NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2021, 2020 and 2019
1. ORGANIZATION AND OPERATIONS
Organization
NuStar Energy L.P. (NYSE: NS) is a Delaware limited partnership primarily engaged in the transportation, terminalling and storage of petroleum products and renewable fuels and the transportation of anhydrous ammonia. Unless otherwise indicated, the terms “NuStar Energy,” “NS,” “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. Our business is managed under the direction of the board of directors of NuStar GP, LLC, the general partner of our general partner, Riverwalk Logistics, L.P., both of which are indirectly wholly owned subsidiaries of ours.
Operations
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.
Pipeline. We own 3,205 miles of refined product pipelines and 2,230 miles of crude oil pipelines, as well as 5.6 million barrels of crude oil storage capacity, which comprise our Central West System. In addition, we own 2,500 miles of refined product pipelines, consisting of the East and North Pipelines, and a 2,000-mile ammonia pipeline, which comprise our Central East System. The East and North Pipelines have storage capacity of 7.4 million barrels. 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 terminal and storage facilities in the United States, Canada and Mexico, with 44.2 million barrels of storage capacity. Our terminal and storage facilities provide storage, handling and other services on a fee basis for refined products, crude oil, specialty chemicals, renewable fuels and other liquids.
Fuels Marketing. The fuels marketing segment includes our bunkering operations in the Gulf Coast, as well as certain of our blending operations associated with our Central East System.
Recent Developments
Point Tupper Terminal Sale Agreement. On February 11, 2022, we entered into an agreement to sell the equity interests in our wholly owned subsidiaries that own our Point Tupper terminal facility to EverWind Fuels for $60.0 million. The terminal facility has a storage capacity of 7.8 million barrels and is included in the storage segment. We expect to complete the sale in the first half of 2022 and will utilize the sales proceeds to improve our debt metrics. Please refer to Note 25 for more information.
Debt Amendments. On January 28, 2022, we amended and restated our $1.0 billion unsecured revolving credit agreement to extend the maturity to April 27, 2025, replace the LIBOR-based interest rate and modify other terms. Also on January 28, 2022, we amended our $100.0 million receivables financing agreement to extend the scheduled termination date to January 31, 2025, replace the LIBOR-based interest rate and modify other terms. Please refer to Note 12 for more information.
Eastern U.S. Terminals Disposition. On October 8, 2021, we completed the sale of nine U.S. terminal and storage facilities, including all our North East Terminals and one terminal in Florida (the Eastern U.S. Terminal Operations) to Sunoco LP for $250.0 million in cash (the Eastern U.S. Terminals Disposition). We recorded asset and goodwill impairment losses of $95.7 million and $34.1 million, respectively, in the third quarter of 2021. Please see Note 4 for further discussion.
Houston Pipeline Impairment. In the third quarter of 2021, we recorded a long-lived asset impairment charge of $59.2 million related to the southern section of our Houston refined product pipeline. Please see Note 4 for further discussion.
Senior Notes. On November 1, 2021, we repaid our $250.0 million of 4.75% senior notes due February 1, 2022 with proceeds from the Eastern U.S. Terminals Disposition. On February 1, 2021 we repaid our $300.0 million of 6.75% senior notes at maturity with borrowings under our Revolving Credit Agreement.
NUSTAR ENERGY L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Other Events
Selby Terminal Fire. On October 15, 2019, our terminal facility in Selby, California experienced a fire that destroyed two storage tanks and temporarily shut down the terminal. The property damage was isolated, and in the fourth quarter of 2019, we incurred losses of $5.4 million, which represent the aggregate amount of our deductibles under various insurance policies. We received insurance proceeds of $28.5 million and $35.0 million, for the years ended December 31, 2021 and 2020, respectively. Gains from business interruption insurance of $4.0 million, $6.7 million and $1.3 million for the years ended December 31, 2021, 2020 and 2019, respectively, are included in “Operating expenses” in the consolidated statements of income (loss). For the year ended December 31, 2021, we recorded a gain of $14.9 million for the amount by which the insurance recoveries exceeded our expenses incurred to date, which is included in “Other income (expense), net” in the consolidated statements of income (loss). Insurance proceeds related to cleanup costs and business interruption are included in “Cash flows from operating activities” in the consolidated statements of cash flows. In addition, we received $5.8 million of insurance proceeds in January 2022. We believe we have adequate insurance to offset additional costs.
Sale of Texas City Terminals. On December 7, 2020, we sold the equity interests in our wholly owned subsidiaries that owned two terminals in Texas City, Texas for $106.0 million. We recorded a non-cash loss of $34.7 million and utilized the sales proceeds to improve our debt metrics. Please refer to Note 4 for further discussion.
Senior Notes. On September 14, 2020, NuStar Logistics issued $600.0 million of 5.75% senior notes due October 1, 2025 and $600.0 million of 6.375% senior notes due October 1, 2030. We received proceeds of $1,182.0 million, net of issuance costs of $18.0 million, which we used to repay outstanding borrowings under the Term Loan, as defined below, as well as outstanding borrowings under our revolving credit agreement. On September 1, 2020, we repaid our $450.0 million of 4.80% senior notes at maturity with borrowings under our revolving credit agreement. Please refer to Note 12 for further discussion.
Term Loan Credit Agreement. On April 19, 2020, NuStar Energy and NuStar Logistics entered into an unsecured term loan credit agreement with certain lenders and Oaktree Fund Administration, LLC, as administrative agent for the lenders (the Term Loan). The Term Loan provided for an aggregate commitment of up to $750.0 million pursuant to a three-year unsecured term loan credit facility. On April 21, 2020 we drew $500.0 million, which we repaid on September 16, 2020. The repayment required certain contractual premiums, and we recognized a loss of $137.9 million in the third quarter of 2020. On February 16, 2021, we terminated the Term Loan. Please refer to Note 12 for further discussion about the Term Loan.
Sale of St. Eustatius Operations. On July 29, 2019, we sold our St. Eustatius terminal and bunkering operations (the St. Eustatius Operations) for net proceeds of approximately $230.0 million (the St. Eustatius Disposition). In 2019, we recorded long-lived asset and goodwill impairment charges totaling $336.8 million related to the St. Eustatius Operations in “Loss from discontinued operations, net of tax” on our consolidated statement of loss. In the second quarter of 2019, we determined the St. Eustatius Operations and the European operations, which we sold in 2018, met the requirements to be reported as discontinued operations, and as a result, we reclassified certain balances to assets held for sale and liabilities held for sale and certain revenues and expenses to discontinued operations for all applicable periods presented.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The accompanying consolidated financial statements represent the consolidated operations of the Partnership and our subsidiaries. Inter-partnership balances and transactions have been eliminated in consolidation. The operations of certain pipelines and terminals in which we own an undivided interest are proportionately consolidated in the accompanying consolidated financial statements.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP) 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. On an ongoing basis, management reviews its estimates based on currently available information. Management may revise estimates due to changes in facts and circumstances.
Cash and Cash Equivalents
Cash equivalents are all highly liquid investments with an original maturity of three months or less when acquired.
NUSTAR ENERGY L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Accounts Receivable
Trade receivables are carried at amortized cost, net of a valuation allowance for current expected credit losses. We extend credit to certain customers after review of various credit indicators, including the customer’s credit rating, and obtain letters of credit, guarantees or collateral as deemed necessary. We monitor our ongoing credit exposure through active review of customer balances against contract terms and due dates and pool customer receivables based upon days outstanding, which is our primary credit risk indicator. Our review activities include timely account reconciliations, dispute resolution and payment confirmations.
Inventories
Inventories consist of petroleum products, materials and supplies. Inventories are valued at the lower of cost or net realizable value. Cost is determined using the weighted-average cost method. Our inventory, other than materials and supplies, consists of one end-product category, petroleum products, which we include in the fuels marketing segment. Accordingly, we determine lower of cost or net realizable value adjustments on an aggregate basis. Materials and supplies are valued at the lower of average cost or net realizable value.
Restricted Cash
As of December 31, 2021 and 2020, we have restricted cash representing legally restricted funds that are unavailable for general use totaling $8.8 million, which is included in “Other long-term assets, net” on the consolidated balance sheet.
Property, Plant and Equipment
We record additions to property, plant and equipment, including reliability and strategic capital expenditures, at cost. Repair and maintenance costs associated with existing assets that are minor in nature and do not extend the useful life of existing assets are charged to operating expenses as incurred. Depreciation of property, plant and equipment is recorded on a straight-line basis over the estimated useful lives of the related assets. When property or equipment is retired, sold or otherwise disposed of, the difference between the carrying value and the net proceeds is recognized in “Other income (expense), net” or “Loss from discontinued operations, net of tax” in the consolidated statements of income (loss) in the year of disposition. We capitalize overhead costs and interest costs incurred on funds used to construct property, plant and equipment while the asset is under construction. The overhead costs and capitalized interest are recorded as part of the asset to which they relate and are amortized over the asset’s estimated useful life as a component of depreciation expense.
Leases - Lessee
We lease assets used in our operations, including land, docks, and marine vessels. We record all leases on our consolidated balance sheet except for those leases with an initial term of 12 months or less, which are expensed on a straight-line basis over the lease term. We use judgment in determining the reasonably certain lease term and consider factors such as the nature and utility of the leased asset, as well as the importance of the leased asset to our operations. We calculate the present value of our lease liabilities based upon our incremental borrowing rate unless the rate implicit in the lease is readily determinable. For all of our asset classes except the other pipeline and terminal equipment asset class, we combine lease and non-lease components and account for them as a single lease component.
Certain of our leases are subject to variable payment arrangements, the most notable of which include:
•dockage and wharfage charges, which are based on volumes moved over leased docks and are included in our calculation of our lease payments based on minimum throughput volume requirements. We recognize charges on excess throughput volumes in profit or loss in the period in which the obligation for those payments is incurred; and
•consumer price index adjustments, which are measured and included in the calculation of our lease payments based on the consumer price index at the commencement date. We recognize changes in lease payments as a result of changes in the consumer price index in profit or loss in the period in which those payments are made.
See Note 15 for further discussion of our lessee arrangements.
Goodwill
We assess goodwill for impairment annually on October 1, or more frequently if events or changes in circumstances indicate it might be impaired. We have the option to first assess qualitative factors to determine whether it is necessary to perform a quantitative goodwill impairment test. We elected to bypass the qualitative assessment for all reporting units as of October 1, 2021 and October 1, 2020 and performed quantitative assessments, resulting in the determination that goodwill was not impaired.
We measure goodwill impairment as the excess of each reporting unit’s carrying value over its fair value, not to exceed the carrying amount of goodwill for that reporting unit. The carrying value of each reporting unit equals the total identified assets
NUSTAR ENERGY L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(including goodwill) less the sum of each reporting unit’s identified liabilities. We used reasonable and supportable methods to assign the assets and liabilities to the appropriate reporting units in a consistent manner.
As of December 31, 2021 and 2020, our reporting units to which goodwill has been allocated consisted of the following:
•crude oil pipelines;
•refined product pipelines; and
•terminals, excluding our Point Tupper facility and our refinery crude storage tanks.
Please see Notes 4 and 10 for a discussion of the balances of and changes in the carrying amount of goodwill.
We recognize an impairment of goodwill if the carrying value of a reporting unit that contains goodwill exceeds its estimated fair value. In order to estimate the fair value of the reporting unit, including goodwill, management must make certain estimates and assumptions that affect the total fair value of the reporting unit including, among other things, an assessment of market conditions, projected cash flows, discount rates and growth rates. Management’s estimates of projected cash flows related to the reporting unit include, but are not limited to, future earnings of the reporting unit, assumptions about the use or disposition of the asset, estimated remaining life of the asset, and future expenditures necessary to maintain the asset’s existing service potential. We calculate the estimated fair value of each of our reporting units using a weighted-average of values calculated using an income approach and a market approach. The income approach involves estimating the fair value of each reporting unit by discounting its estimated future cash flows using a discount rate that would be consistent with a market participant’s assumption. The market approach bases the fair value measurement on information obtained from observed stock prices of public companies and recent merger and acquisition transaction data of comparable entities.
Management’s estimates are based on numerous assumptions about future operations and market conditions, which we believe to be reasonable but are inherently uncertain. The uncertainties underlying our assumptions and estimates could differ significantly from actual results, including with respect to the duration and severity of the COVID-19 pandemic, which could lead to a different determination of the fair value of our assets. We will continue to monitor the business and consider additional interim analysis of goodwill as appropriate.
Impairment of Long-Lived Assets
We review long-lived assets, including property, plant and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. We evaluate recoverability using undiscounted estimated net cash flows generated by the related asset or asset group. If the results of that evaluation indicate that the undiscounted cash flows are less than the carrying amount of the asset (i.e., the asset is not recoverable) we perform an impairment analysis. If our intent is to hold the asset for continued use, we determine the amount of impairment as the amount by which the net carrying value exceeds its fair value. If our intent is to sell the asset, and the criteria required to classify an asset as held for sale are met, we determine the amount of impairment as the amount by which the net carrying amount exceeds its fair value less costs to sell. See Note 4 for a discussion of our long-lived asset impairment charges. We believe that the carrying amounts of our long-lived assets as of December 31, 2021 are recoverable.
Income Taxes
We are a limited partnership and generally are not subject to federal or state income taxes. Accordingly, our taxable income or loss, which may vary substantially from income or loss reported for financial reporting purposes, is generally included in the federal and state income tax returns of our partners. For transfers of publicly held common units subsequent to our initial public offering, we have made an election permitted by Section 754 of the Internal Revenue Code (the Code) to adjust the common unit purchaser’s tax basis in our underlying assets to reflect the purchase price of the units. This results in an allocation of taxable income and expenses to the purchaser of the common units, including depreciation deductions and gains and losses on sales of assets, based upon the new unitholder’s purchase price for the common units.
We conduct certain of our operations through taxable wholly owned corporate subsidiaries. We account for income taxes related to our taxable subsidiaries using the asset and liability method. Under this method, we recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. We measure deferred taxes using enacted tax rates expected to apply to taxable income in the year those temporary differences are expected to be recovered or settled.
We recognize a tax position if it is more likely than not that the tax position will be sustained, based on the technical merits of the position, upon examination. We record uncertain tax positions in the financial statements at the largest amount of benefit that is more likely than not to be realized. We had no unrecognized tax benefits as of December 31, 2021 and 2020.
NUSTAR ENERGY L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NuStar Energy and certain of its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. For U.S. federal and state purposes, as well as for our major non-U.S. jurisdictions, tax years subject to examination are 2016 through 2020, according to standard statute of limitations.
Asset Retirement Obligations
We record a liability for asset retirement obligations at the fair value of the estimated costs to retire a tangible long-lived asset at the time we incur that liability, which is generally when the asset is purchased, constructed or leased, when we have a legal obligation to incur costs to retire the asset and when a reasonable estimate of the fair value of the obligation can be made. If a reasonable estimate cannot be made at the time the liability is incurred, we record the liability when sufficient information is available to estimate the fair value.
