Note 12. 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. Our business segments are generally organized and managed according to the types of services rendered (or technologies employed) and products produced and/or sold.

As discussed in Note 6, the operations presented in our Offshore Pipelines & Services business segment were classified as held for sale as of June 30, 2015. We completed the sale of our Offshore Business on July 24, 2015. We will continue to report the historical results of the Offshore Pipelines & Services segment through the closing date of the sales transaction.

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 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 executive 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.

In total, gross operating margin represents operating income exclusive of (1) depreciation, amortization and accretion expenses, (2) impairment charges, (3) gains and losses attributable to asset sales and insurance recoveries and (4) general and administrative costs. Gross operating margin includes equity in income of unconsolidated affiliates and non-refundable deferred transportation revenues relating to the make-up rights of committed shippers associated with certain pipelines. 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 consolidation. 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.

Segment assets consist of property, plant and equipment, investments in unconsolidated affiliates, intangible assets and goodwill. Segment assets exclude those amounts classified as held for sale at each balance sheet date. 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. Substantially all of our plants, pipelines and other fixed assets are located in the U.S.

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

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2015			2014			2015			2014
Revenues	$	7,092.5		$	12,520.8		$	14,565.0		$	25,430.7
Subtract operating costs and expenses		(6,357.5	)		(11,639.1	)		(12,973.9	)		(23,519.6	)
Add equity in income of unconsolidated affiliates		110.2			50.3			199.4			106.8
Add depreciation, amortization and accretion expense amounts not reflected in gross operating margin		385.6			312.4			730.9			613.8
Add impairment charges not reflected in gross operating margin		79.0			3.7			112.3			12.5
Add net losses or subtract net gains attributable to asset sales and insurance recoveries not reflected in gross operating margin (see Note 16)		2.5			(6.8	)		2.4			(96.4	)
Add non-refundable deferred revenues attributable to shipper make-up rights on new pipeline projects reflected in gross operating margin		5.2			21.9			35.9			45.2
Subtract subsequent recognition of deferred revenues attributable to make-up rights not reflected in gross operating margin		(14.3	)		--			(34.4	)		--
Total segment gross operating margin	$	1,303.2		$	1,263.2		$	2,637.6		$	2,593.0

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

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2015			2014			2015			2014
Total segment gross operating margin	$	1,303.2		$	1,263.2		$	2,637.6		$	2,593.0
Adjustments to reconcile total segment gross operating margin to operating income:
Subtract depreciation, amortization and accretion expense amounts not reflected in gross operating margin		(385.6	)		(312.4	)		(730.9	)		(613.8	)
Subtract impairment charges not reflected in gross operating margin		(79.0	)		(3.7	)		(112.3	)		(12.5	)
Add net gains or subtract net losses attributable to asset sales and insurance recoveries not reflected in gross operating margin		(2.5	)		6.8			(2.4	)		96.4
Subtract non-refundable deferred revenues attributable to shipper make-up rights on new pipeline projects reflected in gross operating margin		(5.2	)		(21.9	)		(35.9	)		(45.2	)
Add subsequent recognition of deferred revenues attributable to make-up rights not reflected in gross operating margin		14.3			--			34.4			--
Subtract general and administrative costs not reflected in gross operating margin		(44.9	)		(47.7	)		(94.2	)		(100.9	)
Operating income		800.3			884.3			1,696.3			1,917.0
Other expense, net		(251.6	)		(227.8	)		(490.2	)		(449.0	)
Income before income taxes	$	548.7		$	656.5		$	1,206.1		$	1,468.0

