Note 11. Intangible Assets and Goodwill

Identifiable Intangible Assets

The following table summarizes our intangible assets by business segment at the dates indicated:

	December 31, 2012							December 31, 2011
	Gross Value		Accumulated Amortization			Carrying Value		Gross Value		Accumulated Amortization			Carrying Value
NGL Pipelines & Services:
Customer relationship intangibles	$	340.8	$	(147.6	)	$	193.2	$	340.8	$	(128.2	)	$	212.6
Contract-based intangibles		284.6		(157.2	)		127.4		298.4		(169.7	)		128.7
Segment total		625.4		(304.8	)		320.6		639.2		(297.9	)		341.3
Onshore Natural Gas Pipelines & Services:
Customer relationship intangibles		1,163.6		(250.0	)		913.6		1,163.6		(209.7	)		953.9
Contract-based intangibles		466.1		(311.8	)		154.3		464.8		(290.9	)		173.9
Segment total		1,629.7		(561.8	)		1,067.9		1,628.4		(500.6	)		1,127.8
Onshore Crude Oil Pipelines & Services:
Customer relationship intangibles		10.7		(4.9	)		5.8		9.7		(4.1	)		5.6
Contract-based intangibles		0.4		(0.3	)		0.1		0.4		(0.2	)		0.2
Segment total		11.1		(5.2	)		5.9		10.1		(4.3	)		5.8
Offshore Pipelines & Services:
Customer relationship intangibles		203.9		(138.5	)		65.4		205.8		(129.2	)		76.6
Contract-based intangibles		1.2		(0.4	)		0.8		1.2		(0.3	)		0.9
Segment total		205.1		(138.9	)		66.2		207.0		(129.5	)		77.5
Petrochemical & Refined Products Services:
Customer relationship intangibles		104.3		(33.4	)		70.9		104.3		(28.4	)		75.9
Contract-based intangibles		41.2		(5.9	)		35.3		57.6		(29.7	)		27.9
Segment total		145.5		(39.3	)		106.2		161.9		(58.1	)		103.8
Total all segments	$	2,616.8	$	(1,050.0	)	$	1,566.8	$	2,646.6	$	(990.4	)	$	1,656.2

The following table presents the amortization expense of our intangible assets by business segment for the periods presented:

	For Year Ended December 31,
	2012		2011		2010
NGL Pipelines & Services	$	39.7	$	41.1	$	40.1
Onshore Natural Gas Pipelines & Services		63.4		77.1		72.7
Onshore Crude Oil Pipelines & Services		0.9		0.4		0.4
Offshore Pipelines & Services		11.3		11.2		12.8
Petrochemical & Refined Products Services		10.4		17.2		11.6
Total	$	125.7	$	147.0	$	137.6

The following table presents our forecast of amortization expense associated with existing intangible assets for the years indicated:

2013				2014				2015				2016				2017
$	107.9			$	96.2			$	90.3			$	92.1			$	96.0

In general, our intangible assets fall within two categories – customer relationship and contract-based intangible assets. The values assigned to such intangible assets are amortized to earnings using either (i) a straight-line approach or (ii) other methods that closely resemble the pattern in which the economic benefits of associated resource bases are estimated to be consumed or otherwise used, as appropriate.

Customer relationship intangible assets. Customer relationship intangible assets represent the estimated economic value assigned to certain relationships acquired in connection with business combinations and asset purchases whereby (i) we acquired information about or access to customers and now have the ability to provide services to them and (ii) the customers now have the ability to make direct contact with us. Customer relationships may arise from contractual arrangements (such as service contracts) and through means other than contracts, such as through regular contact by sales or service representatives.

At December 31, 2012, the carrying value of our portfolio of customer relationship intangible assets was $1.25 billion. The following information summarizes the significant components of this category of intangible assets:

State Line and Fairplay customer relationships – We acquired these customer relationships in connection with our acquisition of the State Line and Fairplay natural gas gathering systems in May 2010 (see Note 10). The carrying values of these intangible assets at December 31, 2012 are presented in the following table:

	Gross Value		Accumulated Amortization			Carrying Value
State Line natural gas gathering customer relationships (1)	$	675.0	$	(52.8	)	$	622.2
Fairplay natural gas gathering customer relationships (1)		116.6		(18.2	)		98.4
Fairplay natural gas processing customer relationships (2)		103.4		(16.1	)		87.3
Total acquired customer relationships	$	895.0	$	(87.1	)	$	807.9

(1) These natural gas gathering customer relationship intangible assets are a component of our Onshore Natural Gas Pipelines & Services business segment. (2) The Fairplay natural gas processing customer relationship intangible assets are a component of our NGL Pipelines & Services business segment.

