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EX-12.01 - EXHIBIT 12.01 - NuStar Energy L.P.ns2q1510-qex1201.htm
EX-31.01 - EXHIBIT 31.01 - NuStar Energy L.P.ns2q1510-qex3101.htm
EX-32.02 - EXHIBIT 32.02 - NuStar Energy L.P.ns2q1510-qex3202.htm
EX-10.01 - EXHIBIT 10.01 - NuStar Energy L.P.ns2q1510-qex1001.htm
EX-31.02 - EXHIBIT 31.02 - NuStar Energy L.P.ns2q1510-qex3102.htm
EX-10.02 - EXHIBIT 10.02 - NuStar Energy L.P.ns2q1510-qex1002.htm
EX-32.01 - EXHIBIT 32.01 - NuStar Energy L.P.ns2q1510-qex3201.htm

 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 _________________________________________
 FORM 10-Q
 _________________________________________
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2015
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______            
Commission File Number 1-16417
  _________________________________________
NUSTAR ENERGY L.P.
(Exact name of registrant as specified in its charter)
  _________________________________________
 
Delaware
 
74-2956831
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
19003 IH-10 West
San Antonio, Texas
 
78257
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code (210) 918-2000
 _________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule12b-2 of the Exchange Act:
Large accelerated filer
 
x
Accelerated filer
 
o
 
 
 
 
 
 
Non-accelerated filer
 
o  (Do not check if a smaller reporting company)
Smaller reporting company
 
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o   No  x
The number of common units outstanding as of July 31, 2015 was 77,886,078.
 
 
 
 
 



NUSTAR ENERGY L.P.
FORM 10-Q
TABLE OF CONTENTS
 

2


PART I – FINANCIAL INFORMATION

Item 1.
Financial Statements
NUSTAR ENERGY L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars, Except Unit Data)
 
June 30,
2015
 
December 31,
2014
 
(Unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
111,637

 
$
87,912

Accounts receivable, net of allowance for doubtful accounts of $7,786
and $7,808 as of June 30, 2015 and December 31, 2014, respectively
164,403

 
208,314

Receivable from related parties

 
164

Inventories
65,346

 
55,713

Other current assets
34,193

 
35,944

Assets held for sale

 
1,100

Total current assets
375,579

 
389,147

Property, plant and equipment, at cost
5,084,661

 
4,815,396

Accumulated depreciation and amortization
(1,443,583
)
 
(1,354,664
)
Property, plant and equipment, net
3,641,078

 
3,460,732

Intangible assets, net
118,931

 
58,670

Goodwill
704,404

 
617,429

Investment in joint venture

 
74,223

Deferred income tax asset
3,460

 
4,429

Other long-term assets, net
329,603

 
314,166

Total assets
$
5,173,055

 
$
4,918,796

Liabilities and Partners’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
107,414

 
$
162,056

Payable to related party
20,864

 
15,128

Short-term debt
46,000

 
77,000

Accrued interest payable
33,682

 
33,345

Accrued liabilities
48,281

 
61,025

Taxes other than income tax
13,857

 
14,121

Income tax payable
1,355

 
2,517

Total current liabilities
271,453

 
365,192

Long-term debt
3,074,616

 
2,749,452

Long-term payable to related party
36,894

 
33,537

Deferred income tax liability
25,791

 
27,308

Other long-term liabilities
51,228

 
27,097

Commitments and contingencies (Note 5)

 

Partners’ equity:
 
 
 
Limited partners (77,886,078 common units outstanding
as of June 30, 2015 and December 31, 2014)
1,731,641

 
1,744,810

General partner
38,603

 
39,312

Accumulated other comprehensive loss
(57,171
)
 
(67,912
)
Total partners’ equity
1,713,073

 
1,716,210

Total liabilities and partners’ equity
$
5,173,055

 
$
4,918,796

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 June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Revenues:
 
 
 
 
 
 
 
Service revenues
$
274,581

 
$
259,562

 
$
544,554

 
$
488,900

Product sales
296,030

 
490,183

 
581,001

 
1,110,058

Total revenues
570,611

 
749,745

 
1,125,555

 
1,598,958

Costs and expenses:
 
 
 
 
 
 
 
Cost of product sales
281,610

 
473,755

 
544,116

 
1,068,714

Operating expenses:
 
 
 
 
 
 
 
Third parties
82,568

 
84,565

 
166,928

 
161,971

Related party
34,570

 
30,972

 
65,857

 
59,631

Total operating expenses
117,138

 
115,537

 
232,785

 
221,602

General and administrative expenses:
 
 
 
 
 
 
 
Third parties
8,986

 
5,715

 
16,653

 
12,477

Related party
17,707

 
17,448

 
35,093

 
31,542

Total general and administrative expenses
26,693

 
23,163

 
51,746

 
44,019

Depreciation and amortization expense
52,765

 
47,936

 
105,222

 
94,166

Total costs and expenses
478,206

 
660,391

 
933,869

 
1,428,501

Operating income
92,405

 
89,354

 
191,686

 
170,457

Equity in earnings (loss) of joint ventures

 
3,294

 

 
(1,012
)
Interest expense, net
(32,824
)
 
(33,122
)
 
(64,861
)
 
(67,539
)
Interest income from related party

 

 

 
1,055

Other (expense) income, net
(2,152
)
 
(474
)
 
60,116

 
3,204

Income from continuing operations before income tax
    expense
57,429

 
59,052

 
186,941

 
106,165

Income tax expense
3,104

 
1,865

 
5,491

 
5,982

Income from continuing operations
54,325

 
57,187

 
181,450

 
100,183

(Loss) income from discontinued operations, net of tax

 
(1,788
)
 
