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, 2014							December 31, 2013
	Gross Value		Accumulated Amortization			Carrying Value		Gross Value		Accumulated Amortization			Carrying Value
NGL Pipelines & Services:
Customer relationship intangibles	$	340.8	$	(183.2	)	$	157.6	$	340.8	$	(165.7	)	$	175.1
Contract-based intangibles		277.7		(178.7	)		99.0		281.3		(171.2	)		110.1
Incentive distribution rights		432.6		--			432.6		--		--			--
Segment total		1,051.1		(361.9	)		689.2		622.1		(336.9	)		285.2
Onshore Natural Gas Pipelines & Services:
Customer relationship intangibles		1,163.6		(308.9	)		854.7		1,163.6		(281.2	)		882.4
Contract-based intangibles		466.0		(347.8	)		118.2		466.1		(330.7	)		135.4
Segment total		1,629.6		(656.7	)		972.9		1,629.7		(611.9	)		1,017.8
Onshore Crude Oil Pipelines & Services:
Customer relationship intangibles		1,108.0		(7.7	)		1,100.3		10.7		(6.3	)		4.4
Contract-based intangibles		281.4		(13.5	)		267.9		0.4		(0.3	)		0.1
Incentive distribution rights		855.4		--			855.4		--		--			--
Segment total		2,244.8		(21.2	)		2,223.6		11.1		(6.6	)		4.5
Offshore Pipelines & Services:
Customer relationship intangibles		195.8		(154.9	)		40.9		203.9		(150.0	)		53.9
Contract-based intangibles		1.2		(0.5	)		0.7		1.2		(0.4	)		0.8
Segment total		197.0		(155.4	)		41.6		205.1		(150.4	)		54.7
Petrochemical & Refined Products Services:
Customer relationship intangibles		198.4		(43.3	)		155.1		104.3		(38.2	)		66.1
Contract-based intangibles		56.3		(7.8	)		48.5		39.9		(6.0	)		33.9
Incentive distribution rights		171.2		--			171.2		--		--			--
Segment total		425.9		(51.1	)		374.8		144.2		(44.2	)		100.0
Total all segments	$	5,548.4	$	(1,246.3	)	$	4,302.1	$	2,612.2	$	(1,150.0	)	$	1,462.2

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

	For the Year Ended December 31,
	2014		2013		2012
NGL Pipelines & Services	$	33.1	$	36.4	$	39.7
Onshore Natural Gas Pipelines & Services		45.0		50.1		63.4
Onshore Crude Oil Pipelines & Services		15.7		1.4		0.9
Offshore Pipelines & Services		9.9		11.5		11.3
Petrochemical & Refined Products Services		6.9		6.2		10.4
Total	$	110.6	$	105.6	$	125.7

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

2015			2016			2017			2018			2019
$	150.5		$	152.3		$	149.3		$	142.7		$	131.3

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, 2014, the carrying value of our portfolio of customer relationship intangible assets was $2.31 billion. The following information summarizes the significant components of this category of intangible assets:

§	Oiltanking customer relationships – We recorded customer relationship intangible assets in connection with the Oiltanking acquisition in October 2014 (see Note 10). The carrying values of these intangible assets at December 31, 2014 are presented in the following table:

	Gross Value		Accumulated Amortization			Carrying Value
Onshore Crude Oil Pipelines & Services:
Oiltanking customer relationships	$	1,098.4	$	(1.4	)	$	1,097.0
Petrochemical & Refined Products Services:
Oiltanking customer relationships		94.1		--			94.1
Total	$	1,192.5	$	(1.4	)	$	1,191.1

The economic value we attributed to these customer relationships was estimated using recognized business valuation techniques based on several key assumptions, which include assumptions regarding the continued expected patronage of storage and terminal customers, and our expectation of future storage, throughput and other terminaling services from these customers.

These intangible assets are being amortized to earnings over their estimated economic life of 29 years through 2043. Amortization expense attributable to these customer relationships is recorded using a method that closely resembles the pattern in which the economic benefits are expected to be consumed or otherwise used.

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. The carrying values of these intangible assets at December 31, 2014 are presented in the following table:

	Gross Value		Accumulated Amortization			Carrying Value
NGL Pipelines & Services:
Fairplay natural gas processing customer relationships	$	103.4	$	(27.2	)	$	76.2
Onshore Natural Gas Pipelines & Services:
State Line natural gas gathering customer relationships		675.0		(68.7	)		606.3
Fairplay natural gas gathering customer relationships		116.6		(30.7	)		85.9
Total	$	895.0	$	(126.6	)	$	768.4

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. 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.

Customer relationship intangibles related to the State Line system have an estimated economic life of 37 years through 2047. 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, 2014, the carrying value of this group of intangible assets was $146.9 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, 2014, the carrying value of this group of intangible assets was $40.9 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.

