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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 March 31, 2011
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.)
 
 
 
2330 North Loop 1604 West
San Antonio, Texas
 
78248
(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
 
£
 
 
 
 
 
 
Non-accelerated filer
 
o  (Do not check if a smaller reporting company)
Smaller reporting company
 
£
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 April 30, 2011 was 64,610,549.
 
 
 
 
 

 
Table of Contents

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

2

 
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)
 
March 31,
2011
 
December 31,
2010
 
(Unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
70,437
 
 
$
181,121
 
Accounts receivable, net of allowance for doubtful accounts of $1,353
and $1,457 as of March 31, 2011 and December 31, 2010, respectively
397,252
 
 
302,053
 
Inventories
598,830
 
 
413,537
 
Other current assets
64,605
 
 
42,796
 
Total current assets
1,131,124
 
 
939,507
 
Property, plant and equipment, at cost
4,134,010
 
 
4,021,319
 
Accumulated depreciation and amortization
(873,758
)
 
(833,862
)
Property, plant and equipment, net
3,260,252
 
 
3,187,457
 
Intangible assets, net
60,369
 
 
43,033
 
Goodwill
843,294
 
 
813,270
 
Investment in joint venture
69,068
 
 
69,603
 
Deferred income tax asset
7,683
 
 
8,138
 
Other long-term assets, net
293,430
 
 
325,385
 
Total assets
$
5,665,220
 
 
$
5,386,393
 
Liabilities and Partners’ Equity
 
 
 
Current liabilities:
 
 
 
Current portion of long-term debt
$
832
 
 
$
832
 
Accounts payable
359,046
 
 
282,382
 
Payable to related party
12,182
 
 
10,345
 
Accrued interest payable
23,638
 
 
29,706
 
Accrued liabilities
53,007
 
 
57,953
 
Taxes other than income tax
9,904
 
 
10,718
 
Income tax payable
2,741
 
 
1,293
 
Total current liabilities
461,350
 
 
393,229
 
Long-term debt, less current portion
2,361,464
 
 
2,136,248
 
Long-term payable to related party
10,733
 
 
10,088
 
Deferred income tax liability
34,404
 
 
29,565
 
Other long-term liabilities
118,686
 
 
114,563
 
Commitments and contingencies (Note 4)
 
 
 
Partners’ equity:
 
 
 
Limited partners (64,610,549 common units outstanding
as of March 31, 2011 and December 31, 2010)
2,548,953
 
 
2,598,873
 
General partner
56,133
 
 
57,327
 
Accumulated other comprehensive income
57,931
 
 
46,500
 
Total NuStar Energy L.P. partners' equity
2,663,017
 
 
2,702,700
 
Noncontrolling interest
15,566
 
 
 
Total partners’ equity
2,678,583
 
 
2,702,700
 
Total liabilities and partners’ equity
$
5,665,220
 
 
$
5,386,393
 
See Condensed Notes to Consolidated Financial Statements.

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Table of Contents

NUSTAR ENERGY L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, Thousands of Dollars, Except Unit and Per Unit Data)
 
 
Three Months Ended March 31,
 
2011
 
2010
Revenues:
 
 
 
Service revenues:
 
 
 
Third parties
$
198,263
 
 
$
189,295
 
Related party
130
 
 
 
Total service revenues
198,393
 
 
189,295
 
Product sales
1,036,223
 
 
756,234
 
Total revenues
1,234,616
 
 
945,529
 
Costs and expenses:
 
 
 
Cost of product sales
992,367
 
 
719,221
 
Operating expenses:
 
 
 
Third parties
85,130
 
 
87,493
 
Related party
35,109
 
 
33,844
 
Total operating expenses
120,239
 
 
121,337
 
General and administrative expenses:
 
 
 
Third parties
9,035
 
 
10,031
 
Related party
16,948
 
 
17,238
 
Total general and administrative expenses
25,983
 
 
27,269
 
Depreciation and amortization expense
40,296
 
 
37,929
 
Total costs and expenses
1,178,885
 
 
905,756
 
Operating income
55,731
 
 
39,773
 
Equity in earnings of joint venture
2,388
 
 
3,015
 
Interest expense, net
(20,457
)
 
(18,586
)
Other (expense) income, net
(5,499
)
 
301
 
Income before income tax expense
32,163
 
 
24,503
 
Income tax expense
3,647
 
 
4,800
 
Net income
28,516
 
 
19,703
 
Less net income attributable to noncontrolling interest
14
 
 
 
Net income attributable to NuStar Energy L.P.
$
28,502
 
 
$
19,703
 
Net income per unit applicable to limited partners (Note 10)
$
0.30
 
 
$
0.19
 
Weighted average limited partner units outstanding
64,610,549
 
 
60,210,549
 
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)
 
 
Three Months Ended March 31,
 
2011
 
2010
Cash Flows from Operating Activities:
 
 
 
Net income
$
28,516
 
 
$
19,703
 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization expense
40,296
 
 
37,929
 
Amortization of debt related items
(1,973
)
 
(1,908
)
Deferred income tax (benefit) expense
(551
)
 
616
 
Equity in earnings of joint venture
(2,388
)
 
(3,015
)
Distributions of equity in earnings of joint venture
2,923
 
 
2,400
 
Changes in current assets and current liabilities (Note 11)
(232,899
)
 
(18,426
)
Other, net
278
 
 
(50
)
Net cash (used in) provided by operating activities
(165,798
)
 
37,249
 
Cash Flows from Investing Activities:
 
 
 
Reliability capital expenditures
(7,372
)
 
(11,259
)
Strategic capital expenditures
(65,874
)
 
(44,779
)
Acquisition
(52,577
)
 
 
Investment in other long-term assets
(636
)
 
(1,096
)
Other, net
58
 
 
112
 
Net cash used in investing activities
(126,401
)
 
(57,022
)
Cash Flows from Financing Activities:
 