774

 
(5,147
)
Net income
54,325

 
55,399

 
182,224

 
95,036

Less net loss attributable to noncontrolling interest

 
(115
)
 

 
(222
)
Net income attributable to NuStar Energy L.P.
$
54,325

 
$
55,514

 
$
182,224

 
$
95,258

Net income (loss) per unit applicable to limited partners:
 
 
 
 
 
 
 
Continuing operations
$
0.54

 
$
0.58

 
$
2.00

 
$
0.98

Discontinued operations

 
(0.02
)
 
0.01

 
(0.06
)
Total (Note 10)
$
0.54

 
$
0.56

 
$
2.01

 
$
0.92

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

 
77,886,078

 
77,886,078

 
77,886,078

 
 
 
 
 
 
 
 
Comprehensive income
$
85,167

 
$
63,926

 
$
192,965

 
$
101,644

Less comprehensive loss attributable to
     noncontrolling interest

 
(117
)
 

 
(669
)
Comprehensive income attributable to
    NuStar Energy L.P.
$
85,167

 
$
64,043

 
$
192,965

 
$
102,313

See Condensed Notes to Consolidated Financial Statements.

4


NUSTAR ENERGY L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, Thousands of Dollars)
 
Six Months Ended June 30,
 
2015
 
2014
Cash Flows from Operating Activities:
 
 
 
Net income
$
182,224

 
$
95,036

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization expense
105,222

 
94,166

Amortization of debt related items
4,485

 
4,745

Gain from sale or disposition of assets
(165
)
 
(88
)
Gain associated with the Linden Acquisition
(56,277
)
 

Asset impairment loss

 
2,067

Deferred income tax expense
368

 
2,131

Equity in loss of joint ventures

 
1,012

Distributions of equity in earnings of joint ventures
2,500

 
3,094

Changes in current assets and current liabilities (Note 11)
(8,502
)
 
(12,490
)
Other, net
7,332

 
10,709

Net cash provided by operating activities
237,187

 
200,382

Cash Flows from Investing Activities:
 
 
 
Capital expenditures
(153,621
)
 
(118,872
)
Change in accounts payable related to capital expenditures
(7,954
)
 
(13,815
)
Acquisitions
(142,500
)
 

Investment in other long-term assets
(3,444
)
 

Proceeds from sale or disposition of assets
1,307

 
14,441

Increase in note receivable from Axeon

 
(13,328
)
Other, net

 
(23
)
Net cash used in investing activities
(306,212
)
 
(131,597
)
Cash Flows from Financing Activities:
 
 
 
Proceeds from long-term debt borrowings
609,735

 
405,317

Proceeds from short-term debt borrowings
432,000

 
34,400

Long-term debt repayments
(270,292
)
 
(332,033
)
Short-term debt repayments
(463,000
)
 
(34,400
)
Distributions to unitholders and general partner
(196,102
)
 
(196,102
)
(Decrease) increase in cash book overdrafts
(13,695
)
 
3,371

Other, net
(565
)
 
(373
)
Net cash provided by (used in) financing activities
98,081

 
(119,820
)
Effect of foreign exchange rate changes on cash
(5,331
)
 
(632
)
Net increase (decrease) in cash and cash equivalents
23,725

 
(51,667
)
Cash and cash equivalents as of the beginning of the period
87,912

 
100,743

Cash and cash equivalents as of the end of the period
$
111,637

 
$
49,076

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 a publicly held Delaware limited partnership engaged in the transportation of petroleum products and anhydrous ammonia, the terminalling and storage of petroleum products and the marketing of petroleum products. Unless otherwise indicated, the terms “NuStar Energy,” “the Partnership,” “we,” “our” and “us” are used in this report to refer to NuStar Energy L.P., to one or more of our consolidated subsidiaries or to all of them taken as a whole. NuStar GP Holdings, LLC (NuStar GP Holdings) (NYSE: NSH) owns our general partner, Riverwalk Logistics, L.P., and owns a 14.9% total interest in us as of June 30, 2015.

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 investments in joint ventures using the equity method of accounting.

These unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934. Accordingly, they do not include all of the information and notes required by GAAP for complete consolidated financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included, and all disclosures are adequate. All such adjustments are of a normal recurring nature unless disclosed otherwise. Financial information for the three and six months ended June 30, 2015 and 2014 included in these Condensed Notes to Consolidated Financial Statements is derived from our unaudited condensed consolidated financial statements. Operating results for the three and six months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. The consolidated balance sheet as of December 31, 2014 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, 2014.

New Accounting Pronouncements
In July 2015, the Financial Accounting Standards Board (FASB) issued amended guidance that requires inventory be measured at the lower of cost or net realizable value. The changes are effective for annual and interim periods beginning after December 15, 2016, and early adoption is permitted. We do not expect the amended guidance to have a material impact on our financial position, results of operations or disclosures.

In April 2015, the FASB issued amended guidance for the presentation of debt issuance costs. Under the amended guidance, debt issuance costs will be presented on the balance sheet as a deduction from the carrying value of the associated debt liability. The changes are effective for annual and interim periods beginning after December 15, 2015, and retrospective application is required. Early adoption is permitted. We will adopt these provisions January 1, 2016, and we do not expect the amended guidance to have a material impact on our financial position, results of operations or disclosures.

