NS 2Q14 10-Q

Table of Contents

 
 
 
 
 
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, 2014
OR
o
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 incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
19003 IH-10 West
San Antonio, Texas
 
78257
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code (210) 918-2000
 _________________________________________
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  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data 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  x    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 Rule12b-2 of the Exchange Act:
Large accelerated filer
 
x
Accelerated filer
 
o
 
 
 
 
 
 
Non-accelerated filer
 
o  (Do not check if a smaller reporting company)
Smaller reporting company
 
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o   No  x
The number of common units outstanding as of July 31, 2014 was 77,886,078.
 
 
 
 
 



Table of Contents

NUSTAR ENERGY L.P. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
Item 1.
 
 
 
Item 6.
 
 

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Table of Contents

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,
2014
 
December 31,
2013
 
(Unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
49,076

 
$
100,743

Accounts receivable, net of allowance for doubtful accounts of $301
and $1,224 as of June 30, 2014 and December 31, 2013, respectively
254,824

 
281,310

Receivable from related parties
144

 
51,084

Inventories
112,838

 
138,147

Income tax receivable
4,551

 
826

Other current assets
40,265

 
39,452

Assets held for sale
6,420

 
21,987

Total current assets
468,118

 
633,549

Property, plant and equipment, at cost
4,622,845

 
4,500,837

Accumulated depreciation and amortization
(1,277,709
)
 
(1,190,184
)
Property, plant and equipment, net
3,345,136

 
3,310,653

Intangible assets, net
64,959

 
71,249

Goodwill
617,429

 
617,429

Investment in joint ventures
72,908

 
68,735

Deferred income tax asset
5,057

 
5,769

Note receivable from related party

 
165,440

Other long-term assets, net
322,172

 
159,362

Total assets
$
4,895,779

 
$
5,032,186

Liabilities and Partners’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
172,869

 
$
298,751

Payable to related party
14,311

 
8,325

Accrued interest payable
33,624

 
33,113

Accrued liabilities
37,256

 
38,632

Taxes other than income tax
10,815

 
9,745

Income tax payable
2,873

 
4,006

Total current liabilities
271,748

 
392,572

Long-term debt
2,726,629

 
2,655,553

Long-term payable to related party
40,432

 
41,139

Deferred income tax liability
29,152

 
27,350

Other long-term liabilities
18,459

 
11,778

Commitments and contingencies (Note 5)

 

Partners’ equity:
 
 
 
Limited partners (77,886,078 common units outstanding
as of June 30, 2014 and December 31, 2013)
1,823,354

 
1,921,726

General partner
41,355

 
43,804

Accumulated other comprehensive loss
(56,339
)
 
(63,394
)
Total NuStar Energy L.P. partners’ equity
1,808,370

 
1,902,136

Noncontrolling interest
989

 
1,658

Total partners’ equity
1,809,359

 
1,903,794

Total liabilities and partners’ equity
$
4,895,779

 
$
5,032,186

See Condensed Notes to Consolidated Financial Statements.

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Table of Contents

NUSTAR ENERGY L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited, Thousands of Dollars, Except Unit and Per Unit Data)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
Revenues:
 
 
 
 
 
 
 
Service revenues
$
259,562

 
$
231,451

 
$
488,900

 
$
457,210

Product sales
490,183

 
670,563

 
1,110,058

 
1,442,990

Total revenues
749,745

 
902,014

 
1,598,958

 
1,900,200

Costs and expenses:
 
 
 
 
 
 
 
Cost of product sales
473,755

 
648,766

 
1,068,714

 
1,401,020

Operating expenses:
 
 
 
 
 
 
 
Third parties
84,565

 
79,664

 
161,971

 
161,468

Related party
30,972

 
31,651

 
59,631

 
63,364

Total operating expenses
115,537

 
111,315

 
221,602

 
224,832

General and administrative expenses:
 
 
 
 
 
 
 
Third parties
5,715

 
7,125

 
12,477

 
15,835

Related party
17,448

 
12,528

 
31,542

 
31,312

Total general and administrative expenses
23,163

 
19,653

 
44,019

 
47,147

Depreciation and amortization expense
47,936

 
45,308

 
94,166

 
86,871

Total costs and expenses
660,391

 
825,042

 
1,428,501

 
1,759,870

Operating income
89,354

 
76,972

 
170,457

 
140,330

Equity in earnings (loss) of joint ventures
3,294

 
(10,128
)
 
(1,012
)
 
(21,271
)
Interest expense, net
(33,122
)
 
(31,035
)
 
(67,539
)
 
(62,026
)
Interest income from related party

 
1,610

 
1,055

 
2,732

Other (expense) income, net
(474
)
 
2,184

 
3,204

 
2,528

Income from continuing operations before income tax
expense
59,052

 
39,603

 
106,165

 
62,293

Income tax expense
1,865

 
4,891

 
5,982

 
7,982

Income from continuing operations
57,187

 
34,712

 
100,183

 
54,311

(Loss) income from discontinued operations, net of tax
(1,788
)
 
(1,743
)
 
(5,147
)
 
3,062

Net income
55,399

 
32,969

 
95,036

 
57,373

Less net loss attributable to noncontrolling interest
(115
)
 
(117
)
 
(222
)
 
(278
)
Net income attributable to NuStar Energy L.P.
$
55,514

 
$
33,086

 
$
95,258

 
$
57,651

Net income (loss) per unit applicable to limited partners:
 
 
 
 
 
 
 
Continuing operations
$
0.58

 
$
0.30

 
$
0.98

 
$
0.40

Discontinued operations
(0.02
)
 
(0.02
)
 
(0.06
)
 
0.05

Total (Note 10)
$
0.56

 
$
0.28

 
$
0.92

 
$
0.45

Weighted-average limited partner units outstanding
77,886,078

 
77,886,078

 
77,886,078

 
77,886,078

 
 
 
 
 
 
 
 
Comprehensive income
$
63,926

 
$
29,238

 
$
101,644

 
$
51,252

Less comprehensive loss attributable to
noncontrolling interest
(117
)
 
(1,029
)
 
(669
)
 
(1,477
)
Comprehensive income attributable to
NuStar Energy L.P.
$
64,043

 
$
30,267

 
$
102,313

 
$
52,729

See Condensed Notes to Consolidated Financial Statements.