We have asset retirement obligations with respect to certain of our assets due to various legal obligations to clean and/or dispose of those assets at the time they are retired. However, these assets can be used for an extended and indeterminate period of time as long as they are properly maintained and/or upgraded. It is our practice and current intent to maintain our assets and continue making improvements to those assets based on technological advances. As a result, we believe that our assets have indeterminate lives for purposes of estimating asset retirement obligations because dates or ranges of dates upon which we would retire these assets cannot reasonably be estimated at this time. When a date or range of dates can reasonably be estimated for the retirement of any asset, we estimate the costs of performing the retirement activities and record a liability for the fair value of these costs.
We also have legal obligations in the form of leases and right-of-way agreements, which require us to remove certain of our assets upon termination of the agreement. However, these lease or right-of-way agreements generally contain automatic renewal provisions that extend our rights indefinitely or we have other legal means available to extend our rights. Liabilities for conditional asset retirement obligations related to the retirement of terminal assets with lease and right-of-way agreements were not material as of December 31, 2021 and 2020.
Environmental Remediation Costs
Environmental remediation costs are expensed and an associated accrual established when site restoration and environmental remediation and cleanup obligations are either known or considered probable and can be reasonably estimated. These environmental obligations are based on estimates of probable undiscounted future costs using currently available technology and applying current regulations, as well as our own internal environmental policies. The environmental liabilities have not been reduced by possible recoveries from third parties. Environmental costs include initial site surveys, costs for remediation and restoration and ongoing monitoring costs, as well as fines, damages and other costs, when applicable and estimable. Adjustments to initial estimates are recorded, from time to time, to reflect changing circumstances and estimates based upon additional information developed in subsequent periods.
Revenue Recognition
Revenue-Generating Activities. Revenues for the pipeline segment are derived from interstate and intrastate pipeline transportation of refined products, crude oil and anhydrous ammonia and the applicable pipeline tariff on a per barrel basis for crude oil or refined products and on a per ton basis for ammonia. Revenues generated from product sales in the pipeline segment relate to surplus pipeline loss allowance volumes.
Revenues for the storage segment include fees for tank storage agreements, under which a customer agrees to pay for a certain amount of storage in a tank over a period of time (storage terminal revenues), and throughput agreements, under which a customer pays a fee per barrel for volumes moving through our terminals (throughput terminal revenues). Our terminals also provide blending, additive injections, handling and filtering services for which we charge additional fees. Certain of our facilities charge fees to provide marine services such as pilotage, tug assistance, line handling, launch service, emergency response services and other ship services (all of which are considered optional services). We are considered to be the lessor in certain revenue contracts. To the extent that a contract contains both lease and non-lease components, such as when we provide both storage capacity and optional services to a customers, we combine the lease and non-lease components and account for the transaction based on the predominant component.
Revenues for the fuels marketing segment are derived from the sale of petroleum products.
Within our pipeline and storage segments, we provide services on uninterruptible and interruptible bases. Uninterruptible services within our pipeline segment typically result from contracts that contain take-or-pay minimum volume commitments (MVCs) from the customer. Contracts with MVCs obligate the customer to pay for that minimum amount. If a customer fails to meet its MVC for the applicable service period, the customer is obligated to pay a deficiency fee based upon the shortfall
NUSTAR ENERGY L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
between the actual volumes transported or stored and the MVC for that service period (deficiency payments). In exchange, those contracts with MVCs obligate us to stand ready to transport volumes up to the customer’s MVC.
Within our storage segment, uninterruptible services arise from contracts containing a fixed monthly fee for the portion of storage capacity reserved by the customer. These contracts require that the customer pay the fixed monthly fee, regardless of whether or not it uses our storage facility (i.e., take-or-pay obligation), and that we stand ready to store that volume. Interruptible services within our pipeline and storage segments are generally provided when and to the extent we determine the requested capacity is available. The customer typically pays a per-unit rate for the actual quantities of services it receives.
For the majority of our contracts, we recognize revenue in the amount to which we have a right to invoice. Generally, payment terms do not exceed 30 days.
Performance Obligations. The majority of our contracts contain a single performance obligation. For our pipeline segment, the single performance obligation encompasses multiple activities necessary to deliver our customers’ products to their destinations. Typically, we satisfy this performance obligation over time as the product volume is delivered in or out of the pipelines. Certain of our pipeline segment customer contracts include an incentive pricing structure, which provides a discounted rate for the remainder of the contract once the customer exceeds a cumulative volume. The ability to receive discounted future services represents a material right to the customer, which results in a second performance obligation in those contracts.
The performance obligation for our storage segment consists of multiple activities necessary to receive, store and deliver our customers’ products. We typically satisfy this performance obligation over time as the product volume is delivered in or out of the tanks (for throughput terminal revenues) or with the passage of time (for storage terminal revenues).
Product sales contracts generally include a single performance obligation to deliver specified volumes of a commodity, which we satisfy at a point in time, when the product is delivered and the customer obtains control of the commodity.
Optional services described in our contracts do not provide a material right to the customer, and are not considered a separate performance obligation in the contract. If and when a customer elects an optional service, and the terms of the contract are otherwise met, those services become part of the existing performance obligation.
Transaction Price. For uninterruptible services, we determine the transaction price at contract inception based on the guaranteed minimum amount of revenue over the term of the contract. For interruptible services and optional services, we determine the transaction price based on our right to invoice the customer for the value of services provided to the customer for the applicable period.
In certain instances, our customers reimburse us for capital projects, in arrangements referred to as contributions in aid of construction, or CIAC. Typically, in these instances, we receive upfront payments for future services, which are included in the transaction price of the underlying service contract.
We collect taxes on certain revenue transactions to be remitted to governmental authorities, which may include sales, use, value-added and some excise taxes. These taxes are not included in the transaction price and are, therefore, excluded from revenues.
Allocation of Transaction Price. We allocate the transaction price to the single performance obligation that exists in the vast majority of our contracts with customers. For the few contracts that have a second performance obligation, such as those that include an incentive pricing structure, we calculate an average rate based on the estimated total volumes to be delivered over the term of the contract and the resulting estimated total revenue to be billed using the applicable rates in the contract. We allocate the transaction price to the two performance obligations by applying the average rate to product volumes as they are delivered to the customer over the term of the contract. Determining the timing and amount of volumes subject to these incentive pricing contracts requires judgment that can impact the amount of revenue allocated to the two separate performance obligations. We base our estimates on our analysis of expected future production information available from our customers or other sources, which we update at least quarterly.
Some of our MVC contracts include provisions that allow the customer to apply deficiency payments to future service periods (the carryforward period). In those instances, we have not satisfied our performance obligation as we still have the obligation to perform those services, subject to contractual and/or capacity constraints, at the customer’s request. At least quarterly, we assess the customer’s ability to utilize any deficiency payments during the carryforward period. If we receive a deficiency payment
NUSTAR ENERGY L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
from a customer that we expect the customer to utilize during the carryforward period, we defer that amount as a contract liability. We will consider the performance obligation satisfied and allocate any deferred deficiency payments to our performance obligation when the customer utilizes the deficiency payment, the carryforward period ends or we determine the customer cannot or will not utilize the deficiency payment (i.e. breakage). If our contract does not allow the customer to apply deficiency payments to future service periods, we allocate the deficiency payment to the already satisfied portion of the performance obligation.
Income Allocation
Our partnership agreement contains provisions for the allocation of net income to the unitholders. Our net income for each quarterly reporting period is first allocated to the preferred limited partner unitholders in an amount equal to the earned distributions for the respective reporting period. We allocate the remaining net income or loss among the common unitholders.
Basic and Diluted Net Income (Loss) Per Common Unit
Basic and diluted net income (loss) per common unit is determined pursuant to the two-class method. Under this method, all earnings are allocated to our limited partners and participating securities based on their respective rights to receive distributions earned during the period. Participating securities include restricted units awarded under our long-term incentive plans.
We compute basic net income (loss) per common unit by dividing net income (loss) attributable to our common limited partners by the weighted-average number of common units outstanding during the period. We compute diluted net income (loss) per common unit by dividing net income (loss) attributable to our common limited partners by the sum of (i) the weighted-average number of common units outstanding during the period and (ii) the effect of dilutive potential common units outstanding during the period. Dilutive potential common units include contingently issuable performance units awarded and the Series D Preferred Units. See Note 22 for additional information on our performance units, Note 17 for additional information on our Series D Preferred Units and Note 19 for the calculation of basic and diluted net income (loss) per common unit.
Derivative Financial Instruments
When we apply hedge accounting, we formally document all relationships between hedging instruments and hedged items. This process includes identification of the hedging instrument and the hedged transaction, the nature of the risk being hedged and how the hedging instrument’s effectiveness will be assessed. To qualify for hedge accounting, at inception of the hedge we assess whether the derivative instruments that are used in our hedging transactions are expected to be highly effective in offsetting changes in cash flows. Throughout the designated hedge period and at least quarterly, we assess whether the derivative instruments are highly effective and continue to qualify for hedge accounting.
We enter into the forward-starting swaps in order to hedge the risk of changes in the interest payments attributable to changes in the benchmark interest rate during the period from the effective date of the swap to the issuance of the forecasted debt. For forward-starting interest rate swaps designated and qualifying as cash flow hedges, we recognize the fair value of each interest rate swap in the consolidated balance sheets. We record changes in the fair value of the hedge as a component of accumulated other comprehensive income (loss) (AOCI), to the extent those cash flow hedges remain highly effective. If at any point a cash flow hedge ceases to qualify for hedge accounting, changes in the fair value of the hedge are recognized in “Interest expense, net” from that date forward. The amount accumulated in AOCI is amortized into “Interest expense, net” as the forecasted interest payments occur or if the interest payments are probable not to occur.
We classify cash flows associated with our derivative instruments as operating cash flows in the consolidated statements of cash flows, except for receipts or payments associated with terminated forward-starting interest rate swap agreements, which are included in cash flows from financing activities. See Note 16 for additional information regarding our derivative financial instruments.
Unit-based Compensation
Unit-based compensation for our long-term incentive plans is recorded in our consolidated balance sheets based on the fair value of the awards granted and recognized as compensation expense primarily on a straight-line basis over the requisite service period. Forfeitures of our unit-based compensation awards are recognized as an adjustment to compensation expense when they occur. Unit-based compensation expense is included in “General and administrative expenses” on our consolidated statements of income (loss). Most of our currently outstanding awards are classified as equity awards as we intend to settle these awards through the issuance of our common units. See Note 22 for additional information regarding our unit-based compensation.
NUSTAR ENERGY L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Foreign Currency Translation
The functional currencies of our foreign subsidiaries are the local currencies of the countries in which the subsidiaries are located. The assets and liabilities of our foreign subsidiaries with local functional currencies are translated to U.S. dollars at period-end exchange rates, and income and expense items are translated to U.S. dollars at weighted-average exchange rates in effect during the period. These translation adjustments are included in “Accumulated other comprehensive loss” in the equity section of the consolidated balance sheets. Gains and losses on foreign currency transactions are included in “Other income (expense), net” in the consolidated statements of income (loss).
Reclassifications
We have reclassified certain previously reported amounts in the consolidated financial statements and notes to conform to current-period presentation.
3. NEW ACCOUNTING PRONOUNCEMENTS
Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity
In August 2020, the Financial Accounting Standards Board (FASB) issued guidance intended to simplify the accounting for convertible instruments by eliminating certain accounting models for convertible debt instruments and convertible preferred stock, requiring the calculation of diluted earnings-per-unit to include the effect of potential unit settlement for any convertible instruments that may be settled in either cash or units, and amending the disclosure requirements for convertible instruments. The guidance is effective for annual periods beginning after December 15, 2021, and early adoption was permitted for annual periods beginning after December 15, 2020. Amendments may be applied using either a modified retrospective approach or a fully retrospective approach. We adopted the amended guidance on January 1, 2022 using the modified retrospective approach. While the amended guidance did not have a material impact on our financial position, results of operations, or disclosures at adoption, changes to the earnings-per-unit guidance could result in changes to our diluted net income (loss) per common unit.
Reference Rate Reform
In March 2020, the FASB issued guidance intended to provide relief to companies impacted by reference rate reform. The amended guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The publication of U.S. dollar LIBOR rates for the most common tenors is expected to cease after publication on June 30, 2023. As of December 31, 2021, approximately $0.6 billion of our variable-rate debt uses LIBOR as a benchmark for establishing the interest rate. In addition, the distribution rates on our Series A, B and C preferred units convert from fixed rates to floating rates based on LIBOR, beginning in December 2021, June 2022 and December 2022, respectively. The FASB’s guidance is effective as of March 12, 2020 through December 31, 2022. We adopted the guidance on the effective date on a prospective basis. The guidance did not have an impact on our financial position, results of operations or disclosures at transition, but we will continue to evaluate its impact on contracts modified on or before December 31, 2022.
4. DISPOSITIONS, DISCONTINUED OPERATIONS AND IMPAIRMENTS
Eastern U.S. Terminals Disposition
On August 1, 2021, we entered into an agreement (the Purchase Agreement) to sell the Eastern U.S. Terminal Operations to Sunoco LP for $250.0 million in cash. The Eastern U.S. Terminal Operations include terminals in the following locations; Jacksonville, Florida; Andrews Air Force Base, Maryland; Baltimore, Maryland; Piney Point, Maryland; Virginia Beach, Virginia; Paulsboro, New Jersey; and Blue Island, Illinois, as well as both Linden, New Jersey terminals. The Eastern U.S. Terminal Operations had an aggregate storage capacity of 14.8 million barrels and were included in the storage segment. We determined these assets were no longer synergistic with our core assets. The Eastern U.S. Terminal Operations did not qualify for reporting as discontinued operations, as the sale did not represent a strategic shift that would have a major effect on our operations or financial results. We closed the sale on October 8, 2021 and used the proceeds from the sale to reduce debt and thereby improve our debt metrics.
The Eastern U.S. Terminal Operations met the criteria to be classified as held for sale upon our entrance into the Purchase Agreement during the third quarter of 2021. At that time, we allocated goodwill of $34.1 million to the Eastern U.S. Terminal Operations based on its fair value relative to the terminals reporting unit, with which it had been fully integrated. We tested the allocated goodwill for impairment by comparing the fair value of the Eastern U.S. Terminal Operations to its carrying value. The results of our goodwill impairment test indicated that the carrying value of the Eastern U.S. Terminal Operations exceeded its fair value, and we recognized a related goodwill impairment charge of $34.1 million in the third quarter of 2021 to reduce the allocated goodwill to $0. The goodwill impairment loss is reported in “Goodwill impairment losses” on the consolidated statement of income for the year ended December 31, 2021. We believe that the sales price of $250.0 million provided a
NUSTAR ENERGY L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
reasonable indication of the fair value of the Eastern U.S. Terminal Operations as it represents an exit price in an orderly transaction between market participants. The sales price is a quoted price for identical assets and liabilities in a market that is not active and, thus, our fair value estimate falls within Level 2 of the fair value hierarchy.
We compared the remaining carrying value of the Eastern U.S. Terminal Operations, after its goodwill impairment, to its fair value less costs to sell. We recognized an asset impairment loss of $95.7 million in the third quarter of 2021, which is reported in “Asset impairment losses” on the consolidated statement of income for the year ended December 31, 2021. The asset impairment loss included $23.9 million related to intangible assets representing customer contracts and relationships.
