Document
Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2016
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from               to              .

(Exact name of registrant as specified in its charter)
Commission file number
State or other jurisdiction of incorporation or organization
(I.R.S. Employer Identification No.)
Crestwood Equity Partners LP
001-34664
Delaware
43-1918951
Crestwood Midstream Partners LP
001-35377
Delaware
20-1647837

700 Louisiana Street, Suite 2550
Houston, Texas
 
77002
(Address of principal executive offices)
 
(Zip code)
(832) 519-2200
(Registrant’s telephone number, including area code)
 
 
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.
Crestwood Equity Partners LP
 
Yes  x  No  o
Crestwood Midstream Partners LP
 
Yes  x  No  o

(Explanatory Note: Crestwood Midstream Partners LP is currently a voluntary filer and is not subject to the filing requirements of the Securities Exchange Act of 1934. Although not subject to these filing requirements, Crestwood Midstream Partners LP 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.)

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
Crestwood Equity Partners LP
 
Yes  x  No  o
Crestwood Midstream Partners LP
 
Yes  x  No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Crestwood Equity Partners LP
Large accelerated filer o
Accelerated filer x
Non-accelerated filer o
Smaller reporting company o
Crestwood Midstream Partners LP
Large accelerated filer o
Accelerated filer o
Non-accelerated filer x
Smaller reporting company o



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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Crestwood Equity Partners LP
 
Yes  o    No  x
Crestwood Midstream Partners LP
 
Yes  o    No  x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date (July 29, 2016)
Crestwood Equity Partners LP
 
69,054,059
Crestwood Midstream Partners LP
 
None

Crestwood Midstream Partners LP, as a wholly-owned subsidiary of a reporting company, meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this report with the reduced disclosure format as permitted by such instruction.




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CRESTWOOD EQUITY PARTNERS LP
CRESTWOOD MIDSTREAM PARTNERS LP
INDEX TO FORM 10-Q

 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


3

Table of Contents


PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

CRESTWOOD EQUITY PARTNERS LP
CONSOLIDATED BALANCE SHEETS
(in millions, except unit information)
 
June 30,
2016
 
December 31,
2015
 
(unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash
$
0.9

 
$
0.5

Accounts receivable
247.5

 
236.5

Inventory
43.5

 
44.5

Assets from price risk management activities
9.5

 
32.6

Assets held for sale
55.0

 

Prepaid expenses and other current assets
10.9

 
21.7

Total current assets
367.3

 
335.8

Property, plant and equipment
2,538.9

 
3,747.7

Less: accumulated depreciation and depletion
390.9

 
436.9

Property, plant and equipment, net
2,148.0

 
3,310.8

Intangible assets
946.8

 
975.8

Less: accumulated amortization
225.0

 
206.6

Intangible assets, net
721.8

 
769.2

Goodwill
249.5

 
1,085.5

Investment in unconsolidated affiliates (Note 4)
1,099.1

 
254.3

Other assets
7.7

 
7.2

Total assets
$
4,593.4

 
$
5,762.8

Liabilities and partners’ capital
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
164.5

 
$
144.1

Accrued expenses and other liabilities (Note 3)
101.2

 
105.6

Liabilities from price risk management activities
10.9

 
7.4

Current portion of long-term debt (Note 7)
0.9

 
1.1

Total current liabilities
277.5

 
258.2

Long-term debt, less current portion (Note 7)
1,581.6

 
2,501.8

Other long-term liabilities
45.1

 
47.5

Deferred income taxes
7.8

 
8.4

Commitments and contingencies (Note 10)


 


Partners’ capital (Note 9):
 
 
 
Crestwood Equity Partners LP partners’ capital (69,487,799 and 68,555,305 common and subordinated units issued and outstanding at June 30, 2016 and December 31, 2015)
1,948.1

 
2,227.6

Preferred units (63,559,359 and 60,718,245 units issued and outstanding at June 30, 2016 and December 31, 2015)
545.5

 
535.8

Total Crestwood Equity Partners LP partners’ capital
2,493.6

 
2,763.4

Interest of non-controlling partners in subsidiaries
187.8

 
183.5

Total partners’ capital
2,681.4

 
2,946.9

Total liabilities and partners’ capital
$
4,593.4

 
$
5,762.8

See accompanying notes.

4

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CRESTWOOD EQUITY PARTNERS LP
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except unit and per unit data)
(unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
Revenues:
 
 
 
 
 
 
 
Product revenues:
 
 
 
 
 
 
 
Gathering and processing
$
199.1

 
$
263.3

 
$
361.6

 
$
524.2

Marketing, supply and logistics
257.4

 
196.5

 
463.9

 
473.7

 
456.5

 
459.8

 
825.5

 
997.9

Services revenues:
 
 
 
 
 
 
 
Gathering and processing
69.7

 
82.4

 
145.4

 
170.8

Storage and transportation
53.8

 
68.5

 
113.2

 
136.1

Marketing, supply and logistics
21.2

 
29.7

 
52.4

 
66.1

Related party (Note 11)
0.7

 
1.1

 
1.4

 
2.1

 
145.4

 
181.7

 
312.4

 
375.1

Total revenues
601.9

 
641.5

 
1,137.9

 
1,373.0

 
 
 
 
 
 
 
 
Costs of product/services sold (exclusive of items shown separately below):
 
 
 
 
 
 
 
Product costs:
 
 
 
 
 
 
 
Gathering and processing
221.9

 
285.3

 
397.3

 
543.5

Marketing, supply and logistics
210.0

 
147.1

 
376.0

 
389.3

Related party (Note 11)
4.4

 
7.7

 
8.7

 
16.0

 
436.3

 
440.1

 
782.0

 
948.8

Service costs:
 
 
 
 
 
 
 
Gathering and processing

 
0.1

 
0.1

 
0.3

Storage and transportation
1.9

 
5.3

 
4.8

 
10.6

Marketing, supply and logistics
11.8

 
14.0

 
26.5

 
29.5

 
13.7

 
19.4

 
31.4

 
40.4

Total costs of products/services sold
450.0

 
459.5

 
813.4

 
989.2

 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
Operations and maintenance
45.0

 
43.9

 
86.8

 
94.5

General and administrative
28.9

 
30.6

 
51.9

 
58.1

Depreciation, amortization and accretion
64.4

 
74.8

 
126.7

 
149.0

 
138.3

 
149.3

 
265.4

 
301.6

Other operating expenses:
 
 
 
 
 
 
 
Loss on long-lived assets, net
(32.7
)
 
(0.6
)
 
(32.7
)
 
(1.6
)
Goodwill impairment

 
(281.0
)
 
(109.7
)
 
(281.0
)
Operating loss
(19.1
)
 
(248.9
)
 
(83.3
)
 
(200.4
)

5

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CRESTWOOD EQUITY PARTNERS LP
CONSOLIDATED STATEMENTS OF OPERATIONS (continued)
(in millions, except unit and per unit data)
(unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
Earnings from unconsolidated affiliates, net
6.2

 
5.0

 
12.7

 
8.4

Interest and debt expense, net
(34.3
)
 