 
 
Proceeds from long-term debt borrowings
343,680
 
 
306,355
 
Proceeds from short-term debt borrowings
31,600
 
 
91,712
 
Long-term debt repayments
(82,394
)
 
(229,871
)
Short-term debt repayments
(31,600
)
 
(111,712
)
Distributions to unitholders and general partner
(79,616
)
 
(73,392
)
Decrease in cash book overdrafts
(529
)
 
(4,622
)
Other, net
(615
)
 
(75
)
Net cash provided by (used in) financing activities
180,526
 
 
(21,605
)
Effect of foreign exchange rate changes on cash
989
 
 
(478
)
Net decrease in cash and cash equivalents
(110,684
)
 
(41,856
)
Cash and cash equivalents as of the beginning of the period
181,121
 
 
62,006
 
Cash and cash equivalents as of the end of the period
$
70,437
 
 
$
20,150
 
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
NuStar Energy L.P. (NuStar Energy) (NYSE: NS) is engaged in the terminalling and storage of petroleum products, the transportation of petroleum products and anhydrous ammonia, and asphalt refining and fuels marketing. 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 17.6% total interest in us as of March 31, 2011.
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: storage, transportation, and asphalt and fuels marketing.
Basis of Presentation
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. We account for investments in 50% or less-owned entities using the equity method. Noncontrolling interests are separately disclosed on the consolidated balance sheets and consolidated statements of income.
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 and all disclosures made are adequate. All such adjustments are of a normal recurring nature unless disclosed otherwise. Financial information for the three months ended March 31, 2011 and 2010 included in these Condensed Notes to Consolidated Financial Statements is derived from our unaudited consolidated financial statements. Operating results for the three months ended March 31, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. The consolidated balance sheet as of December 31, 2010 has been derived from the audited consolidated financial statements as of that date. These unaudited 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, 2010.
 
Acquisition
On February 9, 2011, we acquired 75% of a company for approximately $54.0 million, excluding working capital of $2.4 million (Turkey Acquisition). The acquired company owns two terminals located in Mersin, Turkey with an aggregate 44 storage tanks and 1.3 million barrels of storage capacity. Both terminals are connected via pipelines to an offshore platform located approximately three miles off the Mediterranean Sea coast. The purchase price has been preliminarily allocated based on the estimated fair values of the individual assets acquired and liabilities assumed at the date of acquisition pending completion of an independent appraisal and other evaluations. The consolidated statements of income include the results of operations for the Turkey Acquisition commencing on February 9, 2011, with 25% accounted for as a noncontrolling interest.
 
2. INVENTORIES
 
Inventories consisted of the following:
 
 
March 31,
2011
 
December 31,
2010
 
(Thousands of Dollars)
Crude oil
$
147,738
 
 
$
122,945
 
Finished products
441,530
 
 
281,197
 
Materials and supplies
9,562
 
 
9,395
 
Total
$
598,830
 
 
$
413,537
 

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

3. DEBT
 
Revolving Credit Agreement
During the three months ended March 31, 2011, we borrowed an aggregate $310.0 million under our $1.2 billion five-year revolving credit agreement (the 2007 Revolving Credit Agreement) to fund a portion of our capital expenditures and working capital requirements. Additionally, we repaid $82.4 million during the three months ended March 31, 2011. The 2007 Revolving Credit Agreement bears interest based on either an alternative base rate or a LIBOR based rate. As of March 31, 2011, our weighted average borrowing interest rate was 0.9%, and we had $501.9 million available for borrowing under the 2007 Revolving Credit Agreement. Due to a covenant in our 2007 Revolving Credit Agreement that requires us to maintain, as of the end of each four consecutive fiscal quarters, a consolidated debt coverage ratio not to exceed 5.00-to-1.00, we may not be able to borrow the maximum available amount. On March 7, 2011, we amended the 2007 Revolving Credit Agreement to exclude unused proceeds from the Gulf Opportunity Zone bond issuances from total indebtedness in the calculation of the consolidated debt coverage ratio. As of March 31, 2011, our consolidated debt coverage ratio was 4.4x.
 
Gulf Opportunity Zone Revenue Bonds
The Parish of St. James, Louisiana issued three separate series of tax exempt revenue bonds in 2010 (2010 GoZone) associated with our St. James terminal expansion pursuant to the Gulf Opportunity Zone Act of 2005. The interest rate on these bonds is based on a weekly tax-exempt bond market interest rate, and interest is paid monthly. The interest rate was 0.2% as of March 31, 2011. Following the issuance, the proceeds were deposited with a trustee and will be disbursed to us upon our request for reimbursement of expenditures related to our St. James terminal expansion. The amount remaining in trust related to the 2010 GoZone is included in “Other long-term assets, net,” and the amount of bonds issued is included in “Long-term debt, less current portion” in our consolidated balance sheets. For the three months ended March 31, 2011, we received net proceeds of $33.7 million from the 2010 GoZone. The amount remaining in trust as of March 31, 2011 totaled $171.7 million.
 
Lines of Credit
As of March 31, 2011, we had one short-term line of credit with an uncommitted borrowing capacity of up to $20.0 million. We had no outstanding borrowings on this line of credit as of March 31, 2011. During the three months ended March 31, 2011, we borrowed and repaid $31.6 million related to this line of credit.
 
4. COMMITMENTS AND CONTINGENCIES
 
Contingencies
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 March 31, 2011, we have accrued $73.3 million for contingent losses. The amount that will ultimately be paid related to these matters may differ from the recorded accruals, and the timing of such payments is uncertain.
 
Grace Energy Corporation Matter. In 1997, Grace Energy Corporation (Grace Energy) sued subsidiaries of Kaneb Pipeline Partners, L.P. (KPP) and Kaneb Services LLC (KSL and collectively with KPP and their respective subsidiaries, Kaneb) in Texas state court. We acquired Kaneb on July 1, 2005. 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 final judgment of the trial court 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. In September 2008, Grace Energy filed its Joint Plan of Reorganization and Disclosure Statement.
 