Houston Pipeline Impairment
In the third quarter of 2021, we recorded a long-lived asset impairment charge of $59.2 million within our pipeline segment related to our refined product pipeline extending from Mt. Belvieu, Texas to Corpus Christi, Texas (the Houston Pipeline). During the third quarter of 2021, we identified an indication of impairment related to the southern section of the Houston Pipeline, specifically that its physical condition would require significant investment in order to pursue commercial opportunities. Consequently, we separated the pipeline into two distinct assets: the northern and southern sections. Our estimate of the undiscounted cash flows associated with the southern section indicated it was not recoverable. Due to the factors described above, we determined the carrying value of the southern section exceeded its fair value, and reduced its carrying value to $0. We recorded the asset impairment charge in “Asset impairment losses” on the consolidated statement of income for the year ended December 31, 2021. We determined that the northern portion of the pipeline was not impaired.
Sale of Texas City Terminals
On December 7, 2020, we sold the equity interests in our wholly owned subsidiaries that owned two terminals in Texas City, Texas for $106.0 million (the Texas City Sale). The two terminals had an aggregate storage capacity of 3.0 million barrels and were previously included in our storage segment. We recorded a non-cash loss of $34.7 million in “Other income (expense), net” on our consolidated statement of loss for the year ended December 31, 2020 and utilized the sales proceeds to reduce debt and thereby improve our debt metrics.
Sale of St. Eustatius Operations
On July 29, 2019, we sold the St. Eustatius Operations for net proceeds of approximately $230.0 million. The St. Eustatius Disposition included a 14.3 million barrel storage and terminalling facility and related assets on the island of St. Eustatius in the Caribbean Netherlands. We previously reported the terminal operations in our storage segment and the bunkering operations in our fuels marketing segment. We recognized a non-cash loss on the sale of $3.9 million in “Loss from discontinued operations, net of tax” on the consolidated statement of loss for the year ended December 31, 2019.
Impairments. On January 28, 2019, the U.S. Department of the Treasury’s Office of Foreign Assets Control added Petroleos de Venezuela, S.A. (PDVSA), at the time a customer at the St. Eustatius facility, to its List of Specially Designated Nationals and Blocked Persons (the SDN List). The inclusion of PDVSA on the SDN List required us to wind down our contracts with PDVSA. Prior to winding down such contracts, PDVSA was the St. Eustatius terminal’s largest customer. The effect of the sanctions issued against PDVSA, combined with the progression in the sale negotiations that occurred during March 2019, resulted in triggering events that caused us to evaluate the long-lived assets and goodwill associated with the St. Eustatius terminal and bunkering operations for potential impairment.
With respect to the terminal operations long-lived assets, our estimates of future expected cash flows included the possibility of a near-term sale, as well as continuing to operate the terminal. The carrying value of the terminal’s long-lived assets exceeded our estimate of the total expected cash flows, indicating the long-lived assets were potentially impaired. To determine an impairment amount, we estimated the fair value of the long-lived assets for comparison to the carrying amount of those assets. Our estimate of the fair value considered the expected sales price as well as estimates generated from income and market approaches using a market participant’s assumptions. The estimated fair values resulting from the market and income approaches were consistent with the expected sales price. Therefore, we concluded that the estimated sales price, which was less than the carrying amount of the long-lived assets, represented the best estimate of fair value at March 31, 2019, and we recorded a long-lived asset impairment charge of $297.3 million in the first quarter of 2019 to reduce the carrying value of the assets to their estimated fair value. We recorded an additional impairment charge of $8.4 million in the second quarter of 2019, mainly due to additional capital expenditures incurred in that quarter.
With respect to the goodwill in the Statia Bunkering reporting unit, which consisted of our bunkering operations at the St. Eustatius terminal facility, we estimated the fair value based on the expected sales price discussed above, which is inclusive of the bunkering operations. As a result, we concluded the goodwill was impaired. We measured the goodwill impairment as the
NUSTAR ENERGY L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
difference between the reporting unit’s carrying value and its fair value. Therefore, we recognized a goodwill impairment charge of $31.1 million in the first quarter of 2019 to reduce the goodwill to $0 for the Statia Bunkering reporting unit.
The impairment charges are included in “Loss from discontinued operations, net of tax” on the consolidated statement of loss for the year ended December 31, 2019.
Discontinued Operations. During the second quarter of 2019, we determined the assets and liabilities associated with the St. Eustatius Operations met the criteria to be classified as held for sale. We determined the St. Eustatius Operations met the requirements to be reported as discontinued operations since the St. Eustatius Disposition and the sale of the European operations in November 2018 together represented a strategic shift that will have a major impact on our operations and financial results. These sales were part of our plan to improve our debt metrics and partially fund capital projects to grow our core business in North America. Accordingly, we reclassified certain balances to assets held for sale and liabilities held for sale. The consolidated statement of loss for the year ended December 31, 2019 reflects the St. Eustatius Operations as discontinued operations.
The following is a reconciliation of the major classes of line items included in “Loss from discontinued operations, net of tax” on the consolidated statements of income (loss):
| | | | | |
| Year Ended December 31, 2019 |
| (Thousands of Dollars) |
| |
| |
| |
Revenues | $ | 248,981 | |
Costs and expenses: | |
| |
| |
| |
| |
| |
Cost of revenues | 220,595 | |
Impairment losses | 336,838 | |
General and administrative expenses (excluding depreciation and amortization expense) | 1,231 | |
| |
Total costs and expenses | 558,664 | |
Operating loss | (309,683) | |
Interest income, net | 32 | |
Other expense, net | (2,775) | |
Loss from discontinued operations before income tax expense | (312,426) | |
Income tax expense | 101 | |
Loss from discontinued operations, net of tax | $ | (312,527) | |
The consolidated statements of cash flows have not been adjusted to separately disclose cash flows related to discontinued operations. The following table presents selected cash flow information associated with our discontinued operations:
| | | | | |
| Year Ended December 31, 2019 |
| (Thousands of Dollars) |
Capital expenditures | $ | (27,954) | |
| |
Significant noncash operating activities and other adjustments: | |
Depreciation and amortization expense | $ | 8,536 | |
Asset impairment losses | $ | 305,715 | |
Goodwill impairment loss | $ | 31,123 | |
Loss from sale of the St. Eustatius Operations | $ | 3,942 | |
NUSTAR ENERGY L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
5. REVENUE FROM CONTRACTS WITH CUSTOMERS
Contract Assets and Contract Liabilities
The following table provides information about contract assets and contract liabilities from contracts with customers:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| Contract Assets | | Contract Liabilities | | Contract Assets | | Contract Liabilities | | Contract Assets | | Contract Liabilities |
| (Thousands of Dollars) |
Balances as of January 1: | | | | | | | | | | | |
Current portion | $ | 2,694 | | | $ | (22,019) | | | $ | 2,140 | | | $ | (21,083) | | | $ | 2,066 | | | $ | (21,579) | |
Noncurrent portion | 932 | | | (47,537) | | | 1,003 | | | (40,289) | | | 539 | | | (38,945) | |
Held for sale | — | | | — | | | — | | | — | | | — | | | (25,357) | |
Total | 3,626 | | | (69,556) | | | 3,143 | | | (61,372) | | | 2,605 | | | (85,881) | |
| | | | | | | | | | | |
Activity: | | | | | | | | | | | |
Additions | 3,888 | | | (41,121) | | | 5,686 | | | (69,830) | | | 4,890 | | | (52,957) | |
Transfer to accounts receivable | (3,977) | | | — | | | (4,828) | | | — | | | (4,352) | | | — | |
Transfer to revenues, including amounts reported in discontinued operations | (697) | | | 49,207 | | | (375) | | | 61,646 | | | — | | | 77,466 | |
| | | | | | | | | | | |
Total | (786) | | | 8,086 | | | 483 | | | (8,184) | | | 538 | | | 24,509 | |
| | | | | | | | | | | |
Balances as of December 31: | | | | | | | | | | | |
Current portion | 2,336 | | | (15,443) | | | 2,694 | | | (22,019) | | | 2,140 | | | (21,083) | |
Noncurrent portion | 504 | | | (46,027) | | | 932 | | | (47,537) | | | 1,003 | | | (40,289) | |
| | | | | | | | | | | |
Total | $ | 2,840 | | | $ | (61,470) | | | $ | 3,626 | | | $ | (69,556) | | | $ | 3,143 | | | $ | (61,372) | |
Contract assets relate to performance obligations satisfied in advance of scheduled billings. Current contract assets are included in “Other current assets” and noncurrent contract assets are included in “Other long-term assets, net” on the consolidated balance sheets. Contract liabilities relate to payments received in advance of satisfying performance obligations under a contract, which mainly result from contracts with an incentive pricing structure, CIAC payments and contracts with MVCs. The current portion of contract liabilities are included in “Accrued liabilities” and the noncurrent portion of contract liabilities are included in “Other long-term liabilities” on the consolidated balance sheets.
Remaining Performance Obligations
The following table presents our estimated revenue from contracts with customers for remaining performance obligations that has not yet been recognized, representing our contractually committed revenue as of December 31, 2021 (in thousands of dollars):
| | | | | | | | |
2022 | | $ | 413,612 | |
2023 | | 277,278 | |
2024 | | 187,995 | |
2025 | | 131,877 | |
2026 | | 89,103 | |
Thereafter | | 92,064 | |
Total | | $ | 1,191,929 | |
Our contractually committed revenue, for purposes of the tabular presentation above, is generally limited to customer contracts that have fixed pricing and fixed volume terms and conditions, generally including contracts with MVC payment obligations.
NUSTAR ENERGY L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Disaggregation of Revenues
The following table disaggregates our revenues:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (Thousands of Dollars) |
Pipeline segment: | | | | | |
Crude oil pipelines | $ | 331,485 | | | $ | 329,105 | | | $ | 316,417 | |
Refined products and ammonia pipelines (excluding lessor revenues) | 430,753 | | | 387,793 | | | 376,588 | |
Total pipeline segment revenues from contracts with customers | 762,238 | | | 716,898 | | | 693,005 | |
Lessor revenues | — | | | 1,925 | | | 8,825 | |
Total pipeline segment revenues | 762,238 | | | 718,823 | | | 701,830 | |
| | | | | |
Storage segment: | | | | | |
Throughput terminals | 122,331 | | | 136,632 | | | 114,243 | |
Storage terminals (excluding lessor revenues) | 263,883 | | | 316,496 | | | 298,984 | |
Total storage segment revenues from contracts with customers | 386,214 | | | 453,128 | | | 413,227 | |
Lessor revenues | 41,454 | | | 41,314 | | | 40,774 | |
Total storage segment revenues | 427,668 | | | 494,442 | | | 454,001 | |
| | | | | |
Fuels marketing segment: | | | | | |
Revenues from contracts with customers | 428,608 | | | 268,345 | | | 342,215 | |
| | | | | |
Consolidation and intersegment eliminations | (14) | | | (46) | | | (25) | |
| | | | | |
Total revenues | $ | 1,618,500 | | | $ | 1,481,564 | | | $ | 1,498,021 | |
6. ALLOWANCE FOR CREDIT LOSSES
The balance of and changes in the allowance for credit losses consisted of the following:
| | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2020 | | 2019 |
| | | (Thousands of Dollars) |
Balance as of beginning of year | | | $ | 72 | | | $ | 9,412 | |
Current period provision for credit losses | | | 441 | | | 2,322 | |
Write-offs charged against the allowance | | | (513) | | | (11,662) | |
| | | | | |
| | | | | |
Balance as of end of year | | | $ | — | | | $ | 72 | |
Activity for the year ended December 31, 2021 was immaterial and the balance as of December 31, 2021 was $0.
NUSTAR ENERGY L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
7. INVENTORIES
Inventories consisted of the following:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| (Thousands of Dollars) |
Petroleum products | $ | 12,456 | | | $ | 7,394 | |
Materials and supplies | 4,188 | | | 3,665 | |
Total | $ | 16,644 | | | $ | 11,059 | |
We purchase petroleum products for resale. Our petroleum products consist of intermediates, gasoline, distillates and other petroleum products. Materials and supplies mainly consist of blending and additive chemicals and maintenance materials used in our pipeline and storage segments.
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| Estimated Useful Lives | | December 31, |
| | 2021 | | 2020 |
| (Years) | | (Thousands of Dollars) |
Land, buildings and improvements | 0 | - | 40 | | $ | 366,525 | | | $ | 440,358 | |
Pipelines, storage and terminals | 15 | - | 40 | | 4,897,041 | | | 5,253,507 | |
Rights-of-way | 20 | - | 40 | | 353,262 | | | 359,441 | |
Construction in progress | | | | | 112,020 | | | 111,436 | |
Total | | | | | 5,728,848 | | | 6,164,742 | |
Less accumulated depreciation and amortization | | | | | (2,187,206) | | | (2,207,230) | |
Property, plant and equipment, net | | | | | $ | 3,541,642 | | | $ | 3,957,512 | |
Capitalized interest costs added to property, plant and equipment, including amounts related to discontinued operations, totaled $3.9 million, $4.9 million and $8.9 million for the years ended December 31, 2021, 2020 and 2019, respectively. Depreciation and amortization expense for property, plant and equipment totaled $220.4 million, $228.8 million and $226.0 million for the years ended December 31, 2021, 2020 and 2019, respectively, including depreciation and amortization expense reported in “Loss from discontinued operations, net of tax” on the consolidated statements of income (loss).
9. INTANGIBLE ASSETS
Intangible assets consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Weighted-Average Amortization Period | | December 31, 2021 | | December 31, 2020 |
| | Cost | | Accumulated Amortization | | Cost | | Accumulated Amortization |
| (Years) | | (Thousands of Dollars) |
Customer contracts and relationships | 17 | | $ | 793,900 | | | $ | (237,579) | | | $ | 863,900 | | | $ | (235,205) | |
Other | 47 | | 2,359 | | | (895) | | | 2,359 | | | (845) | |
Total | | | $ | 796,259 | | | $ | (238,474) | | | $ | 866,259 | | | $ | (236,050) | |
Intangible assets are recorded at fair value as of the date acquired. All of our intangible assets are amortized on a straight-line basis. Amortization expense for intangible assets was $48.5 million for the year ended December 31, 2021 and $51.4 million for each of the years ended December 31, 2020 and 2019. The estimated aggregate amortization expense is $44.0 million for 2022 and $38.0 million for each of the years 2023 through 2026.
