SEMGROUP CORP, 10-K filed on 3/1/2013
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2012
Jun. 29, 2012
Jan. 31, 2013
Class A [Member]
Jan. 31, 2013
Class B
Document Type
10-K 
 
 
 
Amendment Flag
false 
 
 
 
Document Period End Date
Dec. 31, 2012 
 
 
 
Document Fiscal Period Focus
FY 
 
 
 
Document Fiscal Year Focus
2012 
 
 
 
Entity Registrant Name
SemGroup Corp 
 
 
 
Entity Central Index Key
0001489136 
 
 
 
Current Fiscal Year End Date
--12-31 
 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
 
Entity Common Stock, Shares Outstanding
 
 
41,930,289 
28,235 
Entity Well-known Seasoned Issuer
Yes 
 
 
 
Entity Public Float
 
$ 1,326,413,230 
 
 
Entity Current Reporting Status
Yes 
 
 
 
Entity Voluntary Filers
No 
 
 
 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2012
Dec. 31, 2011
Current assets:
 
 
Cash and cash equivalents
$ 80,029 
$ 73,613 
Restricted cash
34,678 
39,543 
Accounts receivable (net of allowance of $3,687 and $3,623 at December 31, 2012 and 2011, respectively)
346,169 
209,781 
Receivable from affiliates
6,178 
6,408 
Inventories
34,433 
31,994 
Other current assets
18,516 
28,396 
Total current assets
520,003 
389,735 
Property, plant and equipment (net of accumulated depreciation of $130,886 and $83,481 at December 31, 2012 and 2011, respectively)
814,724 
733,925 
Equity method investments
387,802 
327,243 
Goodwill
9,884 
9,453 
Other intangible assets (net of accumulated amortization of $6,701 and $4,336 at December 31, 2012 and 2011, respectively)
7,585 
8,950 
Other noncurrent assets, net
8,181 
21,875 
Total assets
1,748,179 
1,491,181 
Current liabilities:
 
 
Accounts payable
253,623 
145,203 
Payable to affiliates
6,314 
Accrued liabilities
63,831 
53,675 
Payables to pre-petition creditors
32,933 
37,800 
Deferred revenue
18,973 
23,031 
Other current liabilities
4,960 
4,430 
Current portion of long-term debt
24 
26,058 
Total current liabilities
374,344 
296,511 
Long-term debt
206,062 
83,277 
Deferred income taxes
65,620 
73,784 
Other noncurrent liabilities
80,625 
58,944 
Commitments and contingencies (Note 16)
   
   
SemGroup Corporation owners’ equity:
 
 
Common stock (Note 17)
420 
418 
Additional paid-in capital
1,039,189 
1,032,365 
Treasury stock, at cost (Note 17)
(242)
Accumulated deficit
(145,674)
(167,812)
Accumulated other comprehensive loss
(1,299)
(13,875)
Total SemGroup Corporation owners’ equity
892,394 
851,096 
Noncontrolling interests in consolidated subsidiaries
129,134 
127,569 
Total owners’ equity
1,021,528 
978,665 
Total liabilities and owners’ equity
$ 1,748,179 
$ 1,491,181 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2012
Dec. 31, 2011
Accounts receivable, net of allowance
$ 3,687 
$ 3,623 
Property, plant and equipment, net of accumulated depreciation
130,886 
83,481 
Other intangible assets, net of accumulated amortization
$ 6,701 
$ 4,336 
Consolidated Statements of Operations and Comprehensive Income (Loss) (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Revenues:
 
 
 
Product
$ 953,738 
$ 1,237,313 
$ 1,343,782 
Service
117,721 
123,345 
180,975 
Other
166,038 
104,588 
93,655 
Total revenues
1,237,497 
1,465,246 
1,618,412 
Expenses:
 
 
 
Costs of products sold, exclusive of depreciation and amortization shown below
874,885 
1,144,439 
1,258,695 
Operating
224,700 
155,041 
151,385 
General and administrative
71,918 
75,447 
85,836 
Depreciation and amortization
48,210 
49,823 
69,158 
(Gain) loss on disposal or impairment of long-lived assets, net
(3,531)
301 
105,051 
Total expenses
1,216,182 
1,425,051 
1,670,125 
Earnings from equity method investments
36,036 
15,004 
1,949 
Operating income (loss)
57,351 
55,199 
(49,764)
Other expenses (income):
 
 
 
Interest expense
8,902 
60,138 
86,121 
Foreign currency transaction loss (gain)
298 
(3,450)
2,899 
Other expense (income), net
21,271 
(11,539)
1,439 
Total other expenses, net
30,471 
45,149 
90,459 
Income (loss) from continuing operations before income taxes
26,880 
10,050 
(140,223)
Income tax expense (benefit)
(2,078)
(2,310)
(6,320)
Income (loss) from continuing operations
28,958 
12,360 
(133,903)
Income (loss) from discontinued operations, net of income taxes
2,939 
(9,548)
1,831 
Net income (loss)
31,897 
2,812 
(132,072)
Less: net income attributable to noncontrolling interests
9,797 
435 
225 
Net income (loss) attributable to SemGroup
22,100 
2,377 
(132,297)
Other comprehensive income (loss):
 
 
 
Currency translation adjustments
12,635 
(13,075)
6,475 
Other, net of income tax
(59)
(1,915)
(2,026)
Total other comprehensive income (loss)
12,576 
(14,990)
4,449 
Comprehensive income (loss)
44,473 
(12,178)
(127,623)
Less: comprehensive income attributable to noncontrolling interests
9,797 
435 
225 
Comprehensive income (loss) attributable to SemGroup
$ 34,676 
$ (12,613)
$ (127,848)
Net income (loss) per common share (Note 18):
 
 
 
Basic
$ 0.53 
$ 0.06 
$ (3.20)
Diluted
$ 0.52 
$ (0.06)
$ (3.20)
Consolidated Statements of Changes in Owners' Equity (USD $)
In Thousands
Total
Common Stock [Member]
Additional Paid-in Capital [Member]
Treasury Stock [Member]
Accumulated Deficit [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Noncontrolling Interest [Member]
Total Owners' Equity [Member]
Beginning Balance at Dec. 31, 2009
 
$ 414 
$ 1,017,498 
$ 0 
$ (37,892)
$ (3,334)
$ 1,571 
$ 978,257 
Net income (loss)
(132,072)
 
(132,297)
225 
(132,072)
Other comprehensive income (loss)
4,449 
 
4,449 
4,449 
Distributions to noncontrolling interests
 
 
(277)
(277)
Non-cash equity compensation
 
6,230 
 
6,230 
Issuance of common stock under compensation plans
 
(1)
 
Deconsolidation of White Cliffs
 
 
(1,371)
(1,371)
Other
 
 
(148)
(148)
Ending Balance at Dec. 31, 2010
 
415 
1,023,727 
(170,189)
1,115 
855,068 
Net income (loss)
2,812 
 
2,377 
435 
2,812 
Other comprehensive income (loss)
(14,990)
 
(14,990)
(14,990)
Non-cash equity compensation
 
8,641 
 
8,641 
Issuance of common stock under compensation plans
 
(3)
 
Net proceeds from public offering of Rose Rock Midstream, L.P. interests
 
 
127,134 
127,134 
Ending Balance at Dec. 31, 2011
978,665 
418 
1,032,365 
(167,812)
(13,875)
127,569 
978,665 
Net income (loss)
31,897 
 
 
 
22,100 
 
9,797 
31,897 
Other comprehensive income (loss)
12,576 
 
 
 
 
12,576 
 
12,576 
Distributions to noncontrolling interests
 
 
 
 
 
 
(8,502)
(8,502)
Non-cash equity compensation
 
 
6,195 
 
 
 
308 
6,503 
Warrants exercised
 
 
631 
 
 
 
 
631 
Issuance of common stock under compensation plans
 
(2)
 
 
 
 
Repurchase of common stock
 
 
 
(242)
 
 
 
(242)
Other
 
 
 
 
38 
 
(38)
Ending Balance at Dec. 31, 2012
$ 1,021,528 
$ 420 
$ 1,039,189 
$ (242)
$ (145,674)
$ (1,299)
$ 129,134 
$ 1,021,528 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Cash flows from operating activities:
 
 
 
