Note 9. Business Segments

Our historical operations are reported under five business segments: (i) NGL Pipelines & Services, (ii) Crude Oil Pipelines & Services, (iii) Natural Gas Pipelines & Services, (iv) Petrochemical & Refined Products Services and (v) Offshore Pipelines & Services. On July 24, 2015, we completed the sale of our Offshore Business, which primarily consisted of our Offshore Pipelines & Services segment. Our consolidated financial statements reflect ownership of the Offshore Business through July 24, 2015.

Our business segments are generally organized and managed according to the types of services rendered (or technologies employed) and products produced and/or sold. Financial information regarding these segments is evaluated regularly by our chief operating decision makers in deciding how to allocate resources and in assessing operating and financial performance.

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.

We evaluate segment performance based on our financial measure of gross operating margin. Gross operating margin is an important performance measure of the core profitability of our operations and forms the basis of our internal financial reporting. 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.

Gross operating margin represents GAAP operating income exclusive of (i) depreciation, amortization and accretion expenses, (ii) impairment charges, (iii) gains and losses attributable to asset sales, insurance recoveries and related property damage and (iv) general and administrative costs. Gross operating margin includes (i) equity in the earnings of unconsolidated affiliates and (ii) non-refundable deferred transportation revenues relating to the make-up rights of committed shippers on certain pipeline assets. Gross operating margin is exclusive of other income and expense transactions, 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. Gross operating margin by segment is calculated by subtracting segment operating costs and expenses from segment revenues, with both segment totals reflecting the adjustments noted above, as applicable, and before the elimination of intercompany transactions.

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 the underlying assets are placed in service. Intangible assets and goodwill are assigned to each segment based on the classification of the assets to which they relate. The remainder of our consolidated total assets, which consist primarily of working capital assets, are excluded from segment assets since these amounts are not attributable to one specific segment (e.g. cash).

Substantially all of our plants, pipelines and other fixed assets are located in the U.S.

The following table presents our measurement of total segment gross operating margin for the periods indicated:

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2016			2015			2016			2015
Revenues	$	5,920.4		$	6,307.9		$	16,543.5		$	20,872.9
Subtract operating costs and expenses		(5,065.7	)		(5,452.6	)		(14,034.8	)		(18,426.5	)
Add equity in income of unconsolidated affiliates		92.3			103.1			269.8			302.5
Add depreciation, amortization and accretion expense amounts not reflected in gross operating margin		367.1			351.1			1,085.6			1,082.0
Add asset impairment charges not reflected in gross operating margin		6.8			26.8			21.6			139.1
Add net losses or subtract net gains attributable to asset sales, insurance recoveries and related property damage not reflected in gross operating margin		(8.9	)		12.3			4.8			14.7
Add non-refundable payments attributable to shipper make-up rights on new pipeline projects reflected in gross operating margin		1.2			3.4			10.1			39.3
Subtract subsequent revenue recognition of deferred revenues attributable to make-up rights not reflected in gross operating margin		(5.6	)		(10.9	)		(25.1	)		(45.3	)
Total segment gross operating margin	$	1,307.6		$	1,341.1		$	3,875.5		$	3,978.7

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

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2016			2015			2016			2015
Total segment gross operating margin	$	1,307.6		$	1,341.1		$	3,875.5		$	3,978.7
Adjustments to reconcile total segment gross operating margin to operating income:
Subtract depreciation, amortization and accretion expense amounts not reflected in gross operating margin		(367.1	)		(351.1	)		(1,085.6	)		(1,082.0	)
Subtract asset impairment charges not reflected in gross operating margin		(6.8	)		(26.8	)		(21.6	)		(139.1	)
Add net gains or subtract net losses attributable to asset sales, insurance recoveries and related property damage not reflected in gross operating margin		8.9			(12.3	)		(4.8	)		(14.7	)
Subtract non-refundable payments attributable to shipper make-up rights on new pipeline projects reflected in gross operating margin		(1.2	)		(3.4	)		(10.1	)		(39.3	)
Add subsequent revenue recognition of deferred revenues attributable to make-up rights not reflected in gross operating margin		5.6			10.9			25.1			45.3
Subtract general and administrative costs not reflected in gross operating margin		(42.0	)		(49.0	)		(121.0	)		(143.2	)
Operating income		905.0			909.4			2,657.5			2,605.7
Other expense, net		(257.1	)		(246.2	)		(761.1	)		(736.4	)
Income before income taxes	$	647.9		$	663.2		$	1,896.4		$	1,869.3

