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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(MARK ONE)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to               .
Commission File No. 001-35779
USA Compression Partners, LP
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
75-2771546
(I.R.S. Employer
Identification No.)

111 Congress Avenue, Suite 2400
Austin, Texas
(Address of principal executive offices)
78701
(Zip Code)
(512) 473-2662
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common units representing limited partner interestsUSACNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ⌧  No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ⌧  No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.​
Large accelerated filer
      Accelerated filer ☐
 Non-accelerated filer ☐
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐​
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No ☒
As of July 30, 2020, there were 96,858,047 common units outstanding.


Table of Contents
TABLE OF CONTENTS
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Table of Contents
GLOSSARY
The abbreviations, acronyms and industry terminology used in this Quarterly Report are defined as follows:
COVID-19novel coronavirus 2019
Credit AgreementSixth Amended and Restated Credit Agreement by and among USA Compression Partners, LP, as borrower, USAC OpCo 2, LLC, USAC Leasing 2, LLC, USA Compression Partners, LLC, USAC Leasing, LLC, CDM Resource Management LLC, CDM Environmental & Technical Services LLC and USA Compression Finance Corp., the lenders party thereto from time to time, JPMorgan Chase Bank, N.A., as agent and a letter of credit issuer, JPMorgan Chase Bank, N.A., Barclays Bank PLC, Regions Capital Markets, a division of Regions Bank, RBC Capital Markets and Wells Fargo Bank, N.A., as joint lead arrangers and joint book runners, Barclays Bank PLC, Regions Bank, RBC Capital Markets and Wells Fargo Bank, N.A., as syndication agents, and MUFG Union Bank, N.A., SunTrust Bank and The Bank of Nova Scotia, as senior managing agents, as amended, and may be further amended from time to time.
DERsdistribution equivalent rights
DRIPdistribution reinvestment plan
EBITDAearnings before interest, taxes, depreciation and amortization
ETOEnergy Transfer Operating, L.P.
Exchange ActSecurities Exchange Act of 1934, as amended
GAAPgenerally accepted accounting principles of the United States of America
LIBORLondon Interbank Offered Rate
Preferred UnitsSeries A Preferred Units representing limited partner interests in USA Compression Partners, LP
SECUnited States Securities and Exchange Commission
Senior Notes 2026$725.0 million aggregate principal amount of senior notes due on April 1, 2026
Senior Notes 2027$750.0 million aggregate principal amount of senior notes due on September 1, 2027
U.S.United States of America
USA Compression Predecessorcollectively, CDM Resource Management LLC and CDM Environmental & Technical Services LLC

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Table of Contents
PART I.  FINANCIAL INFORMATION
ITEM 1. Financial Statements
USA COMPRESSION PARTNERS, LP
Unaudited Condensed Consolidated Balance Sheets
(in thousands)
June 30,
2020
December 31,
2019
Assets
Current assets:
Cash and cash equivalents$2  $10  
Accounts receivable:
Trade, net of allowances for credit losses of $5,361 and $2,479, respectively
71,226  80,276  
Other4,656  11,057  
Related party receivables45,312  45,461  
Inventories91,940  91,923  
Prepaid expenses and other assets3,847  2,196  
Total current assets216,983  230,923  
Property and equipment, net2,455,586  2,482,943  
Lease right-of-use assets24,101  18,317  
Identifiable intangible assets, net348,481  363,171  
Goodwill  619,411  
Other assets12,538  15,642  
Total assets$3,057,689  $3,730,407  
Liabilities, Preferred Units and Partners’ Capital
Current liabilities:
Accounts payable$30,187  $21,703  
Accrued liabilities112,527  119,383  
Deferred revenue44,722  48,289  
Total current liabilities187,436  189,375  
Long-term debt, net1,899,070  1,852,360  
Operating lease liabilities22,615  17,343  
Other liabilities13,621  13,422  
Total liabilities2,122,742  2,072,500  
Commitments and contingencies
Preferred Units477,309  477,309  
Partners’ capital:
Common units, 96,858 and 96,632 units issued and outstanding, respectively
443,659  1,166,619  
Warrants13,979  13,979  
Total partners’ capital457,638  1,180,598  
Total liabilities, Preferred Units and partners’ capital$3,057,689  $3,730,407  
See accompanying notes to unaudited condensed consolidated financial statements.