Net income (loss)
$ 31,897 
$ 2,812 
$ (132,072)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Net unrealized (gain) loss related to derivative instruments
1,196 
(14,114)
(13,339)
Depreciation and amortization
48,646 
51,189 
70,882 
(Gain) loss on disposal or impairment of long-lived assets, net
(6,621)
9,497 
105,050 
Equity earnings from investments
(36,036)
(15,004)
(1,949)
Distributions from equity investments
36,440 
15,004 
1,949 
Amortization and write down of debt issuance costs
2,425 
30,338 
23,601 
Deferred tax benefit
(11,818)
(9,847)
(13,719)
Non-cash compensation expense
6,503 
8,641 
6,230 
(Gain) loss on fair value of warrants
21,310 
(5,012)
283 
Provision for uncollectible accounts receivable, net of recoveries
(315)
(7,421)
10,613 
Currency (gain) loss
298 
(3,450)
2,901 
Changes in operating assets and liabilities (Note 22)
(14,283)
11,408 
62,137 
Net cash provided by operating activities
79,642 
74,041 
122,567 
Cash flows from investing activities:
 
 
 
Capital expenditures
(119,319)
(65,995)
(48,468)
Proceeds from sale of long-lived assets
2,641 
1,125 
24,497 
Investments in non-consolidated subsidiaries
(78,253)
(3,717)
(867)
Proceeds from sale of non-consolidated affiliate
3,500 
140,765 
Proceeds from the sale of SemStream assets
12,250 
93,054 
Distributions in excess of equity in earnings of affiliates
17,290 
12,455 
3,819 
Deconsolidation of subsidiaries (Note 6)
(5,519)
Proceeds from surrender of life insurance
7,016 
Net cash provided by (used in) investing activities
(161,891)
36,922 
121,243 
Cash flows from financing activities:
 
 
 
Debt issuance costs
(707)
(12,533)
(1,958)
Borrowings on debt and other obligations
318,000 
263,905 
159,213 
Principal payments on debt and other obligations
(222,066)
(503,189)
(348,734)
Distributions to noncontrolling interests
(8,502)
(277)
Repurchase of common stock
(242)
Net proceeds from sale of limited partner interests in Rose Rock Midstream, L.P.
127,134 
Net cash provided by (used in) financing activities
86,483 
(124,683)
(191,756)
Effect of exchange rate changes on cash and cash equivalents
(610)
(34)
(3,812)
Change in cash and cash equivalents
3,624 
(13,754)
48,242 
Change in cash and cash equivalents included in discontinued operations
2,792 
(454)
1,387 
Change in cash and cash equivalents from continuing operations
6,416 
(14,208)
49,629 
Cash and cash equivalents at beginning of period
73,613 
87,821 
38,192 
Cash and cash equivalents at end of period
$ 80,029 
$ 73,613 
$ 87,821 
Overview
Overview
OVERVIEW
SemGroup Corporation is a Delaware corporation headquartered in Tulsa, Oklahoma that provides diversified services for end-users and consumers of crude oil, natural gas, natural gas liquids, refined products and asphalt. SemGroup Corporation began operations on November 30, 2009, as the successor entity of SemGroup, L.P., which was an Oklahoma limited partnership.
On July 22, 2008 (the “Petition Date”), SemGroup, L.P. and certain subsidiaries filed petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Also on July 22, 2008, SemGroup, L.P.’s Canadian subsidiaries filed applications for creditor protection in Canada under the Companies’ Creditors Arrangement Act (the “CCAA”). Later during 2008, certain other U.S. subsidiaries filed petitions for reorganization. While in bankruptcy, SemGroup, L.P. filed a Plan of Reorganization with the court, which was confirmed on October 28, 2009. The Plan of Reorganization determined, among other things, how pre-Petition Date obligations would be settled, the equity structure of the reorganized company upon emergence, and the financing arrangements upon emergence. SemGroup Corporation emerged from bankruptcy on November 30, 2009 (the “Emergence Date”).
The accompanying consolidated financial statements include the activities of SemGroup Corporation from January 1, 2010 through December 31, 2012. The terms “we,” “our,” “us,” “the Company” and similar language used in these notes to consolidated financial statements refer to SemGroup Corporation and its subsidiaries.
Our reportable segments include the following:
We previously referred to our crude business as SemCrude, but following the contribution of SemCrude, L.P. to Rose Rock Midstream, L.P. ("Rose Rock"), we now refer to this reportable segment as “Crude”. Crude conducts crude oil transportation, storage, terminalling, gathering, blending, and marketing operations in the United States. Crude’s assets include
the 2% general partner interest and 58% of the limited partner interest in Rose Rock, which owns an approximate 640-mile crude oil pipeline network in Kansas and Oklahoma, a crude oil gathering, storage and marketing business in the Bakken Shale in North Dakota and Montana and a crude oil storage facility in Cushing, Oklahoma with a capacity of 7.0 million barrels; and
a 51% ownership interest in White Cliffs Pipeline, L.L.C. (“White Cliffs”), which owns a 527-mile pipeline that transports crude oil from Platteville, Colorado to Cushing, Oklahoma (“the White Cliffs Pipeline”).
SemStream, which owns 9,133,409 common units representing 18% of the total limited partner interests, as of September 30, 2012, in NGL Energy Partners LP (“NGL Energy”), which owns and operates wholesale and retail propane storage and distribution assets, crude oil logistics and water treatment services in the United States, and a 6.42% interest in the general partner of NGL Energy. We report the results of our investment in NGL Energy on a one-quarter lag (Note 5).
SemCAMS, which provides natural gas gathering and processing services in Alberta, Canada. SemCAMS owns working interests in, and operates, four natural gas processing plants and a network of over 600 miles of natural gas gathering and transportation pipelines.
SemGas, which provides natural gas gathering and processing services in the United States. SemGas owns and operates over 900 miles of gathering pipelines in Kansas, Oklahoma, and Texas and three processing plants in Oklahoma and Texas.
SemLogistics, which provides refined product and crude oil storage services in the United Kingdom. SemLogistics owns a facility in Wales that has a storage capacity of approximately 8.7 million barrels.
SemMexico, which purchases, produces, stores, and distributes liquid asphalt cement products in Mexico. SemMexico operates twelve manufacturing plants, two emulsion distribution terminals and two portable rail unloading facilities.
We previously had a seventh segment, SemCanada Crude, which aggregated and blended crude oil in Western Canada. Due to adverse market conditions impacting this segment, we sold the property, plant and equipment of SemCanada Crude in late 2010 and began winding down its operations (Note 6).
Consolidation And Basis Of Presentation
Consolidation and Basis of Presentation
CONSOLIDATION AND BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States.
Consolidated subsidiaries
Our consolidated financial statements include the accounts of our controlled subsidiaries, including Rose Rock. All significant transactions between our consolidated subsidiaries have been eliminated. Outside ownership interests in consolidated subsidiaries are reported as non-controlling interests in the consolidated financial statements.
Proportionally consolidated assets
Our SemCAMS segment owns undivided interests in certain natural gas gathering and processing assets, for which we record only our proportionate share of the assets on the consolidated balance sheets. The net book value of the property, plant and equipment recorded by us associated with these undivided interests is approximately $174.1 million at December 31, 2012. We serve as operator of these facilities and incur the costs of operating the facilities (recorded as operating expenses in the consolidated statements of operations) and charge the other owners for their proportionate share of the costs (recorded as other revenue in the consolidated statements of operations).
Equity method investments
At the end of September 2010, we sold a portion of our ownership interests in White Cliffs to two unaffiliated parties, which reduced our ownership interest in White Cliffs from approximately 99% to 51%. Upon closing of this sale, the other owners received substantive rights to participate in the management of White Cliffs. Because of this, we deconsolidated White Cliffs at the end of September 2010, and began accounting for it under the equity method. In January 2013, we sold a one-third interest in SemCrude Pipeline, which holds the 51% interest in White Cliffs, to our consolidated subsidiary Rose Rock. We will continue to account for our interest under the equity method. No gain was recorded on the transaction as it was between entities under common control.
On November 1, 2011, we contributed the long-lived assets and certain working capital of our SemStream segment to NGL Energy in return for limited partner interests in NGL Energy, an interest in the general partner of NGL Energy, and cash for working capital. We hold two seats on the board of directors of the general partner of NGL Energy, and we account for our investment in NGL Energy and its general partner under the equity method.
In May 2012, we formed a joint venture, Glass Mountain Pipeline, LLC ("GMP" or "Glass Mountain"), to construct, maintain and operate a 210-mile crude oil pipeline system originating in Alva and Arnett, Oklahoma and terminating at Cushing, Oklahoma. Construction of the pipeline is expected to be completed by the Fall of 2013.
Discontinued operations
The consolidated financial statements present discontinued operations for certain disposed subsidiaries, as described in Note 7. As part of the process of reorganizing to emerge from bankruptcy, we disposed of SemFuel, SemMaterials, and SemEuro Supply. During 2012, we completed the disposition of SemStream's residential propane supply business in Arizona.
Summary of Significant Accounting Policies
Summary of Signifcant Accounting Policies
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES—The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts and disclosures in the financial statements. Our significant estimates include, but are not limited to: (1) allowances for doubtful accounts receivable; (2) estimated useful lives of assets, which impact depreciation; (3) estimated fair values of long-lived assets used in impairment tests; (4) fair values of derivative instruments; and (5) accrual and disclosure of contingent losses. Although management believes these estimates are reasonable, actual results could differ materially from these estimates.
CASH AND CASH EQUIVALENTS—Cash includes currency on hand and demand and time deposits with banks or other financial institutions. Cash equivalents include highly liquid investments with maturities of three months or less at the date of purchase. Balances at financial institutions may exceed federally insured limits.
RESTRICTED CASH—Our Plan of Reorganization specified the total amount of consideration we would provide to all pre-petition creditors in settlement of their claims. At December 31, 2012, we had not yet completed the process of disbursing funds to settle pre-petition claims, as we had not yet completed the process of resolving all of the claims. The restricted cash balance at December 31, 2012 includes $33.7 million of cash that is restricted for this purpose. The December 31, 2012 restricted cash balance also includes $1.0 million of cash that is restricted for other purposes.
ACCOUNTS RECEIVABLE—Accounts receivable are reported net of the allowance for doubtful accounts. Our assessment of the allowance for doubtful accounts is based on several factors, including the overall creditworthiness of our customers, existing economic conditions, and the amount and age of past due accounts. We enter into netting arrangements with certain counterparties to help mitigate credit risk. Receivables subject to netting are presented as gross receivables (with the related accounts payable also presented gross) until such time as the balances are settled. Receivables are considered past due if full payment is not received by the contractual due date. Past due accounts are written off against the allowance for doubtful accounts only after all collection attempts have been exhausted.
INVENTORIES—Inventories primarily consist of natural gas and natural gas liquids, crude oil, and asphalt. Inventories are valued at the lower of cost or market, with cost generally determined using the weighted-average method. The cost of inventory includes applicable transportation costs.
We enter into exchanges with third parties whereby we acquire products that differ in location, grade, or delivery date from products we have available for sale. These exchanges are valued at cost, and although a transportation, location or product differential may be recorded, generally no gain or loss is recognized.
PROPERTY, PLANT AND EQUIPMENT—Property, plant and equipment is recorded at cost. We capitalize costs that extend or increase the future economic benefits of property, plant and equipment, and expense maintenance costs that do not. When assets are disposed of, their cost and related accumulated depreciation are removed from the balance sheet, and any resulting gain or loss is recorded as a gain or loss on disposal or impairment of long-lived assets in the consolidated statements of operations.
Our SemCAMS segment operates plants which periodically undergo planned major maintenance activities, typically occurring every four to five years.  Planned major maintenance projects that do not increase the overall life or capacity of the related assets are recorded in operating expense as incurred, whereas major maintenance activity costs that materially increases the life or capacity of the underlying assets are capitalized. When maintenance expenses are recoverable from the producers who use the plants, they are recorded as revenue, and typically include a 10% overhead fee. 
Depreciation is calculated primarily on the straight-line method over the following estimated useful lives:
Pipelines and related facilities
10 – 31 years
Storage and terminal facilities
10 – 25 years
Natural gas gathering and processing facilities
10 – 31 years
Office and other property and equipment
3 – 31 years

