Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - NuStar Energy L.P.Financial_Report.xls
EX-12.01 - EXHIBIT - NuStar Energy L.P.ns3q1410-qex1201.htm
EX-31.02 - EXHIBIT - NuStar Energy L.P.ns3q1410-qex3102.htm
EX-32.02 - EXHIBIT - NuStar Energy L.P.ns3q1410-qex3202.htm
EX-31.01 - EXHIBIT - NuStar Energy L.P.ns3q1410-qex3101.htm
EX-32.01 - EXHIBIT - NuStar Energy L.P.ns3q1410-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 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

 

 
320,970

Total assets
$
2,335,517

 
$
3,769,158

 
$
1,689,786

 
$
2,721,714

 
$
(5,638,808
)
 
$
4,877,367

Liabilities and Partners’ Equity
 
 
 
 
 
 
 
 
 
 
 
Payables
$
39

 
$
59,565

 
$
8,032

 
$
124,444

 
$

 
$
192,080

Short-term debt

 
21,400

 

 

 

 
21,400

Accrued interest payable

 
27,465

 

 
36

 

 
27,501

Accrued liabilities
747

 
17,352

 
7,514

 
13,440

 

 
39,053

Taxes other than income tax
63

 
7,234

 
3,909

 
3,847

 

 
15,053

Income tax payable

 
613

 
5

 
3,417

 

 
4,035

Intercompany payable
505,889

 

 
742,623

 
47,947

 
(1,296,459
)
 

Total current liabilities
506,738

 
133,629

 
762,083

 
193,131

 
(1,296,459
)
 
299,122

Long-term debt

 
2,731,551

 

 

 

 
2,731,551

Long-term payable to related party

 
25,047

 

 
5,442

 

 
30,489

Deferred income tax liability

 

 

 
27,785

 

 
27,785

Other long-term liabilities

 
12,433

 
2,192

 
5,150

 

 
19,775

Total partners’ equity
1,828,779

 
866,498

 
925,511

 
2,490,206

 
(4,342,349
)
 
1,768,645

Total liabilities and
partners’ equity
$
2,335,517

 
$
3,769,158

 
$
1,689,786

 
$
2,721,714

 
$
(5,638,808
)
 
$
4,877,367




20

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


Condensed Consolidating Balance Sheets
December 31, 2013
(Thousands of Dollars)
 
NuStar
Energy
 
NuStar
Logistics
 
NuPOP
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
904

 
$
22,307

 
$

 
$
77,532

 
$

 
$
100,743

Receivables, net

 
87,899

 
13,281

 
231,220

 
(6
)
 
332,394

Inventories

 
2,083

 
2,879

 
133,195

 
(10
)
 
138,147

Income tax receivable

 

 

 
826

 

 
826

Other current assets

 
18,109

 
2,334

 
19,009

 

 
39,452

Assets held for sale

 

 

 
21,987

 

 
21,987

Intercompany receivable

 
1,521,552

 

 

 
(1,521,552
)
 

Total current assets
904

 
1,651,950

 
18,494

 
483,769

 
(1,521,568
)
 
633,549

Property, plant and equipment, net

 
1,556,893

 
573,694

 
1,180,066

 

 
3,310,653

Intangible assets, net

 
16,993

 

 
54,256

 

 
71,249

Goodwill

 
149,453

 
170,652

 
297,324

 

 
617,429

Investment in wholly owned
subsidiaries
2,469,331

 
177,961

 
860,787

 
918,339

 
(4,426,418
)
 

Investment in joint ventures

 

 

 
68,735

 

 
68,735

Deferred income tax asset

 

 

 
5,769

 

 
5,769

Note receivable from related party

 
165,440

 

 

 

 
165,440

Other long-term assets, net
611

 
118,254

 
26,331

 
14,166

 

 
159,362

Total assets
$
2,470,846

 
$
3,836,944

 
$
1,649,958

 
$
3,022,424

 
$
(5,947,986
)
 
$
5,032,186

Liabilities and Partners’ Equity
 
 
 
 
 
 
 
 
 
 
 
Payables
$
123

 
$
84,533

 
$
7,517

 
$
214,909

 
$
(6
)
 
$
307,076

Accrued interest payable

 
33,066

 

 
47

 

 
33,113

Accrued liabilities
585

 
18,850

 
6,133

 
13,064

 

 
38,632

Taxes other than income tax
125

 
6,272

 
2,873

 
475

 

 
9,745

Income tax payable

 
618

 
6

 
3,382

 

 
4,006

Intercompany payable
504,483

 

 
714,847

 
302,222

 
(1,521,552
)
 

Total current liabilities
505,316

 
143,339

 
731,376

 
534,099

 
(1,521,558
)
 
392,572

Long-term debt

 
2,655,553

 

 

 

 
2,655,553

Long-term payable to related party

 
35,696

 

 
5,443

 

 
41,139

Deferred income tax liability

 

 

 
27,350

 

 
27,350

Other long-term liabilities

 
4,961

 
306

 
6,511

 

 
11,778

Total partners’ equity
1,965,530

 
997,395

 
918,276

 
2,449,021

 
(4,426,428
)
 
1,903,794

Total liabilities and
partners’ equity
$
2,470,846

 
$
3,836,944

 
$
1,649,958

 
$
3,022,424

 
$
(5,947,986
)
 
$
5,032,186




21

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


Condensed Consolidating Statements of Comprehensive Income
For the Three Months Ended September 30, 2014
(Thousands of Dollars)
 
NuStar
Energy
 
NuStar
Logistics
 
NuPOP
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Revenues
$

 
$
134,345

 
$
54,431

 
$
606,307

 
$
(661
)
 
$
794,422

Costs and expenses
479

 
72,363

 
36,710

 
590,409

 
(637
)
 
699,324

Operating (loss) income
(479
)
 
61,982

 
17,721

 
15,898

 
(24
)
 
95,098

Equity in earnings (loss) of
subsidiaries
62,600

 
(1,952
)
 
18,402

 
36,119

 
(115,169
)
 

Equity in earnings of joint venture

 

 

 
2,749

 

 
2,749

Interest (expense) income, net

 
(33,306
)
 
16

 
283

 

 
(33,007
)
Other loss, net

 
(18
)
 
(20
)
 
(1,350
)
 

 
(1,388
)
Income from continuing
operations before income tax
expense
62,121

 
26,706

 
36,119

 
53,699

 
(115,193
)
 
63,452

Income tax expense

 
220

 
2

 
4,113

 

 
4,335

Income from continuing
operations
62,121

 
26,486

 
36,117

 
49,586

 
(115,193
)
 
59,117

(Loss) income from discontinued
operations, net of tax

 
(13
)
 

 
2,844

 

 
2,831

Net income
62,121

 
26,473

 
36,117

 
52,430

 
(115,193
)
 
61,948

Less net loss attributable to
noncontrolling interest

 

 

 
(173
)
 

 
(173
)
Net income attributable to
NuStar Energy L.P.
$
62,121

 
$
26,473

 
$
36,117

 
$
52,603

 
$
(115,193
)
 
$
62,121

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
62,121

 
$
33,515

 
$
36,117

 
$
41,607

 
$
(115,193
)
 
$
58,167

Less comprehensive loss
attributable to
noncontrolling interest

 

 

 
(159
)
 

 
(159
)
Comprehensive income
attributable to NuStar Energy L.P.
$
62,121

 
$
33,515

 
$
36,117

 
$
41,766

 
$
(115,193
)
 
$
58,326

 


22

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


Condensed Consolidating Statements of Comprehensive Income
For the Three Months Ended September 30, 2013
(Thousands of Dollars)
 
NuStar
Energy
 
NuStar
Logistics
 
NuPOP
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Revenues
$

 
$
106,892

 
$
50,669

 
$
629,335

 
$
(8,751
)
 
$
778,145

Costs and expenses
507

 
66,288

 
32,274

 
619,156

 
(8,831
)
 
709,394

Operating (loss) income
(507
)
 
40,604

 
18,395

 
10,179

 
80

 
68,751

Equity in earnings of subsidiaries
33,904

 
8,136

 
4,992

 
23,449

 
(70,481
)
 

Equity in (loss) earnings of
joint ventures

 
(8,202
)
 