NUSTAR ENERGY L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
10. GOODWILL
The balances of and changes in the carrying amount of goodwill by segment were as follows:
| | | | | | | | | | | | | | | | | |
| Pipeline | | Storage | | Total |
| (Thousands of Dollars) |
Balances as of January 1, 2020 | $ | 704,231 | | | $ | 301,622 | | | $ | 1,005,853 | |
| | | | | |
Activity for the year ended December 31, 2020: | | | | | |
Goodwill impairment loss on crude oil pipelines | (225,000) | | | — | | | (225,000) | |
Texas City Sale | — | | | (14,437) | | | (14,437) | |
| | | | | |
Balances as of December 31, 2020: | | | | | |
Goodwill | 704,231 | | | 287,185 | | | 991,416 | |
Accumulated impairment loss | (225,000) | | | — | | | (225,000) | |
Net goodwill | 479,231 | | | 287,185 | | | 766,416 | |
| | | | | |
Activity for the year ended December 31, 2021: | | | | | |
Goodwill impairment loss on Eastern U.S. Terminal Operations | — | | | (34,060) | | | (34,060) | |
| | | | | |
Balances as of December 31, 2021: | | | | | |
Goodwill | 704,231 | | | 253,125 | | | 957,356 | |
Accumulated impairment loss | (225,000) | | | — | | | (225,000) | |
Net goodwill | $ | 479,231 | | | $ | 253,125 | | | $ | 732,356 | |
Eastern U.S. Terminals Operations. On October 8, 2021, we completed the sale of the Eastern U.S. Terminals Operations. In the third quarter of 2021, the Eastern U.S. Terminal Operations met the criteria to be classified as held for sale, and we tested the allocated goodwill for impairment. We recognized a goodwill impairment charge of $34.1 million in the third quarter of 2021. Please see Note 4 for additional information on the disposition.
Texas City Sale. On December 7, 2020, we completed the Texas City Sale and the goodwill associated with the sold terminals was included in the calculation of the loss on sale. Please see Note 4 for additional information on the sale.
2020 Impairment. In March 2020, the COVID-19 pandemic and actions taken by the Organization of Petroleum Exporting Countries and other oil-producing nations (OPEC+) resulted in severe disruptions in the capital and commodities markets, which led to significant decline in our unit price. As a result, our equity market capitalization fell significantly. The decline in crude oil prices and demand for petroleum products also led to a decline in expected earnings from some of our goodwill reporting units. These factors and others related to COVID-19 and OPEC+ caused us to conclude there were triggering events that occurred in March 2020 that required us to perform a goodwill impairment test as of March 31, 2020. We recognized a goodwill impairment charge of $225.0 million in the first quarter of 2020, which is reported in the pipeline segment. Our assessment did not identify any other reporting units at risk of a goodwill impairment.
We calculated the estimated fair value of each of our reporting units using a weighted-average of values determined from an income approach and a market approach. The income approach involves estimating the fair value of each reporting unit by discounting its estimated future cash flows using a discount rate that would be consistent with a market participant’s assumption. The market approach bases the fair value measurement on information obtained from observed stock prices of public companies and recent merger and acquisition transaction data of comparable entities. In order to estimate the fair value of goodwill, management must make certain estimates and assumptions that affect the total fair value of the reporting unit including, among other things, an assessment of market conditions, projected cash flows, discount rates and growth rates. Management’s estimates of projected cash flows related to the reporting unit include, but are not limited to, future earnings of the reporting unit, assumptions about the use or disposition of assets included in the reporting unit, estimated remaining lives of those assets, and future expenditures necessary to maintain the assets’ existing service potential. The assumptions in the fair value measurement reflect the current market environment, industry-specific factors and company-specific factors.
NUSTAR ENERGY L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The decline in expected earnings from certain of our long-lived assets was also an indicator that the carrying values of these long-lived assets may not be recoverable. Prior to performing the goodwill impairment test, we tested these long-lived assets for recoverability and determined they were fully recoverable as of March 31, 2020.
Management’s estimates are based on numerous assumptions about future operations and market conditions, which we believe to be reasonable but are inherently uncertain. The uncertainties underlying our assumptions and estimates could differ significantly from actual results, including with respect to the duration and severity of the COVID-19 pandemic.
11. ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| (Thousands of Dollars) |
Employee wages and benefit costs | $ | 40,209 | | | $ | 27,805 | |
Revenue contract liabilities | 15,443 | | | 22,019 | |
| | | |
Operating lease liabilities | 10,346 | | | 10,890 | |
| | | |
Environmental costs | 3,378 | | | 5,371 | |
| | | |
Other | 10,442 | | | 11,685 | |
Accrued liabilities | $ | 79,818 | | | $ | 77,770 | |
12. DEBT
Short-term debt consisted of the current portion of finance leases, with balances of $3.8 million as of December 31, 2021 and 2020. Please refer to Note 15 for additional information.
Long-term debt consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | December 31, |
| Maturity | | 2021 | | 2020 |
| | | | | (Thousands of Dollars) |
Revolving Credit Agreement | April 27, 2025 (a) | | $ | 110,500 | | | $ | — | |
6.75% senior notes | February 1, 2021 | | — | | | 300,000 | |
4.75% senior notes | February 1, 2022 | | — | | | 250,000 | |
5.75% senior notes | October 1, 2025 | | 600,000 | | | 600,000 | |
6.00% senior notes | June 1, 2026 | | 500,000 | | | 500,000 | |
5.625% senior notes | April 28, 2027 | | 550,000 | | | 550,000 | |
6.375% senior notes | October 1, 2030 | | 600,000 | | | 600,000 | |
Subordinated Notes | January 15, 2043 | | 402,500 | | | 402,500 | |
GoZone Bonds | 2038 | thru | 2041 | | 322,140 | | | 322,140 | |
Receivables Financing Agreement | January 31, 2025 (a) | | 83,800 | | | 57,000 | |
Net fair value adjustments, unamortized discounts and unamortized debt issuance costs | | N/A | | | (38,315) | | | (42,382) | |
Total long-term debt (excluding finance leases) | | | | | 3,130,625 | | | 3,539,258 | |
Finance leases (refer to Note 15) | | | | | 52,930 | | | 54,238 | |
| | | | | | | |
Long-term debt, less current portion | | | | | $ | 3,183,555 | | | $ | 3,593,496 | |
(a)On January 28, 2022, the maturity date on the Revolving Credit Agreement was extended from October 27, 2023 to April 27, 2025 and the scheduled termination date of the Receivables Financing Agreement was extended from September 20, 2023 to January 31, 2025.
NUSTAR ENERGY L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The long-term debt repayments (excluding finance leases) as of December 31, 2021 are due as follows (in thousands of dollars):
| | | | | |
2022 | $ | — | |
2023 (a) | 194,300 | |
2024 | — | |
2025 | 600,000 | |
2026 | 500,000 | |
Thereafter | 1,874,640 | |
Total repayments | 3,168,940 | |
Net fair value adjustments, unamortized discounts and unamortized debt issuance costs | (38,315) | |
Total long-term debt (excluding finance leases) | $ | 3,130,625 | |
(a)On January 28, 2022, the maturity date on the Revolving Credit Agreement was extended from October 27, 2023 to April 27, 2025 and the scheduled termination date of the Receivables Financing Agreement was extended from September 20, 2023 to January 31, 2025.
Interest payments totaled $220.0 million, $207.2 million and $183.8 million for the years ended December 31, 2021, 2020 and 2019, respectively, related to debt obligations. We amortized an aggregate of $7.9 million, $11.4 million and $6.5 million of debt issuance costs and debt discount combined for the years ended December 31, 2021, 2020 and 2019, respectively.
Revolving Credit Agreement
As of December 31, 2021, NuStar Logistics’ $1.0 billion revolving credit agreement (the Revolving Credit Agreement) had $884.8 million available for borrowing and $110.5 million borrowings outstanding. Letters of credit issued under the Revolving Credit Agreement totaled $4.7 million as of December 31, 2021. Letters of credit limit the amount we can borrow under the Revolving Credit Agreement. Obligations under the Revolving Credit Agreement are guaranteed by NuStar Energy and NuPOP.
The Revolving Credit Agreement is subject to maximum consolidated debt coverage ratio and minimum consolidated interest coverage ratio requirements, which may limit the amount we can borrow to an amount less than the total amount available for borrowing. For the rolling period ending December 31, 2021, the maximum allowed consolidated debt coverage ratio (as defined in the Revolving Credit Agreement) may not exceed 5.00-to-1.00 and the minimum consolidated interest coverage ratio (as defined in the Revolving Credit Agreement), must not be less than 1.75-to-1.00. The Revolving Credit Agreement also contains customary restrictive covenants, such as limitations on indebtedness, liens, mergers, asset transfers and certain investing activities. As of December 31, 2021, we believe that we are in compliance with the covenants in the Revolving Credit Agreement.
Prior to the amendment on January 28, 2022, described below, the Revolving Credit Agreement bore interest, at our option, based on an alternative base rate or a LIBOR-based rate. The interest rate on the Revolving Credit Agreement is subject to adjustment if our debt rating is downgraded (or upgraded) by certain credit rating agencies. In August of 2020, Moody’s Investor Service Inc. downgraded our credit rating from Ba2 to Ba3. This rating downgrade caused the interest rate on our Revolving Credit Agreement to increase by 0.25% effective August 2020. The interest rate on the Revolving Credit Agreement and certain fees under the Receivables Financing Agreement, defined below, are the only debt arrangements that are subject to adjustment if our debt rating is downgraded (or upgraded) by certain credit rating agencies. As of December 31, 2021, our weighted-average interest rate under our Revolving Credit Agreement was 2.9%. During the year ended December 31, 2021, the weighted-average interest rate related to borrowings under the Revolving Credit Agreement was 2.7%.
On January 28, 2022, we amended and restated our unsecured Revolving Credit Agreement to, among other things: (i) extend the maturity date from October 27, 2023 to April 27, 2025; (ii) increase the maximum amount of letters of credit capable of being issued from $400.0 million to $500.0 million; (iii) replace LIBOR benchmark provisions with customary secured overnight financing rate, or SOFR, benchmark provisions; (iv) remove the 0.50x increase permitted in our consolidated debt coverage ratio for certain rolling periods in which an acquisition for aggregate net consideration of at least $50.0 million occurs; and (v) add baskets and exceptions to certain negative covenants. On April 6, 2020, we amended the Revolving Credit Agreement to allow for certain transactions related to the GoZone Bonds discussed below. On March 6, 2020, we amended the Revolving Credit Agreement to, among other things, reduce the total amount available for borrowing from $1.2 billion to $1.0 billion and increase the rates included in the definition of Applicable Rate contained in the Revolving Credit Agreement.
NUSTAR ENERGY L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Notes
NuStar Logistics Senior Notes. On November 1, 2021, we repaid our $250.0 million of 4.75% senior notes due February 1, 2022 with proceeds from the Eastern U.S. Terminals Disposition. We repaid our $300.0 million of 6.75% senior notes due February 1, 2021 and our $450.0 million of 4.8% senior notes due September 1, 2020 with borrowings under our Revolving Credit Agreement.
On September 14, 2020, NuStar Logistics issued $600.0 million of 5.75% senior notes due October 1, 2025 and $600.0 million of 6.375% senior notes due October 1, 2030. We received proceeds of $1,182.0 million, net of issuance costs of $18.0 million, which we used to repay outstanding borrowings and the early repayment premiums under the Term Loan, as defined below, as well as outstanding borrowings under our Revolving Credit Agreement. The issuance of the 5.75% and 6.375% senior notes bolstered our liquidity to address our senior note maturities that we repaid in 2021. On May 22, 2019, NuStar Logistics issued $500.0 million of 6.0% senior notes due June 1, 2026. We received net proceeds of $491.6 million, which we used to repay outstanding borrowings under our Revolving Credit Agreement.
Interest is payable semi-annually in arrears for the $600.0 million of 5.75% senior notes, $500.0 million of 6.0% senior notes, $550.0 million of 5.625% senior notes and $600.0 million of 6.375% senior notes (collectively, the NuStar Logistics Senior Notes).
The NuStar Logistics Senior Notes do not have sinking fund requirements. These notes rank equally with existing senior unsecured indebtedness and senior to existing subordinated indebtedness of NuStar Logistics and contain restrictions on NuStar Logistics’ ability to incur secured indebtedness unless the same security is also provided for the benefit of holders of the NuStar Logistics Senior Notes. In addition, the NuStar Logistics Senior Notes limit the ability of NuStar Logistics and its subsidiaries to, among other things, incur indebtedness secured by certain liens, engage in certain sale-leaseback transactions and engage in certain consolidations, mergers or asset sales. At the option of NuStar Logistics, the NuStar Logistics Senior Notes may be redeemed in whole or in part at any time at a redemption price, plus accrued and unpaid interest to the redemption date. If we undergo a change of control, as defined in the supplemental indentures for the NuStar Logistics Senior Notes, each holder of the applicable senior notes may require us to repurchase all or a portion of its notes at a price equal to 101% of the principal amount of the notes repurchased, plus any accrued and unpaid interest to the date of repurchase. The NuStar Logistics Senior Notes are fully and unconditionally guaranteed by NuStar Energy and NuPOP.
NuStar Logistics Subordinated Notes. NuStar Logistics’ $402.5 million of fixed-to-floating rate subordinated notes are due January 15, 2043 (the Subordinated Notes). The Subordinated Notes are fully and unconditionally guaranteed on an unsecured and subordinated basis by NuStar Energy and NuPOP. Effective January 15, 2018, the interest rate on the Subordinated Notes switched to an annual rate equal to the sum of the three-month LIBOR for the related quarterly interest period, plus 6.734% payable quarterly, commencing April 15, 2018, unless payment is deferred in accordance with the terms of the notes. NuStar Logistics may elect to defer interest payments on the Subordinated Notes on one or more occasions for up to five consecutive years. Deferred interest will accumulate additional interest at a rate equal to the interest rate then applicable to the Subordinated Notes until paid. If NuStar Logistics elects to defer interest payments, NuStar Energy cannot declare or make cash distributions to its unitholders during the period that interest payments are deferred. As of December 31, 2021, the interest rate was 6.9%.
The Subordinated Notes do not have sinking fund requirements and are subordinated to existing senior unsecured indebtedness of NuStar Logistics and NuPOP. The Subordinated Notes do not contain restrictions on NuStar Logistics’ ability to incur additional indebtedness, including debt that ranks senior in priority of payment to the notes. In addition, the Subordinated Notes do not limit NuStar Logistics’ ability to incur indebtedness secured by liens or to engage in certain sale-leaseback transactions. Effective January 15, 2018, we may redeem the Subordinated Notes in whole or in part at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest to the redemption date.
Gulf Opportunity Zone Revenue Bonds
In 2008, 2010 and 2011, the Parish of St. James, Louisiana issued Revenue Bonds Series 2008, Series 2010, Series 2010A, Series 2010B and Series 2011 associated with our St. James terminal expansions pursuant to the Gulf Opportunity Zone Act of 2005 for an aggregate $365.4 million (collectively, the GoZone Bonds). Following the issuances, the proceeds were deposited with a trustee and were disbursed to us upon our request for reimbursement of expenditures related to our St. James terminal. On March 4, 2020, NuStar Logistics repaid $43.3 million of GoZone Bonds with unused funds, which had been held in trust. NuStar Logistics is obligated to make payments in amounts sufficient to pay the principal of, premium, if any, interest and certain other payments on, the GoZone Bonds.
NUSTAR ENERGY L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
On June 3, 2020, NuStar Logistics completed the reoffering and conversion of the GoZone Bonds through supplements to the original indentures governing the GoZone Bonds and supplements to the original agreements between NuStar Logistics and the Parish of St. James, which, among other things, converted the interest rate from a weekly rate to a long-term rate. In connection with the reoffering and conversion, we terminated the letters of credit previously issued by various individual banks on our behalf to support the payments required in connection with the GoZone Bonds, and NuStar Energy and NuPOP guaranteed NuStar Logistics’ obligations with respect to the GoZone Bonds. We did not receive any proceeds from the reoffering, and the reoffering did not increase our outstanding debt.
