UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission file number 1-32963

Buckeye GP Holdings L.P.

(Exact name of registrant as specified in its charter)

Delaware		11-3776228
(State or other jurisdiction of		(IRS Employer
incorporation or organization)		Identification number)
One Greenway Plaza
Suite 600
Houston, TX		77046
(Address of principal executive offices)		(Zip Code)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ      No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o       No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes o       No þ

     As of May 3, 2010, there were 27,774,043 Common Units and 525,957 Management Units outstanding.

 

 

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2010 and 2009 (Unaudited)			2
Condensed Consolidated Balance Sheets as of March 31, 2010 and December 31, 2009 (Unaudited)			3
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2010 and 2009 (Unaudited)			4
Condensed Consolidated Statements of Partners’ Capital for the Three Months Ended March 31, 2010 and 2009 (Unaudited)			5
Notes to Unaudited Condensed Consolidated Financial Statements:
1. Organization and Basis of Presentation			6
2. Acquisition and Disposition			7
3. Commitments and Contingencies			8
4. Inventories			9
5. Prepaid and Other Current Assets			10
6. Equity Investments			10
7. Intangible Assets			11
8. Other Non-Current Assets			11
9. Accrued and Other Current Liabilities			12
10. Debt Obligations			12
11. Other Non-Current Liabilities			15
12. Derivative Instruments, Hedging Activities and Fair Value Measurements			15
13. Pensions and Other Postretirement Benefits			22
14. Unit-Based Compensation Plans			22
15. Related Party Transactions			24
16. Cash Distributions			24
17. Earnings Per Partnership Unit			25
18. Business Segments			25
19. Supplemental Cash Flow Information			27
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			28
Item 3. Quantitative and Qualitative Disclosures About Market Risk			41
Item 4. Controls and Procedures			44
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			44
Item 1A. Risk Factors			44
Item 6. Exhibits			45
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I. FINANCIAL INFORMATION

Item 1.		Financial Statements

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per unit amounts)
(Unaudited)

		Three Months Ended
		March 31,
		2010				2009
Revenues:
Product sales		$	568,170			$	268,779
Transportation and other services			163,004				148,061
Total revenue			731,174				416,840
Costs and expenses:
Cost of product sales and natural gas storage services			569,737				250,676
Operating expenses			66,583				73,900
Depreciation and amortization			14,528				13,364
General and administrative			10,835				10,035
Total costs and expenses			661,683				347,975
Operating income			69,491				68,865
Other income (expense):
Investment income			155				152
Interest and debt expense			(21,656	)			(17,403	)
Total other expense			(21,501	)			(17,251	)
Income before earnings from equity investments			47,990				51,614
Earnings from equity investments			2,652				2,082
Net income			50,642				53,696
Less: net income attributable to noncontrolling interests			(39,372	)			(43,547	)
Net income attributable to Buckeye GP Holdings L.P.		$	11,270			$	10,149
Earnings per partnership unit:
Basic		$	0.40			$	0.36
Diluted		$	0.40			$	0.36
Weighted average number of common units outstanding:
Basic			28,300				28,300
Diluted			28,300				28,300

See Notes to Unaudited Condensed Consolidated Financial Statements.

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except unit amounts)
(Unaudited)

		March 31,				December 31,
		2010				2009
Assets:
Current assets:
Cash and cash equivalents		$	20,154			$	37,574
Trade receivables, net			134,563				124,165
Construction and pipeline relocation receivables			11,420				14,095
Inventories			246,230				310,214
Derivative assets			1,964				4,959
Assets held for sale			—				22,000
Prepaid and other current assets			79,084				104,251
Total current assets			493,415				617,258
Property, plant and equipment, net			2,234,407				2,238,321
Equity investments			99,503				96,851
Goodwill			432,124				432,124
Intangible assets, net			44,044				45,157
Other non-current assets			51,586				56,860
Total assets		$	3,355,079			$	3,486,571
Liabilities and partners’ capital:
Current liabilities:
Line of credit		$	183,500			$	239,800
Current portion of long-term debt			6,146				6,178
Accounts payable			53,670				56,723
Derivative liabilities			2,831				14,665
Accrued and other current liabilities			114,393				113,474
Total current liabilities			360,540				430,840
Long-term debt			1,441,076				1,500,495
Other non-current liabilities			106,381				102,942
Total liabilities			1,907,997				2,034,277
Commitments and contingent liabilities			—				—
Partners’ capital:
Buckeye GP Holdings L.P. capital:
General Partner (2,830 common units outstanding as of March 31, 2010 and December 31, 2009)			7				7
Limited Partners (27,771,213 common units outstanding as of March 31, 2010 and December 31, 2009)			236,537				236,545
Management (525,957 units outstanding as of March 31, 2010 and December 31, 2009)			3,226				3,225
Equity gains on issuance of Buckeye Partners, L.P. limited partner units			2,557				2,557
Total Buckeye GP Holdings L.P. capital			242,327				242,334
Noncontrolling interests			1,204,755				1,209,960
Total partners’ capital			1,447,082				1,452,294
Total liabilities and partners’ capital		$	3,355,079			$	3,486,571

See Notes to Unaudited Condensed Consolidated Financial Statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

		Three Months Ended
		March 31,
		2010				2009
Cash flows from operating activities:
Net income		$	50,642			$	53,696
Adjustments to reconcile net income to cash provided by operating activities:
Value of ESOP shares released			1,141				183
Depreciation and amortization			14,528				13,364
Net changes in fair value of derivatives			(19,183	)			4,103
Non-cash deferred lease expense			1,059				1,125
Earnings from equity investments of Buckeye Partners, L.P.			(2,652	)			(2,082	)
Distributions from equity investments of Buckeye Partners, L.P.			—				235
Amortization of other non-cash items			2,806				1,245
Change in assets and liabilities:
Trade receivables			(10,398	)			(2,012	)
Construction and pipeline relocation receivables			2,675				3,064
Inventories			73,705				26,101
Prepaid and other current assets			26,214				5,422
Accounts payable			(3,053	)			(11,659	)
Accrued and other current liabilities			1,271				(18,821	)
Other non-current assets			2,948				2,466
Other non-current liabilities			2,345				2,343
Total adjustments from operating activities			93,406				25,077
Net cash provided by operating activities			144,048				78,773
Cash flows from investing activities:
Capital expenditures			(10,963	)			(20,976	)
Net proceeds (expenditures) for disposal of property, plant and equipment			22,174				(42	)
Net cash provided by (used in) investing activities			11,211				(21,018	)
Cash flows from financing activities:
Net proceeds from issuance of Buckeye Partners, L.P. limited partner units			—				91,042
Proceeds from exercise of Buckeye Partners, L.P. unit options			2,376				—
Repayment of long term-debt			(1,557	)			(1,587	)
Borrowings under credit facilities			59,500				30,000
Repayments under credit facilities			(117,500	)			(120,267	)
Net repayments under BES credit agreement			(56,300	)			(46,000	)
Debt issuance costs			(9	)			(13	)
Distributions paid to noncontrolling partners of Buckeye Partners, L.P.			(47,586	)			(41,925	)
Distributions paid to partners			(11,603	)			(9,339	)
Net cash used in financing activities			(172,679	)			(98,089	)
Net decrease in cash and cash equivalents			(17,420	)			(40,334	)
Cash and cash equivalents — Beginning of period			37,574				61,281
Cash and cash equivalents — End of period		$	20,154			$	20,947

See Notes to Unaudited Condensed Consolidated Financial Statements.

