(4) Goodwill and Intangible Assets

Goodwill

Goodwill is the cost of an acquisition less the fair value of the net identifiable assets of the acquired business. The fair value of goodwill is based on inputs that are not observable in the market and thus represent Level 3 inputs. We evaluate goodwill for impairment annually as of October 31, and whenever events or changes in circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount. We first assess qualitative factors to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as the basis for determining whether it is necessary to perform the two-step goodwill impairment test. We may elect to perform the two-step goodwill impairment test without completing a qualitative assessment. If a two-step goodwill impairment test is elected or required, the first step involves comparing the fair value of the reporting unit to its carrying amount. If the carrying amount of a reporting unit exceeds its fair value, the second step of the process involves comparing the implied fair value of goodwill to the carrying value of the goodwill for that reporting unit. If the carrying value of the goodwill of a reporting unit exceeds the implied fair value of that goodwill, the excess of the carrying value over the implied fair value is recognized as an impairment loss.

We perform our goodwill assessments at the reporting unit level for all reporting units. The Partnership uses a discounted cash flow analysis to perform the assessments. Key assumptions in the analysis include the use of an appropriate discount rate, terminal year multiples, and estimated future cash flows including volume and price forecasts and estimated operating and general and administrative costs. In estimating cash flows, the Partnership incorporates current and historical market and financial information, among other factors. We also have goodwill related to our investment in the Partnership that is included in our Corporate segment. We utilize the publicly traded market value of our common units, adjusted for our estimated control premium, in our Corporate level goodwill assessment.

Our impairment determinations involved significant assumptions and judgments, as discussed above. Differing assumptions regarding any of these inputs could have a significant effect on the various valuations. If actual results are not consistent with our assumptions and estimates, or assumptions and estimates change due to new information, we may be exposed to additional goodwill impairment charges, which would be recognized in the period in which the carrying value exceeds fair value.

Impairment Analysis for the Year Ended December 31, 2015

During the third quarter of 2015, we determined that sustained weakness in the overall energy sector, driven by low commodity prices together with a decline in our unit price, caused a change in circumstances warranting an interim impairment test. We also performed our annual impairment analysis during the fourth quarter of 2015. Although our established annual effective date for this goodwill analysis is October 31, we updated the effective date for this impairment analysis for the 2015 annual period to December 31, 2015 due to continued declines in commodity prices and our unit price during the fourth quarter of 2015.

Using the fair value approaches described above, in step one of the goodwill impairment test, the Partnership determined that the estimated fair values of its Louisiana, Texas and Crude and Condensate reporting unit were less than their carrying amounts, primarily related to commodity prices, volume forecasts and discount rates. The second step of the goodwill impairment test measures the amount of impairment loss and allocated the estimated fair value of the reporting unit among all of the assets and liabilities of the reporting unit as if the reporting unit had been acquired in a business combination. Based on this analysis, a goodwill impairment loss for its Louisiana, Texas, and Crude and Condensate reporting units in the amount of $1,328.2 million was recognized for the year ended December 31, 2015 and is included as an impairment loss in the consolidated statements of operations.

The Partnership concluded that the fair value of goodwill for its Oklahoma reporting unit exceeded its carrying value, and the amount of goodwill disclosed on the consolidated balance sheet associated with this remaining reporting unit was recoverable. Therefore, no other goodwill impairment was identified or recorded for this reporting unit as a result of our annual goodwill assessment.

Impairment Analysis for the Year Ended December 31, 2016

During February 2016, we determined that continued further weakness in the overall energy sector, driven by low commodity prices together with a further declines in our unit price and the Partnership unit price subsequent to year-end, caused a change in circumstances warranting an interim impairment test. Based on these triggering events, we performed a goodwill impairment analysis in the first quarter of 2016 on all reporting units. Based on this analysis, a goodwill impairment loss for the Texas, Crude and Condensate, and Corporate reporting units in the amount of $873.3 million was recognized in the first quarter of 2016 and is included as an impairment loss in the consolidated statement of operations for the year ended December 31, 2016.