The following table summarizes the GoZone Bonds outstanding as of December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Series | | Date Issued | | Amount Outstanding | | | | | | | | Interest Rate | | Mandatory Purchase Date | | Maturity Date |
| | | | (Thousands of Dollars) | | | | | | |
Series 2008 | | June 26, 2008 | | $ | 55,440 | | | | | | | | | 6.10 | % | | June 1, 2030 | | June 1, 2038 |
Series 2010 | | July 15, 2010 | | 100,000 | | | | | | | | | 6.35 | % | | n/a | | July 1, 2040 |
Series 2010A | | October 7, 2010 | | 43,300 | | | | | | | | | 6.35 | % | | n/a | | October 1, 2040 |
Series 2010B | | December 29, 2010 | | 48,400 | | | | | | | | | 6.10 | % | | June 1, 2030 | | December 1, 2040 |
Series 2011 | | August 9, 2011 | | 75,000 | | | | | | | | | 5.85 | % | | June 1, 2025 | | August 1, 2041 |
| | Total | | $ | 322,140 | | | | | | | | | | | | | |
Interest on the GoZone Bonds accrues from June 3, 2020 and is payable semi-annually on June 1 and December 1 of each year, beginning December 1, 2020. The holders of the Series 2008, Series 2010B and Series 2011 GoZone Bonds are required to tender their bonds at the applicable mandatory purchase date in exchange for 100% of the principal plus accrued and unpaid interest, after which these bonds will potentially be remarketed with a new interest rate established. Each of the Series 2010 and Series 2010A GoZone Bonds is subject to redemption on or after June 1, 2030 by the Parish of St. James, at our option, in whole or in part, at a redemption price of 100% of the principal amount to be redeemed plus accrued interest. The Series 2008, Series 2010B and Series 2011 GoZone Bonds are not subject to optional redemption.
NuStar Logistics’ agreements with the Parish of St. James related to the GoZone Bonds contain (i) customary restrictive covenants that limit the ability of NuStar Logistics and its subsidiaries, to, among other things, create liens or enter into sale-leaseback transactions, consolidations, mergers or asset sales and (ii) a change of control provision that provides each holder the right to require the trustee, with funds provided by NuStar Logistics, to repurchase all or a portion of that holder’s GoZone Bonds upon a change of control at a price equal to 101% of the aggregate principal amount repurchased, plus any accrued and unpaid interest.
Receivables Financing Agreement
NuStar Energy and NuStar Finance LLC (NuStar Finance), a special purpose entity and wholly owned subsidiary of NuStar Energy, are parties to a $100.0 million receivables financing agreement with a third-party lender (the Receivables Financing Agreement) and agreements with certain of NuStar Energy’s wholly owned subsidiaries (together with the Receivables Financing Agreement, the Securitization Program). Under the Securitization Program, certain of NuStar Energy’s wholly owned subsidiaries (collectively, the Originators), sell their accounts receivable to NuStar Finance on an ongoing basis, and NuStar Finance provides the newly acquired accounts receivable as collateral for its revolving borrowings under the Receivables Financing Agreement. NuStar Energy provides a performance guarantee in connection with the Securitization Program. The amount available for borrowing is based on the availability of eligible receivables and other customary factors and conditions. The Securitization Program contains various customary affirmative and negative covenants and default, indemnification and termination provisions, and the Receivables Financing Agreement provides for acceleration of amounts owed upon the occurrence of certain specified events. NuStar Finance’s sole activity consists of purchasing such receivables and providing them as collateral under the Securitization Program. NuStar Finance is a separate legal entity and the assets of NuStar Finance, including these accounts receivable, are not available to satisfy the claims of creditors of NuStar Energy, the Originators or their affiliates.
On January 28, 2022, the Receivables Financing Agreement was amended to, among other things: (i) extend the scheduled termination date from September 20, 2023 to January 31, 2025; (ii) reduce the floor rate in the calculation of our borrowing rates; and (iii) replace provisions related to the LIBOR rate of interest with references to SOFR rates of interest. On September 3, 2020, the Receivables Financing Agreement was amended to, among other things: (i) reduce the amount available for borrowing from $125.0 million to $100.0 million, (ii) provide that the failure to satisfy the consolidated debt coverage ratio, as
NUSTAR ENERGY L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
defined in the Revolving Credit Agreement, would constitute an Event of Default as defined in the Receivables Financing Agreement, and (iii) increase the interest rate.
Prior to the January 28, 2022 amendment described above, borrowings by NuStar Finance under the Receivables Financing Agreement bore interest at the applicable bank rate, as defined under the Receivables Financing Agreement. Following the amendment, borrowings under the Receivables Financing Agreement bear interest, at NuStar Finance’s option, at a base rate or a SOFR rate, each as defined in the Receivables Financing Agreement. As of December 31, 2021 and 2020, accounts receivable totaling $119.2 million and $110.6 million, respectively, were included in the Securitization Program. The weighted average interest rate related to outstanding borrowings under the Securitization Program during the year ended December 31, 2021 was 2.3%.
Term Loan Credit Agreement
On April 19, 2020, NuStar Energy and NuStar Logistics entered into an unsecured term loan credit agreement with certain lenders and Oaktree Fund Administration, LLC, as administrative agent for the lenders. The Term Loan provided for an aggregate commitment of up to $750.0 million pursuant to a three-year unsecured term loan credit facility. NuStar Logistics drew $500.0 million (the Initial Loan) on April 21, 2020 (the Initial Loan Funding Date). We utilized the proceeds from the Initial Loan, net of the original issue discount of $22.5 million (3.0% of the total commitment) and issuance costs of $14.4 million, to repay outstanding borrowings under our Revolving Credit Agreement. The Term Loan bolstered our liquidity to address near-term senior note maturities.
On September 16, 2020, we used a portion of the net proceeds from the issuance of the 5.75% and 6.375% senior notes to repay the $500.0 million of outstanding borrowings under the Term Loan and pay related early repayment premiums totaling $97.6 million. We also recognized costs of $40.3 million related to unamortized debt issuance costs, unamortized discount and a commitment fee, which resulted in a loss from extinguishment of debt of $137.9 million in the third quarter of 2020. On February 16, 2021, we terminated the Term Loan.
Outstanding borrowings bore interest at an aggregate rate of 12.0% per annum, and the Term Loan was subject to a commitment fee in the amount of 5.0% per annum on the average daily undrawn amount of $250.0 million until April 19, 2021.
13. HEALTH, SAFETY AND ENVIRONMENTAL MATTERS
Our operations are subject to extensive international, federal, state and local environmental laws and regulations, in the U.S. and in the other countries in which we operate, including those relating to the discharge of materials into the environment, waste management, remediation, the characteristics and composition of fuels, climate change and greenhouse gases. Our operations are also subject to extensive health, safety and security laws and regulations, including those relating to worker and pipeline safety, pipeline and storage tank integrity and operations security. The principal environmental, health, safety and security risks associated with our operations relate to unauthorized emissions into the air, releases into soil, surface water or groundwater, personal injury and property damage. We have adopted policies, practices, systems and procedures designed to comply with the laws and regulations, and to help minimize and mitigate these risks, limit the liability that could result from such events, prevent material environmental or other damage, ensure the safety of our employees and the public and secure our pipelines, terminals and operations. Compliance with environmental, health, safety and security laws, regulations and related permits increases our capital expenditures and operating expenses, and violation of these laws, regulations or permits could result in significant civil and criminal liabilities, injunctions or other penalties. Future governmental action and regulatory initiatives could result in more restrictive laws and regulations, which could increase required capital expenditures and operating expenses. The risk of additional compliance expenditures, expenses and liabilities are inherent to government-regulated industries, including midstream energy. As a result, there can be no assurances that significant expenditures, expenses and liabilities will not be incurred in the future.
Most of our pipelines are subject to federal regulation by one or more of the following governmental agencies: the Federal Energy Regulatory Commission (the FERC), the Surface Transportation Board (the STB), the Department of Transportation (DOT), the Environmental Protection Agency (EPA) and the Department of Homeland Security. Additionally, our pipelines are subject to the respective jurisdictions of the states those lines traverse.
Environmental and safety exposures and liabilities are difficult to assess and estimate due to unknown factors such as the timing and extent of remediation, the determination of our liability in proportion to other parties, improvements in cleanup technologies and the extent to which environmental and safety laws and regulations may change in the future. Although environmental and safety costs may have a significant impact on the results of operations for any single period, we believe that such costs will not have a material adverse effect on our financial position.
NUSTAR ENERGY L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The balance of and changes in the accruals for environmental matters were as follows:
| | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 |
| (Thousands of Dollars) |
Balance as of the beginning of year | $ | 8,373 | | | $ | 7,938 | |
Additions to accrual | 2,044 | | | 3,692 | |
Payments | (2,669) | | | (3,257) | |
| | | |
Balance as of the end of year | $ | 7,748 | | | $ | 8,373 | |
Accruals for environmental matters are included in the consolidated balance sheets as follows:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| (Thousands of Dollars) |
Accrued liabilities | $ | 3,378 | | | $ | 5,371 | |
Other long-term liabilities | 4,370 | | | 3,002 | |
Accruals for environmental matters | $ | 7,748 | | | $ | 8,373 | |
14. COMMITMENTS, CONTINGENCIES AND UNCERTAINTIES
Commitments
Future minimum rental payments applicable to all noncancellable purchase obligations as of December 31, 2021 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Payments Due by Period | | |
| 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | Thereafter | | Total |
| (Thousands of Dollars) |
Purchase obligations | $ | 10,606 | | | $ | 5,125 | | | $ | 2,226 | | | $ | 1,552 | | | $ | 753 | | | $ | 5,466 | | | $ | 25,728 | |
Our purchase obligations primarily consist of an eleven-year chemical supply agreement related to our pipelines that terminates in 2022 and various service agreements with information technology providers.
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. We accrued $0.1 million and $2.6 million for contingent losses as of December 31, 2021 and 2020, respectively. The amount that will ultimately be paid related to such matters may differ from the recorded accruals, and the timing of such payments is uncertain. We evaluate each contingent loss at least quarterly, and more frequently as each matter progresses and develops over time, and we do not believe that the resolution of any particular claim or proceeding, or all matters in the aggregate, would have a material adverse effect on our results of operations, financial position or liquidity.
Uncertainties
The coronavirus, or COVID-19, had a severe negative impact on global economic activity during 2020, significantly reducing demand for petroleum products and increasing the volatility of crude oil prices, beginning in March 2020. While the U.S. economy has demonstrated signs of stabilization and improvement in 2021, ongoing uncertainty surrounding the COVID-19 pandemic has caused and may continue to cause volatility and could have a significant impact on management’s estimates and assumptions in 2022 and beyond.
NUSTAR ENERGY L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
15. LEASE ASSETS AND LIABILITIES
Lessee Arrangements
Our operating leases consist primarily of land and dock leases at various terminal facilities. As of December 31, 2021, land and dock leases have remaining terms generally of up to four years and include options to extend, some up to twenty years, which we are reasonably certain to exercise. During 2020, we modified three leases for marine vessels at our Point Tupper terminal facility in order to extend their lease terms by five years. The modifications and related remeasurements resulted in additional lease liabilities and right-of-use assets totaling $20.1 million.
The primary component of our finance lease portfolio is a dock at our Corpus Christi North Beach terminal facility, which includes a commitment for minimum dockage and wharfage throughput volumes. The dock lease has a remaining term of approximately four years and three additional five-year renewal periods, all of which we are reasonably certain to exercise.
Right-of-use assets and lease liabilities included in our consolidated balance sheet were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | | December 31, |
| | Balance Sheet Location | | 2021 | | 2020 |
| | | | (Thousands of Dollars) |
Right-of-Use Assets: | | | | | | |
Operating | | Other long-term assets, net | | $ | 76,867 | | | $ | 87,443 | |
Finance | | Property, plant and equipment, net of accumulated amortization of $13,561 and $8,444 | | $ | 71,002 | | | $ | 73,319 | |
| | | | | | |
Lease Liabilities: | | | | | | |
Operating: | | | | | | |
Current | | Accrued liabilities | | $ | 10,346 | | | $ | 10,890 | |
Noncurrent | | Other long-term liabilities | | 65,060 | | | 74,899 | |
Total operating lease liabilities | | | | $ | 75,406 | | | $ | 85,789 | |
Finance: | | | | | | |
Current | | Current portion of finance lease obligations | | $ | 3,848 | | | $ | 3,839 | |
Noncurrent | | Long-term debt, less current portion | | 52,930 | | | 54,238 | |
Total finance lease liabilities | | | | $ | 56,778 | | | $ | 58,077 | |
As of December 31, 2021, maturities of our operating and finance lease liabilities were as follows:
| | | | | | | | | | | | | | |
| | Operating Leases | | Finance Leases |
| | (Thousands of Dollars) |
2022 | | $ | 12,252 | | | $ | 5,831 | |
2023 | | 10,960 | | | 5,705 | |
2024 | | 10,656 | | | 5,217 | |
2025 | | 8,705 | | | 4,424 | |
2026 | | 5,876 | | | 3,979 | |
Thereafter | | 48,542 | | | 52,399 | |
Total lease payments | | $ | 96,991 | | | $ | 77,555 | |
Less: Interest | | 21,585 | | | 20,777 | |
Present value of lease liabilities | | $ | 75,406 | | | $ | 56,778 | |
NUSTAR ENERGY L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Costs incurred for leases, including costs associated with discontinued operations, were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| | (Thousands of Dollars) |
Operating lease cost | | $ | 15,323 | | | $ | 16,814 | | | $ | 29,167 | |
Finance lease cost: | | | | | | |
Amortization of right-of-use assets | | $ | 5,251 | | | $ | 4,700 | | | $ | 3,748 | |
Interest expense on lease liability | | $ | 2,081 | | | $ | 2,201 | | | $ | 2,212 | |
Short-term lease cost | | $ | 14,198 | | | $ | 15,359 | | | $ | 19,140 | |
Variable lease cost | | $ | 4,939 | | | $ | 8,653 | | | $ | 6,990 | |
Total lease cost | | $ | 41,792 | | | $ | 47,727 | | | $ | 61,257 | |
The table below presents additional information regarding our leases.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| Operating Leases | | Finance Leases | | Operating Leases | | Finance Leases | | Operating Leases | | Finance Leases |
| (Thousands of Dollars, Except Term and Rate Data) |
For the year ended December 31: | | | | | | | | | | | |
Cash outflows from operating activities | $ | 12,829 | | $ | 2,090 | | $ | 14,487 | | $ | 2,208 | | $ | 27,567 | | $ | 2,027 |
Cash outflows from financing activities | $ | — | | $ | 4,244 | | $ | — | | $ | 4,981 | | $ | — | | $ | 3,700 |
Right-of-use assets obtained in exchange for lease liabilities | $ | 3,278 | | $ | 3,173 | | $ | 20,830 | | $ | 3,077 | | $ | 2,153 | | $ | 4,430 |
As of December 31: | | | | | | | | | | | |
Weighted-average remaining lease term (in years) | 13 | | 18 | | 13 | | 19 | | 15 | | 20 |
Weighted-average discount rate | 3.2 | % | | 3.6 | % | | 3.2 | % | | 3.7 | % | | 3.6 | % | | 3.7 | % |
Lessor Arrangements
We have entered into certain revenue arrangements where we are considered to be the lessor. Under the largest of these arrangements, we lease certain of our storage tanks in exchange for a fixed fee, subject to an annual consumer price index adjustment. The operating leases commenced on January 1, 2017, and have initial terms of 10 years with successive automatic renewal terms. We recognized lease revenues from these leases of $41.5 million, $41.3 million, and $40.8 million for the years ended December 31, 2021, 2020, and 2019, respectively, which are included in “Service revenues” in the consolidated statements of income (loss). As of December 31, 2021, we expect to receive minimum lease payments totaling $195.6 million, based upon the consumer price index as of the adoption date. We will recognize these payments ratably over the remaining initial lease term.