BUCKEYE GP HOLDINGS L.P.
CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL
(In thousands)
(Unaudited)

		Buckeye GP Holdings L.P. Unitholders
														Equity Gains
		General				Limited								on Issuance
		Partner				Partner								of Buckeye’s
		Common				Common				Management				Limited				Noncontrolling
		Units				Units				Units				Partner Units				Interests				Total
Balance — January 1, 2009		$	7			$	226,565			$	3,037			$	2,451			$	1,166,774			$	1,398,834
Net income*			—				9,959				190				—				43,547				53,696
Distributions paid to partners			—				(9,164	)			(175	)			—				—				(9,339	)
Recognition of unit-based compensation charges			—				358				8				—				—				366
Equity gains on issuance of Buckeye LP Units			—				—				—				93				(93	)			—
Net proceeds from issuance of 2.6 million of
Buckeye’s limited partner units			—				—				—				—				91,042				91,042
Distributions paid to noncontrolling interests			—				—				—				—				(41,925	)			(41,925	)
Change in value of derivatives			—				—				—				—				71				71
Investment in Buckeye’s limited partner units			—				—				—				—				697				697
Other			—				—				—				—				(425	)			(425	)
Balance — March 31, 2009		$	7			$	227,718			$	3,060			$	2,544			$	1,259,688			$	1,493,017
Balance — January 1, 2010		$	7			$	236,545			$	3,225			$	2,557			$	1,209,960			$	1,452,294
Net income*			—				11,058				212				—				39,372				50,642
Distributions paid to partners			—				(11,386	)			(217	)			—				—				(11,603	)
Recognition of unit-based compensation charges			—				320				6				—				—				326
Amortization of Buckeye’s limited partner unit options			—				—				—				—				2,024				2,024
Exercise of limited partner unit options			—				—				—				—				2,376				2,376
Services Company’s non-cash ESOP distributions			—				—				—				—				(1,316	)			(1,316	)
Distributions paid to noncontrolling interests			—				—				—				—				(47,586	)			(47,586	)
Change in value of derivatives			—				—				—				—				(1,928	)			(1,928	)
Investment in Buckeye’s limited partner units			—				—				—				—				4,318				4,318
Other			—				—				—				—				(2,465	)			(2,465	)
Balance — March 31, 2010		$	7			$	236,537			$	3,226			$	2,557			$	1,204,755			$	1,447,082

See Notes to Unaudited Condensed Consolidated Financial Statements.

BUCKEYE GP HOLDINGS L.P.

     Except for per unit amounts, or as otherwise noted within the context of each footnote disclosure, the dollar amounts presented in the tabular data within these footnote disclosures are stated in thousands.

1. ORGANIZATION AND BASIS OF PRESENTATION

   Partnership Organization

     Buckeye GP Holdings L.P. is a publicly traded Delaware master limited partnership (“MLP”), the common units (“Common Units”) of which are listed on the New York Stock Exchange (“NYSE”) under the ticker symbol “BGH.” We were organized on June 15, 2006 and own 100% of Buckeye GP LLC (“Buckeye GP”), which is the general partner of Buckeye Partners, L.P. (“Buckeye”). Buckeye is also a publicly traded Delaware MLP which was organized in 1986, and its limited partner units (“LP Units”) are separately traded on the NYSE under the ticker symbol “BPL.” Approximately 62% of our outstanding equity, which includes Common Units and management units (“Management Units”), are owned by BGH GP Holdings, LLC (“BGH GP”) and approximately 38% by the public. BGH GP is owned by affiliates of ArcLight Capital Partners, LLC (“ArcLight”), Kelso & Company (“Kelso”), and certain investment funds along with certain members of senior management of Buckeye GP. MainLine Management LLC, a Delaware limited liability company (“MainLine Management”), is our general partner and is wholly owned by BGH GP. As used in these Notes to Unaudited Condensed Consolidated Financial Statements, unless the context requires otherwise, references to “we,” “us,” “our,” or “BGH” are intended to mean the business and operations of Buckeye GP Holdings L.P. on a consolidated basis, including those of Buckeye. References to “Buckeye” mean Buckeye Partners, L.P. and its consolidated subsidiaries.

     Our only business is the ownership of Buckeye GP. Buckeye GP’s only business is the management of Buckeye and its subsidiaries. At March 31, 2010, Buckeye GP owned an approximate 0.5% general partner interest in Buckeye.

     Buckeye was formed in 1986 and owns and operates one of the largest independent refined petroleum products pipeline systems in the United States in terms of volumes delivered with approximately 5,400 miles of pipeline and 67 active products terminals that provide aggregate storage capacity of approximately 27.2 million barrels. In addition, Buckeye operates and maintains approximately 2,400 miles of other pipelines under agreements with major oil and gas, petrochemical and chemical companies, and performs certain engineering and construction management services for third parties. Buckeye also owns and operates a major natural gas storage facility in northern California, and is a wholesale distributor of refined petroleum products in the United States in areas also served by its pipelines and terminals. We, through Buckeye, operate and report in five business segments: Pipeline Operations; Terminalling & Storage; Natural Gas Storage; Energy Services; and Development & Logistics.

     Buckeye Pipe Line Services Company (“Services Company”) was formed in 1996 in connection with the establishment of the Buckeye Pipe Line Services Company Employee Stock Ownership Plan (the “ESOP”). At March 31, 2010, Services Company owned approximately 3.0% of Buckeye’s LP Units. Services Company employees provide services to Buckeye’s operating subsidiaries. Pursuant to a services agreement entered into in December 2004 (the “Services Agreement”), Buckeye’s operating subsidiaries reimburse Services Company for the costs of the services provided by Services Company.

   Basis of Presentation

     The accompanying unaudited condensed consolidated financial statements reflect all adjustments that are, in the opinion of our management, of a normal and recurring nature and necessary for a fair statement of our financial position as of March 31, 2010, and the results of our operations and cash flows for the periods presented. The results of operations for the three months ended March 31, 2010 are not necessarily indicative of results of our operations for the 2010 fiscal year. The unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). We have eliminated all intercompany transactions in consolidation. The consolidated financial statements also include the accounts of wholly-owned subsidiaries, as well as the accounts of Buckeye and Services Company, on a

BUCKEYE GP HOLDINGS L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

consolidated basis. Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to those rules and regulations. These interim financial statements should be read in conjunction with our consolidated financial statements and notes thereto presented in our Annual Report on Form 10-K for the year ended December 31, 2009, as filed with the SEC on March 2, 2010.

   Reclassifications

     Certain prior year amounts have been reclassified in the condensed consolidated statements of operations and condensed consolidated statements of cash flows to conform to the current-year presentation. The reclassifications in the condensed consolidated statements of operations are as follows:

•

Earnings from equity investments are now presented on a separate line item in the condensed consolidated statements of operations for the three months ended March 31, 2009. The other investment income that had previously been included with earnings from equity investments has been reclassified and included in “Other income” in the 2009 period.

     The reclassifications in the condensed consolidated statements of cash flows are as follows:

•

We have separately disclosed cash flows from the issuance of long-term debt and borrowings under our credit facilities for the three months ended March 31, 2009. These amounts had been included within the same line item in the 2009 period.

     These reclassifications had no impact on net income or cash flows from operating, investing or financing activities.

   Recent Accounting Developments

     Consolidation of Variable Interest Entities (“VIEs”). In June 2009, the Financial Accounting Standards Board (“FASB”) amended consolidation guidance for VIEs. The objective of this new guidance is to improve financial reporting by companies involved with VIEs. This guidance requires each reporting company to perform an analysis to determine whether the company’s variable interest or interests give it a controlling financial interest in a VIE. The new guidance is effective as of the beginning of each reporting company’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. This guidance was effective for us on January 1, 2010. The adoption of this guidance did not have an impact on our consolidated financial statements.

