UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

FORM 10-Q

(Mark One)

[ X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2007

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission File Number 1-16417
 

NUSTAR ENERGY L.P.

(Exact name of registrant as specified in its charter)
 

 

Delaware

74-2956831

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

 

 

 

2330 Loop 1604 West

San Antonio, Texas
(Address of principal executive offices)
78248
(Zip Code)
 
Telephone number: (210) 918-2000
(Registrant’s telephone number, including area 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 X No ____

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

Large accelerated filer X      Accelerated filer __      Non-accelerated filer __

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

Yes ___ NoX
 

The number of common units outstanding as of August 1, 2007 was 46,809,749.

 

NUSTAR ENERGY L.P. AND SUBSIDIARIES

FORM 10-Q
 

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements:

 

 

 

Consolidated Balance Sheets as of June 30, 2007 and December 31, 2006

 

 

 

Consolidated Statements of Income for the Three and Six Months Ended June 30, 2007 and 2006

 

 

 

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2007 and 2006

 

 

 

Condensed Notes to Consolidated Financial Statements

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

 

Item 4.

Controls and Procedures

 

 

PART II - OTHER INFORMATION

 

 

Item 1A.

Risk Factors

 

 

Item 6.

Exhibits

 

 

SIGNATURES

 


PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

NUSTAR ENERGY L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

(Thousands of Dollars, Except Unit Data)

 

June 30,

December 31,

 

2007

2006

 

(Unaudited)

 

Assets

   

Current assets:

   

  Cash and cash equivalents     

$      64,225

$      68,838

  Accounts receivable, net of allowance for doubtful accounts of $850 and $1,220 as of June 30, 2007 and December 31, 2006, respectively    


106,091


105,976

  Inventories    

12,921

16,979

  Other current assets     

  32,327

  21,205

     Total current assets     

215,564

212,998

     

Property and equipment, at cost     

2,798,100

2,694,358

Accumulated depreciation and amortization     

(399,813)

(349,223)

   Property and equipment, net     

2,398,287

2,345,135

Intangible assets, net          

51,506

53,532

Goodwill     

786,244

774,441

Investment in joint ventures     

76,890

74,077

Deferred income tax asset     

11,998

11,342

Deferred charges and other assets, net     

     21,010

     22,683

       Total assets     

$ 3,561,499

$ 3,494,208

     

Liabilities and Partners’ Equity

   

Current liabilities:

   

  Current portion of long-term debt     

$           614

$          647

  Payable to related party     

4,410

2,315

  Notes payable          

3,096

-

  Accounts payable          

75,851

86,307

  Accrued interest payable     

16,889

17,528

  Accrued liabilities     

31,441

37,651

  Taxes other than income taxes     

9,993

10,219

  Income taxes payable     

          578

       2,068

     Total current liabilities     

   142,872

   156,735

     

Long-term debt, less current portion     

1,442,334

1,353,720

Long-term payable to related party     

5,717

5,749

Deferred income tax liability     

35,897

32,926

Other long-term liabilities     

72,206

69,397

Commitments and contingencies (Note 5)

   
     

Partners’ equity:

   

Limited partners (46,809,749 common units outstanding as of June 30, 2007 and
December 31, 2006)     


1,805,633


1,830,047

  General partner     

38,659

38,815

  Accumulated other comprehensive income     

     18,181

       6,819

     Total partners’ equity     

1,862,473

1,875,681

     Total liabilities and partners’ equity     

 

$ 3,561,499

$ 3,494,208

See Condensed Notes to Consolidated Financial Statements.


NUSTAR ENERGY L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited, Thousands of Dollars, Except Unit and Per Unit Data)

 

Three Months Ended June 30,

Six Months Ended June 30,

 

2007

2006

2007

2006

Revenues:

       

Services revenues:

       

     Third parties 

$  160,060

$   87,676

$ 317,342

$ 174,934

     Related party

            -

  64,418

             -

125,089

          Total services revenues

160,060

152,094

317,342

300,023

Product sales

 160,446

127,874

299,988

253,949

           Total revenues

 320,506

279,968

617,330

553,972

         

Costs and expenses:

       

Cost of product sales

148,061

118,283

275,988

232,501

Operating expenses:

       

     Third parties

63,060

55,802

122,939

106,415

     Related party

  22,384

  23,353

  43,717

  43,810

          Total operating expenses

85,444

79,155

166,656

150,225

General and administrative expenses:

       

     Third parties

8,366

3,271

13,468

6,131

     Related party

   9,215

   7,104

  19,021

  12,804

          Total general and administrative

             expenses

 

17,581

 

10,375

 

32,489

 

18,935

Depreciation and amortization expense

  27,860

  24,839

  55,202

  49,028

           Total costs and expenses

278,946

232,652

530,335

450,689

         

Operating income

41,560

47,316

86,995

103,283

     Equity earnings from joint ventures

1,746

1,844

3,357

3,050

     Interest expense, net

(19,452)

(16,604)

(38,306)

(32,300)

     Other income (expense), net

  17,626

     (272)

  24,249

      (41)

Income from continuing operations before income tax expense

 

41,480

 

32,284

 

76,295

 

73,992

Income tax expense

    1,783

       492

   5,475

   2,611

Income from continuing operations

39,697

31,792

70,820

71,381

         

Loss from discontinued operations, net of income tax

           -

    (239)

           -

    (377)

         

Net income

39,697

31,553

70,820

71,004

Less net income applicable to general partner

 

  (5,118)

 

  (4,041)

 

  (9,572)

 

  (8,240)

Net income applicable to limited partners

$   34,579

$    27,512

$    61,248

$    62,764

         

Weighted average number of basic units outstanding


46,809,749


46,809,749


46,809,749


46,809,749

         

Income (loss) per unit applicable to limited partners:

       

Continuing operations 

     $         0.74

$       0.60

      $      1.31

     $     1.35

Discontinued operations

           -

      (0.01)

        -

  (0.01)

Net income

      $         0.74

     $        0.59

    $      1.31

    $      1.34

         

Cash distributions per unit applicable to limited partners

 

 

$       0.950

 

$     0.885

 

 $    1.865

 

$   1.770

See Condensed Notes to Consolidated Financial Statements.