The table below presents cost, accumulated depreciation and useful life information related to our storage lease assets, which are included in our “Pipeline, storage and terminals” asset class within property, plant and equipment:
| | | | | | | | | | | | | | | | | |
| Estimated Useful Life | | December 31, |
| | 2021 | | 2020 |
| (Years) | | (Thousands of Dollars) |
Lease storage assets, at cost | 30 | | $ | 246,841 | | | $ | 241,664 | |
Less accumulated depreciation | | | (139,200) | | | (130,217) | |
Lease storage assets, net | | | $ | 107,641 | | | $ | 111,447 | |
NUSTAR ENERGY L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
16. DERIVATIVES AND FAIR VALUE MEASUREMENTS
Derivative Instruments
We utilize various derivative instruments to manage our exposure to interest rate risk and commodity price risk. Our risk management policies and procedures are designed to monitor interest rates, futures and swap positions and over-the-counter positions, as well as physical commodity volumes, grades, locations and delivery schedules, to help ensure that our hedging activities address our market risks.
Commodity Price Risk. 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 operations of the pipeline and storage segments. Since our fuels marketing operations expose us to commodity price risk, we enter into derivative instruments to mitigate the effect of commodity price fluctuations on our operations. Derivative financial instruments associated with commodity price risk with respect to our petroleum product inventories and related firm commitments to purchase and/or sell such inventories were not material for any period presented.
Interest Rate Risk. We were a party to certain interest rate swap agreements to manage our exposure to changes in interest rates, which consisted of forward-starting interest rate swap agreements related to forecasted debt issuances. We entered into these swaps in order to hedge the risk of fluctuations in the required interest payments attributable to changes in the benchmark interest rate during the period from the effective date of the swap to the issuance of the forecasted debt. Under the terms of the swaps, we paid a weighted-average fixed rate and received a rate based on the three-month USD LIBOR. These swaps qualified as cash flow hedges, and we designated them as such. We recorded mark-to-market adjustments as a component of AOCI, and the amount in AOCI is recognized in “Interest expense, net” as the forecasted interest payments occur or if the interest payments are probable not to occur. In June 2020, in connection with the reoffering and conversion of the GoZone Bonds, we terminated forward-starting interest rate swaps with an aggregate notional amount of $250.0 million and paid $49.2 million, which will be amortized into “Interest expense, net” as the related forecasted interest payments occur. The termination payments are included in cash flows from financing activities on the consolidated statements of cash flows. Please see Note 2 for additional information. In conjunction with the early repayment of our $250.0 million 4.75% senior notes due February 1, 2022 in the fourth quarter of 2021, we reclassified a loss of $0.8 million from AOCI to “Interest expense, net.”
The remaining fair value amounts associated with unwound interest rate swap agreements are presented in the table below. These amounts are amortized ratably over the remaining life of the related debt instrument into “Interest expense, net” on the consolidated statements of income (loss).
| | | | | | | | | | | | | | | | | | | | |
| | | | December 31, |
Unwound Interest Rate Swap Agreements | | Balance Sheet Location | | 2021 | | 2020 |
| | | | (Thousands of Dollars) |
| | | | | | |
Fixed-to-floating | | Long-term debt, less current portion | | $ | — | | | $ | 1,363 | |
Forward-starting | | Accumulated other comprehensive loss | | $ | (36,486) | | | $ | (42,150) | |
Our forward-starting interest rate swaps had the following impact on earnings:
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| | (Thousands of Dollars) |
Change in unrealized loss on cash flow hedges | | $ | — | | | $ | (30,291) | | | $ | (19,045) | |
Reclassification of loss on cash flow hedges to interest expense, net | | $ | 5,664 | | | $ | 4,265 | | | $ | 3,814 | |
As of December 31, 2021, we expect to reclassify a loss of $2.1 million to “Interest expense, net” within the next twelve months associated with unwound forward-starting interest rate swap agreements.
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 for which little
NUSTAR ENERGY L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
or no market data exists. We consider counterparty credit risk and our own credit risk in the determination of all estimated fair values.
We recognize cash equivalents, receivables, payables and debt in our consolidated balance sheets at their carrying amounts. The fair values of these financial instruments, except for long-term debt other than finance leases, approximate their carrying amounts. The estimated fair values and carrying amounts of the long-term debt, excluding finance leases, were as follows:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| (Thousands of Dollars) |
Fair value | $ | 3,459,153 | | | $ | 3,799,378 | |
Carrying amount | $ | 3,130,625 | | | $ | 3,539,258 | |
We have estimated the fair value of our publicly traded notes based upon quoted prices in active markets; therefore, we determined that the fair value of our publicly traded notes falls in Level 1 of the fair value hierarchy. With regard to our other debt, for which a quoted market price is not available, we have 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 value includes net fair value adjustments, unamortized discounts and unamortized debt issuance costs.
17. SERIES D CUMULATIVE CONVERTIBLE PREFERRED UNITS
Series D Preferred Units Issued and Outstanding
On June 26, 2018, the Partnership entered into a purchase agreement (the Series D Preferred Unit Purchase Agreement) with investment funds, accounts and entities (collectively, the Purchasers) managed by EIG Management Company, LLC and FS/EIG Advisors, LLC to issue and sell Series D Cumulative Convertible Preferred Units (Series D Preferred Units) in a private placement. The following is a summary of our Series D Preferred Units issued and outstanding as of December 31, 2021:
| | | | | | | | | | | | | | | | | | | | |
| | Original Issuance Date | | Number of Units Issued and Outstanding | | Purchase Price per Unit |
Initial Closing | | June 29, 2018 | | 15,760,441 | | | $ | 25.38 | |
Second Closing | | July 13, 2018 | | 7,486,209 | | | $ | 25.38 | |
Total | | | | 23,246,650 | | | |
The Series D Preferred Units rank equal to other classes of preferred units and senior to common units in the Partnership with respect to distribution rights and rights upon liquidation. The Series D Preferred Units generally vote on an as-converted basis with the common units and have certain class voting rights with respect to a limited number of matters as set forth in the partnership agreement. The Partnership is required to use its commercially reasonable efforts to register the Series D Preferred Units after the second anniversary of the Initial Closing, no later than one year after receipt of a written request from holders holding a majority of the Series D Preferred Units to register the Series D Preferred Units. If the Partnership fails to cause such registration statement to become effective by the applicable date, the Partnership will be required to pay certain amounts to the holders as liquidated damages.
Series D Preferred Units Distributions
Distributions on the Series D Preferred Units are payable out of any legally available funds, accrue and are cumulative from the issuance dates and are payable on the 15th day (or next business day) of each of March, June, September and December, beginning September 17, 2018, to holders of record on the first business day of each payment month. The distribution rates on the Series D Preferred Units are as follows: (i) 9.75%, or $57.6 million, per annum ($0.619 per unit per distribution period) for the first two years; (ii) 10.75%, or $63.4 million, per annum ($0.682 per unit per distribution period) for years three through five; and (iii) the greater of 13.75%, or $81.1 million, per annum ($0.872 per unit per distribution period) or the distribution per common unit thereafter. While the Series D Preferred Units are outstanding, the Partnership will be prohibited from paying distributions on any junior securities, including the common units, unless full cumulative distributions on the Series D Preferred Units (and any parity securities) have been, or contemporaneously are being, paid or set aside for payment through the most recent Series D Preferred Unit distribution payment date. Any Series D Preferred Unit distributions in excess of $0.635 per unit may be paid, in the Partnership’s sole discretion, in additional Series D Preferred Units, with the remainder paid in cash.
NUSTAR ENERGY L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
If we fail to pay in full any Series D Preferred Unit distribution amount, then, until we pay such distributions in full, the applicable distribution rate for each of those distribution periods shall be increased by $0.048 per Series D Preferred Unit. In addition, if we fail to pay in full any Series D Preferred Unit distribution amount for three consecutive distribution periods, then until we pay such distributions in full: (i) each holder of the Series D Preferred Units may elect to convert its Series D Preferred Units into common units on a one-for-one basis, plus any unpaid Series D distributions, (ii) one person selected by the holders holding a majority of the outstanding Series D Preferred Units shall become an additional member of our board of directors and (iii) we will not be permitted to incur any indebtedness (as defined in the Revolving Credit Agreement) or engage in any acquisitions or asset sales in excess of $50.0 million without the consent of the holders holding a majority of the outstanding Series D Preferred Units. In addition, we will permanently lose the ability to pay any part of the distributions on the Series D Preferred Units in the form of additional Series D Preferred Units.
In January 2022, our board of directors declared a distribution of $0.682 per Series D Preferred Unit to be paid on March 15, 2022.
Series D Preferred Units Conversion and Redemption Features
On or after June 29, 2020, each holder of Series D Preferred Units may convert all or any portion of its Series D Preferred Units into common units on a one-for-one basis (plus any unpaid Series D distributions), subject to anti-dilution adjustments, at any time, but not more than once per quarter, so long as any conversion is for at least $50.0 million based on the Purchase Price per Unit (or such lesser amount representing all of a holder’s Series D Preferred Units).
The Partnership may redeem all or any portion of the Series D Preferred Units, in an amount not less than $50.0 million for cash at a redemption price equal to, as applicable: (i) $31.73 per Series D Preferred Unit at any time on or after June 29, 2023 but prior to June 29, 2024; (ii) $30.46 per Series D Preferred Unit at any time on or after June 29, 2024 but prior to June 29, 2025; (iii) $29.19 per Series D Preferred Unit at any time on or after June 29, 2025; plus, in each case, the sum of any unpaid distributions on the applicable Series D Preferred Unit plus the distributions prorated for the number of days elapsed (not to exceed 90) in the period of redemption (Series D Partial Period Distributions). The holders have the option to convert the units prior to such redemption as discussed above.
Additionally, at any time on or after June 29, 2028, each holder of Series D Preferred Units will have the right to require the Partnership to redeem all of the Series D Preferred Units held by such holder at a redemption price equal to $29.19 per Series D Preferred Unit plus any unpaid Series D distributions plus the Series D Partial Period Distributions. If a holder of Series D Preferred Units exercises its redemption right, the Partnership may elect to pay up to 50% of such amount in common units (which shall be valued at 93% of a volume-weighted average trading price of the common units); provided, that the common units to be issued do not, in the aggregate, exceed 15% of NuStar Energy’s common equity market capitalization at the time.
Series D Preferred Units Change of Control
Upon certain events involving a change of control, each holder of the Series D Preferred Units may elect to: (i) convert its Series D Preferred Units into common units on a one-for-one basis, plus any unpaid Series D distributions; (ii) require the Partnership to redeem its Series D Preferred Units for an amount equal to the sum of (a) $29.82 per Series D Preferred Unit plus (b) any unpaid Series D distributions plus (c) the applicable distribution amount for the distribution periods ending after the change of control event and prior to (but including) the fourth anniversary of the Initial Closing; (iii) if the Partnership is the surviving entity and its common units continue to be listed, continue to hold its Series D Preferred Units; or (iv) if the Partnership will not be the surviving entity, or it will be the surviving entity but its common units will cease to be listed, require the Partnership to use its commercially reasonable efforts to deliver a security in the surviving entity that has substantially similar terms as the Series D Preferred Units; however, if the Partnership is unable to deliver a mirror security, each holder is still entitled to option (i) or (ii) above.
Series D Preferred Units Accounting Treatment
The Series D Preferred Units include redemption provisions at the option of the holders of the Series D Preferred Units and upon a Series D Change of Control (as defined in the partnership agreement), which are outside the Partnership’s control. Therefore, the Series D Preferred Units are presented in the mezzanine section of the consolidated balance sheets. The Series D Preferred Units have been recorded at their issuance date fair value, net of issuance costs. We reassess the presentation of the Series D Preferred Units in our consolidated balance sheets on a quarterly basis.
The Series D Preferred Units are subject to accretion from their carrying value at the issuance date to the redemption value, which is based on the redemption right of the Series D Preferred Unit holders that may be exercised at any time on or after June 29, 2028, using the effective interest method over a period of ten years. In the calculation of net income per unit, the
NUSTAR ENERGY L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
accretion is treated in the same manner as a distribution and deducted from net income to arrive at net income attributable to common units.
18. PARTNERS’ EQUITY
Series A, B and C Preferred Units
The following is a summary of our Series A, Series B and Series C Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units (collectively the Series A, B and C Preferred Units) issued and outstanding as of December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Units | | Original Issuance Date | | Number of Units Issued and Outstanding | | Price per Unit | | Fixed Distribution Rate per Annum (as a Percentage of the $25.00 Liquidation Preference per Unit) | | Fixed Distribution Rate per Unit per Annum | | Fixed Distribution per Annum (in thousands of dollars) | | Optional Redemption Date/Date at Which Distribution Rate Becomes Floating | | Floating Annual Rate (as a Percentage of the $25.00 Liquidation Preference per Unit) |
Series A Preferred Units | | November 25, 2016 | | 9,060,000 | | $ | 25.00 | | | 8.50 | % | | $ | 2.125 | | | $ | 19,252 | | | December 15, 2021 | | Three-month LIBOR plus 6.766% |
Series B Preferred Units | | April 28, 2017 | | 15,400,000 | | $ | 25.00 | | | 7.625 | % | | $ | 1.90625 | | | $ | 29,357 | | | June 15, 2022 | | Three-month LIBOR plus 5.643% |
Series C Preferred Units | | November 30, 2017 | | 6,900,000 | | $ | 25.00 | | | 9.00 | % | | $ | 2.25 | | | $ | 15,525 | | | December 15, 2022 | | Three-month LIBOR plus 6.88% |
The Series A Preferred Units switched from a fixed distribution rate to a floating rate on December 15, 2021, with the floating rate set forth below for the period indicated:
| | | | | | | | | | | | | | |
Period | | Distribution Rate per Unit | | Total Distribution |
| | | | (Thousands of Dollars) |
| | | | |
December 15, 2021 - March 14, 2022 | | $ | 0.43606 | | | $ | 3,951 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Distributions on the Series A, B and C Preferred Units are payable out of any legally available funds, accrue and are cumulative from the original issuance dates, and are payable on the 15th day (or the next business day) of each of March, June, September and December of each year to holders of record on the first business day of each payment month. The Series A, B and C Preferred Units rank equal to each other and to the Series D Preferred Units, and senior to all of our other classes of equity securities with respect to distribution rights and rights upon liquidation.
