Summary of NUSTAR GP HOLDINGS, LLC

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following review of our results of operations and financial condition should be read in conjunction with Items 1., 1A. and 2. "Business, Risk Factors and Properties," and Item 8. "Financial Statements and Supplementary Data," included in this report.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION This Form 10-K contains certain estimates, predictions, projections, assumptions and other forward-looking statements that involve various risks and uncertainties. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested in this report. These forward-looking statements can generally be identified by the words "anticipates," "believes," "expects," "plans," "intends," "estimates," "forecasts," "budgets," "projects," "will," "could," "should," "may" and similar expressions. These statements reflect our current views with regard to future events and are subject to various risks, uncertainties and assumptions. Please read Item 1A. "Risk Factors" for a discussion of certain of those risks.
If one or more of these risks or uncertainties materialize, or if the underlying assumptions prove incorrect, our actual results may vary materially from those described in any forward-looking statement. Other unknown or unpredictable factors could also have material adverse effects on our future results. Readers are cautioned not to place undue reliance on this forward-looking information, which is as of the date of the Form 10-K. We do not intend to update these statements unless it is required by the securities laws to do so, and we undertake no obligation to publicly release the result of any revisions to any such forward-looking statements that may be made to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.

OVERVIEW
NuStar GP Holdings, LLC (NuStar GP Holdings) is a Delaware limited liability company. Our units are traded on the New York Stock Exchange (NYSE) under the symbol "NSH." Unless otherwise indicated, the terms "NuStar GP Holdings," "we," "our" and "us" are used in this report to refer to NuStar GP Holdings, LLC, to one or more of our consolidated subsidiaries or to all of them taken as a whole. Our only cash generating assets are our ownership interests in NuStar Energy L.P. (NuStar Energy), a publicly traded Delaware limited partnership (NYSE: NS). As of December 31, 2012, our aggregate ownership interests in NuStar Energy consisted of the following:
• the 2% general partner interest;

• 100% of the incentive distribution rights (IDR) issued by NuStar Energy, which entitle us to receive increasing percentages of the cash distributed by NuStar Energy, currently at the maximum percentage of 23%; and

• 10,351,461 common units of NuStar Energy representing a 13.0% limited partner interest.

We account for our ownership interest in NuStar Energy using the equity method. Therefore, our financial results reflect a portion of NuStar Energy's net income based on our ownership interest. We have no separate operating activities apart from those conducted by NuStar Energy and therefore generate no revenues from operations.
NuStar Energy is required by its partnership agreement to distribute all of its available cash at the end of each quarter, less reserves established by its general partner, in its sole discretion, to provide for the proper conduct of NuStar Energy's business. Similarly, we are required by our limited liability company agreement to distribute all of our available cash at the end of each quarter, less reserves established by our board of directors.
NuStar Energy is engaged in the terminalling and storage of petroleum products, the transportation of petroleum products and anhydrous ammonia, and petroleum refining and marketing. NuStar Energy has terminal and storage facilities in the United States, Canada, Mexico, the Netherlands, including St. Eustatius in the Caribbean, the United Kingdom and Turkey.
On January 1, 2013, NuStar Energy sold the San Antonio Refinery and related assets, which included inventory, a terminal in Elmendorf, Texas and a pipeline connecting the terminal and refinery for approximately $115.0 million. NuStar Energy presented the results of operations for the San Antonio Refinery and related assets as discontinued operations for the years ended December 31, 2012 and 2011.

On December 13, 2012, NuStar Energy completed its acquisition of the TexStar Crude Oil Assets (as defined below), including 100% of the partnership interest in TexStar Crude Oil Pipeline, LP, from TexStar Midstream Services, LP and certain of its affiliates (collectively, TexStar) for $325.4 million (the TexStar Asset Acquisition). The TexStar Crude Oil Assets consist of