LINEFILL—Pipelines and storage facilities generally require a minimum volume of product in the system to enable the system to operate. Such product, known as linefill, is generally not available to be withdrawn from the system. Linefill owned by us in facilities operated by us is recorded at historical cost, is included in property, plant and equipment in the consolidated balance sheets, and is not depreciated. We also own linefill in third party facilities, which is included in inventory or in other noncurrent assets on the consolidated balance sheets.
IMPAIRMENT OF LONG-LIVED ASSETS—We test long-lived asset groups for impairment when events or circumstances indicate that the net book value of the asset group may not be recoverable. We test an asset group for impairment by estimating the undiscounted cash flows expected to result from its use and eventual disposition. If the estimated undiscounted cash flows are lower than the net book value of the asset group, we then estimate the fair value of the asset group and record a reduction to the net book value of the assets and a corresponding impairment loss.
GOODWILL—We test goodwill for impairment on an annual basis, or more often if circumstances warrant, by estimating the fair value of the asset group to which the goodwill relates and comparing this fair value to the net book value of the asset group. If fair value is less than net book value, we estimate the implied fair value of goodwill, reduce the book value of the goodwill to the implied fair value, and record a corresponding impairment loss. Our policy is to test goodwill for impairment on October 1 of each year. See Note 6 for discussion of goodwill impairment.
During September 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-08, “Testing Goodwill for Impairment”. This ASU is designed to simplify how entities test goodwill for impairment. Under the new standard, an entity may first assess qualitative factors to determine whether it is more likely than not that the fair value of an asset group is less than the carrying amount, for the purpose of determining whether it is necessary to estimate the fair value of the asset group to which the goodwill relates. We adopted this guidance on January 1, 2012 and tested goodwill for impairment on October 1st in accordance with our policy. However, we did not elect to perform the qualitative assessment for the 2012 impairment testing.
EQUITY METHOD INVESTMENTS—We account for an investment under the equity method when we have significant influence over, but not control of, the significant operating decisions of the investee. Under the equity method, we record in the consolidated statements of operations our share of the earnings or losses of the investee, with a corresponding adjustment to the investment balance on our consolidated balance sheet. When we receive a distribution from an equity method investee, we record a corresponding reduction to the investment balance.
For equity method investments for which we do not expect earnings information to be consistently available to record earnings in the quarter in which they are generated, our policy is to record equity earnings on a one-quarter lag. This does not have a material impact on our financial statements.
DEBT ISSUANCE COSTS—Costs incurred in connection with the issuance of long-term debt are reported as other noncurrent assets and are amortized to interest expense using the straight-line method over the term of the related debt. Use of the straight-line method of amortization does not differ materially from the “effective interest” method.
COMMODITY DERIVATIVE INSTRUMENTS—We generally record the fair value of commodity derivative instruments on the consolidated balance sheets and the change in fair value as an increase or decrease to product revenue.
As shown in Note 13, the fair value of commodity derivatives at December 31, 2012 and 2011 are recorded to other current assets or other current liabilities on the consolidated balance sheets. Related margin deposits are recorded to other current assets or other current liabilities on the consolidated balance sheets. Margin deposits are not generally netted against derivative assets or liabilities.
The fair value of a derivative contract is determined based on the nature of the transaction and the market in which the transaction was executed. Quoted market prices, when available, are used to value derivative transactions. In situations where quoted market prices are not readily available, we estimate the fair value using other valuation techniques that reflect the best information available under the circumstances. Fair value measurements of derivative assets include consideration of counterparty credit risk. Fair value measurements of derivative liabilities include consideration of our creditworthiness.
We have elected “normal purchase” and “normal sale” treatment for certain commitments to purchase or sell petroleum products at future dates. This election is only available when a transaction that would ordinarily meet the definition of a derivative but instead is expected to result in physical delivery of product over a reasonable period in the normal course of business and is not expected to be net settled. Agreements accounted for under this election are not recorded at fair value; instead, the transaction is recorded when the product is delivered.
PAYABLES TO PRE-PETITION CREDITORS—Our Plan of Reorganization specified the total amount of consideration we would provide to all pre-petition creditors in settlement of their claims. At December 31, 2012, we had not yet completed the process of disbursing funds to settle pre-petition claims, as we had not yet completed the process of resolving all of the claims. We recorded a liability of $32.9 million at December 31, 2012 associated with these obligations and a liability $0.6 million which is associated with discontinued operations and is reported within other current liabilities. Restricted cash of $33.7 million is held in accounts restricted for this purpose.
CONTINGENT LOSSES—We record a liability for a contingent loss when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. We record attorneys’ fees incurred in connection with a contingent loss at the time the fees are incurred. We do not record liabilities for attorneys’ fees that are expected to be incurred in the future.
ASSET RETIREMENT OBLIGATIONS—Asset retirement obligations include legal or contractual obligations associated with the retirement of long-lived assets, such as requirements to incur costs to dispose of equipment or to remediate the environmental impacts of the normal operation of the assets. We record liabilities for asset retirement obligations when a known obligation exists under current law or contract and when a reasonable estimate of the value of the liability can be made.
DISCONTINUED OPERATIONS—We classify a component of our business as a discontinued operation when we commit to a plan to sell the component and believe it is probable that a sale will be completed within one year. A component that is disposed of in a manner other than by sale is classified as discontinued when the component is actually disposed. Investments accounted for under the equity method, or the cost method, do not qualify for treatment as discontinued operations. A component that is disposed of may not qualify for treatment as a discontinued operation if we have significant continuing involvement in the operations of the component after the disposal.
Once a component meets the requirements to be classified as a discontinued operation, previous financial statements are retrospectively adjusted to reflect the component as a discontinued operation for all periods presented. Income and losses of discontinued operations (excluding corporate general and administrative expense allocations) are combined into one line on the consolidated statements of operations. The cash flows from discontinued operations are not separately identified in the consolidated statements of cash flows.
REVENUE RECOGNITION—Sales of product, as well as gathering and marketing revenues, are recognized at the time title to the product transfers to the purchaser, which typically occurs upon receipt of the product by the purchaser. Terminal and storage revenues are recognized at the time the service is performed. Revenue for the transportation of product is recognized upon delivery of the product to its destination. Certain revenue transactions are reported on a net basis, including derivative instruments considered held for trading purposes and certain buy/sell transactions (see “Purchases and Sales of Inventory with the Same Counterparty”). Other revenue primarily represents operating cost recovery from working interest owners in certain processing plants and is recorded when earned in accordance with the terms of related agreements. Taxes collected from customers and remitted to governmental authorities are recorded on a net basis (excluded from revenue).
COSTS OF PRODUCTS SOLD—Costs of products sold consists of the cost to purchase the product, the cost to transport the product to the point of sale, and the cost to store the product until it is sold.
PURCHASES AND SALES OF INVENTORY WITH THE SAME COUNTERPARTY—We routinely enter into transactions to purchase inventory from, and sell inventory to, the same counterparty. Such transactions that are entered into in contemplation of one another are recorded on a net basis.
CURRENCY TRANSLATION—The consolidated financial statements are presented in U.S. dollars. Our segments operate in four countries, and each segment has identified a “functional currency,” which is the primary currency in the environment in which the segment operates. The functional currencies include the U.S. dollar, the Canadian dollar, the British pound sterling, and the Mexican peso.
At the end of each reporting period, the assets and liabilities of each segment are translated from its functional currency to U.S. dollars using the exchange rate at the end of the month. The monthly results of operations of each segment are generally translated from its functional currency to U.S. dollars using the average exchange rate during the month. Changes in exchange rates result in currency translation gains and losses, which are recorded within other comprehensive income (loss).
Certain segments also enter into transactions in currencies other than their functional currencies. At the end of each reporting period, each segment re-measures the related receivables, payables, and cash to its functional currency using the exchange rate at the end of the period. Changes in exchange rates between the time the transactions were entered into and the end of the reporting period result in currency transaction gains or losses, which are recorded in the consolidated statements of operations.
INCOME TAXES—Deferred income taxes are accounted for under the liability method, which takes into account the differences between the basis of the assets and liabilities for financial reporting purposes and amounts recognized for income tax purposes. We record valuation allowances on deferred tax assets when, in the opinion of management, it is more likely than not that the asset will not be recovered.
We monitor uncertain tax positions and we recognize tax benefits only when management believes the relevant tax positions would more likely than not be sustained upon examination. We record any interest and any penalties related to income taxes within income tax expense in the consolidated statements of operations.
RECLASSIFICATIONS—Certain reclassifications have been made to conform prior year balances to the current year presentation.
PENSION BENEFITS—Pension cost and obligations are actuarially determined and are affected by assumptions including expected return on plan assets, discount rates, compensation increases, and employee turnover rates. We evaluate our assumptions periodically and make adjustments to these assumptions and the recorded liability as necessary. Actuarial gains or losses are amortized on a straight-line basis over the expected remaining service life of employees in the pension plan.
EQUITY-BASED COMPENSATION—We grant certain of our employees equity-based compensation awards which vest contingent on continued service of the recipient and, in some cases, on their achievement of specific performance targets. We record compensation expense for these outstanding awards over applicable service or performance periods based on their grant date fair value with a corresponding increase to additional paid-in capital. The expense to be recorded over the life of the awards is discounted for expected forfeitures during the vesting period.
COMPREHENSIVE INCOME (LOSS) AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)—Comprehensive income (loss) is defined as a change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources and includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Our comprehensive income (loss) consists of currency translation adjustments, changes in the funded status of pension benefit plans and changes in the fair value of interest rate swaps.
During June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income”. This ASU is designed to improve the comparability, consistency and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. The amendments require that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This standard is complied with in these consolidated financial statements. In December 2011, the FASB issued ASU 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05,” which deferred certain presentation requirements in ASU 2011-05 for items reclassified out of accumulated other comprehensive income. We adopted this guidance on January 1, 2012. The impact of adoption was not material.
On February 5, 2013, the FASB issued ASU 2013-02, "Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income". This ASU adds new disclosure requirements for items reclassified out of accumulated other comprehensive income ("AOCI"). The ASU is intended to help entities improve the transparency of changes in other comprehensive income ("OCI") and items reclassified out of AOCI in their financial statements. It does not amend any existing requirements for reporting net income or OCI in the financial statements. We will adopt this guidance in the first quarter of 2013. We do not expect the impact of adoption to be material.
Rose Rock Midstream, L.P.
Rose Rock Midstream, L.P.
ROSE ROCK MIDSTREAM, L.P.
On December 14, 2011, our subsidiary Rose Rock Midstream, L.P. completed an initial public offering ("IPO") in which it sold 7.0 million common units representing limited partner interests. We received proceeds of $127.1 million from this offering, net of underwriter discounts and other fees associated with the offering. We used these proceeds to make principal payments on long-term debt.
At December 31, 2012, we owned the 2% general partner interest and 58% of the limited partner interests that include 1,389,709 common units and 8,389,709 subordinated units of Rose Rock. We also own certain incentive distribution rights, which are described below. We control the operations of Rose Rock through our ownership of the general partner interest, and we continue to consolidate Rose Rock. The outside ownership interests in Rose Rock are reflected in “non-controlling interests in consolidated subsidiaries” on our consolidated balance sheet at December 31, 2012. The portion of the net income of Rose Rock subsequent to the initial public offering that is attributable to outside owners is reflected within “net income attributable to non-controlling interests” in our consolidated statement of operations for the year ended December 31, 2012.
Rose Rock intends to pay a minimum quarterly distribution of $0.3625 per unit to the extent it has sufficient available cash, as defined in Rose Rock’s partnership agreement. Rose Rock’s partnership agreement requires Rose Rock to distribute all of its available cash each quarter in the following manner:
 