 
2,844

 

 
(5,358
)
Interest (expense) income, net

 
(29,451
)
 
76

 
380

 

 
(28,995
)
Other income, net

 

 
8

 
1,381

 

 
1,389

Income from continuing
operations before income tax
expense
33,397

 
11,087

 
23,471

 
38,233

 
(70,401
)
 
35,787

Income tax expense (benefit)

 
146

 
1

 
(42
)
 

 
105

Income from continuing
operations
33,397

 
10,941

 
23,470

 
38,275

 
(70,401
)
 
35,682

Loss from discontinued
operations, net of tax

 
(543
)
 

 
(1,903
)
 

 
(2,446
)
Net income
33,397

 
10,398

 
23,470

 
36,372

 
(70,401
)
 
33,236

Less net loss attributable to
noncontrolling interest

 

 

 
(161
)
 

 
(161
)
Net income attributable to
NuStar Energy L.P.
$
33,397

 
$
10,398

 
$
23,470

 
$
36,533

 
$
(70,401
)
 
$
33,397

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
33,397

 
$
12,746

 
$
23,470

 
$
39,578

 
$
(70,401
)
 
$
38,790

Less comprehensive loss
attributable to
noncontrolling interest

 

 

 
(729
)
 

 
(729
)
Comprehensive income
attributable to NuStar Energy L.P.
$
33,397

 
$
12,746

 
$
23,470

 
$
40,307

 
$
(70,401
)
 
$
39,519

 


23

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


Condensed Consolidating Statements of Comprehensive Income
For the Nine Months Ended September 30, 2014
(Thousands of Dollars)
 
NuStar
Energy
 
NuStar
Logistics
 
NuPOP
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Revenues
$

 
$
369,308

 
$
163,890

 
$
1,869,240

 
$
(9,058
)
 
$
2,393,380

Costs and expenses
1,352

 
204,415

 
105,473

 
1,825,609

 
(9,024
)
 
2,127,825

Operating (loss) income
(1,352
)
 
164,893

 
58,417

 
43,631

 
(34
)
 
265,555

Equity in earnings (loss) of
subsidiaries
158,732

 
(2,811
)
 
46,874

 
105,293

 
(308,088
)
 

Equity in (loss) earnings of
joint venture

 
(8,278
)
 

 
10,015

 

 
1,737

Interest (expense) income, net

 
(100,121
)
 
38

 
592

 

 
(99,491
)
Other income (expense), net

 
524

 
(36
)
 
1,328

 

 
1,816

Income from continuing
operations before income tax
expense
157,380

 
54,207

 
105,293

 
160,859

 
(308,122
)
 
169,617

Income tax expense
1

 
628

 
5

 
9,683

 

 
10,317

Income from continuing
operations
157,379

 
53,579

 
105,288

 
151,176

 
(308,122
)
 
159,300

Loss from discontinued
operations, net of tax

 
(181
)
 

 
(2,135
)
 

 
(2,316
)
Net income
157,379

 
53,398

 
105,288

 
149,041

 
(308,122
)
 
156,984

Less net loss attributable to
noncontrolling interest

 

 

 
(395
)
 

 
(395
)
Net income attributable to
NuStar Energy L.P.
$
157,379

 
$
53,398

 
$
105,288

 
$
149,436

 
$
(308,122
)
 
$
157,379

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
157,379

 
$
65,183

 
$
105,288

 
$
140,083

 
$
(308,122
)
 
$
159,811

Less comprehensive loss
attributable to
noncontrolling interest

 

 

 
(828
)
 

 
(828
)
Comprehensive income
attributable to NuStar Energy L.P.
$
157,379

 
$
65,183

 
$
105,288

 
$
140,911

 
$
(308,122
)
 
$
160,639





24

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


Condensed Consolidating Statements of Comprehensive Income
For the Nine Months Ended September 30, 2013
(Thousands of Dollars)
 
NuStar
Energy
 
NuStar
Logistics
 
NuPOP
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Revenues
$

 
$
308,414

 
$
151,189

 
$
2,244,549

 
$
(25,807
)
 
$
2,678,345

Costs and expenses
1,438

 
179,298

 
104,311

 
2,209,992

 
(25,775
)
 
2,469,264

Operating (loss) income
(1,438
)
 
129,116

 
46,878

 
34,557

 
(32
)
 
209,081

Equity in earnings of subsidiaries
92,486

 
15,779

 
20,750

 
62,614

 
(191,629
)
 

Equity in (loss) earnings of
 joint ventures

 
(31,713
)
 

 
5,084

 

 
(26,629
)
Interest (expense) income, net

 
(83,788
)
 
(4,941
)
 
440

 

 
(88,289
)
Other income (loss), net

 
2,466

 
(65
)
 
1,516

 

 
3,917

Income from continuing
operations before income tax
expense
91,048

 
31,860

 
62,622

 
104,211

 
(191,661
)
 
98,080

Income tax expense

 
420

 
4

 
7,663

 

 
8,087

Income from continuing
operations
91,048

 
31,440

 
62,618

 
96,548

 
(191,661
)
 
89,993

(Loss) income from discontinued
operations, net of tax

 
(1,624
)
 

 
2,240

 

 
616

Net income
91,048

 
29,816

 
62,618

 
98,788

 
(191,661
)
 
90,609

Less net loss attributable to
noncontrolling interest

 

 

 
(439
)
 

 
(439
)
Net income attributable to
NuStar Energy L.P.
$
91,048

 
$
29,816

 
$
62,618

 
$
99,227

 
$
(191,661
)
 
$
91,048

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
91,048

 
$
43,306

 
$
62,618

 
$
84,731

 
$
(191,661
)
 
$
90,042

Less comprehensive loss
attributable to
noncontrolling interest

 

 

 
(2,206
)
 

 
(2,206
)
Comprehensive income
attributable to NuStar Energy L.P.
$
91,048

 
$
43,306

 
$
62,618

 
$
86,937

 
$
(191,661
)
 
$
92,248





25

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


Condensed Consolidating Statements of Cash Flows
For the Nine Months Ended September 30, 2014
(Thousands of Dollars)
 
NuStar
Energy
 
NuStar
Logistics
 
NuPOP
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net cash provided by operating
activities
$
292,757

 
$
133,967

 
$
76,913

 
$
203,783

 
$
(392,225
)
 
$
315,195

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures

 
(174,296
)
 
(6,308
)
 
(48,944
)
 

 
(229,548
)
Change in accounts payable
    related to capital expenditures

 
18,470

 
81

 
(7,641
)
 

 
10,910

Proceeds from sale or disposition
of assets

 
651

 
13

 
25,311

 

 
25,975

Increase in note receivable from
    related party

 
(13,328
)
 

 

 

 
(13,328
)
Other, net

 
(46
)
 

 
(830
)
 
23

 
(853
)
Net cash used in investing activities

 
(168,549
)
 
(6,214
)
 
(32,104
)
 
23

 
(206,844
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
 
 
Debt borrowings

 
742,636

 

 

 

 
742,636

Debt repayments

 
(635,069
)
 

 

 

 
(635,069
)
Distributions to unitholders
and general partner
(294,153
)
 
(196,101
)
 
(98,052
)
 
(98,072
)
 
392,225

 
(294,153
)
Net intercompany borrowings
(repayments)
1,405

 
100,930

 
27,353

 
(129,688
)
 

 

Other, net

 
(114
)
 

 
2,677

 
(23
)
 
2,540

Net cash (used in) provided by
financing activities
(292,748
)
 
12,282

 
(70,699
)
 
(225,083
)
 
392,202

 
(184,046
)
Effect of foreign exchange rate
changes on cash

 

 

 
638

 

 
638

Net increase (decrease) in cash
and cash equivalents
9

 
(22,300
)
 

 
(52,766
)
 

 
(75,057
)
Cash and cash equivalents as of the
beginning of the period
904

 
22,307

 

 
77,532

 

 
100,743

Cash and cash equivalents as of the
end of the period
$
913

 
$
7

 
$

 
$
24,766

 
$

 
$
25,686

 



26

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


Condensed Consolidating Statements of Cash Flows
For the Nine Months Ended September 30, 2013
(Thousands of Dollars)
 