In February 2015, the FASB issued new consolidation guidance that modifies the criterion involved in a reporting organization’s evaluation of whether certain legal entities are subject to consolidation under the standard. The standard is effective for public companies for annual and interim reporting periods beginning after December 15, 2015, using one of two retrospective transition methods. Early adoption is permitted. 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 May 2014, the 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. In July 2015, the FASB voted in favor of deferring the effective date by one year. Early adoption is permitted, but not before the original effective date. 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.


6

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

2. ACQUISITIONS AND DISPOSITIONS

Acquisitions
Linden Acquisition. On January 2, 2015, we acquired full ownership of ST Linden Terminal, LLC (Linden), which owns a refined products terminal in Linden, NJ with 4.3 million barrels of storage capacity (the Linden Acquisition). Linden is located on a 44-acre facility that provides deep-water terminalling capabilities in the New York Harbor and primarily stores petroleum products, including gasoline, jet fuel and fuel oils. Prior to the Linden Acquisition, Linden operated as a joint venture between us and Linden Holding Corp, with each party owning 50 percent.

In connection with the Linden Acquisition, we ceased applying the equity method of accounting and consolidated Linden, which is included in our storage segment. The condensed consolidated statements of comprehensive income include the results of operations for Linden commencing on January 2, 2015. On the acquisition date, we remeasured our existing 50% equity investment in Linden to its fair value of $128.0 million and we recognized a gain of $56.3 million in “Other (expense) income, net” in the condensed consolidated statements of comprehensive income for the six months ended June 30, 2015. We estimated the fair value using a market approach, which estimates the enterprise value based on an earnings multiple. We funded the acquisition with borrowings under our revolving credit agreement. The acquisition complements our existing storage operations, and having sole ownership of Linden strengthens our presence in the New York Harbor and the East Coast market.

We accounted for the Linden Acquisition using the acquisition method. 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 the acquisition pending completion of an independent evaluation. The preliminary purchase price allocation was as follows (in thousands of dollars):
Cash paid for the Linden Acquisition
$
142,500

Fair value of liabilities assumed
22,865

Consideration
165,365

Acquisition date fair value of previously held equity interest
128,000

Total
$
293,365

 
 
Current assets
$
1,746

Property, plant and equipment
134,484

Goodwill
86,975

Intangible assets (a)
70,050

Other long-term assets
110

Purchase price allocation
$
293,365

(a) Intangible assets primarily consist of customer contracts and relationships and are being amortized over 10 years.

Dispositions
Discontinued Operations. In January 2015, we sold our terminal in Alamogordo, NM with storage capacity of 0.1 million barrels for proceeds of $1.1 million. We classified the associated property, plant and equipment as “Assets held for sale” on the consolidated balance sheet as of December 31, 2014. In 2014, we divested our terminals in Mobile, AL, Wilmington, NC and Dumfries, VA and our 75% interest in our facility in Mersin, Turkey. We presented the results of operations for those facilities as discontinued operations. We allocated interest expense of $0.3 million and $0.7 million for the three and six months ended June 30, 2014, respectively, to discontinued operations based on the ratio of net assets discontinued to consolidated net assets.


7

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

The following table summarizes the results from discontinued operations:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015 (a)
 
2014
 
2015 (a)
 
2014
 
(Thousands of Dollars)
Revenues
$

 
$
1,359

 
$
208

 
$
3,180

(Loss) income before income tax expense
$

 
$
(1,788
)
 
$
774

 
$
(5,147
)
(a) Discontinued operations include the results of operations of certain storage assets that were divested in 2014 and the first quarter of 2015.

2014 Asphalt Sale. 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 2014 Asphalt 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 2014 Asphalt Sale, we ceased applying the equity method of accounting.

3. INVENTORIES

Inventories consisted of the following:
 
June 30,
2015

December 31,
2014
 
(Thousands of Dollars)
Crude oil
$
7,700

 
$
3,527

Finished products
48,579

 
43,206

Materials and supplies
9,067

 
8,980

Total
$
65,346

 
$
55,713


4. DEBT

Revolving Credit Agreement
During the six months ended June 30, 2015, the balance under our $1.5 billion five-year revolving credit agreement (the Revolving Credit Agreement) increased by $238.6 million, which we used for general partnership purposes and to fund the Linden Acquisition. The Revolving Credit Agreement bears interest, at our option, based on an alternative base rate, a LIBOR-based rate or a EURIBOR-based rate. The interest rate on the Revolving Credit Agreement is subject to adjustment if our debt rating is downgraded (or upgraded) by certain credit rating agencies. As of June 30, 2015, our weighted-average interest rate was 1.9% and we had $840.1 million outstanding.

The Revolving Credit Agreement contains customary restrictive covenants, such as limitations on indebtedness, liens, mergers, asset transfers and certain investing activities. In addition, the Revolving Credit Agreement requires us to maintain, as of the end of each rolling period of four consecutive fiscal quarters, a consolidated debt coverage ratio (consolidated debt to consolidated EBITDA, each as defined in the Revolving Credit Agreement) not to exceed 5.00-to-1.00. However, if we consummate one or more acquisitions for an aggregate net consideration of at least $50.0 million, the maximum consolidated debt coverage ratio will increase to 5.50-to-1.00 for two rolling periods. As of June 30, 2015, our consolidated debt coverage ratio could not exceed 5.50-to-1.00, as a result of the Linden Acquisition in January 2015. The requirement not to exceed a maximum consolidated debt coverage ratio may limit the amount we can borrow under the Revolving Credit Agreement to an amount less than the total amount available for borrowing. As of June 30, 2015, our consolidated debt coverage ratio was 4.3x, and we had $566.7 million available for borrowing.

