|ENTERPRISE PRODUCTS PARTNERS L P filed this Form 10-K on 02/28/2018|
ENTERPRISE PRODUCTS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Certain of our plant operations entail periodic planned outages for major maintenance activities. These planned shutdowns typically result in significant expenditures, which are principally comprised of amounts paid to third parties for materials, contract services and related items. We use the expense-as-incurred method for our planned major maintenance activities for plant operations; however, the cost of annual planned major maintenance projects for such plants are deferred and recognized on a straight-line basis until the next planned annual outage. With regard to the planned major maintenance activities on our marine transportation assets and underground storage caverns, we use the deferral method to account for such costs. Under this method, major maintenance costs are capitalized and amortized over the period until the next major overhaul or cavern integrity project.
Asset retirement obligations (“AROs”) are legal obligations associated with the retirement of tangible long-lived assets that result from their acquisition, construction, development and/or normal operation. When an ARO is incurred, we record a liability for the ARO and capitalize an equal amount as an increase in the carrying value of the related long-lived asset. ARO amounts are measured at their estimated fair value using expected present value techniques. Over time, the ARO liability is accreted to its present value (through accretion expense) and the capitalized amount is depreciated over the remaining useful life of the related long-lived asset. We will incur a gain or loss to the extent that our ARO liabilities are not settled at their recorded amounts.
See Note 5 for additional information regarding our property, plant and equipment and AROs.
Recent Accounting Developments
Revenue Recognition. In May 2014, the FASB issued Accounting Standards Codification 606, Revenues from Contracts with Customers (“ASC 606”). The new accounting standard, along with its related amendments, replaced the former rules-based U.S. GAAP governing revenue recognition with a principles-based approach. We adopted the new standard on January 1, 2018 using a modified retrospective approach, which required us to apply the new revenue standard to (i) all new revenue contracts entered into after January 1, 2018 and (ii) all existing revenue contracts as of January 1, 2018 through a cumulative adjustment to equity, if necessary. In accordance with this approach, our consolidated revenues for periods prior to January 1, 2018 will not be revised.
The core principle in the new guidance is that a company should recognize revenue in a manner that fairly depicts the transfer of goods or services to customers in amounts that reflect the consideration the company expects to receive for those goods or services. In order to apply this core principle, companies will apply the following five steps in determining the amount of revenues to recognize: (i) identify the contract; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the performance obligation is satisfied. Each of these steps involves management’s judgment and an analysis of the contract’s material terms and conditions.
Our implementation activities related to ASC 606 are nearly complete. For the vast majority of our businesses, we will not have any material differences in the amount or timing of revenues once we adopt ASC 606.
However, based on guidance in ASC 606 applicable to non-cash consideration, we will start recognizing revenue in connection with equity NGL volumes we receive as consideration for providing processing services under percent of liquids and similar arrangements. The value assigned to this non-cash consideration and related inventory will be based on the fair value of NGLs we are entitled to at the time the processing services are performed. An additional revenue stream, along with the related cost of sales, would be recognized in connection with the ultimate sale of the NGL products derived from the NGLs acquired as a fee for service. Under current accounting practice, we only recognize revenue from the downstream sale of NGL products and do not record service revenue. Based on our estimates, if the changes required by ASC 606 had been adopted at January 1, 2017, our total consolidated revenues for the year ended December 31, 2017 would have increased by approximately 1%.
Given the rapid turnover of our inventories of NGL products each month, we do not expect a significant change in our gross operating margin from natural gas processing and related NGL marketing activities as a result of the changes required by ASC 606. The additional revenue stream recognized in connection with receipt of the equity NGLs will be offset by an equal cost of sales amount when the associated NGL products are sold, which is expected to typically be completed in the same accounting period.