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

	Business Segments
	NGL Pipelines & Services		Crude Oil Pipelines & Services		Natural Gas Pipelines & Services		Petrochemical & Refined Products Services			Offshore Pipelines & Services		Adjustments and Eliminations			Consolidated Total
Revenues from third parties:
Three months ended September 30, 2016	$	2,414.2	$	1,712.9	$	711.3	$	1,066.3		$	--	$	--		$	5,904.7
Three months ended September 30, 2015		2,284.6		2,316.4		705.2		980.0			7.8		--			6,294.0
Nine months ended September 30, 2016		7,328.9		4,641.8		1,792.5		2,735.8			--		--			16,499.0
Nine months ended September 30, 2015		7,223.2		8,080.4		2,117.5		3,347.6			76.9		--			20,845.6
Revenues from related parties:
Three months ended September 30, 2016		2.7		10.1		2.9		--			--		--			15.7
Three months ended September 30, 2015		2.2		6.2		4.5		--			1.0		--			13.9
Nine months ended September 30, 2016		7.3		29.8		7.4		--			--		--			44.5
Nine months ended September 30, 2015		6.0		8.6		10.8		--			1.9		--			27.3
Intersegment and intrasegment revenues:
Three months ended September 30, 2016		4,772.4		2,445.2		201.2		315.4			--		(7,734.2	)		--
Three months ended September 30, 2015		2,461.0		1,142.1		180.2		267.3			0.1		(4,050.7	)		--
Nine months ended September 30, 2016		12,828.0		6,390.3		472.8		865.8			--		(20,556.9	)		--
Nine months ended September 30, 2015		7,685.1		3,958.9		519.7		875.8			0.6		(13,040.1	)		--
Total revenues:
Three months ended September 30, 2016		7,189.3		4,168.2		915.4		1,381.7			--		(7,734.2	)		5,920.4
Three months ended September 30, 2015		4,747.8		3,464.7		889.9		1,247.3			8.9		(4,050.7	)		6,307.9
Nine months ended September 30, 2016		20,164.2		11,061.9		2,272.7		3,601.6			--		(20,556.9	)		16,543.5
Nine months ended September 30, 2015		14,914.3		12,047.9		2,648.0		4,223.4			79.4		(13,040.1	)		20,872.9
Equity in income (loss) of unconsolidated affiliates:
Three months ended September 30, 2016		15.9		78.4		1.0		(3.0	)		--		--			92.3
Three months ended September 30, 2015		18.9		81.2		0.9		(3.3	)		5.4		--			103.1
Nine months ended September 30, 2016		45.0		234.3		2.9		(12.4	)		--		--			269.8
Nine months ended September 30, 2015		43.0		220.5		2.8		(10.4	)		46.6		--			302.5
Gross operating margin:
Three months ended September 30, 2016		703.5		254.0		178.5		171.6			--		--			1,307.6
Three months ended September 30, 2015		695.5		254.6		192.4		191.5			7.1		--			1,341.1
Nine months ended September 30, 2016		2,206.3		633.7		533.6		501.9			--		--			3,875.5
Nine months ended September 30, 2015		2,041.3		704.2		588.3		547.4			97.5		--			3,978.7
Property, plant and equipment, net: (see Note 4)
At September 30, 2016		14,040.1		4,074.1		8,473.7		3,255.1			--		3,276.4			33,119.4
At December 31, 2015		12,909.7		3,550.3		8,620.0		3,060.7			--		3,894.0			32,034.7
Investments in unconsolidated affiliates: (see Note 5)
At September 30, 2016		747.5		1,838.7		22.0		79.0			--		--			2,687.2
At December 31, 2015		718.7		1,813.4		22.5		73.9			--		--			2,628.5
Intangible assets, net: (see Note 6)
At September 30, 2016		357.7		2,301.9		1,062.7		184.9			--		--			3,907.2
At December 31, 2015		380.3		2,377.5		1,087.7		191.7			--		--			4,037.2
Goodwill: (see Note 6)
At September 30, 2016		2,651.7		1,841.0		296.3		956.2			--		--			5,745.2
At December 31, 2015		2,651.7		1,841.0		296.3		956.2			--		--			5,745.2
Segment assets:
At September 30, 2016		17,797.0		10,055.7		9,854.7		4,475.2			--		3,276.4			45,459.0
At December 31, 2015		16,660.4		9,582.2		10,026.5		4,282.5			--		3,894.0			44,445.6

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

	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	2016			2015		2016			2015
NGL Pipelines & Services:
Sales of NGLs and related products	$	1,959.0		$	1,844.9	$	5,962.9		$	5,936.2
Midstream services		457.9			441.9		1,373.3			1,293.0
Total		2,416.9			2,286.8		7,336.2			7,229.2
Crude Oil Pipelines & Services:
Sales of crude oil		1,538.5			2,147.3		4,141.8			7,689.3
Midstream services		184.5			175.3		529.8			399.7
Total		1,723.0			2,322.6		4,671.6			8,089.0
Natural Gas Pipelines & Services:
Sales of natural gas		483.7			455.0		1,104.4			1,361.2
Midstream services		230.5			254.7		695.5			767.1
Total		714.2			709.7		1,799.9			2,128.3
Petrochemical & Refined Products Services:
Sales of petrochemicals and refined products		871.3			780.5		2,137.9			2,764.2
Midstream services		195.0			199.5		597.9			583.4
Total		1,066.3			980.0		2,735.8			3,347.6
Offshore Pipelines & Services:
Sales of crude oil		--			0.4		--			3.2
Midstream services		--			8.4		--			75.6
Total		--			8.8		--			78.8
Total consolidated revenues	$	5,920.4		$	6,307.9	$	16,543.5		$	20,872.9

Consolidated costs and expenses
Operating costs and expenses:
Cost of sales	$	4,088.6		$	4,419.9	$	11,135.6		$	15,355.9
Other operating costs and expenses (1)		612.1			642.5		1,787.2			1,834.8
Depreciation, amortization and accretion		367.1			351.1		1,085.6			1,082.0
Asset impairment charges		6.8			26.8		21.6			139.1
Loss due to Pascagoula fire		--			--		7.1			--
Net losses (gains) attributable to asset sales		(8.9	)		12.3		(2.3	)		14.7
General and administrative costs		42.0			49.0		121.0			143.2
Total consolidated costs and expenses	$	5,107.7		$	5,501.6	$	14,155.8		$	18,569.7

(1)Represents the cost of operating our plants, pipelines and other fixed assets excluding: depreciation, amortization and accretion charges; asset impairment charges; losses due to property damage events (e.g., the fire at our Pascagoula Facility (see Note 4)); and net losses (or gains) attributable to asset sales.

Fluctuations in our product sales revenues and related cost of sales amounts are explained in part by changes in energy commodity prices. In general, lower energy commodity prices result in a decrease in our revenues attributable to product sales; however, these lower commodity prices also decrease the associated cost of sales as purchase costs decline. The same correlation would be true in the case of higher energy commodity sales prices and purchase costs.