NUSTAR ENERGY L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, Thousands of Dollars)

 

 

 

Six Months Ended June 30,

 

 

 

2007

 

2006

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

Net income

 

$

70,820

 

$

71,004

 

Adjustments to reconcile net income to net cash

 

 

 

 

 

 

 

provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

55,202

 

 

49,028

 

Equity earnings from joint ventures

 

 

(3,357

)

 

(3,137

)

Distributions from joint ventures

 

 

544

 

 

2,561

 

Changes in current assets and current liabilities

 

 

(11,314

)

 

(8,494

)

Other, net

 

 

(4,458

)

 

(3,579

)

Net cash provided by operating activities

 

 

107,437

 

 

107,383

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

Reliability capital expenditures

 

 

(11,957

)

 

(15,156

)

Strategic and other capital expenditures

 

 

(101,776

)

 

(27,701

)

Acquisition

 

 

 

 

(12,827

)

Investment in other noncurrent assets

 

 

(64

)

 

(8,066

)

Proceeds from sale of assets

 

 

1,342

 

 

70,078

 

Proceeds from insurance settlement

 

 

250

 

 

3,661

 

Other

 

 

 

 

912

 

Net cash (used in) provided by investing activities

 

 

(112,205

)

 

10,901

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

Long-term debt borrowings

 

 

266,462

 

 

34,000

 

Long-term debt repayments

 

 

(172,567

)

 

(38,480

)

Repayments of notes payable

 

 

(4,257

)

 

 

Decrease in cash book overdrafts

 

 

(134

)

 

(6,894

)

Distributions to unitholders and general partner

 

 

(95,390

)

 

(89,773

)

Other

 

 

(12

)

 

(359

)

Net cash used in financing activities

 

 

(5,898

)

 

(101,506

)

 

 

 

 

 

 

 

 

Effect of foreign exchange rate changes on cash

 

 

6,053

 

 

(292

)

 

 

 

 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

 

 

(4,613

)

 

16,486

 

Cash and cash equivalents at the beginning of the period

 

 

68,838

 

 

36,054

 

Cash and cash equivalents at the end of the period

 

$

64,225

 

$

52,540

 

 

See Condensed Notes to Consolidated Financial Statements.


NUSTAR ENERGY L.P. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION, OPERATIONS AND ACCOUNTING PRONOUNCEMENTS

Organization

NuStar Energy L.P. is a publicly traded Delaware limited partnership primarily engaged in the crude oil and refined product transportation, terminalling and storage business in the United States, the Netherland Antilles, Canada, Mexico, the Netherlands and the United Kingdom.

As used in this report, references to “we,” “us,” “our” or the “Partnership” collectively refer, depending on the context, to NuStar Energy L.P. or a wholly owned subsidiary of NuStar Energy L.P.

These unaudited consolidated financial statements include the accounts of the Partnership and subsidiaries in which the Partnership has a controlling interest. Intercompany balances and transactions have been eliminated in consolidation. Investments in 50% or less owned entities are accounted for using the equity method of accounting.

These unaudited consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934. Accordingly, they do not include all of the information and notes required by GAAP for complete consolidated financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal recurring nature unless disclosed otherwise. Financial information for the three and six months ended June 30, 2007 and 2006 included in these Condensed Notes to Consolidated Financial Statements is derived from our unaudited consolidated financial statements. Operating results for the three and six months ended June 30, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007.

The consolidated balance sheet as of December 31, 2006 has been derived from the audited consolidated financial statements as of that date. You should read these consolidated financial statements in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2006.

NuStar GP Holdings, LLC (NuStar GP Holdings), a publicly held Delaware limited liability company, owns our general partner, which is represented by a 2% general partner interest. NuStar GP Holdings, through various affiliates, also owns an approximate 21.4% limited partner interest, resulting in a combined partnership ownership of 23.4%. The remaining 76.6% limited partnership interests are held by public unitholders.

Operations

Our operations are managed by NuStar GP, LLC, a wholly owned subsidiary of NuStar GP Holdings.

We conduct our operations through our subsidiaries, primarily NuStar Logistics, L.P. (NuStar Logistics) and Kaneb Pipe Line Operating Partnership, L.P. (KPOP). We have five business segments: refined product terminals, refined product pipelines, crude oil pipelines, crude oil storage tanks and an other segment.

New Accounting Pronouncements

FASB Statement 159

In February 2007, the Financial Accounting Standards Board (FASB) issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” Statement No. 159 creates a fair value option under which an entity may irrevocably elect fair value as the initial and subsequent measurement attribute for certain financial assets and financial liabilities on an instrument-by-instrument basis, with changes in fair value recognized in earnings as those changes occur. The adoption of Statement No. 159 is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the effect of Statement No. 159.


NUSTAR ENERGY L.P.AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)


 

FASB Interpretation No. 48

In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109” (FIN 48). FIN 48 clarifies the accounting for uncertain income tax positions recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes,” by defining a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. An enterprise recognizes a tax position if it is more-likely-than-not that the tax position will be sustained, based on the technical merits of the position, upon examination. An uncertain tax position is measured in the financial statements at the largest amount of benefit that is more-likely-than-not to be realized. We adopted FIN 48 effective January 1, 2007, which did not affect our financial position or results of operations. We had no unrecognized tax benefits as of January 1, 2007 or June 30, 2007.

 

NuStar Energy L.P. or certain of its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. For U.S. federal and state purposes, tax years subject to examination are 2002 through 2006 and for our major non-U.S. jurisdictions, tax years subject to examination are 2000 through 2006.