Gulf Opportunity Zone Revenue Bonds
In 2008, 2010 and 2011, the Parish of St. James, Louisiana issued, pursuant to the Gulf Opportunity Zone Act of 2005, tax-exempt revenue bonds (the GoZone Bonds) associated with our St. James, Louisiana terminal expansions. The GoZone Bonds bear interest based on a weekly tax-exempt bond market interest rate, and interest is paid monthly. The weighted-average interest rate was 0.1% as of June 30, 2015. 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 expansion. 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

8

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

the consolidated balance sheets. For the six months ended June 30, 2015, we received $7.7 million from the trustee. As of June 30, 2015, the amount remaining in trust totaled $63.9 million.

Receivables Financing Agreement
On June 15, 2015, NuStar Energy L.P. and NuStar Finance LLC (NuStar Finance), a newly formed special purpose entity and wholly owned subsidiary of NuStar Logistics, entered into a $125.0 million receivables financing agreement with third-party lenders (the Receivables Financing Agreement) and agreements with certain of NuStar Energy’s wholly owned subsidiaries (collectively with the Receivables Financing Agreement, the Securitization Program). Under the Securitization Program, certain of NuStar Energy’s wholly owned subsidiaries, NuStar Logistics, NuPOP, NuStar Energy Services, Inc. and NuStar Supply & Trading LLC (collectively, the Originators), sell their accounts receivable to NuStar Finance on an ongoing basis, and NuStar Finance provides the newly acquired accounts receivable as collateral for its revolving borrowings under the Receivables Financing Agreement. The maximum amount available for borrowing by NuStar Finance under the Receivables Financing Agreement is $125.0 million, with an option for NuStar Finance to request an increase of up to $75.0 million from the lenders (for aggregate total borrowings not to exceed $200.0 million). The amount available for borrowing is based on the availability of eligible receivables and other customary factors and conditions. The Securitization Program contains various customary affirmative and negative covenants and default, indemnification and termination provisions, and the Receivables Financing Agreement provides for acceleration of amounts owed upon the occurrence of certain specified events.

Borrowings by NuStar Finance under the Receivables Financing Agreement bear interest at either the applicable commercial paper rate or the applicable bank rate, each as defined under the Receivables Financing Agreement. The Securitization Program has an initial termination date of June 15, 2018, with the option to renew for additional 364-day periods thereafter. As of June 30, 2015, $123.2 million of our accounts receivable are included in the Securitization Program. The amount of borrowings outstanding under the Receivables Financing Agreement totaled $88.9 million as of June 30, 2015, which is included in “Long-term debt” on the consolidated balance sheet.

NuStar Finance’s sole business consists of purchasing such receivables and providing them as collateral under the Securitization Program. NuStar Finance is a separate legal entity and the assets of NuStar Finance, including these accounts receivable, are not available to satisfy the claims of creditors of NuStar Energy, the Originators or their affiliates.

5. COMMITMENTS AND CONTINGENCIES

Contingencies
We have contingent liabilities resulting from various litigation, claims and commitments. We record accruals for loss contingencies when losses are considered probable and can be reasonably estimated. Legal fees associated with defending the Partnership in legal matters are expensed as incurred. As of June 30, 2015, we have accrued $4.4 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.


9

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

Recurring Fair Value Measurements
The following assets and liabilities are measured at fair value on a recurring basis:
 
June 30, 2015
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(Thousands of Dollars)
Assets:
 
 
 
 
 
 
 
Other current assets:
 
 
 
 
 
 
 
Product imbalances
$
157

 
$

 
$

 
$
157

Commodity derivatives
446

 
2,473

 

 
2,919

Other long-term assets, net:
 
 
 
 
 
 
 
Interest rate swaps

 
18,753

 

 
18,753

Total
$
603

 
$
21,226

 
$

 
$
21,829

Liabilities:
 
 
 
 
 
 
 
Accrued liabilities:
 
 
 
 
 
 
 
Product imbalances
$
(1,132
)
 
$

 
$

 
$
(1,132
)
Commodity derivatives

 
(1,915
)
 

 
(1,915
)
Other long-term liabilities:
 
 
 
 
 
 
 
Guarantee liability

 

 
(896
)
 
(896
)
Total
$
(1,132
)
 
$
(1,915
)
 
$
(896
)
 
$
(3,943
)

 
December 31, 2014
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(Thousands of Dollars)
Assets:
 
 
 
 
 
 
 
Other current assets:
 
 
 
 
 
 
 
Product imbalances
$
117

 
$

 
$

 
$
117

Commodity derivatives
11,009

 
5,353

 

 
16,362

Total
$
11,126

 
$
5,353

 
$

 
$
16,479

Liabilities:
 
 
 
 
 
 
 
Accrued liabilities:
 
 
 
 
 
 
 
Product imbalances
$
(1,388
)
 
$

 
$

 
$
(1,388
)
Commodity derivatives

 
(4,623
)
 

 
(4,623
)
Other long-term liabilities:
 
 
 
 
 
 
 
Guarantee liability

 

 
(580
)
 
(580
)
Total
$
(1,388
)
 
$
(4,623
)
 
$
(580
)
 
$
(6,591
)

Product Imbalances. We value our assets and liabilities related to product imbalances using quoted market prices in active markets as of the reporting date. Therefore, we include these product imbalances in Level 1 of the fair value hierarchy.

Interest Rate Swaps. We estimate the fair value of our forward-starting interest rate swaps using discounted cash flows, which use observable inputs such as time to maturity and market interest rates. Therefore, we include these interest rate swaps in Level 2 of the fair value hierarchy.