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Table of Contents

NUSTAR ENERGY L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, Thousands of Dollars)
 
Six Months Ended June 30,
 
2014
 
2013
Cash Flows from Operating Activities:
 
 
 
Net income
$
95,036

 
$
57,373

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization expense
94,166

 
89,588

Amortization of debt related items
4,745

 
458

Gain from sale or disposition of assets
(88
)
 
(8,746
)
Asset impairment loss
2,067

 

Deferred income tax expense (benefit)
2,131

 
(1,347
)
Equity in loss of joint ventures
1,012

 
21,271

Distributions of equity in earnings of joint ventures
3,094

 
4,652

Changes in current assets and current liabilities (Note 11)
(12,490
)
 
59,877

Other, net
10,709

 
8,429

Net cash provided by operating activities
200,382

 
231,555

Cash Flows from Investing Activities:
 
 
 
Capital expenditures
(118,872
)
 
(163,195
)
Change in accounts payable related to capital expenditures
(13,815
)
 

Proceeds from sale or disposition of assets
14,441

 
116,447

Increase in note receivable from related party
(13,328
)
 
(97,961
)
Other, net
(23
)
 
132

Net cash used in investing activities
(131,597
)
 
(144,577
)
Cash Flows from Financing Activities:
 
 
 
Proceeds from long-term debt borrowings
405,317

 
1,045,406

Proceeds from note offering, net of issuance costs

 
391,059

Proceeds from short-term debt borrowings
34,400

 

Long-term debt repayments
(332,033
)
 
(1,334,532
)
Short-term debt repayments
(34,400
)
 

Distributions to unitholders and general partner
(196,102
)
 
(196,102
)
Payments for termination of interest rate swaps

 
(33,697
)
Other, net
2,998

 
3,320

Net cash used in financing activities
(119,820
)
 
(124,546
)
Effect of foreign exchange rate changes on cash
(632
)
 
(3,907
)
Net decrease in cash and cash equivalents
(51,667
)
 
(41,475
)
Cash and cash equivalents as of the beginning of the period
100,743

 
83,602

Cash and cash equivalents as of the end of the period
$
49,076

 
$
42,127

See Condensed Notes to Consolidated Financial Statements.

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Table of Contents

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

1. ORGANIZATION AND BASIS OF PRESENTATION

Organization and Operations
NuStar Energy L.P. (NuStar Energy) (NYSE: NS) is engaged in the transportation of petroleum products and anhydrous ammonia, the terminalling and storage of petroleum products and the marketing of petroleum products. Unless otherwise indicated, the terms “NuStar Energy,” “the Partnership,” “we,” “our” and “us” are used in this report to refer to NuStar Energy L.P., to one or more of our consolidated subsidiaries or to all of them taken as a whole. NuStar GP Holdings, LLC (NuStar GP Holdings) (NYSE: NSH) owns our general partner, Riverwalk Logistics, L.P., and owns a 14.9% total interest in us as of June 30, 2014.

We conduct our operations through our subsidiaries, primarily NuStar Logistics, L.P. (NuStar Logistics) and NuStar Pipeline Operating Partnership L.P. (NuPOP). We have three business segments: pipeline, storage and fuels marketing.

Basis of Presentation
These unaudited condensed consolidated financial statements include the accounts of the Partnership and subsidiaries in which the Partnership has a controlling interest. Noncontrolling interests are separately disclosed on the financial statements. Inter-partnership balances and transactions have been eliminated in consolidation. We account for our investments in joint ventures using the equity method of accounting.

These unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to the Quarterly Report on 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, and all disclosures are adequate. All such adjustments are of a normal recurring nature unless disclosed otherwise. Financial information for the three and six months ended June 30, 2014 and 2013 included in these Condensed Notes to Consolidated Financial Statements is derived from our unaudited condensed consolidated financial statements. Operating results for the three and six months ended June 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. The consolidated balance sheet as of December 31, 2013 has been derived from the audited consolidated financial statements as of that date. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2013.

New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board jointly issued a comprehensive new revenue recognition standard. The standard is effective for public entities for annual and interim periods beginning after December 15, 2016, using one of two retrospective application methods. Early adoption is not permitted for public entities. We are currently assessing the impact of this new guidance on our financial statements and disclosures, and we have not yet selected an application method.

In April 2014, the FASB amended the disclosure requirements for discontinued operations. Under the amended guidance, a discontinued operation is defined as the disposal of a component that represents a strategic shift that has (or will have) a major effect on an entity's operations and financial results. The amended guidance also requires expanded disclosures about discontinued operations and disposals of a significant part of an entity that do not qualify as discontinued operations. The amended guidance is effective prospectively to new disposals and new classifications of assets held for sale in annual periods beginning after December 15, 2014, and interim periods within those annual periods. Accordingly, we plan to adopt the amended guidance January 1, 2015.

2. DISPOSITIONS AND DISCONTINUED OPERATIONS

Dispositions
On February 26, 2014, we sold our remaining 50% ownership interest in NuStar Asphalt LLC (Asphalt JV) to Lindsay Goldberg LLC (Lindsay Goldberg), a private investment firm (the Asphalt JV Sale). Lindsay Goldberg now owns 100% of Asphalt JV. Unless otherwise indicated, the term “Asphalt JV” is used in this report to refer to NuStar Asphalt LLC, to one or more of its consolidated subsidiaries or to all of them taken as a whole. Effective February 27, 2014, NuStar Asphalt LLC changed its name to Axeon Specialty Products LLC. As a result of the Asphalt JV Sale, we ceased applying the equity method of accounting. Upon completion of the Asphalt JV Sale, the parties agreed to: (i) convert the $250.0 million unsecured

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


revolving credit facility provided by us to Asphalt JV (the NuStar JV Facility) from a revolving credit agreement into a $190.0 million term loan (the NuStar Term Loan); (ii) terminate the terminal services agreements with respect to our terminals in Rosario, NM, Catoosa, OK and Houston, TX; (iii) amend the terminal services agreements for our terminals in Baltimore, MD and Jacksonville, FL; and (iv) transfer ownership of both the Wilmington, NC and Dumfries, VA terminals to Asphalt JV, which were categorized as assets held for sale at December 31, 2013. See Note 8 for a discussion of our agreements with Asphalt JV.

