0001110805-14-000040.txt : 20141106 0001110805-14-000040.hdr.sgml : 20141106 20141106161923 ACCESSION NUMBER: 0001110805-14-000040 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 20140930 FILED AS OF DATE: 20141106 DATE AS OF CHANGE: 20141106 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NuStar Energy L.P. CENTRAL INDEX KEY: 0001110805 STANDARD INDUSTRIAL CLASSIFICATION: PIPE LINES (NO NATURAL GAS) [4610] IRS NUMBER: 742956831 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-16417 FILM NUMBER: 141200946 BUSINESS ADDRESS: STREET 1: 19003 IH-10 WEST CITY: SAN ANTONIO STATE: TX ZIP: 78257 BUSINESS PHONE: (210) 918-2000 MAIL ADDRESS: STREET 1: 19003 IH-10 WEST CITY: SAN ANTONIO STATE: TX ZIP: 78257 FORMER COMPANY: FORMER CONFORMED NAME: VALERO L P DATE OF NAME CHANGE: 20020110 FORMER COMPANY: FORMER CONFORMED NAME: SHAMROCK LOGISTICS LP DATE OF NAME CHANGE: 20000331 10-Q 1 ns3q1410-q.htm 10-Q NS 3Q14 10-Q
 
 
 
 
 
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 September 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 October 31, 2014 was 77,886,078.
 
 
 
 
 



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

2


PART I – FINANCIAL INFORMATION

Item 1.
Financial Statements
NUSTAR ENERGY L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars, Except Unit Data)
 
September 30,
2014
 
December 31,
2013
 
(Unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
25,686

 
$
100,743

Accounts receivable, net of allowance for doubtful accounts of $306
and $1,224 as of September 30, 2014 and December 31, 2013, respectively
220,841

 
281,310

Receivable from related parties
45

 
51,084

Inventories
117,937

 
138,147

Income tax receivable
3,661

 
826

Other current assets
37,523

 
39,452

Assets held for sale
2,256

 
21,987

Total current assets
407,949

 
633,549

Property, plant and equipment, at cost
4,706,896

 
4,500,837

Accumulated depreciation and amortization
(1,315,466
)
 
(1,190,184
)
Property, plant and equipment, net
3,391,430

 
3,310,653

Intangible assets, net
61,815

 
71,249

Goodwill
617,429

 
617,429

Investment in joint ventures
72,872

 
68,735

Deferred income tax asset
4,902

 
5,769

Note receivable from related party

 
165,440

Other long-term assets, net
320,970

 
159,362

Total assets
$
4,877,367

 
$
5,032,186

Liabilities and Partners’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
177,961

 
$
298,751

Payable to related party
14,119

 
8,325

Short-term debt
21,400

 

Accrued interest payable
27,501

 
33,113

Accrued liabilities
39,053

 
38,632

Taxes other than income tax
15,053

 
9,745

Income tax payable
4,035

 
4,006

Total current liabilities
299,122

 
392,572

Long-term debt
2,731,551

 
2,655,553

Long-term payable to related party
30,489

 
41,139

Deferred income tax liability
27,785

 
27,350

Other long-term liabilities
19,775

 
11,778

Commitments and contingencies (Note 5)

 

Partners’ equity:
 
 
 
Limited partners (77,886,078 common units outstanding
as of September 30, 2014 and December 31, 2013)
1,788,360

 
1,921,726

General partner
40,419

 
43,804

Accumulated other comprehensive loss
(60,134
)
 
(63,394
)
Total NuStar Energy L.P. partners’ equity
1,768,645

 
1,902,136

Noncontrolling interest

 
1,658

Total partners’ equity
1,768,645

 
1,903,794

Total liabilities and partners’ equity
$
4,877,367

 
$
5,032,186

See Condensed Notes to Consolidated Financial Statements.

