SEMGROUP CORP, 10-K filed on 2/27/2015
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2014
Jun. 30, 2014
Jan. 30, 2015
Class A [Member]
Jan. 30, 2015
Class B
Document Type
10-K 
 
 
 
Amendment Flag
false 
 
 
 
Document Period End Date
Dec. 31, 2014 
 
 
 
Document Fiscal Period Focus
FY 
 
 
 
Document Fiscal Year Focus
2014 
 
 
 
Entity Registrant Name
SemGroup Corporation 
 
 
 
Entity Central Index Key
0001489136 
 
 
 
Current Fiscal Year End Date
--12-31 
 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
 
Entity Common Stock, Shares Outstanding
 
 
43,825,556 
Entity Well-known Seasoned Issuer
Yes 
 
 
 
Entity Public Float
 
$ 3,333,280,930 
 
 
Entity Current Reporting Status
Yes 
 
 
 
Entity Voluntary Filers
No 
 
 
 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2014
Dec. 31, 2013
Current assets:
 
 
Cash and cash equivalents
$ 40,598 
$ 79,351 
Restricted cash
6,980 
5,119 
Accounts receivable (net of allowance of $3,260 and $3,661 at December 31, 2014 and 2013, respectively)
351,334 
323,965 
Receivable from affiliates
16,819 
67,273 
Inventories
43,532 
44,295 
Other current assets
20,017 
14,011 
Total current assets
479,280 
534,014 
Property, plant and equipment (net of accumulated depreciation of $245,629 and $188,720 at December 31, 2014 and 2013, respectively)
1,256,825 
1,105,728 
Equity method investments
577,920 
565,124 
Goodwill
58,326 
62,021 
Other intangible assets (net of accumulated amortization of $20,545 and $12,655 at December 31, 2014 and 2013, respectively)
173,065 
174,838 
Other noncurrent assets, net
44,386 
28,889 
Total assets
2,589,802 
2,470,614 
Current liabilities:
 
 
Accounts payable
257,177 
254,467 
Payable to affiliates
13,460 
62,279 
Accrued liabilities
92,694 
83,429 
Payables to pre-petition creditors
3,129 
3,177 
Warrant liability
58,134 
Deferred revenue
23,688 
25,538 
Other current liabilities
1,474 
12,153 
Current portion of long-term debt
40 
37 
Total current liabilities
391,662 
499,214 
Long-term debt
767,092 
615,088 
Deferred income taxes
161,956 
100,945 
Other noncurrent liabilities
49,655 
41,504 
Commitments and contingencies (Note 17)
   
   
SemGroup Corporation owners’ equity:
 
 
Common stock, $0.01 par value (authorized - 100,000 shares; issued - 44,689 and 42,898 shares, respectively)
436 
425 
Additional paid-in capital
1,245,877 
1,154,516 
Treasury stock, at cost (862 and 437 shares, respectively)
(1,332)
(613)
Accumulated deficit
(68,332)
(97,572)
Accumulated other comprehensive loss
(27,141)
(2,854)
Total SemGroup Corporation owners’ equity
1,149,508 
1,053,902 
Noncontrolling interests in consolidated subsidiaries
69,929 
159,961 
Total owners’ equity
1,219,437 
1,213,863 
Total liabilities and owners’ equity
$ 2,589,802 
$ 2,470,614 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Per Share data, unless otherwise specified
Dec. 31, 2014
Dec. 31, 2013
Allowance for doubtful accounts
$ 3,260 
$ 3,661 
Accumulated depreciation
245,629 
188,720 
Accumulated amortization on other intangible assets
$ 20,545 
$ 12,655 
Par value per share
$ 0.01 
$ 0.01 
Common stock shares authorized
100,000 
100,000 
Common stock shares issued
44,689 
42,898 
Treasury Stock, Shares
862 
437 
Consolidated Statements of Operations and Comprehensive Income (Loss) (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2012
Revenues:
 
 
 
Product
$ 1,780,314 
$ 1,145,104 
$ 953,738 
Service
233,239 
140,198 
117,721 
Other
109,026 
141,714 
166,038 
Total revenues
2,122,579 
1,427,016 
1,237,497 
Expenses:
 
 
 
Costs of products sold, exclusive of depreciation and amortization shown below
1,623,358 
1,020,100 
874,885 
Operating
246,613 
223,585 
224,700 
General and administrative
87,845 
78,597 
71,918 
Depreciation and amortization
98,397 
66,409 
48,210 
Loss (gain) on disposal or impairment of long-lived assets, net
(32,592)
239 
3,531 
Total expenses
2,088,805 
1,388,452 
1,216,182 
Earnings from equity method investments
64,199 
52,477 
36,036 
Gain on issuance of common units by equity method investee
29,020 
26,873 
Operating income (loss)
126,993 
117,914 
57,351 
Other expenses (income):
 
 
 
Interest expense
49,044 
25,142 
8,902 
Foreign currency transaction loss (gain)
(86)
(1,633)
298 
Other expense (income), net
(20,536)
45,906 
21,271 
Total other expenses, net
28,422 
69,415 
30,471 
Income from continuing operations before income taxes
98,571 
48,499 
26,880 
Income tax expense (benefit)
46,513 
(17,254)
(2,078)
Income from continuing operations
52,058 
65,753 
28,958 
Income (loss) from discontinued operations, net of income taxes
(1)
59 
2,939 
Net income
52,057 
65,812 
31,897 
Less: net income attributable to noncontrolling interests
22,817 
17,710 
9,797 
Net income (loss) attributable to SemGroup
29,240 
48,102 
22,100 
Other comprehensive income (loss):
 
 
 
Currency translation adjustments
(20,551)
(6,363)
12,635 
Other, net of income tax
(3,736)
4,808 
(59)
Total other comprehensive income (loss)
(24,287)
(1,555)
12,576 
Comprehensive income (loss)
27,770 
64,257 
44,473 
Less: comprehensive income attributable to noncontrolling interests
22,817 
17,710 
9,797 
Comprehensive income (loss) attributable to SemGroup
$ 4,953 
$ 46,547 
$ 34,676 
Net income per common share (Note 19):
 
 
 