Discontinued Operations
Terminals Held for Sale. In addition to the terminals located in Wilmington, NC and Dumfries, VA, we have identified and plan to divest several non-strategic, underperforming terminal facilities. As a result, we have classified the associated property, plant and equipment as “Assets held for sale” on the consolidated balance sheets. We presented the results of operations for those facilities, which were previously reported in the storage segment, as discontinued operations for all periods presented. In June 2014, we sold three terminals located in Mobile, AL with an aggregate storage capacity of 1.8 million barrels for total proceeds of $13.7 million. We allocated interest expense to discontinued operations based on the ratio of net assets discontinued to consolidated net assets as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
 
(Thousands of Dollars)
Allocated interest expense
$
332

 
$
352

 
$
696

 
$
704


San Antonio Refinery. On January 1, 2013, we sold our fuels refinery in San Antonio, Texas (the San Antonio Refinery) and related assets for approximately $117.0 million (the San Antonio Refinery Sale). We have presented the results of operations for the San Antonio Refinery and related assets as discontinued operations for all periods presented. We recognized a gain of $9.3 million on the sale, which is included in discontinued operations for the six months ended June 30, 2013.

The following table summarizes the results from discontinued operations:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014

2013
 
2014
 
2013
 
(Thousands of Dollars)
Revenues
$
1,359

 
$
2,182

 
$
3,180

 
$
3,891

 
 
 
 
 
 
 
 
(Loss) income before income tax expense
$
(1,788
)
 
$
(2,460
)
 
$
(5,147
)
 
$
1,790


3. INVENTORIES

Inventories consisted of the following:
 
June 30,
2014

December 31,
2013
 
(Thousands of Dollars)
Crude oil
$
10,802

 
$
6,485

Finished products
93,452

 
123,656

Materials and supplies
8,584

 
8,006

Total
$
112,838

 
$
138,147


4. DEBT

Revolving Credit Agreement
During the six months ended June 30, 2014, the balance under our $1.5 billion five-year revolving credit agreement (the 2012 Revolving Credit Agreement) increased by $73.3 million, which we used for general partnership purposes. The 2012 Revolving Credit Agreement bears interest, at our option, based on either an alternative base rate or a LIBOR-based rate. The interest rate on the 2012 Revolving Credit Agreement is subject to adjustment if our debt rating is downgraded (or subsequently upgraded) by certain credit rating agencies. As of June 30, 2014, our weighted average interest rate was 2.2%.


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


The 2012 Revolving Credit Agreement contains customary restrictive covenants, including requiring us to maintain, as of the end of each rolling period, which consists of any period of four consecutive fiscal quarters, a consolidated debt coverage ratio (consolidated indebtedness to consolidated EBITDA, as defined in the 2012 Revolving Credit Agreement) not to exceed 5.00-to-1.00. The requirement not to exceed a maximum consolidated debt coverage ratio may limit the amount we can borrow under the 2012 Revolving Credit Agreement to an amount less than the total amount available for borrowing. As of June 30, 2014, our consolidated debt coverage ratio was 4.0x, and we had $775.1 million available for borrowing.

Gulf Opportunity Zone Revenue Bonds
In 2008, 2010 and 2011, the Parish of St. James, Louisiana issued, pursuant to the Gulf Opportunity Zone Act of 2005, tax-exempt revenue bonds (the GoZone Bonds) associated with our St. James, Louisiana terminal expansions. The GoZone Bonds bear interest based on a weekly tax-exempt bond market interest rate, and we pay interest monthly. The interest rate was 0.1% as of June 30, 2014. Following the issuance, the proceeds were deposited with a trustee and are disbursed to us upon our request for reimbursement of expenditures related to our St. James terminal expansions. We include the amount remaining in trust in “Other long-term assets, net,” and we include the amount of bonds issued in “Long-term debt” on the consolidated balance sheets. For the six months ended June 30, 2014, we received $0.6 million from the trustee. As of June 30, 2014, the amount remaining in trust totaled $82.8 million.

Line of Credit
In May 2014, we entered into a short-term line of credit agreement with an uncommitted borrowing capacity of up to $40.0 million. This agreement allows us to better manage the fluctuations in our daily cash requirements and minimize our excess cash balances. The interest rate and maturity vary and are determined at the time of the borrowing. We borrowed and repaid $34.4 million during the six months ended June 30, 2014 under this line of credit, and we had no outstanding borrowings as of June 30, 2014.

5. COMMITMENTS AND CONTINGENCIES

Contingencies
We have contingent liabilities resulting from various litigation, claims and commitments. 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, 2014, we have accrued $1.2 million for contingent losses. The amount that will ultimately be paid may differ from the recorded accruals, and the timing of such payments is uncertain. In addition, 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.

6. FAIR VALUE MEASUREMENTS

We segregate the inputs used in measuring fair value into three levels: Level 1, defined as observable inputs such as quoted prices for identical assets or liabilities in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable, such as quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in markets that are not active; and Level 3, defined as unobservable inputs in which little or no market data exists. We consider counterparty credit risk and our own credit risk in the determination of all estimated fair values.


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


Recurring Fair Value Measurements
The following assets and liabilities are measured at fair value on a recurring basis:
 
June 30, 2014
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(Thousands of Dollars)
Assets:
 
 
 
 
 
 
 
Other current assets:
 
 
 
 
 
 
 
Product imbalances
$
1,732

 
$

 
$

 
$
1,732

Commodity derivatives

 
3,767

 

 
3,767

Other long-term assets, net:
 
 
 
 
 
 
 
Commodity derivatives

 
256

 

 
256

Total
$
1,732

 
$
4,023

 
$

 
$
5,755

Liabilities:
 
 
 
 
 
 
 
Accrued liabilities:
 
 
 
 
 
 
 
Product imbalances
$
(878
)
 
$

 
$

 
$
(878
)
Commodity derivatives
(2,606
)
 
(1,151
)
 

 
(3,757
)
Contingent consideration

 

 
(1,318
)
 
(1,318
)
Other long-term liabilities:
 
 
 
 
 
 
 
Guarantee liability

 

 
(2,080
)
 
(2,080
)
Total
$
(3,484
)
 
$
(1,151
)
 
$
(3,398
)
 
$
(8,033
)

 
December 31, 2013
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(Thousands of Dollars)
Assets:
 
 
 
 
 
 
 
Other current assets:
 
 
 
 
 
 
 
Product imbalances
$
1,980

 
$

 
$

 
$
1,980

Commodity derivatives

 
4,948

 

 
4,948

Other long-term assets, net:
 
 
 
 
 
 
 
Commodity derivatives

 
6,977

 

 
6,977

Total
$
1,980

 
$
11,925

 
$

 
$
13,905

Liabilities:
 
 
 
 
 
 
 
Accrued liabilities:
 
 
 
 
 
 
 
Product imbalances
$
(2,190
)
 
$

 
$

 
$
(2,190
)
Commodity derivatives
(1,433
)
 
(800
)
 

 
(2,233
)
Contingent consideration

 

 
(1,318
)
 
(1,318
)
Other long-term liabilities:
 
 
 
 
 
 
 
Commodity derivatives

 
(1,575
)
 

 
(1,575
)
Guarantee liability

 

 
(1,880
)
 
(1,880
)
Total
$
(3,623
)
 
$
(2,375
)
 
$
(3,198
)
 
$
(9,196
)

Product Imbalances. We value our assets and liabilities related to product imbalances using quoted market prices in active markets as of the reporting date.