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 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.


10

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

Guarantees. We provide credit support, such as guarantees, letters of credit and cash collateral, as applicable, of up to $150.0 million to Axeon. As of June 30, 2015 and December 31, 2014, we provided guarantees mainly for commodity purchases, lease obligations and certain utilities for Axeon with an aggregate maximum potential exposure of $39.0 million and $25.3 million, respectively, and two guarantees that do not specify a maximum amount. A majority of these guarantees have no expiration date. We estimated the fair value of guarantees we have issued on behalf of Axeon 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 based on the guarantees outstanding as of June 30, 2015 and December 31, 2014. 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.

The following table summarizes the activity in our Level 3 liabilities:
 
Six Months Ended June 30, 2015
 
(Thousands of Dollars)
Beginning balance
$
580

Adjustments to guarantee liability
316

Ending balance
$
896


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 the $190.0 million term loan to Axeon (the Axeon Term Loan) and long-term debt, approximate their carrying amounts. The estimated fair value and carrying amounts of the long-term debt and the Axeon Term Loan were as follows:
 
June 30, 2015
 
December 31, 2014
 
Fair Value
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
(Thousands of Dollars)
Long-term debt
$
3,125,944

 
$
3,074,616

 
$
2,764,242

 
$
2,749,452

Axeon Term Loan
$
166,768

 
$
169,551

 
$
164,386

 
$
169,235


We estimated the fair value of our publicly-traded senior notes based upon quoted prices in active markets; therefore, we determined that the fair value of our publicly-traded senior notes falls in Level 1 of the fair value hierarchy. For our other debt, for which a quoted market price is not available, we estimated the fair value using a discounted cash flow analysis using current incremental borrowing rates for similar types of borrowing arrangements and determined that the fair value falls in Level 2 of the fair value hierarchy.
We estimated the fair value of the Axeon Term Loan 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.
As of June 30, 2015, the carrying amount of the receivable for the Axeon Term Loan is $169.6 million, consisting of the following: (i) the outstanding principal amount from the Axeon Term Loan of $190.0 million; (ii) plus the fair value of guarantees of $0.9 million as of June 30, 2015; and (iii) less equity losses from our investment in Axeon of $21.3 million incurred prior to the 2014 Asphalt Sale and after the carrying value of our equity investment in Axeon was reduced to zero. The carrying value of the Axeon Term Loan is included in “Other long-term assets, net” on the consolidated balance sheets. We review the financial information of Axeon monthly for possible non-payment indicators.

7. DERIVATIVES AND RISK MANAGEMENT ACTIVITIES

We utilize various derivative instruments to manage our exposure to interest rate risk and commodity price 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.

11

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

Interest Rate Risk
We are a party to certain interest rate swap agreements to manage our exposure to changes in interest rates. During the six months ended June 30, 2015, we entered into forward-starting interest rate swap agreements with an aggregate notional amount of $450.0 million. Under the terms of the swaps, we pay a fixed rate and receive a rate based on three month USD LIBOR. We entered into these 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 qualified, and we designated them, as cash flow hedges of future interest payments associated with forecasted debt issuances in 2018 and 2020. We record the effective portion of mark-to-market adjustments as a component of “Accumulated other comprehensive income” (AOCI), and the amount in AOCI will be recognized in “Interest expense, net” as the forecasted interest payments occur or if the interest payments are probable not to occur. We had no forward-starting interest rate swap agreements as of December 31, 2014.

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 6.2 million barrels and 4.7 million barrels as of June 30, 2015 and December 31, 2014, respectively. As of June 30, 2015, we had $1.3 million of margin deposits related to our derivative instruments and none as of December 31, 2014. The fair values of our derivative instruments included in our consolidated balance sheets were as follows:
 
 
 
Asset Derivatives
 
Liability Derivatives
 
Balance Sheet Location
 
June 30,
2015
 
December 31, 2014
 
June 30,
2015
 
December 31, 2014
 
 
 
(Thousands of Dollars)
Derivatives Designated as
Hedging Instruments:
 
 
 
 
 
 
 
 
 
Commodity contracts
Other current assets
 
$
741

 
$
5,609

 
$
(158
)
 
$

Interest rate swaps - cash flow hedges
Other long-term assets, net
 
18,753

 

 

 

Total
 
 
19,494

 
5,609

 
(158
)
 

 
 
 
 
 
 
 
 
 
 
Derivatives Not Designated
as Hedging Instruments:
 
 
 
 
 
 
 
 
 
Commodity contracts
Other current assets
 
12,384

 
38,704

 
(10,048
)
 
(27,951
)
Commodity contracts
Accrued liabilities
 
5,934

 
13,081

 
(7,849
)
 
(17,704
)
Total
 
 
18,318

 
51,785

 
(17,897
)
 
(45,655
)
 
 
 
 
 
 
 
 
 
 
Total Derivatives
 
 
$
37,812

 
$
57,394

 
$
(18,055
)
 
$
(45,655
)
 
Certain of our derivative instruments are eligible for offset in the consolidated balance sheets and subject to master netting arrangements. Under our master netting arrangements, there is a legally enforceable right to offset amounts, and we intend to settle such amounts on a net basis. The following are the net amounts presented on the consolidated balance sheets:
Commodity Contracts
 
June 30,
2015
 
December 31, 2014
 
 
(Thousands of Dollars)
Net amounts of assets presented in the consolidated balance sheets
 
$
2,919

 
$
16,362

Net amounts of liabilities presented in the consolidated balance sheets
 
$
(1,915
)
 
