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| NSH > SEC Filings for NSH > Form 10-Q on 5-Nov-2009 | All Recent SEC Filings |
5-Nov-2009
Quarterly Report
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, 2008, Part I "Risk Factors," as well as our subsequent quarterly reports on Form 10-Q, 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 it is 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 GP Holdings, LLC (NuStar GP Holdings) (NYSE: NSH) is a publicly held Delaware limited liability company. Unless otherwise indicated, the terms "NuStar GP Holdings," "we," "our" and "us" are used in this report to refer to NuStar GP Holdings, LLC, to one or more of our consolidated subsidiaries or to all of them taken as a whole.
Our only cash generating assets are our ownership interests in NuStar Energy L.P. (NuStar Energy), a publicly held Delaware limited partnership (NYSE: NS). As of September 30, 2009, our aggregate ownership interests in NuStar Energy consisted of the following:
• the 2% general partner interest;
• 100% of the incentive distribution rights (IDR) issued by NuStar Energy, which entitle us to receive increasing percentages of the cash distributed by NuStar Energy, currently at the maximum percentage of 23%; and
• 10,235,418 common units of NuStar Energy representing an 18.4% limited partner interest.
We account for our ownership interest in NuStar Energy using the equity method. Therefore, our financial results reflect a portion of NuStar Energy's net income based on our ownership interest. We have no separate operating activities apart from those conducted by NuStar Energy and therefore generate no revenues from operations.
NuStar Energy is engaged in the terminalling and storage of petroleum products, the transportation of petroleum products and anhydrous ammonia, and asphalt and fuels marketing. NuStar Energy has terminal facilities in the United States, the Netherlands Antilles, Canada, Mexico, the Netherlands and the United Kingdom.
NuStar Energy is required by its partnership agreement to distribute all of its available cash at the end of each quarter, less reserves established by its general partner, in its sole discretion, to provide for the proper conduct of NuStar Energy's business or to provide funds for future distributions. Similarly, we are required by our limited liability company agreement to distribute all of our available cash at the end of each quarter, less reserves established by our board of directors.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2009 Compared to Three Months Ended
September 30, 2008
Financial Highlights
(Unaudited, Thousands of Dollars, Except Unit and Per Unit Data)
Three Months Ended
September 30,
2009 2008 Change
Equity in earnings of NuStar Energy $ 18,051 $ 35,662 $ (17,611 )
General and administrative expenses (679 ) (793 ) 114
Other income (expense), net 22 (36 ) 58
Interest expense, net (88 ) (57 ) (31 )
Income before income tax benefit 17,306 34,776 (17,470 )
Income tax benefit 420 34 386
Net income $ 17,726 $ 34,810 $ (17,084 )
Basic and diluted net income per unit $ 0.42 $ 0.82 $ (0.40 )
Weighted average number of basic and
diluted units outstanding 42,504,238 42,501,433 2,805
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The following table summarizes NuStar Energy's results of operations:
Three Months Ended
September 30,
2009 2008 Change
(Unaudited, Thousands of Dollars, Except Per Unit Data)
NuStar Energy Statement of Income
Data:
Revenues $ 1,251,247 $ 1,825,226 $ (573,979 )
Cost of product sales 989,868 1,467,152 (477,284 )
Operating expenses 118,190 127,095 (8,905 )
Depreciation and amortization 35,580 34,223 1,357
Segment operating income 107,609 196,756 (89,147 )
General and administrative expenses 19,213 20,358 (1,145 )
Other depreciation and amortization
expense 1,206 920 286
Operating income $ 87,190 $ 175,478 $ (88,288 )
Net income $ 64,440 $ 151,277 $ (86,837 )
Net income per unit applicable to
limited partners $ 1.03 $ 2.60 $ (1.57 )
Cash distributions per unit applicable
to limited partners $ 1.0650 $ 1.0575 $ 0.0075
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NuStar Energy's net income decreased $86.8 million for the three months ended September 30, 2009, compared to the three months ended September 30, 2008, primarily due to a decrease in its segment operating income. NuStar Energy's segment operating income decreased $89.1 million during the three months ended September 30, 2009, compared to the three months ended September 30, 2008, primarily due to a decreased product margin associated with its asphalt operations within its asphalt and fuels marketing segment. The decrease in NuStar Energy's operating income from its asphalt and fuels marketing segment was partially offset by increased operating income from its storage and transportation segments.