Basic
$ 0.69 
$ 1.14 
$ 0.53 
Diluted
$ 0.68 
$ 1.13 
$ 0.52 
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]
Beginning Balance at Dec. 31, 2011
$ 978,665 
$ 418 
$ 1,032,365 
$ 0 
$ (167,812)
$ (13,875)
$ 127,569 
Net income (loss)
31,897 
22,100 
9,797 
Other comprehensive income (loss), net of income taxes
12,576 
12,576 
Distributions to noncontrolling interests
(8,502)
(8,502)
Non-cash equity compensation
6,503 
6,195 
308 
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 
Net income (loss)
65,812 
48,102 
17,710 
Other comprehensive income (loss), net of income taxes
(1,555)
(1,555)
Distributions to noncontrolling interests
(17,647)
(17,647)
Non-cash equity compensation
7,330 
6,524 
806 
Warrants exercised
21,379 
21,375 
Issuance of common stock under compensation plans
(1)
Repurchase of common stock
(371)
(371)
Net proceeds from issuance of Rose Rock Midstream, L.P. common units
210,226 
210,226 
Transfer of SemCrude Pipeline interest to Rose Rock
(67,291)
112,929 
(180,220)
Dividends paid
(25,429)
(25,429)
Unvested dividend equivalent rights
(119)
(71)
(48)
Ending Balance at Dec. 31, 2013
1,213,863 
425 
1,154,516 
(613)
(97,572)
(2,854)
159,961 
Net income (loss)
52,057 
29,240 
22,817 
Other comprehensive income (loss), net of income taxes
(24,287)
(24,287)
Distributions to noncontrolling interests
(28,494)
(28,494)
Non-cash equity compensation
8,262 
7,319 
943 
Warrants exercised
73,017 
73,008 
Issuance of common stock under compensation plans
2,172 
2,170 
Repurchase of common stock
(719)
(719)
Transfer of SemCrude Pipeline interest to Rose Rock
(31,930)
53,243 
(85,173)
Dividends paid
(44,206)
(44,206)
Unvested dividend equivalent rights
(298)
(173)
(125)
Ending Balance at Dec. 31, 2014
$ 1,219,437 
$ 436 
$ 1,245,877 
$ (1,332)
$ (68,332)
$ (27,141)
$ 69,929 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2012
Cash flows from operating activities:
 
 
 
Net income (loss)
$ 52,057 
$ 65,812 
$ 31,897 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Net unrealized (gain) loss related to derivative instruments
(1,734)
(974)
1,196 
Depreciation and amortization
98,397 
66,409 
48,646 
Loss (gain) on disposal or impairment of long-lived assets, net
(32,592)
216 
6,621 
Equity earnings from investments
(64,199)
(52,477)
(36,036)
Gain on issuance of common units by equity method investee
(29,020)
(26,873)
Gain on sale of common units of equity method investee
(34,211)
Distributions from equity investments
85,261 
63,651 
36,440 
Amortization and write down of debt issuance costs
3,632 
2,732 
2,425 
Deferred tax expense (benefit)
36,148 
(36,274)
(11,818)
Non-cash compensation expense
8,386 
7,330 
6,503 
Excess tax benefit from equity-based awards
(1,650)
(Gain) loss on fair value of warrants
13,423 
46,433 
21,310 
Provision for uncollectible accounts receivable, net of recoveries
360 
(372)
(315)
Inventory valuation adjustment
5,667 
Currency (gain) loss
(86)
(1,633)
298 
Changes in operating assets and liabilities (Note 23)
(23,365)
39,861 
(14,283)
Net cash provided by operating activities
181,658 
173,409 
79,642 
Cash flows from investing activities:
 
 
 
Capital expenditures
(270,506)
(215,609)
(119,319)
Proceeds from sale of long-lived assets
4,445 
1,279 
2,641 
Investments in non-consolidated subsidiaries
(71,131)
(173,868)
(78,253)
Payments to acquire businesses
(44,508)
(362,456)
Proceeds from sale of common units of equity method investee
79,741 
Proceeds from sale of non-consolidated affiliate
3,500 
Proceeds from the sale of SemStream assets
12,250 
Distributions from equity method investments in excess of equity in earnings
11,734 
12,246 
17,290 
Net cash provided by (used in) investing activities
(290,225)
(738,408)
(161,891)
Cash flows from financing activities:
 
 
 
Debt issuance costs
(8,686)
(14,936)
(707)
Borrowings on debt and other obligations
1,254,244 
1,268,474 
318,000 
Principal payments on debt and other obligations
(1,102,272)
(859,412)
(222,066)
Distributions to noncontrolling interests
(28,494)
(17,647)
(8,502)
Proceeds from warrant exercises
1,451 
225 
Repurchase of common stock
(719)
(371)
(242)
Dividends paid
(44,206)
(25,429)
Proceeds from issuance of common stock under employee stock purchase plan
340 
Excess tax benefit from equity-based awards
1,650 
Proceeds from issuance of Rose Rock Midstream, L.P. common units, net of offering costs
210,226 
Net cash provided by (used in) financing activities
73,308 
561,130 
86,483 
Effect of exchange rate changes on cash and cash equivalents
(3,494)
3,191 
(610)
Change in cash and cash equivalents
(38,753)
(678)
3,624 
Change in cash and cash equivalents included in discontinued operations
2,792 
Change in cash and cash equivalents from continuing operations
(38,753)
(678)
6,416 
Cash and cash equivalents at beginning of period
79,351 
80,029 
73,613 
Cash and cash equivalents at end of period
$ 40,598 
$ 79,351 
$ 80,029 
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.
The accompanying consolidated financial statements include the activities of SemGroup Corporation and its subsidiaries. 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.
At December 31, 2014, our reportable segments include the following:
Crude conducts crude oil transportation, storage, terminalling, gathering and marketing operations in the United States. Crude’s assets include:
the 2% general partner interest and a 56.8% limited partner interest in Rose Rock Midstream, L.P. ("Rose Rock"), which owns an approximate 570-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, a crude oil storage facility in Cushing, Oklahoma with a capacity of 7.6 million barrels and a crude oil trucking fleet of over 255 transport trucks and 275 trailers;
a 51% ownership interest (through our interest in Rose Rock) in White Cliffs Pipeline, L.L.C. ("White Cliffs"), which owns a 527-mile pipeline, consisting of two 12-inch common carrier, crude oil pipelines, that transports crude oil from Platteville, Colorado to Cushing, Oklahoma (the "White Cliffs Pipeline"); and
a 50% ownership interest in Glass Mountain Pipeline LLC ("Glass Mountain"), which owns a 210-mile crude oil pipeline in western and north central Oklahoma ("the Glass Mountain Pipeline").
SemStream, which owns 6,652,101 common units representing 7.5% of the total limited partner interests, as of September 30, 2014, in NGL Energy Partners LP ("NGL Energy") (NYSE: NGL), 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 11.78% interest in the general partner of NGL Energy. We report the results of our investment in NGL Energy under the equity method 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 with a combined operating capacity of 695 million cubic feet per day.
SemGas, which provides natural gas gathering and processing services in the United States. SemGas owns and operates gathering systems and four processing plants in Oklahoma, Texas and Kansas with 388 million cubic feet per day of capacity.
SemLogistics, which provides refined product and crude oil storage services in the United Kingdom. SemLogistics owns a facility in Wales that has multi-product storage capacity of approximately 8.7 million barrels.
SemMexico, which purchases, produces, stores, and distributes liquid asphalt cement products in Mexico. SemMexico operates an in-country network of fourteen asphalt cement terminals and modification facilities, one toll manufacturing facility and one portable rail unloading facility.
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 noncontrolling 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 $209.8 million at December 31, 2014. 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
We own a 51% interest in White Cliffs. The other owners have substantive rights to participate in the management of White Cliffs. Because of this, we account for it under the equity method. In 2014 and 2013, we sold our 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.
We own general partner and limited partner interests in NGL Energy which we account for under the equity method.
We own a 50% interest in Glass Mountain which we account for under the equity method.
Discontinued operations
During 2012, we completed the disposition of SemStream's residential propane supply business in Arizona, which is accounted for as a discontinued operation (Note 8).
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; (5) valuation allowances for deferred tax assets; and (6) 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—At December 31, 2014, we had not yet completed the process of disbursing funds held in reserve accounts to settle pre-petition claims related to our predecessor's bankruptcy. Of the restricted cash balance of $7.0 million at December 31, 2014, approximately $3.8 million is restricted for this purpose. See payables to pre-petition creditors below.
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 increase 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
Trucking equipment and other
3 – 7 years
Office property and equipment
3 – 31 years


