period cash flows were developed using growth rates that management believed were reasonably likely to occur. Under the market approach, we determined fair value by applying valuation multiples of comparable publicly-traded companies to the projected EBITDA of the Partnership and then averaging that estimate with similar historical calculations using a three-year average. In addition, we estimated a reasonable control premium representing the incremental value that would accrue to us if we were to be acquired.

Based on the quantitative goodwill impairment test described above, our carrying amount exceeded fair value and as a result, we recognized a goodwill impairment of $619.4 million for the three months ended March 31, 2020.

- Definition

The entire disclosure for long-lived, physical assets used in the normal conduct of business and not intended for resale. Includes, but is not limited to, accounting policies and methodology, roll forwards, depreciation, depletion and amortization expense, including composite depreciation, accumulated depreciation, depletion and amortization expense, useful lives and method used, income statement disclosures, assets held for sale and public utility disclosures. Also the disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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