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approximately 140 miles of crude oil pipelines and gathering lines, as well as five terminals and storage facilities providing 0.6 million barrels of storage capacity.
On September 28, 2012, NuStar Energy sold a 50% ownership interest (the Asphalt Sale) in NuStar Asphalt LLC (Asphalt JV), previously a wholly-owned subsidiary of NuStar Energy, to an affiliate of Lindsay Goldberg LLC (Lindsay Goldberg), a private investment firm. Asphalt JV owns and operates the asphalt refining assets that were previously wholly owned by NuStar Energy, including the asphalt refineries located in Paulsboro, New Jersey and Savannah, Georgia (collectively, the Asphalt Operations). Lindsay Goldberg paid $175.0 million for the Class A equity interests of Asphalt JV, while NuStar Energy retained the Class B equity interests with a fair value of $52.0 million. At closing, NuStar Energy received $263.8 million from Asphalt JV for inventory related to the Asphalt Operations. Upon closing, NuStar Energy deconsolidated Asphalt JV and started reporting its remaining investment in Asphalt JV using the equity method of accounting. In anticipation of the Asphalt Sale, NuStar Energy evaluated the goodwill and other long-lived assets associated with the Asphalt Operations for potential impairment. NuStar Energy determined the fair value of the Asphalt Operations reporting unit was less than its carrying value, which resulted in the recognition of a goodwill impairment loss of $22.1 million in the second quarter of 2012. In addition, NuStar Energy recorded an impairment loss of $244.3 million in the second quarter of 2012 to write-down the carrying value of long-lived assets related to the Asphalt Operations, including fixed assets, intangible assets and other long-term assets to their estimated fair value.

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RESULTS OF OPERATIONS
As discussed above, we account for our investment in NuStar Energy using the equity method. As a result, our equity in earnings of NuStar Energy, our only source of income, directly fluctuates with the amount of NuStar Energy's distributions and results of operations. NuStar Energy's distributions determine the amount of our incentive distribution earnings, while NuStar Energy's results of operations determine the amounts of earnings attributable to our general partner and limited partner interests.
Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

                              Financial Highlights
             (Thousands of Dollars, Except Unit and Per Unit Data)

                                              Year Ended December 31,
                                                2012             2011        Change
Equity in (loss) earnings of NuStar Energy $     (4,578 )     $ 65,783     $ (70,361 )
General and administrative expenses              (3,337 )       (3,298 )         (39 )
Other income, net                                 9,801          7,320         2,481
Interest expense, net                              (624 )         (570 )         (54 )
Income before income tax benefit                  1,262         69,235       (67,973 )
Income tax benefit                                  866            401           465
Net income                                 $      2,128       $ 69,636     $ (67,508 )
Basic and diluted net income per unit      $       0.05       $   1.64     $   (1.59 )

The following table summarizes NuStar Energy's statement of income data:

                                                        Year Ended December 31,
                                                       2012                 2011             Change
                                                     (Thousands of Dollars, Except Per Unit Data)
Revenues                                        $     5,955,676       $     6,271,815     $ (316,139 )
Cost of product sales                                 4,930,174             5,175,710       (245,536 )
Operating expenses                                      542,764               524,654         18,110
Depreciation and amortization expense                   157,580               159,851         (2,271 )
Asset and goodwill impairment loss                      268,483                     -        268,483
Segment operating income                                 56,675               411,600       (354,925 )
General and administrative expenses                    (104,756 )            (103,050 )       (1,706 )
Other depreciation and amortization expense              (7,441 )              (6,738 )         (703 )
Other asset impairment loss                              (3,295 )                   -         (3,295 )
Gain on legal settlement                                 28,738                     -         28,738
Operating (loss) income                         $       (30,079 )     $       301,812     $ (331,891 )

(Loss) income from continuing operations        $      (178,132 )     $       211,487     $ (389,619 )
(Loss) income from discontinued operations, net
of tax                                                  (49,105 )              10,114        (59,219 )
Net (loss) income                               $      (227,237 )     $       221,601     $ (448,838 )

Net (loss) income per unit applicable to
limited partners                                $         (3.61 )     $          2.78     $    (6.39 )

Cash distributions per unit applicable to
limited partners                                $         4.380       $         4.360     $    0.020

