BUSINESS SEGMENTS

9 Months Ended

Sep. 30, 2019

17. 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 transactions have been eliminated in consolidation.

Domestic Pipelines & Terminals

The Domestic Pipelines & Terminals segment receives liquid petroleum products from refineries, connecting pipelines, vessels, trains, 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 or variable fee.

Global Marine Terminals

The Global Marine Terminals segment provides marine accessible bulk storage and blending services, rail and truck rack loading/unloading along with petroleum processing services across our network of marine terminals located primarily in the East Coast and Gulf Coast regions of the United States, as well as in the Caribbean. Our operating locations 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 continental 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

For the three and nine months ended September 30, 2019 and 2018, no customer contributed 10% or more of consolidated revenue.

The following tables provide information about our revenue types by reportable segment for the periods indicated (in thousands).



	Three Months Ended September 30,
	2019
	Domestic Pipelines & Terminals		Global Marine Terminals		Merchant Services		Intersegment Eliminations			Total
Revenue from contracts with customers
Pipeline transportation	$	137,065	$	—	$	—	$	(2,880	)	$	134,185
Terminalling and storage services	108,244		85,778		—		(7,876		)	186,146
Product sales	—		2,631		328,222		(2,930		)	327,923
Other services	9,106		436		965		(14		)	10,493
Total revenue from contracts with customers	254,415		88,845		329,187		(13,700		)	658,747
Revenue from leases	12,543		48,870		—		(148		)	61,265
Commodity derivative contracts, net	698		—		90,705		—			91,403
Total revenue	$	267,656	$	137,715	$	419,892	$	(13,848	)	$	811,415



	Three Months Ended September 30,
	2018
	Domestic Pipelines & Terminals		Global Marine Terminals		Merchant Services		Intersegment Eliminations			Total
Revenue from contracts with customers
Pipeline transportation	$	127,846	$	—	$	—	$	(1,938	)	$	125,908
Terminalling and storage services	106,537		92,948		—		(8,251		)	191,234
Product sales	—		5,243		433,156		(1,699		)	436,700
Other services	12,576		434		1,984		(13		)	14,981
Total revenue from contracts with customers	246,959		98,625		435,140		(11,901		)	768,823
Revenue from leases	9,199		42,943		—		(142		)	52,000
Commodity derivative contracts, net	330		—		88,395		—			88,725
Total revenue	$	256,488	$	141,568	$	523,535	$	(12,043	)	$	909,548



	Nine Months Ended September 30,
	2019
	Domestic Pipelines & Terminals			Global Marine Terminals		Merchant Services		Intersegment Eliminations			Total
Revenue from contracts with customers
Pipeline transportation	$	379,078		$	—	$	—	$	(8,055	)	$	371,023
Terminalling and storage services	316,383			261,546		—		(24,783		)	553,146
Product sales	—			2,893		1,191,788		(8,612		)	1,186,069
Other services	29,294			1,306		2,021		(46		)	32,575
Total revenue from contracts with customers	724,755			265,745		1,193,809		(41,496		)	2,142,813
Revenue from leases	32,558			140,334		—		(442		)	172,450
Commodity derivative contracts, net	(4,540		)	—		321,366		—			316,826
Total revenue	$	752,773		$	406,079	$	1,515,175	$	(41,938	)	$	2,632,089



	Nine Months Ended September 30,
	2018
	Domestic Pipelines & Terminals			Global Marine Terminals		Merchant Services		Intersegment Eliminations			Total
Revenue from contracts with customers
Pipeline transportation	$	377,276		$	—	$	—	$	(7,741	)	$	369,535
Terminalling and storage services	323,493			294,093		—		(26,574		)	591,012
Product sales	—			5,263		1,531,849		(6,941		)	1,530,171
Other services	35,359			775		6,804		(1,375		)	41,563
Total revenue from contracts with customers	736,128			300,131		1,538,653		(42,631		)	2,532,281
Revenue from leases	28,254			128,665		—		(142		)	156,777
Commodity derivative contracts, net	(2,579		)	—		344,923		2,090			344,434
Total revenue	$	761,803		$	428,796	$	1,883,576	$	(40,683	)	$	3,033,492