Construction in process is reclassified to the fixed asset categories above and depreciation commences once the asset has been placed in-service.
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 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.
INTANGIBLE ASSETS—Intangible assets are stated at cost, net of accumulated amortization, which is recorded on a straight-line or accelerated basis over the life of the asset. We review amortizable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If such a review should indicate that the carrying amount of amortizable intangible assets is not recoverable, we reduce the carrying amount of such assets to fair value.
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. When an equity method investee issues additional ownership interests which dilute our ownership interest, we recognize a gain or loss in our consolidated statements of operations.
For equity method investments for which we do not expect financial information to be consistently available on a timely basis to apply the equity method currently, our policy is to apply the equity method consistently on a one-quarter lag.
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 14, the fair value of commodity derivatives at December 31, 2014 and 2013 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—At December 31, 2014, we had not yet completed the process of disbursing funds held in reserve accounts to settle pre-petition claims related to our predecessor's bankruptcy. We recorded a liability of $3.1 million at December 31, 2014 associated with these obligations and a liability of $0.7 million which is associated with discontinued operations and is reported within other current liabilities. Cash is held in accounts restricted for this purpose which is included in Restricted Cash on the balance sheet. All pre-petition claims payable from these accounts have been settled and we expect to disburse the cash as soon as the accounts have been reconciled.
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.
In April 2014, the FASB issued ASU 2014-08, "Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity," which raises the threshold for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. For public entities, this ASU is effective for fiscal years beginning on or after December 15, 2014, and interim periods within those years. The Company will adopt this guidance in the first quarter of 2015. The impact is not expected to be material.
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).
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers", which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP.
The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). We are currently evaluating the impact of our pending adoption of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard in 2017.
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.
In July 2013, the FASB issued ASU 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists," which requires an unrecognized tax benefit to be classified as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except in certain circumstances. For public entities, this ASU is effective for fiscal years beginning on or after December 15, 2013, and interim periods within those years. The Company adopted this guidance in the first quarter of 2014. The impact was not material.
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.
NONCONTROLLING INTERESTS IN CONSOLIDATED SUBSIDIARIES—Noncontrolling interests represents third-party limited partner unitholders' interests in our consolidated subsidiary, Rose Rock. Rose Rock allocates net income to its limited partners based on the distributions pertaining to the current period's available cash as defined by Rose Rock's partnership agreement. After adjusting for the appropriate period's distributions, the remaining undistributed earnings or excess distributions over earnings, if any, are allocated to Rose Rock's general partner, limited partners and participating securities in accordance with the contractual terms of Rose Rock's partnership agreement and as further prescribed under the two-class method. Incentive distribution rights do not participate in undistributed earnings.
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.
On March 4, 2013, the FASB issued ASU 2013-05, "Parent's Accounting for the Cumulative Translation Adjustment Upon Derecognition of Certain Subsidiaries or Groups of Assets Within a Foreign Entity or of an Investment in a Foreign Entity - a consensus of the FASB Emerging Issues Task Force”, which indicates that the entire amount of a cumulative translation adjustment ("CTA") related to an entity's investment in a foreign entity should be released when there has been a:
sale of a subsidiary or group of net assets within a foreign entity and the sale represents the substantially complete liquidation of the investment in the foreign entity;
loss of a controlling financial interest in an investment in a foreign entity (i.e., the foreign entity is deconsolidated); or
step acquisition for a foreign entity (i.e., when an entity has changed from applying the equity method for an investment in a foreign entity to consolidating the foreign entity).
The ASU does not change the requirement to release a pro rata portion of the CTA of the foreign entity into earnings for a partial sale of an equity method investment in a foreign entity. For public entities, this ASU is effective for fiscal years beginning on or after December 15, 2013, and interim periods within those years. The Company adopted this guidance in the first quarter of 2014. The impact was not material.
Rose Rock Midstream, L.P.
Rose Rock Midstream, L.P.
ROSE ROCK MIDSTREAM, L.P.
At December 31, 2014, we owned the 2% general partner interest and a 56.8% limited partner interest that included 6,814,709 common units, 8,389,709 subordinated units and 3,750,000 Class A 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 “noncontrolling interests in consolidated subsidiaries” on our consolidated balance sheets. The portion of the net income of Rose Rock that is attributable to outside owners is reflected within “net income attributable to noncontrolling interests” in our consolidated statements of operations and comprehensive income.
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 related to the earnings for each of the following periods (in thousands, except for per unit amounts):
 
