Note 14. Business Segments

We have six reportable business segments: (i) NGL Pipelines & Services; (ii) Onshore Natural Gas Pipelines & Services; (iii) Onshore Crude Oil Pipelines & Services; (iv) Offshore Pipelines & Services; (v) Petrochemical & Refined Products Services; and (vi) Other Investments. Our business segments are generally organized and managed according to the type of services rendered (or technologies employed) and products produced and/or sold.

We evaluate segment performance based on the non-GAAP financial measure of gross operating margin. Gross operating margin (either in total or by individual segment) is an important performance measure of the core profitability of our operations. This measure forms the basis of our internal financial reporting and is used by our management in deciding how to allocate capital resources among business segments. We believe that investors benefit from having access to the same financial measures that our management uses in evaluating segment results. The GAAP financial measure most directly comparable to total segment gross operating margin is operating income. Our non-GAAP financial measure of total segment gross operating margin should not be considered an alternative to GAAP operating income.

We define total segment gross operating margin as operating income before: (i) depreciation, amortization and accretion expenses; (ii) non-cash asset impairment charges; (iii) operating lease expenses for which we did not have the payment obligation (e.g., the EPCO retained leases); (iv) gains and losses from asset sales and related transactions; and (v) general and administrative costs. Gross operating margin by segment is calculated by subtracting segment operating costs and expenses (net of the adjustments noted above) from segment revenues, with both segment totals before the elimination of intercompany transactions. In accordance with GAAP, intercompany accounts and transactions are eliminated in the preparation of our consolidated financial statements. Gross operating margin is exclusive of other income and expense transactions, provision for income taxes, the cumulative effect of changes in accounting principles and extraordinary charges. Gross operating margin is presented on a 100% basis before any allocation of earnings to noncontrolling interests.

Segment revenues include intersegment and intrasegment transactions, which are generally based on transactions made at market-based rates. Our consolidated revenues reflect the elimination of intercompany transactions. Substantially all of our consolidated revenues are earned in the U.S. and derived from a wide customer base. Our largest non-affiliated customer for 2011, 2010 and 2009 was Shell Oil Company and its affiliates, which accounted for 10.6%, 9.4% and 9.8% of our consolidated revenues, respectively.

We include equity in income of unconsolidated affiliates in our measurement of segment gross operating margin and operating income. Our equity investments with industry partners are a vital component of our business strategy. They are a means by which we conduct our operations to align our interests with those of our customers and/or suppliers. This method of operation enables us to achieve favorable economies of scale relative to the level of investment and business risk assumed versus what we could accomplish on a standalone basis. Many of these businesses perform supporting or complementary roles to our other business operations.

Our integrated midstream energy asset system (including the midstream energy assets of our equity method investees) provides services to producers and consumers of natural gas, NGLs, crude oil, refined products and certain petrochemicals. In general, hydrocarbons enter our asset system in a number of ways, such as an offshore natural gas or crude oil pipeline, an offshore platform, a natural gas processing plant, an onshore natural gas gathering pipeline, an onshore crude oil pipeline or terminal, an NGL fractionator, an NGL storage facility or an NGL transportation or distribution pipeline. Many of our equity investees are included within our integrated midstream asset system. For example, we have ownership interests in several offshore Gulf of Mexico natural gas, refined products and crude oil pipelines. Other examples include our use of the Promix NGL fractionator to process mixed NGLs extracted by our gas plants and our use of the Centennial pipeline to loop the Products Pipeline System. Given the integral nature of our equity method investees to our operations, we believe the presentation of equity earnings from such investees as a component of gross operating margin and operating income is meaningful and appropriate.

Segment assets consist of property, plant and equipment, investments in unconsolidated affiliates, intangible assets and goodwill. The carrying values of such amounts are assigned to each segment based on each asset's or investment's principal operations and contribution to the gross operating margin of that particular segment. Since construction-in-progress amounts (a component of property, plant and equipment) generally do not contribute to segment gross operating margin, such amounts are excluded from segment asset totals until they are placed in service. Intangible assets and goodwill are assigned to each segment based on the classification of the assets to which they relate. Substantially all of our plants, pipelines and other fixed assets are located in the U.S.