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 final judgment of the Texas state court assigning ownership of the Otis AFB pipeline to Kaneb, the United States Department of Justice (the DOJ) advised Kaneb in 2001 that it intends to seek reimbursement from Kaneb for the remediation costs associated with the two plumes. In November 2008, the DOJ forwarded

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

information to us indicating that the past and estimated future remediation expenses associated with one plume are $71.9 million. The DOJ has indicated that they will not seek recovery of remediation costs for the second plume. The DOJ has not filed a lawsuit against us related to this matter, and we have not made any payments toward costs incurred by the DOJ. We are currently in settlement discussions with other potentially responsible parties and the DOJ, and a change in our estimate of this liability may occur in the near term. However, any settlement agreement that is reached must be approved by multiple parties and requires the approval of the bankruptcy court and the federal district court. We cannot currently estimate when or if a settlement will be finalized.
 
Eres Matter. In August 2008, Eres N.V. (Eres) forwarded a demand for arbitration to CITGO Asphalt Refining Company (CARCO), CITGO Petroleum Corporation (CITGO), NuStar Asphalt Refining, LLC (NuStar Asphalt) and NuStar Marketing LLC (NuStar Marketing, and together with CARCO, CITGO and NuStar Asphalt, the Defendants) contending that the Defendants are in breach of a tanker voyage charter party agreement, dated November 2004, between Eres and CARCO (the Charter Agreement). The Charter Agreement provides for CARCO's use of Eres' vessels for the shipment of asphalt. Eres contends that NuStar Asphalt and/or NuStar Marketing (together, the NuStar Entities) assumed the Charter Agreement when NuStar Asphalt purchased the CARCO assets, and that the Defendants have failed to perform under the Charter Agreement since January 1, 2008. Eres has valued its damages for the alleged breach of contract claim at approximately $78.1 million. Pursuant to a May 2010 ruling by the United States District Court for the Southern District of Texas, the NuStar Entities were found to have assumed the Charter Agreement from CARCO and to be obligated to defend and indemnify CITGO and CARCO against Eres' claims. The Defendants were ordered to proceed with arbitration. We intend to vigorously defend against Eres' claims in arbitration.
 
Other. We are also a party to additional claims and legal proceedings arising in the ordinary course of business. 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. It is possible that if one or more of the matters described above were decided against us, the effects could be material to our results of operations in the period in which we would be required to record or adjust the related liability and could also be material to our cash flows in the periods we would be required to pay such liability.
 
5. 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 in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists.
The following assets and liabilities are measured at fair value:
 
 
March 31, 2011
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(Thousands of Dollars)
Other current assets:
 
 
 
 
 
 
 
Product imbalances
$
1,025
 
 
$
 
 
$
 
 
$
1,025
 
Commodity derivatives
14,472
 
 
 
 
 
 
14,472
 
Other long-term assets, net:
 
 
 
 
 
 
 
Interest rate swaps
 
 
46,864
 
 
 
 
46,864
 
Accrued liabilities:
 
 
 
 
 
 
 
Product imbalances
(379
)
 
 
 
 
 
(379
)
Commodity derivatives
(27,872
)
 
 
 
 
 
(27,872
)
Other long-term liabilities:
 
 
 
 
 
 
 
Interest rate swaps
 
 
(33,721
)
 
 
 
(33,721
)
Total
$
(12,754
)
 
$
13,143
 
 
$
 
 
$
389
 
 

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

 
December 31, 2010
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(Thousands of Dollars)
Other current assets:
 
 
 
 
 
 
 
Product imbalances
$
991
 
 
$
 
 
$
 
 
$
991
 
Other long-term assets, net:
 
 
 
 
 
 
 
Interest rate swaps
 
 
45,663
 
 
 
 
45,663
 
Accrued liabilities:
 
 
 
 
 
 
 
Product imbalances
(988
)
 
 
 
 
 
(988
)
Commodity derivatives
(14,741
)
 
 
 
 
 
(14,741
)
Other long-term liabilities:
 
 
 
 
 
 
 
Interest rate swaps
 
 
(29,483
)
 
 
 
(29,483
)
Total
$
(14,738
)
 
$
16,180
 
 
$
 
 
$
1,442
 
 
 Product Imbalances
We value our assets and liabilities related to product imbalances using quoted market prices as of the reporting date.
 
Interest Rate Swaps
We estimate the fair value of both our fixed-to-floating and forward-starting interest rate swaps using discounted cash flows, which use observable inputs such as time to maturity and market interest rates.
 
Commodity Derivatives
Our commodity derivative instruments consist of futures contracts and swaps traded on the NYMEX, and the fair values of these contracts are based on their quoted prices. We have consistently applied these valuation techniques in all periods presented. See Note 6. Derivatives and Risk Management Activities for a discussion of our derivative instruments.
 
Fair Value of Financial Instruments
We do not record our outstanding debt at fair value in our consolidated balance sheet. The estimated fair value and carrying amount of our debt was as follows:
 
 
March 31,
2011
 
December 31,
2010
 
(Thousands of Dollars)
Fair value
$
2,466,579
 
 
$
2,249,190
 
Carrying amount
$
2,362,296
 
 
$
2,137,080
 
 
We estimated the fair values of our debt using a discounted cash flow analysis using current incremental borrowing rates for similar types of borrowing arrangements.
 