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Table of Contents
USA COMPRESSION PARTNERS, LP
Unaudited Condensed Consolidated Statements of Operations
(in thousands, except per unit amounts)
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Revenues:
Contract operations$162,993  $162,937  $335,787  $326,913  
Parts and service2,736  4,400  5,784  7,084  
Related party2,922  6,338  6,079  10,424  
Total revenues168,651  173,675  347,650  344,421  
Costs and expenses:
Cost of operations, exclusive of depreciation and amortization49,968  56,245  109,133  113,270  
Depreciation and amortization60,338  56,783  119,100  115,707  
Selling, general and administrative20,315  16,210  32,700  32,205  
Loss (gain) on disposition of assets(787) 1,546  (1,801) 1,586  
Impairment of compression equipment3,923    3,923  3,234  
Impairment of goodwill    619,411    
Total costs and expenses133,757  130,784  882,466  266,002  
Operating income (loss)34,894  42,891  (534,816) 78,419  
Other income (expense):
Interest expense, net(31,815) (32,679) (64,293) (61,536) 
Other24  12  47  32  
Total other expense(31,791) (32,667) (64,246) (61,504) 
Net income (loss) before income tax expense3,103  10,224  (599,062) 16,915  
Income tax expense419  275  715  379  
Net income (loss)2,684  9,949  (599,777) 16,536  
Less: distributions on Preferred Units(12,188) (12,188) (24,375) (24,375) 
Net loss attributable to common and Class B unitholders’ interests$(9,504) $(2,239) $(624,152) $(7,839) 
Net income (loss) attributable to:
Common units$(9,504) $1,047  $(624,152) $(1,041) 
Class B Units$  $(3,286) $  $(6,798) 
Weighted average common units outstanding – basic96,781  90,209  96,721  90,135  
Weighted average common units outstanding – diluted96,781  90,421  96,721  90,135  
Weighted average Class B Units outstanding – basic and diluted  6,398    6,398  
Basic and diluted net income (loss) per common unit$(0.10) $0.01  $(6.45) $(0.01) 
Basic and diluted net loss per Class B Unit$  $(0.51) $  $(1.06) 
Distributions declared per common unit for respective periods$0.525  $0.525  $1.05  $1.05  
See accompanying notes to unaudited condensed consolidated financial statements.
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USA COMPRESSION PARTNERS, LP
Unaudited Condensed Consolidated Statements of Changes in Partners’ Capital
(in thousands, except per unit amounts)
For the Six Months Ended June 30, 2020
Common unitsWarrantsTotal
Partners’ capital ending balance, December 31, 2019$1,166,619  $13,979  $1,180,598  
Vesting of phantom units1,065    1,065  
Distributions and DERs, $0.525 per unit
(50,755)   (50,755) 
Issuance of common units under the DRIP301    301  
Unit-based compensation for equity classified awards55    55  
Net loss attributable to common unitholders’ interests(614,648)   (614,648) 
Partners’ capital ending balance, March 31, 2020502,637  13,979  516,616  
Vesting of phantom units659    659  
Distributions and DERs, $0.525 per unit
(50,801)   (50,801) 
Issuance of common units under the DRIP612    612  
Unit-based compensation for equity classified awards56    56  
Net loss attributable to common unitholders’ interests(9,504)   (9,504) 
Partners’ capital ending balance, June 30, 2020$443,659  $13,979  $457,638  
For the Six Months Ended June 30, 2019
Common unitsClass B UnitsWarrantsTotal
Partners’ capital ending balance, December 31, 2018$1,289,731  $75,146  $13,979  $1,378,856  
Vesting of phantom units2,357      2,357  
Distributions and DERs, $0.525 per unit
(47,259)     (47,259) 
Issuance of common units under the DRIP252      252  
Unit-based compensation for equity classified awards36      36  
Net loss attributable to common and Class B unitholders’ interests(2,088) (3,512)   (5,600) 
Partners’ capital ending balance, March 31, 20191,243,029  71,634  13,979  1,328,642  
Vesting of phantom units539      539  
Distributions and DERs, $0.525 per unit
(47,351)     (47,351) 
Issuance of common units under the DRIP227      227  
Unit-based compensation for equity classified awards41      41  
Net income (loss) attributable to common and Class B unitholders’ interests1,047  (3,286)   (2,239) 
Partners’ capital ending balance, June 30, 2019$1,197,532  $68,348  $13,979  $1,279,859  
See accompanying notes to unaudited condensed consolidated financial statements.
