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 March 31, 2019
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

811 Main Street, Suite 3400
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, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Crestwood Equity Partners LP
Large accelerated filer x
Accelerated filer o

Non-accelerated filer o
Smaller reporting company o
Emerging growth company o
Crestwood Midstream Partners LP
Large accelerated filer o
Accelerated filer o
Non-accelerated filer x
Smaller reporting company o
Emerging growth company o


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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange act.
Crestwood Equity Partners LP
 
o
Crestwood Midstream Partners LP
 
o

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 (April 29, 2019).
Crestwood Equity Partners LP
 
71,838,746
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

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

CRESTWOOD EQUITY PARTNERS LP
CONSOLIDATED BALANCE SHEETS
(in millions, except unit information)
 
March 31,
2019
 
December 31,
2018
 
(unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash
$
0.5

 
$
0.9

Restricted cash
1.3

 
16.3

Accounts receivable, less allowance for doubtful accounts of $0.3 million at both March 31, 2019 and December 31, 2018
255.6

 
251.5

Inventory
42.0

 
64.6

Assets from price risk management activities
16.6

 
34.7

Prepaid expenses and other current assets
10.1

 
11.3

Total current assets
326.1

 
379.3

Property, plant and equipment
2,661.7

 
2,598.1

Less: accumulated depreciation
596.6

 
568.4

Property, plant and equipment, net
2,065.1

 
2,029.7

Intangible assets
770.3

 
770.3

Less: accumulated amortization
226.9

 
216.5

Intangible assets, net
543.4

 
553.8

Goodwill
138.6

 
138.6

Operating lease right-of-use assets, net
61.6

 

Investments in unconsolidated affiliates
1,206.4

 
1,188.2

Other non-current assets
5.2

 
4.9

Total assets
$
4,346.4

 
$
4,294.5

Liabilities and partners’ capital
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
224.6

 
$
213.0

Accrued expenses and other liabilities
123.3

 
112.4

Liabilities from price risk management activities
5.0

 
5.8

Current portion of long-term debt
0.6

 
0.9

Total current liabilities
353.5

 
332.1

Long-term debt, less current portion
1,768.4

 
1,752.4

Long-term operating lease liabilities
48.2

 

Other long-term liabilities
177.0

 
173.6

Deferred income taxes
2.8

 
2.6

Commitments and contingencies (Note 10)


 


Interest of non-controlling partner in subsidiary
182.0

 
181.3

Crestwood Equity Partners LP partners’ capital (72,335,893 and 71,659,385 common and subordinated units issued and outstanding at March 31, 2019 and December 31, 2018)
1,202.5

 
1,240.5

Preferred units (71,257,445 units issued and outstanding at both March 31, 2019 and December 31, 2018)
612.0

 
612.0

Total Crestwood Equity Partners LP partners’ capital
1,814.5

 
1,852.5

Total partners’ capital
1,996.5

 
2,033.8

Total liabilities and partners’ capital
$
4,346.4

 
$
4,294.5


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
 
March 31,
 
2019
 
2018
Revenues:
 
 
 
Product revenues:
 
 
 
Gathering and processing
$
109.6

 
$
272.2

Marketing, supply and logistics
636.8

 
753.4

Related party (Note 11)
1.2

 

 
747.6

 
1,025.6

Services revenues:
 
 
 
Gathering and processing
72.7

 
68.1

Storage and transportation
7.8

 
4.2

Marketing, supply and logistics
7.1

 
16.8

Related party (Note 11)

 
0.3

 
87.6

 
89.4

Total revenues
835.2

 
1,115.0

 
 
 
 
Costs of product/services sold (exclusive of items shown separately below):
 
 
 
Product costs
653.5

 
938.9

Product costs - related party (Note 11)
34.4

 
13.1

Service costs
7.7

 
13.8

Total costs of products/services sold
695.6

 
965.8

 
 
 
 
Operating expenses and other:
 
 
 
Operations and maintenance
28.6

 
34.5

General and administrative
37.2

 
23.9

Depreciation, amortization and accretion
39.8

 
45.1

(Gain) loss on long-lived assets, net
2.0

 
(0.3
)
 
107.6

 
103.2

Operating income
32.0

 
46.0


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
 
March 31,
 
2019
 
2018
Earnings from unconsolidated affiliates, net
6.9

 
12.4

Interest and debt expense, net
(24.9
)
 
(24.4
)
Other income, net
0.1

 
0.1

Net income
14.1

 
34.1

Net income attributable to non-controlling partner
4.0

 
4.0

Net income attributable to Crestwood Equity Partners LP
10.1

 
30.1

Net income attributable to preferred units
15.0

 
15.0

Net income (loss) attributable to partners
$
(4.9
)
 
$
15.1

 
 
 
 
Subordinated unitholders’ interest in net income
$

 
$
0.1

Common unitholders’ interest in net income (loss)
$
(4.9
)
 
$
15.0

Net income (loss) per limited partner unit:
 
 
 
Basic
$
(0.07
)
 
$
0.21

Diluted
$
(0.07
)
 
$
0.21

Weighted-average limited partners’ units outstanding (in thousands):
 
 
 
Basic
71,833

 
71,165

Dilutive

 
789

Diluted
71,833

 
71,954


See accompanying notes.

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CRESTWOOD EQUITY PARTNERS LP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
(unaudited)
 
Three Months Ended
 
March 31,
 
2019
 
2018
Net income
$
14.1

 
$
34.1

Change in fair value of Suburban Propane Partners, L.P. units
0.4

 
(0.3
)
Comprehensive income
14.5

 
33.8

Comprehensive income attributable to non-controlling partner
4.0

 
4.0

Comprehensive income attributable to Crestwood Equity Partners LP
$
10.5

 
$
29.8


See accompanying notes.


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CRESTWOOD EQUITY PARTNERS LP
CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL
(in millions)
(unaudited)
 
Preferred
 
Partners
 
 
 
 
 
Units
 
Capital
 
Common Units
 
Subordinated Units
 
Capital
 
Non-Controlling
Partner
 
Total Partners’
Capital
Balance at December 31, 2018
71.3

 
$
612.0

 
71.2

 
0.4

 
$
1,240.5

 
$
181.3

 
$
2,033.8

Distributions to partners

 
(15.0
)
 

 

 
(43.1
)
 
(3.3
)
 
(61.4
)
Unit-based compensation charges

 

 
0.9

 

 
17.3

 

 
17.3

Taxes paid for unit-based compensation vesting

 

 
(0.2
)
 

 
(7.0
)
 

 
(7.0
)
Change in fair value of Suburban Propane Partners, L.P. units

 

 

 

 
0.4

 

 
0.4

Other

 

 

 

 
(0.7
)
 

 
(0.7
)
Net income (loss)

 
15.0

 

 

 
(4.9
)
 