(35.4
)
 
(70.4
)
 
(69.0
)
Gain (loss) on modification/extinguishment of debt
10.0

 
(17.1
)
 
10.0

 
(17.1
)
Other income, net
0.1

 
0.1

 
0.2

 
0.3

Loss before income taxes
(37.1
)
 
(296.3
)
 
(130.8
)
 
(277.8
)
Provision (benefit) for income taxes

 
(0.3
)
 

 
0.1

Net loss
(37.1
)
 
(296.0
)
 
(130.8
)
 
(277.9
)
Net income (loss) attributable to non-controlling partners
6.0

 
(256.0
)
 
11.9

 
(246.2
)
Net loss attributable to Crestwood Equity Partners LP
(43.1
)
 
(40.0
)
 
(142.7
)
 
(31.7
)
Net income attributable to preferred units
8.1

 

 
9.7

 

Net loss attributable to partners
$
(51.2
)
 
$
(40.0
)
 
$
(152.4
)
 
$
(31.7
)
 
 
 
 
 
 
 
 
Subordinated unitholders' interest in net loss
$

 
$
(0.9
)
 
$

 
$
(0.7
)
Common unitholders' interest in net loss
$
(51.2
)
 
$
(39.1
)
 
$
(152.4
)
 
$
(31.0
)
Net loss per limited partner unit:
 
 
 
 
 
 
 
Basic
$
(0.74
)
 
$
(2.14
)
 
$
(2.21
)
 
$
(1.69
)
Diluted
$
(0.74
)
 
$
(2.14
)
 
$
(2.21
)
 
$
(1.70
)
Weighted-average limited partners’ units outstanding (in thousands):
 
 
 
 
 
 
Basic
69,044

 
18,284

 
68,978

 
18,282

Dilutive units

 
439

 

 
439

Diluted
69,044

 
18,723

 
68,978

 
18,721


See accompanying notes.

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CRESTWOOD EQUITY PARTNERS LP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
(unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
Net loss
$
(37.1
)
 
$
(296.0
)
 
$
(130.8
)
 
$
(277.9
)
Change in fair value of Suburban Propane Partners, L.P. units
0.5

 
(0.4
)
 
1.3

 
(0.4
)
Comprehensive loss
(36.6
)
 
(296.4
)
 
(129.5
)
 
(278.3
)
Comprehensive income (loss) attributable to non-controlling interest
6.0

 
(256.0
)
 
11.9

 
(246.2
)
Comprehensive loss attributable to Crestwood Equity Partners LP
$
(42.6
)
 
$
(40.4
)
 
$
(141.4
)
 
$
(32.1
)

See accompanying notes.


7

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CRESTWOOD EQUITY PARTNERS LP
CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL
(in millions)
(unaudited)
 
Preferred
 
Partners'
 
 
 
 
 
Units
 
Capital
 
Common Units
 
Subordinated Units
 
Capital
 
Non-Controlling
Partners
 
Total Partners’
Capital
Balance at December 31, 2015
60.7

 
$
535.8

 
68.2

 
0.4

 
$
2,227.6

 
$
183.5

 
$
2,946.9

Distributions to partners
2.8

 

 

 

 
(137.0
)
 
(7.6
)
 
(144.6
)
Unit-based compensation charges

 

 
0.9

 

 
9.3

 

 
9.3

Taxes paid for unit-based compensation vesting

 

 

 

 
(0.6
)
 

 
(0.6
)
Change in fair value of Suburban units

 

 

 

 
1.3

 

 
1.3

Other

 

 

 

 
(0.1
)
 

 
(0.1
)
Net income (loss)

 
9.7

 

 

 
(152.4
)
 
11.9

 
(130.8
)
Balance at June 30, 2016
63.5

 
$
545.5

 
69.1

 
0.4

 
$
1,948.1

 
$
187.8

 
$
2,681.4


See accompanying notes.


8

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CRESTWOOD EQUITY PARTNERS LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
 
Six Months Ended
 
June 30,
 
2016
 
2015
Operating activities
 
 
 
Net loss
$
(130.8
)
 
$
(277.9
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation, amortization and accretion
126.7

 
149.0

Amortization of debt-related deferred costs, discounts and premiums
3.4

 
4.4

Market adjustment on interest rate swaps

 
(0.5
)
Unit-based compensation charges
9.3

 
11.7

Loss on long-lived assets, net
32.7

 
1.6

Goodwill impairment
109.7

 
281.0

(Gain) loss on modification/extinguishment of debt
(10.0
)
 
17.1

Earnings from unconsolidated affiliates, net, adjusted for cash distributions received
(0.8
)
 
(2.1
)
Deferred income taxes
(0.6
)
 
(1.6
)
Other
0.1

 
0.4

Changes in operating assets and liabilities
53.3

 
28.0

Net cash provided by operating activities
193.0

 
211.1

Investing activities
 
 
 
Purchases of property, plant and equipment
(76.2
)
 
(83.5
)
Investment in unconsolidated affiliates
(5.5
)
 
(28.0
)
Capital distributions from unconsolidated affiliates
5.5

 
1.0

Net proceeds from sale of assets
942.0

 
2.1

Net cash provided by (used in) investing activities
865.8

 
(108.4
)
Financing activities
 
 
 
Proceeds from the issuance of long-term debt
1,078.8

 
2,154.6

Principal payments on long-term debt
(1,987.7
)
 
(2,030.6
)
Payments on capital leases
(0.9
)
 
(1.2
)
Payments for debt-related deferred costs
(3.3
)
 
(11.7
)
Financing fees paid for early debt redemption

 
(13.6
)
Distributions to partners
(137.0
)
 
(51.5
)
Distributions paid to non-controlling partners
(7.6
)
 
(152.4
)
Taxes paid for unit-based compensation vesting
(0.6
)
 
(3.7
)
Other
(0.1
)
 
(0.1
)
Net cash used in financing activities
(1,058.4
)
 
(110.2
)
Net change in cash
0.4

 
(7.5
)
Cash at beginning of period
0.5

 
8.8

Cash at end of period
$
0.9

 
$
1.3

Supplemental schedule of noncash investing and financing activities
 
 
 
Net change to property, plant and equipment through accounts payable and accrued expenses
$
(11.9
)
 
$
(11.3
)
See accompanying notes.