Commodity Derivatives. We base the fair value of certain of our commodity derivative instruments on quoted prices on an exchange; accordingly, we include these items in Level 1 of the fair value hierarchy. We also have derivative instruments for which we determine fair value using industry pricing services and other observable inputs, such as quoted prices on an

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


exchange for similar derivative instruments. Therefore, we include these derivative instruments in Level 2 of the fair value hierarchy. See Note 7 for a discussion of our derivative instruments.

Contingent Consideration. On December 13, 2012, NuStar Logistics acquired certain assets from TexStar Midstream Services, LP and certain of its affiliates (collectively, TexStar) for approximately $325.0 million (the TexStar Asset Acquisition), including contingent consideration. In connection with the TexStar Asset Acquisition, we could be obligated to pay additional consideration to TexStar, depending upon the cost of work required to complete certain assets and obtain outstanding real estate rights (collectively, the Contingent Consideration). We estimated the fair value of the Contingent Consideration based on significant inputs not observable in the market and have therefore reported that amount within Level 3 of the fair value hierarchy. Based on our assessment of the costs necessary to complete the assets in accordance with our agreement with TexStar, and considering the probability of possible outcomes, we determined that it is unlikely we would be obligated to pay a portion of the Contingent Consideration. The undiscounted amount of potential future payments that we could be required to make under the applicable agreements is between $0 and $1.3 million.

Guarantees. As of June 30, 2014, we recorded a liability of $2.0 million representing the fair value of guarantees we have issued on behalf of Asphalt JV. We estimated the fair value considering the probability of default by Asphalt JV and an estimate of the amount we would be obligated to pay under the guarantees at the time of default. We calculated the fair value based on the guarantees outstanding as of June 30, 2014, totaling $88.3 million, plus two guarantees that do not specify a maximum amount, but for which we believe any amounts due would be minimal. Our estimate of the fair value is based on significant inputs not observable in the market and thus falls within Level 3 of the fair value hierarchy. See Note 8 for a discussion of our agreements with Asphalt JV.

In the event we are obligated to perform under any of these guarantees, the amount paid by us will be treated as additional borrowings under the NuStar JV Term Loan. As a result, we increased the carrying value of the note receivable from Asphalt JV by the same amount as the increase to the liability for the fair value of the guarantees outstanding as of June 30, 2014.
 
The following table summarizes the activity in our Level 3 liabilities:
 
Six Months Ended
June 30, 2014
 
(Thousands of Dollars)
Beginning balance
$
3,198

Adjustment to guarantee liability
200

Ending balance
$
3,398


Non-recurring Fair Value Measurements
We classified the property, plant and equipment associated with certain terminals as “Assets held for sale” on the consolidated balance sheet and recorded those assets at fair value, less costs to sell. We estimated the fair values of $6.4 million and $22.0 million as of June 30, 2014 and December 31, 2013, respectively, using a weighted-average of values calculated using an income approach and a market approach. The income approach calculates fair value by discounting the estimated net cash flows generated by the related terminal. The market approach involves estimating the fair value measurement on an earnings multiple based on public company transaction data. Our estimate of the fair value is based on significant inputs not observable in the market and thus falls within Level 3 of the fair value hierarchy.

Fair Value of Financial Instruments
We recognize cash equivalents, receivables, note receivables, payables and debt in our consolidated balance sheets at their carrying amounts. The fair values of these financial instruments, except for a note receivable from Asphalt JV and debt, approximate their carrying amounts. The estimated fair value and carrying amounts of the debt and note receivable were as follows:
 
June 30, 2014
 
December 31, 2013
 
Fair Value
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
(Thousands of Dollars)
Debt
$
2,826,084

 
$
2,726,629

 
$
2,636,734

 
$
2,655,553

Note receivable from Asphalt JV
$
146,647

 
$
170,735

 
$
133,416

 
$
165,440



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


We estimated the fair value of our publicly-traded senior notes based upon quoted prices in active markets; therefore, we determined that the fair value of our publicly traded senior notes falls in Level 1 of the fair value hierarchy. For our other debt, for which a quoted market price is not available, we estimated the fair value using a discounted cash flow analysis using current incremental borrowing rates for similar types of borrowing arrangements and determined that the fair value falls in Level 2 of the fair value hierarchy.
The carrying amount of the NuStar JV Term Loan is $170.7 million, consisting of the following: (i) the outstanding principal amount of $190.0 million; (ii) plus the fair value of guarantees of $2.0 million as of June 30, 2014 (iii) less equity losses from our investment in Asphalt JV of $21.3 million incurred prior to the Asphalt JV Sale and after the carrying value of our equity investment in Asphalt JV was reduced to zero. We review the financial information of Asphalt JV monthly for possible non-payment indicators.
We estimated the fair value of the note receivable using discounted cash flows, which use observable inputs such as time to maturity and market interest rates, and determined the fair value falls in Level 2 of the fair value hierarchy. See Note 8 for additional information on the note receivable from Asphalt JV.

7. DERIVATIVES AND RISK MANAGEMENT ACTIVITIES

We utilize various derivative instruments to manage our exposure to commodity price risk and interest rate risk. Our risk management policies and procedures are designed to monitor interest rates, futures and swap positions and over-the-counter positions, as well as physical volumes, grades, locations and delivery schedules, to help ensure that our hedging activities address our market risks. Our risk management committee oversees our trading controls and procedures and certain aspects of commodity and trading risk management. Our risk management committee also reviews all new commodity and trading risk management strategies in accordance with our risk management policy, as approved by our board of directors.
Interest Rate Risk
As of June 30, 2014, we had no forward-starting interest rate swap agreements. However, we previously entered into certain interest rate swap agreements to manage our exposure to changes in interest rates, which included forward-starting interest rate swap agreements. These swaps qualified, and we designated them, as cash flow hedges. In 2013, we terminated our remaining forward-starting interest rate swap agreements. We recorded the effective portion of mark-to-market adjustments as a component of “Accumulated other comprehensive loss” (AOCI). The amount accumulated in AOCI is amortized into “Interest expense, net” as the interest payments occur or expensed immediately if the interest payments are probable not to occur.

