Enterprise Products Partners L.P.

SEC Filings

ENTERPRISE PRODUCTS PARTNERS L P filed this Form 10-K on 02/28/2018
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As a result of adopting the new standard, there will be significant changes to our disclosures based on the additional requirements prescribed by ASC 606.  These new disclosures include information regarding the significant judgments used in evaluating when and how revenue is (or will be) recognized and data related to contract assets and liabilities.  Additionally, we have revised our business processes, systems and controls to ensure the accuracy and timeliness of the recognition and disclosure requirements under the new revenue guidance.

Leases.  In February 2016, the FASB issued ASC 842, Leases (“ASC 842”), which requires substantially all leases (with the exception of leases with a term of one year or less) to be recorded on the balance sheet using a method referred to as the right-of-use (“ROU”) asset approach. We will adopt the new standard on January 1, 2019 using a proposed transition method that will require us to apply the new lease standard to (i) all new leases entered into after January 1, 2019 and (ii) all existing lease contracts as of January 1, 2019 through a cumulative adjustment to equity.  In accordance with this approach, our consolidated operating expenses for periods prior to January 1, 2019 will not be revised.

The new standard introduces two lease accounting models, which result in a lease being classified as either a “finance” or “operating” lease on the basis of whether the lessee effectively obtains control of the underlying asset during the lease term.  A lease would be classified as a finance lease if it meets one of five classification criteria, four of which are generally consistent with current lease accounting guidance.  By default, a lease that does not meet the criteria to be classified as a finance lease will be deemed an operating lease.  Regardless of classification, the initial measurement of both lease types will result in the balance sheet recognition of a ROU asset representing a company’s right to use the underlying asset for a specified period of time and a corresponding lease liability.  The lease liability will be recognized at the present value of the future lease payments, and the ROU asset will equal the lease liability adjusted for any prepaid rent, lease incentives provided by the lessor, and any indirect costs.

The subsequent measurement of each type of lease varies.  Leases classified as a finance lease will be accounted for using the effective interest method.  Under this approach, a lessee will amortize the ROU asset (generally on a straight-line basis in a manner similar to depreciation) and the discount on the lease liability (as a component of interest expense).  Leases classified as an operating lease will result in the recognition of a single lease expense amount that is recorded on a straight-line basis (or another systematic basis, if more appropriate).

We have started the process of reviewing our lease agreements in light of the new guidance.  Although we are in the early stages of our ASC 842 implementation project, we anticipate that this new lease guidance will result in changes to the way our operating leases are recorded, presented and disclosed in our consolidated financial statements.

Derivative instruments.  In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which amends and simplifies existing guidance in order to allow companies to more accurately present the economic effects of risk management activities in the financial statements.  As a result of the new guidance, we will no longer be required to separately measure and disclose the effect of periodic hedge ineffectiveness related to cash flow hedges. We early adopted this new guidance on January 1, 2018. The impact of the new guidance on our consolidated financial statements and disclosures is not expected to be material.

Note 3.  Revenue Recognition

In general, we recognize revenue from our customers when all of the following criteria are met:  (i) persuasive evidence of an exchange arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the buyer’s price is fixed or determinable and (iv) collectibility is reasonably assured.  Amounts billed in advance of the period in which the service is rendered or product delivered are recorded as deferred revenue.  The following information summarizes our revenue recognition policies by business segment.  See Note 2 for information regarding recent accounting guidance related to revenue recognition.  See Note 10 for general information regarding our business segments.