| Basis of Presentation and Summary of Significant Accounting Policies | Note 2 – Basis of Presentation and Summary of Significant
Accounting Policies
Basis of Presentation
Our consolidated financial statements are prepared in accordance
with Generally Accepted Accounting Principles (GAAP) and include
the accounts of all consolidated subsidiaries after the elimination
of all intercompany accounts and transactions. In
management’s opinion, all necessary adjustments to fairly
present our results of operations, financial position and cash
flows for the periods presented have been made and all such
adjustments are of a normal and recurring nature. Certain
information and footnote disclosures normally included in annual
consolidated financial statements prepared in accordance with GAAP
have been omitted pursuant to the rules and regulations of the
SEC.
Significant Accounting Policies
There were no material changes in our significant accounting
policies from those described in our 2016 Annual Report on Form
10-K.
Goodwill
The following table summarizes goodwill impairments of certain of
our reporting units recorded during the three months ended
March 31, 2016 ( in millions
Gathering and Processing
Marcellus $ 8.6
Storage and Transportation
COLT 13.7
Marketing, Supply and Logistics
Supply and Logistics 65.5
Storage and Terminals 14.1
Trucking 7.8
Total $ 109.7
Unit-Based Compensation 2016-09, Compensation -
Stock Compensation (Topic 718): Improvements to Employee
Share-Based Payment Accounting
Crestwood Equity 2017 Long Term Incentive Plan
New Accounting Pronouncements Issued But Not Yet Adopted
As of March 31, 2017, the following accounting standards had
not yet been adopted by us:
In May 2014, the Financial Accounting Standards Board (FASB)
issued ASU 2014-09, Revenue from Contracts with Customers, non-cash
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842)
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows
(Topic 230): Classification of Certain Cash Receipts and Cash
Payments
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and
Other (Topic 350): Simplifying the Test for Goodwill
Impairment | Note 2 – Basis of Presentation and Summary of Significant
Accounting Policies
Basis of Presentation
Our consolidated financial statements are prepared in accordance
with GAAP and include the accounts of all consolidated subsidiaries
after the elimination of all intercompany accounts and
transactions. In management’s opinion, all necessary
adjustments to fairly present our results of operations, financial
position and cash flows for the periods presented have been made
and all such adjustments are of a normal and recurring nature.
In September 2015, Crestwood Midstream merged with a wholly-owned
subsidiary of CEQP, with Crestwood Midstream surviving as a
wholly-owned subsidiary of CEQP (the Simplification Merger), and
CEQP contributed 100% of its interest in Crestwood Operations LLC
(Crestwood Operations) to Crestwood Midstream. As a result of this
transaction, Crestwood Midstream controls the operating and
financial decisions of Crestwood Operations. Crestwood Midstream
accounted for this transaction as a reorganization of entities
under common control and the accounting standards related to such
transactions requires Crestwood Midstream to record the assets and
liabilities of Crestwood Operations at CEQP’s carrying value
and retroactively adjust Crestwood Midstream’s historical
results to reflect the operations of Crestwood Operations as being
acquired on June 19, 2013, the date in which Crestwood
Midstream and Crestwood Operations came under common control. Prior
to the Simplification Merger, Crestwood Equity consolidated the
results of Crestwood Operations in its financial statements and as
such, this transaction had no impact on its historical financial
statements.
Significant Accounting Policies
Principles of Consolidation
We consolidate entities when we have the ability to control or
direct the operating and financial decisions of the entity or when
we have a significant interest in the entity that gives us the
ability to direct the activities that are significant to that
entity. The determination to consolidate or apply the equity method
of accounting to an entity can also require us to evaluate whether
that entity is considered a variable interest entity. This
evaluation, along with the determination of our ability to control,
direct or exert significant influence over an entity involves the
use of judgment. We apply the equity method of accounting where we
can exert significant influence over, but do not control or direct
the policies, decisions or activities of an entity and in the case
of a variable interest entity (VIE), are not the primary
beneficiary. We use the cost method of accounting where we are
unable to exert significant influence over the entity.