NuStar
Energy
 
NuStar
Logistics
 
NuPOP
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net cash provided by operating
activities
$
292,499

 
$
159,157

 
$
50,587

 
$
170,479

 
$
(294,182
)
 
$
378,540

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures

 
(181,580
)
 
(13,449
)
 
(65,672
)
 

 
(260,701
)
Change in accounts payable
    related to capital expenditures

 
(5,419
)
 
1,534

 
1,006

 

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

 
116,348

 
28

 
91

 

 
116,467

Increase in note receivable from
related party

 
(50,761
)
 

 

 

 
(50,761
)
Other, net

 
15

 

 

 
141

 
156

Net cash used in investing activities

 
(121,397
)
 
(11,887
)
 
(64,575
)
 
141

 
(197,718
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
 
 
Debt borrowings

 
1,299,220

 

 

 

 
1,299,220

Note offering, net

 
687,151

 

 

 

 
687,151

Debt repayments

 
(1,647,182
)
 
(250,000
)
 

 

 
(1,897,182
)
Distributions to unitholders and
general partner
(294,153
)
 
(294,153
)
 

 
(29
)
 
294,182

 
(294,153
)
Payments for termination of
interest rate swaps

 
(33,697
)
 

 

 

 
(33,697
)
Net intercompany borrowings
(repayments)
(5,047
)
 
(53,557
)
 
211,300

 
(152,696
)
 

 

Other, net
(46
)
 
3,355

 

 

 
(141
)
 
3,168

Net cash used in financing activities
(299,246
)
 
(38,863
)
 
(38,700
)
 
(152,725
)
 
294,041

 
(235,493
)
Effect of foreign exchange rate
changes on cash

 

 

 
(4,412
)
 

 
(4,412
)
Net decrease in cash and
cash equivalents
(6,747
)
 
(1,103
)
 

 
(51,233
)
 

 
(59,083
)
Cash and cash equivalents as of the
beginning of the period
7,033

 
1,112

 

 
75,457

 

 
83,602

Cash and cash equivalents as of the
end of the period
$
286

 
$
9

 
$

 
$
24,224

 
$

 
$
24,519





27


Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS
This Form 10-Q contains certain estimates, predictions, projections, assumptions and other forward-looking statements that involve various risks and uncertainties. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested in this report. These forward-looking statements can generally be identified by the words “anticipates,” “believes,” “expects,” “plans,” “intends,” “estimates,” “forecasts,” “budgets,” “projects,” “will,” “could,” “should,” “may” and similar expressions. These statements reflect our current views with regard to future events and are subject to various risks, uncertainties and assumptions. Please read our Annual Report on Form 10-K for the year ended December 31, 2013, Part I, Item 1A “Risk Factors,” as well as our subsequent current and quarterly reports, for a discussion of certain of those risks, uncertainties and assumptions.

If one or more of these risks or uncertainties materialize, or if the underlying assumptions prove incorrect, our actual results may vary materially from those described in any forward-looking statement. Other unknown or unpredictable factors could also have material adverse effects on our future results. Readers are cautioned not to place undue reliance on this forward-looking information, which is as of the date of this Form 10-Q. We do not intend to update these statements unless we are required by the securities laws to do so, and we undertake no obligation to publicly release the result of any revisions to any such forward-looking statements that may be made to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.

OVERVIEW
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 15.1% total interest in us as of September 30, 2014. Our Management’s Discussion and Analysis of Financial Condition and Results of Operations is presented in seven sections:

Overview
Results of Operations
Trends and Outlook
Liquidity and Capital Resources
Related Party Transactions
Critical Accounting Policies
New Accounting Pronouncements

Dispositions
Asphalt JV 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 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) 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.

Terminal Facilities 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 property, plant and equipment associated with these assets as “Assets held for sale” on the consolidated balance sheets. We presented the results of operations for these assets, 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 (the Turkey Sale). 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.


28


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

Operations
We conduct our operations through our subsidiaries, primarily NuStar Logistics, L.P. (NuStar Logistics) and NuStar Pipeline Operating Partnership L.P. (NuPOP). Our operations are divided into three reportable business segments: pipeline, storage and fuels marketing.
Pipeline. We own common carrier refined product pipelines covering approximately 5,463 miles, consisting of the Central West System, the East Pipeline and the North Pipeline. In addition, we own a 2,000 mile anhydrous ammonia pipeline (the Ammonia Pipeline), 1,180 miles of crude oil pipelines and approximately 10.0 million barrels of storage capacity located along our pipelines. We charge tariffs on a per barrel basis for transporting refined products, crude oil and other feedstocks in our refined product and crude oil pipelines and on a per ton basis for transporting anhydrous ammonia in the Ammonia Pipeline.

Storage. We own terminals and storage facilities in the United States, Canada, Mexico, the Netherlands, including St. Eustatius in the Caribbean, and the United Kingdom providing approximately 81.0 million barrels of storage capacity. Our terminals and storage facilities provide storage and handling services on a fee basis for petroleum products, specialty chemicals and other liquids, including crude oil and other feedstocks.
Fuels Marketing. Within our fuels marketing operations, we purchase crude oil and refined petroleum products for resale. The results of operations for the fuels marketing segment depend largely on the margin between our cost and the sales prices of the products we market. Therefore, the results of operations for this segment are more sensitive to changes in commodity prices compared to the results of operations of the pipeline and storage segments. We enter into derivative contracts to attempt to mitigate the effects of commodity price fluctuations.

The following factors affect the results of our operations:
company-specific factors, such as facility integrity issues and maintenance requirements that impact the throughput rates of our assets;
seasonal factors that affect the demand for products transported by and/or stored in our assets and the demand for products we sell;
industry factors, such as changes in the prices of petroleum products, that affect demand and operations of our competitors;
factors such as commodity price volatility that impact our fuels marketing segment; and
other factors, such as refinery utilization rates and maintenance turnaround schedules, that impact the operations of refineries served by our pipeline and storage assets.

29


RESULTS OF OPERATIONS
Three Months Ended September 30, 2014 Compared to Three Months Ended September 30, 2013
Financial Highlights
(Unaudited, Thousands of Dollars, Except Unit and Per Unit Data)
 
Three Months Ended
September 30,
 
Change
 
2014
 
2013
 
Statement of Income Data:
 
 
 
 
 
Revenues:
 
 
 
 
 
Service revenues
$
266,651

 
$
243,712

 
$
22,939

Product sales
527,771

 
534,433

 
(6,662
)
Total revenues
794,422

 
778,145

 
16,277

 
 
 
 
 
 
Costs and expenses:
 
 
 
 
 
Cost of product sales
509,794

 
527,217

 
(17,423
)
Operating expenses
115,964

 
117,101

 
(1,137
)
General and administrative expenses
24,967

 
18,831

 
6,136

Depreciation and amortization expense
48,599

 
46,245

 
2,354

Total costs and expenses
699,324

 
709,394

 
(10,070
)
 
 
 
 
 
 
Operating income
95,098

 
68,751

 
26,347

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

 
(5,358
)
 
8,107

Interest expense, net
(33,007
)
 
(30,823
)
 
(2,184
)
Interest income from related party

 
1,828

 
(1,828
)
Other (expense) income, net
(1,388
)
 
1,389

 
(2,777
)
Income from continuing operations before income tax expense
63,452

 
35,787

 
27,665

Income tax expense
4,335

 
105

 
4,230

Income from continuing operations
59,117

 
35,682

 
23,435

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

 
(2,446
)
 
5,277

Net income
$
61,948

 
$
33,236

 
$
28,712

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

 
$
0.31

 
$
0.30

Discontinued operations
0.03

 
(0.03
)
 
0.06

Total
$
0.64

 
$
0.28

 
$
0.36

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

 
77,886,078

 


Highlights
Net income increased $28.7 million for the three months ended September 30, 2014, compared to the three months ended September 30, 2013, mainly due to an increase of $32.4 million in segment operating income, resulting from improvements in all three reportable segments.