The following table summarizes our equity in earnings of NuStar Energy:
Three Months Ended
September 30,
2009 2008 Change
(Thousands of Dollars)
NuStar GP Holdings' Equity in Earnings of
NuStar Energy:
General partner interest $ 1,148 $ 2,888 $ (1,740 )
General partner incentive distribution 7,055 6,929 126
General partner's interest in earnings and
incentive distributions of NuStar Energy 8,203 9,817 (1,614 )
NuStar GP Holdings' limited partner interest in
earnings of NuStar Energy 10,569 26,566 (15,997 )
Amortization of step-up in basis related to
NuStar Energy's assets and liabilities (721 ) (721 ) -
NuStar GP Holdings' equity in earnings of
NuStar Energy $ 18,051 $ 35,662 $ (17,611 )
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Our equity in earnings related to our general and limited partner interests in NuStar Energy decreased for the three months ended September 30, 2009, compared to the three months ended September 30, 2008, due to a decrease in NuStar Energy's net income.
NuStar Energy's per unit distributions for the three months ended September 30, 2009, increased compared to the three months ended September 30, 2008, to $1.0650 from $1.0575. That increase resulted in NuStar Energy increasing its total cash distributions. Since our IDR in NuStar Energy entitle us to an increasing amount of NuStar Energy's cash distributions, our equity in earnings of NuStar Energy related to our IDR increased for that period.
Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008
Financial Highlights
(Unaudited, Thousands of Dollars, Except Unit and Per Unit Data)
Nine Months Ended
September 30,
2009 2008 Change
Equity in earnings of NuStar Energy $ 52,780 $ 58,120 $ (5,340 )
General and administrative expenses (2,156 ) (2,359 ) 203
Other income (expense), net 19 (118 ) 137
Interest expense, net (137 ) (153 ) 16
Income before income tax benefit 50,506 55,490 (4,984 )
Income tax benefit 603 103 500
Net income $ 51,109 $ 55,593 $ (4,484 )
Basic and diluted net income per unit $ 1.20 $ 1.31 $ (0.11 )
Weighted average number of basic and
diluted units outstanding 42,503,937 42,501,139 2,798
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The following table summarizes NuStar Energy's results of operations:
Nine Months Ended
September 30,
2009 2008 Change
(Unaudited, Thousands of Dollars, Except Per Unit Data)
NuStar Energy Statement of Income
Data:
Revenues $ 2,873,093 $ 3,795,580 $ (922,487 )
Cost of product sales 2,138,524 3,036,077 (897,553 )
Operating expenses 332,017 322,473 9,544
Depreciation and amortization 104,909 97,481 7,428
Segment operating income 297,643 339,549 (41,906 )
General and administrative expenses 67,529 55,985 11,544
Other depreciation and amortization
expense 3,414 2,538 876
Operating income $ 226,700 $ 281,026 $ (54,326 )
Net income $ 187,530 $ 221,236 $ (33,706 )
Net income per unit applicable to
limited partners $ 2.99 $ 3.77 $ (0.78 )
Cash distributions per unit applicable
to limited partners $ 3.1800 $ 3.0275 $ 0.1525
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NuStar Energy's net income decreased $33.7 million for the nine months ended September 30, 2009, compared to the nine months ended September 30, 2008, primarily due to a decrease in segment operating income and an increase in general and administrative expenses. This was partially offset by an increase in other income and a decrease in interest expense.
NuStar Energy's segment operating income decreased $41.9 million during the nine months ended September 30, 2009, compared to the nine months ended September 30, 2008, primarily due to a $75.1 million decrease in operating income for the asphalt and fuels marketing segment, which was mainly due to a decreased
product margin associated with its asphalt operations. This was partially offset by an increase in gross margin due to the $61.0 million hedging loss in the second quarter of 2008. The decrease in operating income from NuStar Energy's asphalt and fuels marketing segment was partially offset by increased operating income from its storage and transportation segments.