All of our consolidated entities and equity method investments are
not VIEs except for our investment in Crestwood Permian Basin
Holdings LLC (Crestwood Permian). In October 2016, Crestwood
Infrastructure Holdings LLC (Crestwood Infrastructure), our
wholly-owned subsidiary, and an affiliate of First Reserve formed
Crestwood Permian to fund and own a gathering system and other
potential operations in the Delaware Permian. Crestwood Permian is
a VIE because it does not have sufficient equity at risk to fund
its current activities (i.e., the construction of the Nautilus
gathering system) without additional capital contributions from us
and First Reserve, and CEQP has provided a guarantee to a third
party that requires CEQP to fund 100% of the costs to build the
Nautilus gathering system (which is currently estimated to cost
approximately $180 million) if Crestwood Permian fails to do so. We
account for our investment in Crestwood Permian as an equity method
investment because we are not the primary beneficiary of the VIE as
of December 31, 2016.
On June 3, 2016, our wholly-owned subsidiary, Crestwood
Pipeline and Storage Northeast LLC (Crestwood Northeast) and Con
Edison Gas Pipeline and Storage Northeast, LLC (CEGP), a
wholly-owned subsidiary of Consolidated Edison, Inc. (Consolidated
Edison), formed the Stagecoach Gas Services LLC (Stagecoach Gas)
joint venture, to own and further develop our natural gas storage
and transportation business located in the Northeast (the NE
S&T assets). We contributed to the joint venture the entities
owning the NE S&T assets, CEGP contributed $975 million in
exchange for a 50% equity interest in Stagecoach Gas, and
Stagecoach Gas distributed to us the net cash proceeds received
from CEGP. The assets contributed to the joint venture were
previously included in our storage and transportation segment.
We deconsolidated the NE S&T assets as a result of the
contribution of these assets to Stagecoach Gas and began accounting
for our 50% equity interest in Stagecoach Gas under the equity
method of accounting. The deconsolidation of our NE S&T assets
resulted in a decrease of $1,127.6 million in property, plant
and equipment, net, $8.5 million of intangible assets, net and
$11.2 million of other assets and (liabilities), net. For a
discussion of the decrease in goodwill associated with this joint
venture transaction, see “Goodwill” below. See Note 6
for a further discussion of our investment in Stagecoach Gas.
Use of Estimates
The preparation of our consolidated financial statements in
conformity with GAAP requires the use of estimates and assumptions
that affect the amounts we report as assets, liabilities, revenues
and expenses and our disclosures in these consolidated financial
statements. Actual results can differ from those estimates.
Cash
We consider all highly liquid investments with an original maturity
of less than three months to be cash.
Inventory
Inventory for our marketing, supply and logistics operations are
stated at the lower of cost or market and cost is computed
predominantly using the average cost method. Our inventory consists
primarily of crude oil and NGLs of approximately $56.7 million
and $35.4 million at December 31, 2016 and 2015.
Property, Plant and Equipment
Property, plant and equipment is recorded at is original cost of
construction or, upon acquisition, at the fair value of the assets
acquired. For assets we construct, we capitalize direct costs, such
as labor and materials, and indirect costs, such as overhead and
interest. We capitalize major units of property replacements or
improvement and expense minor items. Depreciation is computed by
the straight-line method over the estimated useful lives of the
assets, as follows:
Years
Gathering systems and pipelines 20
Facilities and equipment 20
Buildings, rights-of-way 20 – 40
Office furniture and fixtures 5 – 10
Vehicles 5
We deplete salt deposits included in our property, plant and
equipment utilizing the unit of production method.
We evaluate our long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. If such events or changes in
circumstances are present, a loss is recognized if the carrying
value of the asset is in excess of the sum of the undiscounted cash
flows expected to result from the use of the asset and its eventual
disposition. An impairment loss is measured as the amount by which
the carrying amount of the asset exceeds the fair value of the
asset, which is typically based on discounted cash flow projections
using assumptions as to revenues, costs and discount rates typical
of third party market participants, which is a Level 3 fair
value measurement.