In January 2022, our board of directors declared quarterly distributions with respect to the Series A, B and C Preferred Units to be paid on March 15, 2022.
We may redeem any of our outstanding Series A, B and C Preferred Units at any time on or after the optional redemption date set forth above for each series of the Series A, B and C Preferred Units, in whole or in part, at a redemption price of $25.00 per unit plus an amount equal to all accumulated and unpaid distributions to, but not including, the date of redemption, whether or not declared. We may also redeem the Series A, B and C Preferred Units upon the occurrence of certain rating events or a change of control as defined in our partnership agreement. In the case of the latter instance, if we choose not to redeem the Series A, B and C Preferred Units, those preferred unitholders may have the ability to convert their Series A, B and C Preferred Units to common units at the then applicable conversion rate. Holders of the Series A, B and C Preferred Units have no voting rights except for certain exceptions set forth in our partnership agreement.
Common Units
Issuances of Common Units. In the fourth quarter of 2019, we issued 527,426 common units at a price of $28.44 per unit to William E. Greehey, Chairman of the Board of Directors of NuStar GP, LLC. We used the proceeds of $15.0 million from the sale of these units for general partnership purposes.
NUSTAR ENERGY L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table shows the balance of and changes in the number of our common units outstanding:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
Balance as of the beginning of year | 109,468,127 | | | 108,527,806 | | | 107,225,156 | |
Issuance of units | — | | | — | | | 527,426 | |
Unit-based compensation (refer to Note 22 for discussion) | 518,146 | | | 940,321 | | | 775,224 | |
Balance as of the end of year | 109,986,273 | | | 109,468,127 | | | 108,527,806 | |
Cash Distributions. We make quarterly distributions to common unitholders of 100% of our “Available Cash,” generally defined as cash receipts less cash disbursements, including distributions to our preferred units, and cash reserves established by the general partner, in its sole discretion. These quarterly distributions are declared and paid within 45 days subsequent to each quarter-end. The common unitholders receive a distribution each quarter as determined by the board of directors, subject to limitation by the distributions in arrears, if any, on our preferred units.
The following table summarizes information about cash distributions to our common limited partners applicable to the period in which the distributions were earned:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Cash Distributions Per Unit | | Total Cash Distributions | | Record Date | | Payment Date |
| | | | (Thousands of Dollars) | | | | |
Quarter ended: | | | | | | | | |
December 31, 2021 | | $ | 0.40 | | | $ | 44,008 | | | February 8, 2022 | | February 14, 2022 |
September 30, 2021 | | 0.40 | | | 43,814 | | | November 8, 2021 | | November 12, 2021 |
June 30, 2021 | | 0.40 | | | 43,814 | | | August 6, 2021 | | August 12, 2021 |
March 31, 2021 | | 0.40 | | | 43,834 | | | May 10, 2021 | | May 14, 2021 |
Year ended December 31, 2021 | | $ | 1.60 | | | $ | 175,470 | | | | | |
| | | | | | | | |
Year ended December 31, 2020 | | $ | 1.60 | | | $ | 174,873 | | | | | |
Year ended December 31, 2019 | | $ | 2.40 | | | $ | 259,136 | | | | | |
NUSTAR ENERGY L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Accumulated Other Comprehensive Income (Loss)
The balance of and changes in the components included in AOCI were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Foreign Currency Translation | | Cash Flow Hedges | | Pension and Other Postretirement Benefits | | Total |
| (Thousands of Dollars) |
Balance as of January 1, 2019 | $ | (47,299) | | | $ | (893) | | | $ | (6,686) | | | $ | (54,878) | |
Other comprehensive income (loss) before reclassification adjustments | 3,527 | | | (19,045) | | | 1,000 | | | (14,518) | |
Net gain on pension costs reclassified into other income, net | — | | | — | | | (2,314) | | | (2,314) | |
Net loss on cash flow hedges reclassified into interest expense, net | — | | | 3,814 | | | — | | | 3,814 | |
| | | | | | | |
Other comprehensive income (loss) | 3,527 | | | (15,231) | | | (1,314) | | | (13,018) | |
Balance as of December 31, 2019 | (43,772) | | | (16,124) | | | (8,000) | | | (67,896) | |
Other comprehensive income (loss) before reclassification adjustments | 1,410 | | | (30,291) | | | (2,924) | | | (31,805) | |
Net gain on pension costs reclassified into other income, net | — | | | — | | | (1,220) | | | (1,220) | |
Net loss on cash flow hedges reclassified into interest expense, net | — | | | 4,265 | | | — | | | 4,265 | |
| | | | | | | |
Other comprehensive income (loss) | 1,410 | | | (26,026) | | | (4,144) | | | (28,760) | |
Balance as of December 31, 2020 | (42,362) | | | (42,150) | | | (12,144) | | | (96,656) | |
Other comprehensive income before reclassification adjustments | 601 | | | — | | | 17,721 | | | 18,322 | |
Net gain on pension costs reclassified into other income, net | — | | | — | | | (1,308) | | | (1,308) | |
Net loss on cash flow hedges reclassified into interest expense, net | — | | | 5,664 | | | — | | | 5,664 | |
| | | | | | | |
Other comprehensive income | 601 | | | 5,664 | | | 16,413 | | | 22,678 | |
Balance as of December 31, 2021 | $ | (41,761) | | | $ | (36,486) | | | $ | 4,269 | | | $ | (73,978) | |
19. NET INCOME (LOSS) PER COMMON UNIT
As discussed in Note 17, the Series D Preferred Units are convertible into common units at the option of the holder at any time on or after June 29, 2020. As such, we calculated the dilutive effect of the Series D Preferred Units using the if-converted method. The effect of the assumed conversion of the Series D Preferred Units outstanding was antidilutive for each of the years ended December 31, 2021, 2020 and 2019; therefore, we did not include such conversion in the computation of diluted net (loss) income per common unit.
Contingently issuable performance units are included as dilutive potential common units if it is probable that the performance measures will be achieved, unless to do so would be antidilutive. For the years ended December 31, 2021 and 2020, we determined that it was probable that the performance measures would be achieved, but the effect would be antidilutive; therefore, we did not include any contingently issuable performance units as dilutive common units in the computation below.
NUSTAR ENERGY L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table details the calculation of net income (loss) per common unit:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (Thousands of Dollars, Except Unit and Per Unit Data) |
Net income (loss) | $ | 38,225 | | | $ | (198,983) | | | $ | (105,693) | |
Distributions to preferred limited partners | (127,399) | | | (124,882) | | | (121,693) | |
Distributions to common limited partners | (175,470) | | | (174,873) | | | (259,136) | |
Distribution equivalent rights to restricted units | (2,396) | | | (2,093) | | | (2,659) | |
Distributions in excess of income (loss) | $ | (267,040) | | | $ | (500,831) | | | $ | (489,181) | |
| | | | | |
Distributions to common limited partners | $ | 175,470 | | | $ | 174,873 | | | $ | 259,136 | |
Allocation of distributions in excess of income (loss) | (267,040) | | | (500,831) | | | (489,181) | |
Series D Preferred Unit accretion (refer to Note 17) | (16,903) | | | (17,626) | | | (18,085) | |
Net loss attributable to common units | $ | (108,473) | | | $ | (343,584) | | | $ | (248,130) | |
| | | | | |
Basic weighted-average common units outstanding | 109,585,635 | | | 109,155,117 | | | 107,789,030 | |
| | | | | |
Diluted common units outstanding: | | | | | |
Basic weighted-average common units outstanding | 109,585,635 | | | 109,155,117 | | | 107,789,030 | |
Effect of dilutive potential common units | — | | | — | | | 65,669 | |
Diluted weighted-average common units outstanding | 109,585,635 | | | 109,155,117 | | | 107,854,699 | |
| | | | | |
Basic and diluted net loss per common unit | $ | (0.99) | | | $ | (3.15) | | | $ | (2.30) | |
20. SUPPLEMENTAL CASH FLOW INFORMATION
Changes in current assets and current liabilities were as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (Thousands of Dollars) |
Decrease (increase) in current assets: | | | | | |
Accounts receivable | $ | (2,105) | | | $ | 14,589 | | | $ | (23,480) | |
| | | | | |
Inventories | (5,585) | | | 1,340 | | | (866) | |
| | | | | |
Prepaid and other current assets | (1,710) | | | (3,326) | | | (5,103) | |
Increase (decrease) in current liabilities: | | | | | |
Accounts payable | 10,202 | | | (25,455) | | | 8,068 | |
| | | | | |
Accrued interest payable | (16,708) | | | 12,922 | | | 1,632 | |
Accrued liabilities | 4,448 | | | 7,886 | | | (19,740) | |
Taxes other than income tax | (2,689) | | | 3,972 | | | (5,276) | |
| | | | | |
Changes in current assets and current liabilities | $ | (14,147) | | | $ | 11,928 | | | $ | (44,765) | |
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;
•the effect of foreign currency translation;
•payments for the termination of interest rate swaps included in cash flows from financing activities;
•the effect of accrued compensation expense paid with fully vested common unit awards;
NUSTAR ENERGY L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
•the reclassification of certain assets and liabilities to “Assets held for sale” and “Liabilities held for sale” on the consolidated balance sheets (please refer to Note 4 for additional discussion); and
•current assets and current liabilities disposed of during the period.
Cash flows related to interest and income taxes were as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (Thousands of Dollars) |
Cash paid for interest, net of amount capitalized | $ | 218,181 | | | $ | 204,511 | | | $ | 176,859 | |
Cash paid for income taxes, net of tax refunds received | $ | 5,491 | | | $ | 3,260 | | | $ | 6,817 | |
Restricted cash is included in "Other long-term assets, net" on the consolidated balance sheets. “Cash, cash equivalents and restricted cash” on the consolidated statements of cash flows was included in the consolidated balance sheets as follows:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| (Thousands of Dollars) |
Cash and cash equivalents | $ | 5,637 | | | $ | 153,625 | |
Other long-term assets, net | 8,802 | | | 8,801 | |
Cash, cash equivalents and restricted cash | $ | 14,439 | | | $ | 162,426 | |
21. EMPLOYEE BENEFIT PLANS
Thrift Plans
The NuStar Thrift Plan (the Thrift Plan) is a qualified defined contribution plan that became effective June 26, 2006. Participation in the Thrift Plan is voluntary and open to substantially all our domestic employees upon their dates of hire. Thrift Plan participants can contribute from 1% up to 30% of their total annual compensation to the Thrift Plan in the form of pre-tax and/or after tax employee contributions. We make matching contributions in an amount equal to 100% of each participant’s employee contributions up to a maximum of 6% of the participant’s total annual compensation. The matching contributions to the Thrift Plan for the years ended December 31, 2021, 2020 and 2019 totaled $7.6 million, $7.8 million and $7.6 million, respectively.
The NuStar Excess Thrift Plan (the Excess Thrift Plan) is a nonqualified deferred compensation plan that became effective July 1, 2006. The Excess Thrift Plan provides benefits to those employees whose compensation and/or annual contributions under the Thrift Plan are subject to the limitations applicable to qualified retirement plans under the Code.
We also maintain other defined contribution plans for certain international employees located in Canada. We maintained plans for international employees in the Caribbean Netherlands prior to the St. Eustatius Disposition on July 29, 2019. For the years ended December 31, 2021, 2020 and 2019, our costs for these plans totaled $0.6 million, $0.5 million and $0.9 million, respectively.
Pension and Other Postretirement Benefits
The NuStar Pension Plan (the Pension Plan) is a qualified non-contributory defined benefit pension plan that provides eligible U.S. employees with retirement income as calculated under a cash balance formula. Under the cash balance formula, benefits are determined based on age, years of vesting service and interest credits, and employees become fully vested in their benefits upon attaining three years of vesting service. Prior to January 1, 2014, eligible employees were covered under either a cash balance formula or a final average pay formula (FAP). Effective January 1, 2014, the Pension Plan was amended to freeze the FAP benefits as of December 31, 2013, and going forward, all eligible employees are covered under the cash balance formula discussed above.
We also maintain an excess pension plan (the Excess Pension Plan), which is a nonqualified deferred compensation plan that provides benefits to a select group of management or other highly compensated employees. Neither the Excess Thrift Plan nor the Excess Pension Plan is intended to constitute either a qualified plan under the provisions of Section 401 of the Code or a funded plan subject to the Employee Retirement Income Security Act.
NUSTAR ENERGY L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The Pension Plan and Excess Pension Plan are collectively referred to as the Pension Plans in the tables and discussion below. Our other postretirement benefit plans include a contributory medical benefits plan for U.S. employees who retired prior to April 1, 2014 and, for employees who retire on or after April 1, 2014, a partial reimbursement for eligible third-party health care premiums. We use December 31 as the measurement date for our pension and other postretirement plans.
The changes in the benefit obligation, the changes in fair value of plan assets, the funded status and the amounts recognized in the consolidated balance sheets for our Pension Plans and other postretirement benefit plans as of and for the years ended December 31, 2021 and 2020 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Pension Plans | | Other Postretirement Benefit Plans |
| 2021 | | 2020 | | 2021 | | 2020 |
| (Thousands of Dollars) |
Change in benefit obligation: | | | | | | | |
Benefit obligation, January 1 | $ | 186,685 | | | $ | 167,257 | | | $ | 14,680 | | | $ | 13,196 | |
Service cost | 9,978 | | | 9,174 | | | 593 | | | 529 | |
Interest cost | 4,084 | | | 4,693 | | | 326 | | | 399 | |
Benefits paid (a) | (19,366) | | | (9,520) | | | (257) | | | (281) | |
Participant contributions | — | | | — | | | 44 | | | 44 | |
Actuarial (gain) loss | (694) | | | 15,081 | | | 884 | | | 793 | |
Other | (780) | | | — | | | — | | | — | |
Benefit obligation, December 31 | $ | 179,907 | | | $ | 186,685 | | | $ | 16,270 | | | $ | 14,680 | |
Change in plan assets: | | | | | | | |
Plan assets at fair value, January 1 | $ | 182,727 | | | $ | 159,036 | | | $ | — | | | $ | — | |
Actual return on plan assets | 26,425 | | | 21,758 | | | — | | | — | |
Employer contributions | 52 | | | 11,453 | | | 213 | | | 237 | |
Benefits paid (a) | (19,366) | | | (9,520) | | | (257) | | | (281) | |
Participant contributions | — | | | — | | | 44 | | | 44 | |
Plan assets at fair value, December 31 | $ | 189,838 | | | $ | 182,727 | | | $ | — | | | $ | — | |
Reconciliation of funded status: | | | | | | | |
Fair value of plan assets at December 31 | $ | 189,838 | | | $ | 182,727 | | | $ | — | | | $ | — | |
Less: Benefit obligation at December 31 | 179,907 | | | 186,685 | | | 16,270 | | | 14,680 | |
Funded status at December 31 | $ | 9,931 | | | $ | (3,958) | | | $ | (16,270) | | | $ | (14,680) | |
Amounts recognized in the consolidated balance sheets (b): | | | | | | | |
Other long-term assets, net | $ | 14,945 | | | $ | — | | | $ | — | | | $ | — | |
Accrued liabilities | (467) | | | (382) | | | (442) | | | (352) | |
Other long-term liabilities | (4,547) | | | (3,576) | | | (15,828) | | | (14,328) | |
Net pension asset (liability) | $ | 9,931 | | | $ | (3,958) | | | $ | (16,270) | | | $ | (14,680) | |
| | | | | | | |
Accumulated benefit obligation | $ | 171,899 | | | $ | 181,263 | | | $ | 16,270 | | | $ | 14,680 | |
(a)Benefit payments for the year ended December 31, 2021 include lump-sum payments of $9.6 million to participants of the Pension Plans following the Eastern U.S. Terminals Disposition on October 8, 2021 and the Texas City Sale on December 7, 2020.