3


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
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2013
 
2014
 
2013
Revenues:
 
 
 
 
 
 
 
Service revenues
$
266,651

 
$
243,712

 
$
755,551

 
$
700,922

Product sales
527,771

 
534,433

 
1,637,829

 
1,977,423

Total revenues
794,422

 
778,145

 
2,393,380

 
2,678,345

Costs and expenses:
 
 
 
 
 
 
 
Cost of product sales
509,794

 
527,217

 
1,578,508

 
1,928,237

Operating expenses:
 
 
 
 
 
 
 
Third parties
84,570

 
87,025

 
246,541

 
248,493

Related party
31,394

 
30,076

 
91,025

 
93,440

Total operating expenses
115,964

 
117,101

 
337,566

 
341,933

General and administrative expenses:
 
 
 
 
 
 
 
Third parties
7,567

 
8,336

 
20,044

 
24,171

Related party
17,400

 
10,495

 
48,942

 
41,807

Total general and administrative expenses
24,967

 
18,831

 
68,986

 
65,978

Depreciation and amortization expense
48,599

 
46,245

 
142,765

 
133,116

Total costs and expenses
699,324

 
709,394

 
2,127,825

 
2,469,264

Operating income
95,098

 
68,751

 
265,555

 
209,081

Equity in earnings (loss) of joint ventures
2,749

 
(5,358
)
 
1,737

 
(26,629
)
Interest expense, net
(33,007
)
 
(30,823
)
 
(100,546
)
 
(92,849
)
Interest income from related party

 
1,828

 
1,055

 
4,560

Other (expense) income, net
(1,388
)
 
1,389

 
1,816

 
3,917

Income from continuing operations before income tax
expense
63,452

 
35,787

 
169,617

 
98,080

Income tax expense
4,335

 
105

 
10,317

 
8,087

Income from continuing operations
59,117

 
35,682

 
159,300

 
89,993

Income (loss) from discontinued operations, net of tax
2,831

 
(2,446
)
 
(2,316
)
 
616

Net income
61,948

 
33,236

 
156,984

 
90,609

Less net loss attributable to noncontrolling interest
(173
)
 
(161
)
 
(395
)
 
(439
)
Net income attributable to NuStar Energy L.P.
$
62,121

 
$
33,397

 
$
157,379

 
$
91,048

Net income (loss) per unit applicable to limited partners:
 
 
 
 
 
 
 
Continuing operations
$
0.61

 
$
0.31

 
$
1.59

 
$
0.71

Discontinued operations
0.03

 
(0.03
)
 
(0.03
)
 
0.02

Total (Note 10)
$
0.64

 
$
0.28

 
$
1.56

 
$
0.73

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

 
77,886,078

 
77,886,078

 
77,886,078

 
 
 
 
 
 
 
 
Comprehensive income
$
58,167

 
$
38,790

 
$
159,811

 
$
90,042

Less comprehensive loss attributable to
noncontrolling interest
(159
)
 
(729
)
 
(828
)
 
(2,206
)
Comprehensive income attributable to
NuStar Energy L.P.
$
58,326

 
$
39,519

 
$
160,639

 
$
92,248

See Condensed Notes to Consolidated Financial Statements.

4


NUSTAR ENERGY L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, Thousands of Dollars)
 
Nine Months Ended
September 30,
 
2014
 
2013
Cash Flows from Operating Activities:
 
 
 
Net income
$
156,984

 
$
90,609

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization expense
142,765

 
137,185

Amortization of debt related items
7,015

 
1,721

Gain from sale or disposition of assets
(3,840
)
 
(8,739
)
Asset impairment loss
2,067

 

Deferred income tax expense (benefit)
2,453

 
(3,815
)
Equity in (earnings) loss of joint ventures
(1,737
)
 
26,629

Distributions of equity in earnings of joint ventures
5,879

 
5,787

Changes in current assets and current liabilities (Note 11)
1,080

 
116,838

Other, net
2,529

 
12,325

Net cash provided by operating activities
315,195

 
378,540

Cash Flows from Investing Activities:
 
 
 
Capital expenditures
(229,548
)
 
(260,701
)
Change in accounts payable related to capital expenditures
10,910

 
(2,879
)
Proceeds from sale or disposition of assets
25,975

 
116,467

Increase in note receivable from related party
(13,328
)
 