6. DERIVATIVES AND RISK MANAGEMENT ACTIVITIES
 
We utilize various derivative instruments to: (i) manage our exposure to commodity price risk, (ii) engage in a trading program and (iii) manage our exposure to interest rate risk. Our risk management policies and procedures are designed to monitor interest rates, NYMEX 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. We have a risk management committee that 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
We are a party to certain interest rate swap agreements to manage our exposure to changes in interest rates. We have fixed-to-floating interest rate swap agreements associated with a portion of our fixed-rate senior notes. During the three months ended March 31, 2011, we entered into a fixed-to-floating interest rate swap agreement with a notional amount of $40.0 million

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

related to the 7.65% senior notes issued in April 2008. Under the terms of this interest rate swap agreement, we will receive a fixed rate (7.65%) and will pay a variable rate based on three-month USD LIBOR plus a percentage. We account for this fixed-to-floating interest rate swap as a fair value hedge. We recognize mark-to-market adjustments for this swap agreement and the related change in the fair value of the associated hedged debt, as well as any hedge ineffectiveness, in "Interest expense, net." We are also a party to fixed-to-floating interest rate swap agreements that qualify for the shortcut method of accounting. As a result, changes in the fair value of these swaps completely offset the changes in the fair value of the underlying hedged debt. The total aggregate notional amount of the fixed-to-floating interest rate swaps was $657.5 million and $617.5 million as of March 31, 2011 and December 31, 2010, respectively. As of March 31, 2011, the weighted-average interest rate that we paid under all our fixed-to-floating interest rate swaps was 2.5%.
 
We are also a party to forward-starting interest rate swap agreements with an aggregate notional amount of $500.0 million as of March 31, 2011 and December 31, 2010 related to forecasted probable debt issuances in 2012 and 2013. We entered into the swaps in order to hedge the risk of changes in the interest payments attributable to changes in the benchmark interest rate during the period from the effective date of the swap to the issuance of the forecasted debt. These swaps are designated and qualify as cash flow hedges.
 
Commodity Price Risk
We are exposed to commodity price risk with respect to our product inventories and related firm commitments to purchase and/or sell such inventories. We utilize futures contracts and swaps traded on the NYMEX to manage our exposure to changes in commodity prices, with the objective of stabilizing cash flows. We also enter into forward contracts in order to attempt to profit from market fluctuations.
The volume of commodity contracts is based on open derivative positions and represents the combined volume of our long and short positions on an absolute basis, which totaled 23.0 million barrels and 12.8 million barrels as of March 31, 2011 and December 31, 2010, respectively.
As of March 31, 2011, and December 31, 2010, we had $25.0 million and $17.8 million, respectively, of margin deposits related to our derivative instruments.
 
The fair values of our derivative instruments included in our consolidated balance sheets were as follows:
 
 
 
 
Asset Derivatives
 
Liability Derivatives
 
Balance Sheet Location
 
March 31, 2011
 
December 31, 2010
 
March 31, 2011
 
December 31, 2010
 
 
 
(Thousands of Dollars)
Derivatives Designated as
Hedging Instruments:
 
 
 
 
 
 
 
 
 
Interest rate swaps - fair value hedges
Other long-term assets, net
 
$
8,986
 
 
$
10,663
 
 
$
 
 
$
 
Interest rate swaps - cash flow hedges
Other long-term assets, net
 
37,878
 
 
35,000
 
 
 
 
 
Commodity contracts
Accrued liabilities
 
 
 
2,176
 
 
(5,111
)
 
(2,522
)
Interest rate swaps - fair value hedges
Other long-term liabilities
 
 
 
 
 
(33,721
)
 
(29,483
)
Total
 
 
46,864
 
 
47,839
 
 
(38,832
)
 
(32,005
)
 
 
 
 
 
 
 
 
 
 
Derivatives Not Designated
as Hedging Instruments:
 
 
 
 
 
 
 
 
 
Commodity contracts
Other current assets
 
71,740
 
 
 
 
(57,268
)
 
 
Commodity contracts
Accrued liabilities
 
43,436
 
 
46,632
 
 
(66,197
)
 
(61,027
)
Total
 
 
115,176
 
 
46,632
 
 
(123,465
)
 
(61,027
)
 
 
 
 
 
 
 
 
 
 
Total Derivatives
 
 
$
162,040
 
 
$
94,471
 
 
$
(162,297
)
 
$
(93,032
)
 

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

No component of the associated derivative instruments’ gains or losses was excluded from our assessment of hedge ineffectiveness. 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 March 31, 2011:
 
 
 
 
 
 
 
 
Interest rate swaps
 
Interest expense, net
 
$
(5,914
)
 
$
5,960
 
 
$
46
 
Commodity contracts
 
Cost of product sales
 
(12,066
)
 
12,370
 
 
304
 
Total
 
 
 
$
(17,980
)
 
$
18,330
 
 
$
350
 
 
 
 
 
 
 
 
 
 
Three months ended March 31, 2010:
 
 
 
 
 
 
 
 
Interest rate swaps
 
Interest expense, net
 
$
1,234
 
 
$
(1,234
)
 
$
 
Commodity contracts
 
Cost of product sales
 
(1,327
)
 
3,087
 
 
1,760
 
Total
 
 
 
$
(93
)
 
$
1,853
 
 
$
1,760
 
 
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
Accumulated OCI
into  Income
(Effective Portion)
 
Amount of Gain
(Loss) Recognized
in Income  on
Derivative
(Ineffective Portion)
 
 
(Thousands of Dollars)
 
 
 
(Thousands of Dollars)
Three months ended March 31, 2011:
 
 
 
 
 
 
 
 
Interest rate swaps
 
$
2,878
 
 
Interest expense, net
 
$
 
 
$
 
 
 
 
 
 
 
 
 
 
Three months ended March 31, 2010:
 
 
 
 
 
 
 
 
Commodity contracts
 
$
(880
)
 
Cost of product sales
 
$
(415
)
 
$
 
(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 March 31, 2011:
 
 
 
 
Commodity contracts
 
Revenues
 
$
264
 
Commodity contracts
 
Cost of product sales
 
(15,629
)
Commodity contracts
 
Operating expenses
 
46
 
Total
 
 
 
$
(15,319
)
 
 
 
 
 
Three months ended March 31, 2010:
 
 
 
 
Commodity contracts
 
Cost of product sales
 
$
1,066
 
Commodity contracts
 
Operating expenses
 
(10
)
Total
 
 
 
$
1,056
 
 
For derivatives designated as cash flow hedging instruments, once a hedged transaction occurs, we reclassify the effective portion from accumulated OCI to “Cost of product sales” or “Interest expense, net.” As of March 31, 2011, we had $37.9 million in accumulated OCI related to our forward-starting swaps, none of which we expect to reclassify to “Interest expense” within the next twelve months as these swaps relate to debt we expect to issue in 2012 and 2013. As such, the maximum length

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

of time over which we are hedging our exposure to the variability in future cash flows is approximately one to two years for our forward-starting swaps.
 
