DCP SOUTHEAST TEXAS HOLDINGS, GP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Years Ended December 31, 2011, 2010 and 2009
Cash and Cash Equivalents
— Cash and cash equivalents include all cash balances and investments in
highly liquid financial instruments purchased with an original stated maturity of 90 days or less.
Inventories
— Inventories consist primarily of natural gas held in storage for transportation and sales
commitments. Inventories are recorded at the lower of weighted-average cost or market value. Transportation
costs are included in inventory.
Property, Plant and Equipment
— Property, plant and equipment are recorded at historical cost. The cost
of maintenance and repairs, which are not significant improvements, are expensed when incurred. Depreciation
is computed using the straight-line method over the estimated useful lives of the assets.
Asset Retirement Obligations —
Asset retirement obligations, or AROs, associated with tangible long-
lived assets are recorded at fair value in the period in which they are incurred, if a reasonable estimate of fair
value can be made, and added to the carrying amount of the associated asset. This additional carrying amount is
then depreciated over the life of the asset. The liability is determined using a risk free interest rate, and
increases due to the passage of time based on the time value of money until the obligation is settled.
Our asset retirement obligations relate primarily to the retirement of various gathering pipelines and
processing facilities, obligations related to right-of-way easement agreements and contractual leases for land
use. We adjust our AROs for any liabilities incurred or settled during the period, accretion expense and any
revisions made to the estimated cash flows.
Goodwill and Intangible Assets
— Goodwill is the cost of an acquisition less the fair value of the net
assets and liabilities assumed of the acquired business. We perform an annual impairment test of goodwill in
the third quarter, and update the test during interim periods when we believe events or changes in circumstances
indicate that we may not be able to recover the carrying value of a reporting unit. We use a discounted cash
flow analysis to perform the assessment. Key assumptions in the analysis include the use of an appropriate
discount rate, estimated future cash flows and an estimate of operating and general and administrative costs. In
estimating cash flows, we incorporate current market information, as well as historical and other factors, into
our forecasted commodity prices. If actual results are not consistent with our assumptions and estimates, or our
assumptions and estimates change due to new information, we may be exposed to goodwill impairment charges,
which would be recognized in the period in which the carrying value exceeds fair value.
Intangible assets consist primarily of customer contracts. These intangible assets are amortized on a
straight-line basis over the term of the contract or anticipated relationship. Intangible assets are removed from
the gross carrying amount and the total of accumulated amortization in the period in which they become fully
amortized.
Long-Lived Assets
— We evaluate whether the carrying value of long-lived assets has been impaired
when circumstances indicate the carrying value of those assets may not be recoverable. This evaluation is based
on undiscounted cash flow projections. The carrying amount is not recoverable if it exceeds the sum of the
undiscounted cash flows expected to result from the use and eventual disposition of the asset. We consider
various factors when determining if these assets should be evaluated for impairment, including but not limited
to:
• significant adverse change in legal factors or business climate;
• a current-period operating or cash flow loss combined with a history of operating or cash flow losses, or
a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset;
• an accumulation of costs significantly in excess of the amount originally expected for the acquisition or
construction of a long-lived asset;
• significant adverse changes in the extent or manner in which an asset is used, or in its physical
condition;
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