4.0

 
14.1

Balance at March 31, 2019
71.3

 
$
612.0

 
71.9

 
0.4

 
$
1,202.5

 
$
182.0

 
$
1,996.5

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017
71.3

 
$
612.0

 
70.3

 
0.4

 
$
1,393.5

 
$
175.0

 
$
2,180.5

Cumulative effect of accounting change

 

 

 

 
7.5

 

 
7.5

Distributions to partners

 
(15.0
)
 

 

 
(42.7
)
 

 
(57.7
)
Unit-based compensation charges

 

 
1.2

 

 
7.2

 

 
7.2

Taxes paid for unit-based compensation vesting

 

 
(0.2
)
 

 
(6.3
)
 

 
(6.3
)
Change in fair value of Suburban Propane Partners, L.P. units

 

 

 

 
(0.3
)
 

 
(0.3
)
Other

 
(0.1
)
 

 

 
(0.1
)
 

 
(0.2
)
Net income

 
15.0

 

 

 
15.1

 
4.0

 
34.1

Balance at March 31, 2018
71.3

 
$
611.9

 
71.3

 
0.4

 
$
1,373.9

 
$
179.0

 
$
2,164.8


See accompanying notes.


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CRESTWOOD EQUITY PARTNERS LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
 
Three Months Ended
 
March 31,
 
2019
 
2018
Operating activities
 
 
 
Net income
$
14.1

 
$
34.1

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, amortization and accretion
39.8

 
45.1

Amortization of debt-related deferred costs
1.4

 
1.8

Unit-based compensation charges
17.3

 
7.2

(Gain) loss on long-lived assets, net
2.0

 
(0.3
)
Earnings from unconsolidated affiliates, net, adjusted for cash distributions received
3.3

 
(0.6
)
Deferred income taxes
0.2

 
(0.2
)
Other

 
0.1

Changes in operating assets and liabilities
52.8

 
61.5

Net cash provided by operating activities
130.9

 
148.7

Investing activities
 
 
 
Purchases of property, plant and equipment
(68.5
)
 
(65.3
)
Investment in unconsolidated affiliates
(38.2
)
 
(0.1
)
Capital distributions from unconsolidated affiliates
16.7

 
11.5

Other
(1.0
)
 
1.2

Net cash used in investing activities
(91.0
)
 
(52.7
)
Financing activities
 
 
 
Proceeds from the issuance of long-term debt
298.9

 
399.8

Payments on long-term debt
(284.4
)
 
(425.4
)
Payments on finance/capital leases
(1.1
)
 
(0.3
)
Payments for deferred financing costs
(0.2
)
 

Distributions to partners
(43.1
)
 
(42.7
)
Distributions to non-controlling partner
(3.3
)
 

Distribution to preferred unit holders
(15.0
)
 
(15.0
)
Taxes paid for unit-based compensation vesting
(7.0
)
 
(6.3
)
Other
(0.1
)
 
(0.1
)
Net cash used in financing activities
(55.3
)
 
(90.0
)
Net change in cash and restricted cash
(15.4
)
 
6.0

Cash and restricted cash at beginning of period
17.2

 
1.3

Cash and restricted cash at end of period
$
1.8

 
$
7.3

Supplemental schedule of noncash investing and financing activities
 
 
 
Net change to property, plant and equipment through accounts payable and accrued expenses
$
5.7

 
$
12.7


See accompanying notes.


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CRESTWOOD MIDSTREAM PARTNERS LP
CONSOLIDATED BALANCE SHEETS
(in millions)

 
March 31,
2019
 
December 31,
2018
 
(unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash
$
0.2

 
$
0.2

Restricted cash
1.3

 
16.3

Accounts receivable, less allowance for doubtful accounts of $0.3 million at both March 31, 2019 and December 31, 2018
254.9

 
249.9

Inventory
42.0

 
64.6

Assets from price risk management activities
16.6

 
34.7

Prepaid expenses and other current assets
10.1

 
11.3

Total current assets
325.1

 
377.0

Property, plant and equipment
2,991.7

 
2,928.2

Less: accumulated depreciation
757.7

 
725.9

Property, plant and equipment, net
2,234.0

 
2,202.3

Intangible assets
770.3

 
770.3

Less: accumulated amortization
226.9

 
216.5

Intangible assets, net
543.4

 
553.8

Goodwill
138.6

 
138.6

Operating lease right-of-use assets, net
61.6

 

Investments in unconsolidated affiliates
1,206.4

 
1,188.2

Other non-current assets
2.0

 
2.1

Total assets
$
4,511.1

 
$
4,462.0

Liabilities and partners’ capital
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
222.0

 
$
210.5

Accrued expenses and other liabilities
122.3

 
111.3

Liabilities from price risk management activities
5.0

 
5.8

Current portion of long-term debt
0.6

 
0.9

Total current liabilities
349.9

 
328.5

Long-term debt, less current portion
1,768.4

 
1,752.4

Long-term operating lease liabilities
48.2

 

Other long-term liabilities
174.0

 
171.0

Deferred income taxes
0.6

 
0.6

Commitments and contingencies (Note 10)
 
 
 
Interest of non-controlling partner in subsidiary
182.0

 
181.3

Partners’ capital
1,988.0

 
2,028.2

Total partners’ capital
2,170.0

 
2,209.5

Total liabilities and partners’ capital
$
4,511.1

 
$
4,462.0


See accompanying notes.

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CRESTWOOD MIDSTREAM PARTNERS LP
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions)
(unaudited)
  
Three Months Ended
 
March 31,
 
2019
 
2018
Revenues:
 
 
 
Product revenues:
 
 
 
Gathering and processing
$
109.6

 
$
272.2

Marketing, supply and logistics
636.8

 
753.4

Related party (Note 11)
1.2

 

 
747.6

 
1,025.6

Service revenues:
 
 
 
Gathering and processing
72.7

 
68.1

Storage and transportation
7.8

 
4.2

Marketing, supply and logistics
7.1

 
16.8

Related party (Note 11)

 
0.3

 
87.6

 
89.4

Total revenues
835.2

 
1,115.0

 
 
 
 
Costs of product/services sold (exclusive of items shown separately below):
 
 
 
Product costs
653.5

 
938.9

Product costs - related party (Note 11)
34.4

 
13.1

Service costs
7.7

 
13.8

Total costs of product/services sold
695.6

 
965.8

 
 
 
 
Operating expenses and other:
 
 
 
Operations and maintenance
28.6

 
34.5

General and administrative
36.0

 
22.8

Depreciation, amortization and accretion
43.4

 
47.8

(Gain) loss on long-lived assets, net
2.0

 
(0.3
)
 
110.0

 
104.8

Operating income
29.6

 
44.4

Earnings from unconsolidated affiliates, net
6.9

 
12.4

Interest and debt expense, net
(24.9
)
 
(24.4
)
Net income
11.6

 
32.4

Net income attributable to non-controlling partner
4.0

 
4.0

Net income attributable to Crestwood Midstream Partners LP
$
7.6

 
$
28.4


See accompanying notes.


