Note 10. Business Segments and Related Information

Segment Overview

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. 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. The President and the Chief Executive Officer of our general partner have been identified as our chief operating decision makers. While these two officers evaluate results in a number of different ways, the business segment structure is the primary basis for which the allocation of resources and financial results are assessed.

The following information summarizes the current assets and operations of each business segment (mileage and other statistics are unaudited):



Our NGL Pipelines & Services business segment includes our natural gas processing plants and related NGL marketing activities; approximately 19,670 miles of NGL pipelines; NGL and related product storage facilities; and 15 NGL fractionators. This segment also includes our NGL export docks and related operations.

	Our Crude Oil Pipelines & Services business segment includes approximately 5,400 miles of crude oil pipelines, crude oil storage terminals located in Oklahoma and Texas, and our crude oil marketing activities.



Our Natural Gas Pipelines & Services business segment includes approximately 19,120 miles of natural gas pipeline systems that provide for the gathering and transportation of natural gas in Colorado, Louisiana, New Mexico, Texas and Wyoming. We lease underground salt dome natural gas storage facilities located in Texas and Louisiana and own an underground salt dome storage cavern in Texas, all of which are important to our natural gas pipeline operations. This segment also includes our related natural gas marketing activities.



Our Petrochemical & Refined Products Services business segment includes (i) propylene fractionation and related operations, including 686 miles of pipelines; (ii) a butane isomerization complex, associated deisobutanizer units and related pipeline assets; (iii) octane enhancement and high purity isobutylene production facilities; (iv) refined products pipelines aggregating approximately 4,250 miles, terminals and related marketing activities; and (v) marine transportation.



Our Offshore Pipelines & Services business segment, which served some of the most active drilling and development regions, including deepwater production fields, in the northern Gulf of Mexico offshore Texas, Louisiana, Mississippi and Alabama was sold, effective July 24, 2015. Our results of operations reflect ownership of the Offshore Business through July 24, 2015 (see Note 5).

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

Segment Gross Operating Margin

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. 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.

The following table presents our measurement of total segment gross operating margin for the periods presented. The GAAP financial measure most directly comparable to total segment gross operating margin is operating income.

	For the Year Ended December 31,
	2016			2015			2014
Income before income taxes	$	2,576.4		$	2,555.9		$	2,856.6
Add total other expense, net		1,004.3			984.3			919.1
Operating income		3,580.7			3,540.2			3,775.7
Adjustments to reconcile operating income to total gross operating margin:
Add depreciation, amortization and accretion expense in operating costs and expenses		1,456.7			1,428.2			1,282.7
Add asset impairment and related charges in operating costs and expenses (1)		52.8			162.6			34.0
Add net losses and subtract net gains attributable to asset sales and insurance recoveries		(2.5	)		15.6			(102.1	)
Add general and administrative costs		160.1			192.6			214.5
Adjustments for make-up rights on certain new pipeline projects:
Add non-refundable payments received from shippers attributable to make-up rights (2)		17.5			53.6			84.6
Subtract the subsequent recognition of revenues attributable to make-up rights (3)		(34.6	)		(60.7	)		(2.9	)
Total segment gross operating margin	$	5,230.7		$	5,332.1		$	5,286.5

(1)The amount presented for 2016 includes $7.1 million recorded in connection with the fire at Pascagoula (see Note 5). (2)Since make-up rights entail a future performance obligation by the pipeline to the shipper, these receipts are recorded as deferred revenue for GAAP purposes; however, these receipts are included in gross operating margin in the period of receipt since they are nonrefundable to the shipper. (3)As deferred revenues attributable to make-up rights are subsequently recognized as revenue under GAAP, gross operating margin must be adjusted to remove such amounts to prevent duplication since the associated non-refundable payments were previously included in gross operating margin.

The results of operations from our liquids pipelines are primarily dependent upon the volumes transported and the associated fees we charge for such transportation services. Typically, pipeline transportation revenue is recognized when volumes are re-delivered to customers. However, under certain pipeline transportation agreements, customers are required to ship a minimum volume over an agreed-upon period. These arrangements typically entail the shipper paying a transportation fee based on a minimum volume commitment, with a provision that allows the shipper to make-up any volume shortfalls over the agreed-upon period (referred to as shipper “make-up rights”). Revenue pursuant to such agreements, including that associated with make-up rights, is initially deferred and subsequently recognized under GAAP at the earlier of when the deficiency volume is shipped, when the shipper’s ability to meet the minimum volume commitment has expired (typically a one year contractual period), or when the pipeline is otherwise released from its transportation service performance obligation.