(50,761
)
Other, net
(853
)
 
156

Net cash used in investing activities
(206,844
)
 
(197,718
)
Cash Flows from Financing Activities:
 
 
 
Proceeds from long-term debt borrowings
537,436

 
1,299,220

Proceeds from note offering, net of issuance costs

 
687,151

Proceeds from short-term debt borrowings
205,200

 

Long-term debt repayments
(451,269
)
 
(1,897,182
)
Short-term debt repayments
(183,800
)
 

Distributions to unitholders and general partner
(294,153
)
 
(294,153
)
Payments for termination of interest rate swaps

 
(33,697
)
Other, net
2,540

 
3,168

Net cash used in financing activities
(184,046
)
 
(235,493
)
Effect of foreign exchange rate changes on cash
638

 
(4,412
)
Net decrease in cash and cash equivalents
(75,057
)
 
(59,083
)
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
$
25,686

 
$
24,519

See Condensed Notes to Consolidated Financial Statements.

5


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 15.1% total interest in us as of September 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 nine months ended September 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 nine months ended September 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 transition 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 a transition 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 to Lindsay Goldberg LLC (Lindsay Goldberg), a private investment firm (the Asphalt JV Sale). Effective February 27, 2014, NuStar Asphalt LLC changed its name to Axeon Specialty Products LLC (Axeon). Lindsay Goldberg now owns 100% of Axeon. 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 revolving credit facility provided by us to Axeon (the NuStar JV Facility)

6

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


from a revolving credit agreement into a $190.0 million term loan (the Axeon 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 Axeon, which were categorized as assets held for sale at December 31, 2013. See Note 8 for a discussion of our agreements with Axeon.

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 September 2014, we sold our 75% interest in our facility in Mersin, Turkey for total proceeds of $13.4 million. We recognized a gain of $3.7 million, which is included in discontinued operations for the three and nine months ended September 30, 2014. 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
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2013
 
2014
 
2013
 
(Thousands of Dollars)
Allocated interest expense
$
115

 
$
352

 
$
811

 
$
1,056


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 recognized a gain of $9.3 million on the sale, which is included in discontinued operations for the nine months ended September 30, 2013.

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

2013
 
2014
 
2013
 
(Thousands of Dollars)
Revenues
$
276

 
$
1,865

 
$
3,456

 
$
5,756

 
 
 
 
 
 
 
 
Income (loss) before income tax expense
$
2,831

 
$
(3,114
)
 
$
(2,316
)
 
$
(1,324
)

3. INVENTORIES

Inventories consisted of the following:
 
September 30,
2014

December 31,
2013
 
(Thousands of Dollars)
Crude oil
$
6,294

 
$
6,485

Finished products
102,602

 
123,656

Materials and supplies
9,041

 
8,006

Total
$
117,937

 
$
138,147



7

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


4. DEBT

Revolving Credit Agreement
During the nine months ended September 30, 2014, the balance under our $1.5 billion five-year revolving credit agreement (the 2012 Revolving Credit Agreement) increased by $79.4 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, a LIBOR-based rate or a EURIBOR-based rate. The interest rate on the 2012 Revolving Credit Agreement is subject to adjustment if our debt rating is downgraded (or upgraded) by certain credit rating agencies. As of September 30, 2014, our weighted average interest rate was 2.2% and we had $582.4 million outstanding.

The 2012 Revolving Credit Agreement contains customary restrictive covenants, such as limitations on indebtedness, liens, mergers, asset transfers and certain investing activities. In addition, the 2012 Revolving Credit Agreement requires 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 debt to consolidated EBITDA, each 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 September 30, 2014, our consolidated debt coverage ratio was 4.0x, and we had $839.1 million available for borrowing.

On October 29, 2014, we amended and restated the 2012 Revolving Credit Agreement primarily to reduce the interest rate, to extend the maturity to October 29, 2019 and to amend certain of the restrictive covenants.