Information by business segment, together with reconciliations to our consolidated financial statement 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
Revenues from third parties:
Three months ended June 30, 2015	$	2,263.8	$	3,087.0	$	681.4	$	1,018.5		$	34.5	$	--		$	7,085.2
Three months ended June 30, 2014		4,019.5		5,865.6		1,034.5		1,547.3			36.6		--			12,503.5
Six months ended June 30, 2015		4,938.6		5,764.0		1,412.3		2,367.6			69.1		--			14,551.6
Six months ended June 30, 2014		9,193.2		10,801.0		2,234.5		3,077.9			71.3		--			25,377.9
Revenues from related parties:
Three months ended June 30, 2015		2.3		1.4		3.3		--			0.3		--			7.3
Three months ended June 30, 2014		1.7		6.7		6.5		--			2.4		--			17.3
Six months ended June 30, 2015		3.8		2.4		6.3		--			0.9		--			13.4
Six months ended June 30, 2014		7.5		29.6		11.1		--			4.6		--			52.8
Intersegment and intrasegment revenues:
Three months ended June 30, 2015		2,781.0		1,539.7		169.5		322.9			0.1		(4,813.2	)		--
Three months ended June 30, 2014		3,324.9		5,634.3		295.4		428.4			1.3		(9,684.3	)		--
Six months ended June 30, 2015		5,224.1		2,816.8		339.5		608.5			0.5		(8,989.4	)		--
Six months ended June 30, 2014		7,185.9		8,185.0		604.8		865.4			3.6		(16,844.7	)		--
Total revenues:
Three months ended June 30, 2015		5,047.1		4,628.1		854.2		1,341.4			34.9		(4,813.2	)		7,092.5
Three months ended June 30, 2014		7,346.1		11,506.6		1,336.4		1,975.7			40.3		(9,684.3	)		12,520.8
Six months ended June 30, 2015		10,166.5		8,583.2		1,758.1		2,976.1			70.5		(8,989.4	)		14,565.0
Six months ended June 30, 2014		16,386.6		19,015.6		2,850.4		3,943.3			79.5		(16,844.7	)		25,430.7
Equity in income (loss) of unconsolidated affiliates:
Three months ended June 30, 2015		12.5		79.4		1.0		(3.7	)		21.0		--			110.2
Three months ended June 30, 2014		6.1		42.2		0.9		(6.5	)		7.6		--			50.3
Six months ended June 30, 2015		24.1		139.3		1.9		(7.1	)		41.2		--			199.4
Six months ended June 30, 2014		7.5		84.9		1.8		(6.1	)		18.7		--			106.8
Gross operating margin:
Three months ended June 30, 2015		650.6		235.6		191.4		181.3			44.3		--			1,303.2
Three months ended June 30, 2014		680.9		184.0		203.0		161.7			33.6		--			1,263.2
Six months ended June 30, 2015		1,345.8		449.6		395.9		355.9			90.4		--			2,637.6
Six months ended June 30, 2014		1,460.9		343.7		423.4		292.1			72.9		--			2,593.0
Property, plant and equipment, net: (see Note 7)
At June 30, 2015		11,919.2		2,484.3		8,741.0		3,057.9			--		3,581.4			29,783.8
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 8)
At June 30, 2015		683.5		1,818.3		31.1		74.3			--		--			2,607.2
At December 31, 2014		682.3		1,767.7		23.2		75.1			493.7		--			3,042.0
Intangible assets, net: (see Note 9)
At June 30, 2015		246.6		1,334.9		953.1		198.9			--		--			2,733.5
At December 31, 2014		689.2		2,223.6		972.9		374.8			41.6		--			4,302.1
Goodwill: (see Note 9)
At June 30, 2015		2,640.5		1,765.0		296.3		963.0			--		--			5,664.8
At December 31, 2014		2,207.9		914.3		296.3		792.2			82.0		--			4,292.7
Segment assets:
At June 30, 2015		15,489.8		7,402.5		10,021.5		4,294.1			--		3,581.4			40,789.3
At December 31, 2014		15,346.3		7,237.8		10,127.9		4,289.3			1,762.4		2,754.7			41,518.4

At June 30, 2015, segment assets of our Offshore Pipelines & Services business segment were classified as held for sale; therefore, such amounts are not included in property, plant and equipment, investments in unconsolidated affiliates, intangible assets and goodwill on that date in the preceding table.

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

	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2015		2014			2015		2014
NGL Pipelines & Services:
Sales of NGLs and related products	$	1,849.1	$	3,630.6		$	4,091.3	$	8,426.4
Midstream services		417.0		390.6			851.1		774.3
Total		2,266.1		4,021.2			4,942.4		9,200.7
Crude Oil Pipelines & Services:
Sales of crude oil		2,971.3		5,781.9			5,542.0		10,655.3
Midstream services		117.1		90.4			224.4		175.3
Total		3,088.4		5,872.3			5,766.4		10,830.6
Natural Gas Pipelines & Services:
Sales of natural gas		429.9		787.0			906.2		1,740.2
Midstream services		254.8		254.0			512.4		505.4
Total		684.7		1,041.0			1,418.6		2,245.6
Petrochemical & Refined Products Services:
Sales of petrochemicals and refined products		832.7		1,376.6			1,983.7		2,732.8
Midstream services		185.8		170.7			383.9		345.1
Total		1,018.5		1,547.3			2,367.6		3,077.9
Offshore Pipelines & Services:
Sales of natural gas		--		--			--		0.2
Sales of crude oil		1.7		2.9			2.8		5.0
Midstream services		33.1		36.1			67.2		70.7
Total		34.8		39.0			70.0		75.9
Total consolidated revenues	$	7,092.5	$	12,520.8		$	14,565.0	$	25,430.7

Consolidated costs and expenses
Operating costs and expenses:
Cost of sales	$	5,257.9	$	10,705.3		$	10,936.0	$	21,758.0
Other operating costs and expenses (1)		632.5		624.5			1,192.3		1,231.7
Depreciation, amortization and accretion		385.6		312.4			730.9		613.8
Net losses (gains) attributable to asset sales and insurance recoveries		2.5		(6.8	)		2.4		(96.4	)
Non-cash asset impairment charges		79.0		3.7			112.3		12.5
General and administrative costs		44.9		47.7			94.2		100.9
Total consolidated costs and expenses	$	6,402.4	$	11,686.8		$	13,068.1	$	23,620.5

(1) Represents cost of operating our plants, pipelines and other fixed assets, excluding depreciation, amortization and accretion charges.

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.