Concentration of Credit Risk
We are exposed to credit risk on our hedging instruments in the event of nonperformance by counterparties. However, because our hedging activities are transacted only with highly rated institutions, we do not anticipate nonperformance by any of these counterparties.
 
7. RELATED PARTY TRANSACTIONS
 
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 costs related to its employees, other than costs associated with NuStar GP Holdings. Related party revenues are associated with parties of our noncontrolling interest.
 
The following table summarizes information pertaining to related party transactions:
 
 
Three Months Ended March 31,
 
2011
 
2010
 
(Thousands of Dollars)
Revenues
$
130
 
 
$
 
Operating expenses
$
35,109
 
 
$
33,844
 
General and administrative expenses
$
16,948
 
 
$
17,238
 
 
We had a payable to NuStar GP, LLC of $12.2 million and $10.3 million, as of March 31, 2011 and December 31, 2010, respectively, with both amounts representing payroll, employee benefit plans and unit-based compensation. We also had a long-term payable to NuStar GP, LLC as of March 31, 2011 and December 31, 2010 of $10.7 million and $10.1 million, respectively, related to amounts payable for retiree medical benefits and other post-employment benefits.
 
8. OTHER (EXPENSE) INCOME
 
Other (expense) income, net consisted of the following:
 
 
Three Months Ended March 31,
 
2011
 
2010
 
(Thousands of Dollars)
Storage agreement early termination costs
$
(5,000
)
 
$
 
Foreign exchange losses
(610
)
 
(616
)
Other
111
 
 
917
 
Other (expense) income, net
$
(5,499
)
 
$
301
 
 
For the three months ended March 31, 2011, "Other (expense) income, net" included $5.0 million in costs associated with the early termination of a third-party storage agreement at our Paulsboro, New Jersey asphalt refinery.
 

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

9. PARTNERS’ EQUITY
 
Partners' Equity Activity
The summarized changes in the carrying amount of our partners' equity attributable to both us and our noncontrolling interests were as follows:
 
 
March 31, 2011
 
March 31, 2010
 
NuStar Energy L.P. Partner Equity
 
Noncontrolling Interests
 
Total
Equity
 
NuStar Energy L.P. Partner Equity
 
Noncontrolling Interests
 
Total
Equity
 
(Thousands of Dollars)
 
(Thousands of Dollars)
Beginning balance
$
2,702,700
 
 
$
 
 
$
2,702,700
 
 
$
2,484,968
 
 
$
 
 
$
2,484,968
 
Turkey Acquisition
 
 
15,000
 
 
15,000
 
 
 
 
 
 
 
Net income
28,502
 
 
14
 
 
28,516
 
 
19,703
 
 
 
 
19,703
 
Other comprehensive
income:
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation
adjustment
8,553
 
 
552
 
 
9,105
 
 
(409
)
 
 
 
(409
)
Unrealized gain (loss) on
cash flow hedges
2,878
 
 
 
 
2,878
 
 
(465
)
 
 
 
(465
)
Total other comprehensive
income
11,431
 
 
552
 
 
11,983
 
 
(874
)
 
 
 
(874
)
Total comprehensive income
39,933
 
 
566
 
 
40,499
 
 
18,829
 
 
 
 
18,829
 
Cash distributions to
partners
(79,616
)
 
 
 
(79,616
)
 
(73,392
)
 
 
 
(73,392
)
Other
 
 
 
 
 
 
(75
)
 
 
 
(75
)
Ending balance
$
2,663,017
 
 
$
15,566
 
 
$
2,678,583
 
 
$
2,430,330
 
 
$
 
 
$
2,430,330
 
 
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 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, if any, to priority income allocations 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 March 31,
 
2011
 
2010
 
(Thousands of Dollars)
Net income attributable to NuStar Energy L.P.
$
28,502
 
 
$
19,703
 
Less general partner incentive distribution
8,568
 
 
7,799
 
Net income after general partner incentive distribution
19,934
 
 
11,904
 
General partner interest
2
%
 
2
%
General partner allocation of net income after
general partner incentive distribution
398
 
 
238
 
General partner incentive distribution
8,568
 
 
7,799
 
Net income applicable to general partner
$
8,966
 
 
$
8,037
 
 

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

Cash Distributions
In February 2011, we paid a quarterly cash distribution totaling $79.6 million, or $1.075 per unit, related to the fourth quarter of 2010. On April 27, 2011, we announced a quarterly cash distribution of $1.075 per unit related to the first quarter of 2011. This distribution will be paid on May 13, 2011 to unitholders of record on May 9, 2011 and will total $79.6 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 March 31,
 
2011
 
2010
 
(Thousands of Dollars, Except Per Unit Data)
General partner interest
$
1,592
 
 
$
1,467
 
General partner incentive distribution
8,568
 
 
7,799
 
Total general partner distribution
10,160
 
 
9,266
 
Limited partners’ distribution
69,456
 
 
64,126
 
Total cash distributions
$
79,616
 
 
$
73,392
 
 
 
 
 
Cash distributions per unit applicable to limited partners
$
1.075
 
 
$
1.065
 
 