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 September 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 nine months ended September 30, 2014, we received $0.8 million from the trustee. As of September 30, 2014, the amount remaining in trust totaled $82.7 million.

Short-term Lines of Credit
In 2014, we entered into two short-term line of credit agreements with an aggregate uncommitted borrowing capacity of up to $80.0 million. These agreements allow 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 had $21.4 million outstanding under these short-term lines of credit as of September 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 September 30, 2014, we have accrued $1.1 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.

8

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:
 
September 30, 2014
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(Thousands of Dollars)
Assets:
 
 
 
 
 
 
 
Other current assets:
 
 
 
 
 
 
 
Product imbalances
$
2,822

 
$

 
$

 
$
2,822

Commodity derivatives
6,714

 
3,166

 

 
9,880

Other long-term assets, net:
 
 
 
 
 
 
 
Commodity derivatives

 
233

 

 
233

Total
$
9,536

 
$
3,399

 
$

 
$
12,935

Liabilities:
 
 
 
 
 
 
 
Accrued liabilities:
 
 
 
 
 
 
 
Product imbalances
$
(2,335
)
 
$

 
$

 
$
(2,335
)
Commodity derivatives

 
(1,615
)
 

 
(1,615
)
Other long-term liabilities:
 
 
 
 
 
 
 
Commodity derivatives

 
(105
)
 

 
(105
)
Guarantee liability

 

 
(1,730
)
 
(1,730
)
Total
$
(2,335
)
 
$
(1,720
)
 
$
(1,730
)
 
$
(5,785
)

 
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

9

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 have been 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). In August 2014, we settled with TexStar and reduced the associated liability to $0.

Guarantees. As of September 30, 2014, we recorded a liability of $1.7 million representing the fair value of guarantees we have issued on behalf of Axeon. We estimated the fair value considering the probability of default by Axeon 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 September 30, 2014, totaling $73.3 million, plus two guarantees that do not specify a maximum amount. 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 Axeon.

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 Axeon Term Loan. As a result, we increased the carrying value of the note receivable from Axeon by the same amount as the increase to the liability for the fair value of the guarantees outstanding as of September 30, 2014.
 
The following table summarizes the activity in our Level 3 liabilities:
 
Nine Months Ended September 30, 2014
 
(Thousands of Dollars)
Beginning balance
$
3,198

Amounts settled
(870
)
Adjustments to guarantee liability
(150
)
Changes in fair value recorded in earnings:
 
Operating expenses
(448
)
Ending balance
$
1,730


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 $2.3 million and $22.0 million as of September 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 Axeon and long-term debt, approximate their carrying amounts. The estimated fair value and carrying amounts of the debt and note receivable were as follows:
 
September 30, 2014
 
December 31, 2013
 
Fair Value
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
(Thousands of Dollars)
Long-term debt
$
2,783,666

 
$
2,731,551

 
$
2,636,734

 
$
2,655,553

Note receivable from Axeon
$
148,300

 
$
170,385

 
$
133,416

 
$
165,440


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,

10

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


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 Axeon Term Loan is $170.4 million, consisting of the following: (i) the outstanding principal amount of $190.0 million; (ii) plus the fair value of guarantees of $1.7 million as of September 30, 2014 (iii) less equity losses from our investment in Axeon of $21.3 million incurred prior to the Asphalt JV Sale and after the carrying value of our equity investment in Axeon was reduced to zero. We review the financial information of Axeon 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 Axeon.

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 September 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.” The amount in accumulated other comprehensive income (OCI) 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 15.6 million barrels and 15.2 million barrels as of September 30, 2014 and December 31, 2013, respectively.

As of December 31, 2013, we had $3.3 million of margin deposits related to our derivative instruments and none as of September 30, 2014.