The following table summarizes our equity in earnings of NuStar Energy:
Nine Months Ended
September 30,
2009 2008 Change
(Thousands of Dollars)
NuStar GP Holdings' Equity in Earnings of NuStar
Energy:
General partner interest $ 3,333 $ 4,069 $ (736 )
General partner incentive distribution (a) 20,913 17,835 3,078
General partner's interest in earnings and
incentive distributions of NuStar Energy 24,246 21,904 2,342
NuStar GP Holdings' limited partner interest in
earnings of NuStar Energy 30,697 38,379 (7,682 )
Amortization of step-up in basis related to
NuStar Energy's assets and liabilities (2,163 ) (2,163 ) -
NuStar GP Holdings' equity in earnings of NuStar
Energy $ 52,780 $ 58,120 $ (5,340 )
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(a) For the first quarter of 2008, NuStar Energy's net income allocation to general and limited partners reflected total cash distributions based on the partnership interests outstanding as of March 31, 2008. NuStar Energy issued approximately 5.1 million common units in April 2008. Actual distribution payments are made within 45 days after the end of each quarter as of a record date that is set after the end of each quarter. Therefore, our portion of the actual distributions made with respect to the nine months ended September 30, 2008, including the IDR, exceeded the net income allocation to us.
Our equity in earnings related to our general and limited partner interests in NuStar Energy decreased for the nine months ended September 30, 2009, compared to the nine months ended September 30, 2008, due to a decrease in NuStar Energy's net income.
NuStar Energy's per unit distributions for the nine months ended September 30, 2009, increased compared to the nine months ended September 30, 2008, to $3.1800 from $3.0275. That increase resulted in NuStar Energy increasing its total cash distributions. Since our IDR in NuStar Energy entitle us to an increasing amount of NuStar Energy's cash distributions, our equity in earnings of NuStar Energy related to our IDR increased for that period.
OUTLOOK
NuStar Energy expects its results in the fourth quarter to be lower than the third quarter mainly due to lower asphalt sales and margins. Typically, asphalt sales decline in the fourth quarter for seasonal reasons, including decreased road construction during colder months. While NuStar Energy expects relatively strong fourth quarter results from its transportation and storage segments, those will not be enough to offset the decline from its asphalt and fuels marketing segment as compared to the third quarter. Despite increases in the storage and transportation segments, NuStar Energy expects the consolidated results for the full year 2009 to be lower than the results of 2008 due to the decline in the results of the asphalt and fuels marketing segment.
NuStar Energy's Transportation Segment
NuStar Energy expects throughputs for the fourth quarter of 2009 to increase slightly compared to the third quarter due to a lighter refinery maintenance schedule in the fourth quarter. NuStar Energy expects the fourth quarter to continue to benefit from the tariff increase effective July 1, 2009 and the completion of the pipeline expansion project on June 30, 2009 as well as lower operating expenses.
NuStar Energy's Storage Segment
Fourth quarter results for NuStar Energy's storage segment should be slightly lower as compared to the third quarter mainly due to higher operating expense.
NuStar Energy's Asphalt and Fuels Marketing Segment
For the fourth quarter of 2009, NuStar Energy expects earnings from its asphalt and fuels marketing segment to be lower compared to the third quarter, primarily due to its asphalt operations, which it expects to follow the typical seasonal decline in sales and margin.
We expect our equity in earnings of NuStar Energy to increase or decrease consistent with NuStar Energy's earnings.
LIQUIDITY AND CAPITAL RESOURCES
General
Our cash flows consist of distributions from NuStar Energy on our partnership interests, including all of the IDR that we own. Due to our ownership of NuStar Energy's IDR, our portion of NuStar Energy's total distributions may exceed our 20.4% ownership interest in NuStar Energy. Our primary cash requirements are for distributions to members, capital contributions to maintain our 2% general partner interest in NuStar Energy in the event NuStar Energy issues additional units, debt service requirements, if any, benefit plan funding and general and administrative expenses. In addition, because NuStar GP, LLC elected to be treated as a taxable entity in August 2006, we may be required to pay income taxes, depending upon the taxable income of NuStar GP, LLC. These tax payments may exceed the amount of tax expense recorded in the consolidated financial statements. We expect to fund our cash requirements primarily with the quarterly cash distributions we receive from NuStar Energy and borrowings under our revolving credit facility, if necessary. Additionally, NuStar Energy reimburses us for all costs incurred on their behalf, primarily employee-related costs.