9

Table of Contents



CRESTWOOD MIDSTREAM PARTNERS LP
CONSOLIDATED BALANCE SHEETS
(in millions)

 
June 30,
2016
 
December 31,
2015
 
(unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash
$
0.2

 
$
0.1

Accounts receivable
244.3

 
236.5

Inventory
43.5

 
44.5

Assets from price risk management activities
9.5

 
32.6

Assets held for sale
55.0

 

Prepaid expenses and other current assets
10.3

 
19.9

Total current assets
362.8

 
333.6

Property, plant and equipment
2,869.0

 
4,077.7

Less: accumulated depreciation and depletion
513.1

 
552.0

Property, plant and equipment, net
2,355.9

 
3,525.7

Intangible assets
930.3

 
959.3

Less: accumulated amortization
214.6

 
197.9

Intangible assets, net
715.7

 
761.4

Goodwill
249.5

 
1,085.5

Investment in unconsolidated affiliates (Note 4)
1,099.1

 
254.3

Other assets
2.9

 
3.1

Total assets
$
4,785.9

 
$
5,963.6

Liabilities and partners’ capital
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
161.8

 
$
141.4

Accrued expenses and other liabilities (Note 3)
94.5

 
103.3

Liabilities from price risk management activities
10.9

 
7.4

Current portion of long-term debt (Note 7)
0.9

 
0.9

Total current liabilities
268.1

 
253.0

Long-term debt, less current portion (Note 7)
1,581.6

 
2,501.8

Other long-term liabilities
40.9

 
43.3

Deferred income taxes
0.7

 
0.4

Commitments and contingencies (Note 10)
 
 
 
Partners’ capital (Note 9):
 
 
 
Partners’ capital
2,706.8

 
2,981.6

Interest of non-controlling partners in subsidiary
187.8

 
183.5

Total partners’ capital
2,894.6

 
3,165.1

Total liabilities and partners’ capital
$
4,785.9

 
$
5,963.6



See accompanying notes.


10

Table of Contents


CRESTWOOD MIDSTREAM PARTNERS LP
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions)
(unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2016
 
2015(1)
 
2016
 
2015(1)
Revenues:
 
 
 
 
 
 
 
Product revenues:
 
 
 
 
 
 
 
Gathering and processing
$
199.1

 
$
263.3

 
$
361.6

 
$
524.2

Marketing, supply and logistics
257.4

 
196.5

 
463.9

 
473.7

 
456.5

 
459.8

 
825.5

 
997.9

Service revenues:
 
 
 
 
 
 
 
Gathering and processing
69.7

 
82.4

 
145.4

 
170.8

Storage and transportation
53.8

 
68.5

 
113.2

 
136.1

Marketing, supply and logistics
21.2

 
29.7

 
52.4

 
66.1

Related party (Note 11)
0.7

 
1.1

 
1.4

 
2.1

 
145.4

 
181.7

 
312.4

 
375.1

Total revenues
601.9

 
641.5

 
1,137.9

 
1,373.0

 
 
 
 
 
 
 
 
Costs of product/services sold (exclusive of items shown separately below):
 
 
 
 
 
 
 
Product costs:
 
 
 
 
 
 
 
Gathering and processing
221.9

 
285.3

 
397.3

 
543.5

Marketing, supply and logistics
210.0

 
147.1

 
376.0

 
389.3

Related party (Note 11)
4.4

 
7.7

 
8.7

 
16.0

 
436.3

 
440.1

 
782.0

 
948.8

Service costs:
 
 
 
 
 
 
 
Gathering and processing

 
0.1

 
0.1

 
0.3

Storage and transportation
1.9

 
5.3

 
4.8

 
10.6

Marketing, supply and logistics
11.8

 
14.0

 
26.5

 
29.5

 
13.7

 
19.4

 
31.4

 
40.4

Total costs of product/services sold
450.0

 
459.5

 
813.4

 
989.2

 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
Operations and maintenance
41.4

 
43.9

 
83.1

 
94.5

General and administrative
28.0

 
27.3

 
50.2

 
52.9

Depreciation, amortization and accretion
67.1

 
69.5

 
132.0

 
138.3

 
136.5

 
140.7

 
265.3

 
285.7

Other operating expenses:
 
 
 
 
 
 
 
Loss on long-lived assets, net
(32.7
)
 
(0.7
)
 
(32.7
)
 
(1.5
)
Goodwill impairment

 
(68.6
)
 
(109.7
)
 
(68.6
)
Operating income (loss)
(17.3
)
 
(28.0
)
 
(83.2
)
 
28.0


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Table of Contents


CRESTWOOD MIDSTREAM PARTNERS LP
CONSOLIDATED STATEMENTS OF OPERATIONS (continued)
(in millions)
(unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2016
 
2015(1)
 
2016
 
2015(1)
Earnings from unconsolidated affiliates, net
6.2

 
5.0

 
12.7

 
8.4

Interest and debt expense, net
(34.3
)
 
(32.6
)
 
(70.4
)
 
(62.5
)
Gain (loss) on modification/extinguishment of debt
10.0

 
(17.1
)
 
10.0

 
(17.1
)
Loss before income taxes
(35.4
)
 
(72.7
)
 
(130.9
)
 
(43.2
)
Provision for income taxes
0.2

 
0.1

 

 
0.5

Net loss
(35.6
)
 
(72.8
)
 
(130.9
)
 
(43.7
)
Net income attributable to non-controlling partners
6.0

 
5.7

 
11.9

 
11.3

Net loss attributable to Crestwood Midstream Partners LP
(41.6
)
 
(78.5
)
 
(142.8
)
 
(55.0
)
Net income attributable to Class A preferred units

 
7.5

 

 
16.7

Net loss attributable to partners
$
(41.6
)
 
$
(86.0
)
 
$
(142.8
)
 
$
(71.7
)
(1) Retrospectively adjusted to reflect the operations of Crestwood Operations LLC as discussed in Note 2.

See accompanying notes.


12

Table of Contents


CRESTWOOD MIDSTREAM PARTNERS LP
CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL
(in millions)
(unaudited)

 
 
Partners
 
Non-Controlling Partners
 
Total Partners’
Capital
Balance at December 31, 2015
 
$
2,981.6

 
$
183.5

 
$
3,165.1

Distributions to partners
 
(140.6
)
 
(7.6
)
 
(148.2
)
Unit-based compensation charges
 
9.3

 

 
9.3

Taxes paid for unit-based compensation vesting
 
(0.6
)
 

 
(0.6
)
Other
 
(0.1
)
 

 
(0.1
)
Net income (loss)
 
(142.8
)
 
11.9

 
(130.9
)
Balance at June 30, 2016
 
$
2,706.8

 
$
187.8

 
$
2,894.6



See accompanying notes.