$
(4,623
)


12

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

The earnings impact of our derivative activity was as follows:
Derivatives Designated as Fair Value Hedging Instruments
 
Income Statement
Location
 
Amount of Gain
(Loss) Recognized
in Income on
Derivative
(Effective Portion)
 
Amount of Gain
(Loss)
Recognized in
Income on
Hedged Item
 
Amount of Gain
(Loss) Recognized
in Income  on
Derivative
(Ineffective Portion)
 
 
 
 
(Thousands of Dollars)
Three months ended June 30, 2015:
 
 
 
 
 
 
 
 
Commodity contracts
 
Cost of product sales
 
$
(6,663
)
 
$
8,407

 
$
1,744

 
 
 
 
 
 
 
 
 
Three months ended June 30, 2014:
 
 
 
 
 
 
 
 
Commodity contracts
 
Cost of product sales
 
$
(254
)
 
$
315

 
$
61

 
 
 
 
 
 
 
 
 
Six months ended June 30, 2015:
 
 
 
 
 
 
 
 
Commodity contracts
 
Cost of product sales
 
$
(4,499
)
 
$
6,731

 
$
2,232

 
 
 
 
 
 
 
 
 
Six months ended June 30, 2014:
 
 
 
 
 
 
 
 
Commodity contracts
 
Cost of product sales
 
$
959

 
$
(1,782
)
 
$
(823
)

Derivatives Designated as Cash Flow Hedging Instruments
 
Amount of Gain
(Loss) Recognized 
in Other Comprehensive Income on Derivative(Effective Portion)
 
Amount of Gain
(Loss) Reclassified
from AOCI
into Interest expense, net
(Effective Portion) (a)
 
 
(Thousands of Dollars)
Three months ended June 30, 2015:
 
 
 
 
Interest rate swaps
 
$
20,788

 
$

Unwound interest rate swaps
 
$

 
$
(2,506
)
 
 
 
 
 
Three months ended June 30, 2014:
 
 
 
 
Unwound interest rate swaps
 
$

 
$
(2,671
)
 
 
 
 
 
Six months ended June 30, 2015:
 
 
 
 
Interest rate swaps
 
$
18,753

 
$

Unwound interest rate swaps
 

 
(5,044
)
 
 
 
 
 
Six months ended June 30, 2014:
 
 
 
 
Unwound interest rate swaps
 
$

 
$
(5,437
)

(a)
As of June 30, 2015, we expect to reclassify a loss of $9.1 million to “Interest expense, net” within the next twelve months associated with unwound forward-starting interest rate swaps.


13

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

Derivatives Not Designated as Hedging Instruments
 
Income Statement Location
 
Amount of Gain (Loss)
Recognized in Income
 
 
 
 
(Thousands of Dollars)
Three months ended June 30, 2015:
 
 
 
 
Commodity contracts
 
Cost of product sales
 
$
(339
)
 
 
 
 
 
Three months ended June 30, 2014:
 
 
 
 
Commodity contracts
 
Cost of product sales
 
$
(4,442
)
 
 
 
 
 
Six months ended June 30, 2015:
 
 
 
 
Commodity contracts
 
Cost of product sales
 
$
(9
)
 
 
 
 
 
Six months ended June 30, 2014:
 
 
 
 
Commodity contracts
 
Cost of product sales
 
$
(4,410
)

8. RELATED PARTY TRANSACTIONS

We had a payable to related party of $20.9 million and $15.1 million as of June 30, 2015 and December 31, 2014, respectively, mainly representing payroll, employee benefit plan expenses and unit-based compensation. We also had a long-term payable to related party as of June 30, 2015 and December 31, 2014 of $36.9 million and $33.5 million, respectively, representing long-term employee benefits.

The following table summarizes information pertaining to related party transactions:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(Thousands of Dollars)
Revenues
$

 
$

 
$

 
$
929

Operating expenses
$
34,570

 
$
30,972

 
$
65,857

 
$
59,631

General and administrative expenses
$
17,707

 
$
17,448

 
$
35,093

 
$
31,542

Interest income
$

 
$

 
$

 
$
1,055

Revenues included in discontinued operations, net of tax
$

 
$
87

 
$

 
$
492

Expenses included in discontinued operations, net of tax
$

 
$
607

 
$
2

 
$
1,412


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.

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

14

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

9. PARTNERS’ EQUITY

Partners Equity Activity
In September 2014, we sold our 75% interest in our facility in Mersin, Turkey. Therefore, we no longer have a noncontrolling interest for the three and six months ending June 30, 2015. The following table summarizes changes in the carrying amount of equity attributable to NuStar Energy L.P. partners and noncontrolling interest:
 
Three Months Ended June 30, 2015
 
Three Months Ended June 30, 2014
 
Total Partners’
Equity
 
NuStar Energy L.P. Partners’ Equity
 
Noncontrolling Interest
 
Total Partners’
Equity
 
(Thousands of Dollars)
Beginning balance
$
1,725,957

 
$
1,842,378

 
$
1,106

 
$
1,843,484

Net income (loss)
54,325

 
55,514

 
(115
)
 
55,399

Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation
adjustment
7,548

 
5,858

 
(2
)
 
5,856

Net unrealized gain on cash flow hedges
20,788

 

 

 

Net loss on cash flow hedges reclassified
into interest expense, net
2,506

 
2,671

 

 
2,671

Total other comprehensive income (loss)
30,842

 
8,529

 
(2
)
 
8,527

Cash distributions to partners
(98,051
)
 