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

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 March 31,
 
2011
 
2010
 
(Thousands of Dollars, Except Unit and Per Unit Data)
 
 
 
 
Net income attributable to NuStar Energy L.P.
$
28,502
 
 
$
19,703
 
Less general partner distribution (including IDR)
10,160
 
 
9,266
 
Less limited partner distribution
69,456
 
 
64,126
 
Distributions greater than earnings
$
(51,114
)
 
$
(53,689
)
 
 
 
 
General partner earnings:
 
 
 
Distributions
$
10,160
 
 
$
9,266
 
Allocation of distributions greater than earnings (2%)
(1,023
)
 
(1,074
)
Total
$
9,137
 
 
$
8,192
 
 
 
 
 
Limited partner earnings:
 
 
 
Distributions
$
69,456
 
 
$
64,126
 
Allocation of distributions greater than earnings (98%)
(50,091
)
 
(52,615
)
Total
$
19,365
 
 
$
11,511
 
 
 
 
 
Weighted average limited partner units outstanding
64,610,549
 
 
60,210,549
 
 
 
 
 
Net income per unit applicable to limited partners
$
0.30
 
 
$
0.19
 
 

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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:
 
 
Three Months Ended March 31,
 
2011
 
2010
 
(Thousands of Dollars)
Decrease (increase) in current assets:
 
 
 
Accounts receivable
$
(94,104
)
 
$
(24,587
)
Inventories
(184,765
)
 
(115,921
)
Other current assets
(21,572
)
 
28,956
 
Increase (decrease) in current liabilities:
 
 
 
Accounts payable
76,922
 
 
106,271
 
Payable to related party
1,826
 
 
9,956
 
Accrued interest payable
(6,070
)
 
358
 
Accrued liabilities
(5,702
)
 
(26,967
)
Taxes other than income tax
(830
)
 
(6
)
Income tax payable
1,396
 
 
3,514
 
Changes in current assets and current liabilities
$
(232,899
)
 
$
(18,426
)
 
Cash flows related to interest and income taxes were as follows:
 
 
Three Months Ended March 31,
 
2011
 
2010
 
(Thousands of Dollars)
Cash paid for interest, net of amount capitalized
$
32,512
 
 
$
21,922
 
Cash paid for income taxes, net of tax refunds received
$
2,856
 
 
$
4,374
 
 
12. SEGMENT INFORMATION
 
Our reportable business segments consist of storage, transportation, and asphalt and fuels marketing. 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 terminalling and storage of petroleum products, the transportation of petroleum products and anhydrous ammonia, and asphalt and fuels marketing. Intersegment revenues result from storage and throughput agreements with related parties at lease rates consistent with rates charged to third parties for storage and at pipeline tariff rates based upon the published tariff applicable to all shippers.

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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 March 31,
 
2011
 
2010
 
(Thousands of Dollars)
Revenues:
 
 
 
Storage:
 
 
 
Third-party revenues
$
125,253
 
 
$
114,413
 
Intersegment revenues
11,392
 
 
12,219
 
Related party revenues
130
 
 
 
Total storage
136,775
 
 
126,632
 
Transportation:
 
 
 
Third-party revenues
73,010
 
 
74,882
 
Intersegment revenues
 
 
380
 
Total transportation
73,010
 
 
75,262
 
Asphalt and fuels marketing:
 
 
 
Third-party revenues
1,036,223
 
 
756,234
 
Intersegment revenues
3,845
 
 
2,696
 
Total asphalt and fuels marketing
1,040,068
 
 
758,930
 
Consolidation and intersegment eliminations
(15,237
)
 
(15,295
)
Total revenues
$
1,234,616
 
 
$
945,529
 
 
 
 
 
Operating income:
 
 
 
Storage
$
48,696
 
 
$
42,888
 
Transportation
34,397
 
 
33,757
 
Asphalt and fuels marketing
118
 
 
(7,896
)
Consolidation and intersegment eliminations
65
 
 
(237
)
Total segment operating income
83,276
 
 
68,512
 
Less general and administrative expenses
25,983
 
 
27,269
 
Less other depreciation and amortization expense
1,562
 
 
1,470
 
Total operating income
$
55,731
 
 
$
39,773
 
 
 Total assets by reportable segment were as follows:
 
 
March 31,
2011
 
December 31,
2010
 
(Thousands of Dollars)
Storage
$
2,586,757
 
 
$
2,454,264
 
Transportation
1,244,492
 
 
1,256,614
 
Asphalt and fuels marketing
1,455,593
 
 
1,154,499
 
Total segment assets
5,286,842
 
 
4,865,377
 
Other partnership assets
378,378
 
 
521,016
 
Total consolidated assets
$
5,665,220
 
 
$
5,386,393
 
 

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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 notes issued by NuStar Logistics and NuPOP are fully and unconditionally guaranteed by NuStar Energy, and both NuStar Logistics and NuPOP fully and unconditionally guarantee the outstanding senior notes of the other. 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
March 31, 2011
(Thousands of Dollars)
 
 
NuStar
Energy
 
NuStar
Logistics
 
NuPOP
 
Non-Guarantor
Subsidiaries (a)
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
53
 
 
$
11,014
 
 
$
 
 
$
59,370
 
 
$
 
 
$
70,437
 
Receivables, net
 
 
20,112
 
 
8,200
 
 
368,940
 
 
 
 
397,252
 
Inventories
 
 
2,010
 
 
2,483
 
 
594,360
 
 
(23
)
 
598,830
 
Other current assets
62
 
 
8,025
 
 
1,128
 
 
55,390
 
 
 
 
64,605
 
Intercompany receivable
 
 
990,411
 
 
742,409
 
 
 
 
(1,732,820
)
 
 
Current assets
115
 
 
1,031,572
 
 
754,220
 
 
1,078,060
 
 
(1,732,843
)
 
1,131,124
 
Property, plant and equipment, net
 
 
1,039,011
 
 
608,566
 
 
1,612,675
 
 
 