     Fair Value Measurements. In January 2010, the FASB issued guidance that requires new disclosures related to fair value measurements. The new guidance requires expanded disclosures related to transfers between Level 1 and 2 activities and a gross presentation for Level 3 activity. The new accounting guidance is effective for fiscal years and interim periods beginning after December 15, 2009, except for the new disclosures related to Level 3 activities, which are effective for fiscal years beginning after December 15, 2010 and for interim periods within those years. The new guidance became effective for us on January 1, 2010, except for the new disclosures related to Level 3 activities, which will be effective for us on January 1, 2011. We have included the enhanced disclosure requirements regarding fair value measurements in Note 12.

2. ACQUISITION AND DISPOSITION

   Refined Petroleum Products Terminals and Pipeline Assets Acquisition

     On November 18, 2009, we acquired from ConocoPhillips certain refined petroleum product terminals and pipeline assets for approximately $47.1 million in cash. In addition, we acquired certain inventory on hand upon completion of the transaction for additional consideration of $7.3 million. The assets include over 300 miles of

BUCKEYE GP HOLDINGS L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

active pipeline that provide connectivity between the East St. Louis, Illinois and East Chicago, Indiana markets and three terminals providing 2.3 million barrels of storage tankage. ConocoPhillips entered into certain commercial contracts with us concurrent with our acquisition regarding usage of the acquired facilities. We believe the acquisition of these assets has given us greater access to markets and refinery operations in the Midwest and increased the commercial value of these assets and certain of our existing assets to our customers by offering enhanced distribution connectivity and flexible storage capabilities. The operations of these acquired assets are reported in the Pipeline Operations and Terminalling & Storage segments. The purchase price has been allocated to the tangible and intangible assets acquired, as follows:

Inventory		$	7,287
Property, plant and equipment			44,400
Intangible assets			4,580
Environmental and other liabilities			(1,834	)
Allocated purchase price		$	54,433

   Sale of Buckeye NGL Pipeline

     Effective January 1, 2010, we sold our ownership interest in an approximately 350 mile natural gas liquids pipeline (the “Buckeye NGL Pipeline”) that runs from Wattenberg, Colorado to Bushton, Kansas for $22.0 million. The assets had been classified as “Assets held for sale” in our consolidated balance sheet at December 31, 2009 with a carrying amount equal to the proceeds received. Revenues for Buckeye NGL Pipeline for the three months ended March 31, 2009 were $3.3 million.

3. COMMITMENTS AND CONTINGENCIES

  Claims and Proceedings

     In the ordinary course of business, we are involved in various claims and legal proceedings, some of which are covered by insurance. We are generally unable to predict the timing or outcome of these claims and proceedings. Based upon our evaluation of existing claims and proceedings and the probability of losses relating to such contingencies, we have accrued certain amounts relating to such claims and proceedings, none of which are considered material.

     In April 2010, the Pipeline Hazardous Materials Safety Administration (“PHMSA”) proposed penalties totaling approximately $0.5 million in connection with a tank overfill incident that occurred at our facility in East Chicago, Indiana, in May 2005 and other related personnel qualification issues raised as a result of PHMSA’s 2008 Integrity Inspection. We plan on contesting the proposed penalty. The timing or outcome of this appeal cannot reasonably be determined at this time.

   Environmental Contingencies

     In accordance with our accounting policy, we recorded operating expenses, net of insurance recoveries, of $2.8 million and $5.3 million during the three months ended March 31, 2010 and 2009, respectively, related to environmental expenditures unrelated to claims and proceedings.

   Ammonia Contract Contingencies

     On November 30, 2005, Buckeye Gulf Coast Pipe Lines, L.P. (“BGC”) purchased an ammonia pipeline and other assets from El Paso Merchant Energy-Petroleum Company (“EPME”), a subsidiary of El Paso Corporation (“El Paso”). As part of the transaction, BGC assumed the obligations of EPME under several contracts involving monthly purchases and sales of ammonia. EPME and BGC agreed, however, that EPME would retain the economic risks and benefits associated with those contracts until their expiration at the end of 2012. To effectuate this

BUCKEYE GP HOLDINGS L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

agreement, BGC passes through to EPME both the cost of purchasing ammonia under a supply contract and the proceeds from selling ammonia under three sales contracts. For the vast majority of monthly periods since the closing of the pipeline acquisition, the pricing terms of the ammonia contracts have resulted in ammonia costs exceeding ammonia sales proceeds. The amount of the shortfall generally increases as the market price of ammonia increases.

     EPME has informed BGC that, notwithstanding the parties’ agreement, it will not continue to pay BGC for shortfalls created by the pass-through of ammonia costs in excess of ammonia revenues. EPME encouraged BGC to seek payment by invoking a $40.0 million guaranty made by El Paso which guaranteed EPME’s obligations to BGC. If EPME fails to reimburse BGC for these shortfalls for a significant period during the remainder of the term of the ammonia agreements, then such unreimbursed shortfalls could exceed the $40.0 million cap on El Paso’s guaranty. To the extent the unreimbursed shortfalls significantly exceed the $40.0 million cap, the resulting costs incurred by BGC could adversely affect our financial position, results of operations and cash flows. To date, BGC has continued to receive payment for ammonia costs under the contracts at issue. BGC has not called on El Paso’s guaranty and believes only BGC may invoke the guaranty. EPME, however, contends that El Paso’s guaranty is the source of payment for the shortfalls, but has not clarified the extent to which it believes the guaranty has been exhausted. We have been working with EPME to terminate the ammonia sales contracts and ammonia supply contracts and, at no cost to us, have terminated one of the ammonia sales contracts. Given, however, the uncertainty of future ammonia prices and EPME’s future actions, we continue to believe we have risk of loss and, at this time, are unable to estimate the amount of any such losses we might incur in the future. We are assessing our options in the event that we and EPME are unable to terminate the remaining contracts or otherwise mitigate the remaining risk, including potential recourse against EPME and El Paso, with respect to this matter.

   Customer Bankruptcy

     One of our customers filed for bankruptcy in October 2009 and, since such filing, has not paid any amounts due to us pursuant a contract under which approximately $4.2 million remains payable. At this time, we are unable to estimate the impact of the bankruptcy on amounts payable to us.

4. INVENTORIES

     Our inventory amounts were as follows at the dates indicated:

		March 31,				December 31,
		2010				2009
Refined petroleum products (1)		$	235,696			$	299,473
Materials and supplies			10,534				10,741
Total inventories		$	246,230			$	310,214

     At March 31, 2010 and December 31, 2009, approximately 93% and 99%, respectively, of our inventory was hedged. Hedged inventory is valued at current market prices with the change in value of the inventory reflected in our condensed consolidated statements of operations.