Distribution
Per Unit
 
Distributions Paid
Quarter Ended
SemGroup
Noncontrolling
Interest
Common Units
Total
Distributions
General
Partner
Incentive
Distributions
Common
Units
Subordinated
Units
December 31, 2011
$
0.0670

$
23

$

$
93

$
561

$
470

$
1,147

March 31, 2012
$
0.3725

  
$
128

$

$
517

$
3,125

$
2,607

$
6,377

June 30, 2012
$
0.3825

 
$
131

$

$
532

$
3,209

$
2,678

$
6,550

September 30, 2012
$
0.3925

 
$
134

$

$
545

$
3,294

$
2,748

$
6,721

December 31, 2012
$
0.4025

 
$
167

$

$
1,163

$
3,377

$
3,624

$
8,331

March 31, 2013
$
0.4300

 
$
179

$
41

$
1,242

$
3,607

$
3,872

$
8,941

June 30, 2013
$
0.4400

 
$
183

$
72

$
1,271

$
3,692

$
3,962

$
9,180

September 30, 2013
$
0.4500

 
$
232

$
127

$
1,301

$
3,775

$
6,189

$
11,624

December 31, 2013
$
0.4650

 
$
257

$
244

$
2,041

$
3,901

$
6,398

$
12,841

March 31, 2014
$
0.4950

 
$
278

$
488

$
2,173

$
4,153

$
6,811

$
13,903

June 30, 2014
$
0.5350

 
$
334

$
888

$
3,646

$
4,488

$
7,362

$
16,718

September 30, 2014
$
0.5750

 
$
377

$
1,835

$
3,918

$
4,824

$
7,912

$
18,866

December 31, 2014
$
0.6200

**
$
485

$
3,487

$
6,551

$
5,202

$
8,544

$
24,269


*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.
** The distribution to common unitholders related to earnings for the quarter ended December 31, 2014 was payable on February 13, 2015 to holders of record at February 3, 2015. As such, the Class A units, which converted to common units on January 1, 2015, were eligible for the distribution which is reflected in the amount paid to common unitholders.
Certain summarized balance sheet information of Rose Rock is shown below (in thousands):
 
December 31, 2014
 
December 31, 2013
Cash
$
3,666

 
$
15,459

Other current assets
270,224

 
306,128

Property, plant and equipment, net
335,910

 
311,616

Equity method investment
269,635

 
224,095

Goodwill
36,116

 
28,322

Other noncurrent assets
29,677

 
11,627

Total assets
$
945,228

 
$
897,247

Current liabilities
$
263,680

 
$
293,031

Long-term debt
432,092

 
245,088

Partners’ capital attributable to SemGroup
179,527

 
120,610

Partners’ capital attributable to noncontrolling interests
69,929

 
159,961

Noncontrolling interest in consolidated subsidiaries retained by SemGroup

 
78,557

Total liabilities and partners’ capital
$
945,228

 
$
897,247


Certain summarized income statement information of Rose Rock for the years ended December 31, 2014, 2013, and 2012 is shown below (in thousands):
 
Year Ended December 31, 2014
 
Year Ended December 31, 2013
 
Year Ended December 31, 2012
Revenue
$
1,290,644

 
$
766,526

 
$
620,417

Costs of products sold
$
1,131,362

 
$
663,759

 
$
546,966

Operating, general and administrative expenses
$
97,575

 
$
51,082

 
$
35,385

Depreciation and amortization expense
$
36,072

 
$
23,165

 
$
12,131

Earnings from equity method investment
$
57,378

 
$
17,571

 
$

Net income
$
62,577

 
$
38,005

 
$
23,954

Noncontrolling interest in consolidated subsidiaries retained by SemGroup
$
7,758

 
$
1,256

 
$

Net income attributable to Rose Rock Midstream, L.P.
$
54,819

 
$
36,749

 
$
23,954

Drop-down Transactions with Rose Rock
2014 drop-down transaction
On June 23, 2014, we contributed the remaining 33% interest in SemCrude Pipeline, L.L.C. ("SCPL") to Rose Rock in exchange for (i) cash of approximately $114.4 million, (ii) the issuance of 2.425 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 and a related issuance of general partner interest, to allow the general partner to maintain its 2% general partner interest. Subsequent to this transaction, Rose Rock owns 100% of SCPL, which owns a 51% membership interest in White Cliffs.
The Class A units were 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. The Class A units converted to common units in January 2015.
As this transaction was between parties under common control, Rose Rock recorded its interest in SCPL 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 and resulted in a $85.2 million reduction to noncontrolling interests in consolidated subsidiaries and an offsetting increase to additional paid-in capital of $53.2 million (net of tax impact of $31.9 million). This non-cash entry represents the portion of the proceeds in excess of historical cost which were attributed to Rose Rock's third-party unitholders. SemGroup used the proceeds from these transactions to pay amounts owed under its revolving credit facility.
SemGroup incurred approximately $0.9 million of expense associated with this transaction, including $0.4 million of costs incurred by Rose Rock.
2013 drop-down transactions
On January 11, 2013, we contributed a 33% interest in SCPL 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 2% general partner interest.
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 made a borrowing of $133.5 million under its revolving 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.
On December 16, 2013, we contributed an additional 33% interest in SCPL to Rose Rock in exchange for (i) cash of approximately $173.1 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 2% general partner interest. The cash consideration was funded through a borrowing under Rose Rock's credit facility.
As these transactions were between parties under common control, Rose Rock recorded its interest in SCPL at SemGroup's historical value and as such no gain was recognized by SemGroup. Proceeds in excess of the historical value were accounted for as a dividend from Rose Rock to SemGroup and resulted in a $180.2 million reduction to noncontrolling interests in consolidated subsidiaries and an offsetting increase to additional paid-in capital of $112.9 million (net of tax impact of $67.3 million). This non-cash entry represents the portion of the proceeds in excess of historical cost which were attributed to Rose Rock's third-party unitholders. SemGroup used the proceeds from these transactions to pay amounts owed under its revolving credit facility.
SemGroup incurred approximately $2.2 million of expense associated with these transactions, including expenses of Rose Rock. Rose Rock incurred $1.6 million of equity issuance costs which were offset against proceeds, $1.6 million of costs related to the January 2013 borrowing which were deferred, and $0.9 million of acquisition related costs which were expensed.
Rose Rock equity issuance
In August 2013, Rose Rock sold 4.75 million common limited partner units to third-party purchasers for $152.5 million, net of underwriting discounts and commissions. Proceeds were used to repay borrowings on the Rose Rock credit facility.
Rose Rock subsequent events
On January 1, 2015, certain operational targets were achieved by White Cliffs and all 3,750,000 Class A units held by the Company were converted to common units on a one-for-one basis. The conversion did not impact the total number of the Rose Rock's outstanding units representing limited partner interests.
On February 13, 2015, we contributed the Wattenberg Oil Trunkline and Glass Mountain Holding, LLC, which holds our 50% interest in Glass Mountain, to Rose Rock in exchange for (i) cash of approximately $251.2 million, (ii) the issuance of 1.75 million common units and (iii) 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 2% general partner interest. The cash consideration was funded through a borrowing under Rose Rock's credit facility and the issuance and sale of 2.3 million common units in an underwritten public offering for net proceeds of $89.1 million. As the acquisition was between parties under common control, Rose Rock will record its interest in acquired assets and liabilities at SemGroup's historical value and SemGroup will not recognize a gain on the transaction. Proceeds in excess of the historical value will be accounted for as a dividend from Rose Rock to SemGroup.
On February 17, 2015, certain targets specified in Rose Rock’s partnership agreement were achieved and all 8,389,709 subordinated units held by the Company were converted to common units. The conversion did not impact the total number of Rose Rock’s outstanding units representing limited partner interests.
Equity Method Investments
Equity Method Investments
EQUITY METHOD INVESTMENTS
Our equity method investments consist of the following (in thousands):
 