Commodity Price Risk
We are exposed to market risks related to the volatility of crude oil and refined product prices. In order to reduce the risk of commodity price fluctuations with respect to our crude oil and finished product inventories and related firm commitments to purchase and/or sell such inventories, we utilize commodity futures and swap contracts, which qualify and we designate as fair value hedges. Derivatives that are intended to hedge our commodity price risk, but fail to qualify as fair value or cash flow hedges, are considered economic hedges, and we record associated gains and losses in net income.

The volume of commodity contracts is based on open derivative positions and represents the combined volume of our long and short open positions on an absolute basis, which totaled 15.5 million barrels and 15.2 million barrels as of June 30, 2014 and December 31, 2013, respectively.

As of June 30, 2014 and December 31, 2013, we had $2.0 million and $3.3 million, respectively, of margin deposits related to our derivative instruments.


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


The fair values of our derivative instruments included in our consolidated balance sheets were as follows:
 
 
 
Asset Derivatives
 
Liability Derivatives
 
Balance Sheet Location
 
June 30,
2014
 
December 31, 2013
 
June 30,
2014
 
December 31, 2013
 
 
 
(Thousands of Dollars)
Derivatives Designated as
Hedging Instruments:
 
 
 
 
 
 
 
 
 
Commodity contracts
Accrued liabilities
 
$
48

 
$

 
$

 
$
(130
)
 
 
 
 
 
 
 
 
 
 
Derivatives Not Designated
as Hedging Instruments:
 
 
 
 
 
 
 
 
 
Commodity contracts
Other current assets
 
9,735

 
16,168

 
(5,968
)
 
(11,220
)
Commodity contracts
Other long-term assets, net
 
2,807

 
15,883

 
(2,551
)
 
(8,906
)
Commodity contracts
Accrued liabilities
 
7,145

 
4,523

 
(10,948
)
 
(6,626
)
Commodity contracts
Other long-term liabilities
 

 
5,448

 

 
(7,023
)
Total
 
 
19,687

 
42,022

 
(19,467
)
 
(33,775
)
 
 
 
 
 
 
 
 
 
 
Total Derivatives
 
 
$
19,735

 
$
42,022

 
$
(19,467
)
 
$
(33,905
)
 
Certain of our derivative instruments are eligible for offset in the consolidated balance sheets and subject to master netting arrangements. Under our master netting arrangements, there is a legally enforceable right to offset amounts, and we intend to settle such amounts on a net basis. The following are the net amounts presented on the consolidated balance sheets:
Commodity Contracts
 
June 30,
2014
 
December 31, 2013
 
 
(Thousands of Dollars)
Net amounts of assets presented in the consolidated balance sheets
 
$
4,023

 
$
11,925

Net amounts of liabilities presented in the consolidated balance sheets
 
$
(3,755
)
 
$
(3,808
)

The earnings impact of our derivative activity was as follows:
Derivatives Designated as Fair Value Hedging Instruments
 
Income Statement
Location
 
Amount of Gain
(Loss) Recognized
in Income on
Derivative
(Effective Portion)
 
Amount of Gain
(Loss)
Recognized in
Income on
Hedged Item
 
Amount of Gain
(Loss) Recognized
in Income  on
Derivative
(Ineffective Portion)
 
 
 
 
(Thousands of Dollars)
Three months ended June 30, 2014:
 
 
 
 
 
 
 
 
Commodity contracts
 
Cost of product sales
 
$
(254
)
 
$
315

 
$
61

 
 
 
 
 
 
 
 
 
Three months ended June 30, 2013:
 
 
 
 
 
 
 
 
Commodity contracts
 
Cost of product sales
 
$
9,188

 
$
(12,118
)
 
$
(2,930
)
 
 
 
 
 
 
 
 
 
Six months ended June 30, 2014:
 
 
 
 
 
 
 
 
Commodity contracts
 
Cost of product sales
 
$
959

 
$
(1,782
)
 
$
(823
)
 
 
 
 
 
 
 
 
 
Six months ended June 30, 2013:
 
 
 
 
 
 
 
 
Commodity contracts
 
Cost of product sales
 
$
7,912

 
$
(10,482
)
 
$
(2,570
)


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


Derivatives Designated as Cash Flow Hedging Instruments
 
Amount of Gain
(Loss) Recognized 
in OCI 
on Derivative
(Effective Portion)
 
Income Statement
Location (a)
 
Amount of Gain
(Loss) Reclassified
from AOCI
into  Income
(Effective Portion)
 
Amount of Gain
(Loss) Recognized
in Income on
Derivative
(Ineffective 
Portion)
 
 
(Thousands of Dollars)
 
 
 
(Thousands of Dollars)
Three months ended June 30, 2014:
 
 
 
 
 
 
 
 
Interest rate swaps
 
$

 
Interest expense, net
 
$
(2,671
)
 
$

 
 
 
 
 
 
 
 
 
Three months ended June 30, 2013:
 
 
 
 
 
 
 
 
Interest rate swaps
 
$
2,526

 
Interest expense, net
 
$
(2,475
)
 
$

 
 
 
 
 
 
 
 
 
Six months ended June 30, 2014:
 
 
 
 
 
 
 
 
Interest rate swaps
 
$

 
Interest expense, net
 
$
(5,437
)
 
$

 
 
 
 
 
 
 
 
 
Six months ended June 30, 2013:
 
 
 
 
 
 
 
 
Interest rate swaps
 
$
7,213

 
Interest expense, net
 
$
(2,962
)
 
$

(a)
Amounts are included in specified location for both the gain (loss) reclassified from accumulated other comprehensive income (OCI) into income (effective portion) and the gain (loss) recognized in income on derivative (ineffective portion).