We did not record impairments of our property, plant and equipment
during the year ended December 31, 2016. During 2015 and 2014,
we recorded the following impairments of our property, plant and
equipment and we reflected these impairments in loss on long-lived
assets in our consolidated statements of operations:
• During 2015 and 2014, we incurred
$8.5 million and $13.2 million of impairments of our
property, plant and equipment related to our Granite Wash gathering
and processing operations, which resulted from decreases in
forecasted cash flows for those operations given that our major
customer of those assets declared bankruptcy and ceased substantial
drilling in the Granite Wash in the near future given current and
future anticipated market conditions related to normal gas and
NGLs. The fair value of our property, plant and equipment related
to our Granite Wash operations was $11.2 million as of
December 31, 2015.
• During 2015, Crestwood Equity
incurred a $354.4 million impairment of its property, plant
and equipment related to its Barnett gathering and processing
operations, which resulted from the actions of our primary customer
in the Barnett Shale, Quicksilver Resources, Inc. (Quicksilver),
related to its filing for protection under Chapter 11 of the U.S.
Bankruptcy Code in 2015. The fair value of our property, plant and
equipment related to our Barnett operations was $298.5 million
as of December 31, 2015. Crestwood Midstream did not record an
impairment of its property, plant and equipment related to its
gathering and processing assets in the Barnett Shale as the sum of
the undiscounted cash flows expected to result from the use of the
assets and their eventual disposition exceeded the carrying value
of the property, plant and equipment by over 30%. As a result,
Crestwood Midstream’s property, plant and equipment exceeds
Crestwood Equity’s property, plant and equipment related to
its gathering and processing assets in the Barnett Shale as of
December 31, 2016 and 2015.
• During 2015, we incurred
$61.9 million and $45.7 million of impairments of
property, plant and equipment related to our Fayetteville and
Haynesville gathering and processing operations, respectively,
which resulted from decreases in forecasted cash flows for those
operations given that our customers for those assets have ceased
any substantial drilling in the Fayetteville and Haynesville Shales
in the near future given current and future anticipated market
conditions related to natural gas. The fair value of our property,
plant and equipment related to our Fayetteville and Haynesville
operations was $59.3 million and $3.8 million,
respectively, as of December 31, 2015.
• During 2015, we incurred a
$31.2 million impairment of our property, plant and equipment
related to our Watkins Glen development project in our marketing,
supply and logistics segment, which resulted from continued delays
and uncertainties in the permitting of our proposed NGL storage
facility. The fair value of our property, plant and equipment
related to our Watkins Glen development project was
$6.7 million as of December 31, 2015.
At December 31, 2015, our estimates of fair value considered a
number of factors, including the potential value we would receive
if we sold the asset, a 15% discount rate and projected cash flows,
which is a Level 3 fair value measurement. Projected cash
flows of our property, plant and equipment are generally based on
current and anticipated future market conditions, which require
significant judgment to make projections and assumptions about
pricing, demand, competition, operating costs, constructions costs,
legal and regulatory issues and other factors that may extend many
years into the future and are often outside of our control. Due to
the imprecise nature of these projections and assumptions, actual
results can and often do, differ from our estimates.
Identifiable Intangible Assets
Our identifiable intangible assets consist of customer accounts,
covenants not to compete, trademarks and certain revenue contracts.
Customer accounts, covenants not to compete, trademarks and certain
of our revenue contracts have arisen from acquisitions. We amortize
certain of our revenue contracts based on the projected cash flows
associated with these contracts if the projected cash flows are
readily determinable, otherwise we amortize our revenue contracts
on a straight-line basis. We recognize acquired intangible
assets separately if the benefit of the intangible asset is
obtained through contractual or other legal rights, or if the
intangible asset can be sold, transferred, licensed, rented or
exchanged, regardless of the acquirer’s intent to do so.
During 2016, 2015 and 2014, we recorded the following impairments
of our intangible assets and we reflected these impairments in loss
on long-lived assets in our consolidated statements of
operations:
• During 2016, we incurred a
$31.4 million impairment of intangible assets related to our
MS&L Trucking operations, which resulted from the impact of
increased competition on our Trucking business and the loss of
several key customer relationships that were acquired in 2013 to
which the intangible assets related. The fair value of our
intangible assets related to our MS&L Trucking operations was
$3.7 million as of December 31, 2016.