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

 
 
Partners
 
Non-Controlling Partner
 
Total Partners’
Capital
Balance at December 31, 2018
 
$
2,028.2

 
$
181.3

 
$
2,209.5

Distributions to partners
 
(57.8
)
 
(3.3
)
 
(61.1
)
Unit-based compensation charges
 
17.3

 

 
17.3

Taxes paid for unit-based compensation vesting
 
(7.0
)
 

 
(7.0
)
Other
 
(0.3
)
 

 
(0.3
)
Net income
 
7.6

 
4.0

 
11.6

Balance at March 31, 2019
 
$
1,988.0

 
$
182.0

 
$
2,170.0

 
 
 
 
 
 
 
Balance at December 31, 2017
 
$
2,195.4

 
$
175.0

 
$
2,370.4

Cumulative effect of accounting change
 
7.5

 

 
7.5

Distributions to partners
 
(60.5
)
 

 
(60.5
)
Unit-based compensation charges
 
7.2

 

 
7.2

Taxes paid for unit-based compensation vesting
 
(6.3
)
 

 
(6.3
)
Other
 
0.2

 

 
0.2

Net income
 
28.4

 
4.0

 
32.4

Balance at March 31, 2018
 
$
2,171.9

 
$
179.0

 
$
2,350.9


See accompanying notes.


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

 
Three Months Ended
 
March 31,
 
2019
 
2018
Operating activities
 
 
 
Net income
$
11.6

 
$
32.4

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, amortization and accretion
43.4

 
47.8

Amortization of debt-related deferred costs
1.4

 
1.8

Unit-based compensation charges
17.3

 
7.2

(Gain) loss on long-lived assets
2.0

 
(0.3
)
Earnings from unconsolidated affiliates, net, adjusted for cash distributions received
3.3

 
(0.6
)
Deferred income taxes

 
(0.1
)
Other

 
0.1

Changes in operating assets and liabilities
51.9

 
63.1

Net cash provided by operating activities
130.9

 
151.4

Investing activities
 
 
 
Purchases of property, plant and equipment
(68.5
)
 
(65.3
)
Investment in unconsolidated affiliates
(38.2
)
 
(0.1
)
Capital distributions from unconsolidated affiliates
16.7

 
11.5

Other
(1.0
)
 
1.2

Net cash used in investing activities
(91.0
)
 
(52.7
)
Financing activities
 
 
 
Proceeds from the issuance of long-term debt
298.9

 
399.8

Payments on long-term debt
(284.4
)
 
(425.4
)
Payments on finance/capital leases
(1.1
)
 
(0.3
)
Payments for deferred financing costs
(0.2
)
 

Distributions to partners
(57.8
)
 
(60.5
)
Distributions paid to non-controlling partners
(3.3
)
 

Taxes paid for unit-based compensation vesting
(7.0
)
 
(6.3
)
Net cash used in financing activities
(54.9
)
 
(92.7
)
Net change in cash and restricted cash
(15.0
)
 
6.0

Cash and restricted cash at beginning of period
16.5

 
1.0

Cash and restricted cash at end of period
$
1.5

 
$
7.0

Supplemental schedule of non-cash investing and financing activities
 
 
 
Net change to property, plant and equipment through accounts payable and accrued expenses
$
5.7

 
$
12.7


See accompanying notes.

13

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

Note 1 – Organization and Business Description

Organization

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 LP 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 2018 Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on February 22, 2019. The financial information as of March 31, 2019, and for the three months ended March 31, 2019 and 2018, is unaudited. The consolidated balance sheets as of December 31, 2018, were derived from the audited balance sheets filed in our 2018 Annual Report on Form 10-K.

Business Description

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 that 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.


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

Effective January 1, 2019, we adopted the following accounting standard. There were no other material changes in our significant accounting policies from those described in our 2018 Annual Report on Form10-K.

Leases

We maintain leases in the ordinary course of our business activities. Our leases include those for the office buildings, crude oil railroad cars, certain vehicles and other operating facilities and equipment leases. We also sublease certain of our crude oil railroad cars and trucks to a third party. We do not have any material leases where we are considered to be the lessor. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Prior to January 1, 2019, we classified our leases as either capital or operating leases under Accounting Standards Codification (ASC) Topic 840, Leases (Topic 840). We recognized assets (included in property, plant and equipment) and liabilities (included in accrued expenses and other liabilities and other long-term liabilities) related to our capital leases on our

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consolidated balance sheets. We also recognized depreciation expense and interest expense related to our capital leases on our consolidated statements of operations. The majority of our lease arrangements were classified as operating leases, under which we did not recognize assets or liabilities on our consolidated balance sheets, but rather recognized lease payments on our consolidated statements of operations as either costs of product/services sold or operations and maintenance expense on a straight-line basis over the lease term.

On January 1, 2019, we adopted the provisions of ASC Topic 842, 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 adopted the standard using the modified retrospective method. Based on the practical expedients allowed for in the standard, we did not reassess the current GAAP classification of leases, easements and rights of way that existed as of January 1, 2019, and we did not utilize the hindsight method in determining the assets and liabilities to be recorded for our existing leases on January 1, 2019. The adoption of this standard required us to make significant judgments on whether our revenue and expenditure-related contracts were considered to be leases (or contain leases) under Topic 842, and if contracts were considered to be leases whether they should be considered operating leases or finance leases under the new standard. We do not have any material revenue contracts that are considered leases under Topic 842.
  
Upon the adoption of this standard, on January 1, 2019, we recorded a $67.5 million increase to our operating lease right-of-use assets, a $18.6 million increase to our accrued expenses and other liabilities and a $48.9 million increase to our long-term operating lease liabilities, related to reflecting our operating leases on our consolidated balance sheet as a result of adopting the new standard. We also recorded a $1.6 million increase to our property, plant and equipment, $0.3 million increase to our accrued expenses and other liabilities and a $1.3 million increase to our other long-term liabilities, related to our finance leases (which were all formerly capital leases under Topic 840) as a result of applying the provisions of the new standard to the leases. The adoption of the standard did not result in a material cumulative effect of accounting change to our consolidated financial statements. The following table summarizes the balance sheet information related to our operating and finance leases at March 31, 2019 (in millions):

Operating Leases
 
Operating lease right-of-use assets, net
$
61.6

 
 
Accrued expenses and other liabilities
$
18.1

Long-term operating lease liabilities
48.2

Total operating lease liabilities
$
66.3

Finance Leases
 
Property, plant and equipment
$
14.1

Less: accumulated depreciation
2.7

Property, plant and equipment, net
$
11.4

 
 
Accrued expenses and other liabilities
$
2.9

Other long-term liabilities
7.1

Total finance lease liabilities
$
10.0


The estimation of our right-of-use assets and lease liabilities requires us to make significant assumptions and judgments about the term of the lease, variable payments, and discount rates. Our operating leases have remaining terms that vary from one year to 14 years and certain of those leases have renewal options to extend the leases from one year to five years, or terminate the leases at our sole discretion. In addition, our finance leases have remaining terms that vary from two years to four years and certain of those leases have options to purchase the lease property by the end of the lease term. We made significant assumptions on the likelihood on whether we would renew our leases or purchase the property at the end of the lease terms in determining the discounted cash flows to measure our right-of-use assets and lease liabilities. The estimation of variable lease payments in determining discounted cash flows, including those with usage-based costs, also required us to make significant assumptions on the timing and nature of the variability of those payments based on the lease terms. We utilized discount rates ranging from 4.9% to 8.3% to estimate the discounted cash flows used in estimating our right-of-use assets and lease liabilities as of March 31, 2019, which were primarily based on our credit-adjusted collateralized incremental borrowing rate.