December 31, 2014
 
December 31, 2013
White Cliffs
$
269,635

 
$
224,095

NGL Energy
162,246

 
208,848

Glass Mountain
146,039

 
132,181

Total equity method investments
$
577,920

 
$
565,124


Our earnings from equity method investments consist of the following (in thousands):
 
Year Ended December 31, 2014
 
Year Ended December 31, 2013
 
Year Ended December 31, 2012
White Cliffs
$
57,378

 
$
45,459

 
$
36,439

NGL Energy*
2,343

 
7,123

 
(403
)
Glass Mountain
4,478

 
(105
)
 

Total earnings from equity method investments
$
64,199

 
$
52,477

 
$
36,036

* Excluding gains on issuance of common units of $29.0 million and $26.9 million for the years ended December 31, 2014 and 2013, respectively.
Cash distributions received from equity method investments consist of the following (in thousands):
 
Year Ended December 31, 2014
 
Year Ended December 31, 2013
 
Year Ended December 31, 2012
White Cliffs
$
66,768

 
$
57,576

 
$
44,514

NGL Energy
23,404

 
18,321

 
9,217

Glass Mountain
6,823

 

 

Total cash distributions received from equity method investments
$
96,995

 
$
75,897

 
$
53,731


White Cliffs
Certain summarized balance sheet information of White Cliffs is shown below (in thousands):
 
December 31,
2014
 
December 31,
2013
Current assets
$
35,623

 
$
98,457

Property, plant and equipment, net
471,179

 
312,831

Goodwill
17,000

 
17,000

Other intangible assets, net
16,043

 
20,802

Total assets
$
539,845

 
$
449,090

Current liabilities
$
11,108

 
$
9,648

Members’ equity
528,737

 
439,442

Total liabilities and members’ equity
$
539,845

 
$
449,090


Certain summarized income statement information of White Cliffs for the years ended December 31, 2014, 2013 and 2012 is shown below (in thousands):
 
Year Ended December 31, 2014
 
Year Ended December 31, 2013
 
Year Ended December 31, 2012
Revenue
$
160,369

 
$
133,310

 
$
108,125

Operating, general and administrative expenses
$
23,067

 
$
23,825

 
$
14,821

Depreciation and amortization expense
$
23,257

 
$
18,668

 
$
19,963

Net income
$
114,045

 
$
90,817

 
$
73,341


The equity in earnings of White Cliffs for the years ended December 31, 2014, 2013 and 2012 reported in our consolidated statements 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 members are not obligated to share. Such expenses are recorded by White Cliffs, and are allocated to our membership interests. White Cliffs recorded $1.6 million, $1.8 million and $2.0 million of such general and administrative expense for the years ended December 31, 2014, 2013 and 2012, respectively.
The members of White Cliffs are required to fund capital contribution requirements for White Cliffs related to an expansion project adding approximately 65,000 barrels per day of capacity. We expect to contribute $40.0 million for this project. The project is expected to be complete in late 2015.
In August 2014, White Cliffs completed an expansion project adding a parallel 12" pipeline from Platteville, Colorado to Cushing, Oklahoma. For the years ended December 31, 2014, 2013 and 2012, we contributed $53.3 million, $95.5 million and $2.3 million, respectively, for project funding. This expansion increased White Cliffs’ capacity to about 150,000 barrels per day and became fully operational in the third quarter of 2014.
Our membership 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 December 31, 2014 and 2013 and for each of the three years in the period ended December 31, 2014 as an exhibit to this Form 10-K.
NGL Energy
At December 31, 2014, we owned 6,652,101 common units representing limited partner interests in NGL Energy, which represents approximately 7.5% of the limited partner units of NGL Energy outstanding at September 30, 2014, and an 11.78% interest in the general partner of NGL Energy.
On October 27, 2014, we agreed to terminate our right to appoint two representatives to the Board of Directors of NGL Energy Holdings LLC, the general partner of NGL Energy, and our current representatives resigned. We no longer have significant influence over NGL Energy Holdings, LLC or NGL Energy. However, in accordance with ASC 323-30-S99-1, we have continued to account for these investments under the equity method as our ownership is above the 3 to 5 percent interest which is generally considered to be more than minor.
At December 31, 2014, the fair market value of our 6,652,101 common unit investment in NGL Energy was $186.2 million, based on a December 31, 2014 closing price of $27.99 per common unit. This does not reflect our 11.78% 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.
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, the equity in earnings from NGL Energy, which is reflected in our consolidated statements of operations and comprehensive income for the years ended December 31, 2014, 2013 and 2012 relates to the earnings of NGL Energy for the twelve months ended September 30, 2014, 2013 and 2012 respectively.
Certain unaudited summarized balance sheet information of NGL Energy is shown below (in thousands):
 