EITF Issue No. 06-3

In June 2006, the FASB ratified its consensus on EITF Issue No. 06-3, “How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement” (EITF No. 06-3). EITF No. 06-3 includes any tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer and may include sales, use, value added, and some excise taxes. These taxes should be presented on either a gross or a net basis, and if reported on a gross basis, a company should disclose amounts of those taxes in interim and annual financial statements for each period for which an income statement is presented. We present taxes on a net basis in our consolidated financial statements. We adopted EITF No. 06-3 effective January 1, 2007, which had no impact on our financial position or results of operations.
 

Reclassifications

Certain previously reported amounts in the 2006 consolidated financial statements have been reclassified to conform to the 2007 presentation.

2. ACQUISITIONS

St. James Crude Oil Storage Facility

On December 1, 2006, we acquired a crude oil storage and blending facility in St. James, Louisiana from Koch Supply and Trading, L.P. for approximately $141.7 million (the St. James Acquisition). The facility includes 17 crude oil tanks with a total capacity of approximately 3.3 million barrels. Additionally, the facility has three docks with barge and ship access. The facility is located on the west bank of the Mississippi River approximately 60 miles west of New Orleans. We funded the acquisition with borrowings under our revolving credit agreement. The results of operations are included in the refined product terminal segment.


NUSTAR ENERGY L.P.AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

The acquisition of the St. James crude facility was accounted for using the purchase method. The purchase price and purchase price allocation were as follows (in thousands):
 

Cash paid for St. James Terminal     

$ 140,900

Transaction costs     

       759

      Total     

$ 141,659

   

Current assets     

$          53

Property and equipment     

126,258

Goodwill     

13,898

Intangible assets     

    1,450

      Total      

$ 141,659

Since the effect of the St. James Acquisition was not significant, we have not presented pro forma financial information for the three and six months ended June 30, 2006 giving effect to the St. James Acquisition as of January 1, 2006.

3. PRODUCT IMBALANCES

Product imbalances occur when customers deliver more or less refined product volumes into our pipelines than they are entitled to receive. We value assets and liabilities related to product imbalances at current market prices. Included in “Other current assets” on the consolidated balance sheets are $11.9 million and $9.9 million of product imbalance assets as of June 30, 2007 and December 31, 2006, respectively. Included in “Accrued liabilities” on the consolidated balance sheets are $10.1 million and $7.8 million of product imbalance liabilities as of June 30, 2007 and December 31, 2006, respectively.

 

4. LONG-TERM DEBT

Extension of Maturity Date

In accordance with the terms of our $600 Million Revolving Credit Agreement (Revolving Credit Agreement) and $525 Million Term Loan Agreement (Term Loan Agreement), we requested a one-year extension to the maturity dates of those instruments. In June 2007, the lenders consented to our request resulting in the extension of the maturity dates of our Revolving Credit Agreement and our Term Loan Agreement to May 31, 2012.

Revolving Credit Agreement

During the six months ended June 30, 2007, we borrowed $266.5 million under our Revolving Credit Agreement to fund a portion of our capital expenditures. Additionally, we repaid $152.5 million during the six months ended June 30, 2007. The Revolving Credit Agreement bears interest based on either an alternative base rate or LIBOR, which was 6.0% as of June 30, 2007. As of June 30, 2007, we had $293.9 million available for borrowing under our Revolving Credit Agreement.

Interest Rate Swaps

As of June 30, 2007, the weighted-average interest rate for our interest rate swaps was 7.2%. As of June 30, 2007 and December 31, 2006, the aggregate estimated fair value of the interest rate swaps included in other long-term liabilities on our consolidated balance sheets was $8.5 million and $4.9 million, respectively.


NUSTAR ENERGY L.P.AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

5. COMMITMENTS AND CONTINGENCIES

Litigation and Environmental Matters

We have contingent liabilities resulting from various litigation, claims and commitments, the most significant of which are discussed below. We record accruals for loss contingencies when losses are considered probable and can be reasonably estimated. Legal fees associated with defending the Partnership in legal matters are expensed as incurred. As of June 30, 2007, we have accrued $1.3 million related to settled matters and $48.7 million related to contingent losses. The actual payment of any amounts accrued and the timing of such payments ultimately made is uncertain. We believe that should we be unable to successfully defend ourselves in any of these matters, the ultimate payment of any or all of the amounts accrued would not have a material adverse effect on our financial position or liquidity. However, if any actual losses ultimately exceed the amounts accrued, there could be a material adverse effect on our results of operations.

Grace Energy Corporation Matter. In 1997, Grace Energy Corporation (Grace Energy) sued subsidiaries of Kaneb Pipe Line Partners, L.P. (KPP) and Kaneb Services, LLC (KSL and, collectively with KPP and their respective subsidiaries, Kaneb) in Texas state court. The complaint sought recovery of the cost of remediation of fuel leaks in the 1970s from a pipeline that had once connected a former Grace Energy terminal with Otis Air Force Base in Massachusetts (Otis AFB). Grace Energy alleges the Otis AFB pipeline and related environmental liabilities had been transferred in 1978 to an entity that was part of Kaneb’s acquisition of Support Terminal Services, Inc. and its subsidiaries from Grace Energy in 1993. Kaneb contends that it did not acquire the Otis AFB pipeline and never assumed any responsibility for any associated environmental damage.

     

In 2000, the court entered final judgment that: (i) Grace Energy could not recover its own remediation costs of $3.5 million, (ii) Kaneb owned the Otis AFB pipeline and its related environmental liabilities and (iii) Grace Energy was awarded $1.8 million in attorney costs. Both Kaneb and Grace Energy appealed the trial court’s final judgment to the Texas Court of Appeals in Dallas. In 2001, Grace Energy filed a petition in bankruptcy, which created an automatic stay of actions against Grace Energy. Once that stay is lifted, we intend to resume vigorous prosecution of the appeal.
 