11

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
 
September 30,
2014
 
December 31, 2013
 
September 30,
2014
 
December 31, 2013
 
 
 
(Thousands of Dollars)
Derivatives Designated as
Hedging Instruments:
 
 
 
 
 
 
 
 
 
Commodity contracts
Other current assets
 
$
470

 
$

 
$
(63
)
 
$

Commodity contracts
Accrued liabilities
 

 

 

 
(130
)
 
 
 
 
 
 
 
 
 
 
Derivatives Not Designated
as Hedging Instruments:
 
 
 
 
 
 
 
 
 
Commodity contracts
Other current assets
 
25,508

 
16,168

 
(16,035
)
 
(11,220
)
Commodity contracts
Other long-term assets, net
 
1,754

 
15,883

 
(1,521
)
 
(8,906
)
Commodity contracts
Accrued liabilities
 
2,807

 
4,523

 
(4,422
)
 
(6,626
)
Commodity contracts
Other long-term liabilities
 
246

 
5,448

 
(351
)
 
(7,023
)
Total
 
 
30,315

 
42,022

 
(22,329
)
 
(33,775
)
 
 
 
 
 
 
 
 
 
 
Total Derivatives
 
 
$
30,785

 
$
42,022

 
$
(22,392
)
 
$
(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
 
September 30,
2014
 
December 31, 2013
 
 
(Thousands of Dollars)
Net amounts of assets presented in the consolidated balance sheets
 
$
10,113

 
$
11,925

Net amounts of liabilities presented in the consolidated balance sheets
 
$
(1,720
)
 
$
(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 September 30, 2014:
 
 
 
 
 
 
 
 
Commodity contracts
 
Cost of product sales
 
$
1,219

 
$
(1,058
)
 
$
161

 
 
 
 
 
 
 
 
 
Three months ended September 30, 2013:
 
 
 
 
 
 
 
 
Commodity contracts
 
Cost of product sales
 
$
(3,853
)
 
$
4,184

 
$
331

 
 
 
 
 
 
 
 
 
Nine months ended September 30, 2014:
 
 
 
 
 
 
 
 
Commodity contracts
 
Cost of product sales
 
$
2,178

 
$
(2,840
)
 
$
(662
)
 
 
 
 
 
 
 
 
 
Nine months ended September 30, 2013:
 
 
 
 
 
 
 
 
Commodity contracts
 
Cost of product sales
 
$
4,059

 
$
(6,298
)
 
$
(2,239
)


12

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 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 September 30, 2014:
 
 
 
 
 
 
 
 
Interest rate swaps
 
$

 
Interest expense, net
 
$
(2,625
)
 
$

 
 
 
 
 
 
 
 
 
Three months ended September 30, 2013:
 
 
 
 
 
 
 
 
Interest rate swaps
 
$

 
Interest expense, net
 
$
(1,653
)
 
$

 
 
 
 
 
 
 
 
 
Nine months ended September 30, 2014:
 
 
 
 
 
 
 
 
Interest rate swaps
 
$

 
Interest expense, net
 
$
(8,062
)
 
$

 
 
 
 
 
 
 
 
 
Nine months ended September 30, 2013:
 
 
 
 
 
 
 
 
Interest rate swaps
 
$
7,213

 
Interest expense, net
 
$
(4,615
)
 
$

(a)
Amounts are included in specified location for both the gain (loss) reclassified from accumulated 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 September 30, 2014:
 
 
 
 
Commodity contracts
 
Cost of product sales
 
$
6,680

 
 
 
 
 
Three months ended September 30, 2013:
 
 
 
 
Commodity contracts
 
Cost of product sales
 
$
(4,941
)
 
 
 
 
 
Nine months ended September 30, 2014:
 
 
 
 
Commodity contracts
 
Cost of product sales
 
$
2,270

 
 
 
 
 
Nine months ended September 30, 2013:
 
 
 
 
Commodity contracts
 
Cost of product sales
 
$
(4,492
)
Commodity contracts
 
(Loss) income from discontinued
operations
 
(218
)
Total
 
 
 
$
(4,710
)

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 September 30, 2014, we expect to reclassify a loss of $10.0 million to “Interest expense, net” within the next twelve months.


