Enterprise Products Partners L.P.

SEC Filings

10-K
ENTERPRISE PRODUCTS PARTNERS L P filed this Form 10-K on 02/28/2018
Entire Document
 

ENTERPRISE PRODUCTS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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,
 
   
2017
   
2016
   
2015
 
Income before income taxes
 
$
2,881.3
   
$
2,576.4
   
$
2,555.9
 
Add total other expense, net
   
1,047.6
     
1,004.3
     
984.3
 
Operating income
   
3,928.9
     
3,580.7
     
3,540.2
 
Adjustments to reconcile operating income to total gross operating margin:
                       
   Add depreciation, amortization and accretion expense in operating costs and expenses
   
1,531.3
     
1,456.7
     
1,428.2
 
   Add asset impairment and related charges in operating costs and expenses
   
49.8
     
52.8
     
162.6
 
   Add net losses or subtract net gains attributable to asset sales in operating costs
      and expenses
   
(10.7
)
   
(2.5
)
   
15.6
 
   Add general and administrative costs
   
181.1
     
160.1
     
192.6
 
Adjustments for make-up rights on certain new pipeline projects:
                       
   Add non-refundable payments received from shippers attributable to make-up rights (1)
   
24.1
     
17.5
     
53.6
 
   Subtract the subsequent recognition of revenues attributable to make-up rights (2)
   
(29.9
)
   
(34.6
)
   
(60.7
)
Total segment gross operating margin
 
$
5,674.6
   
$
5,230.7
   
$
5,332.1
 
                         
(1)   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.
(2)   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 may 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.

F-41