The Otis AFB is a part of a Superfund Site pursuant to the Comprehensive Environmental Response Compensation and Liability Act (CERCLA). The site contains a number of groundwater contamination plumes, two of which are allegedly associated with the Otis AFB pipeline. Relying on the Texas state court’s final judgment assigning ownership of the Otis AFB pipeline to Kaneb, the U.S. Department of Justice advised Kaneb in 2001 that it intends to seek reimbursement from Kaneb for the remediation costs associated with the two spill areas. In 2002, the Department of Justice asserted that it had incurred over $49.0 million in costs and expected to incur additional costs of approximately $19.0 million for remediation of the two spill areas. The Department of Justice has not filed a lawsuit against us related to this matter, and we have not made any payments toward costs incurred by the Department of Justice.

Port of Vancouver Matter. We own a chemical and refined products terminal on property owned by the Port of Vancouver, and we lease the land under the terminal from the Port of Vancouver. Under an Agreed Order entered into with the Washington Department of Ecology when Kaneb purchased the terminal in 1998, Kaneb agreed to investigate and remediate groundwater contamination by the previous owner and operator of the terminal originating from the terminal. Investigation and remediation at the terminal are ongoing, in compliance with the Agreed Order. In April 2006, the Washington Department of Ecology commented on our site investigation work plan and asserted that the groundwater contamination at the terminal was commingled with a groundwater contamination plume under other property owned by the Port of Vancouver. We dispute this assertion. No lawsuits have been filed against us in this matter, and we have not made any payments toward remediation of the allegedly commingled plume. Factors that could affect estimated remediation costs include whether Kaneb will be found to have ultimate responsibility for some portion of the allegedly commingled plume, the Port of Vancouver’s contribution to the remediation effort and the amount the Port of Vancouver actually receives from other potentially responsible parties.


NUSTAR ENERGY L.P.AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

EPA Investigation. On November 14, 2006, agents of the U.S. Environmental Protection Agency (the EPA) presented a search warrant issued by a U.S. District Court at one of our terminals. Since then, the U.S. District Court has also served us with four subpoenas. The search warrant and subpoenas all seek information regarding allegations of potential illegal conduct by us, certain of our subsidiaries and/or our employees concerning compliance with certain environmental and safety laws and regulations.  We are cooperating fully with the EPA in producing documents in response to the subpoenas. We have no information as to when the EPA will conclude their investigation, and we are also conducting an internal investigation of any possible noncompliance. At this time, the EPA has not suggested any fines or penalties. There can be no assurances that the conclusion of the EPA’s investigation will not result in a determination that we violated applicable laws. If we are found to have violated such laws, we could be subject to fines, civil penalties and criminal penalties. A final determination that we violated applicable laws could, among other things, result in our debarment from future federal government contracts. Because of the preliminary nature of the investigation, we are not able to estimate a loss or range of loss, if any. However, if any of the consequences described above ultimately occur, it is reasonably possible that the effects could be material to our results of operations in the period in which we would be required to record a liability, and could be material to our cash flows in the periods in which we would be required to pay such liability.

Other

We are also a party to additional claims and legal proceedings arising in the ordinary course of business. We believe the possibility is remote that the final outcome of any of these claims or proceedings to which we are a party would have a material adverse effect on our financial position, results of operations or liquidity; however, due to the inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim or proceeding would not have a material adverse effect on our results of operations, financial position or liquidity.

Commitments

In the first quarter of 2007, we entered into a three-year agreement to purchase a minimum of 4.5 million barrels of inventory at market prices for resale to our customers. We estimated the value of this commitment to be approximately $203.0 million, which will fluctuate with market prices.
 
The building lease for our new headquarters became effective in the first quarter of 2007. We have a minimum commitment of approximately $13.5 million over almost 11 years.

6 .   RELATED PARTY TRANSACTIONS

Since we do not have any employees, we rely upon employees of NuStar GP, LLC, a wholly owned subsidiary of NuStar GP Holdings. We reimburse NuStar GP, LLC for all employee-related costs. The amount of employee benefit plan expenses we reimbursed to NuStar GP, LLC, including compensation expense related to grants of our restricted common units and unit options, was $11.6 million and $9.0 million for the three months ended June 30, 2007 and 2006, respectively, and $24.1 million and $16.4 million for the six months ended June 30, 2007 and 2006, respectively. These employee benefit plan expenses and the related payroll costs are included in operating expenses and general and administrative expenses. As of June 30, 2007 and December 31, 2006, we had a payable to NuStar GP, LLC of $4.4 million and $2.3 million, respectively, with both amounts representing payroll and related benefit plan costs for employees. We also had a long-term payable as of June 30, 2007 and December 31, 2006 of $5.7 million to NuStar GP, LLC related to amounts payable for retiree medical benefits and other post-employment benefits.
 
For the three and six months ended June 30, 2006, we have presented transactions with Valero Energy Corporation (Valero Energy) for pipeline tariff, terminalling fee and crude oil storage tank fee revenues, certain employee costs, insurance costs, administrative costs and lease expense in the consolidated statement of income as related party transactions. Under the terms of various services agreements with Valero Energy, we reimbursed Valero Energy for payroll costs of employees working on our behalf. Additionally, Valero Energy charged us an administrative service fee. Due to Valero Energy’s sale of its interest in NuStar GP Holdings on December 22, 2006, we ceased reporting these transactions with Valero Energy as related party transactions.


