13. BUSINESS SEGMENTS

We operate and report in three business segments: (i) Domestic Pipelines & Terminals; (ii) Global Marine Terminals; and (iii) Merchant Services. All inter-segment revenues, operating income and assets have been eliminated.

Domestic Pipelines & Terminals

The Domestic Pipelines & Terminals segment receives liquid petroleum products from refineries, connecting pipelines, vessels, and bulk and marine terminals, transports those products to other locations for a fee, and provides bulk liquid storage and terminal throughput services. The segment also has butane blending capabilities and provides crude oil services, including train loading/unloading, storage and throughput. This segment owns and operates pipeline systems and liquid petroleum products terminals in the continental United States, including three terminals owned by the Merchant Services segment but operated by the Domestic Pipelines & Terminals segment, and two underground propane storage caverns. Additionally, this segment provides turn-key operations and maintenance of third-party pipelines and performs pipeline construction management services typically for cost plus a fixed fee.

Global Marine Terminals

The Global Marine Terminals segment, including through its interest in VTTI, provides marine accessible bulk storage and blending services, rail and truck rack loading/unloading along with petroleum processing services in the New York Harbor on the East Coast and Corpus Christi, Texas in the Gulf Coast region of the United States, as well as The Bahamas, Puerto Rico and St Lucia in the Caribbean, Northwest Europe, the Middle East and Southeast Asia. The segment owns and operates, or owns a significant interest in, 22 liquid petroleum product terminals, located in these key domestic and international energy hubs, that enable us to facilitate global flows of crude and refined petroleum products, offer connectivity between supply areas and market centers, and provide premier storage, marine terminalling, blending, and processing services to a diverse customer base.

Merchant Services

The Merchant Services segment is a wholesale distributor of refined petroleum products in the United States and in the Caribbean. The segment’s products include gasoline, natural gas liquids, ethanol, biodiesel and petroleum distillates such as heating oil, diesel fuel, kerosene and fuel oil. The segment owns three terminals, which are operated by the Domestic Pipelines & Terminals segment. The segment’s customers consist principally of product wholesalers as well as major commercial users of these refined petroleum products.

Financial Information by Segment

The following table summarizes revenue by each segment for the periods indicated (in thousands):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Revenue:
Domestic Pipelines & Terminals	$	254,277		$	265,036		$	761,438		$	752,968
Global Marine Terminals	155,281			170,072			487,613			509,653
Merchant Services	526,844			344,041			1,498,438			1,103,186
Intersegment	(13,783		)	(12,544		)	(45,396		)	(41,486		)
Total revenue	$	922,619		$	766,605		$	2,702,093		$	2,324,321

For the three and nine months ended September 30, 2017 and 2016, no customers contributed 10% or more of consolidated revenue.

The following table summarizes revenue by major geographic area for the periods indicated (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Revenue:
United States	$	855,795	$	683,850	$	2,474,562	$	2,072,893
International	66,824		82,755		227,531		251,428
Total revenue	$	922,619	$	766,605	$	2,702,093	$	2,324,321

Adjusted EBITDA

Adjusted EBITDA is a measure not defined by GAAP. We define Adjusted EBITDA as earnings before interest expense, income taxes, depreciation and amortization, further adjusted to exclude certain non-cash items, such as non-cash compensation expense; transaction, transition, and integration costs associated with acquisitions; certain gains and losses on foreign currency transactions and foreign currency derivative financial instruments, as applicable; and certain other operating expense or income items, reflected in net income, that we do not believe are indicative of our core operating performance results and business outlook, such as hurricane-related costs, gains and losses on property damage recoveries, and gains and losses on asset sales. The definition of Adjusted EBITDA is also applied to our proportionate share in the Adjusted EBITDA of significant equity method investments, such as that in VTTI, and is not applied to our less significant equity method investments. The calculation of our proportionate share of the reconciling items used to derive Adjusted EBITDA is based upon our 50% equity interest in VTTI, prior to adjustments related to noncontrolling interests in several of its subsidiaries and partnerships, which are immaterial. Adjusted EBITDA is a non-GAAP financial measure that is used by our senior management, including our Chief Executive Officer, to assess the operating performance of our business and optimize resource allocation. We use Adjusted EBITDA as a primary measure to: (i) evaluate our consolidated operating performance and the operating performance of our business segments; (ii) allocate resources and capital to business segments; (iii) evaluate the viability of proposed projects; and (iv) determine overall rates of return on alternative investment opportunities.