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USA COMPRESSION PARTNERS, LP
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)​
Six Months Ended June 30,
20202019
Cash flows from operating activities:
Net income (loss)$(599,777) $16,536  
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization119,100  115,707  
Provision for expected credit losses3,700  300  
Amortization of debt issuance costs3,946  3,655  
Unit-based compensation expense2,739  5,840  
Deferred income tax expense272  200  
Loss (gain) on disposition of assets(1,801) 1,586  
Impairment of compression equipment3,923  3,234  
Impairment of goodwill619,411    
Changes in assets and liabilities:
Accounts receivable and related party receivables, net13,083  (12,567) 
Inventories(11,051) (14,864) 
Prepaid expenses and other current assets(1,653) (2,189) 
Other assets1,624  987  
Other liabilities  (8) 
Accounts payable(227) (1,264) 
Accrued liabilities and deferred revenue(5,857) 30,433  
Net cash provided by operating activities147,432  147,586  
Cash flows from investing activities:
Capital expenditures, net(67,398) (87,821) 
Proceeds from disposition of property and equipment2,278  8,855  
Proceeds from insurance recovery1,324  3,017  
Net cash used in investing activities(63,796) (75,949) 
Cash flows from financing activities:
Proceeds from revolving credit facility412,307  413,775  
Proceeds from issuance of senior notes  750,000  
Payments on revolving credit facility(367,226) (1,099,970) 
Cash paid related to net settlement of unit-based awards(1,111) (1,692) 
Cash distributions on common units(102,430) (95,453) 
Cash distributions on Preferred Units(24,375) (24,375) 
Deferred financing costs(306) (13,468) 
Other(503) (551) 
Net cash used in financing activities(83,644) (71,734) 
Decrease in cash and cash equivalents(8) (97) 
Cash and cash equivalents, beginning of period10  99  
Cash and cash equivalents, end of period$2  $2  
Supplemental cash flow information:
Cash paid for interest, net of capitalized amounts$60,874  $44,346  
Cash paid for income taxes$  $171  
Supplemental non-cash transactions:
Non-cash distributions to certain common unitholders (DRIP)$913  $479  
Transfers from (to) inventories to (from) property and equipment$10,379  $(8,316) 
Changes in capital expenditures included in accounts payable and accrued liabilities$4,344  $(434) 
Financing costs included in accounts payable and accrued liabilities$115  $49  
See accompanying notes to unaudited condensed consolidated financial statements.
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USA COMPRESSION PARTNERS, LP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Organization and Description of Business
Unless otherwise indicated, the terms “our,” “we,” “us,” “the Partnership” and similar language refer to USA Compression Partners, LP, collectively with its consolidated operating subsidiaries.
We are a Delaware limited partnership. Through our operating subsidiaries, we provide compression services under fixed-term contracts with customers in the natural gas and crude oil industries, using natural gas compression packages that we design, engineer, own, operate and maintain. We also own and operate a fleet of equipment used to provide natural gas treating services, such as carbon dioxide and hydrogen sulfide removal, cooling, and dehydration. We primarily provide compression services in a number of shale plays throughout the U.S., including the Utica, Marcellus, Permian Basin, Delaware Basin, Eagle Ford, Mississippi Lime, Granite Wash, Woodford, Barnett, Haynesville, Niobrara and Fayetteville shales.
USA Compression GP, LLC, a Delaware limited liability company, serves as our general partner and is referred to herein as the “General Partner.” The General Partner is wholly-owned by ETO.
The accompanying unaudited condensed consolidated financial statements include the accounts of the Partnership and its operating subsidiaries, all of which are wholly-owned by us.
(2) Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
Our accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP and pursuant to the rules and regulations of the SEC.
In the opinion of our management, such financial information reflects all normal recurring adjustments necessary for a fair presentation of these interim unaudited condensed consolidated financial statements in accordance with GAAP. Operating results for the three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements contained in our annual report on Form 10-K for the year ended December 31, 2019 filed on February 18, 2020 (our “2019 Annual Report”).
Use of Estimates
Our unaudited condensed consolidated financial statements have been prepared in conformity with GAAP, which includes the use of estimates and assumptions by management that affect the reported amounts of assets, liabilities, revenues, expenses and disclosure of contingent assets and liabilities that existed at the date of the unaudited condensed consolidated financial statements. Although these estimates were based on management’s available knowledge of current and expected future events, actual results could differ from these estimates.