Cash Distributions from NuStar Energy
NuStar Energy pays quarterly distributions 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 table set forth below shows the
cash distributions earned for the periods shown with respect to our ownership
interests in NuStar Energy and IDR:
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
(Thousands of Dollars, Except Per Unit Data)
Cash distributions per unit $ 1.0650 $ 1.0575 $ 3.1800 $ 3.0275
Total cash distributions by NuStar Energy
to all partners $ 66,382 $ 65,838 $ 198,058 $ 186,984
Cash distributions we received from
NuStar Energy:
Distributions on our general partner
interest $ 1,327 $ 1,318 $ 3,963 $ 3,740
Distributions on our IDR 7,055 6,929 20,913 18,365
Distributions on our limited partnership
interests 10,895 10,872 32,552 31,003
Total cash distributions to us $ 19,277 $ 19,119 $ 57,428 $ 53,108
Distributions to us as a percentage of
total cash distributions 29.0 % 29.0 % 29.0 % 28.4 %
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Cash Flows for the Nine Months Ended September 30, 2009 and 2008
Cash distributions received from NuStar Energy for the nine months ended September 30, 2009 were $57.2 million, which we used principally to fund distributions to our unitholders totaling $54.8 million. Employee benefit plan liabilities and accrued compensation expense increased $7.0 million and $7.9 million, respectively, for the nine months ended September 30, 2009, due to timing of payments for these liabilities coupled with an increase in long-term incentive plan grants and an increase in NuStar Energy's unit price. These increases in liabilities were offset by an increase in net receivables of $7.2 million for the nine months ended September 30, 2009, which primarily relate to employee-related costs. We repaid $6.5 million of long-term debt outstanding on our three-year revolving credit facility from available cash on hand, prior to its maturity on July 19, 2009.
Cash distributions received from NuStar Energy for the nine months ended September 30, 2008 totaled $50.3 million, which we used principally to fund distributions to our unitholders totaling $45.9 million. We borrowed $5.0 million for the nine months ended September 30, 2008, which we used to partially fund our $8.2 million contribution to NuStar Energy.
Cash Distributions to Unitholders
Our limited liability company agreement requires that, within 50 days after the
end of each quarter, we distribute all of our available cash to the holders of
record of our units on the applicable record date. The table set forth below
shows our cash distributions applicable to the period in which the distributions
were earned:
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
(Thousands of Dollars, Except Per Unit Data)
Cash distributions per unit $ 0.435 $ 0.430 $ 1.295 $ 1.150
Total cash distributions $ 18,489 $ 18,276 $ 55,043 $ 48,876
Contractual Obligations
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Credit Facility
Our three-year revolving credit facility (2006 Credit Facility) matured on July 19, 2009. On July 17, 2009, we entered into an amended and restated revolving credit facility (2009 Credit Facility) that matures on July 16, 2010 with a borrowing capacity of up to $19.5 million, of which, up to $10 million may be available for letters of credit. Interest on the 2009 Credit Facility is based upon, at our option, either an alternative base rate plus 3.5% or a LIBOR based rate plus 4.5%. These interest rates are 3.5% to 4.0% higher than the rates that were in effect under the 2006 Credit Facility. As of September 30, 2009, we had no outstanding borrowings under our 2009 Credit Facility.
The terms of the 2009 Credit Facility, which are substantially equivalent to those under the 2006 Credit Facility, require NuStar Energy to maintain a total debt-to-EBITDA ratio of less than 5.0-to-1.0 for any four consecutive quarters, subject to adjustment following certain acquisitions. We are also required to receive cash distributions of at least $25.0 million in respect to our ownership interests in NuStar Energy for the preceding four fiscal quarters ending on the last day of each fiscal quarter. Our management believes that we are in compliance with the covenants as of September 30, 2009.
We will use our 2009 Credit Facility to fund capital contributions to NuStar Energy to maintain our 2% general partner interest in the event NuStar Energy issues additional units and to meet other liquidity and capital resource requirements.
Related Party Transactions
NuStar Energy reimburses us for its share of costs incurred by us related to employee-related benefit plans and unit-based compensation. Please refer to Note 4 of Condensed Notes to Consolidated Financial Statements for total related party transactions charged to NuStar Energy, and amounts due from NuStar Energy related to these and other transactions.
GP Services Agreement
NuStar Energy and NuStar GP, LLC entered into a services agreement, effective as of January 1, 2008 (the GP Services Agreement). The GP Services Agreement provides that NuStar GP, LLC will furnish administrative and certain operating services necessary to conduct the business of NuStar Energy. All employees providing services to both NuStar GP Holdings and NuStar Energy are employed by NuStar GP, LLC; therefore, NuStar Energy reimburses NuStar GP, LLC for all employee costs, other than the expenses allocated to NuStar GP Holdings (the Holdco Administrative Services Expense).
The Holdco Administrative Services Expense equals $1.1 million and $0.8 million for the fiscal years 2009 and 2008, respectively, plus 1.0% of NuStar GP, LLC's domestic bonus and unit compensation expense subject to certain other . . .
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