13

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
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2013
 
2014
 
2013
 
(Thousands of Dollars)
Revenues
$

 
$
1,491

 
$
929

 
$
13,308

Operating expenses
$
31,394

 
$
30,076

 
$
91,025

 
$
93,440

General and administrative expenses
$
17,400

 
$
10,495

 
$
48,942

 
$
41,807

Interest income
$

 
$
1,828

 
$
1,055

 
$
4,560

Revenues included in discontinued operations, net of tax
$
36

 
$
885

 
$
528

 
$
2,875

Expenses included in discontinued operations, net of tax
$
184

 
$
1,441

 
$
1,596

 
$
4,403


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 $14.1 million and $8.3 million as of September 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 September 30, 2014 and December 31, 2013 of $30.5 million and $41.1 million, respectively, related to amounts payable for retiree medical benefits and other post-employment benefits.

Axeon
As a result of the Asphalt JV Sale, we ceased reporting transactions between us and Axeon 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 Axeon Term Loan. The Axeon 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 Axeon Term Loan does not provide for any other scheduled payments, Axeon is required to use all of its excess cash, as defined in the Axeon Term Loan, to repay the Axeon Term Loan. The Axeon Term Loan must be repaid in full on September 28, 2019. All repayments of the Axeon Term Loan, including those scheduled in 2014 and 2015, are subject to Axeon meeting certain restrictive requirements contained in its third-party credit facility. The carrying value of the Axeon Term Loan is included in “Other long-term assets, net” on the consolidated balance sheet as of September 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 September 30, 2014, we provided guarantees for commodity purchases, lease obligations and certain utilities for Axeon with an aggregate maximum potential exposure of $73.3 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 September 30, 2014, we have also provided $61.9 million in letters of credit on behalf of Axeon. 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 Axeon Term Loan.

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

Services Agreement between Axeon and NuStar GP, LLC. NuStar GP, LLC and Axeon were a party to a services agreement, which provided that NuStar GP, LLC furnish certain administrative and other operating services necessary to conduct the

14

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


business of Axeon for an annual fee totaling $10.0 million, subject to adjustment (the Axeon Services Agreement). The Axeon 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 September 30, 2014
 
Three Months Ended September 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
$
1,808,370

 
$
989

 
$
1,809,359

 
$
2,429,132

 
$
11,134

 
$
2,440,266

Net income (loss)
62,121

 
(173
)
 
61,948

 
33,397

 
(161
)
 
33,236

Other comprehensive
income (loss):
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation
adjustment
(6,420
)
 
14

 
(6,406
)
 
4,469

 
(568
)
 
3,901

Net loss on cash flow
hedges reclassified
into interest expense, net
2,625

 

 
2,625

 
1,653

 

 
1,653

Total other comprehensive
income (loss)
(3,795
)
 
14

 
(3,781
)
 
6,122

 
(568
)
 
5,554

Cash distributions to
partners
(98,051
)
 

 
(98,051
)
 
(98,051
)
 

 
(98,051
)
Other

 
(830
)
 
(830
)
 
(26
)
 

 
(26
)
Ending balance
$
1,768,645

 
$

 
$
1,768,645

 
$
2,370,574

 
$
10,405

 
$
2,380,979


 
Nine Months Ended September 30, 2014
 
Nine Months Ended September 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)
157,379

 
(395
)
 
156,984

 
91,048

 
(439
)
 
90,609

Other comprehensive
income (loss):
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation
adjustment
(4,802
)
 
(433
)
 
(5,235
)
 
(10,628
)
 
(1,767
)
 
(12,395
)
Net unrealized gain on
cash flow hedges

 

 

 
7,213

 

 
7,213

Net loss on cash flow
hedges reclassified
into interest expense, net
8,062

 

 
8,062

 
4,615

 

 
4,615

Total other comprehensive
income (loss)
3,260

 
(433
)
 
2,827

 
1,200

 
(1,767
)
 
(567
)
Cash distributions to
partners
(294,153
)
 

 
(294,153
)
 
(294,153
)
 

 
(294,153
)
Other
23

 
(830
)
 
(807
)
 
95

 