Significant Accounting Policies
Cash and Cash Equivalents
Cash and cash equivalents consist of all cash balances. We consider investments in highly liquid financial instruments purchased with an original maturity of 90 days or less to be cash equivalents.
Trade Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount and do not bear interest.
Allowance for Credit Losses
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (“Topic 326”): Measurement of Credit Losses on Financial Instruments. On January 1, 2020, we adopted Topic 326 using the modified retrospective approach, which was effective for interim and annual reporting periods beginning on or after December 15, 2019. Topic 326 requires immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets.
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To adopt Topic 326, we evaluated our allowance for credit losses related to our two financial assets measured at amortized cost: (i) trade accounts receivable and (ii) net investment in lease related to our sales-type lease discussed further in Note 7. Due to the short-term nature of our trade accounts receivable, we consider the amortized cost to be the same as the carrying amount of the receivable, excluding the allowance for credit losses. There was no cumulative effect adjustment to partners’ capital upon adoption.
Our determination of the allowance for credit losses requires us to make estimates and judgments regarding our customers’ ability to pay amounts due and is the same process for both of our financial assets as they have similar risk characteristics. We continuously evaluate the financial strength of our customers based on collection experience, the overall business climate in which our customers operate and specific identification of customer credit losses and make adjustments to the allowance as necessary. Our evaluation of our customers’ financial strength is based on the aging of their respective receivables balance, customer correspondence, financial information and third-party credit ratings. Our evaluation of the business climate in which our customers operate is based on a review of various publicly available materials regarding our customers’ industries, including the solvency of various companies in the industry.
Inventories
Inventories consist of serialized and non-serialized parts used primarily on compression units. All inventories are stated at the lower of cost or net realizable value. Serialized parts inventories are determined using the specific identification cost method, while non-serialized parts inventories are determined using the weighted average cost method. Purchases of inventories are considered operating activities on the unaudited condensed consolidated statements of cash flows.
Property and Equipment
Property and equipment are carried at cost except for (i) certain acquired assets which are recorded at fair value on their respective acquisition dates and (ii) impaired assets which are recorded at fair value on the last impairment evaluation date for which an adjustment was required. Overhauls and major improvements that increase the value or extend the life of compression equipment are capitalized and depreciated over three to five years. Ordinary maintenance and repairs are charged to cost of operations, exclusive of depreciation and amortization.
When property and equipment is retired or sold, its carrying value and the related accumulated depreciation are removed from our accounts and any associated gains or losses are recorded on our statements of operations in the period of sale or disposition.
Capitalized interest is calculated by multiplying the Partnership’s monthly effective interest rate on outstanding debt by the amount of qualifying costs, which include upfront payments to acquire certain compression units. Capitalized interest was $0.1 million and $0.2 million for the three and six months ended June 30, 2020, respectively, and $0.2 million and $0.4 million for the three and six months ended June 30, 2019, respectively.
Impairment of Long-Lived Assets
Long-lived assets with recorded values that are not expected to be recovered through future cash flows are written-down to estimated fair value. We test long-lived assets for impairment when events or circumstances indicate that the assets’ carrying value may not be recoverable or will no longer be utilized in the operating fleet. The most common circumstance requiring compression units to be evaluated for impairment is when idle units do not meet the desired performance characteristics of our active revenue generating horsepower.
The carrying value of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If the carrying value of the long-lived asset exceeds the sum of the undiscounted cash flows associated with the asset, an impairment loss equal to the amount of the carrying value exceeding the fair value of the asset is recognized. The fair value of the asset is measured using quoted market prices or, in the absence of quoted market prices, based on an estimate of discounted cash flows, the expected net sale proceeds compared to the other similarly configured fleet units we recently sold or a review of other units recently offered for sale by third parties, or the estimated component value of the equipment we plan to use.
Refer to Note 5 for more detailed information about impairment charges during the three and six months ended June 30, 2020 and 2019.
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Identifiable Intangible Assets
Identifiable intangible assets are recorded at cost and amortized using the straight-line method over their estimated useful lives, which is the period over which the assets are expected to contribute directly or indirectly to our future cash flows. The estimated useful lives of our intangible assets range from 15 to 25 years.