NUSTAR ENERGY L.P.AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

The following table summarizes information pertaining to related party transactions with NuStar GP, LLC for the three and six months ended June 30, 2007 and with Valero Energy for the three and six months ended June 30, 2006:

 

 

Three Months Ended June 30,

Six Months Ended June 30,

 

2007

2006

2007

2006

 

(Thousands of Dollars)

         

Revenues     

$           -

$  64,418

$           -

$ 125,089

Operating expenses     

22,384

23,353

43,717

43,810

General and administrative
     expenses     


9,215


7,104


19,021


12,804

Services Agreement

Prior to our separation from Valero Energy, the employees of NuStar GP, LLC were provided to us under the terms of various services agreements between us and Valero Energy. The terms of these services agreements generally provided that the costs of employees who performed services directly on our behalf, including salaries, wages and employee benefits, were charged directly to us. In addition, Valero Energy charged us an administrative services fee, which was $0.4 million and $0.9 million for the three and six months ended June 30, 2006, respectively.

Although Valero Energy no longer provides employees that work directly on our behalf, Valero Energy continues to provide certain services to us under the terms of a services agreement dated December 22, 2006 (the 2007 Services Agreement). Beginning January 1, 2007, under the 2007 Services Agreement, we paid Valero Energy approximately $97,000 per month for administrative services (primarily information system services and human resource services) and approximately $93,000 per month for telecommunication services.
 

On April 16, 2007, Valero Energy exercised its option to terminate the 2007 Services Agreement. As a result, Valero Energy will cease providing services according to the terms of the 2007 Services Agreement. Generally, these services will discontinue over a period of time sufficient to allow us to assume those functions. Additionally, since Valero Energy elected to terminate the 2007 Services Agreement prior to December 31, 2010, they paid us a termination fee of $13.0 million in May 2007.

7.   PARTNERS’ EQUITY

Allocation of Income and Income Per Unit

Our partnership agreement, as amended, sets forth the calculation to be used to determine the amount and priority of cash distributions that the limited partners and the general partner will receive. The partnership agreement also contains provisions for the allocation of net income and loss to the limited partners and the general partner. For purposes of maintaining partner capital accounts, the partnership agreement specifies that items of income and loss shall be allocated among the partners in accordance with their respective percentage interests. Normal allocations according to percentage interests are done after giving effect, if any, to priority income allocations in an amount equal to incentive cash distributions allocated 100% to the general partner.
 

We identified our general partner interest as a participating security and we use the two-class method when calculating “income per unit applicable to limited partners,” which is based on the weighted-average number of common units outstanding during the period. Basic and diluted net income per unit applicable to limited partners is the same because we have no potentially dilutive securities outstanding.


NUSTAR ENERGY L.P.AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)


The following table details the calculation of net income applicable to the general partner:

 

Three Months Ended

June 30,

Six Months Ended

June 30,

 

2007

2006

2007

2006

 

(Thousands of Dollars)

         

Net income applicable to general partner

     and limited partners’ interest     

 

$   39,697

 

$   31,553

 

$   70,820

 

$   71,004

Less general partner incentive distribution     

  4,413

  3,480

  8,323

  6,960

Net income after general partner
     incentive distribution     

 

35,284

 

28,073

 

62,497

 

64,044

General partner interest     

      2%

      2%

      2%

      2%

General partner allocation of net income
     after general partner incentive
     distribution     

 

 

705

 

 

561

 

 

1,249

 

 

1,280

General partner incentive distribution     

  4,413

  3,480

  8,323

6,960

Net income applicable to general
   partner     

 

$       5,118

 

 $      4,041

 

$      9,572

 

$     8,240

Cash Distributions

On April 24, 2007, we declared a quarterly cash distribution of $0.915 per unit paid on May 14, 2007 to unitholders of record on May 7, 2007, which totaled $47.7 million. On July 26, 2007, we declared a quarterly cash distribution of $0.950 per unit to be paid on August 14, 2007 to unitholders of record on August 7, 2007, which will total $49.9 million.

The following table reflects the allocation of total cash distributions to the general and limited partners applicable to the period in which the distributions were earned:

 

Three Months Ended June 30,

Six Months Ended June 30,

 

2007

2006

2007

2006

 

(Thousands of Dollars)

         

General partner interest     

$      997

$      916

$   1,951

$   1,832

General partner incentive distribution

  4,413

  3,480

  8,323

  6,960

  Total general partner distribution     

5,410

4,396

10,274

8,792

Limited partners’ distribution     

44,469

41,427

87,300

82,854

  Total cash distributions     

$ 49,879

$ 45,823

$ 97,574

$ 91,646

         

Cash distributions per unit
   applicable to limited partners     


$ 0.950


$ 0.885


$ 1.865


$ 1.770


NUSTAR ENERGY L.P.AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Comprehensive Income

The difference between our net income and our comprehensive income resulted from foreign currency translation adjustments. Our total comprehensive income was as follows:

 

Three Months Ended June 30,

Six Months Ended June 30,

 

2007

2006

2007

2006

 

(Thousands of Dollars)

         

Net income     

$ 39,697

$ 31,553

$ 70,820

$ 71,004

Foreign currency translation
  adjustment     

 

10,352

 

  6,865

 

11,362

 

  9,066

   Comprehensive income     

$ 50,049

$ 38,418

$ 82,182

$ 80,070

Shelf Registration

On May 18, 2007, the SEC declared effective our shelf registration statement on Form S-3, which will permit us to offer and sell various types of securities, including NuStar Energy L.P. common units and debt securities of each NuStar Logistics and KPOP, having an aggregate value of up to $3.0 billion.