 
95

Ending balance
$
1,768,645

 
$

 
$
1,768,645

 
$
2,370,574

 
$
10,405

 
$
2,380,979



15

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


Accumulated Other Comprehensive Loss
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
(4,802
)
 
8,062

 
3,260

Balance as of September 30, 2014
$
(18,460
)
 
$
(41,674
)
 
$
(60,134
)

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
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2013
 
2014
 
2013
 
(Thousands of Dollars)
Net income attributable to NuStar Energy L.P.
$
62,121

 
$
33,397

 
$
157,379

 
$
91,048

Less general partner incentive distribution
10,805

 
10,805

 
32,415

 
32,415

Net income after general partner incentive distribution
51,316

 
22,592

 
124,964

 
58,633

General partner interest
2
%
 
2
%
 
2
%
 
2
%
General partner allocation of net income after general
partner incentive distribution
1,025

 
452

 
2,498

 
1,174

General partner incentive distribution
10,805

 
10,805

 
32,415

 
32,415

Net income applicable to general partner
$
11,830

 
$
11,257

 
$
34,913

 
$
33,589


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
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2013
 
2014
 
2013
 
(Thousands of Dollars, Except Per Unit Data)
General partner interest
$
1,961

 
$
1,961

 
$
5,883

 
$
5,883

General partner incentive distribution
10,805

 
10,805

 
32,415

 
32,415

Total general partner distribution
12,766

 
12,766

 
38,298

 
38,298

Limited partners’ distribution
85,285

 
85,285

 
255,855

 
255,855

Total cash distributions
$
98,051

 
$
98,051

 
$
294,153

 
$
294,153

 
 
 
 
 
 
 
 
Cash distributions per unit applicable to limited partners
$
1.095

 
$
1.095

 
$
3.285

 
$
3.285



16

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
 
Record Date
 
Payment Date
 
 
 
 
(Thousands of Dollars)
 
 
 
 
September 30, 2014 (a)
 
$
1.095

 
$
98,051

 
November 10, 2014
 
November 14, 2014
June 30, 2014
 
$
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 October 31, 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
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2013
 
2014
 
2013
 
(Thousands of Dollars, Except Unit and Per Unit Data)
Net income attributable to NuStar Energy L.P.
$
62,121

 
$
33,397

 
$
157,379

 
$
91,048

Less general partner distribution (including IDR)
12,766

 
12,766

 
38,298

 
38,298

Less limited partner distribution
85,285

 
85,285

 
255,855

 
255,855

Distributions in excess of earnings
$
(35,930
)
 
$
(64,654
)
 
$
(136,774
)
 
$
(203,105
)
 
 
 
 
 
 
 
 
General partner earnings:
 
 
 
 
 
 
 
Distributions
$
12,766

 
$
12,766

 
$
38,298

 
$
38,298

Allocation of distributions in excess of earnings (2%)
(719
)
 
(1,293
)
 
(2,736
)
 
(4,061
)
Total
$
12,047

 
$
11,473

 
$
35,562

 
$
34,237

 
 
 
 
 
 
 
 
Limited partner earnings:
 
 
 
 
 
 
 
Distributions
$
85,285

 
$
85,285

 
$
255,855

 
$
255,855

Allocation of distributions in excess of earnings (98%)
(35,211
)
 
(63,361
)
 
(134,038
)
 
(199,044
)
Total
$
50,074

 
$
21,924

 
$
121,817

 
$
56,811

 
 
 
 
 
 
 
 
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
$
0.64

 
$
0.28

 
$
1.56

 
$
0.73


17

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:
 
Nine Months Ended
September 30,
 
2014
 
2013
 
(Thousands of Dollars)
Decrease (increase) in current assets:
 
 
 
Accounts receivable
$
60,010

 
$
145,803

Receivable from related parties
51,037

 
83,265

Inventories
19,865

 
47,145

Income tax receivable
(2,939
)
 
1,204

Other current assets
1,637

 
24,026

Increase (decrease) in current liabilities:
 
 
 
Accounts payable
(134,932
)
 
(176,161
)
Payable to related party
5,841

 
18,180

Accrued interest payable
(5,611
)
 