However, management includes deferred transportation revenues relating to the “make-up rights” of committed shippers when reviewing the financial results of certain new pipeline projects (Texas Express Pipeline, Front Range Pipeline, ATEX, Aegis Ethane Pipeline and Seaway Pipeline). From an internal (and segment) reporting standpoint, management considers the transportation fees paid by committed shippers on these pipeline projects, including any non-refundable revenues that may be deferred under GAAP related to make-up rights, to be important in assessing the financial performance of these pipeline assets. Although the adjustments for make-up rights are included in segment gross operating margin, our consolidated revenues do not reflect any deferred revenues until the conditions for recognizing such revenues are met in accordance with GAAP.

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 in the preceding table, as applicable, and before the elimination of intercompany transactions. The following table presents gross operating margin by segment for the periods indicated:

	For the Year Ended December 31,
	2016		2015		2014
Gross operating margin by segment:
NGL Pipelines & Services	$	2,990.6	$	2,771.6	$	2,877.7
Crude Oil Pipelines & Services		854.6		961.9		762.5
Natural Gas Pipelines & Services		734.9		782.6		803.3
Petrochemical & Refined Products Services		650.6		718.5		681.0
Offshore Pipelines & Services		--		97.5		162.0
Total segment gross operating margin	$	5,230.7	$	5,332.1	$	5,286.5

Summarized Segment Financial Information

Information by business segment, together with reconciliations to amounts presented on our Statements of Consolidated Operations, is presented in the following table:

	Reportable 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:
Year ended December 31, 2016	$	10,232.7	$	6,478.7	$	2,532.4	$	3,721.8		$	--	$	--		$	22,965.6
Year ended December 31, 2015		9,779.0		10,258.3		2,729.5		4,111.9			76.9		--			26,955.6
Year ended December 31, 2014		17,078.4		20,151.9		4,182.6		6,316.5			150.3		--			47,879.7
Revenues from related parties:
Year ended December 31, 2016		9.8		36.3		10.6		--			--		--			56.7
Year ended December 31, 2015		9.0		47.6		13.8		--			1.9		--			72.3
Year ended December 31, 2014		11.4		32.4		21.2		--			6.5		--			71.5
Intersegment and intrasegment revenues:
Year ended December 31, 2016		19,150.0		9,052.0		668.5		1,234.8			--		(30,105.3	)		--
Year ended December 31, 2015		10,217.9		5,162.0		662.1		1,126.0			0.6		(17,168.6	)		--
Year ended December 31, 2014		13,716.5		12,678.7		1,106.7		1,779.6			6.5		(29,288.0	)		--
Total revenues:
Year ended December 31, 2016		29,392.5		15,567.0		3,211.5		4,956.6			--		(30,105.3	)		23,022.3
Year ended December 31, 2015		20,005.9		15,467.9		3,405.4		5,237.9			79.4		(17,168.6	)		27,027.9
Year ended December 31, 2014		30,806.3		32,863.0		5,310.5		8,096.1			163.3		(29,288.0	)		47,951.2
Equity in income (loss) of unconsolidated affiliates:
Year ended December 31, 2016		61.4		311.9		3.8		(15.1	)		--		--			362.0
Year ended December 31, 2015		57.5		281.4		3.8		(15.7	)		46.6		--			373.6
Year ended December 31, 2014		30.6		184.6		3.6		(13.3	)		54.0		--			259.5

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 include equity in income of unconsolidated affiliates in our measurement of segment gross operating margin and operating income. Equity investments with industry partners are a significant component of our business strategy. They are a means by which we conduct our operations to align our interests with those of 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. Many of these businesses perform supporting or complementary roles to our other midstream business operations.

Our integrated midstream energy asset network (including the midstream energy assets owned by our equity method investees) provides services to producers and consumers of natural gas, NGLs, crude oil, refined products and certain petrochemicals. In general, hydrocarbons may enter our asset system in a number of ways, such as through a natural gas processing plant, a natural gas gathering pipeline, a crude oil pipeline or terminal, an NGL fractionator, an NGL storage facility or an NGL gathering or transportation pipeline. Many of our equity investees are included within our integrated midstream asset network. For example, we use the Front Range Pipeline and Texas Express Pipeline to transport mixed NGLs to our Mont Belvieu complex for fractionation and storage and the Seaway Pipeline to transport crude oil to our terminals in the Houston, Texas area. 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.