13

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CRESTWOOD MIDSTREAM PARTNERS LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)

 
Six Months Ended
 
June 30,
 
2016
 
2015(1)
Operating activities
 
 
 
Net loss
$
(130.9
)
 
$
(43.7
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation, amortization and accretion
132.0

 
138.3

Amortization of debt-related deferred costs and premiums
3.4

 
3.9

Unit-based compensation charges
9.3

 
10.5

Goodwill impairment
109.7

 
68.6

Loss on long-lived assets
32.7

 
1.5

(Gain) loss on modification/extinguishment of debt
(10.0
)
 
17.1

Earnings from unconsolidated affiliates, net, adjusted for cash distributions received
(0.8
)
 
(2.1
)
Deferred income taxes
0.2

 
0.3

Other
0.1

 
0.2

Changes in operating assets and liabilities
50.3

 
8.9

Net cash provided by operating activities
196.0

 
203.5

Investing activities
 
 
 
Purchases of property, plant and equipment
(76.2
)
 
(83.5
)
Investment in unconsolidated affiliates
(5.5
)
 
(27.8
)
Capital distributions from unconsolidated affiliates
5.5

 
1.0

Net proceeds from sale of assets
942.0

 
2.1

Net cash provided by (used in) investing activities
865.8

 
(108.2
)
Financing activities
 
 
 
Proceeds from the issuance of long-term debt
1,078.8

 
1,865.1

Principal payments on long-term debt
(1,987.5
)
 
(1,713.2
)
Payments on capital leases
(0.9
)
 
(1.2
)
Payments for debt-related deferred costs
(3.3
)
 
(11.7
)
Financing fees paid for early debt redemption

 
(13.6
)
Distributions to partners
(148.2
)
 
(225.2
)
Taxes paid for unit-based compensation vesting
(0.6
)
 
(2.1
)
Other

 
(0.2
)
Net cash used in financing activities
(1,061.7
)
 
(102.1
)
Net change in cash
0.1

 
(6.8
)
Cash at beginning of period
0.1

 
7.6

Cash at end of period
$
0.2

 
$
0.8

Supplemental schedule of non-cash investing and financing activities
 
 
 
Net change to property, plant and equipment through accounts payable and accrued expenses
$
(11.9
)
 
$
(11.3
)
(1) Retrospectively adjusted to reflect the operations of Crestwood Operations LLC as discussed in Note 2.


See accompanying notes.

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CRESTWOOD EQUITY PARTNERS LP
CRESTWOOD MIDSTREAM PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 1 – Organization and Business Description

The accompanying notes to the consolidated financial statements apply to Crestwood Equity Partners LP and Crestwood Midstream Partners LP, unless otherwise indicated. References in this report to “we,” “us,” “our,” “ours,” “our company,” the “partnership,” the “Company,” "Crestwood Equity," “CEQP,” and similar terms refer to either Crestwood Equity Partners LP itself or Crestwood Equity Partners and its consolidated subsidiaries, as the context requires. Unless otherwise indicated, references to "Crestwood Midstream" and "CMLP" refer to Crestwood Midstream Partners LP and its consolidated subsidiaries.

The accompanying consolidated financial statements and related notes should be read in conjunction with our 2015 Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on February 29, 2016. The financial information as of June 30, 2016, and for the three and six months ended June 30, 2016 and 2015, is unaudited. The consolidated balance sheets as of December 31, 2015, were derived from the audited balance sheets filed in our 2015 Annual Report on Form 10-K.

Organization

Crestwood Equity is a publicly-traded (NYSE: CEQP) Delaware limited partnership that develops, acquires, owns or controls, and operates primarily fee-based assets and operations within the energy midstream sector. We provide broad-ranging infrastructure solutions across the value chain to service premier liquids-rich natural gas and crude oil shale plays across the United States. We own and operate a diversified portfolio of crude oil and natural gas gathering, processing, storage and transportation assets and connect fundamental energy supply with energy demand across North America. Crestwood Equity is a holding company and all of its consolidated operating assets are owned by or through its wholly-owned subsidiary, Crestwood Midstream, a Delaware limited partnership.

Description of Business

In conjunction with the Simplification Merger (as defined in Note 2), we modified our segments and our financial statements to reflect three operating and reporting segments: (i) gathering and processing operations; (ii) storage and transportation operations; and (iii) marketing, supply and logistics operations (formerly NGL and crude services operations). Consequently, the results of our Arrow operations are now reflected in our gathering and processing operations for all periods presented and our COLT and Powder River Basin Industrial Complex, LLC (PRBIC) operations are now reflected in our storage and transportation operations for all periods presented. These respective operations were previously included in our NGL and crude services operations. For a further description of our operating and reporting segments, see our 2015 Annual Report on Form 10-K.


Note 2 – Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (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.

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In May 2015, CEQP, Crestwood Midstream and certain of their affiliates entered into a definitive agreement under which Crestwood Midstream would merge with a wholly-owned subsidiary of CEQP, with Crestwood Midstream surviving as a wholly-owned subsidiary of CEQP (the Simplification Merger). In conjunction with the closing of the Simplification Merger on September 30, 2015, Crestwood Equity contributed 100% of its interest in Crestwood Operations LLC (Crestwood Operations) to Crestwood Midstream. As a result of this equity 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 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.

Beginning in the third quarter of 2015, we changed our income statement to classify the revenues associated with the products to which we take title as product revenues in our consolidated statement of operations. As such, we reclassified our historical consolidated statements of operations for the three and six months ended June 30, 2015 to reflect this change. We classify all other revenues as service revenues in our consolidated statement of operations.

Significant Accounting Policies

There were no material changes in our significant accounting policies from those described in our 2015 Annual Report on Form 10-K. Below is an update of certain of our 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 give 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 the 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. We use the cost method of accounting where we are unable to exert significant influence over the entity.

In April 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. (Con Edison), entered into a definitive agreement to form a joint venture, Stagecoach Gas Services LLC (Stagecoach Gas), to own and further develop our existing natural gas pipeline and storage business located in southern New York and northern Pennsylvania (the NE S&T assets) and our 37.5 mile intrastate natural gas pipeline located in New York which is owned by Crestwood Pipeline East LLC (Pipeline East). On June 3, 2016, we contributed to Stagecoach Gas the entities owning the NE S&T assets, CEGP contributed $945 million to Stagecoach Gas in exchange for a 50% equity interest in Stagecoach Gas, and Stagecoach Gas distributed to Crestwood Northeast the net cash proceeds received from CEGP. Our NE S&T assets were previously included in our storage and transportation segment.

Effective June 3, 2016, we deconsolidated the NE S&T assets as a result of the contribution of these assets to Stagecoach Gas as described above and began accounting for our 50% equity interest in Stagecoach Gas under the equity method of accounting and recorded our Pipeline East assets as assets held for sale as of June 30, 2016. See Notes 3 and 4 for a further discussion of our investment in Stagecoach Gas and our assets held for sale. The deconsolidation of our NE S&T assets resulted in a decrease of $1,094.6 million in property, plant and equipment, net, $8.5 million of intangible assets, net and $10.9 million of other assets and liabilities, net as of June 30, 2016. For a discussion of decreases in goodwill associated with the joint venture transactions, see "Goodwill" below.

Property, Plant and Equipment

Property, plant and equipment is recorded at its original cost of construction or, upon acquisition, at the fair value of the assets acquired. The accounting predecessor of Crestwood Equity acquired the accounting predecessor of Crestwood Midstream in October 2010, and accordingly recorded its acquisition of Crestwood Midstream's property, plant and equipment related to its gathering and processing assets in the Barnett Shale at fair value on that date. The resulting increase to Crestwood Midstream's property, plant and equipment was not pushed down by Crestwood Equity to Crestwood Midstream's balance sheet, as permitted by GAAP.

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We evaluate our long-lived assets for impairment whenever events or changes in circumstances indicate that the 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. During 2015, Crestwood Equity recorded a $354.4 million impairment of its property, plant and equipment related to its gathering and processing assets in the Barnett Shale. 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 June 30, 2016 and December 31, 2015.