Derivatives Not Designated as Hedging Instruments
 
Income Statement Location
 
Amount of Gain (Loss)
Recognized in Income
 
 
 
 
(Thousands of Dollars)
Three months ended June 30, 2014:
 
 
 
 
Commodity contracts
 
Cost of product sales
 
$
(4,442
)
 
 
 
 
 
Three months ended June 30, 2013:
 
 
 
 
Commodity contracts
 
Cost of product sales
 
$
7,276

Commodity contracts
 
Operating expenses
 
1

Total
 
 
 
$
7,277

 
 
 
 
 
Six months ended June 30, 2014:
 
 
 
 
Commodity contracts
 
Cost of product sales
 
$
(4,410
)
 
 
 
 
 
Six months ended June 30, 2013:
 
 
 
 
Commodity contracts
 
Cost of product sales
 
$
449

Commodity contracts
 
(Loss) income from discontinued
operations
 
(218
)
Total
 
 
 
$
231


For derivatives designated as cash flow hedging instruments, once a hedged transaction occurs, we reclassify the effective portion from AOCI to “Cost of product sales” or “Interest expense, net.” As of June 30, 2014, we expect to reclassify a loss of $10.3 million to “Interest expense, net” within the next twelve months.


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


8. RELATED PARTY TRANSACTIONS

The following table summarizes information pertaining to related party transactions:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
 
(Thousands of Dollars)
Revenues
$

 
$
10,576

 
$
929

 
$
11,817

Operating expenses
$
30,972

 
$
31,651

 
$
59,631

 
$
63,364

General and administrative expenses
$
17,448

 
$
12,528

 
$
31,542

 
$
31,312

Interest income
$

 
$
1,610

 
$
1,055

 
$
2,732

Revenues included in discontinued operations, net of tax
$
87

 
$
1,220

 
$
492

 
$
1,990

Expenses included in discontinued operations, net of tax
$
607

 
$
1,302

 
$
1,412

 
$
2,962


NuStar GP, LLC
Our operations are managed by NuStar GP, LLC, the general partner of our general partner. Under a services agreement between NuStar Energy and NuStar GP, LLC, employees of NuStar GP, LLC perform services for our U.S. operations. Certain of our wholly owned subsidiaries employ persons who perform services for our international operations. Employees of NuStar GP, LLC provide services to both NuStar Energy and NuStar GP Holdings; therefore, we reimburse NuStar GP, LLC for all employee costs, other than the expenses allocated to NuStar GP Holdings.

We had a payable to NuStar GP, LLC of $14.3 million and $8.3 million as of June 30, 2014 and December 31, 2013, respectively, with both amounts representing payroll, employee benefit plan expenses and unit-based compensation. We also had a long-term payable to NuStar GP, LLC as of June 30, 2014 and December 31, 2013 of $40.4 million and $41.1 million, respectively, related to amounts payable for retiree medical benefits and other post-employment benefits.

Asphalt JV
As a result of the Asphalt JV Sale, we ceased reporting transactions between us and Asphalt JV as related party transactions in our consolidated financial statements on February 26, 2014.

Financing Agreements and Credit Support. Effective upon the Asphalt JV Sale, the NuStar JV Facility was converted into the NuStar Term Loan. The NuStar Term Loan will step down from $190.0 million over time: first, to $175.0 million on December 31, 2014 and then to $150.0 million on September 30, 2015. While the NuStar Term Loan does not provide for any other scheduled payments, Asphalt JV is required to use all of its excess cash, as defined in the NuStar Term Loan, to repay the NuStar Term Loan. Like the NuStar JV Facility, the NuStar Term Loan must be repaid in full on September 28, 2019. All repayments of the NuStar Term Loan, including those scheduled in 2014 and 2015, are subject to Asphalt JV meeting certain restrictive requirements contained in its third-party credit facility. The carrying value of the NuStar Term Loan is included in “Other long-term assets, net” on the consolidated balance sheet as of June 30, 2014.

NuStar Energy will continue to provide credit support, such as guarantees, letters of credit and cash collateral, as applicable, of up to $150.0 million. Our obligation to provide credit support will be reduced by a minimum of $25.0 million beginning February 2016 and will terminate in full no later than September 28, 2019. As of June 30, 2014, we provided guarantees for commodity purchases, lease obligations and certain utilities for Asphalt JV with an aggregate maximum potential exposure of $88.3 million, plus two guarantees to suppliers that do not specify a maximum amount, but for which we believe any amounts due would be minimal. A majority of these guarantees have no expiration date. As of June 30, 2014, we have also provided $5.1 million in letters of credit on behalf of Asphalt JV. In the event we are obligated to perform under any of these guarantees or letters of credit, the amount paid by us will be treated as additional borrowings under the NuStar Term Loan.

Crude Oil Supply Agreement. We were a party to a crude oil supply agreement with Asphalt JV (the Asphalt JV Crude Oil Supply Agreement) that committed Asphalt JV to purchase from us a minimum number of barrels of crude oil in a given year. The Asphalt JV Crude Oil Supply Agreement terminated effective January 1, 2014. As of December 31, 2013, we had a receivable from Asphalt JV of $50.7 million, mainly associated with crude oil sales under the Asphalt JV Crude Oil Supply Agreement.

Services Agreement Between Asphalt JV and NuStar GP, LLC. NuStar GP, LLC and Asphalt JV were a party to a services agreement, which provided that NuStar GP, LLC furnish certain administrative and other operating services necessary to

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


conduct the business of Asphalt JV for an annual fee totaling $10.0 million, subject to adjustment (the Asphalt JV Services Agreement). The Asphalt JV Services Agreement terminated on June 30, 2014.

9. PARTNERS’ EQUITY

Partners Equity Activity
The following table summarizes changes in the carrying amount of equity attributable to NuStar Energy L.P. partners and noncontrolling interest:
 
Three Months Ended June 30, 2014
 
Three Months Ended June 30, 2013
 
NuStar Energy L.P. Partners’ Equity
 
Noncontrolling Interest
 
Total Partners’
Equity
 
NuStar Energy L.P. Partners’ Equity
 
Noncontrolling Interest
 
Total Partners’
Equity
 
(Thousands of Dollars)
Beginning balance
$
1,842,378

 
$
1,106

 
$
1,843,484

 
$
2,497,017

 
$
12,163

 
$
2,509,180

Net income (loss)
55,514

 
(115
)
 
55,399

 
33,086

 
(117
)
 
32,969

Other comprehensive
income (loss):
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation
adjustment
5,858

 
(2
)
 
5,856

 
(7,820
)
 
(912
)
 
(8,732
)
Net unrealized gain
on cash flow hedges

 

 

 
2,526

 

 
2,526

Net loss on cash flow
hedges reclassified
into interest expense, net
2,671

 

 
2,671

 
2,475

 