• During 2015, Crestwood Equity fully
impaired $238.9 million of its intangible assets related to
its Barnett gathering and processing operations, which resulted
from the actions of our primary customer in the Barnett Shale,
Quicksilver, related to filing for protection under Chapter 11 of
the U.S. Bankruptcy Code in 2015.
• During 2015, we fully impaired
$70.9 million and $6.0 million of intangible assets
related to our Fayetteville and Haynesville gathering and
processing operations, respectively, which resulted from decreases
in forecasted cash flows for those operations given that our
customers for those assets have ceased any substantial drilling in
the Fayetteville and Haynesville Shales in the near future given
current and future anticipated market conditions related to natural
gas.
• During 2014, we fully impaired
$20 million of intangible assets related to our Granite Wash
gathering and processing operations, which resulted from decreases
in forecasted cash flows for those operations given that our major
customer of those assets declared bankruptcy and ceased substantial
drilling in the Granite Wash in the near future given current and
future anticipated market conditions related to natural gas and
NGLs.
At December 31, 2016, our estimates of fair value considered a
number of factors, including the potential value we would receive
if we sold the asset, a 19% discount rate and projected cash flows,
which is a Level 3 fair value measurement. Projected cash
flows of our intangible assets are generally based on current and
anticipated future market conditions, which require significant
judgment to make projections and assumptions about pricing, demand,
competition, operating costs, construction costs, legal and
regulatory issues and other factors that may extend many years into
the future and are often outside of our control. Due to the
imprecise nature of these projections and assumptions, actual
results can and often do, differ from our estimates.
Certain intangible assets are amortized on a straight-line basis
over their estimated economic lives, as follows:
Weighted- Life (years)
Customer accounts 20
Covenants not to compete 5
Trademarks
6 - 8
Goodwill
Our goodwill represents the excess of the amount we paid for a
business over the fair value of the net identifiable assets
acquired. We evaluate goodwill for impairment annually on
December 31, and whenever events indicate that it is more
likely than not that the fair value of a reporting unit could be
less than its carrying amount. This evaluation requires us to
compare the fair value of each of our reporting units to its
carrying value (including goodwill). If the fair value exceeds the
carrying amount, goodwill of the reporting unit is not considered
impaired.
We estimate the fair value of our reporting units based on a number
of factors, including discount rates, projected cash flows and the
potential value we would receive if we sold the reporting unit. We
also compare the total fair value of our reporting units to our
overall enterprise value, which considers the market value for our
common and preferred units. Estimating projected cash flows
requires us to make certain assumptions as it relates to the future
operating performance of each of our reporting units (which
includes assumptions, among others, about estimating future
operating margins and related future growth in those margins,
contracting efforts and the cost and timing of facility expansions)
and assumptions related to our customers, such as their future
capital and operating plans and their financial condition. When
considering operating performance, various factors are considered
such as current and changing economic conditions and the commodity
price environment, among others. Due to the imprecise nature of
these projections and assumptions, actual results can and often do,
differ from our estimates. If the assumptions embodied in the
projections prove inaccurate, we could incur a future impairment
charge. In addition, the use of the income approach to determine
the fair value of our reporting units (see further discussion of
the use of the income approach below) could result in a different
fair value if we had utilized a market approach, or a combination
thereof.
We acquired substantially all of our reporting units in 2013, 2012
and 2011, which required us to record the assets, liabilities and
goodwill of each of those reporting units at fair value on the date
they were acquired. As a result, any level of decrease in the
forecasted cash flows of these businesses or increases in the
discount rates utilized to value those businesses from their
respective acquisition dates would likely result in the fair value
of the reporting unit falling below the carrying value of the
reporting unit, and could result in an assessment of whether that
reporting unit’s goodwill is impaired.
Current commodity prices are significantly lower compared to
commodity prices during 2014, and that decrease has adversely
impacted forecasted cash flows, discount rates and stock/unit
prices for most companies in the midstream industry, including us.