Total Quarterly Distributions
Per Unit Target Amount
 
Marginal Percentage
Interest in Distributions
 
Unitholders
 
General
Partner
 
Incentive
Distribution
Rights
Minimum Quarterly Distributions
 
 
 
 
 
 
$
0.362500

 
98.0
%
 
2.0
%
 

First Target Distribution
above
 
$
0.362500

 
up to
 
$
0.416875

 
98.0
%
 
2.0
%
 

Second Target Distribution
above
 
$
0.416875

 
up to
 
$
0.453125

 
85.0
%
 
2.0
%
 
13.0
%
Third Target Distribution
above
 
$
0.453125

 
up to
 
$
0.543750

 
75.0
%
 
2.0
%
 
23.0
%
Thereafter
 
 
 
 
above
 
$
0.543750

 
50.0
%
 
2.0
%
 
48.0
%
 

The following table shows the distributions paid (in thousands, except for per unit amounts):
 
 
Record Date
 
Payment Date
 
Distribution
Per Unit
 
Distributions Paid
Quarter Ended
 
SemGroup
 
Noncontrolling
Interest
Common Units
 
Total
Distributions
 
General
Partner
 
Incentive
Distri-butions
 
Common
Units
 
Subord-inated
Units
 
December 31, 2011
*
February 3, 2012
 
February 13, 2012
 
$
0.0670

$
23

 
$

 
$
93

 
$
561

 
$
470

 
$
1,147

March 31, 2012
 
May 7, 2012
 
May 15, 2012
 
$
0.3725

  
$
128

 
$

 
$
517

 
$
3,125

 
$
2,607

 
$
6,377

June 30, 2012
 
August 6, 2012
 
August 14, 2012
 
$
0.3825

 
$
131

 
$

 
$
532

 
$
3,209

 
$
2,678

 
$
6,550

September 30, 2012
 
November 5, 2012
 
November 14, 2012
 
$
0.3925

 
$
134

 
$

 
$
545

 
$
3,294

 
$
2,748

 
$
6,721

December 31, 2012
 
February 4, 2013
 
February 14, 2013
 
$
0.4025

 
$
167

 
$

 
$
1,164

 
$
3,377

 
$
3,623

 
$
8,331

*Minimum quarterly distribution for quarter ended December 31, 2011 was prorated for the period beginning immediately after the closing of Rose Rock’s IPO, December 14, 2011 through December 31, 2011.