We recognize operating lease expense and amortize our right-of-use assets for our finance leases on a straight-line basis over the term of the respective leases. We have applied the practical expedient of not separating the lease and non-lease components

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for our leases where the predominant consideration paid related to the underlying operating and finance lease contracts relate to the lease component. The following table presents the costs and sublease income associated with our operating and finance leases for the three months ended ended March 31, 2019 (in millions):
Operating leases:
 
Operating lease expense (1)(2)
$
7.5

Sublease income(3)
0.2

Total operating lease expense, net
$
7.3

Finance leases:
 
Amortization of right-of-use assets(4)
$
0.9

Interest on lease liabilities(5)
0.2

Total finance lease expense
$
1.1


(1)
Approximately $4.8 million is included in costs of product/services sold and $2.7 million is included in operations and maintenance expense on our consolidated statements of operations.
(2)
Includes short-term and variable lease costs of approximately $0.7 million.
(3)
Included in Marketing, Supply and Logistics service revenues on our consolidated statements of operations.
(4)
Included in depreciation, amortization and accretion on our consolidated statements of operations.
(5)
Included in interest and debt expense, net on our consolidated statements of operations.

The following table presents supplemental cash flow information for our operating and finance leases for the three months ended March 31, 2019 (in millions):
Cash paid for lease liabilities:
 
Operating cash flows from operating leases
$
6.3

Operating cash flows from finance leases
$
0.2

Financing cash flows from finance leases
$
1.1

Right-of-use assets obtained in exchange for lease obligations:
 
Operating leases
$
0.3

Finance leases
$
1.0


The following table shows the weighted-average remaining lease term and the weighted-average discount rate associated with our operating and finance leases for the three months ended March 31, 2019:
Weighted-average remaining lease term (in years):
 
Operating leases
4.4

Finance leases
3.3

Weighted-average discount rate:
 
Operating leases
5.9
%
Finance leases
7.3
%


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The following table presents the future minimum lease liabilities under Topic 842 and Topic 840 for our leases for the next five years and in total thereafter (in millions):
 
Topic 842
 
Topic 840
 
March 31, 2019
 
December 31, 2018
Year Ending December 31,
Operating Leases
 
Finance Leases
 
Total
 
Operating Leases
 
Capital Leases
 
Total
2019(1)
$
15.7

 
$
2.6

 
$
18.3

 
$
22.3

 
$
3.0

 
$
25.3

2020
18.4

 
3.5

 
21.9

 
18.1

 
3.3

 
21.4

2021
14.8

 
3.4

 
18.2

 
14.4

 
3.2

 
17.6

2022
10.1

 
1.7

 
11.8

 
9.7

 
1.9

 
11.6

2023
6.3

 

 
6.3

 
6.0

 

 
6.0

Thereafter
10.9

 

 
10.9

 
10.7

 

 
10.7

Total lease payments
76.2

 
11.2

 
87.4

 
81.2

 
11.4

 
92.6

Less: Interest
9.9

 
1.2

 
11.1

 

 
1.3

 
1.3

Present value of lease liabilities
$
66.3

 
$
10.0

 
$
76.3

 
$
81.2

 
$
10.1

 
$
91.3


(1)
Represents the remainder of 2019 at March 31, 2019.

New Accounting Pronouncement Issued But Not Yet Adopted

As of March 31, 2019, the following accounting standard had not yet been adopted by us:

In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update 2016-13, Financial Instruments - Credit Losses (Topic 326), which provides new guidance on how companies should evaluate their accounts and notes receivable and other financial instruments for impairment. The standard requires companies to evaluate their financial instruments for impairment by recording an allowance for doubtful accounts and/or bad debt expense based on certain categories of instruments rather than a specific identification approach. We expect to adopt the provisions of this standard effective January 1, 2020 and are currently evaluating the impact that this standard may have on our consolidated financial statements.


Note 3 – Certain Balance Sheet Information

Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consisted of the following (in millions):
 
CEQP
 
CMLP
 
March 31,
 
December 31,
 
March 31,
 
December 31,
 
2019
 
2018
 
2019
 
2018
Accrued expenses(1)
$
39.7

 
$
64.8

 
$
38.7

 
$
63.7

Accrued property taxes
3.9

 
2.6

 
3.9

 
2.6

Income tax payable
0.4

 
0.3

 
0.4

 
0.3

Interest payable
38.2

 
19.8

 
38.2

 
19.8

Accrued additions to property, plant and equipment
8.1

 
10.5

 
8.1

 
10.5

Operating leases
18.1

 

 
18.1

 

Finance leases
2.9

 
2.4

 
2.9

 
2.4

Deferred revenue
12.0

 
12.0

 
12.0

 
12.0

Total accrued expenses and other liabilities
$
123.3

 
$
112.4

 
$
122.3

 
$
111.3


(1)
Includes $1.2 million and $16.2 million of related party accrued expenses at March 31, 2019 and December 31, 2018 related to deposits received from Jackalope Gas Gathering Services, L.L.C. (Jackalope), our 50% equity method investment.



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Note 4 - Investments in Unconsolidated Affiliates

Variable Interest Entity

Crestwood Permian Basin Holdings LLC (Crestwood Permian) is a joint venture owned by Crestwood Infrastructure Holdings LLC (Crestwood Infrastructure), our wholly-owned subsidiary, and an affiliate of First Reserve Management, L.P. (First Reserve). We manage and account for our 50% ownership interest in Crestwood Permian, which is a variable interest entity, under the equity method of accounting as we exercise significant influence, but do not control Crestwood Permian and we are not its primary beneficiary due to First Reserve’s rights to exercise control over the entity.

