Basis of Presentation and Summary of Significant Accounting Policies | 9 Months Ended |
Sep. 30, 2014 |
Basis of Presentation and Summary of Significant Accounting Policies [Abstract] | ' |
Basis of Presentation and Summary of Significant Accounting Policies | ' |
2. Basis of Presentation and Summary of Significant Accounting Policies |
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Basis of Presentation |
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The Condensed Consolidated Financial Statements for periods prior to the IPO reflect the combined results of our predecessor and the TIR Entities and were prepared using the historical basis in the assets and liabilities of the predecessor and the TIR Entities. We have recast prior period financial information to reflect CEP LLC’s distribution of the Sheridan SWD facility and other entities as if the distribution occurred on January 1, 2013 and to reflect the conveyance of the Contributed Entities to the Partnership at the closing of our IPO, as if the contribution of CEP LLC had occurred as of January 1, 2013 and the contribution of the TIR Entities had occurred as of June 26, 2013, as Holdings and its affiliates did not acquire a controlling interest in the TIR Entities until June 26, 2013. All significant intercompany transactions and account balances have been eliminated. We have made certain reclassifications to the prior period financial statements to conform with classification methods used in the current fiscal year. These reclassifications had no impact on previously reported amounts of total assets, total liabilities, owners’ equity, or net income. |
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The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim consolidated financial information and in accordance with the rules and regulations of the Securities and Exchange Commission. The Condensed Consolidated Financial Statements include all adjustments considered necessary for a fair presentation of the financial position and results of operations for the interim periods presented. Such adjustments consist only of normal recurring items, unless otherwise disclosed herein. Accordingly, the Condensed Consolidated Financial Statements do not include all the information and notes required by GAAP for complete consolidated financial statements. However, we believe that the disclosures made are adequate to make the information not misleading. These interim Condensed Consolidated Financial Statements should be read in conjunction with our audited financial statements as of December 31, 2013 and for the period from September 19, 2013 through December 31, 2013, the audited consolidated financial statements of CEP LLC as of December 31, 2013 and 2012 and for the years ended December 31, 2013 and 2012 and for the period from June 1, 2011 (Inception) to December 31, 2011, the audited combined financial statements of the TIR Entities as of and for the year ended December 31, 2013, and the audited consolidated financial statements of Tulsa Inspection Resources, Inc. as of and for the years ended December 31, 2012 and 2011 included in our Annual Report on Form 10-K for the year ended December 31, 2013. The results of operations for interim periods are not necessarily indicative of the results to be expected for a full year. |
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Use of Estimates in the Preparation of Financial Statements |
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The preparation of the Partnership’s Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ from those estimates. |
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The Partnership is subject to the periodic adjustment of unemployment tax rates by the relevant taxing authorities in the states in which it operates. During 2014, the Partnership received notification of a retroactive change in state unemployment tax rates in several states effective January 1, 2014. The effect of this change in estimate was to increase costs of services by $0.3 million and $0.4 million in the three and nine month periods ended September 30, 2014, respectively. |
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Significant Accounting Policies |
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Our significant accounting policies are consistent with those disclosed in Note 2 of each of the audited financial statements described above included in our Annual Report on Form 10-K for the year ended December 31, 2013. |
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Unit-Based Compensation |
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Cypress Energy Partners GP, LLC (“General Partner”) adopted a long-term incentive plan (“LTIP”) in connection with the IPO. The cost of employee services received in exchange for equity instruments is measured based on the grant-date fair value of those instruments. That cost is recognized straight-line over the requisite service period (often the vesting period) as discussed in Note 7. |
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Offering Costs |
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Incremental costs directly attributable to an offering of equity securities are deferred and charged against the gross proceeds of the offering as a reduction in owners’ equity including underwriter fees, legal and accounting fees associated with the preparation of the registration statement, and other costs related to the promotion of the offering. All other costs that are not directly related to the offering are expensed as incurred. |
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Income Taxes |
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As a limited partnership, we generally are not subject to federal, state or local income taxes. The tax on net income is generally borne by the individual partners. Net income for financial statement purposes may differ significantly from taxable income of the partners as a result of differences between the tax basis and financial reporting basis of assets and liabilities and the taxable income allocation requirements under our partnership agreement. The aggregated difference in the basis of our net assets for financial and tax reporting purposes cannot be readily determined because information regarding each partners’ tax attributes in us is not available to us. |
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On December 9, 2013, the TIR Entities converted from corporate status to pass-through entities for U.S. federal income tax purposes. The Partnership made a payment of $15.0 million for income taxes associated with the gain on this conversion in the first quarter of 2014. The TIR Entities that have Canadian activity remain taxable in Canada. In addition, effective January 1, 2014, the TIR Entities formed a wholly owned subsidiary, Tulsa Inspection Resources – PUC, LLC (“TIR-PUC”), which has elected to be taxed as a corporation for U.S. federal income tax purposes. Income tax expense reflected on the Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2014 differs from an expected statutory rate of 35% due primarily to the non-taxable nature of partnership earnings for both U.S. federal and state income tax purposes (pass-through status) offset by the corporate income taxes of TIR-PUC, the Canadian income taxes related to the TIR Entity foreign operations and any applicable state business activity and franchise taxes. |
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A publicly-traded partnership is required to generate at least 90% of its gross income (as defined for federal income tax purposes) from certain qualifying sources. Income generated by TIR-PUC is excluded from this qualifying income calculation as a result of management’s election to treat the entity as a taxable corporation. Distributions of after tax earnings from TIR-PUC to TIR LLC would be considered qualifying income. We believe that at least 90% of our gross income has been qualifying income since our IPO. |
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We evaluate uncertain tax positions for recognition and measurement in the Condensed Consolidated Financial Statements. To recognize a tax position, we determine whether it is more likely than not that the tax position will be sustained upon examination, including resolution of any related appeals or litigation, based on the technical merits of the position. A tax position that meets the more likely than not threshold is measured to determine the amount of benefit to be recognized in the Condensed Consolidated Financial Statements. We had no material uncertain tax positions that required recognition in the Condensed Consolidated Financial Statements at September 30, 2014. |
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Non-controlling Interest |
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The Partnership holds a controlling interest in several entities which are not wholly owned. The Non-controlling interests shown in our Condensed Consolidated Balance Sheet at September 30, 2014 primarily includes the 49% membership interest in CES LLC that is owned by SBG Energy Services, LLC (“SBG Energy”) and the 49.9% interest in each of the TIR Entities that is owned by affiliates of Holdings. The Net income attributable to non-controlling interests shown in our Condensed Consolidated Statements of Income reflects 49% of the net income of CES LLC for the three and nine months ended September 30, 2014 of $0.1 million and $0.2 million, respectively, and 49.9% of the net income of the TIR Entities for the three months ended September 30, 2014 and for the period from January 21, 2014 through September 30, 2014, as adjusted in accordance with our partnership agreement, of $1.5 million and $3.3 million, respectively. |
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New Accounting Standard |
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The Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2014-09 – Revenue from Contracts with Customers in May 2014. ASU 2014-09 is intended to clarify the principles for recognizing revenue and develop a common standard for recognizing revenue for GAAP and International Financial Reporting Standards that is applicable to all organizations. The Partnership will be required to comply with this ASU beginning in 2017. We are currently evaluating the impact of this ASU on the financial information of the Partnership. We do not anticipate that the adoption of this ASU will materially impact our financial position, results of operations or cash flows. |