BUCKEYE GP HOLDINGS L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

5. PREPAID AND OTHER CURRENT ASSETS

Prepaid and other current assets consist of the following at the dates indicated:

		March 31,				December 31,
		2010				2009
Prepaid insurance		$	5,013			$	7,088
Insurance receivables			12,948				13,544
Ammonia receivable			7,005				7,429
Margin deposits			5,731				21,037
Prepaid services			21,267				21,571
Unbilled revenue			3,087				13,201
Tax receivable			7,162				7,162
Prepaid taxes			4,226				2,213
Other			12,645				11,006
Total prepaid and other current assets		$	79,084			$	104,251

6. EQUITY INVESTMENTS

     We own interests in related businesses that are accounted for using the equity method of accounting. The following table presents our equity investments, all included within the Pipeline Operations segment, at the dates indicated:

						March 31,				December 31,
		Ownership				2010				2009
Muskegon Pipeline LLC			40.0	%		$	15,617			$	15,273
Transport4, LLC			25.0	%			418				379
West Shore Pipe Line Company			24.9	%			31,526				30,320
West Texas LPG Pipeline Limited Partnership			20.0	%			51,942				50,879
Total equity investments						$	99,503			$	96,851

     The following table presents earnings from equity investments for the periods indicated:

		Three Months Ended
		March 31,
		2010				2009
Muskegon Pipeline LLC		$	344			$	365
Transport4, LLC			39				29
West Shore Pipe Line Company			1,207				1,103
West Texas LPG Pipeline Limited Partnership			1,062				585
Total earnings from equity investments		$	2,652			$	2,082

BUCKEYE GP HOLDINGS L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

     Combined income statement data for the periods indicated for our equity method investments is summarized below:

		Three Months Ended
		March 31,
		2010				2009
Revenues		$	31,545			$	31,567
Costs and expenses			15,901				16,053
Non-operating expense			3,577				2,890
Net income			12,067				12,624

7. INTANGIBLE ASSETS

     Intangible assets consist of the following at the dates indicated:

		March 31,				December 31,
		2010				2009
Customer relationships		$	38,300			$	38,300
Accumulated amortization			(6,373	)			(5,631	)
Net carrying amount			31,927				32,669
Customer contracts			16,380				16,380
Accumulated amortization			(4,263	)			(3,892	)
Net carrying amount			12,117				12,488
Total intangible assets		$	44,044			$	45,157

     For the three months ended March 31, 2010 and 2009, amortization expense related to intangible assets was $1.1 million and $0.9 million, respectively. Amortization expense related to intangible assets is expected to be approximately $4.5 million for each of the next five years.

8. OTHER NON CURRENT ASSETS

Other non current assets consist of the following at the dates indicated:

		March 31,				December 31,
		2010				2009
Prepaid services		$	8,799			$	11,640
Long-term derivative assets			15,900				17,204
Debt issuance costs			10,123				11,058
Insurance receivables			7,057				7,265
Other			9,707				9,693
Total other non-current assets		$	51,586			$	56,860

BUCKEYE GP HOLDINGS L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

9. ACCRUED AND OTHER CURRENT LIABILITIES

     Accrued and other current liabilities consist of the following at the dates indicated:

		March 31,				December 31,
		2010				2009
Taxes-other than income		$	18,880			$	15,487
Accrued employee benefit liability			3,287				3,287
Environmental liabilities			10,746				10,799
Accrued interest			18,572				30,613
Payable for ammonia purchase			7,056				7,015
Deferred revenue			18,501				6,829
Compensation and vacation			6,886				11,385
Accrued capital expenditures			256				1,611
Reorganization			854				2,133
Deferred consideration			2,010				1,675
Other			27,345				22,640
Total accrued and other current liabilities		$	114,393			$	113,474

10. DEBT OBLIGATIONS

     Long-term debt consists of the following at the dates indicated:

		March 31,				December 31,
		2010				2009
BGH:
BGH Credit Agreement		$	—			$	—
Services Company:
3.60% ESOP Notes due March 28, 2011			6,204				7,790
Retirement premium			(58	)			(87	)
Buckeye:
4.625% Notes due July 15, 2013 (1)			300,000				300,000
5.300% Notes due October 15, 2014 (1)			275,000				275,000
5.125% Notes due July 1, 2017 (1)			125,000				125,000
6.050% Notes due January 15, 2018 (1)			300,000				300,000
5.500% Notes due August 15, 2019 (1)			275,000				275,000
6.750% Notes due August 15, 2033 (1)			150,000				150,000
Credit Facility			20,000				78,000
BES Credit Agreement			183,500				239,800
Total debt			1,634,646				1,750,503
Other, including unamortized discounts and fair value hedges			(3,924	)			(4,030	)
Subtotal debt			1,630,722				1,746,473
Less: Current portion of long-term debt			(189,646	)			(245,978	)
Total long-term debt		$	1,441,076			$	1,500,495

BUCKEYE GP HOLDINGS L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

     The fair values of our aggregate debt and credit facilities were estimated to be $1,683.5 million and $1,769.8 million at March 31, 2010 and December 31, 2009, respectively. The fair values of the fixed-rate debt were estimated by observing market trading prices and by comparing the historic market prices of our publicly-issued debt with the market prices of other MLPs’ publicly-issued debt with similar credit ratings and terms. The fair values of the variable-rate debt are their carrying amounts, as the carrying amount reasonably approximates fair value due to the variability of the interest rates.

   BGH

     We have a five-year, $10.0 million unsecured revolving credit facility with SunTrust Bank, as both administrative agent and lender (the “BGH Credit Agreement”). The BGH Credit Agreement may be used for working capital and other partnership purposes. We have pledged all of the limited liability company interests in Buckeye GP as security for our obligations under the BGH Credit Agreement. Borrowings under the BGH Credit Agreement bear interest under one of two rate options, selected by us, equal to either (i) the greater of (a) the federal funds rate plus 0.5% and (b) SunTrust Bank’s prime commercial lending rate; or (ii) the London Interbank Offered Rate (“LIBOR”), plus a margin which can range from 0.40% to 1.40%, based on the ratings assigned by Standard & Poor’s Rating Services and Moody’s Investor Service to our senior unsecured non-credit enhanced long-term debt. At March 31, 2010 and December 31, 2009, there were no amounts outstanding under the BGH Credit Agreement.

     The BGH Credit Agreement requires us to maintain leverage and funded debt coverage ratios. The leverage ratio covenant requires us to maintain, as of the last day of each fiscal quarter, a ratio of the total funded indebtedness of us and our Restricted Subsidiaries (as defined below), measured as of the last day of each fiscal quarter, to the aggregate dividends and distributions received by us and the Restricted Subsidiaries from Buckeye, plus all other cash received by us and the Restricted Subsidiaries, measured for the preceding twelve months, less expenses, of not more than 2.50 to 1.00. The BGH Credit Agreement defines “Restricted Subsidiaries” as certain of our wholly owned subsidiaries. The funded debt coverage ratio covenant requires us to maintain, as of the last day of each fiscal quarter, a ratio of us and all of our consolidated subsidiaries total consolidated funded debt to the consolidated EBITDA, as defined in the BGH Credit Agreement, of us and all of our subsidiaries, measured for the preceding twelve months, of not more than 5.25 to 1.00, subject to a provision for increases to 5.75 to 1.00 in connection with future acquisitions. At March 31, 2010, our funded debt coverage ratio was 4.78 to 1.00.

     The BGH Credit Agreement contains other covenants that prohibit us from taking certain actions, including but not limited to, declaring dividends or distributions if any default or event of default has occurred or would result from such a declaration and limiting our ability to incur additional indebtedness, creating negative pledges and granting certain liens, making certain loans, acquisitions, and investments, making material changes to the nature of us and our Restricted Subsidiaries’ business, and entering into a merger, consolidation, or sale of assets. At March 31, 2010, we were not aware of any instances of noncompliance with the covenants under the BGH Credit Agreement.

   Services Company ESOP Notes

     Services Company had total debt outstanding of $6.1 million and $7.7 million at March 31, 2010 and December 31, 2009, respectively, consisting of 3.60% Senior Secured Notes (the “3.60% ESOP Notes”) due March 28, 2011 payable by the ESOP to a third-party lender. The 3.60% ESOP Notes were issued on May 4, 2004. The 3.60% ESOP Notes are collateralized by Services Company’s common stock and are guaranteed by Services Company. In addition, Buckeye has committed that, in the event that the value of Buckeye’s LP Units owned by Services Company falls below 125% of the balance payable under the 3.60% ESOP Notes, Buckeye will fund an escrow account with sufficient assets to bring the value of the total collateral (the value of Buckeye’s LP Units owned by Services Company and the escrow account) up to the 125% minimum. Amounts deposited in the escrow account are returned to Buckeye when the value of Buckeye’s LP Units owned by Services Company returns to an amount that exceeds the 125% minimum. At March 31, 2010, the value of Buckeye’s LP Units owned by Services Company exceeded the 125% requirement.