Net Investments and Earnings

Our net investments in and earnings from our unconsolidated affiliates are as follows (in millions):
 
Investment
 
Earnings (Loss) from
Unconsolidated Affiliates
 
March 31,
 
December 31,
 
Three Months Ended March 31,
 
2019
 
2018
 
2019
 
2018
Stagecoach Gas Services LLC(1)
$
824.4

 
$
830.4

 
$
7.0

 
$
5.7

Jackalope Gas Gathering Services, L.L.C.(2)
226.2

 
210.2

 
3.2

 
3.0

Crestwood Permian Basin Holdings LLC(3)
106.1

 
104.3

 
(3.4
)
 
2.7

Tres Palacios Holdings LLC(4)
41.5

 
35.0

 
0.2

 
0.4

Powder River Basin Industrial Complex, LLC(5)
8.2

 
8.3

 
(0.1
)
 
0.6

Total
$
1,206.4

 
$
1,188.2

 
$
6.9

 
$
12.4

(1)
As of March 31, 2019, our equity in the underlying net assets of Stagecoach Gas Services LLC (Stagecoach Gas) exceeded our investment balance by approximately $51.3 million. This excess amount is entirely attributable to goodwill and, as such, is not subject to amortization. Pursuant to the Stagecoach limited liability company agreement, our share of Stagecoach’s equity earnings increased from 35% to 40% effective July 1, 2018. Our Stagecoach Gas investment is included in our storage and transportation segment.
(2)
As of March 31, 2019, our equity in the underlying net assets of Jackalope exceeded our investment balance by approximately $0.4 million. Our Jackalope investment is included in our gathering and processing segment.
(3)
As of March 31, 2019, the difference of $8.8 million between our equity in Crestwood Permian’s net assets and our investment balance is not subject to amortization. Pursuant to the Crestwood Permian limited liability company agreement, we were allocated 100% of Crestwood New Mexico Pipeline LLC’s (Crestwood New Mexico) earnings through June 30, 2018. Effective July 1, 2018, our equity earnings from Crestwood New Mexico is based on our ownership percentage of Crestwood Permian, which is currently 50%. Our Crestwood Permian investment is included in our gathering and processing segment.
(4)
As of March 31, 2019, our equity in the underlying net assets of Tres Palacios Holdings LLC (Tres Holdings) exceeded our investment balance by approximately $25.0 million. Our Tres Holdings investment is included in our storage and transportation segment.
(5)
As of March 31, 2019, our equity in the underlying net assets of Powder River Basin Industrial Complex, LLC (PRBIC) exceeded our investment balance by approximately $5.8 million. Our PRBIC investment is included in our storage and transportation segment.

Summarized Financial Information of Unconsolidated Affiliates

Below is the summarized operating results for our significant unconsolidated affiliates (in millions; amounts represent 100% of unconsolidated affiliate information):
 
Three Months Ended March 31,
 
2019
 
2018
 
Operating Revenues
 
Operating Expenses
 
Net Income (Loss)
 
Operating Revenues
 
Operating Expenses
 
Net Income
Stagecoach Gas
$
40.3

 
$
20.2

 
$
20.2

 
$
41.3

 
$
20.1

 
$
21.2

Jackalope(1)
19.6

 
13.4

 
6.3

 
15.7

 
9.7

 
6.1

Crestwood Permian
13.9

 
20.0

 
(6.9
)
 
21.7

 
19.8

 
3.0

Other(2)
8.3

 
8.8

 
(0.5
)
 
10.0

 
9.1

 
0.9

Total
$
82.1

 
$
62.4

 
$
19.1

 
$
88.7

 
$
58.7

 
$
31.2


(1)
We amortize the excess basis in our Jackalope equity investment as an increase in our earnings from unconsolidated affiliates. During both the three months ended March 31, 2019 and 2018, we recorded amortization of the excess basis in Jackalope of less than $0.1 million.

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(2)
Includes our Tres Holdings and PRBIC equity investments. We amortize the excess basis in these equity investments as an increase in our earnings from unconsolidated affiliates. We recorded amortization of the excess basis in our Tres Holdings and PRBIC equity investments of $0.3 million and $0.1 million, respectively, for the three months ended March 31, 2019, and $0.3 million and $0.2 million, respectively, for the three months ended March 31, 2018.

Distributions and Contributions

The following table summarizes our distributions and contributions from our unconsolidated affiliates (in millions):
 
 
Distributions(1)
 
Contributions
 
 
Three Months Ended March 31,
 
Three Months Ended March 31,
 
 
2019
 
2018
 
2019
 
2018
Stagecoach Gas
 
$
13.0

 
$
11.3

 
$

 
$

Jackalope
 
11.6

 
7.4

 
24.4

 

Crestwood Permian
 
2.3

 
4.3

 
7.5

 
0.1

Tres Holdings
 

 

 
6.3

 

PRBIC
 

 
0.3

 

 

Total
 
$
26.9

 
$
23.3

 
$
38.2

 
$
0.1


(1)
In April 2019, we received cash distributions from Stagecoach Gas, Crestwood Permian and Tres Holdings of approximately $12.4 million, $0.6 million and $1.2 million, respectively.

Other

Contingent Consideration. Pursuant to the Stagecoach Gas limited liability company agreement, we may be required to make payments of up to $57 million to Con Edison Gas Pipeline and Storage Northeast, LLC after December 31, 2020 if certain criteria are not met by Stagecoach Gas by December 31, 2020, including achieving certain performance targets on growth capital projects. These growth capital projects depend on the construction of other third-party expansion projects, and during 2017, those third-party projects experienced regulatory and other delays that caused Stagecoach Gas to delay its growth capital projects. As a result, our consolidated balance sheets reflect an other long-term liability of $57 million at March 31, 2019 and December 31, 2018.

Guarantee. CEQP issued a guarantee under which CEQP has agreed to fund 100% of the costs to build the Nautilus gathering system (which is currently estimated to cost $180 million, of which approximately $155.7 million has been spent through March 31, 2019) if Crestwood Permian fails to do so. The Nautilus gathering system is owned by Crestwood Permian Basin LLC, a 50% equity investment of Crestwood Permian. We do not believe this guarantee is probable of resulting in future losses based on our assessment of the nature of the guarantee, the financial condition of the guaranteed party and the period of time that the guarantee has been outstanding, and as a result, we have not recorded a liability on our consolidated balance sheets at March 31, 2019 and December 31, 2018.

Jackalope Acquisition. On April 9, 2019, Crestwood Niobrara LLC (Crestwood Niobrara), our consolidated subsidiary, acquired Williams Partners LP’s (Williams) 50% equity interest in Jackalope for approximately $484.6 million, which was funded through a combination of borrowings under the CMLP credit facility and the issuance of $235 million of new preferred units to CN Jackalope Holdings LLC (Jackalope Holdings) as further discussed in Note 9. The acquisition of this equity interest results in Crestwood Niobrara owning 100% of the equity interests in Jackalope. Crestwood Midstream Operating, LLC (Crestwood Midstream Operating), our consolidated subsidiary, will provide field operations and construction management services for Jackalope.


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.