2,643

Accrued liabilities
807

 
(33,618
)
Taxes other than income tax
5,319

 
3,144

Income tax payable
46

 
1,207

Changes in current assets and current liabilities
$
1,080

 
$
116,838


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:
 
Nine Months Ended
September 30,
 
2014
 
2013
 
(Thousands of Dollars)
Cash paid for interest, net of amount capitalized
$
103,832

 
$
88,529

Cash paid for income taxes, net of tax refunds received
$
9,826

 
$
8,183


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

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
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2013
 
2014
 
2013
 
(Thousands of Dollars)
Revenues:
 
 
 
 
 
 
 
Pipeline
$
125,461

 
$
111,508

 
$
346,218

 
$
301,761

Storage:
 
 
 
 
 
 
 
Third parties
137,771

 
130,227

 
400,421

 
393,390

Intersegment
6,174

 
6,890

 
20,147

 
24,911

Related party

 
1,491

 
929

 
4,663

Total storage
143,945

 
138,608

 
421,497

 
422,964

Fuels marketing:
 
 
 
 
 
 
 
Third parties
531,190

 
534,919

 
1,645,812

 
1,969,886

Related party

 

 

 
8,645

Total fuels marketing
531,190

 
534,919

 
1,645,812

 
1,978,531

Consolidation and intersegment eliminations
(6,174
)
 
(6,890
)
 
(20,147
)
 
(24,911
)
Total revenues
$
794,422

 
$
778,145

 
$
2,393,380

 
$
2,678,345

 
 
 
 
 
 
 
 
Operating income:
 
 
 
 
 
 
 
Pipeline
$
65,652

 
$
58,018

 
$
178,878

 
$
149,126

Storage
49,401

 
41,051

 
141,415

 
139,419

Fuels marketing
7,518

 
(9,079
)
 
21,897

 
(7,240
)
Consolidation and intersegment eliminations
(25
)
 
123

 
(35
)
 
1,382

Total segment operating income
122,546

 
90,113

 
342,155

 
282,687

General and administrative expenses
24,967

 
18,831

 
68,986

 
65,978

Other depreciation and amortization expense
2,481

 
2,531

 
7,614

 
7,628

Total operating income
$
95,098

 
$
68,751

 
$
265,555

 
$
209,081


Total assets by reportable segment were as follows:
 
September 30,
2014
 
December 31,
2013
 
(Thousands of Dollars)
Pipeline
$
1,898,684

 
$
1,797,698

Storage
2,237,537

 
2,275,183

Fuels marketing
306,636

 
445,882

Total segment assets
4,442,857

 
4,518,763

Other partnership assets
434,510

 
513,423

Total consolidated assets
$
4,877,367

 
$
5,032,186

 

19

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

 
$
7

 
$

 
$
24,766

 
$

 
$
25,686

Receivables, net

 
44,063

 
14,384

 
162,439

 

 
220,886

Inventories

 
2,187

 
8,765

 
107,029

 
(44
)
 
117,937

Income tax receivable

 

 

 
3,661

 

 
3,661

Other current assets

 
13,537

 
3,349

 
20,637

 

 
37,523

Assets held for sale

 

 

 
2,256

 

 
2,256

Intercompany receivable

 
1,296,459

 

 

 
(1,296,459
)
 

Total current assets
913

 
1,356,253

 
26,498

 
320,788

 
(1,296,503
)
 
407,949

Property, plant and equipment, net

 
1,743,433

 
558,646

 
1,089,351

 

 
3,391,430

Intangible assets, net

 
57,511

 

 
4,304

 

 
61,815

Goodwill

 
149,453

 
170,652

 
297,324

 

 
617,429

Investment in wholly owned
subsidiaries
2,333,931

 
175,150

 
907,661

 
925,563

 
(4,342,305
)
 

Investment in joint venture

 

 

 
72,872

 

 
72,872

Deferred income tax asset

 

 

 
4,902

 

 
4,902

Other long-term assets, net
673

 
287,358

 
26,329

 
6,610