 

30


Segment Operating Highlights
(Thousands of Dollars, Except Barrels/Day Information)
 
Three Months Ended
September 30,
 
Change
 
2014
 
2013
 
Pipeline:
 
 
 
 
 
Refined products pipelines throughput (barrels/day)
514,361

 
501,511

 
12,850

Crude oil pipelines throughput (barrels/day)
471,698

 
382,539

 
89,159

Total throughput (barrels/day)
986,059

 
884,050

 
102,009

Throughput revenues
$
125,461

 
$
111,508

 
$
13,953

Operating expenses
39,996

 
36,089

 
3,907

Depreciation and amortization expense
19,813

 
17,401

 
2,412

Segment operating income
$
65,652

 
$
58,018

 
$
7,634

Storage:
 
 
 
 
 
Throughput (barrels/day)
914,599

 
832,412

 
82,187

Throughput revenues
$
32,498

 
$
27,937

 
$
4,561

Storage lease revenues
111,447

 
110,671

 
776

Total revenues
143,945

 
138,608

 
5,337

Operating expenses
68,244

 
71,251

 
(3,007
)
Depreciation and amortization expense
26,300

 
26,306

 
(6
)
Segment operating income
$
49,401

 
$
41,051

 
$
8,350

Fuels Marketing:
 
 
 
 
 
Product sales and other revenue
$
531,190

 
$
534,919

 
$
(3,729
)
Cost of product sales
513,300

 
531,481

 
(18,181
)
Gross margin
17,890

 
3,438

 
14,452

Operating expenses
10,367

 
12,510

 
(2,143
)
Depreciation and amortization expense
5

 
7

 
(2
)
Segment operating income (loss)
$
7,518

 
$
(9,079
)
 
$
16,597

Consolidation and Intersegment Eliminations:
 
 
 
 
 
Revenues
$
(6,174
)
 
$
(6,890
)
 
$
716

Cost of product sales
(3,506
)
 
(4,264
)
 
758

Operating expenses
(2,643
)
 
(2,749
)
 
106

Total
$
(25
)
 
$
123

 
$
(148
)
Consolidated Information:
 
 
 
 
 
Revenues
$
794,422

 
$
778,145

 
$
16,277

Cost of product sales
509,794

 
527,217

 
(17,423
)
Operating expenses
115,964

 
117,101

 
(1,137
)
Depreciation and amortization expense
46,118

 
43,714

 
2,404

Segment operating income
122,546

 
90,113

 
32,433

General and administrative expenses
24,967

 
18,831

 
6,136

Other depreciation and amortization expense
2,481

 
2,531

 
(50
)
Consolidated operating income
$
95,098

 
$
68,751

 
$
26,347


31


Pipeline
Revenues increased $14.0 million and throughputs increased 102,009 barrels per day for the three months ended September 30, 2014, compared to the three months ended September 30, 2013, primarily due to:
an increase in revenues of $10.2 million and an increase in throughputs of 79,880 barrels per day on crude oil pipelines that serve Eagle Ford Shale production in South Texas, primarily resulting from continued growth in the region and the completion of expansion projects in 2014 and mid-third quarter of 2013 that have increased our South Texas crude oil pipeline system’s overall capacity; and
an increase in revenues of $2.0 million and an increase in throughputs of 20,356 barrels per day on pipelines serving the McKee refinery due to higher overall production by the McKee refinery this period compared to the third quarter of 2013.

Operating expenses increased $3.9 million for the three months ended September 30, 2014, compared to the three months ended September 30, 2013, primarily due to increased regulatory and maintenance expenses of $1.6 million associated with our Ammonia Pipeline and East Pipeline and an increase in power costs of $1.2 million mainly due to the increase in throughputs on pipelines that serve Eagle Ford Shale production in South Texas.

Depreciation and amortization expense increased $2.4 million for the three months ended September 30, 2014, compared to the three months ended September 30, 2013, mainly due to the completion of various projects that serve Eagle Ford Shale production.

Storage
Throughput revenues increased $4.6 million and throughputs increased 82,187 barrels per day for the three months ended September 30, 2014, compared to the three months ended September 30, 2013, primarily due to
an increase in revenues of $3.2 million and an increase in throughputs of 52,112 barrels per day at our Corpus Christi North Beach terminal due to an increase in Eagle Ford Shale crude oil being shipped to Corpus Christi and the completion of a new dock in the first quarter of 2014;
an increase in revenues of $0.7 million and an increase in throughputs of 13,679 barrels per day at terminals serving the McKee refinery and the Paulsboro terminal due to higher demand in those markets; and
an increase in revenues of $0.3 million and an increase in throughputs of 15,513 barrels per day at out Texas City crude oil storage tank facility due to the timing of shipments.

Storage lease revenues increased $0.8 million for the three months ended September 30, 2014, compared to the three months ended September 30, 2013, primarily due to:
an increase of $2.1 million at our St. James terminal, mainly due to higher revenues resulting from the completion of another unit train offloading facility in the fourth quarter of 2013 and storage rate increases; and
an increase of $1.6 million at our UK terminal due to the effect of foreign exchange rates, increased storage rates and increased throughput and related handling fees.

The increases in storage lease revenues were partially offset by a decrease of $3.3 million, mostly at our West Coast terminals, as a result of reduced demand.

Operating expenses decreased $3.0 million for the three months ended September 30, 2014, compared to the three months ended September 30, 2013, primarily due to reduced maintenance and regulatory expenses, mainly in our St. Eustatius terminal and West Coast terminals.

Fuels Marketing
Segment operating income increased $16.6 million for the three months ended September 30, 2014, compared to the three months ended September 30, 2013, primarily due to increased segment operating income of $15.5 million from our bunker fuel operations, mainly resulting from improved product margins and decreased vessel lease and fuel costs.

Consolidation and Intersegment Eliminations
Revenue and operating expense eliminations primarily relate to storage fees charged to the fuels marketing segment by the storage segment. Cost of product sales eliminations represent expenses charged to the fuels marketing segment for costs associated with inventory that are expensed once the inventory is sold.

General
General and administrative expenses increased $6.1 million for the three months ended September 30, 2014, compared to the three months ended September 30, 2013, primarily as a result of higher compensation expense associated with our long-term incentive plans, which fluctuates with our unit price, and the termination of a services agreement between Axeon and NuStar

32


GP, LLC in June 2014, under which Axeon reimbursed us for certain corporate support services. These increases were partially offset by decreased employee benefit costs.

We recorded equity in earnings of joint ventures of $2.7 million for the three months ended September 30, 2014, compared to a loss in equity of joint ventures of $5.4 million for the three months ended September 30, 2013, primarily due to losses of $8.2 million from our investment in Axeon for the three months ended September 30, 2013.

Interest expense, net increased $2.2 million for the three months ended September 30, 2014, compared to the three months ended September 30, 2013, mainly due to the issuance of $300.0 million of 6.75% senior notes in August 2013.

Interest income from related party represents the interest earned on the NuStar JV Facility prior to the Asphalt JV Sale.

Other (expense) income, net changed by $2.8 million for the three months ended September 30, 2014, compared to the three months ended September 30, 2013, mainly due to changes in foreign exchange rates related to our foreign subsidiaries.

Income tax expense increased $4.2 million for the three months ended September 30, 2014, compared to the three months ended September 30, 2013, mainly due to increased taxable income in our corporate subsidiaries.

For the three months ended September 30, 2014, we recorded income from discontinued operations of $2.8 million, compared to a loss from discontinued operations of $2.4 million for the three months ended September 30, 2013. Discontinued operations include the results of operations of certain storage assets that were classified as “Assets held for sale” on the consolidated balance sheet beginning December 31, 2013, as well as the results of operations of the San Antonio Refinery and related assets, which we sold on January 1, 2013. Income from discontinued operations for the three months ended September 30, 2014 includes a gain of $3.7 million related to the Turkey Sale.