Goodwill
Goodwill represents consideration paid in excess of the fair value of the identifiable net assets acquired in a business combination. Goodwill is not amortized, but is reviewed for impairment annually based on the carrying values as of October 1, or more frequently if impairment indicators arise that suggest the carrying value of goodwill may not be recovered.
Refer to Note 5 for more detailed information about goodwill impairment charges during the six months ended June 30, 2020.
Revenue Recognition
Revenue is recognized when obligations under the terms of a contract with our customer are satisfied; generally this occurs with the transfer of our services or goods. Revenue is measured at the amount of consideration we expect to receive in exchange for providing services or transferring goods. Incidental items, if any, that are immaterial in the context of the contract are recognized as expenses.
Income Taxes
We are organized as a partnership for U.S. federal and state income tax purposes. As a result, our partners are responsible for U.S. federal and state income taxes based upon their distributive share of our items of income, gain, loss or deduction. Texas imposes an entity-level income tax on partnerships that is based on Texas sourced taxable margin (the “Texas Margin Tax”). We have included in the unaudited condensed consolidated financial statements a provision for the Texas Margin Tax.
Pass Through Taxes
Sales taxes incurred on behalf of, and passed through to, customers are accounted for on a net basis.
Fair Value Measurements
Accounting standards on fair value measurements establish a framework for measuring fair value and stipulate disclosures about fair value measurements. The standards apply to recurring and non-recurring financial and non-financial assets and liabilities that require or permit fair value measurements. Among the required disclosures is the fair value hierarchy of inputs we use to value an asset or a liability. The three levels of the fair value hierarchy are described as follows:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access at the measurement date.
Level 2 inputs are those other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 inputs are unobservable inputs for the asset or liability.
As of June 30, 2020, our financial instruments consisted primarily of cash and cash equivalents, trade accounts receivable, trade accounts payable and long-term debt. The book values of cash and cash equivalents, trade accounts receivable and trade accounts payable are representative of fair value due to their short-term maturities. The carrying amount of our revolving credit facility approximates fair value due to the floating interest rates associated with the debt.
The fair value of our Senior Notes 2026 and Senior Notes 2027 were estimated using quoted prices in inactive markets and are considered Level 2 measurements.
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The following table summarizes the aggregate principal amount and fair value of our Senior Notes 2026 and Senior Notes 2027 (in thousands):
June 30,
2020
December 31,
2019
Senior Notes 2026, aggregate principal$725,000  $725,000  
Fair value of Senior Notes 2026706,875  764,875  
Senior Notes 2027, aggregate principal$750,000  $750,000  
Fair value of Senior Notes 2027723,750  785,625  
Operating Segment
We operate in a single business segment, the compression services business.
(3) Trade Accounts Receivable
The allowance for credit losses, which was $5.4 million and $2.5 million as of June 30, 2020 and December 31, 2019, respectively, is our best estimate of the amount of probable credit losses included in our existing accounts receivable.
The following summarizes activity within our trade accounts receivable allowance for credit losses balance (in thousands):
Allowance for Credit Losses
Balance as of December 31, 2019$2,479  
Current-period provision for expected credit losses (1)3,700  
Writeoffs charged against the allowance(818) 
Balance as of June 30, 2020$5,361  
______________________
(1)The provision for expected credit losses recognized during the three months ended June 30, 2020 was $2.2 million.
Low crude oil prices, driven by decreased demand for and global oversupply of crude oil as a result of the COVID-19 pandemic, is the primary factor contributing to the increase to the allowance for credit losses for the three and six months ended June 30, 2020. We cannot predict the duration of these conditions or the severity of their impact on our customers and the collectability of their accounts receivable.