BUCKEYE GP HOLDINGS L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

   Credit Facility

     Buckeye has a borrowing capacity of $580.0 million under an unsecured revolving credit agreement (the “Credit Facility”) with SunTrust Bank, as administrative agent, which may be expanded up to $780.0 million subject to certain conditions and upon the further approval of the lenders. The Credit Facility’s maturity date is August 24, 2012, which Buckeye may extend for up to two additional one-year periods. Borrowings under the Credit Facility bear interest under one of two rate options, selected by Buckeye, equal to either (i) the greater of (a) the federal funds rate plus 0.5% and (b) SunTrust Bank’s prime rate plus an applicable margin, or (ii) LIBOR plus an applicable margin. The applicable margin is determined based on the current utilization level of the Credit Facility and ratings assigned by Standard & Poor’s Rating Services and Moody’s Investor Service for Buckeye’s senior unsecured non-credit enhanced long-term debt. At March 31, 2010 and December 31, 2009, $20.0 million and $78.0 million, respectively, were outstanding under the Credit Facility. The weighted average interest rate for borrowings outstanding under the Credit Facility was 0.6% at March 31, 2010.

     The Credit Facility requires Buckeye to maintain a specified ratio (the “Funded Debt Ratio”) of no greater than 5.00 to 1.00 subject to a provision that allows for increases to 5.50 to 1.00 in connection with certain future acquisitions. The Funded Debt Ratio is calculated by dividing consolidated debt by annualized EBITDA, which is defined in the Credit Facility as earnings before interest, taxes, depreciation, depletion and amortization, in each case excluding the income of certain of Buckeye’s majority-owned subsidiaries and equity investments (but including distributions from those majority-owned subsidiaries and equity investments). At March 31, 2010, Buckeye’s Funded Debt Ratio was approximately 4.29 to 1.00. As permitted by the Credit Facility, the $183.5 million of borrowings by Buckeye Energy Services LLC (“BES”) under its separate credit agreement (discussed below) were excluded from the calculation of the Funded Debt Ratio.

     In addition, the Credit Facility contains other covenants including, but not limited to, covenants limiting Buckeye’s ability to incur additional indebtedness, to create or incur liens on its property, to dispose of property material to its operations, and to consolidate, merge or transfer assets. At March 31, 2010, we were not aware of any instances of noncompliance with the covenants under Buckeye’s Credit Facility.

     At March 31, 2010 and December 31, 2009, Buckeye had committed $1.4 million in support of letters of credit. The obligations for letters of credit are not reflected as debt on our condensed consolidated balance sheets.

   BES Credit Agreement

     BES has a credit agreement (the “BES Credit Agreement”) that provides for borrowings of up to $250.0 million. The BES Credit Agreement’s maturity date is May 20, 2011. Under the BES Credit Agreement, borrowings accrue interest under one of three rate options, at BES’s election, equal to (i) the Administrative Agent’s Cost of Funds (as defined in the BES Credit Agreement) plus 1.75%, (ii) the Eurodollar Rate (as defined in the BES Credit Agreement) plus 1.75% or (iii) the Base Rate (as defined in the BES Credit Agreement) plus 0.25%. The BES Credit Agreement also permits Daylight Overdraft Loans (as defined in the BES Credit Agreement), Swingline Loans (as defined in the BES Credit Agreement) and letters of credit. Such alternative extensions of credit are subject to certain conditions as specified in the BES Credit Agreement. The BES Credit Agreement is secured by liens on certain assets of BES, including its inventory, cash deposits (other than certain accounts), investments and hedging accounts, receivables and intangibles.

BUCKEYE GP HOLDINGS L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

     The balances outstanding under the BES Credit Agreement were approximately $183.5 million and $239.8 million at March 31, 2010 and December 31, 2009, respectively, both of which were classified as current liabilities in our condensed consolidated balance sheets. The BES Credit Agreement requires BES to meet certain financial covenants, which are defined in the BES Credit Agreement and summarized below (in millions, except for the leverage ratio):

Borrowings		Minimum				Minimum				Maximum
outstanding on		Consolidated Tangible				Consolidated Net				Consolidated
BES Credit Agreement		Net Worth				Working Capital				Leverage Ratio
$150		$	40			$	30			7.0 to 1.0
Above $150 up to $200		$	50			$	40			7.0 to 1.0
Above $200 up to $250		$	60			$	50			7.0 to 1.0

     At March 31, 2010, BES’s Consolidated Tangible Net Worth and Consolidated Net Working Capital were $122.3 million and $75.0 million, respectively, and the Consolidated Leverage Ratio was 2.1 to 1.0. The weighted average interest rate for borrowings outstanding under the BES Credit Agreement was 2.0% at March 31, 2010.

     In addition, the BES Credit Agreement contains other covenants, including, but not limited to, covenants limiting BES’s ability to incur additional indebtedness, to create or incur certain liens on its property, to consolidate, merge or transfer its assets, to make dividends or distributions, to dispose of its property, to make investments, to modify its risk management policy, or to engage in business activities materially different from those presently conducted. At March 31, 2010, we were not aware of any instances of noncompliance with the covenants under the BES Credit Agreement.

11. OTHER NON-CURRENT LIABILITIES

     Other non-current liabilities consist of the following at the dates indicated:

		March 31,				December 31,
		2010				2009
Accrued employee benefit liabilities (see Note 13)		$	44,772			$	45,837
Accrued environmental liabilities			18,687				19,053
Deferred consideration			17,923				18,425
Deferred rent			10,217				9,158
Deferred revenue			6,762				1,532
Other			8,020				8,937
Total other non-current liabilities		$	106,381			$	102,942

12. DERIVATIVE INSTRUMENTS, HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENTS

     We are exposed to certain risks, including changes in interest rates and commodity prices in the course of our normal business operations. We use derivative instruments to manage risks associated with certain identifiable and anticipated transactions. Derivatives are financial instruments whose fair value is determined by changes in a specified benchmark such as interest rates or commodity prices. Typical derivative instruments include futures, forward contracts, swaps and other instruments with similar characteristics. We have no trading derivative instruments and do not engage in hedging activity with respect to trading instruments.

     Our policy is to formally document all relationships between hedging instruments and hedged items, as well as our risk management objectives and strategies for undertaking the hedge. This process includes specific identification of the hedging instrument and the hedged transaction, the nature of the risk being hedged and how the hedging instrument’s effectiveness will be assessed. Both at the inception of the hedge and on an ongoing basis, we

BUCKEYE GP HOLDINGS L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

assess whether the derivatives used in a transaction are highly effective in offsetting changes in cash flows or the fair value of hedged items. A discussion of our derivative activities by risk category follows.

   Interest Rate Derivatives

     Buckeye utilizes forward-starting interest rate swaps to manage interest rate risk related to forecasted interest payments on anticipated debt issuances. This strategy is a component in controlling its cost of capital associated with such borrowings. When entering into interest rate swap transactions, Buckeye becomes exposed to both credit risk and market risk. Buckeye is subject to credit risk when the value of the swap transaction is positive and the risk exists that the counterparty will fail to perform under the terms of the contract. Buckeye is subject to market risk with respect to changes in the underlying benchmark interest rate that impacts the fair value of the swaps. Buckeye manages its credit risk by only entering into swap transactions with major financial institutions with investment-grade credit ratings. Buckeye manages its market risk by associating each swap transaction with an existing debt obligation or a specified expected debt issuance generally associated with the maturity of an existing debt obligation.