33


Nine Months Ended September 30, 2014 Compared to Nine Months Ended September 30, 2013
Financial Highlights
(Unaudited, Thousands of Dollars, Except Unit and Per Unit Data)
 
Nine Months Ended
September 30,
 
Change
 
2014
 
2013
 
Statement of Income Data:
 
 
 
 
 
Revenues:
 
 
 
 
 
Service revenues
$
755,551

 
$
700,922

 
$
54,629

Product sales
1,637,829

 
1,977,423

 
(339,594
)
Total revenues
2,393,380

 
2,678,345

 
(284,965
)
 
 
 
 
 
 
Costs and expenses:
 
 
 
 
 
Cost of product sales
1,578,508

 
1,928,237

 
(349,729
)
Operating expenses
337,566

 
341,933

 
(4,367
)
General and administrative expenses
68,986

 
65,978

 
3,008

Depreciation and amortization expense
142,765

 
133,116

 
9,649

Total costs and expenses
2,127,825

 
2,469,264

 
(341,439
)
 
 
 
 
 
 
Operating income
265,555

 
209,081

 
56,474

Equity in earnings (loss) of joint ventures
1,737

 
(26,629
)
 
28,366

Interest expense, net
(100,546
)
 
(92,849
)
 
(7,697
)
Interest income from related party
1,055

 
4,560

 
(3,505
)
Other income, net
1,816

 
3,917

 
(2,101
)
Income from continuing operations before income tax expense
169,617

 
98,080

 
71,537

Income tax expense
10,317

 
8,087

 
2,230

Income from continuing operations
159,300

 
89,993

 
69,307

(Loss) income from discontinued operations, net of tax
(2,316
)
 
616

 
(2,932
)
Net income
$
156,984

 
$
90,609

 
$
66,375

 
 
 
 
 
 
Net income (loss) per unit applicable to limited partners:
 
 
 
 
 
Continuing operations
$
1.59

 
$
0.71

 
$
0.88

Discontinued operations
(0.03
)
 
0.02

 
(0.05
)
Total
$
1.56

 
$
0.73

 
$
0.83

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

 
77,886,078

 


Highlights
Net income increased $66.4 million for the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013, mainly due to an increase in segment operating income of $59.5 million, primarily resulting from improvements in our pipeline and fuels marketing segments. Additionally, we recorded equity in earnings of joint ventures of $1.7 million for the nine months ended September 30, 2014, compared to a loss in equity of joint ventures of $26.6 million for the nine months ended September 30, 2013, primarily due to losses from our investment in Axeon in 2013.


34



Segment Operating Highlights
(Thousands of Dollars, Except Barrels/Day Information)
 
Nine Months Ended
September 30,
 
Change
 
2014
 
2013
 
Pipeline:
 
 
 
 
 
Refined products pipelines throughput (barrels/day)
503,059

 
477,601

 
25,458

Crude oil pipelines throughput (barrels/day)
419,824

 
361,642

 
58,182

Total throughput (barrels/day)
922,883

 
839,243

 
83,640

Throughput revenues
$
346,218

 
$
301,761

 
$
44,457

Operating expenses
109,685

 
102,596

 
7,089

Depreciation and amortization expense
57,655

 
50,039

 
7,616

Segment operating income
$
178,878

 
$
149,126

 
$
29,752

Storage:
 
 
 
 
 
Throughput (barrels/day)
877,052

 
772,383

 
104,669

Throughput revenues
$
91,184

 
$
76,924

 
$
14,260

Storage lease revenues
330,313

 
346,040

 
(15,727
)
Total revenues
421,497

 
422,964

 
(1,467
)
Operating expenses
202,602

 
208,116

 
(5,514
)
Depreciation and amortization expense
77,480

 
75,429

 
2,051

Segment operating income
$
141,415

 
$
139,419

 
$
1,996

Fuels Marketing:
 
 
 
 
 
Product sales and other revenue
$
1,645,812

 
$
1,978,531

 
$
(332,719
)
Cost of product sales
1,590,605

 
1,944,415

 
(353,810
)
Gross margin
55,207

 
34,116

 
21,091

Operating expenses
33,294

 
41,336

 
(8,042
)
Depreciation and amortization expense
16

 
20

 
(4
)
Segment operating income (loss)
$
21,897

 
$
(7,240
)
 
$
29,137

Consolidation and Intersegment Eliminations:
 
 
 
 
 
Revenues
$
(20,147
)
 
$
(24,911
)
 
$
4,764

Cost of product sales
(12,097
)
 
(16,178
)
 
4,081

Operating expenses
(8,015
)
 
(10,115
)
 
2,100

Total
$
(35
)
 
$
1,382

 
$
(1,417
)
Consolidated Information:
 
 
 
 
 
Revenues
$
2,393,380

 
$
2,678,345

 
$
(284,965
)
Cost of product sales
1,578,508

 
1,928,237

 
(349,729
)
Operating expenses
337,566

 
341,933

 
(4,367
)
Depreciation and amortization expense
135,151

 
125,488

 
9,663

Segment operating income
342,155

 
282,687

 
59,468

General and administrative expenses
68,986

 
65,978

 
3,008

Other depreciation and amortization expense
7,614

 
7,628

 
(14
)
Consolidated operating income
$
265,555

 
$
209,081

 
$
56,474



35


Pipeline
Revenues increased $44.5 million and throughputs increased 83,640 barrels per day for the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013, primarily due to:
an increase in revenues of $25.8 million and an increase in throughputs of 48,559 barrels per day on crude oil pipelines that serve Eagle Ford Shale production in South Texas, primarily resulting from continued growth in the region and the completion of expansion projects in 2014 and the third quarter of 2013 that have increased our South Texas crude oil pipeline system’s overall capacity;
an increase in revenues of $5.5 million and an increase in throughputs of 5,982 barrels per day on the East Pipeline due to higher demand;
an increase in revenues of $5.1 million and an increase in throughputs of 24,310 barrels per day on pipelines serving the McKee refinery mainly due to increased production by the McKee refinery in 2014; and
an increase in revenues of $4.8 million and an increase in throughputs of 4,850 barrels per day on the Ammonia Pipeline mainly due to favorable weather conditions during this period compared to the same period last year.

Operating expenses increased $7.1 million for the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013, primarily due to:
a $6.5 million gain in 2013 for the reduction of the contingent consideration liability recorded in association with the TexStar Asset Acquisition;
an increase of $3.2 million in power costs, mainly due to the increase in throughputs on pipelines that serve Eagle Ford Shale production in South Texas, the East Pipeline and the Ammonia Pipeline; and
an increase of $2.7 million in maintenance and regulatory expenses, mainly associated with our East Pipeline and Ammonia Pipeline.

These increases were partially offset by decreased rental costs of $1.5 million, mainly associated with our South Texas crude oil pipelines acquired in late 2012, and decreased employee-related costs of $3.1 million.

Depreciation and amortization expense increased $7.6 million for the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013, mainly due to the completion of various projects that serve Eagle Ford Shale production.

Storage
Throughput revenues increased $14.3 million and throughputs increased 104,669 barrels per day for the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013 primarily due to:
an increase in revenues of $10.0 million and an increase in throughputs of 52,261 barrels per day at our Corpus Christi North Beach terminal due to an increase in Eagle Ford Shale crude oil being shipped to Corpus Christi and the completion of a new dock in the first quarter of 2014;
an increase in revenues of $2.4 million and an increase in throughputs of 43,227 barrels per day as a result of turnarounds and operational issues during the first quarter of 2013 at the refineries served by our Corpus Christi and Texas City crude oil storage tank facilities; and
an increase in revenues of $1.3 million and an increase in throughputs of 8,146 barrels per day at terminals serving the McKee refinery due to higher demand in those markets.

Storage lease revenues decreased $15.7 million for the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013, primarily due to:
a decrease of $14.5 million, mostly at our West Coast terminals, as a result of reduced demand;
a decrease of $3.5 million at our St. James terminal, mainly due to the narrowing price differential on two traded crude oil grades (WTI and LLS) that reduced our profit sharing and volumes delivered to one of our unit train offloading facilities. This decrease was partially offset by increased revenues resulting from the completion of another unit train offloading facility in the fourth quarter of 2013, new revenue contracts and rate increases; and
a decrease of $2.5 million at our St. Eustatius terminal facility, mainly due to reduced demand.

The declines in storage lease revenues were partially offset by an increase of $5.6 million at our UK terminal, mainly due to the effect of foreign exchange rates and increased throughput and related handling fees.

Operating expenses decreased $5.5 million for the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013, primarily due to reduced maintenance and regulatory expenses of $2.8 million, mainly at in our West Coast and Gulf Coast terminals, and a decrease of $2.3 million in internal overhead, mainly due to lower employee-related costs.