Assets Held for Sale

We classify assets (or groups of assets) to be disposed of as held for sale when specific criteria have been met. Assets classified as held for sale are recorded at the lower of the carrying value or the estimated fair value less cost to sell of those assets . We cease depreciation and amortization of the assets in the period they are considered held for sale.

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.

Commodity prices have continued to decline since 2014, and that decline has adversely impacted forecasted cash flows, discount rates and stock/unit prices for most companies in the midstream industry, including us. In particular, due to the significant, sustained decrease in the market price of our common units during the first quarter of 2016, we evaluated the carrying value of our reporting units and determined it was more likely than not that the goodwill associated with several of our reporting units was impaired as of March 31, 2016. As a result of further analysis of the fair value of our reporting units, we recorded goodwill impairments on several of our reporting units during the first quarter of 2016. We did not record any goodwill impairments during the three months ended June 30, 2016.


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The following table summarizes the goodwill of our various reporting units (in millions):

 
 
Goodwill at
 
Goodwill Impairments during the
 Six Months Ended
 
Deconsolidation of NE S&T Assets at
 
Goodwill at
 
 
December 31, 2015
 
June 30, 2016
 
June 30, 2016
 
June 30, 2016
Gathering and Processing
 
 
 
 
 
 
 
 
Marcellus
 
$
8.6

 
$
8.6

 
$

 
$

Arrow
 
45.9

 

 

 
45.9

Storage and Transportation
 
 
 
 
 
 
 

   Northeast Storage and Transportation
 
726.3

 

 
726.3

 

COLT
 
44.9

 
13.7

 

 
31.2

Marketing, Supply and Logistics
 
 
 
 
 

 

Supply and Logistics
 
167.2

 
65.5

 

 
101.7

Storage and Terminals
 
50.5

 
14.1

 

 
36.4

US Salt
 
12.6

 

 

 
12.6

Trucking
 
29.5

 
7.8

 

 
21.7

Total
 
$
1,085.5

 
$
109.7

 
$
726.3

 
$
249.5


The goodwill impairments recorded during the first quarter of 2016 primarily resulted from increasing the discount rates utilized in determining the fair value of the reporting units for certain of those reporting units considering the significant, sustained decrease in the market price of our common units and the continued decrease in commodity prices and its impact on the midstream industry and our customers. Our COLT, Supply and Logistics, Storage and Terminals and Trucking reporting units also experienced impairments during 2015 based on the impact that the prolonged low commodity price environment is expected to have on the demand for future services provided by these operations. Despite increases in the operating results of these reporting units from 2013 to 2015, in light of our modified expectations, we revised our cash flow forecasts for these operations at December 31, 2015 in light of our current view that these operations will not grow as fast or as significantly in the future as originally forecasted in 2013 when the assets were acquired.

The remaining goodwill related to these reporting units represented the fair value of the goodwill, which is a Level 3 fair value measurement. We utilized the income approach to determine the fair value of our reporting units given the limited availability of comparable market-based transactions as of March 31, 2016 and December 31, 2015, and we utilized discount rates ranging from 10% to 19% in applying the income approach to determine the fair value of our reporting units with goodwill as of March 31, 2016.

During the three months ended June 30, 2015, Crestwood Midstream recorded goodwill impairments of $8.3 million, $28.4 million and $31.9 million related to its Fayetteville, West Coast and Watkins Glen reporting units, respectively. The impairment of the Fayetteville and West Coast goodwill primarily resulted from increasing the discount rate utilized in determining the fair value of the reporting units from 9% to 10%, considering the decrease in commodity prices and its impact on the midstream industry and Crestwood Midstream's customers in those areas. The impairment of the Watkins Glen goodwill primarily resulted from increasing the discount rate utilized in determining the fair value of the reporting unit from 10.5% to 13.3% and delays and uncertainties in the permitting of the proposed storage facility.

In addition to the above goodwill impairments recorded during the three months ended June 30, 2015, Crestwood Equity recorded a goodwill impairment of its Barnett reporting unit of approximately $212.4 million. The impairment primarily resulted from increasing the discount rate utilized in determining the fair value of the reporting unit from 9% to 11%, considering the recent actions of its primary customer in the Barnett Shale, Quicksilver, related to its filing for protection under Chapter 11 of the U.S. Bankruptcy Code in March 2015.

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 - Imputation of

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Interest (Subtopic 835-30), which requires us to classify our net deferred financing costs of $37.6 million and $40.9 million as a reduction of long-term debt on our consolidated balance sheets at June 30, 2016 and December 31, 2015. Such costs were previously reflected as intangible assets on our consolidated balance sheets.

New Accounting Pronouncements Issued But Not Yet Adopted

As of June 30, 2016, 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, which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance. We expect to adopt the provisions of this standard effective January 1, 2018 and are currently evaluating the method by which we will adopt the standard and the impact that this standard will have on our consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which revises the accounting for leases by requiring certain leases to be recognized as assets and liabilities on the balance sheet, and requiring companies to disclose additional information about their leasing arrangements. We expect to adopt the provisions of this standard effective January 1, 2019 and are currently evaluating the impact that this standard will have on our consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718):Improvements to Employee Share-Based Payment Accounting, which is intended to improve the accounting for employee share-based payments. The ASU simplifies several aspects of the accounting for share-based payment award transactions, including the classification of awards as either equity or liabilities and presentation on the statement of cash flows. We expect to adopt the provisions of this standard effective January 1, 2017 and are currently evaluating the impact that this standard may have on our consolidated financial statements.


Note 3 – Certain Balance Sheet Information

Assets Held for Sale

In conjunction with the contribution agreement related to Stagecoach Gas, we agreed to contribute our wholly-owned subsidiary, Pipeline East, to Stagecoach Gas, CEGP has agreed to contribute approximately $30 million to Stagecoach Gas, and Stagecoach Gas will distribute to us the net cash proceeds received from CEGP. We classified the property, plant and equipment and goodwill to be contributed to Stagecoach Gas as assets held for sale on our consolidated balance sheet at their fair value at June 30, 2016. The fair value is based on the consideration to be received from the contribution of Pipeline East to Stagecoach Gas and the forecasted discounted cash flows to be received from our investment in Stagecoach Gas, which is a Level 3 fair value measurement. The sale is contingent upon New York State regulatory approval and satisfaction of certain other closing conditions, which we believe is probable at June 30, 2016.