(98,051
)
 

 
(98,051
)
Ending balance
$
1,713,073

 
$
1,808,370

 
$
989

 
$
1,809,359


 
Six Months Ended June 30, 2015
 
Six Months Ended June 30, 2014
 
Total Partners’
Equity
 
NuStar Energy L.P. Partners’ Equity
 
Noncontrolling Interest
 
Total Partners’
Equity
 
(Thousands of Dollars)
Beginning balance
$
1,716,210

 
$
1,902,136

 
$
1,658

 
$
1,903,794

Net income (loss)
182,224

 
95,258

 
(222
)
 
95,036

Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation
    adjustment
(13,056
)
 
1,618

 
(447
)
 
1,171

Net unrealized gain on cash flow hedges
18,753

 

 

 

Net loss on cash flow hedges reclassified
into interest expense, net
5,044

 
5,437

 

 
5,437

Total other comprehensive income (loss)
10,741

 
7,055

 
(447
)
 
6,608

Cash distributions to partners
(196,102
)
 
(196,102
)
 

 
(196,102
)
Other

 
23

 

 
23

Ending balance
$
1,713,073

 
$
1,808,370

 
$
989

 
$
1,809,359


Accumulated Other Comprehensive Loss
The balance of and changes in the components included in AOCI were as follows:
 
Foreign
Currency
Translation
 
Cash Flow Hedges
 
Total
 
(Thousands of Dollars)
Balance as of January 1, 2015
$
(28,839
)
 
$
(39,073
)
 
$
(67,912
)
Activity
(13,056
)
 
23,797

 
10,741

Balance as of June 30, 2015
$
(41,895
)
 
$
(15,276
)
 
$
(57,171
)


15

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

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

The following table details the calculation of net income applicable to the general partner:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(Thousands of Dollars)
Net income attributable to NuStar Energy L.P.
$
54,325

 
$
55,514

 
$
182,224

 
$
95,258

Less general partner incentive distribution
10,805

 
10,805

 
21,610

 
21,610

Net income after general partner incentive distribution
43,520

 
44,709

 
160,614

 
73,648

General partner interest
2
%
 
2
%
 
2
%
 
2
%
General partner allocation of net income after general
    partner incentive distribution
871

 
894

 
3,213

 
1,473

General partner incentive distribution
10,805

 
10,805

 
21,610

 
21,610

Net income applicable to general partner
$
11,676

 
$
11,699

 
$
24,823

 
$
23,083


Cash Distributions
The following table reflects the allocation of total cash distributions to the general and limited partners applicable to the period in which the distributions were earned:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(Thousands of Dollars, Except Per Unit Data)
General partner interest
$
1,961

 
$
1,961

 
$
3,922

 
$
3,922

General partner incentive distribution
10,805

 
10,805

 
21,610

 
21,610

Total general partner distribution
12,766

 
12,766

 
25,532

 
25,532

Limited partners’ distribution
85,285

 
85,285

 
170,570

 
170,570

Total cash distributions
$
98,051

 
$
98,051

 
$
196,102

 
$
196,102

 
 
 
 
 
 
 
 
Cash distributions per unit applicable to limited partners
$
1.095

 
$
1.095

 
$
2.190

 
$
2.190


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)
 
 
 
 
June 30, 2015 (a)
 
$
1.095

 
$
98,051

 
August 7, 2015
 
August 13, 2015
March 31, 2015
 
$
1.095

 
$
98,051

 
May 8, 2015
 
May 14, 2015
December 31, 2014
 
$
1.095

 
$
98,051

 
February 9, 2015
 
February 13, 2015
(a)
The distribution was announced on July 24, 2015.


16

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

The following table details the calculation of earnings per unit:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(Thousands of Dollars, Except Unit and Per Unit Data)
Net income attributable to NuStar Energy L.P.
$
54,325

 
$
55,514

 
$
182,224

 
$
95,258

Less general partner distribution (including incentive
     distribution rights)
12,766

 
12,766

 
25,532

 
25,532

Less limited partner distribution
85,285

 
85,285

 
170,570

 
170,570

Distributions in excess of earnings
$
(43,726
)
 
$
(42,537
)
 
$
(13,878
)
 
$
(100,844
)
 
 
 
 
 
 
 
 
General partner earnings:
 
 
 
 
 
 
 
Distributions
$
12,766

 
$
12,766

 
$
25,532

 
$
25,532

Allocation of distributions in excess of earnings (2%)
(875
)
 
(851
)
 
(278
)
 
(2,017
)
Total
$
11,891

 
$
11,915

 
$
25,254

 
$
23,515

 
 
 
 
 
 
 
 
Limited partner earnings:
 
 
 
 
 
 
 
Distributions
$
85,285

 
$
85,285

 
$
170,570

 
$
170,570

Allocation of distributions in excess of earnings (98%)
(42,851
)
 
(41,686
)
 
(13,600
)
 
(98,827
)
Total
$
42,434

 
$
43,599

 
$
156,970

 
$
71,743

 
 
 
 
 
 
 
 
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
$
0.54

 
$
0.56

 
$
2.01

 
$
0.92



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:
 
Six Months Ended June 30,
 
2015
 
2014
 
(Thousands of Dollars)
Decrease (increase) in current assets:
 
 
 
Accounts receivable
$
45,431

 
$
26,688

Receivable from related parties

 
50,940

Inventories
(9,653
)
 
25,023

Other current assets
1,711

 
(4,331
)
Increase (decrease) in current liabilities:
 
 
 
Accounts payable
(34,851
)
 
(115,727
)
Payable to related party
5,175

 
5,979

Accrued interest payable
337

 
510

Accrued liabilities
(15,058
)
 
(1,468
)
Taxes other than income tax
(500
)
 
1,040

Income tax payable
(1,094
)
 
(1,144
)
Changes in current assets and current liabilities
$
(8,502
)
 
$
(12,490
)

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

Cash flows related to interest and income taxes were as follows:
 
Six Months Ended June 30,
 
2015
 
2014
 
(Thousands of Dollars)
Cash paid for interest, net of amount capitalized
$
65,378

 
$
64,957

Cash paid for income taxes, net of tax refunds received
$
6,335

 
$
8,069


12. SEGMENT INFORMATION

Our reportable business segments consist of pipeline, storage 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 the 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.