As a result, we recorded goodwill impairments on several of our
reporting units during 2016, 2015 and 2014. The following table
summarizes the goodwill of our various reporting units ( in
millions
Goodwill 31, 2014 Goodwill 1, 2015 Goodwill 31, 2015 Goodwill 31, 2015 Impact of 31, 2016 Goodwill 31, 2016 Goodwill Ended December 31, 2016 (1) Goodwill 31, 2016
G&P
Fayetteville $ 4.3 $ 72.5 $ 72.5 $
— $
— $
— $
— $
—
Granite Wash 14.2
—
—
—
—
—
—
—
Marcellus
— 8.6
— 8.6
— 8.6
—
—
Arrow
— 45.9
— 45.9
—
—
— 45.9
S&T
Northeast Storage and Transportation
— 726.3
— 726.3 726.3
—
—
—
COLT
— 668.3 623.4 44.9
— 44.9
—
—
MS&L
West Coast
— 85.9 85.9
—
—
— 2.4 2.4
Supply and Logistics
— 266.2 99.0 167.2
— 65.5
— 101.7
Storage and Terminals
— 104.2 53.7 50.5
— 14.1
— 36.4
US Salt 2.2 12.6
— 12.6
—
—
— 12.6
Trucking
— 177.9 148.4 29.5
— 29.5
—
—
Watkins Glen 28.1 66.2 66.2
—
—
—
—
—
Total Crestwood Midstream $ 48.8 $ 2,234.6 $ 1,149.1 $ 1,085.5 $ 726.3 $ 162.6 $ 2.4 $ 199.0
Barnett (G&P)
— 257.2 257.2
—
—
—
—
—
Total Crestwood Equity $ 48.8 $ 2,491.8 $ 1,406.3 $ 1,085.5 $ 726.3 $ 162.6 $ 2.4 $ 199.0
(1) In December 2016, we acquired four
NGL terminals for our MS&L segment for approximately
$7.2 million with total goodwill of approximately
$2.4 million. This acquisition was not material to our
consolidated financial statements as of and for the year ended
December 31, 2016.
The goodwill impairments recorded during 2016 related to our
G&P Marcellus operations, our MS&L Supply and Logistics and
Storage and Terminals operations, our S&T COLT operations and
our MS&L Trucking operations. The 2016 goodwill impairments on
our Marcellus, Supply and Logistics, and Storage and Terminals
operations primarily resulted from increasing the discount rates
utilized in determining the fair value of those reporting units
considering the significant decrease in the market price of our
common units during the first quarter of 2016 and the continued
decrease in commodity prices and its impact on the midstream
industry and our customers. The 2016 goodwill impairments on our
COLT and Trucking operations also resulted from those factors, but
in addition they were impacted by (i) the expiration of two
key crude-by-rail
The goodwill impairments recorded during 2015 and 2014 primarily
resulted from decreasing forecasted cash flows and increasing the
discount rates utilized in determining the fair value of the
reporting units considering the continued decrease in commodity
prices and its impact on the midstream industry and our customers.
We utilized the income approach to determine the fair value of our
reporting units given the limited availability of comparable
market-based transactions during 2015 and 2014, and we utilized
discount rates ranging from 10% to 16% in 2015 and 9% to 12% in
2014 in applying the income approach to determine the fair value of
our reporting units with goodwill as of December 31, 2015 and
2014.
In addition to the goodwill impairments recorded by Crestwood
Midstream as reflected in the table above, Crestwood Equity
recorded a goodwill impairment of its Barnett reporting unit of
approximately $257.2 million in 2015. The impairment primarily
resulted from increasing the discount rate utilized in determining
the fair value of the reporting unit, considering the actions of
its primary customer in the Barnett Shale during 2015, Quicksilver,
related to its filing for protection under Chapter 11 of the U.S.
Bankruptcy Code in March 2015.
Investment in Unconsolidated Affiliates
Equity method investments in which we exercise significant
influence, but do not control and are not the primary beneficiary,
are accounted for using the equity method of accounting.
Differences in the basis of investments and the separate net asset
values of the investees, if any, are amortized into net income or
loss over the remaining useful lives of the underlying assets and
liabilities, except for the excess related to goodwill. We evaluate
our equity method investments for impairment when events or
circumstances indicate that the carrying value of the equity method
investment may be impaired and that impairment is other than
temporary. If an event occurs, we evaluate the recoverability of
our carrying value based on the fair value of the investment. If an
impairment is indicated, or if we decide to sell an investment in
unconsolidated affiliate, we adjust the carrying values of the
asset downward, if necessary, to their estimated fair values.