Certain summarized balance sheet information of Rose Rock is shown below (in thousands):
 
December 31, 2012
 
December 31, 2011
Cash
$
108

 
$
9,709

Other current assets
250,509

 
156,873

Property, plant and equipment
291,530

 
276,246

Other noncurrent assets
2,579

 
2,666

Total assets
$
544,726

 
$
445,494

Current liabilities
$
231,843

 
$
140,553

Long-term debt
4,562

 
87

Partners’ capital attributable to SemGroup
179,187

 
177,323

Partners’ capital attributable to noncontrolling interests
129,134

 
127,531

Total liabilities and partners’ capital
$
544,726

 
$
445,494


Certain summarized income statement information of Rose Rock for the years ended December 31, 2012, 2011, and 2010 is shown below (in thousands):
 
Year Ended December 31, 2012
 
Year Ended December 31, 2011
 
Year Ended December 31, 2010
Revenue
$
620,417

 
$
431,321

 
$
208,081

Costs of products sold
$
546,966

 
$
366,265

 
$
146,614

Operating, general and administrative expenses
$
35,385

 
$
28,816

 
$
28,058

Depreciation and amortization expense
$
12,131

 
$
11,379

 
$
10,435

Net income
$
23,954

 
$
23,235

 
$
23,477

The results of Rose Rock included in the table above for the year ended December 31, 2011 include the activity of its predecessor prior to November 29, 2011. The predecessor included SemCrude, L.P., a wholly-owned subsidiary of SemGroup Corporation (exclusive of SemCrude’s ownership interests in SemCrude Pipeline, L.L.C., which holds a 51% ownership interest in White Cliffs, and Eaglwing, L.P. (“Eaglwing”), which is also a wholly-owned subsidiary of SemGroup Corporation).
On January 11, 2013, we contributed a one-third interest in SemCrude Pipeline, L.L.C. to Rose Rock in exchange for (i) cash of approximately $189.5 million, (ii) the issuance of 1.5 million common units, (iii) the issuance of 1.25 million Class A units and (iv) an increase of the capital account of the general partner of Rose Rock and a related issuance of general partner interest, to allow the general partner of Rose Rock to maintain its two percent general partner interest. The Class A units are not entitled to receive any distribution of available cash (other than upon liquidation) prior to the first day of the month immediately following the first month for which the average daily throughput volumes on the White Cliffs Pipeline for such month are 125,000 barrels per day or greater. Upon such date, the Class A units will automatically convert into common units. SemCrude Pipeline, L.L.C. owns a 51% membership interest in White Cliffs, giving Rose Rock an indirect 17% interest in White Cliffs.
As this transaction was between parties under common control, Rose Rock recorded its interest in SemCrude Pipeline, L.L.C. at SemGroup's historical value and as such no gain on the sale was recognized by SemGroup. Proceeds in excess of the historical value were accounted for as a dividend from Rose Rock to SemGroup.
In connection with this transaction, Rose Rock issued and sold 2.0 million common units to third-party purchasers in a private placement for aggregate consideration of approximately $59.3 million. In addition, Rose Rock exercised the accordion feature of its revolving credit facility and increased the total borrowing capacity under the credit facility from $150 million to $385 million and made a borrowing of $133.5 million under the credit facility. The proceeds from the private placement and the borrowing were used by Rose Rock to fund the cash consideration in the transaction with us and to pay certain related transaction costs and expenses. Subsequent to the transaction, SemGroup owns 58.2% of Rose Rock's limited partner interest and its 2% general partner interest.
SemGroup incurred approximately $0.9 million of expense associated with the transaction. Rose Rock incurred approximately $3.2 million of expense, of which approximately $1.2 million of equity issuance costs were offset against proceeds, $1.5 million were related to the borrowing and were deferred, and $0.5 million were expensed.
Investments in Non-Consolidated Subsidiaries
Investments in Non-Consolidated Subsidiaries
INVESTMENTS IN NON-CONSOLIDATED SUBSIDIARIES

White Cliffs
Until the end of September 2010, we owned 99.17% of White Cliffs, and the remaining interests were held by two unaffiliated parties. During 2010, both of these parties exercised their rights under an agreement to purchase additional ownership interests in White Cliffs. Subsequent to the closing of these transactions, we own 51% of White Cliffs. After purchasing these ownership interests, the other owners have substantive rights to participate in the management of White Cliffs; because of this, we deconsolidated White Cliffs at the end of September 2010, and began accounting for it under the equity method.
In August 2012, the owners of White Cliffs approved an expansion project to construct a 12" pipeline from Platteville, Colorado to Cushing, Oklahoma.  The project is expected to cost approximately $300 million which will be funded by capital calls to owners. Our funding requirement will be 51% of the total cost.  We contributed approximately $2.3 million for project funding in the fourth quarter of 2012 and estimate our expected contributions to be $119.3 million and $29.5 million for 2013 and 2014, respectively.
At the time White Cliffs was deconsolidated, we recorded a loss of $6.8 million on the disposed ownership interest. In September 2012, we reached a settlement in a dispute concerning the selling price of that ownership interest and reduced the loss by $3.5 million. This $3.5 million gain is reported in gain on disposal or impairment of long-lived assets, net in the consolidated statements of operations and comprehensive income (loss).
Certain summarized balance sheet information of White Cliffs is shown below (in thousands):
 
December 31,
2012
 
December 31,
2011
Current assets
$
21,508

 
$
11,653

Property, plant and equipment, net
210,710

 
222,473

Goodwill
17,000

 
17,000

Other intangible assets, net
26,369

 
33,073

Total assets
$
275,587

 
$
284,199

Current liabilities
$
3,412

 
$
3,259

Members’ equity
272,175

 
280,940

Total liabilities and members’ equity
$
275,587

 
$
284,199


Under the equity method, we do not report the individual assets and liabilities of White Cliffs on our consolidated balance sheets. Instead, our ownership interest is reflected in one line as a noncurrent asset on our consolidated balance sheets.
Certain summarized income statement information of White Cliffs for the years ended December 31, 2012 and 2011 and the three months ended December 31, 2010 is shown below (in thousands):
 
Year Ended December 31, 2012
 
Year Ended December 31, 2011
 
(unaudited) Three Months Ended December 31, 2010
Revenue
$
108,125

 
$
66,097

 
$
13,619

Operating, general and administrative expenses
$
14,821

 
$
12,746

 
$
3,294

Depreciation and amortization expense
$
19,963

 
$
20,842

 
$
5,680

Net income
$
73,341

 
$
32,509

 
$
4,645

Distributions paid to SemGroup
$
44,514

 
$
27,459

 
$
5,768


The equity in earnings of White Cliffs for the years ended December 31, 2012 and 2011 and the three months ended December 31, 2010 reported in our consolidated statement of operations is less than 51% of the net income of White Cliffs for the same period. This is due to certain general and administrative expenses we incur in managing the operations of White Cliffs that the other owners are not obligated to share. Such expenses are recorded by White Cliffs, and are allocated to our ownership interests. White Cliffs recorded $2.0 million, $3.2 million and $0.9 million of such general and administrative expense during the years ended December 31, 2012 and 2011 and the three months ended December 31, 2010, respectively.
Our ownership interest in White Cliffs is significant as defined by Securities and Exchange Commission’s Regulation S-X Rule 1-02(w). Accordingly, as required by Regulation S-X Rule 3-09, we have included the audited financial statements of White Cliffs as of and for the years ended December 31, 2012 and 2011 and for the three months ended December 31, 2010 as an exhibit to this Form 10-K.
NGL Energy
On November 1, 2011, we acquired 8,932,031 common units representing limited partner interests in NGL Energy and a 7.5% interest in the general partner of NGL Energy. As part of this transaction, we agreed to waive our distribution rights on certain of the common units for a specified period of time. We recorded our investment in NGL Energy at the acquisition date fair value, estimated to be $184.0 million. We derived our estimate of the fair value of our limited partner interests in NGL Energy using the closing price of limited partner units on October 31, 2011, adjusted to reflect the waiver of certain distribution rights. The waiver on these distribution rights expired in September 2012.
Our limited and general partner ownership interest was diluted in connection with an NGL Energy acquisition completed June 19, 2012. In conjunction with the June 2012 transaction, we received 201,378 additional common units bringing our total ownership to 9,133,409 common units representing limited partner interests (which represented approximately 18% of the total 50,769,785 limited partner units of NGL Energy outstanding at September 30, 2012) and a 6.42% interest in the general partner of NGL.
At December 31, 2012, the fair value of our 9,133,409 common units in NGL Energy was $213 million, based on a December 31, 2012 closing price of $23.32 per common unit. This does not reflect our 6.42% interest in the general partner of NGL Energy.
The fair value of our limited partner investment in NGL Energy is categorized as a Level 1 measurement as it is based on quoted market prices.
The excess of the recorded amount of our investment over the book value of our share of the underlying net assets primarily represents equity method goodwill.
Certain unaudited summarized balance sheet information of NGL Energy is shown below (in thousands):
 
