BUSINESS SEGMENTS

6 Months Ended

Jun. 30, 2013

BUSINESS SEGMENTS

BUSINESS SEGMENTS

13.  BUSINESS SEGMENTS

We operate and report in five business segments: (i) Pipelines & Terminals; (ii) International Operations; (iii) Natural Gas Storage; (iv) Energy Services; and (v) Development & Logistics.

Pipelines & Terminals

The Pipelines & Terminals segment receives refined petroleum products from refineries, connecting pipelines, and bulk and marine terminals, transports those products to other locations for a fee and provides bulk storage and terminal throughput services in the continental United States for refined petroleum products and other hydrocarbons.  This segment owns and operates pipeline systems and refined petroleum products terminals in the continental United States.  In addition, the segment provides crude oil services, including train off-loading, storage and throughput.

International Operations

The International Operations segment provides marine bulk storage and marine terminal throughput services.  The segment has two liquid petroleum product terminals, one in Puerto Rico and one on Grand Bahama Island in The Bahamas. Beginning in late 2012, the segment began to provide fuel oil supply and distribution services to third parties in the Caribbean.

Natural Gas Storage

The Natural Gas Storage segment provides natural gas storage services at a natural gas storage facility in Northern California.  The facility is connected to Pacific Gas and Electric’s intrastate natural gas pipelines that service natural gas demand in the San Francisco and Sacramento, California areas.  The Natural Gas Storage segment does not trade or market natural gas.

Energy Services

The Energy Services segment is a wholesale distributor of refined petroleum products in the Northeastern and Midwestern United States. This segment recognizes revenues when products are delivered.  The segment’s products include gasoline, propane, ethanol, biodiesel and petroleum distillates such as heating oil, diesel fuel and kerosene. The segment’s customers consist principally of product wholesalers as well as major commercial users of these refined petroleum products.

Development & Logistics

The Development & Logistics segment consists primarily of our contract operations of third-party pipelines, which are owned principally by major oil and gas, petrochemical and chemical companies and are located primarily in Texas and Louisiana.  This segment also performs pipeline construction management services, typically for cost plus a fixed fee, for these same customers.  Additionally, the Development & Logistics segment includes our ownership and operation of two underground propane storage caverns in Indiana and Illinois and an ammonia pipeline, as well as our majority ownership of the Sabina Pipeline, located in Texas.

Adjusted EBITDA

Adjusted EBITDA is the primary measure used by our senior management, including our Chief Executive Officer, 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. Adjusted EBITDA eliminates: (i) non-cash expenses, including but not limited to depreciation and amortization expense resulting from the significant capital investments we make in our businesses and from intangible assets recognized in business combinations; (ii) charges for obligations expected to be settled with the issuance of equity instruments; and (iii) items that are not indicative of our core operating performance results and business outlook.

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.

Each segment uses the same accounting policies as those used in the preparation of our audited condensed consolidated financial statements. All inter-segment revenues, operating income and assets have been eliminated.  All periods are presented on a consistent basis.  All of our operations and assets are conducted and located in the continental United States, except for our terminals located in Puerto Rico and The Bahamas.

The following tables summarize our financial information by each segment for the periods indicated (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2013			2012			2013			2012
Revenue:
Pipelines & Terminals	$	190,632		$	167,312		$	384,832		$	333,240
International Operations (1)	144,369			50,428			315,219			100,663
Natural Gas Storage	11,791			16,469			25,674			26,680
Energy Services	650,326			746,821			1,612,145			1,777,247
Development & Logistics	13,697			13,152			25,609			25,617
Intersegment	(5,436		)	(11,542		)	(13,139		)	(21,368		)
Total revenue	$	1,005,379		$	982,640		$	2,350,340		$	2,242,079

(1) The International Operations segment’s revenue generated in The Bahamas was $54.1 million and $47.2 million for the three months ended June 30, 2013 and 2012, respectively.  For the six months ended June 30, 2013 and 2012, the International Operations segment’s revenue generated in The Bahamas was $106.8 million and $93.3 million, respectively.  The remainder relates primarily to the fuel oil supply and distribution services in the Caribbean.

For the three and six months ended June 30, 2013 and 2012, no customer contributed 10% or more of consolidated revenue.

The following tables present Adjusted EBITDA by segment and on a consolidated basis and a reconciliation of net income to Adjusted EBITDA for the periods indicated (in thousands):

		Three Months Ended						Six Months Ended
		June 30,						June 30,
		2013			2012			2013			2012
Adjusted EBITDA:
Pipelines & Terminals		$	109,085		$	89,598		$	224,629		$	177,830
International Operations		37,203			30,591			72,446			62,257
Natural Gas Storage		(5,757		)	(388		)	(7,584		)	(1,656		)
Energy Services		4,773			(3,206		)	11,964			(9,378		)
Development & Logistics		3,187			3,337			5,885			5,866
Total Adjusted EBITDA		$	148,491		$	119,932		$	307,340		$	234,919
Reconciliation of Net Income to Adjusted EBITDA:
Net income		$	77,370		$	56,026		$	167,869		$	109,493
Less:	Net income attributable to noncontrolling interests	(940		)	(1,647		)	(2,098		)	(3,155		)
Net income attributable to Buckeye Partners, L.P.		76,430			54,379			165,771			106,338
Add:	Interest and debt expense	30,237			27,612			60,486			56,422
	Income tax expense	195			329			326			666
	Depreciation and amortization	39,452			34,325			77,043			67,352
	Non-cash deferred lease expense	942			975			1,884			1,950
	Non-cash unit-based compensation expense	3,984			5,061			7,327			7,688
Less:	Amortization of unfavorable storage contracts (1)	(2,749		)	(2,749		)	(5,497		)	(5,497		)
Adjusted EBITDA		$	148,491		$	119,932		$	307,340		$	234,919

(1) Represents amortization of negative fair values allocated to certain unfavorable storage contracts acquired in connection with the BORCO acquisition.