     Buckeye’s practice with respect to derivative transactions related to interest rate risk has been to have each transaction in connection with non routine borrowings authorized by the Board of Directors of Buckeye GP. In January 2009, Buckeye GP’s Board of Directors adopted an interest rate hedging policy which permits Buckeye to enter into certain short-term interest rate swap agreements to manage its interest rate and cash flow risks associated with its Credit Facility. In addition, in July 2009, Buckeye GP’s Board of Directors authorized Buckeye to enter into certain transactions, such as forward-starting interest rate swaps, to manage its interest rate and cash flow risks related to certain expected debt issuances associated with the maturity of an existing debt-obligation.

     Buckeye expects to issue new fixed rate debt (i) on or before July 15, 2013, to repay the $300.0 million of 4.625% Notes that are due on July 15, 2013, and (ii) on or before October 15, 2014, to repay the $275.0 million of 5.300% Notes that are due on October 15, 2014, although no assurances can be given that the issuance of fixed rate debt will be possible on acceptable terms. During 2009, Buckeye entered into four forward-starting interest rate swaps with a total aggregate notional amount of $200.0 million related to the anticipated issuance of debt on or before July 15, 2013 and three forward-starting interest rate swaps with a total aggregate notional amount of $150.0 million related to the anticipated issuance of debt on or before October 15, 2014. The purpose of these swaps is to hedge the variability of the forecasted interest payments on these expected debt issuances that may result from changes in the benchmark interest rate until the expected debt is issued. During the three months ended March 31, 2010, unrealized losses of $1.3 million were recorded in Buckeye’s accumulated other comprehensive income (loss) to reflect the change in the fair values of the forward-starting interest rate swaps. Buckeye designated the swap agreements as cash flow hedges at inception and expects the changes in values to be highly correlated with the changes in value of the underlying borrowings.

     Over the next twelve months, Buckeye expects to reclassify $1.0 million of accumulated other comprehensive loss as an increase to interest expense that was generated by terminated forward-starting interest rate swaps in 2008 associated with its 6.050% Notes.

   Commodity Derivatives

     Our Energy Services segment primarily uses exchange-traded refined petroleum product futures contracts to manage the risk of market price volatility on its refined petroleum product inventories and its fixed-price sales contracts. The derivative contracts used to hedge refined petroleum product inventories are designated as fair value hedges. Accordingly, our method of measuring ineffectiveness compares the change in the fair value of New York Mercantile Exchange (“NYMEX”) futures contracts to the change in fair value of our hedged fuel inventory. Hedge accounting is discontinued when the hedged fuel inventory is sold or when the related derivative contracts expire. In addition, we periodically enter into offsetting exchange-traded futures contracts to economically close-out an existing futures contract based on a near-term expectation to sell a portion of our fuel inventory. These offsetting derivative contracts are not designated as hedging instruments and any resulting gains or losses are recognized in

BUCKEYE GP HOLDINGS L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

earnings during the period. Presentations of futures contracts for inventory designated as hedging instruments in the following tables have been presented net of these offsetting futures contracts.

     Our Energy Services segment has not used hedge accounting with respect to its fixed-price sales contracts. Therefore, our fixed-price sales contracts and the related futures contracts used to offset those fixed-price sales contracts are all marked-to-market on the consolidated balance sheets with gains and losses being recognized in earnings during the period.

     In order to hedge the cost of natural gas used to operate our turbine engines at our Linden, New Jersey location, our Pipeline Operations segment bought natural gas futures contracts in March 2009 with terms that coincide with the remaining term of an ongoing natural gas supply contract (January 2010 through July 2011). We designated the futures contract as a cash flow hedge at inception.

     The following table summarizes our commodity derivative instruments outstanding at March 31, 2010 (amounts in thousands of gallons, except as noted):

Volume (1)

Accounting

Derivative Purpose

Current

Long-Term(2)

Treatment

Derivatives NOT designated as hedging instruments:

Fixed-price sales contracts

18,417

210

Mark-to-market

Futures contracts for fixed-price sales contracts

11,844

210

Mark-to-market

Futures contracts for inventory

5,586

—

Mark-to-market

Derivatives designated as hedging instruments:

Futures contracts for inventory

90,426

—

Fair Value Hedge

Futures contracts for natural gas (BBtu) (3)

360

120

Cash Flow Hedge

BUCKEYE GP HOLDINGS L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

     The following table sets forth the fair value of each classification of derivative instruments at the dates indicated:

		March 31, 2010												December 31, 2009
										Derivative												Derivative
		Assets				(Liabilities)				Net Carrying				Assets				(Liabilities)				Net Carrying
		Fair value				Fair value				Value				Fair value				Fair value				Value
Derivatives NOT designated as hedging instruments:
Fixed-price sales contracts		$	1,906			$	(1,217	)		$	689			$	4,959			$	(3,662	)		$	1,297
Futures contracts for fixed-price sales contracts			4,817				(13	)			4,804				7,594				(384	)			7,210
Futures contracts for inventory			1,749				(1,443	)			306				—				—				—
Derivatives designated as hedging instruments:
Futures contracts for inventory			1,277				(7,616	)			(6,339	)			1,992				(20,517	)			(18,525	)
Futures contracts for natural gas			—				(327	)			(327	)			312				—				312
Interest rate contracts			15,900				—				15,900				17,204				—				17,204
Total										$	15,033											$	7,498
		March 31,				December 31,
Balance Sheet Locations:		2010				2009
Derivative assets		$	1,964			$	4,959
Other non-current assets			15,900				17,204
Derivative liabilities			(2,831	)			(14,665	)
Total		$	15,033			$	7,498

     Substantially all of the unrealized net loss of $6.0 million at March 31, 2010 for inventory hedges represented by futures contracts will be realized by the second quarter of 2010 as the related inventory is sold. Gains recorded on inventory hedges that were ineffective were approximately $4.8 million and $4.3 million for the three months ended March 31, 2010 and 2009, respectively. At March 31, 2010, open refined petroleum product derivative contracts (represented by the fixed-price sales contracts and futures contracts for fixed-price sales contracts noted above) varied in duration, but did not extend beyond May 2011. In addition, at March 31, 2010, we had refined petroleum product inventories which we intend to use to satisfy a portion of the fixed-price sales contracts.