(unaudited)
 
September 30,
2012
Current assets
$
736,297

Property plant and equipment, net
425,641

Goodwill
515,881

Intangible and other assets, net
351,600

Total assets
$
2,029,419

Current liabilities
$
653,101

Long-term debt
569,903

Other noncurrent liabilities
2,599

Partners’ equity
803,816

Total liabilities and partners’ equity
$
2,029,419


Our policy is to record our equity in earnings of NGL Energy on a one-quarter lag, as we do not expect information on the earnings of NGL Energy to always be available in time to consistently record the earnings in the quarter in which they are generated. Accordingly, we have recorded losses representing our equity in earnings of NGL Energy of $0.4 million in our consolidated statement of operations and comprehensive income (loss) for the year ended December 31, 2012, which relate to the earnings of NGL Energy for the twelve months ended September 30, 2012, prorated for the period of time we held our ownership interest in NGL Energy.
Certain unaudited summarized income statement information of NGL Energy for the twelve months ended September, 2012 is shown below (in thousands):
 
(unaudited)
Twelve Months
Ended
September 30,
2012
Revenue
$
2,371,524

Costs of products sold
$
2,182,263

Operating, general and administrative expenses
$
125,889

Depreciation and amortization expense
$
34,621

Net income
$
5,405


 
In 2012, SemGroup received cash distributions from NGL Energy of $9.2 million. These distributions were based on NGL Energy's results for the twelve months ended September 30, 2012.
Our ownership interest in NGL Energy is significant as defined by Securities and Exchange Commission’s Regulation S-X Rule 1-02(w). Accordingly, as required by Regulation S-X Rule 3-09, we will amend this Form 10-K to include the audited financial statements of NGL Energy as of March 31, 2013 and 2012 and for each of the three years in the period ended March 31, 2013 as an exhibit, when available.

Glass Mountain Pipeline LLC
In April 2012, we formed a joint venture, Glass Mountain, to construct, maintain and operate a 210-mile crude oil pipeline system originating in Alva and Arnett, Oklahoma and terminating at Cushing, Oklahoma. Construction of the pipeline is expected to be completed by the end of 2013. Once the pipeline is in service, it will be operated by a subsidiary of Rose Rock. Our original ownership interest in GMP was 25%. In September 2012, we acquired an additional 25% ownership interest in GMP, bringing our total ownership percentage in GMP at December 31, 2012 to 50%. As of December 31, 2012, we have invested $74.4 million in GMP, including our capital contributions, amounts paid to acquire the additional ownership percentage, and capitalized interest. We also assumed the responsibility for future capital contributions related to the additional 25% ownership interest. As of December 31, 2012, we expect to make additional contributions of approximately $51.6 million in 2013. We account for our investment in GMP using the equity method.
Under the equity method, we do not report the individual assets and liabilities of GMP on our consolidated balance sheets. Instead, our ownership interest is reflected in one line as a noncurrent asset on our consolidated balance sheets.
Our ownership interest in GMP is not significant as defined by Securities and Exchange Commission's Regulation S-X Rule 1-02(w). Accordingly, no audited financial statements of GMP as of and for the year ended December 31, 2012 have been included as an exhibit to this Form 10-K.
Disposals And Impairments of Long-Lived Assets
Disposals and Impairments of Long-Lived Assets
DISPOSALS AND IMPAIRMENTS OF LONG-LIVED ASSETS
Year Ended December 31, 2012
Gains (losses) recorded during the year ended December 31, 2012 related to the disposal or impairment of long-lived assets included the following (in thousands):
Event
Segment
 
Pre-Tax Gain
White Cliffs settlement (a)
Crude
 
$
3,500

Sale of SemStream residential division assets and liabilities (b)
SemStream
 
3,090

(a)
We sold a portion of our ownership interest in White Cliffs during September 2010. At the time, we recorded a loss of $6.8 million on disposal of that asset. In September 2012, we reached a settlement in a dispute concerning the selling price of that ownership interest and reduced the loss by $3.5 million. This $3.5 million gain is reported in gain on disposal or impairment of long-lived assets, net in the consolidated statements of operations and comprehensive income (loss).
(b)
On September 12, 2012, we entered into a definitive agreement to sell the assets and liabilities of SemStream’s Arizona residential business which was subject to regulatory approval by the Arizona Corporation Commission (the "ACC"). In early December 2012, the ACC granted SemStream regulatory approval to proceed with the sale. The sale closed on December 31, 2012 and resulted in a gain of $3.1 million on a cash sales price of $12.3 million The $3.1 million gain is reported in income from discontinued operations, net of income taxes, in the the consolidated statement of operations and comprehensive income (loss). Property, plant, and equipment with a carrying value of $9.4 million represented the majority of assets included in the sale.
Year Ended December 31, 2011
Gains (losses) recorded during the year ended December 31, 2011 related to the disposal or impairment of long-lived assets included the following (in thousands):
Event
Segment
 
Pre-Tax Gain
(Loss)
Contribution of SemStream assets to NGL Energy (a)
SemStream
 
$
44,266

SemStream residential division impairment (b)
SemStream
 
(8,684
)
SemLogistics goodwill impairment (c)
SemLogistics
 
(44,663
)
(a)
On November 1, 2011, we contributed certain assets and liabilities of our SemStream segment to NGL Energy. On that date these assets and liabilities had the net book values (in thousands) below. However, these values were subject to post closing adjustments, which have since been completed, and resulted in a $2.1 million working capital adjustment.
Inventory
$
107,858

Other current assets
11,263

Property plant and equipment
47,756

Goodwill
50,071

Other intangible assets
12,408

Other noncurrent assets
2,818

Other current liabilities
(2,947
)
Other noncurrent liabilities
(172
)
Net assets contributed
$
229,055

In return for this contribution, we received $93.0 million of cash and ownership interests in NGL Energy and its general partner with an estimated fair value of $184.0 million. We recorded a gain of $44.3 million on this transaction, which includes the impact of a $2.1 million working capital adjustment and the write-off of $1.6 million of software. Additionally, $2.2 million of capitalized loan fees were written-off as a result of long-term debt payments made from the proceeds of this transaction.
(b)
We test all of our goodwill for impairment as of October 1 of each year. Upon completing this impairment test for 2012, we concluded that the goodwill and other intangible assets attributable to the Arizona residential business of our SemStream segment (which was not contributed to NGL Energy) were impaired. To calculate the impairment loss, we estimated the fair value of this reporting unit using the present value of estimated future cash flows, discounted at a rate of 9.4%, and recorded a full impairment of the $3.6 million balance of goodwill and the $5.0 million balance of other intangible assets associated with customer relationships. No impairment was recorded related to the regulated assets of the Arizona residential business in accordance with FASB Accounting Standards Codification ("ASC") Topic 980 – Regulated Operations.
(c)
High crude oil prices and backwardated market conditions in 2011 had a negative effect on SemLogistic’s storage economics. As a result, the demand for storage is depressed and SemLogistics has had difficulty securing contract renewals. SemLogistics successfully passed the initial 2011 goodwill impairment test. However, a review of the sensitivity of the test results indicated that a ten percent reduction in the estimated revenue in 2012 and 2013 would result in a test failure. In addition, we received notice in late January 2012 from two customers that their intentions were not to renew their storage contracts upon expiration. These notifications, coupled with the sensitivity of the test results to loss of revenue, led us to conclude that impairment of the goodwill of SemLogistics was required. Accordingly, we impaired the full amount of goodwill which was $44.7 million at October 1, 2011.
Year Ended December 31, 2010
Losses recorded during the year ended December 31, 2010 related to the disposal or impairment of long-lived assets included the following (in thousands):

Event
Segment
 
Pre-Tax Loss
SemCanada Crude impairment (a)
Corporate and other
 
$
(91,756
)
Deconsolidation of White Cliffs (b)
Crude
 
(6,828
)
SemMexico goodwill impairment (c)
SemMexico
 
(8,863
)
(a)
During the year ended December 31, 2010, we revised downward our projections of the future earnings potential of the SemCanada Crude segment, following a significant loss of customers, coupled with a significant decline in profitability and an assessment by a national consultancy firm that certain market conditions that are adversely impacting this segment were likely to continue. In response to these events, we tested SemCanada Crude’s goodwill and other intangible assets for impairment as of May 31, 2010.
During December 2010, we completed the sale of the property, plant and equipment of the SemCanada Crude segment. The proceeds from the sale were not significantly different than the net book value of the assets sold. Certain marketing operations in the Northern United States that were previously conducted with the participation of the SemCanada Crude segment are now being conducted in their entirety by the Crude segment, and the remaining operations of the SemCanada Crude segment were wound down.
(b)
As described in Note 5, we sold a portion of our ownership interests in White Cliffs during September 2010. We received $140.8 million of proceeds from these transactions, which were used to make principal payments on long-term debt. The net assets of White Cliffs prior to the deconsolidation were as follows (in thousands):
Accounts receivable
$
4,625