The following table shows our measurement of total segment gross operating margin for the periods presented:

	For Year Ended December 31,
	2011			2010			2009
Revenues	$	44,313.0		$	33,739.3		$	25,510.9
Less: Operating costs and expenses		(41,318.5	)		(31,449.3	)		(23,565.8	)
Add: Equity in income of unconsolidated affiliates		46.4			62.0			92.3
Depreciation, amortization and accretion in operating costs and expenses (1)		958.7			936.3			809.3
Non-cash asset impairment charges		27.8			8.4			33.5
Operating lease expenses paid by EPCO		0.3			0.7			0.7
Gains from asset sales and related transactions in operating costs and expenses (2)		(156.0	)		(44.4	)		--
Total segment gross operating margin	$	3,871.7		$	3,253.0		$	2,880.9

(1) Amount is a component of “Depreciation, amortization and accretion” as presented on the Statements of Consolidated Cash Flows. (2) Amount is a component of “Gains from asset sales” as presented on the Statements of Consolidated Cash Flows.

The following table presents a reconciliation of total segment gross operating margin to operating income and further to income before provision for income taxes for the periods presented:

	For Year Ended December 31,
	2011			2010			2009
Total segment gross operating margin	$	3,871.7		$	3,253.0		$	2,880.9
Adjustments to reconcile total segment gross operating margin to operating income:
Depreciation, amortization and accretion in operating costs and expenses		(958.7	)		(936.3	)		(809.3	)
Non-cash asset impairment charges		(27.8	)		(8.4	)		(33.5	)
Operating lease expenses paid by EPCO		(0.3	)		(0.7	)		(0.7	)
Gains from asset sales and related transactions in operating costs and expenses		156.0			44.4			--
General and administrative costs		(181.8	)		(204.8	)		(182.8	)
Operating income		2,859.1			2,147.2			1,854.6
Other expense, net		(743.6	)		(737.4	)		(689.0	)
Income before provision for income taxes	$	2,115.5		$	1,409.8		$	1,165.6

Information by business segment, together with reconciliations to our consolidated totals, is presented in the following table:

	Reportable Segments
	NGL Pipelines & Services		Onshore Natural Gas Pipelines & Services		Onshore Crude Oil Pipelines & Services			Offshore Pipelines & Services		Petrochemical & Refined Products Services			Other Investments			Adjustments and Eliminations			Consolidated Totals
Revenues from third parties:
Year ended December 31, 2011	$	16,938.1	$	3,510.0	$	16,061.0		$	246.4	$	6,782.4		$	--		$	--		$	43,537.9
Year ended December 31, 2010		13,736.8		3,479.4		10,794.7			300.3		4,729.7			--			--			33,040.9
Year ended December 31, 2009		11,928.3		2,938.7		7,191.2			332.9		2,520.8			--			--			24,911.9
Revenues from related parties:
Year ended December 31, 2011		545.2		220.2		0.1			9.6		--			--			--			775.1
Year ended December 31, 2010		465.7		222.2		0.1			10.4		--			--			--			698.4
Year ended December 31, 2009		380.7		211.2		(0.2	)		7.0		0.3			--			--			599.0
Intersegment and intrasegment revenues:
Year ended December 31, 2011		13,657.7		1,131.8		4,904.3			6.6		1,799.1			--			(21,499.5	)		--
Year ended December 31, 2010		10,209.9		900.8		927.0			3.6		1,106.7			--			(13,148.0	)		--
Year ended December 31, 2009		6,865.5		515.3		47.6			1.3		612.3			--			(8,042.0	)		--
Total revenues:
Year ended December 31, 2011		31,141.0		4,862.0		20,965.4			262.6		8,581.5			--			(21,499.5	)		44,313.0
Year ended December 31, 2010		24,412.4		4,602.4		11,721.8			314.3		5,836.4			--			(13,148.0	)		33,739.3
Year ended December 31, 2009		19,174.5		3,665.2		7,238.6			341.2		3,133.4			--			(8,042.0	)		25,510.9
Equity in income (loss) of unconsolidated affiliates:
Year ended December 31, 2011		21.8		5.5		(4.1	)		27.1		(18.7	)		14.8			--			46.4
Year ended December 31, 2010		17.7		4.6		6.7			44.8		(9.0	)		(2.8	)		--			62.0
Year ended December 31, 2009		11.3		4.9		9.3			36.9		(11.2	)		41.1			--			92.3
Gross operating margin:
Year ended December 31, 2011		2,184.2		675.3		234.0			228.2		535.2			14.8			--			3,871.7
Year ended December 31, 2010		1,732.6		527.2		113.7			297.8		584.5			(2.8	)		--			3,253.0
Year ended December 31, 2009		1,628.7		501.5		164.4			180.5		364.7			41.1			--			2,880.9
Segment assets:
At December 31, 2011		7,966.4		9,949.6		944.6			2,000.9		3,769.5			1,023.1			2,145.6			27,799.7
At December 31, 2010		7,665.5		8,184.8		917.5			2,004.9		3,758.7			1,436.8			1,607.2			25,575.4
At December 31, 2009		7,191.2		6,918.7		865.4			2,121.4		3,359.0			1,525.6			1,207.2			23,188.5
Property, plant and equipment, net: (see Note 8)
At December 31, 2011		7,137.8		8,495.4		456.9			1,416.4		2,539.5			--			2,145.6			22,191.6
At December 31, 2010		6,813.1		6,595.0		427.9			1,390.9		2,498.8			--			1,607.2			19,332.9
At December 31, 2009		6,392.8		6,074.6		377.4			1,480.9		2,156.3			--			1,207.2			17,689.2
Investments in unconsolidated affiliates: (see Note 9)
At December 31, 2011		146.1		30.1		170.7			424.9		64.7			1,023.1			--			1,859.6
At December 31, 2010		131.5		32.6		172.2			443.2		76.8			1,436.8			--			2,293.1
At December 31, 2009		141.6		32.0		178.5			456.9		81.6			1,525.6			--			2,416.2
Intangible assets, net: (see Note 11)
At December 31, 2011		341.3		1,127.8		5.8			77.5		103.8			--			--			1,656.2
At December 31, 2010		379.7		1,246.1		6.2			88.7		121.0			--			--			1,841.7
At December 31, 2009		315.6		527.2		6.5			101.5		114.0			--			--			1,064.8
Goodwill: (see Note 11)
At December 31, 2011		341.2		296.3		311.2			82.1		1,061.5			--			--			2,092.3
At December 31, 2010		341.2		311.1		311.2			82.1		1,062.1			--			--			2,107.7
At December 31, 2009		341.2		284.9		303.0			82.1		1,007.1			--			--			2,018.3