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Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consisted of the following at June 30, 2016 and December 31, 2015 (in millions):

 
CEQP
 
CMLP
 
June 30,
 
December 31,
 
June 30,
 
December 31,
 
2016
 
2015
 
2016
 
2015
Accrued expenses
$
35.5

 
$
46.4

 
$
33.8

 
$
44.1

Accrued property taxes
12.3

 
4.8

 
7.3

 
4.8

Accrued product purchases payable
2.8

 
1.5

 
2.8

 
1.5

Tax payable
0.6

 
0.5

 
0.6

 
0.5

Interest payable
23.2

 
26.2

 
23.2

 
26.2

Accrued additions to property, plant and equipment
2.9

 
10.4

 
2.9

 
10.4

Capital leases
1.3

 
1.6

 
1.3

 
1.6

Deferred revenue
22.6

 
14.2

 
22.6

 
14.2

Total accrued expenses and other liabilities
$
101.2

 
$
105.6

 
$
94.5

 
$
103.3



Note 4 - Investments in Unconsolidated Affiliates

Stagecoach Gas Services LLC. In April 2016, Crestwood Northeast and CEGP entered into a definitive agreement to form the Stagecoach JV to own and further develop our NE S&T assets. Pursuant to the contribution agreement, we contributed to Stagecoach Gas the entities owning the NE S&T assets, CEGP contributed $945 million to Stagecoach Gas in exchange for a 50% equity interest in Stagecoach Gas, and Stagecoach Gas distributed to Crestwood Northeast the cash proceeds received (net of approximately $3 million of cash transferred to the joint venture) from CEGP. Effective June 3, 2016, we deconsolidated the NE S&T assets as a result of this transaction and began accounting for our 50% equity interest in Stagecoach Gas under the equity method of accounting, and we reflected our investment at $844 million, which represented the fair value of our proportionate share of the assets at June 3, 2016 and is based on the forecasted discounted cash flows of the investment (which is a Level 3 fair value measurement). We recognized a loss on the deconsolidation of the NE S&T assets of approximately $32.9 million. See our 2015 Annual Report on Form 10-K for a description of our NE S&T assets.


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Net Investments and Earnings

Our net investments in and earnings from our unconsolidated affiliates are as follows (in millions, unless otherwise stated):
 
Ownership Percentage
 
Investment
 
Earnings (Loss) from Unconsolidated Affiliates
 
June 30,
 
June 30,
 
December 31,
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Stagecoach Gas Services LLC(1)
50.00
%
 
$
846.3

 
$

 
$
2.3

 
$

 
$
2.3

 
$

Jackalope Gas Gathering Services, L.L.C.(2)
50.00
%
(3) 
201.3

 
202.4

 
5.9

 
1.1

 
11.0

 
3.6

Tres Palacios Holdings LLC(4)
50.01
%
 
36.7

 
36.8

 
(2.3
)
 
0.6

 
(1.5
)
 
1.5

Powder River Basin Industrial Complex, LLC(5)
50.01
%
 
14.8

 
15.1

 
0.3

 
3.3

 
0.9

 
3.3

Total
 
 
$
1,099.1

 
$
254.3

 
$
6.2

 
$
5.0

 
$
12.7

 
$
8.4

(1)
As of June 30, 2016, our equity in the underlying net assets of Stagecoach Gas exceeded our investment balance by approximately $50.8 million. Our Stagecoach Gas investment is included in our storage and transportation segment.
(2)
As of June 30, 2016, our equity in the underlying net assets of Jackalope Gas Gathering Services, L.L.C. (Jackalope) exceeded our investment balance by approximately $0.8 million. We amortize this amount over 20 years, which represents the life of Jackalope’s gathering agreement with Chesapeake Energy Corporation (Chesapeake), and we reflect the amortization as an increase in our earnings from unconsolidated affiliates. We recorded amortization of less than $0.1 million for both the three and six months ended June 30, 2016 and $0.7 million and $1.5 million for the three and six months ended June 30, 2015. Our Jackalope investment is included in our gathering and processing segment.
(3)
Excludes non-controlling interests related to our investment in Jackalope. See Note 9 for a further discussion of our non-controlling interest related to our investment in Jackalope.
(4)
As of June 30, 2016, our equity in the underlying net assets of Tres Palacios Holdings LLC (Tres Holdings) exceeded our investment balance by approximately $28.5 million. We amortize this amount over the life of the Tres Palacios Gas Storage LLC (Tres Palacios) sublease agreement, and we reflect the amortization as an increase in our earnings from unconsolidated affiliates. We recorded amortization of $0.3 million for the three months ended June 30, 2016 and 2015, and $0.6 million for the six months ended June 30, 2016 and 2015. Our Tres Holdings investment is included in our storage and transportation segment.
(5)
As of June 30, 2016, our equity in the underlying net assets of PRBIC exceeded our investment balance by approximately $22.6 million. We amortize a portion of this amount over the life of PRBIC's property, plant and equipment and its agreement with Chesapeake, and we reflect the amortization as an increase in our earnings from unconsolidated affiliates. Approximately $10.6 million of this excess amount relates to goodwill and, as such, is not subject to amortization. We recorded amortization of approximately $0.4 million and $0.8 million for the three and six months ended June 30, 2016. During the three and six months ended June 30, 2015, we recorded additional equity earnings of approximately $3.2 million related to a gain associated with the adjustment of our member's capital account by our equity investee. Our PRBIC investment is included in our storage and transportation segment.

Distributions and Contributions

Stagecoach Gas. Stagecoach Gas is required, within 30 days following the end of each quarter, to distribute 65% and 35% of its available cash (as defined in its limited liability company agreement) to CEQP and us, respectively. Because our ownership and distribution percentages differ, we determine the equity earnings from Stagecoach Gas using the Hypothetical Liquidation at Book Value (HLBV) method. Under the HLBV method, a calculation is prepared at each balance sheet date to determine the amount that we would receive if Stagecoach Gas were to liquidate all of its assets, as valued in accordance with GAAP, and distribute that cash to the members. The difference between the calculated liquidation distribution amounts at the beginning and the end of the reporting period, after adjusting for capital contributions and distributions, is our share of the earnings or losses from the equity investment for the period, which approximates how earnings are allocated under the terms of the limited liability company agreement. In July 2016, we received a cash distribution of approximately $3.7 million from Stagecoach Gas.

Jackalope. Jackalope is required, within 30 days following the end of each quarter, to make quarterly distributions of its available cash to its members based on their respective ownership percentage. During the six months ended June 30, 2016 and 2015, we received cash distributions of approximately $12.1 million and $4.5 million from Jackalope. During the six months ended June 30, 2015, we contributed approximately $17.9 million to Jackalope.

Tres Holdings. Tres Holdings is required, within 30 days following the end of each quarter, to make quarterly distributions of its available cash (as defined in its limited liability company agreement) to its members based on their respective ownership percentage. During the six months ended June 30, 2016 and 2015, we received cash distributions of approximately $4.1 million and $2.1 million from Tres Holdings. In July 2016, we received a cash distribution of approximately $2.1 million from Tres

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Holdings. During the six months ended June 30, 2016 and 2015, we contributed approximately $5.5 million and $5.7 million to Tres Holdings.

PRBIC. PRBIC is required to make quarterly distributions of its available cash to its members based on their respective ownership percentage. During the six months ended June 30, 2016 and 2015, we received cash distributions of approximately $1.2 million and $0.7 million from PRBIC. In July 2016, we received a cash distribution of approximately $0.4 million from PRBIC. During the six months ended June 30, 2015, we contributed approximately $4.2 million to PRBIC.