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For the year ended December 31, 2012, NuStar Energy reported a net loss of $227.2 million, compared to net income of $221.6 million for the year ended December 31, 2011, primarily due to an operating loss of $296.8 million in its asphalt and fuels marketing segment. The operating loss of NuStar Energy's asphalt and fuels marketing segment mainly resulted from an asset impairment charge of $266.4 million in the second quarter of 2012 related to the goodwill and long-lived assets of its asphalt operations. In addition, NuStar Energy's equity in loss of joint ventures of $9.4 million and other expense of $26.5 million for the year ended December 31, 2012 were primarily related to Asphalt JV and the associated loss upon deconsolidation. The loss from NuStar Energy's discontinued operations of $49.1 million also contributed to the decrease in its net income, all of which is attributable to the San Antonio Refinery. Equity in (loss) earnings of NuStar Energy The following table summarizes our equity in earnings of NuStar Energy:

                                                    Year Ended December 31,
                                                     2012              2011          Change
                                                            (Thousands of Dollars)
NuStar GP Holdings' Equity in (Loss) Earnings
of NuStar Energy:
General partner interest                        $     (5,356 )     $    3,703     $   (9,059 )
General partner incentive distribution (a)            41,242           36,319          4,923
General partner's interest in earnings and
incentive
distributions of NuStar Energy                        35,886           40,022         (4,136 )
Limited partner interest in (loss) earnings of
NuStar Energy                                        (37,580 )         28,645        (66,225 )
Amortization of step-up in basis related to
NuStar Energy's assets and liabilities                (2,884 )         (2,884 )            -
Equity in (loss) earnings of NuStar Energy      $     (4,578 )     $   65,783     $  (70,361 )

(a) Our equity in earnings of NuStar Energy allocated to the general partner incentive distribution is less than the actual distribution made with respect to 2011, due to NuStar Energy's issuance of common units after the end of the third quarter, but before the record date.

Our equity in (loss) earnings related to our general partner interest and our limited partner interest in NuStar Energy decreased for the year ended December 31, 2012, compared to the year ended December 31, 2011, due to a decrease in NuStar Energy's net income per unit.
NuStar Energy's per unit distributions for the year ended December 31, 2012 increased, compared to the year ended December 31, 2011, from $4.36 to $4.38. That increase, coupled with an increase in the number of NuStar Energy units outstanding resulting from the issuance of units in the fourth quarter 2011 and the third quarter of 2012, resulted in NuStar Energy increasing its total cash distributions. Since our IDR in NuStar Energy entitle us to an increasing amount of NuStar Energy's cash distributions, our equity in earnings of NuStar Energy related to our IDR increased for the period. Other income, net
Other income, net increased $2.5 million mainly due to a $10.7 million gain related to NuStar Energy's issuance of limited partner units for the year ended December 31, 2012, as compared to a $8.1 million gain for the year ended December 31, 2011.

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Year Ended December 31, 2011 Compared to Year Ended December 31, 2010

                              Financial Highlights
             (Thousands of Dollars, Except Unit and Per Unit Data)

                                         Year Ended December 31,
                                           2011             2010        Change
Equity in earnings of NuStar Energy   $     65,783       $ 66,859     $ (1,076 )
General and administrative expenses         (3,298 )       (3,184 )       (114 )
Other income, net                            7,320          9,475       (2,155 )
Interest expense, net                         (570 )       (1,106 )        536
Income before income tax benefit            69,235         72,044       (2,809 )
Income tax benefit                             401            419          (18 )
Net income                            $     69,636       $ 72,463     $ (2,827 )
Basic and diluted net income per unit $       1.64       $   1.70     $  (0.06 )

The following table summarizes NuStar Energy's statement of income data:

                                                        Year Ended December 31,
                                                       2011                 2010             Change
                                                     (Thousands of Dollars, Except Per Unit Data)
Revenues                                        $     6,271,815       $     4,403,061     $ 1,868,754
Cost of product sales                                 5,175,710             3,350,429       1,825,281
Operating expenses                                      524,654               486,032          38,622
Depreciation and amortization expense                   159,851               147,945          11,906
Segment operating income                                411,600               418,655          (7,055 )
General and administrative expenses                    (103,050 )            (110,241 )         7,191
Other depreciation and amortization expense              (6,738 )              (5,857 )          (881 )
Operating income                                $       301,812       $       302,557     $      (745 )