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 June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(Thousands of Dollars)
Revenues:
 
 
 
 
 
 
 
Pipeline
$
122,210

 
$
117,798

 
$
246,635

 
$
220,757

Storage:
 
 
 
 
 
 
 
Third parties
150,812

 
138,296

 
294,897

 
262,650

Intersegment
6,830

 
6,690

 
13,079

 
13,973

Related party

 

 

 
929

Total storage
157,642

 
144,986

 
307,976

 
277,552

Fuels Marketing
297,589

 
493,651

 
584,023

 
1,114,622

Consolidation and intersegment eliminations
(6,830
)
 
(6,690
)
 
(13,079
)
 
(13,973
)
Total revenues
$
570,611

 
$
749,745

 
$
1,125,555

 
$
1,598,958

 
 
 
 
 
 
 
 
Operating income:
 
 
 
 
 
 
 
Pipeline
$
64,820

 
$
60,236

 
$
133,460

 
$
113,226

Storage
53,751

 
50,007

 
101,729

 
92,014

Fuels marketing
2,650

 
4,821

 
12,575

 
14,379

Consolidation and intersegment eliminations
(1
)
 
7

 
42

 
(10
)
Total segment operating income
121,220

 
115,071

 
247,806

 
219,609

General and administrative expenses
26,693

 
23,163

 
51,746

 
44,019

Other depreciation and amortization expense
2,122

 
2,554

 
4,374

 
5,133

Total operating income
$
92,405

 
$
89,354

 
$
191,686

 
$
170,457


Total assets by reportable segment were as follows:
 
June 30,
2015
 
December 31,
2014
 
(Thousands of Dollars)
Pipeline
$
1,999,783

 
$
1,962,821

Storage
2,457,089

 
2,241,573

Fuels marketing
193,857

 
227,642

Total segment assets
4,650,729

 
4,432,036

Other partnership assets
522,326

 
486,760

Total consolidated assets
$
5,173,055

 
$
4,918,796

 

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
June 30, 2015
(Thousands of Dollars)
 
NuStar
Energy
 
NuStar
Logistics
 
NuPOP
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
864

 
$
6

 
$

 
$
110,767

 
$

 
$
111,637

Receivables, net

 
605

 

 
163,798

 

 
164,403

Inventories

 
2,239

 
3,544

 
59,563

 

 
65,346

Other current assets
44

 
14,095

 
1,694

 
18,405

 
(45
)
 
34,193

Intercompany receivable

 
1,568,515

 

 

 
(1,568,515
)
 

Total current assets
908

 
1,585,460

 
5,238

 
352,533

 
(1,568,560
)
 
375,579

Property, plant and equipment, net

 
1,881,894

 
557,790

 
1,201,394

 

 
3,641,078

Intangible assets, net

 
52,381

 

 
66,550

 

 
118,931

Goodwill

 
149,453

 
170,652

 
384,299

 

 
704,404

Investment in wholly owned
subsidiaries
2,276,722

 
50,416

 
1,004,729

 
946,218

 
(4,278,085
)
 

Deferred income tax asset

 

 

 
4,639

 
(1,179
)
 
3,460

Other long-term assets, net
731

 
288,003

 
26,329

 
14,540

 

 
329,603

Total assets
$
2,278,361

 
$
4,007,607

 
$
1,764,738

 
$
2,970,173

 
$
(5,847,824
)
 
$
5,173,055

Liabilities and Partners’ Equity
 
 
 
 
 
 
 
 
 
 
 
Payables
$

 
$
52,792

 
$
7,396

 
$
68,090

 
$

 
$
128,278

Short-term debt

 
46,000

 

 

 

 
46,000

Accrued interest payable

 
33,659

 

 
23

 

 
33,682

Accrued liabilities
712

 
19,979

 
6,842

 
20,748

 

 
48,281

Taxes other than income tax

 
5,738

 
3,839

 
4,280

 

 
13,857

Income tax payable

 

 
4

 
1,396

 
(45
)
 
1,355

Intercompany payable
507,405

 

 
791,246

 
269,864

 
(1,568,515
)
 

Total current liabilities
508,117

 
158,168

 
809,327

 
364,401

 
(1,568,560
)
 
271,453

Long-term debt

 
2,985,716

 

 
88,900

 

 
3,074,616

Long-term payable to related party

 
31,452

 

 
5,442

 

 
36,894

Deferred income tax liability

 
1,143

 
36

 
25,791

 
(1,179
)
 
25,791

Other long-term liabilities

 
16,258

 
9,066

 
25,904

 

 
51,228

Total partners’ equity
1,770,244

 
814,870

 
946,309

 
2,459,735

 
(4,278,085
)
 
1,713,073

Total liabilities and
partners’ equity
$
2,278,361

 
$
4,007,607

 
$
1,764,738