Note 5 – Risk Management

We are exposed to certain market risks related to our ongoing business operations. These risks include exposure to changing commodity prices. We utilize derivative instruments to manage our exposure to fluctuations in commodity prices, which is discussed below. Additional information related to our derivatives is discussed in Note 6.

Commodity Derivative Instruments and Price Risk Management

Risk Management Activities

We sell NGLs to energy related businesses and may use a variety of financial and other instruments including forward contracts involving physical delivery of NGLs, heating oil and crude oil. We periodically enter into offsetting positions to economically hedge against the exposure our customer contracts create. Certain of these contracts and positions are derivative instruments. We do not designate any of our commodity-based derivatives as hedging instruments for accounting purposes. Our commodity-based derivatives are reflected at fair value in the consolidated balance sheets, and changes in the fair value of these derivatives that impact the consolidated statements of operations are reflected in costs of product/services sold. During the three and six months ended June 30, 2016, the impact to the statement of operations related to our commodity-based derivatives reflected in costs of product/services sold was a gain of $1.3 million and $2.0 million. During the three and six months ended June 30, 2015, the impact to the statement of operations related to our commodity-based derivatives reflected in costs of product/services sold was a gain of $2.9 million and $5.3 million. We attempt to balance our contractual portfolio in terms of notional amounts and timing of performance and delivery obligations. This balance in the contractual portfolio significantly reduces the volatility in costs of product/services sold related to these instruments.

Commodity Price and Credit Risk

Notional Amounts and Terms

The notional amounts and terms of our derivative financial instruments include the following at June 30, 2016 and December 31, 2015 (in millions):
 
June 30, 2016
 
December 31, 2015
 
Fixed Price
Payor
 
Fixed Price
Receiver
 
Fixed Price
Payor
 
Fixed Price
Receiver
Propane, crude and heating oil (barrels)
12.4

 
13.8

 
9.1

 
10.9


Notional amounts reflect the volume of transactions, but do not represent the amounts exchanged by the parties to the financial instruments. Accordingly, notional amounts do not reflect our monetary exposure to market or credit risks.

All contracts subject to price risk had a maturity of 34 months or less; however, 82% of the contracted volumes will be delivered or settled within 12 months.


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Credit Risk

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. The counterparties associated with our assets from price risk management activities as of June 30, 2016 and December 31, 2015 were energy marketers and propane retailers, resellers and dealers.

Certain of our derivative instruments have credit limits that require us to post collateral. The amount of collateral required to be posted is a function of the net liability position of the derivative as well as our established credit limit with the respective counterparty. If our credit rating were to change, the counterparties could require us to post additional collateral. The amount of additional collateral that would be required to be posted would vary depending on the extent of change in our credit rating as well as the requirements of the individual counterparty. The aggregate fair value of all commodity derivative instruments with credit-risk-related contingent features that were in a liability position at June 30, 2016 and December 31, 2015 was $5.5 million and $3.3 million. At June 30, 2016 and December 31, 2015, we posted less than $0.1 million of collateral for our commodity derivative instruments with credit-risk-related contingent features. In addition, at June 30, 2016 and December 31, 2015, we had a New York Mercantile Exchange (NYMEX) related net derivative liability position of $9.3 million and $20.8 million, for which we posted $6.1 million and $26.7 million of cash collateral in the normal course of business. At June 30, 2016 and December 31, 2015, we also received collateral of $5.0 million and $16.8 million in the normal course of business. All collateral amounts have been netted against the asset or liability with the respective counterparty and are reflected in our consolidated balance sheets as assets and liabilities from price risk management activities.


Note 6 – Fair Value Measurements

The accounting standards for fair value measurement establish a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:

Level 1—Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, listed equities and US government treasury securities.

Level 2—Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category include non-exchange-traded derivatives such as over the counter (OTC) forwards, options and physical exchanges.

Level 3—Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

Cash and Cash Equivalents, Accounts Receivable and Accounts Payable

As of June 30, 2016 and December 31, 2015, the carrying amounts of cash, accounts receivable and accounts payable represent fair value based on the short-term nature of these instruments.


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Credit Facility

The fair value of the amount outstanding under our CMLP credit facility approximates its carrying amount as of June 30, 2016 and December 31, 2015, due primarily to the variable nature of the interest rate of the instrument, which is considered a Level 2 fair value measurement.

Senior Notes

We estimate the fair value of our senior notes primarily based on quoted market prices for the same or similar issuances (representing a Level 2 fair value measurement). The following table reflects the carrying value and fair value of our CMLP senior notes (in millions):
 
June 30, 2016
 
December 31, 2015
 
Carrying
 Amount
 
Fair
Value
 
Carrying
 Amount
 
Fair
Value
Crestwood Midstream 2020 Senior Notes
$
340.8

 
$
319.9

 
$
503.3

 
$
382.3

Crestwood Midstream 2022 Senior Notes
$
436.4

 
$
400.8

 
$
600.0

 
$
437.4

Crestwood Midstream 2023 Senior Notes
$
700.0

 
$
645.8

 
$
700.0

 
$
491.8


Financial Assets and Liabilities

As of June 30, 2016 and December 31, 2015, we held certain assets and liabilities that are required to be measured at fair value on a recurring basis, which include our derivative instruments related to heating oil, crude oil, and NGLs. Our derivative instruments consist of forwards, swaps, futures, physical exchanges and options.

Certain of our derivative instruments are traded on the NYMEX. These instruments have been categorized as Level 1.

Our derivative instruments also include OTC contracts, which are not traded on a public exchange. The fair values of these derivative instruments are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. These instruments have been categorized as Level 2.

Our OTC options are valued based on the Black Scholes option pricing model that considers time value and volatility of the underlying commodity. The inputs utilized in the model are based on publicly available information as well as broker quotes. These options have been categorized as Level 2.

Our financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.


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The following tables set forth by level within the fair value hierarchy, our financial instruments that were accounted for at fair value on a recurring basis at June 30, 2016 and December 31, 2015 (in millions):
 
June 30, 2016
 
 
 
Fair Value of Derivatives
 
 
 
 
 
 
Level 1
 
Level 2
 
Level 3
 
Gross Fair Value
 
Contract Netting(1)
 
Collateral/Margin Received or Paid
 
Recorded in Balance Sheet
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets from price risk management
$
0.2

 
$
44.0

 
$

 
$
44.2

 
$
(28.9
)
 
$
(5.8
)
 
$
9.5

Suburban Propane Partners, L.P. units(2)
4.7

 

 

 
4.7

 

 

 
4.7

Total assets at fair value
$
4.9

 
$
44.0

 
$

 
$
48.9

 
$
(28.9
)
 
$
(5.8
)
 
$
14.2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities from price risk management
$
0.2

 
$
37.5

 
$

 
$
37.7

 
$
(28.9
)
 
$
2.1

 
$
10.9

Total liabilities at fair value
$
0.2

 
$
37.5

 
$

 
$
37.7

 
$
(28.9
)
 
$
2.1

 
$
10.9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
 
 
Fair Value of Derivatives
 
 
 
 
 