36


Depreciation and amortization expense increased $2.1 million for the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013, primarily due to the completion of a unit train offloading facility in the fourth quarter of 2013 at our St. James terminal.

Fuels Marketing
Segment operating income increased $29.1 million for the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013, primarily due to increased segment operating income of $31.0 million from our bunker fuel operations. The increase in segment operating income from our bunker fuel operations was mainly due to improved product margins and decreased vessel lease and fuel costs. The increase in segment operating income from our bunker fuel operations was partially offset by decreased segment operating income of $3.1 million in fuel oil trading, mainly resulting from lower product margins due to a lack of supply for blend components.

Consolidation and Intersegment Eliminations
Revenue and operating expense eliminations primarily relate to storage fees charged to the fuels marketing segment by the storage segment. Cost of product sales eliminations represent expenses charged to the fuels marketing segment for costs associated with inventory that are expensed once the inventory is sold.

General
General and administrative expenses increased $3.0 million for the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013, primarily as a result of higher compensation expense associated with our long-term incentive plans, which fluctuates with our unit price, and the termination of a services agreement between Axeon and NuStar GP, LLC in June 2014, under which Axeon reimbursed us for certain corporate support services. These increases were partially offset by decreased employee benefit costs.

We recorded equity in earnings of joint ventures of $1.7 million for the nine months ended September 30, 2014, compared to a loss in equity of joint ventures of $26.6 million for the nine months ended September 30, 2013, primarily due to losses of $31.7 million from our investment in Axeon for the nine months ended September 30, 2013.

Interest expense, net increased $7.7 million for the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013, mainly due to the issuance of $300.0 million of 6.75% senior notes in August 2013.

Interest income from related party represents the interest earned on the NuStar JV Facility prior to the Asphalt JV Sale.

Other income, net decreased $2.1 million for the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013, mainly due to changes in foreign exchange rates related to our foreign subsidiaries.

Income tax expense increased $2.2 million for the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013, mainly due to increased taxable income in our corporate subsidiaries.

For the nine months ended September 30, 2014, we recorded a loss from discontinued operations of $2.3 million, compared to income from discontinued operations of $0.6 million for the nine months ended September 30, 2013. The loss from discontinued operations for the nine months ended September 30, 2014 includes a gain of $3.7 million related to the Turkey Sale, while income from discontinued operations for the nine months ended September 30, 2013 includes a gain of $9.3 million related to the San Antonio Refinery Sale.


37


TRENDS AND OUTLOOK
 
Pipeline Segment
We expect our pipeline segment earnings for the fourth quarter of 2014 to exceed the comparable period in 2013, mainly due to higher throughputs on our pipelines serving the Eagle Ford Shale region. These increased throughputs are being driven by continued growth in the region, as well as by several expansion projects we completed in the first half of 2014, which increased our system’s overall capacity. Due to higher maintenance expense in the fourth quarter as a result of project delays from earlier in the year, we expect our fourth quarter of 2014 earnings to be comparable to the third quarter of 2014.

We expect our full-year earnings for 2014 to exceed 2013 mainly due to the benefit of the increased throughputs described above, reduced turnaround activity at our customers’ refineries and the July 1, 2014 tariff increase on pipelines regulated by the Federal Energy Regulatory Commission.

Storage Segment
We expect storage segment earnings for the fourth quarter of 2014 to be comparable to the fourth quarter of 2013, but lower than the third quarter of 2014, due to higher maintenance expense in the fourth quarter as a result of project delays from earlier in the year at certain terminals.

Full-year earnings for 2014 are expected to be comparable to 2013, excluding the impairment charges in 2013. Higher earnings in 2014 at our North Beach terminal and from the second rail-car unloading facility at our St. James terminal are expected to be offset by weak West Coast storage demand and the narrowing price differential of two widely traded crude oil grades (LLS and WTI). This narrowing LLS/WTI differential reduces demand for the unit train services we provide at our St. James terminal, which has a negative impact on our profit sharing results and terminal service revenues.

Fuels Marketing Segment
We expect fourth quarter of 2014 results for our fuels marketing segment to be comparable to the third quarter of 2014 and the fourth quarter of 2013. We expect the full-year 2014 results in this segment to exceed 2013 results mainly due to the benefit from improvements in the bunker fuel operations. However, earnings in this segment, as in any margin-based business, are subject to many factors that can raise or lower margins, which may cause the segment’s actual results to vary significantly from our forecast.

Our outlook for the partnership, and for any of our segments, may change as it is based on our continuing evaluation of a number of factors, including factors outside our control, such as the price of crude oil, the state of the economy, changes to refinery maintenance schedules, demand for crude oil, refined products and ammonia, demand for our transportation and storage services, and changes in laws or regulations affecting our assets.


38


LIQUIDITY AND CAPITAL RESOURCES
Overview
Primary Cash Requirements. Our primary cash requirements are for distributions to our partners, working capital (including inventory purchases), debt service, capital expenditures, including reliability capital, a financing agreement with Axeon, acquisitions and operating expenses.

Our partnership agreement requires that we distribute all “Available Cash” to our partners each quarter, and this term is defined in the partnership agreement as cash on hand at the end of the quarter, plus certain permitted borrowings made subsequent to the end of the quarter, less cash reserves determined by our board of directors.

Sources of Funds. Each year, we work to fund our annual total operating expenses, interest expense, reliability capital expenditures and distribution requirements with our net cash provided by operating activities during that year. If we do not generate sufficient cash from operations to meet those requirements, we utilize other sources of cash flow, which in the past have included borrowings under our $1.5 billion five-year revolving credit agreement (the 2012 Revolving Credit Agreement), sales of non-strategic assets and, to the extent necessary, funds raised through equity or debt offerings under our shelf registration statements. Additionally, we typically fund our strategic capital expenditures from external sources, primarily borrowings under the 2012 Revolving Credit Agreement or funds raised through equity or debt offerings. However, our ability to raise funds by issuing debt or equity depends on many factors beyond our control. Our risk factors in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2013 describe the risks inherent to these sources of funding and the availability thereof.

During periods that our cash flow from operations is less than our distribution and reliability capital requirements, we may maintain our distribution level because we can utilize other sources of Available Cash, as provided in our partnership agreement, including borrowing under the 2012 Revolving Credit Agreement and the proceeds from the sales of assets. Our risk factors in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2013 describe the risks inherent in our ability to maintain or grow the distribution.

Cash Requirements and Sources in 2014 and 2013. For the year ended December 31, 2013, our cash flow from operations was sufficient to cover our distributions to our partners and our reliability capital expenditures, mainly due to our strategic redirection discussed previously in the Trends and Outlook section in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2013. For 2014, we currently expect to produce cash from operations in excess of our distribution. We also expect to fund our reliability capital expenditures with cash from operations as well as from other sources of liquidity as described below.

Cash Flows for the Nine Months Ended September 30, 2014 and 2013
The following table summarizes our cash flows from operating, investing and financing activities:
 
 
Nine Months Ended
September 30,
 
2014
 
2013
 
(Thousands of Dollars)
Net cash provided by (used in):
 
 
 
Operating activities
$
315,195

 
$
378,540

Investing activities
(206,844
)
 
(197,718
)
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
)

Net cash provided by operating activities for the nine months ended September 30, 2014 was $315.2 million, compared to $378.5 million for the nine months ended September 30, 2013. Changes in current assets and current liabilities generated $1.1 million for the nine months ended September 30, 2014, compared to $116.8 million for the nine months ended September 30, 2013. Please refer to the Working Capital Requirements section below for a discussion of the changes in working capital.

For the nine months ended September 30, 2014, net cash provided by operating activities was used to fund our distributions to unitholders and our general partner and reliability capital expenditures. Proceeds from debt borrowings, net of repayments, combined with cash on hand and proceeds from the sales of assets, were used to fund strategic capital expenditures and advances to Axeon under the Axeon Term Loan.

39



For the nine months ended September 30, 2013, net cash provided by operating activities exceeded our distribution requirements and reliability capital expenditures. Proceeds from the San Antonio Refinery Sale and proceeds from long-term debt borrowings, net of repayments, combined with net cash provided by operating activities and cash on hand, were used to fund strategic capital expenditures and advances to Axeon under the NuStar JV Facility.