(unaudited)
 
(unaudited)
 
September 30,
2014
 
September 30,
2013
Current assets
$
2,585,053

 
$
1,013,859

Property plant and equipment, net
1,433,313

 
631,663

Goodwill
1,170,490

 
840,287

Intangible and other assets, net
1,362,823

 
540,684

Total assets
$
6,551,679

 
$
3,026,493

Current liabilities
$
1,759,980

 
$
800,658

Long-term debt
2,437,351

 
906,066

Other noncurrent liabilities
39,518

 
2,673

Equity
2,314,830

 
1,317,096

Total liabilities and equity
$
6,551,679

 
$
3,026,493


Certain unaudited summarized income statement information of NGL Energy for the twelve months ended September 30, 2014 and 2013 is shown below (in thousands):
 
(unaudited)
 Twelve Months Ended
September 30,
 2014
 
(unaudited)
Twelve Months
Ended
September 30,
2013
 
(unaudited)
Twelve Months
Ended
September 30,
2012
Revenue
$
15,748,520

 
$
5,935,715

 
$
2,371,524

Costs of products sold
$
15,054,291

 
$
5,478,361

 
$
2,182,263

Operating, general and administrative expenses
$
440,609

 
$
276,905

 
$
125,889

Depreciation and amortization expense
$
162,443

 
$
94,050

 
$
34,621

Net income
$
11,409

 
$
44,378

 
$
5,405


Our limited partnership interest was diluted in connection with NGL Energy equity offerings and equity issued as consideration for acquisitions in 2014 and 2013. Accordingly, we recorded non-cash gains of $29.0 million and $26.9 million for the years ended December 31, 2014 and 2013, respectively, related to these transactions, which are included in "gain on issuance of common units by equity method investee" in our consolidated statements of operations and comprehensive income.
During the year ended December 31, 2014, we sold 2,481,308 of our NGL Energy common units for $88.8 million, net of related costs of $3.1 million. We recorded a net gain of approximately $34.2 million in "other expense (income), net" in our consolidated statement of operations and comprehensive income.
Subsequent to December 31, 2014, we sold 999,533 of our NGL Energy common units for $29.0 million, net of related costs of $0.4 million. We realized a net gain of approximately $7.5 million as a result of these transactions.
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, 2015 and 2014 and for each of the three years in the period ended March 31, 2015 as an exhibit, when available.
Glass Mountain
We hold a 50% interest in Glass Mountain which we account for under the equity method. Glass Mountain began operations in the first quarter of 2014. We invested $16.2 million and $57.8 million in Glass Mountain for the years ended December 31, 2014 and 2013, respectively, including our capital contributions, amounts paid to acquire additional ownership interests, and capitalized interest.
The excess of the recorded amount of our investment over the book value of our share of the underlying net assets represents equity method goodwill and capitalized interest of $31.0 million and $4.1 million, respectively, at December 31, 2014. Capitalized interest is amortized as a reduction of earnings from equity method investments.
The equity in earnings of Glass Mountain for the year ended December 31, 2014 reported in our consolidated statement of operations and comprehensive income is less than 50% of the net income of Glass Mountain for the same period due to amortization of capitalized interest for the period.
Certain summarized balance sheet information of Glass Mountain is shown below (in thousands):
 
December 31,
2014
Current assets
$
8,810

Property, plant and equipment, net
215,876

Total assets
$
224,686

Current liabilities
$
2,643

Other Liabilities
42

Members’ equity
222,001

Total liabilities and members’ equity
$
224,686


Certain unaudited summarized income statement information of Glass Mountain for the year ended December 31, 2014 is shown below (in thousands):
 
Year Ended December 31, 2014
Revenue
$
30,398

Operating, general and administrative expenses
$
7,176

Depreciation and amortization expense
$
13,872

Net income
$
9,344


Our ownership interest in Glass Mountain is not significant as defined by Securities and Exchange Commission's Regulation S-X Rule 1-02(w). Accordingly, no audited financial statements of Glass Mountain pursuant to Regulation S-X 3-09 have been included as an exhibit to this Form 10-K.
Acquisitions
Business Combination Disclosure [Text Block]
ACQUISITIONS
Crude oil trucking assets
On June 24, 2014, our consolidated subsidiary, Rose Rock, acquired crude oil trucking assets from a subsidiary of Chesapeake Energy Corporation ("Chesapeake") (NYSE: CHK) for $44.0 million in cash. Highlights of the transaction include:
124 trucks, 122 trailers and miscellaneous equipment; and
a long-term transportation agreement with Chesapeake Energy Marketing, Inc.
The results of operations of these assets from June 24, 2014 through December 31, 2014 have been included in our Crude segment in our consolidated statements of operations and comprehensive income and balance sheet as of December 31, 2014. During the year ended December 31, 2014, our consolidated statements of operation and comprehensive income did not include material amounts of revenue or operating income related to these assets. The proforma impact to comparative prior year periods, had the acquisition occurred at the beginning of the comparative prior year period, is not significant.
Fair values of the acquired assets were determined based on the cost, income and market approach methodologies. The trucks and equipment acquired were valued based on the cost approach, which considers the replacement cost of the assets adjusted for depreciation and physical deterioration, and the market approach, which considers the value of transactions for comparable assets. The value of the customer contract was determined based on the income approach using the excess earnings method over the remaining life of the contract and assuming a 95% probability of renewal.
We have recorded the fair value of the assets acquired as follows (in thousands):
Property, plant and equipment
$
19,092

