25. 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. Effective January 1, 2011, we realigned our business segments. We combined our former Pipeline Operations and Terminalling & Storage segments into one segment, the Pipelines & Terminals segment, and moved our terminal in Yabucoa, Puerto Rico, previously included as part of the Terminalling & Storage segment, and the BORCO facility to a new International Operations segment. We have adjusted our prior period segment information to conform to the current presentation.

Pipelines & Terminals

The Pipelines & Terminals segment receives refined petroleum products from refineries, connecting pipelines, and bulk and marine terminals and transports those products to other locations for a fee and provides bulk storage and terminal throughput services in the continental United States. This segment owns and operates approximately 6,100 miles of pipeline systems in 16 states. The segment has approximately 100 refined petroleum products terminals, which includes five terminals owned by the Energy Services segment, in 21 states with aggregate storage capacity of approximately 37.4 million barrels.

International Operations

The International Operations segment provides marine bulk storage and marine terminal throughput services. The segment has two refined petroleum product terminals, one in Puerto Rico and one on The Grand Bahama Island, in the Bahamas, with an aggregate storage capacity of 26.1 million barrels.

Natural Gas Storage

The Natural Gas Storage segment provides natural gas storage services at a natural gas storage facility in northern California that is owned and operated by Lodi Gas. The facility currently has 30 Bcf of working natural gas storage capacity and 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 and petroleum distillates such as heating oil, diesel fuel and kerosene. The segment also has five terminals in Pennsylvania with aggregate storage capacity of approximately 1.0 million barrels. 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 operation of approximately 2,800 miles of third-party pipeline, 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. The Development & Logistics segment also includes our ownership and operation of an ammonia pipeline and our majority ownership of Sabina Pipeline, located in Texas.

Adjusted EBITDA

Adjusted EBITDA is the primary measure used by senior management, including our Chief Executive Officer, to evaluate our operating results and to allocate our resources. We define EBITDA, a measure not defined under GAAP, as net income attributable to our unitholders before interest and debt expense, income taxes and depreciation and amortization. The EBITDA measure eliminates the significant level of non-cash depreciation and amortization expense that results from the capital-intensive nature of our businesses and from intangible assets recognized in business combinations. In addition, EBITDA is unaffected by our capital structure due to the elimination of interest and debt expense and income taxes. We define Adjusted EBITDA as EBITDA plus: (i) non-cash deferred lease expense, which is the difference between the estimated annual land lease expense for our natural gas storage facility in the Natural Gas Storage segment to be recorded under GAAP and the actual cash to be paid for such annual land lease, (ii) non-cash unit-based compensation expense, (iii) non-cash impairment expense related to the Buckeye NGL Pipeline that we sold in January 2010, (iv) organizational restructuring expense, (v) non-cash BGH GP equity plan modification expense, (vi) income attributable to noncontrolling interests related to Buckeye for periods prior to the Merger in order to provide consistency and comparability between periods before and after the Merger and (vii) non-cash goodwill impairment expense associated with the Natural Gas Storage segment; less: (i) amortization of unfavorable storage contracts acquired in connection with the BORCO acquisition and (ii) gain on the sale of our equity investment in WT LPG.

The EBITDA and Adjusted EBITDA data presented may not be comparable to similarly titled measures at other companies because EBITDA and Adjusted EBITDA exclude some items that affect net income attributable to our unitholders, and these items may be defined differently by other companies. Our senior management uses Adjusted EBITDA to evaluate consolidated operating performance and the operating performance of our business segments and to allocate resources and capital to the business segments. In addition, our senior management uses Adjusted EBITDA as a performance measure to evaluate the viability of proposed projects and to 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. Further, we believe that these measures are useful to investors because they are one of the bases for comparing our operating performance with that of other companies with similar operations, although our measures may not be directly comparable to similar measures used by other companies.

Each segment uses the same accounting policies as those used in the preparation of our 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.

For the years ended December 31, 2011, 2010 and 2009, no customer contributed 10% or more of consolidated revenue.