Revolving Credit Agreement
As of September 30, 2014, our consolidated debt coverage ratio was 4.0x, and we had $839.1 million available for borrowing. Due to a covenant in the 2012 Revolving Credit Agreement that requires us to maintain, as of the end of any four consecutive fiscal quarters, a consolidated debt coverage ratio not to exceed 5.00-to-1.00, we may not be able to borrow the maximum available amount. Please refer to Note 4 of the Condensed Notes to Consolidated Financial Statements in Item 1. “Financial Statements” for a more detailed discussion on the 2012 Revolving Credit Agreement.

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.

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.
 
Capital Requirements
Our operations require significant investments to maintain, upgrade or enhance the operating capacity of our existing assets. Our capital expenditures consist of:
reliability capital expenditures, such as those required to maintain equipment reliability and safety; and
strategic capital expenditures, such as those to expand and upgrade pipeline capacity or terminal facilities and to construct new pipelines, terminals and storage tanks. In addition, strategic capital expenditures may include acquisitions of pipelines, terminals or storage tank assets, as well as certain capital expenditures related to support functions.

During the nine months ended September 30, 2014, our reliability capital expenditures totaled $18.2 million and were primarily related to maintenance upgrade projects at our terminals. Strategic capital expenditures for the nine months ended September 30, 2014 totaled $211.3 million and were primarily related to projects associated with Eagle Ford Shale production in South Texas and the reactivation and conversion of our 200-mile pipeline between Mont Belvieu and Corpus Christi, TX.

During the nine months ended September 30, 2013, our reliability capital expenditures totaled $29.7 million and were primarily related to maintenance upgrade projects at our terminals. Strategic capital expenditures for the nine months ended September 30, 2013 totaled $231.0 million and were primarily related to projects associated with Eagle Ford Shale production in South Texas and projects at our St. James, Louisiana terminal.

For the full year 2014, we expect our capital expenditures to total approximately $360.0 million to $380.0 million, including $30.0 million for reliability capital projects and $330.0 million to $350.0 million for strategic capital projects, not including acquisitions. We continue to evaluate our capital budget and make changes as economic conditions warrant, and our actual capital expenditures for 2014 may increase or decrease from the budgeted amounts. We believe cash generated from operations, combined with other sources of liquidity previously described, will be sufficient to fund our capital expenditures in 2014, and our internal growth projects can be accelerated or scaled back depending on the condition of the capital markets.

Working Capital Requirements
Our fuels marketing operations require us to make investments in working capital. Those working capital requirements may vary with fluctuations in commodity prices and with the seasonality of demand for the products we market. This seasonality in demand affects our accounts receivable and accounts payable balances, which vary depending on the timing of payments.

Accounts receivable decreased $60.0 million during the nine months ended September 30, 2014, primarily due to decreased crude oil trading and bunker fuel sales. The termination of the crude oil supply agreement with Axeon on January 1, 2014 caused the receivable from related parties to decrease $51.0 million and accounts payable to decrease $134.9 million during the nine months ended September 30, 2014. Please refer to Note 8 of the Condensed Notes to Consolidated Financial Statements in Item 1. “Financial Statements” for a more detailed discussion of our agreements with Axeon. Inventories decreased $19.9 million for the nine months ended September 30, 2014, primarily as a result of a bunker fuel supply strategy that reduced the

40


inventory carried in our bunker fuel operations. We also reduced inventories associated with our heavy fuel oil trading operations.

Axeon Term Loan
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. Our obligation to provide credit support, such as guarantees, letters of credit and cash collateral, as applicable, of up to $150.0 million, 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 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. 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.

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


Distributions declared for the quarter are paid within 45 days following the end of each quarter based on the partnership interests outstanding as of a record date that is set after the end of each quarter. 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.

Debt Obligations
We are a party to the following debt agreements as of September 30, 2014:
the 2012 Revolving Credit Agreement due May 2, 2017, with a balance of $582.4 million as of September 30, 2014;
NuStar Logistics’: 7.65% senior notes due April 15, 2018 with a face value of $350.0 million; 4.80% senior notes due September 1, 2020 with a face value of $450.0 million; 6.75% senior notes due February 1, 2021 with a face

41


value of $300.0 million; 4.75% senior notes due February 1, 2022 with a face value of $250.0 million; and 7.625% subordinated notes due January 15, 2043 with a face value of $402.5 million;
NuStar Logistics’ $365.4 million Gulf Opportunity Zone Revenue Bonds due from 2038 to 2041; and
NuStar Logistics’ $80.0 million line of credit agreements with $21.4 million outstanding as of September 30, 2014.

Management believes that, as of September 30, 2014, we are in compliance with all ratios and covenants of the 2012 Revolving Credit Agreement. Our other long-term debt obligations do not contain any financial covenants that are different than those contained in the 2012 Revolving Credit Agreement. However, a default under any of our debt instruments would be considered an event of default under all of our debt instruments. Please refer to Note 4 of the Condensed Notes to Consolidated Financial Statements in Item 1. “Financial Statements” for a more detailed discussion on certain of our long-term debt agreements.

Environmental, Health and Safety
We are subject to extensive federal, state and local environmental and safety laws and regulations, including those relating to the discharge of materials into the environment, waste management, pollution prevention measures, pipeline integrity and operator qualifications, among others. Because more stringent environmental and safety laws and regulations are continuously being enacted or proposed, the level of future expenditures required for environmental, health and safety matters is expected to increase.

Contingencies
We are subject to certain loss contingencies, the outcomes of which could have an adverse effect on our cash flows and results of operations, as further disclosed in Note 5 of the Condensed Notes to Consolidated Financial Statements in Item 1. “Financial Statements.”

RELATED PARTY TRANSACTIONS
Please refer to Note 8 of the Condensed Notes to Consolidated Financial Statements in Item 1. “Financial Statements” for a detailed discussion of our related party transactions.
 
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Our critical accounting policies are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2013.

NEW ACCOUNTING PRONOUNCEMENTS
Please refer to Note 1 of the Condensed Notes to Consolidated Financial Statements in Item 1. “Financial Statements” for a detailed discussion of new accounting pronouncements.


42


Item 3.
Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk
We manage our exposure to changing interest rates principally through the use of a combination of fixed-rate debt and variable-rate debt. In the past, we have also utilized forward-starting interest rate swap agreements to lock in the rate on the interest payments related to forecasted debt issuances and fixed-to-floating interest rate swap agreements to manage a portion of the exposure to changing interest rates by converting certain fixed-rate debt to variable-rate debt. Borrowings under the 2012 Revolving Credit Agreement and Gulf Opportunity Zone Revenue Bonds expose us to increases in applicable interest rates.

We had no forward-starting or fixed-to-floating interest rate swap agreements outstanding as of September 30, 2014. Please refer to Note 7 of the Condensed Notes to Consolidated Financial Statements in Item 1. “Financial Statements” for a more detailed discussion of our interest rate swaps.

The following tables present principal cash flows and related weighted-average interest rates by expected maturity dates for our long-term debt.
 
September 30, 2014
 
Expected Maturity Dates
 
 
 
 
 
2014
 
2015
 
2016
 
2017
 
2018
 
There-
after
 
Total
 
Fair
Value
 
(Thousands of Dollars, Except Interest Rates)
Long-term Debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed rate
$

 
$

 
$

 
$

 
$
350,000

 
$
1,402,500

 
$
1,752,500

 
$
1,831,529

Weighted-average
interest rate

 

 

 

 
8.2
%
 
6.0
%
 
6.4
%
 
 
Variable rate
$

 
$

 
$

 
$
582,433

 
$

 
$
365,440

 
$
947,873

 
$
952,137

Weighted-average
interest rate

 

 

 
2.2
%
 

 
0.1
%
 
1.4
%
 
 

 
December 31, 2013
 
Expected Maturity Dates
 
 
 
 
 
2014
 
2015
 
2016
 
2017
 
2018
 
There-
after
 
Total
 
Fair
Value
 
(Thousands of Dollars, Except Interest Rates)
Long-term Debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed rate
$

 
$

 
$

 
$

 
$
350,000

 
$
1,402,500

 
$
1,752,500

 
$
1,767,759

Weighted-average
interest rate

 

 

 

 
8.2
%
 
6.0
%
 
6.4
%
 
 
Variable rate
$

 
$

 
$

 
$
503,036

 
$

 
$
365,440

 
$
868,476

 
$
868,975

Weighted-average
interest rate

 

 

 
2.2
%
 

 
0.1
%
 
1.3
%
 
 


43


Commodity Price Risk
Since the operations of our fuels marketing segment expose us to commodity price risk, we enter into derivative instruments to attempt to mitigate the effects of commodity price fluctuations. The derivative instruments we use consist primarily of commodity futures and swap contracts. We have a risk management committee that oversees our trading policies and procedures and certain aspects of risk management. Our risk management committee also reviews all new risk management strategies in accordance with our risk management policy, as approved by our board of directors.