During 2015, we recorded a $51.4 million and
$23.4 million impairment of our Jackalope Gas Gathering
Services, L.L.C. (Jackalope) and Powder River Basin Industrial
Complex, LLC (PRBIC) equity method investments, respectively, as a
result of decreasing forecasted cash flows and increasing the
discount rates utilized in determining the fair value of the equity
method investments considering the continued decrease in commodity
prices and its impact on the midstream industry and our equity
method investments’ customers, which is a Level 3 fair
value measurement. We did not record impairments of our equity
method investments during the years ended December 31, 2016 or
December 31, 2014.
We estimated the fair value of our equity method investments at
December 31, 2015 based on projected cash flows, a 15.5%
discount rate and the potential value we would receive if we sold
the equity method investment. Estimating projected cash flows
requires us to make certain assumptions as it relates to the future
operating performance of each of our equity method investments
(which includes assumptions, among others, about estimating future
operating margins and related future growth in those margins,
contracting efforts and the cost and timing of facility expansions)
and assumptions related to our equity method investments’
customers, such as future capital and operating plans and their
financial condition. When considering operating performance,
various factors are considered such as current and changing
economic conditions and the commodity price environment, among
others. Due to the imprecise nature of these projections and
assumptions, actual results can and often do, differ from our
estimates.
Asset Retirement Obligations
An asset retirement obligation (ARO) is an estimated liability for
the cost to retire a tangible asset. We record a liability for
legal or contractual obligations to retire our long-lived assets
associated with right-of-way
Deferred Financing Costs
Deferred financing costs represent costs associated with obtaining
long-term financing and are amortized over the term of the
related debt using a method which approximates the effective
interest method and has a weighted average life of six years.
Effective January 1, 2016, we adopted the provisions of
Accounting Standards Update (ASU) 2015-03,
Interest (Subtopic 835-30),
Revenue Recognition
We gather, treat, compress, store, transport and sell various
commodities (including crude oil, natural gas, NGLs and water)
pursuant to fixed-fee percent-of-proceeds
We recognize revenues for these services and products when all of
the following criteria are met:
• services have been rendered or
products delivered or sold;
• persuasive evidence of an exchange
arrangement exists;
• the price for services is fixed or
determinable; and
• collectability is reasonably
assured.
We record deferred revenue when we receive amounts from our
customers but have not met the criteria listed above. We recognize
deferred revenue in our consolidated statements of operations when
the criteria has been met and all services have been rendered. At
December 31, 2016 and 2015, we had deferred revenue of
approximately $7.5 million and $14.2 million, which is
reflected in accrued expenses and other liabilities on our
consolidated balance sheets.
Credit Risk and Concentrations
Inherent in our contractual portfolio are certain credit risks.
Credit risk is the risk of loss from nonperformance by suppliers,
customers or financial counterparties to a contract. We take an
active role in managing credit risk and have established control
procedures, which are reviewed on an ongoing basis. We attempt to
minimize credit risk exposure through credit policies and periodic
monitoring procedures as well as through customer deposits, letters
of credit and entering into netting agreements that allow for
offsetting counterparty receivable and payable balances for certain
financial transactions, as deemed appropriate.
Income Taxes
Crestwood Equity is a master limited partnership and Crestwood
Midstream is a limited partnership. Partnerships are generally not
subject to federal income tax, although publicly-traded
partnerships are treated as corporations for federal income tax
purposes and therefore are subject to federal income tax, unless
the partnership generates at least 90% of its gross income from
qualifying sources. If the qualifying income requirement is
satisfied, the publicly-traded partnership will be treated as a
partnership for federal income tax purposes. We satisfy the
qualifying income requirement and are treated as a partnership for
federal and state income tax purposes. Our consolidated earnings
are included in the federal and state income tax returns of our
partners. However, legislation in certain states allows for
taxation of partnerships, and as such, certain state taxes have
been included in our accompanying financial statements as income
taxes due to the nature of the tax in those particular states as
discussed below. In addition, federal and state income taxes are
provided on the earnings of the subsidiaries incorporated as
taxable entities. We are required to recognize deferred tax assets
and liabilities for the expected future tax consequences of events
that have been included in the financial statements or tax returns.