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,
	2019		2018		2019		2018
Revenue:
United States	$	759,146	$	846,390	$	2,477,464	$	2,847,217
International	52,269		63,158		154,625		186,275
Total revenue	$	811,415	$	909,548	$	2,632,089	$	3,033,492

Adjusted EBITDA

Adjusted EBITDA is a measure not defined by GAAP. We define Adjusted EBITDA as earnings (losses) 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 and dispositions; 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, non-cash impairment charges, 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, which from January 1, 2017 through September 30, 2018, included 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 was based upon our 50% equity interest in VTTI, prior to adjustments related to noncontrolling interests in several of its subsidiaries and partnerships, which were 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 users of our financial statements benefit from having access to the same financial measures that we use and that these measures are useful 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 table presents a reconciliation of consolidated net income, which is the most comparable financial measure under GAAP, to Adjusted EBITDA, as well as Adjusted EBITDA by segment for the periods indicated (in thousands):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Reconciliation of Net income (loss) to Adjusted EBITDA:
Net income (loss)	$	112,845		$	(745,336	)	$	284,620		$	(534,927	)
Less: Net income attributable to noncontrolling interests	(495		)	(499		)	(1,489		)	(6,631		)
Net income (loss) attributable to Buckeye Partners, L.P.	112,350			(745,835		)	283,131			(541,558		)
Add: Interest and debt expense	50,107			60,332			151,849			179,003
Income tax expense	464			634			1,059			1,906
Depreciation and amortization ⁽¹⁾	66,896			68,464			196,639			199,171
Non-cash unit-based compensation expense	5,944			4,921			21,642			21,587
Acquisition, dispositions, and transition expense ⁽²⁾	3,971			21			13,837			444
Non-cash impairment on disposals of long-lived assets	—			—			3,106			—
Proportionate share of Adjusted EBITDA for equity method investment in VTTI ⁽³⁾	—			32,255			—			101,435
Goodwill impairment	—			536,964			—			536,964
Hurricane-related costs, net of recoveries ⁽⁴⁾	2,062			68			(2,748		)	(744		)
Loss from the equity method investment in VTTI ⁽³⁾	—			295,905			—			286,633
Loss on early extinguishment of debt ⁽⁵⁾	—			—			4,020			—
Less: Gains on property damage recoveries ⁽⁶⁾	—			—			—			(14,535		)
Adjusted EBITDA	$	241,794		$	253,729		$	672,535		$	770,306

Adjusted EBITDA:
Domestic Pipelines & Terminals	$	160,140		$	137,676		$	429,115		$	413,648
Global Marine Terminals	77,429			111,692			229,092			349,838
Merchant Services	4,225			4,361			14,328			6,820
Adjusted EBITDA	$	241,794		$	253,729		$	672,535		$	770,306


(1)	Includes 100% of the depreciation and amortization expense of $54.5 million for Buckeye Texas for the nine months ended September 30, 2018. In April 2018, we acquired our business partner’s 20% ownership interest in Buckeye Texas and, as a result, own 100% of Buckeye Texas.


(2)	Represents transaction, internal and third-party costs related to the Merger, asset acquisitions, dispositions, and integration.

(3)

Due to the significance of our equity method investment in VTTI, effective January 1, 2017 through September 30, 2018, 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 was based upon our 50% equity interest in VTTI, prior to adjustments related to noncontrolling interests in several of its subsidiaries and partnerships, which were immaterial. In September 2018, we recorded our equity investment in VTTI at its estimated fair value, resulting in a non-cash loss of $300.3 million.

(4)

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, which occurred in 2019, 2017 and 2016, including operating expenses and write-offs of damaged long-lived assets, net of insurance recoveries. For the nine months ended September 30, 2019 and 2018, our hurricane-related insurance recoveries on prior losses exceeded costs.


(5)	Represents the loss on early extinguishment of the $275.0 million principal amount outstanding under our 5.500% notes and the Prior $250.0 million Term Loan.

(6)

Represents gains on recoveries of property damages caused by third parties, which primarily related to a settlement in connection with a 2012 vessel allision with a jetty at our BBH facility in the Bahamas.