We record commodity derivative instruments in the consolidated balance sheets as assets or liabilities at fair value. We recognize mark-to-market adjustments for derivative instruments designated and qualifying as fair value hedges (Fair Value Hedges) and the related change in the fair value of the associated hedged physical inventory or firm commitment within “Cost of product sales.” For derivative instruments that have associated underlying physical inventory but do not qualify for hedge accounting (Economic Hedges and Other Derivatives), we record the mark-to-market adjustments in “Cost of product sales” or “Operating expenses.”

The commodity contracts disclosed below represent only those contracts exposed to commodity price risk at the end of the period. Please refer to Note 7 of Condensed Notes to Consolidated Financial Statement in Item 1. “Financial Statements” for the volume and related fair value of all commodity contracts.
 
September 30, 2014
 
Contract
Volumes
 
Weighted Average
 
Fair Value of
Current
Asset (Liability)
Pay Price
 
Receive Price
 
 
(Thousands
of Barrels)
 
 
 
 
 
(Thousands of
Dollars)
Fair Value Hedges:
 
 
 
 
 
 
 
Futures – long:
 
 
 
 
 
 
 
(refined products)
4

 
$
112.86

 
N/A

 
$
(5
)
Futures – short:
 
 
 
 
 
 
 
(refined products)
41

 
N/A

 
$
113.71

 
$
80

 
 
 
 
 
 
 
 
Economic Hedges and Other Derivatives:
 
 
 
 
 
 
 
Futures – long:
 
 
 
 
 
 
 
(crude oil and refined products)
196

 
$
92.46

 
N/A

 
$
(257
)
Futures – short:
 
 
 
 
 
 
 
(crude oil and refined products)
186

 
N/A

 
$
92.52

 
$
252

Swaps – long:
 
 
 
 
 
 
 
(refined products)
412

 
$
83.86

 
N/A

 
$
(884
)
Swaps – short:
 
 
 
 
 
 
 
(refined products)
1,355

 
N/A

 
$
84.66

 
$
4,076

Forward purchase contracts:
 
 
 
 
 
 
 
(crude oil)
1,596

 
$
95.06

 
N/A

 
$
(3,823
)
Forward sales contracts:
 
 
 
 
 
 
 
(crude oil)
1,596

 
N/A

 
$
95.48

 
$
4,499

 
 
 
 
 
 
 
 
Total fair value of open positions exposed to
commodity price risk
 
 
 
 
 
 
$
3,938




44


 
December 31, 2013
 
Contract
Volumes
 
Weighted Average
 
Fair Value of
Current
Asset (Liability)
Pay Price
 
Receive Price
 
 
(Thousands
of Barrels)
 
 
 
 
 
(Thousands of
Dollars)
Fair Value Hedges:
 
 
 
 
 
 
 
Futures – long:
 
 
 
 
 
 
 
(refined products)
7

 
$
128.38

 
N/A

 
$
3

Futures – short:
 
 
 
 
 
 
 
(refined products)
40

 
N/A

 
$
124.50

 
$
(170
)
 
 
 
 
 
 
 
 
Economic Hedges and Other Derivatives:
 
 
 
 
 
 
 
Futures – long:
 
 
 
 
 
 
 
(crude oil and refined products)
245

 
$
95.67

 
N/A

 
$
682

Futures – short:
 
 
 
 
 
 
 
(crude oil and refined products)
179

 
N/A

 
$
115.09

 
$
(200
)
Swaps – long:
 
 
 
 
 
 
 
(refined products)
95

 
$
92.39

 
N/A

 
$
(76
)
Swaps – short:
 
 
 
 
 
 
 
(refined products)
1,377

 
N/A

 
$
91.18

 
$
(522
)
Forward purchase contracts:
 
 
 
 
 
 
 
(crude oil)
1,015

 
$
97.79

 
N/A

 
$
3,171

Forward sales contracts:
 
 
 
 
 
 
 
(crude oil)
1,015

 
N/A

 
$
98.39

 
$
(2,561
)
 
 
 
 
 
 
 
 
Total fair value of open positions exposed to
commodity price risk
 
 
 
 
 
 
$
327



45


Item 4.
Controls and Procedures

(a)
Evaluation of disclosure controls and procedures.
Our management has evaluated, with the participation of the principal executive officer and principal financial officer of NuStar GP, LLC, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report, and has concluded that our disclosure controls and procedures were effective as of September 30, 2014.
(b)
Changes in internal control over financial reporting.
There has been no change in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

46


PART II - OTHER INFORMATION

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds

The following table sets forth the purchases of our common units made during the quarter ended September 30, 2014 by or on behalf of us or an affiliated purchaser:  
 
Period
 
Total Number of Units Purchased(1)
 
Average Price Paid per Unit(1) 
 
Total Number of Units Purchased as Part of Publicly Announced Plans or Programs
 
Maximum Number (or Approximate Dollar Value) of Units that May Yet Be Purchased Under the Plans or Programs
July 1 through July 31
 

 
$

 

 
$

August 1 through August 31
 

 

 

 

September 1 through September 30
 
220,000

 
66.03

 

 

Total
 
220,000

 
$
66.03

 

 
$

 
(1)   During the quarter ended September 30, 2014, NuStar GP, LLC, the general partner of our general partner, purchased 220,000 of our common units in the open market to satisfy NuStar GP, LLC’s obligations under its long-term incentive plans.


Item 6.
Exhibits

Exhibit
Number
 
Description
 
 
 
10.01
 
Letter of Credit Agreement dated as of September 3, 2014 among NuStar Logistics, L.P., NuStar Energy L.P., the Lenders party thereto and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as Issuing Bank and Administrative Agent (incorporated by reference to Exhibit 10.01 of NuStar Energy L.P.’s Current Report on Form 8-K filed on September 9, 2014)
 
 
 
*12.01
 
Statement of Computation of Ratio of Earnings to Fixed Charges
 
 
*31.01
 
Rule 13a-14(a) Certification (under Section 302 of the Sarbanes-Oxley Act of 2002) of principal executive officer
 
 
*31.02
 
Rule 13a-14(a) Certification (under Section 302 of the Sarbanes-Oxley Act of 2002) of principal financial officer
 
 
**32.01
 
Section 1350 Certification (under Section 906 of the Sarbanes-Oxley Act of 2002) of principal executive officer
 
 
**32.02
 
Section 1350 Certification (under Section 906 of the Sarbanes-Oxley Act of 2002) of principal financial officer
 
 
*101.INS
 
XBRL Instance Document
 
 
 
*101.SCH
 
XBRL Taxonomy Extension Schema Document
 
 
 
*101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
*101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
*101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
*101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document
*
Filed herewith.
**
Furnished herewith.



47


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
NUSTAR ENERGY L.P.
(Registrant)

By: Riverwalk Logistics, L.P., its general partner
By: NuStar GP, LLC, its general partner
 
By:
 
/s/ Bradley C. Barron
 
 
Bradley C. Barron
 
 
President and Chief Executive Officer
 
 
November 6, 2014
 
 
 
By:
 
/s/ Thomas R. Shoaf
 
 
Thomas R. Shoaf
 
 
Executive Vice President and Chief Financial Officer
 
 
November 6, 2014
 
 
 
By:
 
/s/ Jorge A. del Alamo
 
 
Jorge A. del Alamo
 
 
Senior Vice President and Controller
 
 
November 6, 2014

48