(4)  Inventories​
Components of inventories are as follows (in thousands):
June 30,
2020
December 31,
2019
Serialized parts$45,502  $43,890  
Non-serialized parts46,438  48,033  
Total inventories$91,940  $91,923  

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(5)  Property and Equipment, Identifiable Intangible Assets and Goodwill
Property and Equipment
Property and equipment consisted of the following (in thousands):
June 30,
2020
December 31,
2019
Compression and treating equipment$3,453,456  $3,384,985  
Computer equipment55,000  54,940  
Automobiles and vehicles34,196  33,544  
Buildings5,334  8,639  
Leasehold improvements8,596  7,395  
Furniture and fixtures1,164  1,543  
Land77  77  
Total property and equipment, gross3,557,823  3,491,123  
Less: accumulated depreciation and amortization(1,102,237) (1,008,180) 
Total property and equipment, net$2,455,586  $2,482,943  
Depreciation is calculated using the straight-line method over the estimated useful lives of the assets as follows:
Compression equipment, acquired new25 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 improvements5 years
Depreciation expense on property and equipment and loss (gain) on disposition of assets were as follows (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
Depreciation expense$52,993  $49,438  $104,410  $101,017  
Loss (gain) on disposition of assets(787) 1,546  (1,801) 1,586  
As of June 30, 2020 and December 31, 2019, there was $15.7 million and $11.4 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 and six months ended June 30, 2020, we determined to retire 11 compressor units, for a total of approximately 5,100 horsepower, that were previously used to provide compression services in our business. As a result, we recorded an impairment of compression equipment of $3.9 million for the three and six months ended June 30, 2020.
For the six months ended June 30, 2019, we determined to retire 14 compressor units, for a total of approximately 4,700 horsepower, that were previously used to provide compression services in our business. As a result, we recorded an impairment of compression equipment of $3.2 million for the six months ended June 30, 2019.
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 June 30, 2019.
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Identifiable Intangible Assets
Identifiable intangible assets, net consisted of the following (in thousands):
Customer RelationshipsTrade NamesTotal
Net balance as of December 31, 2019$329,057  $34,114  $363,171  
Amortization expense(13,052) (1,638) (14,690) 
Net balance as of June 30, 2020$316,005  $32,476  $348,481  
Accumulated amortization of intangible assets was $202.2 million and $187.5 million as of June 30, 2020 and December 31, 2019, 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.
(6)  Other Current Liabilities
Components of other current liabilities included the following (in thousands):
June 30,
2020
December 31,
2019
Accrued sales tax contingencies (1)$44,923  $48,883  
Accrued interest expense30,912  31,210  
Accrued payroll and benefits11,418  10,687  
Accrued capital expenditures15,701  11,357  
______________________
(1)Refer to Note 13 for further information on the accrued sales tax contingencies.
(7)  Lease Accounting
Lessee Accounting
We maintain both finance leases and operating leases, primarily related to office space, warehouse facilities and certain corporate equipment. Our leases have remaining lease terms of up to ten years, some of which include options that permit renewals for additional periods.
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We determine if an arrangement is a lease at inception. Operating leases are included in lease right-of-use assets, accrued liabilities and operating lease liabilities in our unaudited condensed consolidated balance sheets. Finance leases are included in property and equipment, accrued liabilities and other liabilities in our unaudited condensed consolidated balance sheets.
Right-of-use (“ROU”) lease assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU lease assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available on the commencement date in determining the present value of lease payments. ROU lease assets also include any lease payments made and exclude lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Variable costs such as our proportionate share of actual costs for utilities, common area maintenance, property taxes and insurance are not included in the lease liability and are recognized in the period in which they are incurred.
For short-term leases (leases that have terms of twelve months or less upon commencement), lease payments are recognized on a straight line basis and no ROU assets are recorded. For certain equipment leases, such as office equipment, we account for the lease and non-lease components as a single lease component.
Supplemental balance sheet information related to leases consisted of the following (in thousands):
Assets (liabilities)June 30,
2020
December 31,
2019
Operating leases:
Lease ROU assets$24,101  $18,317  
Accrued liabilities(2,991) (2,451) 
Operating lease liabilities(22,615) (17,343) 
Finance leases:
Property and equipment, gross$4,714  $7,268  
Accumulated depreciation(3,496) (5,845) 
Property and equipment, net1,218  1,423  
Accrued liabilities(549) (774) 
Other liabilities(1,272) (1,550) 
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Components of lease expense consisted of the following (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
Income Statement Line Item
2020201920202019
Operating lease costs:
Operating lease costCost of operations, exclusive of depreciation and amortization$780  $282  $1,365  $655  
Operating lease costSelling, general and administrative365  209  773  475  
Total operating lease costs1,145  491  2,138  1,130  
Finance lease costs:
Amortization of lease assetsDepreciation and amortization103  591  205  1,410  
Short-term lease costs:
Short-term lease costCost of operations, exclusive of depreciation and amortization53  77  162  144  
Short-term lease costSelling, general and administrative13  8  28  9  
Total short-term lease costs66  85  190  153  
Variable lease costs:
Variable lease costCost of operations, exclusive of depreciation and amortization