In this context, a customer relationship is broadly defined as a relationship between the natural gas gathering system and the production fields from which it gathers natural gas. Natural gas gathering systems require a significant investment, both in terms of initial construction costs and ongoing maintenance. Ownership of the gathering system creates a level of access to producers in a field analogous to having a franchise over a particular area. Efficient operation of the gathering system helps to support commercial relationships with existing producers and provides us with opportunities to establish relationships with new ones. The duration of such customer relationships are limited by the estimated economic life of the underlying resource basins.

The economic value we attributed to customer relationships acquired with the State Line and Fairplay systems was estimated using recognized business valuation techniques based on several key assumptions, which include assumptions regarding the renewal of existing gathering and processing contracts and the longevity of the underlying natural gas resource basins. In general, natural gas is gathered on the State Line and Fairplay systems under long-term contracts, which include acreage dedications and volumetric commitments from certain natural gas producers. In addition, certain contracts related to the Fairplay system include natural gas processing services. Based on our experience as a provider of natural gas gathering and processing services, we anticipate the acquired customer relationships to extend well beyond the discrete term of existing contracts.

Customer relationship intangibles related to the State Line system have an estimated economic life of 27 years through 2037. The natural gas gathering and processing customer relationships associated with the Fairplay system have an estimated economic life of 23 years through 2033. Amortization expense attributable to these customer relationships is recorded using the units-of-production method based on gathering volumes. This method of amortization allows for expense to be recorded in a manner that closely resembles the pattern in which we benefit from natural gas gathering and processing services provided to customers.

San Juan Gathering System customer relationships – We acquired these customer relationships in connection with a merger transaction completed in September 2004. At December 31, 2012, the carrying value of this group of intangible assets was $173.4 million. These intangible assets are being amortized to earnings over their estimated economic life of 35 years through 2039. Amortization expense attributable to these customer relationships is recorded using a method that closely resembles the pattern in which the economic benefits of the underlying natural gas resource basins are expected to be consumed or otherwise used.

Offshore Pipeline & Platform customer relationships – We acquired these customer relationships in connection with a merger transaction completed in September 2004. At December 31, 2012, the carrying value of this group of intangible assets was $65.4 million. These intangible assets are being amortized to earnings over their estimated economic lives, which range from 11 to 33 years (i.e., through 2015 to 2037). Amortization expense attributable to these customer relationships is recorded using a method that closely resembles the pattern in which the economic benefits of the underlying crude oil and natural gas resource basins are expected to be consumed or otherwise used.

Encinal natural gas processing customer relationship – We acquired this customer relationship in connection with our acquisition of certain South Texas assets in 2006. At December 31, 2012, the carrying value of this intangible asset was $64.1 million. This intangible asset is being amortized to earnings over its estimated economic life of 20 years through 2026. Amortization expense attributable to this customer relationships is recorded using a method that closely resembles the pattern in which the economic benefit of the underlying natural gas resource basins are expected to be consumed or otherwise used.

Contract-based intangible assets. Contract-based intangible assets represent specific commercial rights we acquired in connection with business combinations or asset purchases. At December 31, 2012, the carrying value of our contract-based intangible assets was $317.9 million. The following information summarizes the significant components of this category of intangible assets:

Jonah natural gas gathering agreements – These intangible assets represent the value attributed to certain natural gas gathering contracts on the Jonah Gathering System that were acquired by TEPPCO in 2001. At December 31, 2012, the carrying value of this group of intangible assets was $96.1 million. These intangible assets are being amortized to earnings over their estimated economic life of 40 years through 2041. Amortization expense attributable to these intangible assets is recorded using a units-of-production method based on gathering volumes.