8. OTHER INCOME

Other income consisted of the following:

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

 

 

(Thousands of Dollars)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2007 Services Agreement termination fee
(see Note 6)

 

$

13,000

 

$

 

$

13,000

 

$

 

Business interruption insurance

 

 

7,092

 

 

 

 

7,092

 

 

 

Legal settlements

 

 

 

 

 

 

5,508

 

 

 

Foreign exchange losses

 

 

(2,971

)

 

(280

)

 

(3,372

)

 

(26

)

Other

 

 

505

 

 

8

 

 

2,021

 

 

(15

)

Other income (expense), net

 

$

17,626

 

$

(272

)

$

24,249

 

$

(41

)


NUSTAR ENERGY L.P.AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

9. STATEMENTS OF CASH FLOWS

Changes in current assets and current liabilities were as follows:
 

 

Six Months Ended June 30,

 

2007

2006

 

(Thousands of Dollars)

Decrease (increase) in current assets:

   

Receivable from related party     

$             -

$     1,599

     Accounts receivable     

1,920

30,364

     Inventories     

4,119

(1,299)

     Other current assets     

(408)

(443)

Increase (decrease) in current liabilities:

   

Payable to related party     

2,095

(1,923)

     Accrued interest payable     

(644)

364

  Accounts payable, other accrued liabilities and income taxes payable

(18,165)

(38,445)

     Taxes other than income taxes     

     (231)

   1,289

Changes in current assets and current liabilities     

$ (11,314)

$  (8,494)

 

Cash flows related to interest and income taxes were as follows:

 

Six Months Ended June 30,

 

2007

2006

 

(Thousands of Dollars)

     

Cash paid for interest

$   44,127

$   36,854

Cash paid for income taxes, net of tax refunds received

   5,776

   2,735

Non-cash investing and financing activities for the six months ended June 30, 2007 included:

·     

adjustments to property and equipment, goodwill and intangible assets resulting from adjustments to the purchase price allocations related to the St. James crude oil storage facility acquisition.

·     

acquisition of other current assets in exchange for a note payable.


Non-cash investing activities for the six months ended June 30, 2006 included adjustments to property and equipment, goodwill and other balance sheet accounts resulting from adjustments to the purchase price allocations related to the 2005 acquisition of Kaneb Pipe Line Partners, L.P. and Kaneb Services, LLC.

10. SEGMENT INFORMATION

Our operating segments consist of refined product terminals, refined product pipelines, crude oil pipelines, crude oil storage tanks and an other segment. These reportable segments are strategic business units that offer different services and performance is evaluated based on operating income, before general and administrative expenses. General and administrative expenses are not allocated to the operating segments since those expenses relate primarily to the overall management at the entity level. Our principal services include providing pipeline transportation services, terminalling services, storage lease services and crude oil storage handling services. Our product sales primarily consist of the sale of bunker fuel to marine vessels. Revenues included in the other segment, which began in the second quarter of 2007, relate to the resale of heavy fuel oil and asphalt purchased from third parties.


NUSTAR ENERGY L.P.AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

Results of operations for the reportable segments were as follows:

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

 

 

(Thousands of Dollars)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

Refined product terminals:

 

 

 

 

 

 

 

 

 

 

 

 

 

Third party revenues

 

$

241,153

 

$

201,243

 

$

461,391

 

$

397,391

 

Intersegment revenues

 

 

544

 

 

 

 

544

 

 

 

Total refined product terminals

 

 

241,697

 

 

201,243

 

 

461,935

 

 

397,391

 

Refined product pipelines

 

 

57,102

 

 

52,201

 

 

110,526

 

 

104,247

 

Crude oil pipelines

 

 

10,116

 

 

14,868

 

 

22,465

 

 

28,917

 

Crude oil storage tanks

 

 

11,589

 

 

11,656

 

 

22,402

 

 

23,417

 

Other

 

 

546

 

 

 

 

546

 

 

 

Total segment revenues

 

$

321,050

 

$

279,968

 

$

617,874

 

$

553,972

 

Less intersegment eliminations

 

 

544

 

 

 

 

544

 

 

 

Total revenues

 

$

320,506

 

$

279,968

 

$

617,330

 

$

553,972

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

Refined product terminals

 

$

29,134

 

$

21,827

 

$

57,264

 

$

48,872

 

Refined product pipelines

 

 

18,944

 

 

17,862

 

 

37,284

 

 

39,967

 

Crude oil pipelines

 

 

5,204

 

 

9,295

 

 

12,947

 

 

18,398

 

Crude oil storage tanks

 

 

6,701

 

 

8,707

 

 

12,831

 

 

14,981

 

Other

 

 

(842

)

 

 

 

(842

)

 

 

Total segment operating income

 

$

59,141

 

$

57,691

 

$

119,484

 

$

122,218

 

Less general and administrative
expenses

 

 

17,581

 

 

10,375

 

 

32,489

 

 

18,935

 

Total operating income

 

$

41,560

 

$

47,316

 

$

86,995

 

$

103,283

 

 

Total assets by reportable segment were as follows:

   
 

June 30,

December 31,

 

2007

2006

 

(Thousands of Dollars)

     

Refined product terminals     

$ 1,894,147

$ 1,830,584

Refined product pipelines     

1,250,908

1,250,466

Crude oil pipelines     

129,483

132,407

Crude oil storage tanks     

194,693

197,902

Other segment     

       2,526

               -

     Total segment assets     

3,471,757

3,411,359

Other partnership assets       

     89,742

     82,849

     Total consolidated assets     

$ 3,561,499

$ 3,494,208


NUSTAR ENERGY L.P.AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

11. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

NuStar Energy L.P. has no operations and its assets consist mainly of its investments in NuStar Logistics and KPOP. NuStar Logistics and KPOP own and operate pipelines, terminals and storage tanks and are issuers of publicly traded senior notes. The senior notes issued by NuStar Logistics and KPOP are fully and unconditionally guaranteed by NuStar Energy L.P. In addition, both NuStar Logistics and KPOP fully and unconditionally guaranteed the outstanding senior notes of the other.
 

As a result, the following condensed consolidating financial statements are presented for 2007 and 2006 as an alternative to providing separate financial statements for NuStar Logistics and KPOP.

Condensed Consolidating Balance Sheet

June 30, 2007

(Thousands of Dollars)

   
 

NuStar Energy

L.P.