BUCKEYE GP HOLDINGS L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

     The gains and losses on our derivative instruments recognized in income on our derivatives were as follows for the periods indicated:

				Gain (Loss) Recognized in
				Income on Derivatives
				Three Months Ended
				March 31,
		Location		2010				2009
Derivatives NOT designated as hedging instruments:
Fixed-price sales contracts		Product sales		$	2,410			$	13,295
Futures contracts for fixed-price sales contracts		Cost of product sales and natural gas storage services			(602	)			(7,546	)
Futures contracts for inventory		Cost of product sales and natural gas storage services			246				—
Derivatives designated as fair value hedging instruments:
Futures contracts for inventory		Cost of product sales and natural gas storage services		$	(4,910	)		$	27,648

     The gains and losses reclassified from accumulated other comprehensive income (“AOCI”) to income and the change in value recognized in other comprehensive income (“OCI”) on our derivatives were as follows for the periods indicated:

				Gain (Loss) Reclassified from
				AOCI to Income
				Three Months Ended
				March 31,
		Location		2010				2009
Derivatives designated as cash flow hedging instruments:
Futures contracts for natural gas		Cost of product sales and natural gas storage services		$	(72	)		$	(53	)
Interest rate contracts		Interest and debt expense			(240	)			(602	)

		Change in Value Recognized
		in OCI on Derivatives
		Three Months Ended
		March 31,
		2010				2009
Derivatives designated as cash flow hedging instruments:
Futures contracts for natural gas		$	(696	)		$	116
Futures contracts for refined petroleum products			—				(233	)
Interest rate contracts			(1,304	)			(108	)

BUCKEYE GP HOLDINGS L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

   Fair Value Measurements

     Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at a specified measurement date. Our fair value estimates are based on either (i) actual market data or (ii) assumptions that other market participants would use in pricing an asset or liability, including estimates of risk. Recognized valuation techniques employ inputs such as product prices, operating costs, discount factors and business growth rates. These inputs may be either readily observable, corroborated by market data or generally unobservable. In developing our estimates of fair value, we endeavor to utilize the best information available and apply market-based data to the extent possible. Accordingly, we utilize valuation techniques (such as the income or market approach) that maximize the use of observable inputs and minimize the use of unobservable inputs.

     A three-tier hierarchy has been established that classifies fair value amounts recognized or disclosed in the financial statements based on the observability of inputs used to estimate such fair values. The hierarchy considers fair value amounts based on observable inputs (Levels 1 and 2) to be more reliable and predictable than those based primarily on unobservable inputs (Level 3). At each balance sheet reporting date, we categorize our financial assets and liabilities using this hierarchy. The characteristics of fair value amounts classified within each level of the hierarchy are described as follows.

	•		Level 1 inputs are based on quoted prices, which are available in active markets for identical assets or liabilities as of the reporting date. Active markets are defined as those in which transactions for identical assets or liabilities occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
	•		Level 2 inputs are based on pricing inputs other than quoted prices in active markets and are either directly or indirectly observable as of the measurement date. Level 2 fair values include instruments that are valued using financial models or other appropriate valuation methodologies and include the following:

	•		Quoted prices in active markets for similar assets or liabilities.
	•		Quoted prices in markets that are not active for identical or similar assets or liabilities.
	•		Inputs other than quoted prices that are observable for the asset or liability.
	•		Inputs that are derived primarily from or corroborated by observable market data by correlation or other means.

•

Level 3 inputs are based on unobservable inputs for the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. Unobservable inputs reflect the reporting entity’s own ideas about the assumptions that market participants would use in pricing an asset or liability (including assumptions about risk). Unobservable inputs are based on the best information available in the circumstances, which might include the reporting entity’s internally developed data. The reporting entity must not ignore information about market participant assumptions that is reasonably available without undue cost and effort. Level 3 inputs are typically used in connection with internally developed valuation methodologies where management makes its best estimate of an instrument’s fair value.

BUCKEYE GP HOLDINGS L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

   Recurring

     The following table sets forth financial assets and liabilities, measured at fair value on a recurring basis, as of the measurement dates, March 31, 2010 and December 31, 2009, and the basis for that measurement, by level within the fair value hierarchy:

		March 31, 2010								December 31, 2009
						Significant								Significant
		Quoted Prices				Other				Quoted Prices				Other
		in Active				Observable				in Active				Observable
		Markets				Inputs				Markets				Inputs
		(Level 1)				(Level 2)				(Level 1)				(Level 2)
Financial assets:
Fixed-price sales contracts		$	—			$	1,906			$	—			$	4,959
Futures contracts for inventory and fixed-price sales contracts			58				—				—				—
Asset held in trust			—				—				1,793				—
Interest rate derivatives			—				15,900				—				17,204
Financial liabilities:
Fixed-price sales contracts			—				(1,217	)			—				(3,662	)
Futures contracts for inventory and fixed-price sales contracts			(1,614	)			—				(11,003	)			—
Total		$	(1,556	)		$	16,589			$	(9,210	)		$	18,501

     The value of the Level 1 derivative assets and liabilities were based on quoted market prices obtained from the NYMEX. The value of the Level 1 asset held in trust was obtained from quoted market prices. The value of the Level 2 derivative assets and liabilities were based on observable market data related to the obligations to provide petroleum products. The value of the Level 2 interest rate derivative was based on observable market data related to similar obligations.

     The Level 2 derivative assets of $1.9 million and $5.0 million as of March 31, 2010 and December 31, 2009, respectively, are each net of a credit valuation adjustment (“CVA”) of ($0.9) million. Because few of the Energy Services segment’s customers entering into these fixed-price sales contracts are large organizations with nationally-recognized credit ratings, the Energy Services segment determined that a CVA, which is based on the credit risk of such contracts, is appropriate. The CVA is based on the historical and expected payment history of each customer, the amount of product contracted for under the agreement, and the customer’s historical and expected purchase performance under each contract.

   Non-Recurring

     Certain nonfinancial assets and liabilities are measured at fair value on a nonrecurring basis and are subject to fair value adjustments in certain circumstances, such as when there is evidence of possible impairment. There were no fair value adjustments for such assets or liabilities reflected in our condensed consolidated financial statements for the three months ended March 31, 2010 and 2009.

BUCKEYE GP HOLDINGS L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

13. PENSIONS AND OTHER POSTRETIREMENT BENEFITS

     Services Company, which employs the majority of our workforce, sponsors a retirement income guarantee plan (“RIGP”), which is a defined benefit plan that generally guarantees employees hired before January 1, 1986 a retirement benefit based on years of service and the employee’s highest compensation for any consecutive 5-year period during the last 10 years of service or other compensation measures as defined under the respective plan provisions. The retirement benefit is subject to reduction at varying percentages for certain offsetting amounts, including benefits payable under a retirement and savings plan discussed further below. Services Company funds the plan through contributions to pension trust assets, generally subject to minimum funding requirements as provided by applicable law.

     Services Company also sponsors an unfunded post-retirement benefit plan (the “Retiree Medical Plan”), which provides health care and life insurance benefits to certain of its retirees. To be eligible for these benefits, an employee must have been hired prior to January 1, 1991 and meet certain service requirements.

     The components of the net periodic benefit cost for the RIGP and Retiree Medical Plan were as follows for the periods indicated:

		RIGP								Retiree Medical Plan
		Three Months Ended								Three Months Ended
		March 31,								March 31,
		2010				2009				2010				2009
Service cost		$	68			$	208			$	30			$	105
Interest cost			232				371				205				492
Expected return on plan assets			(88	)			(191	)			—				—
Amortization of prior service benefit			(12	)			(117	)			(307	)			(860	)
Amortization of unrecognized losses			248				357				93				261
Net periodic benefit costs		$	448			$	628			$	21			$	(2	)

     During the three months ended March 31, 2010, we contributed $1.5 million to the RIGP.

14. UNIT-BASED COMPENSATION PLANS

     We have Management Units and a GP Equity Compensation Plan. Buckeye awards unit-based compensation to employees and directors primarily under the 2009 Long-Term Incentive Plan of Buckeye Partners, L.P. (the “Buckeye LTIP”), which became effective in March 2009. Buckeye formerly awarded options to acquire LP Units to employees pursuant to the Unit Option and Distribution Equivalent Plan (the “Option Plan”). We recognized total unit-based compensation expense of $0.9 million and $0.1 million for the three months ended March 31, 2010 and 2009, respectively, related to the Buckeye LTIP and the Option Plan. Compensation expense recorded with respect to the override units was $0.3 million and $0.4 million for the three months ended March 31, 2010 and 2009, respectively.