Income from continuing operations               $       211,487       $       238,970     $   (27,483 )
Income from discontinued operations, net of tax          10,114                     -          10,114
Net income                                      $       221,601       $       238,970     $   (17,369 )

Net income per unit applicable to limited
partners                                        $          2.78       $          3.19     $     (0.41 )

Cash distributions per unit applicable to
limited partners                                $         4.360       $         4.280     $     0.080

NuStar Energy's net income decreased $17.4 million for the year ended December 31, 2011, compared to the year ended December 31, 2010, primarily due to a decrease in other income, partially offset by income from discontinued operations. In addition, NuStar Energy's segment operating income decreased $7.1 million for the year ended December 31, 2011, compared to the year ended December 31, 2010, due to decreased operating income from its asphalt and fuels marketing and transportation segments, partially offset by increased operating income from its storage segment. However, NuStar Energy's consolidated operating income remained flat as the decrease in its segment operating income was offset by lower general and administrative expenses.

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Equity in earnings of NuStar Energy
The following table summarizes our equity in earnings of NuStar Energy:

                                                    Year Ended December 31,
                                                     2011              2010          Change
                                                            (Thousands of Dollars)
NuStar GP Holdings' Equity in Earnings of
NuStar Energy:
General partner interest                        $      3,703       $    4,113     $     (410 )
General partner incentive distribution (a)            36,319           33,304          3,015
General partner's interest in earnings and
incentive
distributions of NuStar Energy                        40,022           37,417          2,605
Limited partner interest in earnings of NuStar
Energy                                                28,645           32,326         (3,681 )
Amortization of step-up in basis related to
NuStar Energy's assets and liabilities                (2,884 )         (2,884 )            -
Equity in earnings of NuStar Energy             $     65,783       $   66,859     $   (1,076 )

NuStar Energy's per unit distributions for the year ended December 31, 2011 increased, compared to the year ended December 31, 2010, from $4.28 to $4.36. That increase, coupled with an increase in the number of NuStar Energy units outstanding resulting from the issuance of units in the fourth quarter 2011, resulted in NuStar Energy increasing its total cash distributions. Since our IDR in NuStar Energy entitle us to an increasing amount of NuStar Energy's cash distributions, our equity in earnings of NuStar Energy related to our IDR increased for the period.

Our equity in earnings related to our limited partner interest in NuStar Energy decreased for the year ended December 31, 2011, compared to the year ended December 31, 2010, due to a decrease in NuStar Energy's net income per unit applicable to limited partners.

Other income, net
Other income, net decreased $2.2 million mainly due to a $0.8 million loss on the sale of NuStar Energy units in connection with unit-based compensation for the year ended December 31, 2011, as compared to a $1.7 million gain for the year ended December 31, 2010.

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TRENDS AND OUTLOOK

NuStar Energy expects its operating income for 2013 to be higher than 2012 in each of its three reporting segments.

NuStar Energy's Storage Segment
NuStar Energy expects storage segment earnings for the first half of 2013 to be less than the comparable period of 2012. Higher earnings from completed projects at NuStar Energy's St. James and St. Eustatius terminals should be more than offset by lower revenues at various other terminals, higher maintenance expenses and the effect of turnarounds at refineries served by its storage segment. However, NuStar Energy expects the full year benefit of these St. James and St. Eustatius projects plus the projected fourth quarter completion of several construction projects will produce full-year 2013 results that are higher than 2012 results. NuStar Energy expects to see benefit from tank expansion projects already completed at its St. Eustatius terminal in the Caribbean, as well as its St. James, Louisiana terminal. In addition, NuStar Energy expects to benefit from a full year's results from an internal growth project completed at its St. James, Louisiana terminal in 2012.

NuStar Energy's Pipeline Segment
In 2013, NuStar Energy expects earnings for its pipeline segment (formerly known as the transportation segment) to be higher than 2012. Increased crude oil pipeline throughputs as a result of the Eagle Ford Shale projects completed in 2012 and benefits from NuStar Energy's acquisition of crude assets from TexStar Midstream Services, LP and certain of its affiliates, should contribute to higher earnings.