NuStar Logistics

KPOP

Non-Guarantor Subsidiaries (a)

Eliminations

Consolidated

             

Assets

           

Current assets     

$          163

$ 140,000

$ 663,573

$ 343,364

$ (931,536)

$ 215,564

Property and equipment, net

 

-

 

928,353

 

668,742

 

801,192

 

-

 

2,398,287

Intangible assets, net     

-

4,348

-

47,158

-

51,506

Goodwill     

-

18,613

170,652

596,979

-

786,244

Investment in wholly owned subsidiaries

 

2,348,252

 

12,751

 

702,960

 

1,391,561

 

(4,455,524)

 

-

Investments in joint ventures     

 

-

 

16,456

 

-

 

60,434

 

-

76,890

Deferred charges and other assets, net


              -

 

     14,950

 

          493

 

     17,565


                 -


     33,008

Total assets     

$ 2,348,415

$ 1,135,471

$ 2,206,420

$ 3,258,253

$ (5,387,060)

$ 3,561,499

             

Liabilities and Partners’ Equity

         

Current liabilities     

$    504,123

$      44,125

$      27,506

$    498,654

$    (931,536)

$    142,872

Long-term debt, less

     current portion     

 

-

 

857,847

 

542,316

 

42,171

 

-

 

1,442,334

Long-term payable to related party     

 

-

 

-

 

-

 

5,717

 

-

 

5,717

Deferred income tax liability     

-

-

-

35,897

-

35,897

Other long-term liabilities     

 

-

 

12,406

 

1,927

 

57,873

 

-

 

72,206

Partners’ equity     

1,844,292

  221,093

1,634,671

2,617,941

(4,455,524)

1,862,473

Total liabilities and
partners’ equity


$ 2,348,415


$ 1,135,471


$ 2,206,420


$ 3,258,253


$ (5,387,060)


$ 3,561,499

             

(a)     

Non-guarantor subsidiaries are wholly owned by NuStar Energy L.P., NuStar Logistics or KPOP.


NUSTAR ENERGY L.P.AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

Condensed Consolidating Balance Sheet

December 31, 2006

(Thousands of Dollars)

   
 

NuStar Energy

 L.P.

NuStar Logistics

KPOP

Non-Guarantor Subsidiaries (a)

Eliminations

Consolidated

             

Assets

           

Current assets     

$         403

$   115,210

$  653,221

$   145,807

$    (701,643)

$    212,998

Property and equipment, net

 

-

 

935,109

 

676,494

 

733,532

 

-

 

2,345,135

Intangible assets, net

-

3,427

-

50,105

-

53,532

Goodwill     

-

4,715

172,116

597,610

-

774,441

Investment in wholly
owned subsidiaries


2,372,469


24,172


668,796


1,345,791


(4,411,228)


-

Investments in joint ventures     

-

15,902

-

58,175

-

74,077

Deferred charges and other assets, net


          228

 

       5,807

 

          604

 

     27,386

 

                  -

 

     34,025

Total assets     

$ 2,373,100

$ 1,104,342

$ 2,171,231

$ 2,958,406

$ (5,112,871)

$ 3,494,208

             

Liabilities and Partners’ Equity

         

Current liabilities    

$  504,238

$      44,397

$     29,385

$    280,358

$    (701,643)

$   156,735

Long-term debt, less

     current portion     


-


767,031


545,571


41,118


-


1,353,720

Long-term payable to related party     


-


-


-


5,749


-


5,749

Deferred income tax liability     

-

-

-

32,926

-

32,926

Other long-term liabilities

 

-

 

5,797

 

3,517

 

60,083

 

-

 

69,397

Partners’ equity     

1,868,862

  287,117

1,592,758

2,538,172

(4,411,228)

1,875,681

  Total liabilities and     partners’ equity     

 

$ 2,373,100

 

$ 1,104,342

 

$ 2,171,231

 

$ 2,958,406

 

$ (5,112,871)

 

$ 3,494,208

(a)     

Non-guarantor subsidiaries are wholly owned by NuStar Energy L.P., NuStar Logistics or KPOP.



NUSTAR ENERGY L.P.AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

Condensed Consolidating Statements of Income

For the Three Months Ended June 30, 2007

(Thousands of Dollars)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


NuStar Energy

L.P.

 

NuStar Logistics

 

KPOP

 

Non-

Guarantor

 Subsidiaries (a)

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

 

$

58,800

 

$

36,569

 

$

225,392

 

$

(255

)

$

320,506

 

Costs and expenses

 

 

240

 

 

43,712

 

 

24,503

 

 

210,746

 

 

(255

)

 

278,946

 

Operating income

 

 

(240

)

 

15,088

 

 

12,066

 

 

14,646

 

 

 

 

41,560

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity earnings in subsidiaries

 

 

39,937

 

 

(1,511

)

 

13,406

 

 

19,161

 

 

(70,993

)

 

 

Equity earnings from joint ventures

 

 

 

 

275

 

 

 

 

1,471

 

 

 

 

1,746

 

Interest expense, net

 

 

 

 

(13,251

)

 

(6,357

)

 

156

 

 

 

 

(19,452

)

Other income (expense), net

 

 

 

 

20,503

 

 

43

 

 

(2,920

)

 

 

 


17,626

 

Income before income tax expense

 

 

39,697

 

 

21,104

 

 

19,158

 

 

32,514

 

 

(70,993

)

 

41,480

 

Income tax expense

 

 

 

 

272

 

 

 

 

1,511

 

 

 

 

1,783

 

Net income

 

$

39,697

 

$

20,832

 

$

19,158

 

$

31,003

 

$

(70,993

)

$

39,697

 

 

 

(a)     

Non-guarantor subsidiaries are wholly owned by NuStar Energy L.P., NuStar Logistics or KPOP.


NUSTAR ENERGY L.P.AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

Condensed Consolidating Statements of Income

For the Three Months Ended June 30, 2006

(Thousands of Dollars)

   
 

NuStar Energy L.P.