Customer contract intangible
17,010

Goodwill
7,892

Total assets acquired
$
43,994


The above finalized purchase price allocation resulted in adjustments to previously reported estimates. Our preliminary estimate of the value of the acquired property, plant and equipment was reduced by $2.6 million and our estimate of the value of the intangible asset was increased by $12.6 million which resulted in a decrease in the value of the associated goodwill of $10.0 million.
Goodwill represents the excess of the estimated consideration paid for the acquired business over the fair value of the individual assets acquired. Goodwill primarily represents the value of the acquired business as a platform for growth and the acquired assembled workforce.
Mid-America Midstream Gas Services, L.L.C.
On August 1, 2013, our SemGas segment acquired the equity interest of Mid-America Midstream Gas Services, L.L.C. ("MMGS"), a wholly owned subsidiary of Chesapeake, which is the owner of gas gathering and processing assets in the Mississippi Lime play for approximately $314.0 million in cash. We incurred approximately $3.6 million in transaction related general and administrative expenses. The transaction was funded through the combination of a portion of the net proceeds from the sale of $300 million of 7.50% senior unsecured notes (Note 16) and a borrowing under the revolving credit facility under SemGroup's corporate credit agreement. Highlights of the acquisition include the following:
200 miles of gathering pipeline;
Rose Valley I plant - A 200 mmcf/d (million cubic feet per day) cryogenic processing plant, placed in operation in the first quarter of 2014;
Rose Valley II plant - A 200 mmcf/d cryogenic processing plant, expected to be in operation in mid-2015;
Approximately 540,000 net acre dedication in the core of the Mississippi Lime play, supported by a joint venture between Chesapeake and Sinopec International Petroleum Exploration and Production Corporation ("Sinopec"); and
A 20-year, 100% fee based, gas gathering and processing agreement with certain affiliates of Chesapeake and Sinopec.
Fair values of the acquired assets were determined based on the cost, income and market approach methodologies. The property, plant and equipment acquired were valued based on the cost approach, which considers the replacement cost of the assets adjusted for depreciation and physical deterioration, and the market approach, which considers the value of transactions for comparable assets. The value of the customer contract was determined based on the income approach using the excess earnings method over the remaining life of the contract and assuming no renewal.
We have recorded the fair value of the assets acquired as follows (in thousands):
Property, plant and equipment
$
136,949

Customer contract intangible
164,000

Goodwill
13,052

Total assets acquired
$
314,001


Based on the final purchase price allocation, the amounts above were adjusted from those reported at December 31, 2013 by a non-cash adjustment which decreased goodwill and customer contract intangible by $10.8 million and $2.3 million, respectively, with a corresponding increase to property, plant and equipment. In addition, we recorded $0.5 million of incremental payments for property, plant and equipment, which related to the period prior to close of the transaction.
Goodwill represents the excess of the estimated consideration paid for the acquired business over the fair value of the individual assets acquired. Goodwill primarily represents the value of operational efficiencies between the acquired entity and the Company's existing assets in the area and the opportunity to use the acquired business as a platform for growth.
Barcas Field Services, LLC
On September 1, 2013, our consolidated subsidiary, Rose Rock, completed the acquisition of the assets of Barcas Field Services, LLC ("Barcas") for $49.0 million in cash. Highlights of the acquisition include the following:
114 trucks, 120 trailers and miscellaneous equipment; and
a long-term take-or-pay customer transportation agreement.

Fair values of the acquired assets were determined based on the cost, income and market approach methodologies. The trucks and equipment acquired were valued based on the cost approach which considers the replacement cost of the assets adjusted for depreciation and physical deterioration. The value of the customer contract was determined based on the income approach using the excess earnings method over the remaining life of the contract and assuming a 50% probability of renewal. The market approach which considers the value of comparable transactions was used to value the acquired land.
We have recorded the following acquisition date fair values for the assets acquired (in thousands):
Property, plant and equipment
$
13,865

Customer contract intangible
6,880

Goodwill
28,234

Total assets acquired
$
48,979


Based on the final purchase price allocation, the amounts above differ from those reported at December 31, 2013 by a non-cash adjustment which decreased goodwill and other intangible assets and increased property, plant and equipment by $0.1 million.
Goodwill represents the excess of the consideration paid for the acquired business over the fair value of the individual assets acquired. Goodwill primarily represents cost savings due to the ability to transport using the acquired trucks rather than third-party trucks, the ability to bring more volume from the field into our pipelines, the opportunity to use the acquired business as a platform for growth and the acquired assembled workforce.
NGL Energy
On August 6, 2013, we completed the acquisition of approximately 5.36% of the general partner of NGL Energy, which increased our ownership of NGL Energy's general partner to 11.78%.
Glass Mountain
In September 2012, we acquired an additional 25% ownership interest in Glass Mountain, bringing our total ownership percentage in Glass Mountain to 50%. See Note 5 for additional information related to our equity method investment in Glass Mountain.
Disposals of Long-Lived Assets
Disposals of Long-Lived Assets
DISPOSALS OR IMPAIRMENTS OF LONG-LIVED ASSETS
Year Ended December 31, 2014
On June 1, 2014, our SemGas segment sold certain natural gas gathering assets in Eastern Oklahoma resulting in a $20.1 million pre-tax loss on a cash sales price of $2.4 million. The assets sold were made up of property, plant and equipment with a net book value of $22.5 million. The loss on the sale was reported in "loss (gain) on disposal or impairment of long-lived assets, net" in the consolidated statement of operations and comprehensive income. The operations of the gas gathering assets were not material to SemGroup.
During the year ended December 31, 2014, we recorded an impairment charge of $11.9 million related to leaseholds of unproved oil and gas properties located in Kansas. These assets were written off when due to the downturn in crude oil prices and the remaining life of the leaseholds, it became apparent that these properties would not be developed. These assets were held by a subsidiary included in Corporate and Other in our segment disclosures (Note 9).
Year Ended December 31, 2013
There were no significant gains (losses) recorded during the year ended December 31, 2013 related to the disposal of long-lived assets.
Year Ended December 31, 2012
Gains (losses) recorded during the year ended December 31, 2012 related to the disposal of long-lived assets including 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.
(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 (loss) from discontinued operations, net of income taxes" in the consolidated statements of operations and comprehensive income. Property, plant, and equipment with a carrying value of $9.4 million represented the majority of assets included in the sale.
Discontinued Operations
Discontinued Operations
DISCONTINUED OPERATIONS
On December 31, 2012, we completed the sale of SemStream's Arizona residential business which was classified as a discontinued operation. The sale resulted in a gain of $3.1 million. There continues to be an insignificant amount of activity related to ongoing bankruptcy matters which is reflected in the results below and is related to operations discontinued during bankruptcy.
Certain summarized information on the results of discontinued operations is shown below (in thousands): 
 
Year Ended December 31, 2014
 
Year Ended December 31, 2013
 
Year Ended December 31, 2012
External revenue
$

 
$

 
$
13,518

Gain on disposal of long-lived assets, net
$

 
$

 
$
3,090

Income (loss) from discontinued operations before income taxes
$
(1
)
 