BUCKEYE GP HOLDINGS L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

   BGH GP’s Override Units

     No override units were granted or forfeited during the three months ended March 31, 2010. The following is a summary of the activity of the override units as of March 31, 2010 (units in thousands):

		Number of Override Units
														Total Number of
		Value A Units				Value B Units				Operating Units				Units Awarded
Unvested at December 31, 2009			1,699				1,699				812				4,210
Vested			—				—				(48	)			(48	)
Unvested at March 31, 2010			1,699				1,699				764				4,162

		Compensation Costs for Override Units
		Value A Units				Value B Units				Operating Units				Totals
Total fair value of all outstanding override units		$	3,587			$	2,179			$	5,808			$	11,574
Less: Expense recorded from plan inception to March 31, 2010			—				—				(3,666	)			(3,666	)
Estimated future compensation costs at March 31, 2010		$	3,587			$	2,179			$	2,142			$	7,908

   Buckeye’s Long-Term Incentive Plan

     The Buckeye LTIP provides for the issuance of up to 1,500,000 LP Units, subject to certain adjustments. After giving effect to the issuance or forfeiture of phantom unit and performance unit awards through March 31, 2010, a total of 1,114,277 additional LP Units could be issued under the Buckeye LTIP.

     On December 16, 2009, the Compensation Committee approved the terms of the Buckeye Partners, L.P. Unit Deferral and Incentive Plan (“Deferral Plan”). The Compensation Committee is expressly authorized to adopt the Deferral Plan under the terms of the Buckeye LTIP, which grants the Compensation Committee the authority to establish a program pursuant to which Buckeye’s phantom units may be awarded in lieu of cash compensation at the election of the employee. At December 31, 2009, eligible employees were allowed to defer up to 50% of their 2009 compensation award under Buckeye’s Annual Incentive Compensation Plan or other discretionary bonus program in exchange for grants of phantom units equal in value to the amount of their cash award deferral (each such unit, a “Deferral Unit”). Participants also receive one matching phantom unit for each Deferral Unit. Approximately $1.8 million of 2009 compensation awards had been deferred at December 31, 2009, for which 62,332 phantom units (including matching units) were granted during the three months ended March 31, 2010. These grants are included as granted in the Buckeye LTIP activity table below.

   Awards under the Buckeye LTIP

     During the three months ended March 31, 2010, the Compensation Committee granted 119,691 phantom units to employees (including the 62,332 phantom units granted pursuant to the Deferral Plan discussed above), 12,000 phantom units to independent directors of Buckeye GP and MainLine Management, and 114,725 performance units to employees. The amount paid with respect to phantom unit distributions under the Buckeye LTIP was $0.2 million for the three months ended March 31, 2010.

BUCKEYE GP HOLDINGS L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

     The following table sets forth the Buckeye LTIP activity for the periods indicated:

						Weighted
						Average
						Grant Date
		Number of				Fair Value
		LP Units				per LP Unit (1)				Total Value
Unvested at January 1, 2010			140,095			$	39.81			$	5,577
Granted			246,416				56.42				13,903
Forfeited			(1,307	)			39.06				(51	)
Unvested at March 31, 2010			385,204			$	50.44			$	19,429

     At March 31, 2010, approximately $14.5 million of compensation expense related to the Buckeye LTIP is expected to be recognized over a weighted average period of approximately 2.3 years.

   Buckeye’s Unit Option and Distribution Equivalent Plan

     Buckeye also sponsors the Option Plan, pursuant to which it historically granted options to employees to purchase LP Units at the market price of its LP Units on the date of grant. Generally, the options vest three years from the date of grant and expire ten years from the date of grant. As unit options are exercised, Buckeye issues new LP Units to the holder. Buckeye has not historically repurchased, and does not expect to repurchase in 2010, any of its LP Units.

     The impact of Buckeye’s Option Plan is immaterial to our condensed consolidated financial statements.

15. RELATED PARTY TRANSACTIONS

     Approximately 62% of our outstanding equity, which includes Common Units and Management Units, are owned by BGH GP and approximately 38% by the public. BGH GP is owned by affiliates of ArcLight, Kelso and certain investment funds along with certain members of senior management of Buckeye GP. MainLine Management is our general partner and is wholly owned by BGH GP.

     Services Company and Buckeye are considered related parties with respect to us. As discussed in Note 1, our condensed consolidated financial statements include the accounts of Services Company and Buckeye on a consolidated basis, and all intercompany transactions have been eliminated.

     We incurred a senior administrative charge for certain management services performed by affiliates of Buckeye GP of $0.5 million for the three months ended March 31, 2009. The senior administrative charge was waived indefinitely on April 1, 2009 as these affiliates are currently not providing services to us that were contemplated as being covered by the senior administrative charge. As a result, there were no related charges recorded in the last nine months of 2009 or during the three months ended March 31, 2010.

16. CASH DISTRIBUTIONS

     We generally make quarterly cash distributions to unitholders of substantially all of our available cash, generally defined in our partnership agreement as consolidated cash receipts less consolidated cash expenditures and such retentions for working capital, anticipated cash expenditures and contingencies as our general partner deems

BUCKEYE GP HOLDINGS L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

appropriate. Cash distributions totaled $11.6 million and $9.3 million during the three months ended March 31, 2010 and 2009, respectively.

     On May 7, 2010, we announced a quarterly distribution of $0.43 per Common Unit that will be paid on May 28, 2010, to unitholders of record on May 17, 2010. Total cash distributed to unitholders on May 28, 2010 will total approximately $12.2 million.

17. EARNINGS PER PARTNERSHIP UNIT

     Basic and diluted earnings per partnership unit is calculated by dividing net income, after deducting the amount allocated to Buckeye, by the weighted-average number of partnership units outstanding during the period.

     The following table is a reconciliation of the weighted average number of Common Units used in the basic and diluted earnings per unit calculations for the periods indicated (in thousands):

		Three Months Ended
		March 31,
		2010				2009
Basic:
Weighted average common units outstanding			27,774				27,770
Weighted average management units outstanding			526				530
Units for basic			28,300				28,300
Diluted:
Units used for basic calculation			28,300				28,300
Dilutive effect of additional management units			—				—
Units for diluted			28,300				28,300

18. BUSINESS SEGMENTS

     We operate and report in five business segments: Pipeline Operations; Terminalling & Storage; Natural Gas Storage; Energy Services; and Development & Logistics.

     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 United States.

BUCKEYE GP HOLDINGS L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

     Financial information about each segment is presented below for the periods or at the dates indicated:

		Three Months Ended
		March 31,
		2010				2009
Revenue:
Pipeline Operations		$	96,537			$	99,195
Terminalling & Storage			42,371				30,643
Natural Gas Storage			25,406				15,077
Energy Services			568,202				268,480
Development & Logistics			7,515				9,125
Intersegment			(8,857	)			(5,680	)
Total revenue		$	731,174			$	416,840
Operating income (loss):
Pipeline Operations		$	45,365			$	44,448
Terminalling & Storage			23,125				10,657
Natural Gas Storage			3,451				6,164
Energy Services			(3,397	)			6,215
Development & Logistics			947				1,381
Total operating income		$	69,491			$	68,865
Depreciation and amortization:
Pipeline Operations		$	8,953			$	8,839
Terminalling & Storage			2,316				1,722
Natural Gas Storage			1,641				1,459
Energy Services			1,195				977
Development & Logistics			423				367
Total depreciation and amortization		$	14,528			$	13,364
Capital additions: (1)
Pipeline Operations		$	4,833			$	6,634
Terminalling & Storage			2,581				5,641
Natural Gas Storage			1,399				6,375
Energy Services			618				730
Development & Logistics			177				74
Total capital additions		$	9,608			$	19,454