 
2,475

Total other comprehensive
income (loss)
8,529

 
(2
)
 
8,527

 
(2,819
)
 
(912
)
 
(3,731
)
Cash distributions to
partners
(98,051
)
 

 
(98,051
)
 
(98,051
)
 

 
(98,051
)
Other

 

 

 
(101
)
 

 
(101
)
Ending balance
$
1,808,370

 
$
989

 
$
1,809,359

 
$
2,429,132

 
$
11,134

 
$
2,440,266


 
Six Months Ended June 30, 2014
 
Six Months Ended June 30, 2013
 
NuStar Energy L.P. Partners’ Equity
 
Noncontrolling Interest
 
Total Partners’
Equity
 
NuStar Energy L.P. Partners’ Equity
 
Noncontrolling Interest
 
Total Partners’
Equity
 
(Thousands of Dollars)
Beginning balance
$
1,902,136

 
$
1,658

 
$
1,903,794

 
$
2,572,384

 
$
12,611

 
$
2,584,995

Net income (loss)
95,258

 
(222
)
 
95,036

 
57,651

 
(278
)
 
57,373

Other comprehensive
income (loss):
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation
adjustment
1,618

 
(447
)
 
1,171

 
(15,097
)
 
(1,199
)
 
(16,296
)
Net unrealized gain on
cash flow hedges

 

 

 
7,213

 

 
7,213

Net loss on cash flow
hedges reclassified
into interest expense, net
5,437

 

 
5,437

 
2,962

 

 
2,962

Total other comprehensive
income (loss)
7,055

 
(447
)
 
6,608

 
(4,922
)
 
(1,199
)
 
(6,121
)
Cash distributions to
partners
(196,102
)
 

 
(196,102
)
 
(196,102
)
 

 
(196,102
)
Other
23

 

 
23

 
121

 

 
121

Ending balance
$
1,808,370

 
$
989

 
$
1,809,359

 
$
2,429,132

 
$
11,134

 
$
2,440,266



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


Accumulated Other Comprehensive Income
The balance of and changes in the components included in “Accumulated other comprehensive loss” were as follows:
 
Foreign
Currency
Translation
 
Cash Flow Hedges
 
Total
 
(Thousands of Dollars)
Balance as of January 1, 2014
$
(13,658
)
 
$
(49,736
)
 
$
(63,394
)
Activity
1,618

 
5,437

 
7,055

Balance as of June 30, 2014
$
(12,040
)
 
$
(44,299
)
 
$
(56,339
)

Allocations of Net Income
Our partnership agreement, as amended, sets forth the calculation to be used to determine the amount and priority of cash distributions that the common unitholders and the general partner will receive. The partnership agreement also contains provisions for the allocation of net income and loss to the unitholders 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 made after giving effect to priority income allocations, if any, in an amount equal to incentive cash distributions allocated 100% to the general partner.

The following table details the calculation of net income applicable to the general partner:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
 
(Thousands of Dollars)
Net income attributable to NuStar Energy L.P.
$
55,514

 
$
33,086

 
$
95,258

 
$
57,651

Less general partner incentive distribution
10,805

 
10,805

 
21,610

 
21,610

Net income after general partner incentive distribution
44,709

 
22,281

 
73,648

 
36,041

General partner interest
2
%
 
2
%
 
2
%
 
2
%
General partner allocation of net income after general
partner incentive distribution
894

 
446

 
1,473

 
722

General partner incentive distribution
10,805

 
10,805

 
21,610

 
21,610

Net income applicable to general partner
$
11,699

 
$
11,251

 
$
23,083

 
$
22,332


Cash Distributions
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,
 
2014
 
2013
 
2014
 
2013
 
(Thousands of Dollars, Except Per Unit Data)
General partner interest
$
1,961

 
$
1,961

 
$
3,922

 
$
3,922

General partner incentive distribution
10,805

 
10,805

 
21,610

 
21,610

Total general partner distribution
12,766

 
12,766

 
25,532

 
25,532

Limited partners’ distribution
85,285

 
85,285

 
170,570

 
170,570

Total cash distributions
$
98,051

 
$
98,051

 
$
196,102

 
$
196,102

 
 
 
 
 
 
 
 
Cash distributions per unit applicable to limited partners
$
1.095

 
$
1.095

 
$
2.190

 
$
2.190



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


The following table summarizes information related to our quarterly cash distributions:
Quarter Ended
 
Cash Distributions Per Unit
 
Total Cash Distributions (Thousands of Dollars)
 
Record Date
 
Payment Date
June 30, 2014 (a)
 
$
1.095

 
$
98,051

 
August 6, 2014
 
August 11, 2014
March 31, 2014
 
$
1.095

 
$
98,051

 
May 7, 2014
 
May 12, 2014
December 31, 2013
 
$
1.095

 
$
98,051

 
February 10, 2014
 
February 14, 2014
(a)
The distribution was announced on July 25, 2014.

10. NET INCOME PER UNIT

We have identified the general partner interest and incentive distribution rights (IDR) as participating securities and use the two-class method when calculating the net 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 are the same because we have no potentially dilutive securities outstanding.

The following table details the calculation of earnings per unit:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
 
(Thousands of Dollars, Except Unit and Per Unit Data)
Net income attributable to NuStar Energy L.P.
$
55,514

 
$
33,086

 
$
95,258

 
$
57,651

Less general partner distribution (including IDR)
12,766

 
12,766

 
25,532

 
25,532

Less limited partner distribution
85,285

 
85,285

 
170,570

 
170,570

Distributions in excess of earnings
$
(42,537
)
 
$
(64,965
)
 
$
(100,844
)
 
$
(138,451
)
 
 
 
 
 
 
 
 
General partner earnings:
 
 
 
 
 
 
 
Distributions
$
12,766

 
$
12,766

 
$
25,532

 
$
25,532

Allocation of distributions in excess of earnings (2%)
(851
)
 
(1,299
)
 
(2,017
)
 
(2,768
)
Total
$
11,915

 
$
11,467

 
$
23,515

 
$
22,764

 
 
 
 
 
 
 
 
Limited partner earnings:
 
 
 
 
 
 
 
Distributions
$
85,285

 
$
85,285

 
$
170,570

 
$
170,570

Allocation of distributions in excess of earnings (98%)
(41,686
)
 
(63,666
)
 
(98,827
)
 
(135,683
)
Total
$
43,599

 
$
21,619

 
$
71,743

 
$
34,887

 
 