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Commodity Derivative Instruments and Price Risk Management

Risk Management Activities

We sell NGLs and crude oil 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. Our commodity-based derivatives that are settled with physical commodities are reflected as an increase to product revenues, and the commodity inventory that is utilized to satisfy those physical obligations is reflected as an increase to costs of product sold in our consolidated statements of operations. The following table summarizes the impact to our consolidated statements of operations related to our commodity-based derivatives reflected in operating revenues and costs of product/services sold during the three months ended March 31, 2019 and 2018 (in millions):
 
 
Three Months Ended
 
 
March 31,
 
 
2019
 
2018
Product revenues
 
$
104.1

 
$
97.8

Gain (loss) reflected in costs of product/services sold
 
(2.9
)
 
7.8


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:
 
March 31, 2019
 
December 31, 2018
 
Fixed Price
Payor
 
Fixed Price
Receiver
 
Fixed Price
Payor
 
Fixed Price
Receiver
Propane, crude and heating oil (MMBbls)
28.8

 
29.5

 
27.8

 
30.1

Natural gas (Bcf)
1.6

 
1.6

 
1.8

 
1.8


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 36 months or less; however, 82% of the contracted volumes will be delivered or settled within 12 months.

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 price risk management activities are 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. In addition, we have margin requirements with a New York Mercantile

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Exchange (NYMEX) broker related to our net asset or liability position with such broker. 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.

The following table represents the fair value of our commodity derivative instruments with credit-risk related contingent features and their associated collateral (in millions):
 
March 31, 2019
 
December 31, 2018
Aggregate fair value of derivative instruments with credit-risk-related contingent features(1)
$
2.6

 
$
2.2

NYMEX-related net derivative asset (liability) position
$
1.4

 
$
(9.4
)
NYMEX-related cash collateral posted
$
9.1

 
$
21.7

Cash collateral received
$
5.4

 
$
14.2

(1)
At March 31, 2019 and December 31, 2018, we posted less than $0.1 million of collateral associated with these derivatives.


Note 6 – Fair Value Measurements

The accounting standard for fair value measurement establishes 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, Accounts Receivable and Accounts Payable

As of March 31, 2019 and December 31, 2018, the carrying amounts of cash, accounts receivable and accounts payable approximate fair value based on the short-term nature of these instruments.

Credit Facility

The fair value of the amounts outstanding under our CMLP credit facility approximates the carrying amounts as of March 31, 2019 and December 31, 2018, due primarily to the variable nature of the interest rate of the instrument, which is considered a Level 2 fair value measurement.


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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 amount (reduced for deferred financing costs associated with the respective notes) and fair value of our senior notes (in millions):
 
March 31, 2019
 
December 31, 2018
 
Carrying
 Amount
 
Fair
Value
 
Carrying
 Amount
 
Fair
Value
2023 Senior Notes
$
694.0

 
$
720.8

 
$
693.6

 
$
668.1

2025 Senior Notes
$
493.6

 
$
514.8

 
$
493.4

 
$
466.2


Financial Assets and Liabilities

As of March 31, 2019 and December 31, 2018, 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.

Our derivative instruments that are traded on the NYMEX 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.

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 March 31, 2019 and December 31, 2018 (in millions):
 
March 31, 2019
 
Level 1
 
Level 2
 
Level 3
 
Gross Fair Value
 
Contract Netting(1)
 
Collateral/Margin Received or Paid
 
Fair Value
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets from price risk management
$
5.6

 
$
64.7

 
$

 
$
70.3

 
$
(60.4
)
 
$
6.7

 
$
16.6

Suburban Propane Partners, L.P. units(2)
3.2

 

 

 
3.2

 

 

 
3.2

Total assets at fair value
$
8.8

 
$
64.7

 
$

 
$
73.5

 
$
(60.4
)
 
$
6.7

 
$
19.8

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities from price risk management
$
5.3

 
$
57.1

 
$

 
$
62.4

 
$
(60.4
)
 
$
3.0

 
$
5.0

Total liabilities at fair value
$
5.3

 
$
57.1

 
$

 
$
62.4

 
$
(60.4
)
 
$
3.0

 
$
5.0

 
 
 
 
 
 
 
 
 
 
 
 
 
 

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December 31, 2018
 
Level 1
 
Level 2
 
Level 3
 
Gross Fair Value
 
Contract Netting(1)
 
Collateral/Margin Received or Paid
 
Fair Value
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets from price risk management
$
12.4

 
$
160.7

 
$

 
$
173.1

 
$
(140.3
)
 
$
1.9

 
$
34.7

Suburban Propane Partners, L.P. units(2)
2.8

 

 

 
2.8

 

 

 
2.8

Total assets at fair value
$
15.2

 
$
160.7

 
$

 
$
175.9

 
$
(140.3
)
 
$
1.9

 
$
37.5

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities from price risk management
$
7.0

 
$
144.7

 
$

 
$
151.7

 
$
(140.3
)
 
$
(5.6
)
 
$
5.8

Total liabilities at fair value
$
7.0

 
$
144.7

 
$

 
$
151.7

 
$
(140.3
)
 
$
(5.6
)
 
$
5.8


(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.


Note 7 – Long-Term Debt

Long-term debt consisted of the following at March 31, 2019 and December 31, 2018 (in millions):
 
March 31,
2019
 
December 31,
2018
Credit Facility
$
593.0

 
$
578.2

2023 Senior Notes
700.0

 
700.0

2025 Senior Notes
500.0

 
500.0

Other
1.2

 
1.5

Less: deferred financing costs, net
25.2

 
26.4

Total debt
1,769.0

 
1,753.3

Less: current portion
0.6

 
0.9

Total long-term debt, less current portion
$
1,768.4

 
$
1,752.4


Credit Facility

At March 31, 2019, Crestwood Midstream had $584.0 million of available capacity under its credit facility considering the most restrictive debt covenants in its credit agreement. At March 31, 2019 and December 31, 2018, Crestwood Midstream’s outstanding standby letters of credit were $73.0 million and $68.0 million. Borrowings under the credit facility accrue interest at prime or Eurodollar based rates plus applicable spreads, which resulted in interest rates between 4.74% and 6.75% at March 31, 2019 and 4.63% and 6.75% at December 31, 2018. The weighted-average interest rate as of March 31, 2019 and December 31, 2018 was 4.79% in both periods.

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 March 31, 2019, the net debt to consolidated EBITDA ratio was approximately 4.11 to 1.0, the consolidated EBITDA to consolidated interest expense ratio was approximately 4.41 to 1.0, and the senior secured leverage ratio was 1.36 to 1.0.

In April 2019, Crestwood Niobrara acquired the remaining 50% equity interest in Jackalope and funded approximately $250 million of the total purchase price through borrowings under Crestwood Midstream’s credit facility. Contemporaneously with the closing of the remaining interest in Jackalope, Crestwood Midstream entered into the First Amendment to the Second Amended and Restated Credit Agreement to modify certain defined terms and calculations, among other things, to account for the Jackalope acquisition. The other debt covenants under the amended credit agreement are materially consistent with the credit facility that existed at March 31, 2019.

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Senior Notes

In April 2019, Crestwood Midstream issued $600 million of 5.625% unsecured senior notes due 2027 (the 2027 Senior Notes). The 2027 Senior Notes will mature on May 1, 2027, and interest is payable semiannually in arrears on May 1 and November 1 of each year, beginning November 1, 2019. The net proceeds from this offering of approximately $591.1 million were used to repay a portion of the outstanding borrowings under our credit facility, which included the borrowings that were used to fund the acquisition of the remaining 50% equity interest in Jackalope.