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Encinal natural gas processing customer relationships – We acquired these customer relationships in connection with our acquisition of certain South Texas assets in 2006. At December 31, 2014, the carrying value of this group of intangible assets was $50.2 million. These intangible assets are being amortized to earnings over their estimated economic life of 20 years through 2026. Amortization expense attributable to these 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, 2014, the carrying value of our contract-based intangible assets was $534.3 million. The following information summarizes the significant components of this category of intangible assets:

§	Oiltanking customer contracts – We recorded customer contract intangible assets in connection with the Oiltanking acquisition in October 2014 (see Note 10). The carrying values of these intangible assets at December 31, 2014 are presented in the following table:

	Gross Value		Accumulated Amortization			Carrying Value
Onshore Crude Oil Pipelines & Services:
Oiltanking customer contracts	$	281.0	$	(13.2	)	$	267.8
Petrochemical & Refined Products Services:
Oiltanking customer contracts		16.4		(0.7	)		15.7
Total	$	297.4	$	(13.9	)	$	283.5

The economic value we attributed to these customer contracts was estimated using recognized business valuation techniques based on several key assumptions, which include the contractual life of the contracts and expected renewal periods.

These intangible assets are being amortized to earnings over their estimated weighted-average economic lives of six years. Amortization expense attributable to these customer relationships is recorded using a method that closely resembles the pattern in which the economic benefits are expected to be consumed or otherwise used.

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, 2014, the carrying value of this group of intangible assets was $82.8 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, 2014, the carrying value of this intangible asset was $50.6 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, 2014, the carrying value of these intangible assets was $34.6 million. These intangible assets are being amortized to earnings over their estimated economic life of 20 years through 2021. Amortization expense attributable to these intangible assets is recorded using a units-of-production method based on gathering volumes.

Incentive distribution rights. We recorded an indefinite-lived intangible asset valued at an aggregate $1.46 billion in connection with our acquisition of the Oiltanking IDRs in October 2014. The IDRs represented contractual rights to future incentive cash distributions to be paid by Oiltanking. Such rights were granted to Oiltanking GP by Oiltanking under the terms of Oiltanking's partnership agreement. In accordance with Oiltanking's partnership agreement, Oiltanking GP could separate and sell the IDRs independent of its other residual general partner interest in Oiltanking. For the period in which the IDRs were outstanding (see below), we considered these rights to be an indefinite-lived intangible asset. Our determination of an indefinite life was based on our expectation that Oiltanking would continue to pay incentive distributions under the terms of its partnership agreement for an indefinite period.

To the extent outstanding at each balance sheet date, indefinite-lived intangible assets are tested for impairment annually, or more frequently if circumstances indicate that it is more likely than not that the fair value of the asset is less than its carrying value. We tested the Oiltanking IDRs for impairment at December 31, 2014. In February 2015 (following completion of Step 2 of the Oiltanking acquisition), the Oiltanking IDRs were cancelled and the carrying value of the IDRs was reclassified to goodwill (see Note 10).

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 indicated:

	NGL Pipelines & Services		Onshore Natural Gas Pipelines & Services		Onshore Crude Oil Pipelines & Services			Offshore Pipelines & Services			Petrochemical & Refined Products Services			Consolidated Total
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
Goodwill related to the sale of assets		--		--		(6.1	)		--			(0.7	)		(6.8	)
Balance at December 31, 2013		341.2		296.3		305.1			82.1			1,055.3			2,080.0
Reclassification of goodwill		520.0		--		--			--			(520.0	)		--
Goodwill related to the sale of assets		--		--		--			(0.1	)		--			(0.1	)
Goodwill related to Oiltanking acquisition		1,319.2		--		554.8			--			246.0			2,120.0
Balance at December 31, 2014	$	2,180.4	$	296.3	$	859.9		$	82.0		$	781.3		$	4,199.9

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 comprise 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, 2014, each reporting unit's fair value was substantially in excess of its carrying value (i.e., by at least 10%).

In January 2014, our ATEX pipeline commenced operations. In addition to the construction of new assets, this project involved repurposing portions of the TE Products Pipeline to accommodate the southbound delivery of ethane produced from the Marcellus and Utica Shales to the U.S. Gulf Coast. The repurposed assets were reclassified from the Petrochemical & Refined Products Services business segment to the NGL Pipelines & Services business segment in January 2014 when ATEX commenced operations. Pipeline assets that continue to be utilized by the TE Products Pipeline in the northbound delivery of refined products and other hydrocarbons from the U.S. Gulf Coast remain in the Petrochemical & Refined Products Services business segment.

In total, the carrying value of the fixed assets at January 1, 2014 that were transferred from the TE Products Pipeline to ATEX was $73.7 million. Based on the relative fair values of the assets involved, we also transferred $520.0 million of goodwill from the Petrochemical & Refined Products Services business segment to the NGL Pipelines & Services business segment. The relative fair values of the segment assets were determined based on assumptions regarding the future economic prospects of ATEX versus the other assets that would remain in the associated reporting unit. These assumptions included: (i) discrete financial forecasts for the pipelines and related businesses contained within the reporting unit, which, in turn, relied on management's estimates of future 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. We believe our assumptions are consistent with those that market participants would utilize in estimating the reporting unit's fair value.

In October 2014, we recorded $2.12 billion of goodwill in connection with Step 1 of our acquisition of Oiltanking. In general, we attribute this goodwill to our ability to leverage the acquired business with our existing asset base to create future business opportunities. In February 2015, $1.46 billion of Oiltanking IDRs originally recorded as intangible assets were cancelled and the carrying value of the IDRs was reclassified to goodwill. See Note 10 for a discussion of goodwill attributable to Step 1 of the Oiltanking acquisition and related changes in our goodwill balances in connection with completing the Oiltanking Merger in February 2015.