Under this method, deferred tax assets and liabilities are
determined based on the differences between the financial reporting
and tax basis of assets and liabilities using expected rates in
effect for the year in which the differences are expected to
reverse.
We are responsible for the Texas Margin tax computed on the Texas
franchise tax returns. The margin tax qualifies as an income tax
under GAAP, which requires us to recognize the impact of this tax
on the temporary differences between the financial statement assets
and liabilities and their tax basis attributable to such tax.
Net earnings for financial statement purposes may differ
significantly from taxable income reportable to unitholders as a
result of differences between the tax basis and the financial
reporting basis of assets and liabilities and the taxable income
allocation requirements under the partnership agreement.
Environmental Costs and Other Contingencies
We recognize liabilities for environmental and other contingencies
when there is an exposure that indicates it is both probable that a
liability has been incurred and the amount of loss can be
reasonably estimated. Where the most likely outcome of a
contingency can be reasonably estimated, we accrue a liability for
that amount. Where the most likely outcome cannot be estimated, a
range of potential losses is established and if no one amount in
that range is more likely than any other, the low end of range is
accrued.
We record liabilities for environmental contingencies at their
undiscounted amounts on our consolidated balance sheets as accrued
expenses and other liabilities when environmental assessments
indicate that remediation efforts are probable and costs can be
reasonably estimated. Estimates of our liabilities are based on
currently available facts and presently enacted laws and
regulations, taking into consideration the likely effects of other
societal and economic factors. These estimates are subject to
revision in future periods based on actual costs or new
circumstances. We capitalize costs that benefit future periods and
recognize a current period charge in operations and maintenance
expenses when clean-up
We evaluate potential recoveries of amounts from third parties,
including insurance coverage, separately from our liability.
Recovery is evaluated based on the solvency of the third party,
among other factors. When recovery is assured, we record and report
an asset separately from the associated liability on our
consolidated balance sheet.
Price Risk Management Activities
We utilize certain derivative financial instruments to
(i) manage our exposure to commodity price risk, specifically,
the related change in the fair value of inventory, as well as the
variability of cash flows related to forecasted transactions;
(ii) ensure the availability of adequate physical supply of
commodity; and (iii) manage our exposure to the interest rate
risk associated with fixed and variable rate borrowings. We record
all derivative instruments on the balance sheet at their fair
values as either assets or liabilities measured at fair value.
Changes in the fair value of these derivative financial instruments
are recorded through current earnings.
We did not have any derivatives identified as fair value hedges or
cash flow hedges for accounting purposes during the years ended
December 31, 2016, 2015 or 2014.
Unit-Based Compensation
Long-term incentive awards are granted under the Crestwood Equity
incentive plan. Unit-based compensation awards consist of
restricted units that are valued at the closing market price of
CEQP’s common units on the date of grant, which reflects the
fair value of such awards. For those awards that are settled in
cash, the associated liability is remeasured at every balance sheet
date through settlement, such that the vested portion of the
liability is adjusted to reflect its revised fair value through
compensation expense. We generally recognize the expense associated
with the award over the vesting period.
New Accounting Pronouncements Issued But Not Yet Adopted
As of December 31, 2016, the following accounting standards
had not yet been adopted by us:
In May 2014, the FASB issued (ASU) 2014-09, Revenue from Contracts
with Customers, non-cash
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842)
In March 2016, the FASB issued ASU 2016-09, Compensation—Stock
Compensation (Topic 718): Improvements to Employee
Share-Based Payment Accounting
transactions, including the classification of awards as either
equity or liabilities and presentation on the statement of cash
flows.
We adopted the provisions of this standard effective
January 1, 2017 and it is not anticipated to have a material
impact on our consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows
(Topic 230): Classification of Certain Cash Receipts
and Cash Payments
of cash flows. We expect to adopt the provisions of this standard
effective January 1, 2018 |