 
Level 1
 
Level 2
 
Level 3
 
Gross Fair Value
 
Contract Netting(1)
 
Collateral/Margin Received or Paid
 
Recorded in Balance Sheet
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets from price risk management
$
0.5

 
$
57.8

 
$

 
$
58.3

 
$
(13.7
)
 
$
(12.0
)
 
$
32.6

Suburban Propane Partners, L.P. units(2)
3.4

 

 

 
3.4

 

 

 
3.4

Total assets at fair value
$
3.9

 
$
57.8

 
$

 
$
61.7

 
$
(13.7
)
 
$
(12.0
)
 
$
36.0

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities from price risk management
$
0.2

 
$
41.3

 
$

 
$
41.5

 
$
(13.7
)
 
$
(20.4
)
 
$
7.4

Total liabilities at fair value
$
0.2

 
$
41.3

 
$

 
$
41.5

 
$
(13.7
)
 
$
(20.4
)
 
$
7.4


(1)
Amounts represent the impact of legally enforceable master netting agreements that allow us to settle positive and negative positions as well as cash collateral held or placed with the same counterparties.
(2)
Amount is reflected in other assets on CEQP's consolidated balance sheets.


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Note 7 – Long-Term Debt

Long-term debt consisted of the following at June 30, 2016 and December 31, 2015 (in millions):
 
June 30,
2016
 
December 31,
2015
Credit Facility
$
139.0

 
$
735.0

2020 Senior Notes
338.8

 
500.0

Fair value adjustment of 2020 Senior Notes
2.0

 
3.3

2022 Senior Notes
436.4

 
600.0

2023 Senior Notes
700.0

 
700.0

Other
3.9

 
5.3

Less: deferred financing costs, net
37.6

 
40.9

Total Crestwood Midstream debt
1,582.5

 
2,502.7

Other

 
0.2

Total Crestwood Equity debt
1,582.5

 
2,502.9

Less: current portion
0.9

 
1.1

Total long-term debt, less current portion
$
1,581.6

 
$
2,501.8


Crestwood Midstream Credit Facility

In conjunction with the contribution agreement with CEGP, Crestwood Midstream amended its credit facility during the second quarter of 2016 to, among other things, (i) facilitate the closing of the joint venture and make investments in the joint venture thereafter, and (ii) implement our liability management plan with the net cash proceeds received from Stagecoach Gas, including the repurchase of Crestwood Midstream's senior notes with the borrowings under its credit facility.

At June 30, 2016, Crestwood Midstream had $613.9 million of available capacity under its credit facility considering the most restrictive debt covenants in its credit agreement. At June 30, 2016 and December 31, 2015, Crestwood Midstream's outstanding standby letters of credit were $62.1 million and $62.2 million. Borrowings under the CMLP credit facility accrue interest at prime or Eurodollar based rates plus applicable spreads, which resulted in interest rates between 3.21% and 5.25% at June 30, 2016 and 2.70% and 5.00% at December 31, 2015. The weighted-average interest rate as of June 30, 2016 and December 31, 2015 was 3.30% and 2.70%.

Crestwood Midstream is required under its credit agreement to maintain a net debt to consolidated EBITDA ratio (as defined in its credit agreement) of not more than 5.50 to 1.0, a consolidated EBITDA to consolidated interest expense ratio (as defined in its credit agreement) of not less than 2.50 to 1.0, and a senior secured leverage ratio (as defined in its credit agreement) of not more than 3.75 to 1.0. At June 30, 2016, the net debt to consolidated EBITDA was approximately 3.99 to 1.0, the consolidated EBITDA to consolidated interest expense was approximately 3.82 to 1.0, and the senior secured leverage ratio was 0.34 to 1.0.

Crestwood Midstream Senior Notes

In June 2016, Crestwood Midstream paid approximately $312.9 million to purchase and cancel approximately $161.2 million and $163.6 million of the principal amounts outstanding under its 2020 Senior Notes and 2022 Senior Notes, respectively, utilizing a portion of the proceeds received from Stagecoach Gas, as further discussed in Note 2.  Crestwood Midstream recognized a gain on extinguishment of debt of approximately $10.0 million in conjunction with the early tender of these notes. Crestwood Midstream also paid $4.5 million and $2.6 million of accrued interest on the 2020 Senior Notes and 2022 Senior Notes, respectively, on the date they were tendered.

In March 2016, Crestwood Midstream filed a registration statement with the SEC under which it plans to offer to exchange $700.0 million of its 6.25% 2023 Senior Notes for any and all outstanding notes. The exchange offer was declared effective by the SEC on June 15, 2016 and closed on July 13, 2016. The terms of the exchange notes are substantially identical to the terms of the 2023 Senior Notes, except that the exchange notes are freely tradable. Crestwood Midstream issued the 2023 Senior Notes in March 2015. The net proceeds from the original offering of approximately $688.3 million were used to pay down borrowings under Crestwood Midstream's credit facility and for general partnership purposes.


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At June 30, 2016, Crestwood Midstream was in compliance with all of its debt covenants applicable to the CMLP credit facility and its senior notes.


Note 8 - Earnings Per Limited Partner Unit

Our net income (loss) attributable to Crestwood Equity Partners is allocated to the subordinated and limited partner unitholders based on their ownership percentage after giving effect to net income attributable to the Class A preferred units. We calculate basic net income per limited partner unit using the two-class method. Diluted net income per limited partner unit is computed using the treasury stock method, which considers the impact to net income attributable to Crestwood Equity Partners and limited partner units from the potential issuance of limited partner units.
  
We exclude potentially dilutive securities from the determination of diluted earnings per unit (as well as their related income statement impacts) when their impact on net income attributable to Crestwood Equity Partners per limited partner unit is anti-dilutive. During the three and six months ended June 30, 2016, we excluded a weighted-average of 6,355,936 and 6,284,885 common units (representing preferred units), a weighted-average of 438,789 common units in both periods (representing subordinated units), and a weighted-average of 8,438,849 common units in both periods (representing Crestwood Niobrara's preferred units). See Note 9 for additional information regarding the potential conversion of our preferred units and Crestwood Niobrara's preferred units to common units. There were no units excluded from our dilutive earnings per unit as we did not have any anti-dilutive units for the three and six months ended June 30, 2015 .


Note 9 – Partners’ Capital

Distributions

Crestwood Equity

Limited Partners. A summary of CEQP's limited partner quarterly cash distributions for the six months ended June 30, 2016 and 2015 is presented below:
Record Date
 
Payment Date
 
Per Unit Rate
 
Cash Distributions
(in millions)
2016
 
 
 
 
 
 
February 5, 2016
 
February 12, 2016
 
$
1.375

 
$
95.6

May 6, 2016
 
May 13, 2016
 
0.60

 
41.4

 
 
 
 
 
 
$
137.0

2015
 
 
 
 
 
 
February 6, 2015
 
February 13, 2015
 
$
1.375

 
$
25.8

May 8, 2015
 
May 15, 2015
 
1.375

 
25.7

 
 
 
 
 
 
$
51.5