The following table provides additional information regarding our consolidated revenues and costs and expenses for the periods presented:

	For Year Ended December 31,
	2011			2010			2009
NGL Pipelines & Services:
Sales of NGLs and related products	$	16,724.6		$	13,449.4		$	11,600.7
Midstream services		758.7			753.1			708.3
Total		17,483.3			14,202.5			12,309.0
Onshore Natural Gas Pipelines & Services:
Sales of natural gas		2,866.5			2,928.7			2,410.5
Midstream services		863.7			772.9			739.4
Total		3,730.2			3,701.6			3,149.9
Onshore Crude Oil Pipelines & Services:
Sales of crude oil		15,962.6			10,710.4			7,110.6
Midstream services		98.5			84.4			80.4
Total		16,061.1			10,794.8			7,191.0
Offshore Pipelines & Services:
Sales of natural gas		1.1			1.3			1.2
Sales of crude oil		9.4			9.5			5.3
Midstream services		245.5			299.9			333.4
Total		256.0			310.7			339.9
Petrochemical & Refined Products Services:
Sales of petrochemicals and refined products		6,000.6			4,009.1			1,991.8
Midstream services		781.8			720.6			529.3
Total		6,782.4			4,729.7			2,521.1
Total consolidated revenues	$	44,313.0		$	33,739.3		$	25,510.9

Consolidated costs and expenses
Operating costs and expenses:
Cost of sales related to our marketing activities	$	34,086.8		$	25,885.2		$	18,656.7
Depreciation, amortization and accretion		958.7			936.3			809.3
Gains from asset sales and related transactions		(156.0	)		(44.4	)		--
Non-cash asset impairment charges		27.8			8.4			33.5
Other operating costs and expenses		6,401.2			4,663.8			4,066.3
General and administrative costs		181.8			204.8			182.8
Total consolidated costs and expenses	$	41,500.3		$	31,654.1		$	23,748.6

Changes in our revenues and operating costs and expenses year-to-year are explained in part by changes in energy commodity prices. In general, higher energy commodity prices result in an increase in our revenues attributable to the sale of NGLs, natural gas, crude oil, petrochemicals and refined products; however, these higher commodity prices also increase the associated cost of sales as purchase costs rise.