Other current assets
143

Property, plant and equipment, net
237,506

Goodwill
17,000

Other intangible assets
43,267

Accounts payable and accrued liabilities
(3,736
)
Payables to affiliates
(659
)
Net assets
$
298,146


(c)
We test goodwill for impairment as of October 1 of each year. Upon completing this impairment test for 2010, we concluded that the goodwill attributable to our SemMexico segment was impaired, due primarily to a decline in demand for asphalt resulting from a slowdown in road construction. To calculate the impairment loss, we estimated the fair value of the SemMexico segment using the present value of estimated future cash flows, discounted at a rate of 13.84%.
Discontinued Operations
Discontinued Operations
DISCONTINUED OPERATIONS
SemFuel, SemMaterials, and SemEuro Supply are classified as discontinued operations in the consolidated statements of operations. During 2008, we decided to sell the assets of SemMaterials and to cease the operations of SemEuro Supply, due to their losses from operations and high working capital requirements. During 2009, we decided to sell the assets of SemFuel, due to its high working capital requirements. By December 31, 2009, the majority of the assets of SemMaterials and SemFuel had been sold.
As described in Note 6, on November 1, 2011, we contributed the primary operating assets of our SemStream segment to NGL Energy; however, at that time we did not contribute any of the assets or liabilities of SemStream’s Arizona residential business to NGL Energy. On September 12, 2012, we entered into a definitive agreement to sell the assets and liabilities of SemStream’s Arizona residential business, subject to regulatory approval by the ACC and classified the operations of SemStream's Arizona residential business as discontinued. In early December 2012, the ACC granted SemStream regulatory approval to proceed with the sale. The sale closed on December 31, 2012 and resulted in a gain of $3.1 million (Note 6).
Certain summarized information on the results of discontinued operations is shown below (in thousands): 
 
Year Ended December 31, 2012
 
Year Ended December 31, 2011
 
Year Ended December 31, 2010
External revenue
$
13,518

 
$
14,264

 
$
11,921

Gain (loss) on disposal of long-lived assets, net
$
3,090

 
$
(9,196
)
 
$
1

Income (loss) from discontinued operations before income taxes
$
2,935

 
$
(9,652
)
 
$
2,162

Income tax expense (benefit)
(4
)
 
(104
)
 
331

Income (loss) from discontinued operations, net of income taxes
$
2,939

 
$
(9,548
)
 
$
1,831

Segments
Segments
SEGMENTS
As described in Note 1, our businesses are organized based on the nature and location of the services they provide. Certain summarized information related to our reportable segments is shown in the tables below. None of the operating segments have been aggregated, other than White Cliffs, which has been included within the Crude segment, and our investment in NGL Energy, which has been included within the SemStream segment. Although “Corporate and Other” does not represent an operating segment, it is included in the tables below to reconcile segment information to that of the consolidated Company. We sold the property, plant and equipment of SemCanada Crude during fourth quarter 2010 and began winding down its operations. SemCanada Crude ceased to be an operating segment during fourth quarter 2010, and is therefore included within “Corporate and Other” in the tables below. Eliminations of transactions between segments are also included within “Corporate and Other” in the tables below.
The accounting policies of each segment are the same as the accounting policies of the consolidated Company. Transactions between segments are generally recorded based on prices negotiated between the segments. Certain general and administrative and interest expenses incurred at the corporate level were allocated to the segments, based on our allocation policies in effect at the time.
 
Year Ended December 31, 2012
 
Crude
 
SemStream
 
SemCAMS
 
SemGas
 
SemLogistics
 
SemMexico
 
Corporate
and
Other
 
Consolidated
 
(in thousands)
Revenues:
 
External
$
620,797

 
$
7

 
$
223,219

 
$
117,264

 
$
12,341

 
$
263,870

 
$
(1
)
 
$
1,237,497

Intersegment

 

 

 
10,606

 

 

 
(10,606
)
 

Total revenues
620,797

 
7

 
223,219

 
127,870

 
12,341

 
263,870

 
(10,607
)
 
1,237,497

Expenses:
 
 
 
 
 
 
 
 
 
 
 
 

 
 
Costs of products sold, exclusive of depreciation and amortization shown below
546,966

 
33

 
768

 
100,677

 
196

 
236,851

 
(10,606
)
 
874,885

Operating
24,143

 
(37
)
 
174,284

 
12,712

 
5,921

 
7,677

 

 
224,700

General and administrative
13,321

 
930

 
14,020

 
6,195

 
5,652

 
9,433

 
22,367

 
71,918

Depreciation and amortization
12,131

 

 
10,589

 
7,043

 
9,780

 
6,171

 
2,496

 
48,210

(Gain) loss on disposal or impairment of long-lived assets, net
(3,501
)
 
214

 

 
46

 

 
(290
)
 

 
(3,531
)
Total expenses
593,060

 
1,140

 
199,661

 
126,673

 
21,549

 
259,842

 
14,257

 
1,216,182

Earnings from equity method investments
36,439

 
(403
)
 

 

 

 

 

 
36,036

Operating income (loss)
64,176

 
(1,536
)
 
23,558

 
1,197

 
(9,208
)
 
4,028

 
(24,864
)
 
57,351

Other expenses (income), net
 
 
 
 
 
 
 
 
 
 
 
 

 
 
Interest expense (income)
(409
)
 
(3,449
)
 
18,727

 
1,461

 
2,486

 
314

 
(10,228
)
 
8,902

Other expense (income), net
31

 
(21
)
 
14

 

 
(420
)
 
(38
)
 
22,003

 
21,569

Total other expenses (income)
(378
)
 
(3,470
)
 
18,741

 
1,461

 
2,066

 
276

 
11,775

 
30,471

Income (loss) from continuing operations before income taxes
$
64,554

 
$
1,934

 
$
4,817

 
$
(264
)
 
$
(11,274
)
 
$
3,752

 
$
(36,639
)
 
$
26,880

Additions to long-lived assets
$
41,364

 
$

 
$
13,340

 
$
47,140

 
$
1,188

 
$
3,396

 
$
14,827

 
$
121,255

Total assets at December 31, 2012 (excluding intersegment receivables)
$
771,140

 
$
175,028

 
$
302,143

 
$
133,864

 
$
174,218

 
$
94,594

 
$
97,192

 
$
1,748,179

Equity investments at December 31, 2012
$
213,404

 
$
174,398

 
$

 
$

 
$

 
$

 
$

 
$
387,802



 
Year Ended December 31, 2011
 
Crude
 
SemStream
 
SemCAMS
 
SemGas
 
SemLogistics
 
SemMexico
 
Corporate
and
Other
 
Consolidated
 
(in thousands)
Revenues:
 
External
$
431,321

 
$
561,596

 
$
163,367

 
$
66,660

 
$
23,314

 
$
218,187

 
$
801

 
$
1,465,246

Intersegment

 
46,738

 

 
38,588

 

 

 
(85,326
)
 

Total revenues
431,321

 
608,334

 
163,367

 
105,248

 
23,314

 
218,187

 
(84,525
)
 
1,465,246

Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Costs of products sold, exclusive of depreciation and amortization shown below
366,265

 
595,434

 
218

 
75,066

 
152

 
192,068

 
(84,764
)
 
1,144,439

Operating
17,470

 
6,448

 
110,814

 
9,027

 
6,206

 
5,006

 
70

 
155,041

General and administrative
9,757

 
7,336

 
16,816

 
6,521

 
6,712

 
11,560

 
16,745

 
75,447

Depreciation and amortization
11,379

 
3,501

 
10,233

 
5,986

 
9,271

 
6,502

 
2,951

 
49,823

(Gain) loss on disposal or impairment of long-lived assets, net
64

 
(45,821
)
 
(8
)
 
4

 
44,663

 
(200
)
 
1,599

 
301

Total expenses
404,935

 
566,898

 
138,073

 
96,604

 
67,004

 
214,936

 
(63,399
)
 
1,425,051

Earnings from equity method investments
15,004

 

 

 

 

 

 

 
15,004

Operating income (loss)
41,390

 
41,436

 
25,294

 
8,644

 
(43,690
)
 
3,251

 
(21,126
)
 
55,199

Other expenses (income), net
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense
3,749

 
17,152

 
24,685

 
2,346

 
1,005

 
365

 
10,836

 
60,138

Other expense (income), net
(1,600
)
 
(2,112
)
 
(2,811
)
 
(10
)
 
46

 
(173
)
 
(8,329
)
 