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 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. The following table summarizes information regarding the weighted-average of common units excluded during the three months ended March 31, 2019 and 2018:
 
Three Months Ended
 
March 31,
 
2019
 
2018
Preferred units (1)
7,125,744

 
7,125,744

Crestwood Niobrara’s preferred units(1)
5,775,394

 
7,055,735

Stock-based compensation performance units(2)
460,091

 

Subordinated units(2)
438,789

 

(1)
See Note 9 for additional information regarding the potential conversion/redemption of our preferred units and Crestwood Niobrara’s preferred units to common units.
(2)
For a description of our performance units and subordinated units, see our 2018 Annual Report on Form 10-K.


Note 9 – Partners’ Capital

Preferred Units

Subject to certain conditions, the holders of the preferred units have the right to convert their preferred units into (i) common units on a 1-for-10 basis or (ii) a number of common units determined pursuant to a conversion ratio set forth in Crestwood Equity’s partnership agreement upon the occurrence of certain events, such as a change in control. The preferred units have voting rights that are identical to the voting rights of the common units and will vote with the common units as a single class, with each preferred unit entitled to one vote for each common unit into which such preferred unit is convertible, except that the preferred units are entitled to vote as a separate class on any matter on which all unitholders are entitled to vote that adversely affects the rights, powers, privileges or preferences of the preferred units in relation to Crestwood Equity’s other securities outstanding.

Common Units

We have an employee unit purchase plan under which employees of the general partner may purchase our common units through payroll deductions up to a maximum of 10% of the employees’ eligible compensation, not to exceed $25,000 for any calendar year. During the three months ended March 31, 2019, there were 789 common units purchased under the plan. For a further description of our employee unit purchase plan, see our 2018 Annual Report on Form 10-K.


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Distributions

Crestwood Equity

Limited Partners. A summary of CEQP’s limited partner quarterly cash distributions for the three months ended March 31, 2019 and 2018 is presented below:
Record Date
 
Payment Date
 
Per Unit Rate
 
Cash Distributions
(in millions)
2019
 
 
 
 
 
 
February 7, 2019
 
February 14, 2019
 
$
0.60

 
$
43.1

2018
 
 
 
 
 
 
February 7, 2018
 
February 14, 2018
 
$
0.60

 
$
42.7


On April 18, 2019, we declared a distribution of $0.60 per limited partner unit to be paid on May 15, 2019 to unitholders of record on May 8, 2019 with respect to the first quarter of 2019.

Preferred Unit Holders. During the three months ended March 31, 2019 and 2018, we made cash distributions to our preferred unitholders of approximately $15.0 million in both periods. On April 18, 2019, the board of directors of our general partner authorized a cash distribution to our preferred unitholders of approximately $15.0 million for the quarter ended March 31, 2019.

Crestwood Midstream

During the three months ended March 31, 2019 and 2018, Crestwood Midstream paid cash distributions of $57.8 million and $60.5 million to Crestwood Equity.

Non-Controlling Partner

Crestwood Niobrara LLC (Crestwood Niobrara) issued preferred interests (Series A-2 Preferred Units) to Jackalope Holdings, which are reflected as non-controlling interest in our consolidated financial statements. Subject to certain restrictions, we have the ability to redeem the Series A-2 Preferred Units for an amount in cash or CEQP common units equal to an amount necessary for Jackalope Holdings to achieve a certain rate of return. During the three months ended March 31, 2019, Crestwood Niobrara paid cash distributions of $3.3 million to Jackalope Holdings. In April 2019, Crestwood Niobrara paid a cash distribution of $3.3 million to Jackalope Holdings for the quarter ended March 31, 2019.

In conjunction with the acquisition of the remaining 50% equity interest in Jackalope in April 2019, Crestwood Niobrara issued $235 million of preferred interests (Series A-3 Preferred Units) to Jackalope Holdings. Crestwood Niobrara will be required to make quarterly cash distributions on the Series A-3 Preferred Units within 30 days after the end of each quarter beginning with the quarter ended June 30, 2019. In connection with the issuance of the Series A-3 Preferred Units, we entered into a Third Amended and Restated Limited Liability Company Agreement (Crestwood Niobrara Amended Agreement) with Jackalope Holdings for Crestwood Niobrara and modified the provisions related to the redemption and conversion of the Series A-2 and Series A-3 Preferred Units. In addition, we amended our registration rights agreement with Jackalope Holdings and entered into the First Amendment to the Registration Rights Agreement to conform with certain provisions of the Crestwood Niobrara Amended Agreement and the issuance of the Series A-3 Preferred Units.

Other

In February 2019, Crestwood Equity issued 238,263 performance units under the Crestwood Equity Partners LP Long Term Incentive Plan (Crestwood LTIP). The performance units are designed to provide an incentive for continuous employment to certain key employees. The vesting of performance units is subject to the attainment of certain performance and market goals over a three-year period, and entitle a participant to receive common units of Crestwood Equity without payment of an exercise price upon vesting. As of March 31, 2019, we had total unamortized compensation expense of approximately $5.7 million related to these performance units, which we expect will be amortized during the next three years. We recognized compensation expense of approximately $1.4 million under the Crestwood LTIP related to these performance units during the three months ended March 31, 2019, which is included in general and administrative expenses on our consolidated statements of operations.

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Note 10 – Commitments and Contingencies

Legal Proceedings

We are periodically involved in litigation proceedings. If we determine that a negative outcome is probable and the amount of loss is reasonably estimable, then we accrue the estimated amount. The results of litigation proceedings cannot be predicted with certainty. We could incur judgments, enter into settlements or revise our expectations regarding the outcome of certain matters, and such developments could have a material adverse effect on our results of operations or cash flows in the period in which the amounts are paid and/or accrued. As of March 31, 2019 and December 31, 2018, both CEQP and CMLP had approximately $0.2 million and $0.1 million accrued for outstanding legal matters. Based on currently available information, we believe it is remote that future costs related to known contingent liability exposures for which we can estimate will exceed current accruals by an amount that would have a material adverse impact on our consolidated financial statements. As we learn new facts concerning contingencies, we reassess our position both with respect to accrued liabilities and other potential exposures.

Any loss estimates are inherently subjective, based on currently available information, and are subject to management’s judgment and various assumptions. Due to the inherently subjective nature of these estimates and the uncertainty and unpredictability surrounding the outcome of legal proceedings, actual results may differ materially from any amounts that have been accrued.

Regulatory Compliance

In the ordinary course of our business, we are subject to various laws and regulations. In the opinion of our management, compliance with current laws and regulations will not have a material effect on our results of operations, cash flows or financial condition.