The following tables show our measurement of Adjusted EBITDA, a reconciliation of Adjusted EBITDA to net income (loss) attributable to our unitholders and financial information about each segment for the periods indicated (in thousands):


	Year Ended December 31,
	2011			2010			2009
Adjusted EBITDA:
Pipelines & Terminals	$	361,018		$	346,447		$	302,164
International Operations		112,996			(4,655	)		—
Natural Gas Storage		4,204			29,794			41,950
Energy Services		1,797			5,861			19,335
Development & Logistics		7,932			5,193			6,718

Total Adjusted EBITDA		487,947			382,640			370,167


Interest and debt expense		(119,561	)		(89,169	)		(75,147	)
Income tax benefit		192			919			343
Depreciation and amortization		(119,534	)		(59,590	)		(54,699	)
Net income attributable to noncontrolling interests(1) affected by Merger (for periods prior to Merger)		—			(157,467	)		(90,381	)
Non-cash deferred lease expense		(4,122	)		(4,235	)		(4,500	)
Non-cash unit-based compensation expense		(9,150	)		(8,960	)		(4,408	)
Equity plan modification expense		—			(21,058	)		—
Asset impairment expense		—			—			(59,724	)
Goodwill impairment expense		(169,560	)		—			—
Gain on sale of equity investment		34,727			—			—
Amortization of unfavorable storage contracts		7,562			—			—
Reorganization expense		—			—			(32,057	)

Net income attributable to Buckeye Partners, L.P.		108,501			43,080			49,594
Add: net income attributable to noncontrolling interests		6,163			157,928			92,043

Net income	$	114,664		$	201,008		$	141,637

(1)	Amounts represent portions of BGH’s noncontrolling interests related to Buckeye that were eliminated as a result of the Merger. Amounts are added back for the portion of 2010 prior to the Merger and the 2009 period for comparability purposes.


	Year Ended December 31,
	2011			2010			2009
Revenue:
Pipelines & Terminals	$	631,289		$	574,990		$	529,243
International Operations (1)		193,960			936			—
Natural Gas Storage		65,990			95,337			99,163
Energy Services		3,888,961			2,481,566			1,125,013
Development & Logistics		43,068			37,696			34,136
Intersegment		(63,658	)		(39,257	)		(17,183	)

Total revenue	$	4,759,610		$	3,151,268		$	1,770,372


Operating income (loss):
Pipelines & Terminals	$	290,573		$	266,184		$	155,041
International Operations		72,067			(4,656	)		—
Natural Gas Storage		(177,163	)		16,069			30,574
Energy Services		(4,462	)		(1,367	)		13,086
Development & Logistics		7,859			3,271			5,099

Total operating income	$	188,874		$	279,501		$	203,800


Depreciation and amortization:
Pipelines & Terminals	$	55,469		$	46,320		$	42,791
International Operations		50,011			—			—
Natural Gas Storage		7,136			6,594			5,971
Energy Services		5,261			4,933			4,204
Development & Logistics		1,657			1,743			1,733

Total depreciation and amortization	$	119,534		$	59,590		$	54,699

(1)	The International Operations segment’s revenue generated in The Bahamas was $177.6 million for the year ended December 31, 2011, which represents 91.6% of the International Operations segment’s total revenue for the period.


	Year Ended December 31,
	2011		2010		2009
Capital additions, net: (1)
Pipelines & Terminals	$	103,678	$	65,527	$	56,924
International Operations		184,438		—		—
Natural Gas Storage		10,097		8,328		23,033
Energy Services		1,824		2,961		6,236
Development & Logistics		5,287		883		1,116

Total capital additions, net	$	305,324	$	77,699	$	87,309


Total Assets:
Pipelines & Terminals (2)	$	2,566,471	$	2,328,702	$	2,125,887
International Operations (4)		2,041,209		60,313		—
Natural Gas Storage		365,514		549,876		573,261
Energy Services		518,438		561,382		482,025
Development & Logistics		78,744		73,943		74,476
Consolidating level (3)		—		—		230,922

Total assets	$	5,570,376	$	3,574,216	$	3,486,571

(1)	Amounts exclude $14.3 million, $0.4 million and ($3.3) million of non-cash changes in accruals for capital expenditures for the years ended December 31, 2011, 2010 and 2009, respectively (see Note 26).

(2)	All equity investments are included in the assets of the Pipelines & Terminals segment.

(3)	In connection with the Merger, consolidating level assets were allocated to our business segments.

(4)

The International Operations segment’s long-lived assets consist of property, plant and equipment, goodwill, intangible assets and other non-current assets. Total long-lived assets located in or attributable to The Bahamas was $1,954.3 million at December 31, 2011, which was 97.4% of the International Operations segment’s total long-lived assets.