 
3,260,252
 
Intangible assets, net
 
 
2,071
 
 
 
 
58,298
 
 
 
 
60,369
 
Goodwill
 
 
18,094
 
 
170,652
 
 
654,548
 
 
 
 
843,294
 
Investment in wholly owned
subsidiaries
3,117,064
 
 
142,823
 
 
1,079,496
 
 
2,217,614
 
 
(6,556,997
)
 
 
Investment in joint venture
 
 
 
 
 
 
69,068
 
 
 
 
69,068
 
Deferred income tax asset
 
 
 
 
 
 
7,683
 
 
 
 
7,683
 
Other long-term assets, net
 
 
235,192
 
 
26,329
 
 
31,909
 
 
 
 
293,430
 
Total assets
$
3,117,179
 
 
$
2,468,763
 
 
$
2,639,263
 
 
$
5,729,855
 
 
$
(8,289,840
)
 
$
5,665,220
 
Liabilities and Partners’ Equity
 
 
 
 
 
 
 
 
 
 
 
Current portion of long-term debt
$
 
 
$
832
 
 
$
 
 
$
 
 
$
 
 
$
832
 
Payables
138
 
 
35,796
 
 
4,531
 
 
330,763
 
 
 
 
371,228
 
Accrued interest payable
 
 
16,284
 
 
7,318
 
 
36
 
 
 
 
23,638
 
Accrued liabilities
568
 
 
8,147
 
 
3,448
 
 
40,844
 
 
 
 
53,007
 
Taxes other than income tax
 
 
3,104
 
 
3,248
 
 
3,552
 
 
 
 
9,904
 
Income tax payable
 
 
1,725
 
 
 
 
1,016
 
 
 
 
2,741
 
Intercompany payable
511,387
 
 
 
 
 
 
1,221,433
 
 
(1,732,820
)
 
 
Current liabilities
512,093
 
 
65,888
 
 
18,545
 
 
1,597,644
 
 
(1,732,820
)
 
461,350
 
Long-term debt, less current portion
 
 
1,815,888
 
 
511,857
 
 
33,719
 
 
 
 
2,361,464
 
Long-term payable to related party
 
 
4,229
 
 
 
 
6,504
 
 
 
 
10,733
 
Deferred income tax liability
 
 
 
 
 
 
34,404
 
 
 
 
34,404
 
Other long-term liabilities
 
 
37,559
 
 
208
 
 
80,919
 
 
 
 
118,686
 
Total partners' equity
2,605,086
 
 
545,199
 
 
2,108,653
 
 
3,976,665
 
 
(6,557,020
)
 
2,678,583
 
Total liabilities and
partners’ equity
$
3,117,179
 
 
$
2,468,763
 
 
$
2,639,263
 
 
$
5,729,855
 
 
$
(8,289,840
)
 
$
5,665,220
 
 
(a)
Non-guarantor subsidiaries are wholly owned by NuStar Energy, NuStar Logistics or NuPOP.

18

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

Condensed Consolidating Balance Sheets
December 31, 2010
(Thousands of Dollars)
 
 
NuStar
Energy
 
NuStar
Logistics
 
NuPOP
 
Non-Guarantor
Subsidiaries (a)
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
53
 
 
$
107,655
 
 
$
 
 
$
73,413
 
 
$
 
 
$
181,121
 
Receivables, net
 
 
27,708
 
 
10,648
 
 
266,885
 
 
(3,188
)
 
302,053
 
Inventories
 
 
1,776
 
 
6,712
 
 
405,521
 
 
(472
)
 
413,537
 
Other current assets
 
 
10,116
 
 
1,202
 
 
31,478
 
 
 
 
42,796
 
Intercompany receivable
 
 
786,658
 
 
729,365
 
 
 
 
(1,516,023
)
 
 
Current assets
53
 
 
933,913
 
 
747,927
 
 
777,297
 
 
(1,519,683
)
 
939,507
 
Property, plant and equipment, net
 
 
1,006,479
 
 
614,762
 
 
1,566,216
 
 
 
 
3,187,457
 
Intangible assets, net
 
 
2,106
 
 
 
 
40,927
 
 
 
 
43,033
 
Goodwill
 
 
18,094
 
 
170,652
 
 
624,524
 
 
 
 
813,270
 
Investment in wholly owned
subsidiaries
3,167,764
 
 
159,813
 
 
994,249
 
 
2,112,355
 
 
(6,434,181
)
 
 
Investment in joint venture
 
 
 
 
 
 
69,603
 
 
 
 
69,603
 
Deferred income tax asset
 
 
 
 
 
 
8,138
 
 
 
 
8,138
 
Other long-term assets, net
 
 
267,532
 
 
26,329
 
 
31,524
 
 
 
 
325,385
 
Total assets
$
3,167,817
 
 
$
2,387,937
 
 
$
2,553,919
 
 
$
5,230,584
 
 
$
(7,953,864
)
 
$
5,386,393
 
Liabilities and Partners’ Equity
 
 
 
 
 
 
 
 
 
 
 
Current portion of long-term debt
$
 
 
$
832
 
 
$
 
 
$
 
 
$
 
 
$
832
 
Payables
 
 
28,705
 
 
9,559
 
 
257,651
 
 
(3,188
)
 
292,727
 
Accrued interest payable
 
 
21,180
 
 
8,490
 
 
36
 
 
 
 
29,706
 
Accrued liabilities
680
 
 
18,154
 
 
3,973
 
 
35,146
 
 
 
 
57,953
 
Taxes other than income tax
125
 
 
4,273
 
 
2,587
 
 
3,733
 
 
 
 
10,718
 
Income tax payable
 
 
1,140
 
 
 
 
153
 
 
 
 
1,293
 
Intercompany payable
510,812
 
 
 
 
 
 
1,005,211
 
 
(1,516,023
)
 