Environmental Compliance

Our operations are subject to stringent and complex laws and regulations pertaining to worker health, safety, and the environment. We are subject to laws and regulations at the federal, state, regional and local levels that relate to air and water quality, hazardous and solid waste management and disposal, and other environmental matters. The cost of planning, designing, constructing and operating our facilities must incorporate compliance with environmental laws and regulations and safety standards. Failure to comply with these laws and regulations may trigger a variety of administrative, civil and potentially criminal enforcement measures.

During 2014, we experienced three releases totaling approximately 28,000 barrels of produced water on our Arrow water gathering system located on the Fort Berthold Indian Reservation in North Dakota. We immediately notified the National Response Center, the Three Affiliated Tribes and numerous other regulatory authorities. Thereafter, we contained and cleaned up the releases, and placed the impacted segments of these water lines back into service. In May 2015, we experienced a release of approximately 5,200 barrels of produced water on our Arrow water gathering system, immediately notified numerous regulatory authorities and other third parties, and thereafter contained and cleaned up the releases.

In August 2015, we received a notice of violation from the Three Affiliated Tribes’ Environmental Division related to our 2014 produced water releases on the Fort Berthold Indian Reservation. The notice of violation imposes fines and requests reimbursements exceeding $1.1 million; however, the notice of violation was stayed on September 15, 2015. Our discussions regarding the notice of violation continue with the Three Affiliated Tribes.

We will continue our remediation efforts to ensure the impacted lands are restored to their prior state. We believe these releases are insurable events under our policies, and we have notified our carriers of these events. We have not recorded an insurance receivable as of March 31, 2019.

At March 31, 2019 and December 31, 2018, our accrual of approximately $1.8 million was based on our undiscounted estimate of amounts we will spend on compliance with environmental and other regulations, and any associated fines or penalties (including the Arrow water releases described above). We estimate that our potential liability for reasonably possible outcomes related to our environmental exposures could range from approximately $1.8 million to $3.3 million at March 31, 2019.


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Self-Insurance

We utilize third-party insurance subject to varying retention levels of self-insurance, which management considers prudent. Such self-insurance relates to losses and liabilities primarily associated with medical claims, workers’ compensation claims and general, product, vehicle and environmental liability. Losses are accrued based upon management’s estimates of the aggregate liability for claims incurred using certain assumptions followed in the insurance industry and based on past experience. The primary assumption utilized is actuarially determined loss development factors. The loss development factors are based primarily on historical data. Our self insurance reserves could be affected if future claim developments differ from the historical trends. We believe changes in health care costs, trends in health care claims of our employee base, accident frequency and severity and other factors could materially affect the estimate for these liabilities. We continually monitor changes in employee demographics, incident and claim type and evaluate our insurance accruals and adjust our accruals based on our evaluation of these qualitative data points. We are liable for the development of claims for our disposed retail propane operations, provided they were reported prior to August 1, 2012. The following table summarizes CEQP’s and CMLP’s self-insurance reserves at March 31, 2019 and December 31, 2018 (in millions):
 
CEQP
 
CMLP
 
March 31, 2019
 
December 31, 2018
 
March 31, 2019
 
December 31, 2018
Self-insurance reserves(1)
$
11.4

 
$
11.3

 
$
10.0

 
$
9.6

(1)
At March 31, 2019, CEQP and CMLP classified approximately $7.4 million and $6.3 million, respectively of these reserves as other long-term liabilities on their consolidated balance sheets.

Guarantees and Indemnifications. We are involved in various joint ventures that sometimes require financial and performance guarantees. In a financial guarantee, we are obligated to make payments if the guaranteed party fails to make payments under, or violates the terms of, the financial arrangement. In a performance guarantee, we provide assurance that the guaranteed party will execute on the terms of the contract. If they do not, we are required to perform on their behalf. We also periodically provide indemnification arrangements related to assets or businesses we have sold. For a further description of our guarantees associated with our joint ventures, see Note 4.

Our potential exposure under guarantee and indemnification arrangements can range from a specified amount to an unlimited dollar amount, depending on the nature of the claim, specificity as to duration, and the particular transaction. As of March 31, 2019 and December 31, 2018, we have no amounts accrued for these guarantees.


Note 11 – Related Party Transactions

Crestwood Holdings indirectly owns both CEQP’s and CMLP’s general partner. The affiliates of Crestwood Holdings and its owners are considered CEQP’s and CMLP’s related parties. We enter into transactions with our affiliates within the ordinary course of business, including gas gathering and processing services under long-term contracts, product purchases and various operating agreements. We also enter into transactions with our affiliates related to services provided on our expansion projects. At March 31, 2019 and 2018, we paid approximately $2.2 million and $0.2 million of capital expenditures to Applied Consultants, Inc., an affiliate of Crestwood Holdings.


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The following table shows transactions with our affiliates which are reflected in our consolidated statements of operations (in millions). For a further description of our related party agreements, see our 2018 Annual Report on Form 10-K.
 
Three Months Ended
 
March 31,
 
2019
 
2018
Revenues at CEQP and CMLP
$
1.2

 
$
0.3

Costs of product/services sold at CEQP and CMLP(1)
$
34.4

 
$
13.1

Operations and maintenance expenses at CEQP and CMLP(2)
$
7.5

 
$
6.7

General and administrative expenses charged by CEQP to CMLP, net(3)
$
11.0

 
$
5.6

General and administrative expenses at CEQP charged from Crestwood Holdings, net(4)
$
(5.2
)
 
$
(0.4
)

(1)
Includes $8.2 million and $13.1 million during the three months ended March 31, 2019 and 2018 related to purchases of NGLs from a subsidiary of Crestwood Permian. The amount for the three months ended March 31, 2019 also includes $23.9 million related to an agency marketing agreement with Ascent Resources - Utica, LLC, an affiliate of Crestwood Holdings and $2.3 million related to purchases of natural gas from a subsidiary of Stagecoach Gas.
(2)
We have operating agreements with certain of our unconsolidated affiliates pursuant to which we charge them operations and maintenance expenses in accordance with their respective agreements, and these charges are reflected as a reduction of operations and maintenance expenses in our consolidated statements of income. During the three months ended March 31, 2019, we charged $2.0 million to Stagecoach Gas, $1.2 million to Tres Palacios, $3.8 million to Crestwood Permian and $0.5 million to Jackalope. During the three months ended March 31, 2018, we charged $2.1 million to Stagecoach Gas, $1.1 million to Tres Palacios, $3.4 million to Crestwood Permian and $0.1 million to Jackalope.
(3)
Includes $11.9 million and $6.4 million of net unit-based compensation charges allocated from CEQP to CMLP for the three months ended March 31, 2019 and 2018. In addition, includes $0.9 million and $0.8 million of CMLP’s general and administrative costs allocated to CEQP during the three months ended March 31, 2019 and 2018.
(4)
Includes $5.4 million and $0.8 million unit-based compensation charges allocated from Crestwood Holdings to CEQP and CMLP during the three months ended March 31, 2019 and 2018.

The following table shows accounts receivable and accounts payable from our affiliates (in millions):