We believe that investors benefit from having access to the same financial measures that we use and that these measures are useful to investors because they aid in comparing our operating performance with that of other companies with similar operations. The Adjusted EBITDA data presented by us may not be comparable to similarly titled measures at other companies because these items may be defined differently by other companies.

The following tables present Adjusted EBITDA by segment and on a consolidated basis and a reconciliation of net income, which is the most comparable financial measure under GAAP, to Adjusted EBITDA for the periods indicated (in thousands):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Adjusted EBITDA:
Domestic Pipelines & Terminals	$	138,880		$	152,785		$	413,710		$	423,245
Global Marine Terminals	128,696			110,705			391,084			325,710
Merchant Services	9,742			8,159			19,224			23,909
Total Adjusted EBITDA	$	277,318		$	271,649		$	824,018		$	772,864

Reconciliation of Net Income to Adjusted EBITDA:
Net income	$	120,224		$	160,270		$	362,912		$	439,746
Less: Net income attributable to noncontrolling interests	(4,037		)	(3,896		)	(10,427		)	(11,803		)
Net income attributable to Buckeye Partners, L.P.	116,187			156,374			352,485			427,943
Add: Interest and debt expense	56,561			48,476			168,870			144,093
Income tax expense	448			308			1,709			896
Depreciation and amortization ⁽¹⁾	65,661			63,472			195,987			188,220
Non-cash unit-based compensation expense	8,176			8,853			25,756			22,912
Acquisition and transition expense ⁽²⁾	1,447			309			3,275			479
Hurricane-related costs ⁽³⁾	1,804			—			4,820			—
Proportionate share of Adjusted EBITDA for the equity method investment in VTTI ⁽⁴⁾	33,430			—			90,848			—
Less: Amortization of unfavorable storage contracts ⁽⁵⁾	—			(443		)	—			(5,979		)
Gains on property damage recoveries ⁽⁶⁾	—			(5,700		)	(4,621		)	(5,700		)
Earnings from the equity method investment in VTTI ⁽⁴⁾	(6,396		)	—			(15,111		)	—
Adjusted EBITDA	$	277,318		$	271,649		$	824,018		$	772,864


(1)	Includes 100% of the depreciation and amortization expense of $18.1 million and $18.5 million for Buckeye Texas for the three months ended September 30, 2017 and 2016, respectively, and $54.1 million and $52.5 million for the nine months ended September 30, 2017 and 2016, respectively.


(2)	Represents transaction, internal and third-party costs related to asset acquisition and integration.

(3)

Represents costs incurred at our BBH facility in the Bahamas, Yabucoa Terminal in Puerto Rico, Corpus Christi facilities in Texas, and certain terminals in Florida, as a result of Hurricanes Harvey, Irma, and Maria, which occurred in August and September 2017, as well as Hurricane Matthew, which occurred in October 2016, consisting of operating expenses and write-offs of damaged long-lived assets.

(4)

Due to the significance of our equity method investment in VTTI, effective January 1, 2017, we applied the definition of Adjusted EBITDA, covered in our description of Adjusted EBITDA, with respect to our proportionate share of VTTI’s Adjusted EBITDA. The calculation of our proportionate share of the reconciling items used to derive Adjusted EBITDA is based upon our 50% equity interest in VTTI, prior to adjustments related to noncontrolling interests in several of its subsidiaries and partnerships, which are immaterial.


(5)	Represents amortization of negative fair value allocated to certain unfavorable storage contracts acquired in connection with the BBH acquisition.


(6)	Represents gains on recoveries of property damages caused by third parties, primarily related to an allision with a ship dock at our terminal located in Pennsauken, New Jersey.