NuStar Logistics

KPOP

Non-Guarantor Subsidiaries (a)

Eliminations

Consolidated

             

Revenues     

$          -

$ 64,695

$ 26,908

$ 188,601

$      (236)

$ 279,968

Costs and expenses     

    555

34,567

22,703

175,063

     (236)

232,652

   Operating income     

(555)

30,128

4,205

13,538

-

47,316

             

Equity earnings in subsidiaries 

32,108

(52)

13,898

11,179

(57,133)

-

Equity earnings in joint ventures

-

130

-

1,714

-

1,844

Interest expense, net          

-

(9,200)

(7,020)

(384)

-

(16,604)

Other income (expense), net

         -

        35

          1

    (308)

              -

     (272)

   Income from continuing operations before income tax expense          

 

 

31,553

 

 

21,041

 

 

11,084

 

 

25,739

 

 

(57,133)

 

 

32,284

Income tax expense     

          -

          -

          -

     492

            -

     492

Income from continuing

     operations     

 

31,553

 

21,041

 

11,084

 

25,247

 

(57,133)

 

31,792

Income (loss) from discontinued operations, net of income tax     

 

 

          -

 

 

          -

 

 

       19

 

 

   (258)

 

 

            -

 

 

   (239)

Net income     

$ 31,553

$ 21,041

$ 11,103

$ 24,989

$ (57,133)

$ 31,553

(a)     

Non-guarantor subsidiaries are wholly owned by NuStar Energy L.P., NuStar Logistics or KPOP.


NUSTAR ENERGY L.P.AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

Condensed Consolidating Statements of Income

For the Six Months Ended June 30, 2007

(Thousands of Dollars)

   
 

NuStar Energy L.P.

NuStar Logistics

KPOP

Non-Guarantor Subsidiaries (a)

Eliminations

Consolidated

             

Revenues     

$          -

$ 120,318

$ 68,232

$ 429,324

$         (544)

$ 617,330

Costs and expenses     

     353

84,339

47,778

398,409

        ( 544)

530,335

   Operating income     

(353)

35,979

20,454

30,915

-

86,995

             

Equity earnings in subsidiaries 

71,173

(1,470)

34,219

41,915

(145,837)

-

Equity earnings in joint ventures 

-

554

-

2,803

-

3,357

Interest expense, net         

-

(25,870)

(12,815)

379

-

(38,306)

Other income (expense), net

            -

20,650

        54

   3,545

              -

24,249

Income before income tax expense       

 

70,820

 

29,843

 

41,912

 

79,557

 

(145,837)

 

76,295

Income tax expense     

           -

     561

          -

  4,914

              -

5,475

Net income     

$ 70,820

$ 29,282

$ 41,912

$ 74,643

$ (145,837)

$ 70,820

             

(a)     

Non-guarantor subsidiaries are wholly owned by NuStar Energy L.P., NuStar Logistics or KPOP.


NUSTAR ENERGY L.P.AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Condensed Consolidating Statements of Income

For the Six Months Ended June 30, 2006

(Thousands of Dollars)

   
 

NuStar Energy L.P.

NuStar Logistics

KPOP

Non-Guarantor Subsidiaries (a)

Eliminations

Consolidated

             

Revenues     

$           -

$ 125,378

$ 54,108

$ 374,972

$        (486)

$ 553,972

Costs and expenses     

  1,005

  67,965

42,432

339,773

       (486)

450,689

   Operating income     

(1,005)

57,413

11,676

35,199

-

103,283

             

Equity earnings in subsidiaries 

72,009

234

33,237

31,201

(136,681)

-

Equity earnings in joint ventures 

-

145

-

2,905

-

3,050

Interest expense, net  

-

(16,842)

(14,035)

(1,423)

-

(32,300)

Other income (expense),  net

 

          -

 

          47

 

         2

 

     (90)

 

               -

 

       (41)

Income from continuing operations before income tax expense 

 

 

71,004

 

 

40,997

 

 

30,880

 

 

67,792

 

 

(136,681)

 

 

73,992

Income tax expense     

          -

            -

          -

   2,611

               -

   2,611

Income from continuing

     operations     


71,004


40,997


30,880


65,181


(136,681)


71,381

Income (loss) from discontinued operations, net of income tax

 

 

 

          -

 

 

 

            -

 

 

 

     317

 

 

 

  (694)

 

 

 

              -

 

 

 

   (377)

Net income     

$ 71,004

$   40,997

$ 31,197

$ 64,487

$ (136,681)

$ 71,004

             

(a)     

Non-guarantor subsidiaries are wholly owned by NuStar Energy L.P., NuStar Logistics or KPOP.


 

NUSTAR ENERGY L.P.AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Condensed Consolidating Statement of Cash Flows

For the Six Months Ended June 30, 2007

(Thousands of Dollars)

   
 

NuStar Energy L.P.

NuStar Logistics

KPOP

Non-Guarantor Subsidiaries (a)

Eliminations

Consolidated

             

Cash flows from operating activities:

           

     Net income     

$ 70,820

$ 29,282

$ 41,912

$ 74,643

$ (145,837)

$ 70,820

 Adjustments to reconcile net income to net cash provided by operating activities:

           

 Depreciation and

amortization     

 

-

 

22,269

 

12,496

 

20,437

 

-

 

55,202

Equity earnings, net of distributions     


24,217


916


(34,219)


(44,164)


50,437


(2,813)

Changes in operating assets and liabilities and other     



     (
526)



 2,000



(
5,274)



(11,972
)



            -



(15,772
)

Net cash provided by (used in) operating activities     


94,511


54,467


14,915


 38,944


 (
95,400)


107,437

Cash flows from investing
   activities:

           

     Capital expenditures     

-

(29,308)

(4,730)

(79,695)

-

(113,733)

            Proceeds from sale of
           assets     

 

-

 

-

 

7

 

1,335

 

-

 

1,342

     Acquisition and
        investment in
        noncurrent assets          

 

 

-