INVESTMENT IN NUSTAR ENERGY

NuStar Energy’s Equity Offerings

On September 10, 2012, NuStar Energy issued 7,130,000 common units representing limited partner interests at a price of $48.94 per unit. NuStar Energy received proceeds of $336.8 million, net of issuance costs. In conjunction with NuStar Energy’s issuance of common units, we contributed $7.1 million to NuStar Energy in order to maintain our 2% general partner interest and our ownership in NuStar Energy was reduced from 16.3% at December 31, 2011 to 15.0% at December 31, 2012. This issuance resulted in a gain of $10.7 million for the year ended December 31, 2012, which is included in “Other income, net” on our consolidated statements of comprehensive income (loss), and represents the increase in the value of our proportionate share of NuStar Energy’s capital.

On December 9, 2011, NuStar Energy issued 6,037,500 common units representing limited partner interests at a price of $53.45 per unit. NuStar Energy received proceeds of $311.4 million, net of issuance costs. In September and October 2011, NuStar Energy issued 108,029 common units for proceeds of $5.9 million, net of issuance costs. In conjunction with NuStar Energy’s issuances of common units in 2011, we contributed $6.7 million to NuStar Energy in order to maintain our 2% general partner interest. Additionally, these issuances resulted in a gain of $8.1 million for the year ended December 31, 2011, which is included in “Other income, net” on our consolidated statements of comprehensive income and represents the increase in the value of our proportionate share of NuStar Energy’s capital. Following these issuances, our ownership in NuStar Energy was reduced from 17.6% at December 31, 2010 to 16.3% at December 31, 2011.

NuStar Energy’s Acquisitions and Dispositions

On January 1, 2013, NuStar Energy sold its fuels refinery in San Antonio, Texas (the San Antonio Refinery) and related assets, which included inventory, a terminal in Elmendorf, Texas and a pipeline connecting the terminal and refinery for approximately $117.0 million (the San Antonio Refinery Sale). NuStar Energy presented the results of operations for the San Antonio Refinery and related assets as discontinued operations for all periods presented.

On December 13, 2012, NuStar Energy completed its acquisition of the TexStar Crude Oil Assets (as defined below), including 100% of the partnership interest in TexStar Crude Oil Pipeline, LP, from TexStar Midstream Services, LP and certain of its affiliates (collectively, TexStar) for $325.4 million (the TexStar Asset Acquisition). The TexStar Crude Oil Assets consist of approximately 140 miles of crude oil pipelines and gathering lines, as well as five terminals and storage facilities providing 0.6 million barrels of storage capacity.

On September 28, 2012, NuStar Energy sold a 50% ownership interest (the Asphalt Sale) in NuStar Asphalt LLC (Asphalt JV), previously a wholly owned subsidiary of NuStar Energy. Asphalt JV owns and operates the asphalt refining assets that were previously wholly owned by NuStar Energy (collectively, the Asphalt Operations). Upon closing, NuStar Energy deconsolidated Asphalt JV and started reporting its remaining investment in Asphalt JV using the equity method of accounting.

Summary Financial Information

Condensed consolidated financial information reported by NuStar Energy is presented below:



	December 31,
	2013		2012
	(Thousands of Dollars)
Balance Sheet Information:
Current assets	$	633,549	$	939,443
Property, plant and equipment, net	3,310,653		3,238,460
Goodwill	617,429		951,024
Other non-current assets	470,555		484,162
Total assets	$	5,032,186	$	5,613,089
Current liabilities	$	392,572	$	845,971
Long-term debt, less current portion	2,655,553		2,124,582
Other non-current liabilities	80,267		57,541
Total liabilities	3,128,392		3,028,094
NuStar Energy partners’ equity	1,902,136		2,572,384
Noncontrolling interest	1,658		12,611
Total liabilities and partners’ equity	$	5,032,186	$	5,613,089



	Year Ended December 31,
	2013			2012			2011
	(Thousands of Dollars)
Statement of Income (Loss) Information:
Revenues	$	3,463,732		$	5,945,736		$	6,257,629
Operating (loss) income	$	(19,121	)	$	(18,168	)	$	310,883

(Loss) income from continuing operations	$	(185,509	)	$	(166,001	)	$	218,674
(Loss) income from discontinued operations, net of tax	(99,162		)	(61,236		)	2,927
Net (loss) income	$	(284,671	)	$	(227,237	)	$	221,601

Other

Our investment in NuStar Energy reconciles to NuStar Energy’s total partners’ equity as follows:



	December 31,
	2013			2012
	(Thousands of Dollars)
NuStar Energy’s partners’ equity	$	1,902,136		$	2,572,384
NuStar GP Holdings’ ownership interest in NuStar Energy	14.9		%	15.0		%
NuStar GP Holdings’ share of NuStar Energy’s partners’ equity	283,418			385,858
Step-up in basis related to NuStar Energy’s assets and liabilities, including equity method goodwill, and other	74,038			79,123
Investment in NuStar Energy	$	357,456		$	464,981

Valero Energy Corporation (Valero Energy) acquired us in connection with its December 31, 2001 acquisition of Ultramar Diamond Shamrock Corporation (2001 Acquisition). The step-up in basis related to NuStar Energy’s assets and liabilities, including equity method goodwill, reflected in the table above relates to purchase accounting adjustments resulting from the 2001 Acquisition. The amount represents the unamortized excess of the fair value over carrying amount applicable to Valero Energy’s proportionate 73.6% interest in NuStar Energy’s identifiable assets and liabilities as of December 31, 2001, of which $81.8 million is being amortized as a reduction to equity in earnings of NuStar Energy over approximately 28 years. This amount also includes the portion of goodwill resulting from the 2001 Acquisition that was attributed to our investment in NuStar Energy. Since 26.4% of the equity interest in NuStar Energy was owned by public unitholders as of the date of the 2001 Acquisition, a significant portion of the total ownership interest in NuStar Energy was deemed to be held by the public according to GAAP, thereby preventing the adjustment of the reported financial statements of NuStar Energy.

The following table summarizes our equity in (loss) earnings of NuStar Energy:



	Year Ended December 31,
	2013			2012			2011
	(Thousands of Dollars)
NuStar GP Holdings’ Equity in (Loss) Earnings of NuStar Energy:
General partner interest	$	(6,338	)	$	(5,356	)	$	3,703
General partner incentive distribution (a)	43,220			41,242			36,319
General partner’s interest in earnings and incentive distributions of NuStar Energy	36,882			35,886			40,022
Limited partner interest in (loss) earnings of NuStar Energy	(40,739		)	(37,580		)	28,645
Amortization of step-up in basis related to NuStar Energy’s assets and liabilities	(2,884		)	(2,884		)	(2,884		)
Equity in (loss) earnings of NuStar Energy	$	(6,741	)	$	(4,578	)	$	65,783


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