On February 18, 2013, NuStar Energy received a letter from TexStar that purports to terminate the rights of the parties to proceed to a closing on NuStar Energy's acquisition of the natural gas liquids pipeline and fractionation assets. NuStar Energy does not believe TexStar has the legal right to terminate the asset purchase agreement, and NuStar Energy notified them of its position on February 21, 2013. NuStar Energy is evaluating all of its legal options. While the natural gas liquids pipeline and fractionation assets present opportunities for NuStar Energy, if it does not complete the acquisition, NuStar Energy does not expect that to have a material adverse impact on its results of operations.

NuStar Energy's Asphalt and Fuels Marketing Segment NuStar Energy completed the sale of 50% of the Asphalt Operations in the third quarter of 2012. Upon closing of the sale, NuStar Energy deconsolidated the Asphalt Operations and it will prospectively report its remaining investment using the equity method of accounting. Due to NuStar Energy's remaining ownership interest in the Asphalt Operations, it will not report those historic results of operations as discontinued operations. Therefore, NuStar Energy's 2013 results of operations for this segment will not be comparable to the corresponding prior periods.

The first half of 2013 will present challenges, but NuStar Energy expects 2013 results for its fuels marketing operations to be higher than the results for 2012, primarily due to higher projected earnings from heavy fuel oil and bunker fuel marketing. However, due to the many factors affecting margins of these businesses, actual results may be higher or lower than what NuStar Energy currently forecasts.

In 2013, in order to better reflect the current business in this segment, NuStar Energy plans to rename it as the "Fuels Marketing Segment." NuStar Energy believes this name is a more accurate description of the operations that remain after its deconsolidation of the Asphalt Operations and the January 2013 sale of the San Antonio refinery.

NuStar Energy's outlook for the partnership may change depending on, among other things, crude oil prices, the state of the economy, changes to refinery maintenance schedules and other factors that affect overall demand for the products it stores, transports and sells as well as changes in commodity prices for the products NuStar Energy markets.

We expect our equity in earnings of NuStar Energy to increase or decrease consistent with NuStar Energy's earnings.

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LIQUIDITY AND CAPITAL RESOURCES
General
Our cash flows consist of distributions from NuStar Energy on our partnership interests, including the IDR that we own. Due to our ownership of NuStar Energy's IDR, our portion of NuStar Energy's total distributions may exceed our ownership interest in NuStar Energy. Our primary cash requirements are for distributions to members, capital contributions to maintain our 2% general partner interest in NuStar Energy in the event that NuStar Energy issues additional units, debt service requirements, if any, benefit plan funding and general and administrative expenses. In addition, because NuStar GP, LLC, a wholly owned subsidiary of NuStar GP Holdings, elected to be treated as a taxable entity in August 2006, we may be required to pay income taxes, which may exceed the amount of tax expense recorded in the consolidated financial statements. We expect to fund our cash requirements primarily with the quarterly cash distributions we receive from NuStar Energy and borrowings under our revolving credit facility, if necessary. Additionally, NuStar Energy reimburses us for all costs incurred on their behalf, primarily employee-related costs. Cash Distributions from NuStar Energy
NuStar Energy pays quarterly distributions within 45 days following the end of each quarter based on the partnership interests outstanding as of a record date that is set after the end of each quarter. The table set forth below shows the cash distributions earned for the periods shown with respect to our ownership interests in NuStar Energy and IDR:

                                                                Year Ended December 31,
                                                      2012                 2011               2010
                                                     (Thousands of Dollars, Except Per Unit Data)
Cash distributions per unit                     $        4.380       $        4.360       $     4.280
Total cash distributions by NuStar Energy to
all partners                                    $      374,254       $      331,506       $   311,378
Cash distributions we received from NuStar
Energy:
General partner interest                        $        7,486       $        6,630       $     6,227
General partner incentive distribution                  41,242               36,326            33,304
Limited partner interest - common units                 45,152               44,812            43,924
Total cash distributions to us                  $       93,880       $       87,768       $    83,455
Distributions to us as a percentage of total
cash distributions                                        25.1 %               26.5 %            26.8 %

. . .