The Partnership concluded that the fair value of its Oklahoma reporting unit exceeded its carrying value, and the amount of goodwill disclosed on the consolidated balance sheet associated with this reporting unit is recoverable. Therefore, no other goodwill impairment was identified or recorded for this reporting unit as a result of their goodwill impairment analysis.

During our annual impairment test for 2016 performed as of October 31, 2016, it determined that no further impairments were required for the year ended December 31, 2016. The estimated fair value of our reporting units may be impacted in the future by a further decline in our unit price or a continuing prolonged period of lower commodity prices which may adversely affect its estimate of future cash flows, both of which could result in future goodwill impairment charges for its reporting units.

The table below provides a summary of our change in carrying amount of goodwill (in millions), by assigned reporting unit:


							Crude and
	Texas		Louisiana		Oklahoma		Condensate		Corporate		Totals
Year Ended December 31, 2016
Balance, beginning of period	$	703.5	$	—	$	190.3	$	93.2	$	1,426.9	$	2,413.9
Impairment		(473.1)		—		—		(93.2)		(307.0)		(873.3)
Acquisition adjustment		1.6		—		—		—		—		1.6
Balance, end of period	$	232.0	$	—	$	190.3	$	—	$	1,119.9	$	1,542.2

Year Ended December 31, 2015
Balance, beginning of period	$	1,168.2	$	786.8	$	190.3	$	112.5	$	1,427	$	3,684.7
Acquisitions (1)		27.8		—		—		29.6		—		57.4
Impairment		(492.5)		(786.8)		—		(48.9)		—		(1,328.2)
Balance, end of period	$	703.5	$	—	$	190.3	$	93.2	$	1,426.9	$	2,413.9

(1)

See “Note 3—Acquisitions” for further discussion.

Intangible Assets

Intangible assets associated with customer relationships are amortized on a straight-line basis over the expected period of benefits of the customer relationships, which range from 10 to 20 years.

During 2016 and 2015, we reviewed our various assets groups for impairment due to the triggering events described in the goodwill impairment analysis above. During 2015, the undiscounted cash flows related to one of its assets groups in the Crude and Condensate segment were not in excess of its related carrying value. The Partnership estimated the fair value of this reporting unit and determined the fair of the intangible assets was not in excess of its carrying value. This resulted in a $223.1 million impairment of intangible assets in its Crude and Condensate segment, and this non-cash impairment charge is included as an impairment loss on the consolidated statements of operations for the year ended December 31, 2015. During 2016, the undiscounted cash flows of the Partnership’s assets exceeded its carrying values, and no impairment was recorded. The Partnership utilized Level 3 fair value measurements in its impairment analysis of this definite-lived intangible asset, which included discounted cash flow assumptions by management consistent with those utilized in its goodwill impairment analysis.

The following table represents the Partnership’s change in carrying value of intangible assets for the periods stated (in millions):


	Gross				Net
	Carrying		Accumulated		Carrying
	Amount		Amortization		Amount
Year Ended December 31, 2016
Customer relationships, beginning of period	$	744.5	$	(54.6)	$	689.9
Acquisitions		1,051.3		—		1,051.3
Amortization expense		—		(117.0)		(117.0)
Customer relationships, end of period	$	1,795.8	$	(171.6)	$	1,624.2

Year Ended December 31, 2015
Customer relationships, beginning of period	$	569.5	$	(36.5)	$	533.0
Acquisitions		436.0		—		436.0
Amortization expense		—		(56.0)		(56.0)
Impairment		(261.0)		37.9		(223.1)
Customer relationships, end of period	$	744.5	$	(54.6)	$	689.9

The weighted average amortization period for intangible assets is 13.7 years. Amortization expense for intangibles was approximately $117.0 million, $56.0 million, and $36.5 million for the years ended December 31, 2016, 2015 and 2014, respectively.

The following table summarizes the Partnership’s estimated aggregate amortization expense for the next five years (in millions):


2017	$	117.9
2018		117.9
2019		117.9
2020		117.9
2021		117.9
Thereafter		1,034.7
Total	$	1,624.2