 
Current liabilities
511,617
 
 
74,284
 
 
24,609
 
 
1,301,930
 
 
(1,519,211
)
 
393,229
 
Long-term debt, less current portion
 
 
1,589,189
 
 
514,270
 
 
32,789
 
 
 
 
2,136,248
 
Long-term payable to related party
 
 
3,571
 
 
 
 
6,517
 
 
 
 
10,088
 
Deferred income tax liability
 
 
 
 
 
 
29,565
 
 
 
 
29,565
 
Other long-term liabilities
 
 
33,458
 
 
228
 
 
80,877
 
 
 
 
114,563
 
Total partners’ equity
2,656,200
 
 
687,435
 
 
2,014,812
 
 
3,778,906
 
 
(6,434,653
)
 
2,702,700
 
Total liabilities and
partners’ equity
$
3,167,817
 
 
$
2,387,937
 
 
$
2,553,919
 
 
$
5,230,584
 
 
$
(7,953,864
)
 
$
5,386,393
 
 
(a)
Non-guarantor subsidiaries are wholly owned by NuStar Energy, NuStar Logistics or NuPOP.

19

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

Condensed Consolidating Statements of Income
For the Three Months Ended March 31, 2011
(Thousands of Dollars)
 
 
NuStar
Energy
 
NuStar
Logistics
 
NuPOP
 
Non-Guarantor
Subsidiaries (a)
 
Eliminations
 
Consolidated
Revenues
$
 
 
$
66,158
 
 
$
50,347
 
 
$
1,214,306
 
 
$
(96,195
)
 
$
1,234,616
 
Costs and expenses
415
 
 
43,272
 
 
35,973
 
 
1,195,869
 
 
(96,644
)
 
1,178,885
 
Operating (loss) income
(415
)
 
22,886
 
 
14,374
 
 
18,437
 
 
449
 
 
55,731
 
Equity in earnings of subsidiaries
28,917
 
 
(16,990
)
 
28,520
 
 
48,545
 
 
(88,992
)
 
 
Equity in earnings of joint venture
 
 
 
 
 
 
2,388
 
 
 
 
2,388
 
Interest expense, net
 
 
(13,788
)
 
(5,792
)
 
(877
)
 
 
 
(20,457
)
Other income, net
 
 
57
 
 
13
 
 
(5,569
)
 
 
 
(5,499
)
Income (loss) before income tax
expense
28,502
 
 
(7,835
)
 
37,115
 
 
62,924
 
 
(88,543
)
 
32,163
 
Income tax expense
 
 
363
 
 
 
 
3,284
 
 
 
 
3,647
 
Net income (loss)
28,502
 
 
(8,198
)
 
37,115
 
 
59,640
 
 
(88,543
)
 
28,516
 
Less net income attributable to
noncontrolling interest
 
 
 
 
 
 
14
 
 
 
 
14
 
Net income (loss) attributable to
NuStar Energy L.P.
$
28,502
 
 
$
(8,198
)
 
$
37,115
 
 
$
59,626
 
 
$
(88,543
)
 
$
28,502
 
 
(a)
Non-guarantor subsidiaries are wholly owned by NuStar Energy, NuStar Logistics or NuPOP.
 

20

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

Condensed Consolidating Statements of Income
For the Three Months Ended March 31, 2010
(Thousands of Dollars)
 
 
NuStar
Energy
 
NuStar
Logistics
 
NuPOP
 
Non-Guarantor
Subsidiaries (a)
 
Eliminations
 
Consolidated
Revenues
$
 
 
$
73,232
 
 
$
35,364
 
 
$
885,652
 
 
$
(48,719
)
 
$
945,529
 
Costs and expenses
449
 
 
48,828
 
 
27,431
 
 
877,540
 
 
(48,492
)
 
905,756
 
Operating (loss) income
(449
)
 
24,404
 
 
7,933
 
 
8,112
 
 
(227
)
 
39,773
 
Equity in earnings of subsidiaries
20,151
 
 
(19,032
)
 
24,787
 
 
37,494
 
 
(63,400
)
 
 
Equity in earnings of joint venture
 
 
 
 
 
 
3,015
 
 
 
 
3,015
 
Interest expense, net
1
 
 
(12,007
)
 
(5,923
)
 
(657
)
 
 
 
(18,586
)
Other income (expense), net
 
 
575
 
 
12
 
 
(286
)
 
 
 
301
 
Income (loss) before income tax
expense
19,703
 
 
(6,060
)
 
26,809
 
 
47,678
 
 
(63,627
)
 
24,503
 
Income tax expense
 
 
393
 
 
 
 
4,407
 
 
 
 
4,800
 
Net income (loss)
$
19,703
 
 
$
(6,453
)
 
$
26,809
 
 
$
43,271
 
 
$
(63,627
)
 
$
19,703
 
 
(a)
Non-guarantor subsidiaries are wholly owned by NuStar Energy, NuStar Logistics or NuPOP.
 
 

21

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

Condensed Consolidating Statements of Cash Flows
For the Three Months Ended March 31, 2011
(Thousands of Dollars)
 
 
NuStar
Energy
 
NuStar
Logistics
 
NuPOP
 
Non-Guarantor
Subsidiaries (a)
 
Eliminations
 
Consolidated
Net cash provided by (used in)
operating activities
$
79,041
 
 
$
23,162
 
 
$
13,552
 
 
$
(201,929
)
 
$
(79,624
)
 
$
(165,798
)
Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures
 
 
(45,340
)
 
(430
)
 
(27,476
)
 
 
 
(73,246
)
Acquisition
 
 
 
 
 
 
(52,577
)
 
 
 
(52,577
)
Investment in other long-term
assets
 
 
 
 
 
 
(636
)
 
 
 
(636
)
Investment in subsidiaries
(57,300
)
 
 
 
(56,727
)
 
(56,727
)
 
170,754
 
 
 
Other