Shell Processing Agreement – This margin-band/keepwhole natural gas processing agreement grants us the right to process Shell Oil Company's (or its assignee's) current and future natural gas production from the state and federal waters of the Gulf of Mexico. We acquired the Shell Processing Agreement in connection with our purchase of certain U.S. Gulf Coast midstream energy assets from Shell Oil Company in 1999. At December 31, 2012, the carrying value of this intangible asset was $72.7 million. This intangible asset is being amortized to earnings on a straight-line basis over its estimated economic life of 20 years through 2019.

San Juan basin natural gas gathering agreements – These intangible assets represent the value attributed to certain natural gas gathering contracts with producers in the San Juan basin that were acquired by TEPPCO in 2002. At December 31, 2012, the carrying value of these intangible assets was $56.7 million. These intangible assets are being amortized to earnings over their estimated economic life of 20 years through 2022. Amortization expense attributable to these intangible assets is recorded using a units-of-production method based on gathering volumes.

Goodwill

Goodwill represents the excess of the purchase price of an acquired business over the amounts assigned to assets acquired and liabilities assumed in the transaction. Goodwill is not amortized; however, it is subject to annual impairment testing at the end of each fiscal year, and more frequently, if circumstances indicate it is probable that the fair value of goodwill is below its carrying amount. The following table presents changes in the carrying amount of goodwill during the periods presented:

	NGL Pipelines & Services		Onshore Natural Gas Pipelines & Services			Onshore Crude Oil Pipelines & Services		Offshore Pipelines & Services		Petrochemical & Refined Products Services			Consolidated Total
Balance at January 1, 2010 (1)	$	341.2	$	284.9		$	303.0	$	82.1	$	1,007.1		$	2,018.3
Goodwill related to acquisitions (2)		--		26.2			8.2		--		55.0			89.4
Balance at December 31, 2010		341.2		311.1			311.2		82.1		1,062.1			2,107.7
Goodwill adjustment (3)		--		--			--		--		(0.6	)		(0.6	)
Goodwill related to the sale of assets (4)		--		(14.8	)		--		--		--			(14.8	)
Balance at December 31, 2011		341.2		296.3			311.2		82.1		1,061.5			2,092.3
Reclassification to assets held for sale		--		--			--		--		(5.5	)		(5.5	)
Balance at December 31, 2012	$	341.2	$	296.3		$	311.2	$	82.1	$	1,056.0		$	2,086.8

(1) The total carrying amount of goodwill at January 1, 2010 is net of $1.3 million of accumulated impairment charges incurred prior to 2010. No goodwill impairment charges were recorded during the three years ended December 31, 2012. (2) Amount presented for Petrochemical & Refined Products Services includes $5.5 million of goodwill that was part of the drop down of trucking assets from EPCO (see Note 15). (3) The goodwill we recorded in connection with a marine business acquisition completed in November 2010 was subsequently reduced in May 2011 due to a purchase price adjustment. (4) In December 2011, we disposed of our ownership interests in Crystal (see Note 8), including related goodwill.

The following table summarizes goodwill amounts we recorded in connection with business combinations and asset drop-down transactions during the year ended December 31, 2010:

Goodwill related to acquisition of:
State Line and Fairplay Natural Gas Gathering Systems	$	26.2
Marine shipyard business		49.5
Drop-down of trucking assets from EPCO (see Note 15)		5.5
Other		8.2
Total (1)	$	89.4

(1) We attribute these goodwill amounts to our ability to leverage the acquired businesses with our existing asset base to create future business opportunities.

Goodwill impairment testing involves determining the estimated fair value of the associated reporting unit. Our fair value estimates are based on assumptions regarding the future economic prospects of the businesses that make up the reporting unit. Such assumptions include: (i) discrete financial forecasts for the businesses contained within the reporting unit, which, in turn, rely on management's estimates of operating margins, throughput volumes and similar factors; (ii) long-term growth rates for cash flows beyond the discrete forecast period; and (iii) appropriate discount rates. When management's assumptions are used to estimate reporting unit fair value, we believe such assumptions are consistent with the assumptions market participants would make to estimate the reporting unit's fair value. Based on our most recent goodwill impairment test at December 31, 2012, each reporting unit's fair value was substantially in excess of its carrying value (i.e., by at least 10%).