$
59

 
$
2,935

Income tax benefit

 

 
(4
)
Income (loss) from discontinued operations, net of income taxes
$
(1
)
 
$
59

 
$
2,939

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 Rose Rock and Glass Mountain, which have been included within the Crude segment and were aggregated based on similarity of operations, customer base and other considerations. Our equity investment NGL Energy is 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. 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, 2014
 
Crude
 
SemStream
 
SemCAMS
 
SemGas
 
SemLogistics
 
SemMexico
 
Corporate
and
Other
 
Consolidated
 
(in thousands)
Revenues:
 
External
$
1,300,050

 
$

 
$
176,724

 
$
342,286

 
$
12,650

 
$
290,869

 
$

 
$
2,122,579

Intersegment

 

 

 
37,897

 

 

 
(37,897
)
 

Total revenues
1,300,050

 

 
176,724

 
380,183

 
12,650

 
290,869

 
(37,897
)

2,122,579

Expenses:
 
 
 
 
 
 
 
 
 
 
 
 

 

Costs of products sold, exclusive of depreciation and amortization shown below
1,131,362

 

 
344

 
276,852

 
615

 
252,082

 
(37,897
)
 
1,623,358

Operating
80,793

 

 
114,587

 
32,296

 
8,361

 
10,576

 

 
246,613

General and administrative
20,351

 
83

 
17,417

 
9,228

 
6,139

 
12,125

 
22,502

 
87,845

Depreciation and amortization
40,035

 

 
14,295

 
26,353

 
10,005

 
6,031

 
1,678

 
98,397

Loss (gain) on disposal or impairment of long-lived assets, net
319

 

 
(950
)
 
20,092

 
(2,490
)
 
(53
)
 
15,674

 
32,592

Total expenses
1,272,860

 
83

 
145,693

 
364,821

 
22,630

 
280,761

 
1,957


2,088,805

Earnings from equity method investments
61,856

 
2,343

 

 

 

 

 

 
64,199

Gain on issuance of common units by equity method investee

 
29,020

 

 

 

 

 

 
29,020

Operating income (loss)
89,046


31,280


31,031


15,362


(9,980
)

10,108


(39,854
)

126,993

Other expenses (income), net
 
 
 
 
 
 
 
 
 
 
 
 

 

Interest expense (income)
31,072

 
(5,140
)
 
13,558

 
8,570

 
1,528

 
166

 
(710
)
 
49,044

Other expense (income), net
479

 
(34,212
)
 
20

 

 
796

 
(11
)
 
12,306

 
(20,622
)
Total other expenses (income)
31,551

 
(39,352
)
 
13,578

 
8,570

 
2,324

 
155

 
11,596


28,422

Income (loss) from continuing operations before income taxes
$
57,495

 
$
70,632

 
$
17,453

 
$
6,792

 
$
(12,304
)
 
$
9,953

 
$
(51,450
)

$
98,571

Additions to long-lived assets
$
127,335

 
$

 
$
35,286

 
$
166,207

 
$
2,974

 
$
9,690

 
$
1,672

 
$
343,164

Total assets at December 31, 2014 (excluding intersegment receivables)
$
1,158,639

 
$
162,246

 
$
279,191

 
$
662,223

 
$
150,498

 
$
107,225

 
$
69,780

 
$
2,589,802

Equity investments at December 31, 2014
$
415,674

 
$
162,246

 
$

 
$

 
$

 
$

 
$

 
$
577,920



 
Year Ended December 31, 2013
 
Crude
 
SemStream
 
SemCAMS
 
SemGas
 
SemLogistics
 
SemMexico
 
Corporate
and
Other
 
Consolidated
 
(in thousands)
Revenues:
 
External
$
767,202

 
$

 
$
198,450

 
$
207,134

 
$
11,671

 
$
242,559

 
$

 
$
1,427,016

Intersegment

 

 

 
23,985

 

 

 
(23,985
)
 

Total revenues
767,202




198,450


231,119


11,671


242,559


(23,985
)

1,427,016

Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Costs of products sold, exclusive of depreciation and amortization shown below
663,759

 

 
305

 
169,800

 
380

 
209,841

 
(23,985
)
 
1,020,100

Operating
36,242

 
1

 
150,319

 
20,200

 
7,444

 
9,379

 

 
223,585

General and administrative
16,766

 
600

 
14,940

 
7,971

 
5,854

 
10,700

 
21,766

 
78,597

Depreciation and amortization
23,708

 

 
10,766

 
14,517

 
9,426

 
5,991

 
2,001

 
66,409

Loss (gain) on disposal of long-lived assets, net
(56
)
 
6

 

 
665

 

 
(854
)
 

 
(239
)
Total expenses
740,419


607


176,330


213,153


23,104


235,057


(218
)

1,388,452

Earnings from equity method investments
45,354

 
7,123

 

 

 

 

 

 
52,477

Gain on issuance of common units by equity method investee

 
26,873

 

 

 

 

 

 
26,873

Operating income (loss)
72,137


33,389


22,120


17,966


(11,433
)

7,502


(23,767
)

117,914

Other expenses (income), net
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Interest expense (income)
14,923

 
(4,810
)
 
18,928

 
3,268

 
1,435

 
188

 
(8,790
)
 
25,142

Other expense (income), net
(14
)
 
128

 
(20
)
 
(3
)
 
(400
)
 
(652
)
 
45,234

 
44,273

Total other expenses (income)
14,909


(4,682
)

18,908


3,265


1,035


(464
)

36,444


69,415

Income (loss) from continuing operations before income taxes
$
57,228


$
38,071


$
3,212


$
14,701


$
(12,468
)

$
7,966


$
(60,211
)

$
48,499

Additions to long-lived assets
$
66,995

 
$

 
$
56,122

 
$
97,021

 
$
2,071

 
$
6,375

 
$
734

 
$
229,318

Total assets at December 31, 2013 (excluding intersegment receivables)
$
1,070,484

 
$
208,847

 
$
306,001

 
$
552,095

 
$
168,835

 
$
104,154

 
$
60,198

 
$
2,470,614

Equity investments at December 31, 2013
$
356,276

 
$
208,848

 
$

 
$

 
$

 
$

 
$

 
$
565,124


 
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