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

	Reportable 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
Property, plant and equipment, net: (see Note 5)
At December 31, 2016	$	14,091.5	$	4,216.1	$	8,403.0	$	3,261.2	$	--	$	3,320.7	$	33,292.5
At December 31, 2015		12,909.7		3,550.3		8,620.0		3,060.7		--		3,894.0		32,034.7
At December 31, 2014		11,766.9		2,332.2		8,835.5		3,047.2		1,145.1		2,754.7		29,881.6
Investments in unconsolidated affiliates: (see Note 6)
At December 31, 2016		750.4		1,824.6		21.7		80.6		--		--		2,677.3
At December 31, 2015		718.7		1,813.4		22.5		73.9		--		--		2,628.5
At December 31, 2014		682.3		1,767.7		23.2		75.1		493.7		--		3,042.0
Intangible assets, net: (see Note 7)
At December 31, 2016		350.2		2,279.0		1,054.5		180.4		--		--		3,864.1
At December 31, 2015		380.3		2,377.5		1,087.7		191.7		--		--		4,037.2
At December 31, 2014		689.2		2,223.6		972.9		374.8		41.6		--		4,302.1
Goodwill: (see Note 7)
At December 31, 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
At December 31, 2014		2,210.2		918.7		296.3		793.0		82.0		--		4,300.2
Segment assets:
At December 31, 2016		17,843.8		10,160.7		9,775.5		4,478.4		--		3,320.7		45,579.1
At December 31, 2015		16,660.4		9,582.2		10,026.5		4,282.5		--		3,894.0		44,445.6
At December 31, 2014		15,348.6		7,242.2		10,127.9		4,290.1		1,762.4		2,754.7		41,525.9

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).

Other Revenue and Expense Information

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

	For the Year Ended December 31,
	2016			2015		2014
NGL Pipelines & Services:
Sales of NGLs and related products	$	8,380.5		$	8,044.8	$	15,460.1
Midstream services		1,862.0			1,743.2		1,629.7
Total		10,242.5			9,788.0		17,089.8
Crude Oil Pipelines & Services:
Sales of crude oil		5,802.5			9,732.9		19,783.9
Midstream services		712.5			573.0		400.4
Total		6,515.0			10,305.9		20,184.3
Natural Gas Pipelines & Services:
Sales of natural gas		1,591.9			1,722.6		3,181.7
Midstream services		951.1			1,020.7		1,022.1
Total		2,543.0			2,743.3		4,203.8
Petrochemical & Refined Products Services:
Sales of petrochemicals and refined products		2,921.9			3,333.5		5,575.5
Midstream services		799.9			778.4		741.0
Total		3,721.8			4,111.9		6,316.5
Offshore Pipelines & Services:
Sales of natural gas		--			--		0.3
Sales of crude oil		--			3.2		8.6
Midstream services		--			75.6		147.9
Total		--			78.8		156.8
Total consolidated revenues	$	23,022.3		$	27,027.9	$	47,951.2

Consolidated costs and expenses
Operating costs and expenses:
Cost of sales	$	15,710.9		$	19,612.9	$	40,464.1
Other operating costs and expenses (1)		2,425.6			2,449.4		2,541.8
Depreciation, amortization and accretion		1,456.7			1,428.2		1,282.7
Impairment and related charges		52.8			162.6		34.0
Net losses (gains) attributable to asset sales and insurance recoveries		(2.5	)		15.6		(102.1	)
General and administrative costs		160.1			192.6		214.5
Total consolidated costs and expenses	$	19,803.6		$	23,861.3	$	44,435.0

(1)Represents the cost of operating our plants, pipelines and other fixed assets excluding: depreciation, amortization and accretion charges; asset impairment and related charges; and net losses (or gains) attributable to asset sales and insurance recoveries.

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.

Major Customer Information

Our largest non-affiliated customer for 2016 was Vitol Holding B.V. and its affiliates (collectively, “Vitol”), which accounted for $2.28 billion, or 9.9%, of our consolidated revenues for the year. Vitol is a global energy and commodity trading company. The following table presents our consolidated revenues from Vitol by business segment for the year ended December 31, 2016:

NGL Pipelines & Services	$	1,830.1
Crude Oil Pipelines & Services		171.9
Natural Gas Pipelines & Services		7.8
Petrochemical & Refined Products Services		270.3
Total	$	2,280.1

Shell Oil Company and its affiliates was our largest non-affiliated customer for 2015 and 2014, accounting for 7.4% and 8.5%, respectively of our consolidated revenues.