(14,989
)
Total other expenses
2,149

 
15,040

 
21,874

 
2,336

 
1,051

 
192

 
2,507

 
45,149

Income (loss) from continuing operations before income taxes
$
39,241

 
$
26,396

 
$
3,420

 
$
6,308

 
$
(44,741
)
 
$
3,059

 
$
(23,633
)
 
$
10,050

Additions to long-lived assets
$
32,397

 
$
2,197

 
$
4,874

 
$
14,952

 
$
5,313

 
$
4,667

 
$
2,080

 
$
66,480

Total assets at December 31, 2011 (excluding intersegment receivables)
$
586,882

 
$
205,394

 
$
258,306

 
$
94,960

 
$
183,179

 
$
89,239

 
$
73,221

 
$
1,491,181

Equity investments at December 31, 2011
$
143,259

 
$
183,984

 
$

 
$

 
$

 
$

 
$

 
$
327,243


 
Year Ended December 31, 2010
 
Crude
 
SemStream
 
SemCAMS
 
SemGas
 
SemLogistics
 
SemMexico
 
Corporate
and
Other
 
Consolidated
 
(in thousands)
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
External
$
222,927

 
$
652,751

 
$
144,754

 
$
48,402

 
$
38,371

 
$
149,557

 
$
361,650

 
$
1,618,412

Intersegment
22,927

 
53,623

 

 
27,388

 

 

 
(103,938
)
 

Total revenues
245,854

 
706,374

 
144,754

 
75,790

 
38,371

 
149,557

 
257,712

 
1,618,412

Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Costs of products sold, exclusive of depreciation and amortization shown below
149,383

 
683,733

 
67

 
50,800

 

 
129,449

 
245,263

 
1,258,695

Operating
25,498

 
7,019

 
95,072

 
6,342

 
8,406

 
4,742

 
4,306

 
151,385

General and administrative
10,525

 
8,110

 
18,942

 
6,626

 
5,286

 
10,352

 
25,995

 
85,836

Depreciation and amortization
27,643

 
5,040

 
9,556

 
5,480

 
7,881

 
6,183

 
7,375

 
69,158

(Gain) loss on disposal or impairment of long-lived assets, net
6,895

 
(34
)
 
(14
)
 
12

 

 
8,837

 
89,355

 
105,051

Total expenses
219,944

 
703,868

 
123,623

 
69,260

 
21,573

 
159,563

 
372,294

 
1,670,125

Earnings from equity method investments
1,949

 

 

 

 

 

 

 
1,949

Operating income (loss)
27,859

 
2,506

 
21,131

 
6,530

 
16,798

 
(10,006
)
 
(114,582
)
 
(49,764
)
Other expenses (income):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense
15,384

 
15,484

 
25,108

 
2,254

 
3,998

 
13

 
23,880

 
86,121

Other expense (income), net
(1,569
)
 
(2,983
)
 
617

 
(753
)
 
(88
)
 
(199
)
 
9,313

 
4,338

Total other expenses (income)
13,815

 
12,501

 
25,725

 
1,501

 
3,910

 
(186
)
 
33,193

 
90,459

Income (loss) from continuing operations before income taxes
$
14,044

 
$
(9,995
)
 
$
(4,594
)
 
$
5,029

 
$
12,888

 
$
(9,820
)
 
$
(147,775
)
 
$
(140,223
)
Additions to long-lived assets
$
16,731

 
$
5,781

 
$
4,308

 
$
3,623

 
$
8,964

 
$
4,516

 
$
4,051

 
$
47,974



      Income tax expense (benefit) relates to the following segments (in thousands):
 
 
Year Ended December 31, 2012
 
Year Ended December 31, 2011
 
Year Ended December 31, 2010
SemCAMS
$
720

 
$
552

 
$
886

SemLogistics
(7,736
)
 
(3,331
)
 
2,244

SemMexico
2,285

 
629

 
259

Corporate and other
2,653

 
(160
)
 
(9,709
)
Total
$
(2,078
)
 
$
(2,310
)
 
$
(6,320
)
Inventories
Inventories
INVENTORIES
Inventories consist of the following (in thousands):
 
December 31,
2012
 
December 31,
2011
Crude oil
$
24,840

 
$
21,803

Asphalt and other
9,593

 
10,191

Total inventories
$
34,433

 
$
31,994

Other Assets
Other Assets
OTHER ASSETS
Other current assets consist of the following (in thousands):
 
December 31,
2012
 
December 31,
2011
 
Product prepayments
$
1,550


$
2,396

 
Other prepaid expenses
13,593


14,085

 
Margin deposits
1,850

 
596

 
Derivative assets


162

 
Other
1,523

**
11,157

**
Total other current assets
$
18,516


$
28,396

 


Other noncurrent assets consist of the following (in thousands):
 
December 31,
2012
 
December 31,
2011
 
Debt issuance costs, net
$
4,945

$
6,642

Other
3,236

**
15,233

**
Total other noncurrent assets, net
$
8,181

  
$
21,875

  
* See Note 15 for discussion of debt issuance costs.
** The change in other from the prior year is primarily due to assets held for sale related to SemStream Arizona which were sold in December 2012. See Note 6 for additional information related to the disposal.
Property, Plant and Equipment
Property, Plant and Equipment
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in thousands):
 
December 31,
2012
 
December 31,
2011
Land
$
53,491

 
$
50,069

Pipelines and related facilities
206,345

 
199,171

Storage and terminal facilities
268,738

 
220,951

Natural gas gathering and processing facilities
280,750

 
247,768

Linefill
13,158

 
13,003

Office and other property and equipment
47,679

 
30,761

Construction-in-progress
75,449

 
55,683

Property, plant and equipment, gross
945,610

 
817,406

Accumulated depreciation
(130,886
)
 
(83,481
)
Property, plant and equipment, net
$
814,724

 
$
733,925


We recorded depreciation expense of $46.2 million, $45.9 million, and $54.0 million for the years ended December 31, 2012, 2011 and 2010, respectively.
We include within the cost of property, plant and equipment interest costs incurred while an asset is being constructed. We capitalized $0.8 million of interest costs during the year ended December 31, 2012 and $1.0 million during the year ended December 31, 2011.
Goodwill and Other Intangible Assets
Goodwill and Other Intangible Assets
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
Goodwill relates to the following segment (in thousands):
 
December 31,
2012
 
December 31,
2011
SemMexico
$
9,884

 
$
9,453


In addition to the amounts in the table above, approximately $65.4 million of our investment in NGL Energy and its general partner and approximately $8.7 million of our investment in White Cliffs represent equity method goodwill.
As described in Note 3, we test goodwill for impairment annually, or more often if circumstances warrant. To perform these tests, we must determine which asset groups the goodwill relates to (such asset groups are referred to as reporting units). SemMexico represents a separate reporting unit. To estimate the fair value of our SemMexico reporting unit, we used two generally accepted valuation approaches, an income approach and a market approach, using assumptions consistent with a market participant’s perspective. Under the income approach, we utilize a discounted cash flow analysis to determine the estimated fair value of our SemMexico reporting unit. Significant judgments and assumptions including the discount rate, anticipated revenue growth rate and gross margins, estimated operating and interest expense, and capital expenditures are inherent in these fair value estimates, which are based on our operating and capital budgets as well as strategic plans. A significant underlying assumption in our strategic plan is that the Mexican government will continue current spending levels for the maintenance and construction of its national road infrastructure (requiring asphalt). If current spending levels by the Mexican government decreased, the impact would negatively affect our key assumptions and could trigger an impairment. At October 1, 2012, fair value exceeded carrying value by 1%.
Under the market approach, we apply multiples to forecasted cash flows from certain guideline public companies in our industry.
For the October 1, 2012 goodwill impairment tests, we developed estimates of cash flows for SemMexico for a period of 18 years, and also developed an estimated terminal value using an assumed 3% growth rate. We discounted the estimated cash flows to present value using a discount rate of 12.2% for SemMexico.
Changes in goodwill balances during the period from December 31, 2009 to December 31, 2012 are shown below (in thousands):
Balance, December 31, 2009
$
186,844

Impairments (Note 6)
(61,173
)
Deconsolidation of White Cliffs (Note 5)
(17,000
)
Currency translation adjustments
(848
)
Balance, December 31, 2010
107,823

Impairments (Note 6)
(47,804
)
Contribution of SemStream assets to NGL Energy (Note 5)
(50,071
)
Currency translation adjustments
(495
)
Balance, December 31, 2011
9,453

Currency translation adjustments
431

Balance, December 31, 2012
$
9,884


For U.S. federal income tax purposes, goodwill is amortized on a straight-line basis over 15 years.
Other intangible assets
Other intangible assets relate to the following segments (in thousands):
 
December 31,
2012
 
December 31,
2011
SemMexico
$