 
 
 
 
 
 
Weighted-average limited partner units outstanding
77,886,078

 
77,886,078

 
77,886,078

 
77,886,078

 
 
 
 
 
 
 
 
Net income per unit applicable to limited partners
$
0.56

 
$
0.28

 
$
0.92

 
$
0.45


17

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


11. STATEMENTS OF CASH FLOWS
Changes in current assets and current liabilities were as follows:
 
Six Months Ended June 30,
 
2014
 
2013
 
(Thousands of Dollars)
Decrease (increase) in current assets:
 
 
 
Accounts receivable
$
26,688

 
$
109,696

Receivable from related parties
50,940

 
31,730

Inventories
25,023

 
(2,099
)
Income tax receivable
(3,609
)
 
1,213

Other current assets
(722
)
 
20,375

Increase (decrease) in current liabilities:
 
 
 
Accounts payable
(115,727
)
 
(81,929
)
Payable to related party
5,979

 
8,950

Accrued interest payable
510

 
1,951

Accrued liabilities
(1,468
)
 
(29,854
)
Taxes other than income tax
1,040

 
(1,334
)
Income tax payable
(1,144
)
 
1,178

Changes in current assets and current liabilities
$
(12,490
)
 
$
59,877


The above changes in current assets and current liabilities differ from changes between amounts reflected in the applicable consolidated balance sheets due to the change in the amount accrued for capital expenditures and the effect of foreign currency translation.

Cash flows related to interest and income taxes were as follows:
 
Six Months Ended June 30,
 
2014
 
2013
 
(Thousands of Dollars)
Cash paid for interest, net of amount capitalized
$
64,957

 
$
59,371

Cash paid for income taxes, net of tax refunds received
$
8,069

 
$
6,003


12. SEGMENT INFORMATION

Our segments represent strategic business units that offer different services and products. We evaluate the performance of each segment based on its respective operating income, before general and administrative expenses and certain non-segmental depreciation and amortization expense. 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 operations include transportation of petroleum products and anhydrous ammonia, the terminalling and storage of petroleum products and the marketing of petroleum products. Intersegment revenues result from storage agreements with wholly owned subsidiaries of NuStar Energy at lease rates consistent with rates charged to third parties for storage. Related party revenues mainly result from storage agreements with our joint ventures.

18

Table of Contents
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,
 
2014
 
2013
 
2014
 
2013
 
(Thousands of Dollars)
Revenues:
 
 
 
 
 
 
 
Pipeline
$
117,798

 
$
96,976

 
$
220,757

 
$
190,253

Storage:
 
 
 
 
 
 
 
Third parties
138,296

 
132,503

 
262,650

 
263,163

Intersegment
6,690

 
8,245

 
13,973

 
18,021

Related party

 
1,931

 
929

 
3,172

Total storage
144,986

 
142,679

 
277,552

 
284,356

Fuels marketing:
 
 
 
 
 
 
 
Third parties
493,651

 
661,959

 
1,114,622

 
1,434,967

Related party

 
8,645

 

 
8,645

Total fuels marketing
493,651

 
670,604

 
1,114,622

 
1,443,612

Consolidation and intersegment eliminations
(6,690
)
 
(8,245
)
 
(13,973
)
 
(18,021
)
Total revenues
$
749,745

 
$
902,014

 
$
1,598,958

 
$
1,900,200

 
 
 
 
 
 
 
 
Operating income:
 
 
 
 
 
 
 
Pipeline
$
60,236

 
$
51,227

 
$
113,226

 
$
91,108

Storage
50,007

 
44,412

 
92,014

 
98,368

Fuels marketing
4,821

 
3,432

 
14,379

 
1,839

Consolidation and intersegment eliminations
7

 
153

 
(10
)
 
1,259

Total segment operating income
115,071

 
99,224

 
219,609

 
192,574

General and administrative expenses
23,163

 
19,653

 
44,019

 
47,147

Other depreciation and amortization expense
2,554

 
2,599

 
5,133

 
5,097

Total operating income
$
89,354

 
$
76,972

 
$
170,457

 
$
140,330


Total assets by reportable segment were as follows:
 
June 30,
2014
 
December 31,
2013
 
(Thousands of Dollars)
Pipeline
$
1,839,264

 
$
1,797,698

Storage
2,265,630

 
2,275,183

Fuels marketing
330,283

 
445,882

Total segment assets
4,435,177

 
4,518,763

Other partnership assets
460,602

 
513,423

Total consolidated assets
$
4,895,779

 
$
5,032,186

 

19

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


13. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

NuStar Energy has no operations and its assets consist mainly of its investments in NuStar Logistics and NuPOP, both wholly owned subsidiaries. The senior and subordinated notes issued by NuStar Logistics are fully and unconditionally guaranteed by NuStar Energy and NuPOP. As a result, the following condensed consolidating financial statements are presented as an alternative to providing separate financial statements for NuStar Logistics and NuPOP.

Condensed Consolidating Balance Sheets
June 30, 2014
(Thousands of Dollars)
 
NuStar
Energy
 
NuStar
Logistics
 
NuPOP
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
913

 
$
7

 
$

 
$
48,156

 
$

 
$
49,076

Receivables, net
2

 
61,517

 
9,880

 
198,658

 
(15,089
)
 
254,968

Inventories

 
2,355

 
2,221

 
108,282

 
(20
)
 
112,838

Income tax receivable

 

 

 
4,551

 

 
4,551

Other current assets

 
21,954

 
2,636

 
15,675

 

 
40,265

Assets held for sale

 

 

 
6,420

 

 
6,420

Intercompany receivable

 
1,308,837

 

 

 
(1,308,837
)
 

Total current assets
915

 
1,394,670

 
14,737

 
381,742

 
(1,323,946
)
 
468,118

Property, plant and equipment, net

 
1,674,650

 
563,406

 
1,107,080

 

 
3,345,136

Intangible assets, net

 
59,221

 

 
5,738

 

 
64,959

Goodwill

 
149,453

 
170,652

 
297,324

 

 
617,429

Investment in wholly owned
subsidiaries
2,369,382

 
177,102

 
889,259

 
938,475

 
(4,374,218
)
 

Investment in joint venture

 

 

 
72,908

 

 
72,908

Deferred income tax asset

 

 

 
5,057

 

 
5,057

Other long-term assets, net
611

 
288,385

 
26,331

 
6,845

 

 
322,172

Total assets
$
2,370,908

 
$
3,743,481