(b)For the Pension Plan, since assets exceed the present value of expected benefit payments for the next 12 months, all of the liability is noncurrent. For the Excess Pension Plan and the other postretirement benefit plans, since there are no assets, the current liability is the present value of expected benefit payments for the next 12 months; the remainder is noncurrent.
NUSTAR ENERGY L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The actuarial (gain) loss related to the benefit obligation for our pension plans was primarily attributable to an increase in the discount rates used to determine the benefit obligation from 2.84% to 3.10% in 2021 and a decrease from 3.34% to 2.84% in 2020. The fair value of our plan assets is affected by the return on plan assets resulting primarily from the performance of equity and bond markets during the period.
The Excess Pension Plan has no plan assets and an accumulated benefit obligation of $4.3 million and $3.8 million as of December 31, 2021 and 2020, respectively. The accumulated benefit obligation is the present value of benefits earned to date, while the projected benefit obligation may include future salary increase assumptions. The projected benefit obligation for the Excess Pension Plan was $5.0 million and $3.8 million as of December 31, 2021 and 2020, respectively.
The components of net periodic benefit cost (income) related to our Pension Plans and other postretirement benefit plans were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension Plans | | Other Postretirement Benefit Plans |
| Year Ended December 31, | | Year Ended December 31, |
| 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
| (Thousands of Dollars) |
Service cost | $ | 9,978 | | | $ | 9,174 | | | $ | 9,549 | | | $ | 593 | | | $ | 529 | | | $ | 431 | |
Interest cost | 4,084 | | | 4,693 | | | 5,480 | | | 326 | | | 399 | | | 453 | |
Expected return on plan assets | (9,233) | | | (8,972) | | | (8,015) | | | — | | | — | | | — | |
Amortization of prior service credit | (2,057) | | | (2,057) | | | (2,057) | | | (1,145) | | | (1,145) | | | (1,145) | |
Amortization of net actuarial loss | 2,279 | | | 1,845 | | | 846 | | | 176 | | | 137 | | | 42 | |
Other | (561) | | | 136 | | | — | | | — | | | — | | | — | |
Net periodic benefit cost (income) | $ | 4,490 | | | $ | 4,819 | | | $ | 5,803 | | | $ | (50) | | | $ | (80) | | | $ | (219) | |
We amortize prior service costs and credits on a straight-line basis over the average remaining service period of employees expected to receive benefits under our Pension Plans and other postretirement benefit plans (“Amortization of prior service credit” in table above). We amortize the actuarial gains and losses that exceed 10% of the greater of the projected benefit obligation or market-related value of plan assets (smoothed asset value) over the average remaining service period of active employees expected to receive benefits under our Pension Plans and other postretirement benefit plans (“Amortization of net actuarial loss” in table above).
The service cost component of net periodic benefit cost (income) is reported in “General and administrative expenses” and “Operating expenses” on the consolidated statements of income (loss), and the remaining components of net periodic benefit cost (income) are reported in “Other income (expense), net.”
NUSTAR ENERGY L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Adjustments to other comprehensive income (loss) related to our Pension Plans and other postretirement benefit plans were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension Plans | | Other Postretirement Benefit Plans |
| Year Ended December 31, | | Year Ended December 31, |
| 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
| (Thousands of Dollars) |
Net unrecognized gain (loss) arising during the year: | | | | | | | | | | | |
Net actuarial gain (loss) | $ | 18,666 | | | $ | (2,159) | | | $ | 2,545 | | | $ | (884) | | | $ | (793) | | | $ | (1,559) | |
| | | | | | | | | | | |
Net (gain) loss reclassified into income: | | | | | | | | | | | |
Amortization of prior service credit | (2,057) | | | (2,057) | | | (2,057) | | | (1,145) | | | (1,145) | | | (1,145) | |
Amortization of net actuarial loss | 2,279 | | | 1,845 | | | 846 | | | 176 | | | 137 | | | 42 | |
Other | (561) | | | — | | | — | | | — | | | — | | | — | |
Net gain reclassified into income | (339) | | | (212) | | | (1,211) | | | (969) | | | (1,008) | | | (1,103) | |
| | | | | | | | | | | |
Income tax (expense) benefit | (61) | | | 28 | | | 14 | | | — | | | — | | | — | |
Total changes to other comprehensive income (loss) | $ | 18,266 | | | $ | (2,343) | | | $ | 1,348 | | | $ | (1,853) | | | $ | (1,801) | | | $ | (2,662) | |
The amounts recorded as a component of “Accumulated other comprehensive loss” on the consolidated balance sheets related to our Pension Plans and other postretirement benefit plans were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Pension Plans | | Other Postretirement Benefit Plans |
| December 31, | | December 31, |
| 2021 | | 2020 | | 2021 | | 2020 |
| (Thousands of Dollars) |
Unrecognized actuarial loss | $ | (3,748) | | | $ | (24,878) | | | $ | (4,554) | | | $ | (3,846) | |
Prior service credit | 7,630 | | | 10,433 | | | 4,884 | | | 6,029 | |
Deferred tax asset | 57 | | | 118 | | | — | | | — | |
Accumulated other comprehensive income (loss), net of tax | $ | 3,939 | | | $ | (14,327) | | | $ | 330 | | | $ | 2,183 | |
Investment Policies and Strategies
The investment policies and strategies for the assets of our qualified Pension Plan incorporate a well-diversified approach that is expected to earn long-term returns from capital appreciation and a growing stream of current income. This approach recognizes that assets are exposed to risk, and the market value of the Pension Plan’s assets may fluctuate from year to year. Risk tolerance is determined based on our financial ability to withstand risk within the investment program and the willingness to accept return volatility. In line with the investment return objective and risk parameters, the Pension Plan’s mix of assets includes a diversified portfolio of equity and fixed-income instruments. The aggregate asset allocation is reviewed on an annual basis. As of December 31, 2021, the target allocations for plan assets were 65% equity securities and 35% fixed income investments, with certain fluctuations permitted.
The overall expected long-term rate of return on plan assets for the Pension Plan is estimated using various models of asset returns. Model assumptions are derived using historical data with the assumption that capital markets are informationally efficient. Three models are used to derive the long-term expected returns for each asset class. Since each method has distinct advantages and disadvantages and differing results, an equal weighted average of the methods’ results is used.
NUSTAR ENERGY L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Fair Value of Plan Assets
We disclose the fair value for each major class of plan assets in the Pension Plan in 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 for which little or no market data exists.
The major classes of plan assets measured at fair value for the Pension Plan were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| (Thousands of Dollars) |
Cash equivalent securities | $ | 710 | | | $ | — | | | $ | — | | | $ | 710 | |
Equity securities: | | | | | | | |
U.S. large cap equity fund (a) | — | | | 110,672 | | | — | | | 110,672 | |
International stock index fund (b) | 17,708 | | | — | | | — | | | 17,708 | |
Fixed income securities: | | | | | | | |
Bond market index fund (c) | 60,748 | | | — | | | — | | | 60,748 | |
Total | $ | 79,166 | | | $ | 110,672 | | | $ | — | | | $ | 189,838 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| (Thousands of Dollars) |
Cash equivalent securities | $ | 2,125 | | | $ | — | | | $ | — | | | $ | 2,125 | |
Equity securities: | | | | | | | |
U.S. large cap equity fund (a) | — | | | 104,857 | | | — | | | 104,857 | |
International stock index fund (b) | 20,732 | | | — | | | — | | | 20,732 | |
Fixed income securities: | | | | | | | |
Bond market index fund (c) | 55,013 | | | — | | | — | | | 55,013 | |
Total | $ | 77,870 | | | $ | 104,857 | | | $ | — | | | $ | 182,727 | |
(a)This fund is a low-cost equity index fund not actively managed that tracks the S&P 500. Fair values were estimated using pricing models, quoted prices of securities with similar characteristics or discounted cash flows.
(b)This fund tracks the performance of the Total International Composite Index.
(c)This fund tracks the performance of the Barclays Capital U.S. Aggregate Bond Index.
Contributions to the Pension Plans
For the year ended December 31, 2021, we contributed $0.1 million and $0.2 million to the Pension Plans and other postretirement benefit plans, respectively. During 2022, we expect to contribute approximately $9.5 million and $0.4 million to the Pension Plans and other postretirement benefit plans, respectively. We will monitor our funding status in 2022 to determine if any contributions are required by regulations or laws, or with respect to unfunded plans, necessary to fund current benefits.
NUSTAR ENERGY L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Estimated Future Benefit Payments
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid for the years ending December 31:
| | | | | | | | | | | |
| Pension Plans | | Other Postretirement Benefit Plans |
| (Thousands of Dollars) |
2022 | $ | 10,652 | | | $ | 442 | |
2023 | $ | 11,232 | | | $ | 497 | |
2024 | $ | 11,212 | | | $ | 531 | |
2025 | $ | 12,266 | | | $ | 582 | |
2026 | $ | 12,109 | | | $ | 640 | |
2027-2031 | $ | 65,477 | | | $ | 4,003 | |
Assumptions
The weighted-average assumptions used to determine the benefit obligations were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Pension Plans | | Other Postretirement Benefit Plans |
| December 31, | | December 31, |
| 2021 | | 2020 | | 2021 | | 2020 |
Discount rate | 3.10 | % | | 2.84 | % | | 3.08 | % | | 2.83 | % |
Rate of compensation increase | 3.99 | % | | 3.51 | % | | n/a | | n/a |
Cash balance interest crediting rate | 2.00 | % | | 2.00 | % | | n/a | | n/a |
The weighted-average assumptions used to determine the net periodic benefit cost (income) were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension Plans | | Other Postretirement Benefit Plans |
| Year Ended December 31, | | Year Ended December 31, |
| 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
Discount rate | 2.84 | % | | 3.34 | % | | 4.40 | % | | 2.83 | % | | 3.43 | % | | 4.53 | % |
Expected long-term rate of return on plan assets | 6.00 | % | | 6.50 | % | | 6.50 | % | | n/a | | n/a | | n/a |
Rate of compensation increase | 3.51 | % | | 3.51 | % | | 3.51 | % | | n/a | | n/a | | n/a |
Cash balance interest crediting rate | 2.00 | % | | 2.00 | % | | 2.90 | % | | n/a | | n/a | | n/a |
The assumed health care cost trend rates were as follows:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
Health care cost trend rate assumed for next year | 6.84 | % | | 6.84 | % |
Rate to which the cost trend rate was assumed to decrease (the ultimate trend rate) | 5.00 | % | | 5.00 | % |
Year that the rate reaches the ultimate trend rate | 2028 | | 2028 |
We sponsor a contributory postretirement health care plan for employees who retired prior to April 1, 2014. The plan has an annual limitation (a cap) on the increase of the employer’s share of the cost of covered benefits. The cap on the increase in employer’s cost is 2.5% per year.
NUSTAR ENERGY L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
22. UNIT-BASED COMPENSATION
Overview
2019 LTIP. In April 2019, our common unitholders approved the 2019 Long-Term Incentive Plan (2019 LTIP) for eligible employees, consultants and directors of NuStar Energy L.P., and of NuStar GP, LLC, and their respective affiliates who perform services for us and our subsidiaries. The 2019 LTIP allows for the awarding of (i) options; (ii) restricted units; (iii) distribution equivalent rights (DERs); (iv) performance cash; (v) performance units; and (vi) unit awards. DERs entitle the participant to receive cash equal to cash distributions made on any award prior to its vesting. The 2019 LTIP, as amended and restated on April 29, 2021, permits the granting of awards totaling an aggregate of 5,000,000 common units, and is subject to adjustment. The 2019 LTIP generally will be administered by the compensation committee of our board of directors. As of December 31, 2021, a total of 2,179,072 common units remained available to be awarded under the 2019 LTIP.
Other Plans. We sponsor the NuStar GP, LLC Fifth Amended and Restated 2000 Long-Term Incentive Plan, as amended (2000 LTIP), and the NuStar GP Holdings, LLC Long-Term Incentive Plan, as amended (2006 LTIP). Effective with the approval of the 2019 LTIP in April 2019, the 2000 LTIP and the 2006 LTIP terminated with respect to new grants; however, unvested restricted unit awards granted under the 2000 LTIP and the 2006 LTIP remain outstanding as of December 31, 2021.
The following table summarizes information pertaining to all of our long-term incentive plans:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Units Outstanding December 31, | | Compensation Expense Year Ended December 31, |
| 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
| | | | | | | (Thousands of Dollars) |
Restricted units: | | | | | | | | | | | |
Domestic employees | 2,520,436 | | | 2,235,125 | | | 1,223,143 | | | $ | 11,892 | | | $ | 10,205 | | | $ | 9,437 | |
Non-employee directors (NEDs) | 129,312 | | | 98,769 | | | 61,349 | | | 856 | | | 631 | | | 774 | |
International employees | 21,760 | | | 19,987 | | | 10,243 | | | 139 | | | 58 | | | 711 | |
Performance awards | 33,695 | | | 87,122 | | | 161,561 | | | 3,047 | | | 1,291 | | | 4,172 | |
| | | | | | | | | | | |
Unit awards | — | | | — | | | — | | | 4,645 | | | — | | | 22,941 | |
Total | 2,705,203 | | | 2,441,003 | | | 1,456,296 | | | $ | 20,579 | | | $ | 12,185 | | | $ | 38,035 | |
NUSTAR ENERGY L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Restricted Units
Our restricted unit awards are considered phantom units, as they represent the right to receive our common units upon vesting. We account for restricted units as either equity-classified awards or liability-classified awards, depending on expected method of settlement. Awards we settle with the issuance of common units upon vesting are equity-classified. Awards we settle in cash upon vesting are liability-classified. We record compensation expense ratably over the vesting period based on the fair value of the common units at the grant date (for domestic employees and NEDs) or the fair value of the common units measured at each reporting period (for international employees). DERs paid with respect to outstanding equity-classified unvested restricted units reduce equity, similar to cash distributions to unitholders, whereas DERs paid with respect to outstanding liability-classified unvested restricted units are expensed. In connection with the DERs for equity awards, we paid $2.4 million, $2.1 million and $2.7 million respectively, in cash, for the years ended December 31, 2021, 2020 and 2019.
Domestic Employees. The outstanding restricted units granted to domestic employees are equity-classified awards and generally vest over five years, beginning one year after the grant date. The fair value of these awards is measured at the grant date.
Non-Employee Directors. The outstanding restricted units granted to NEDs are equity-classified awards that vest over three years. On January 1, 2019 we adopted amended guidance that allows for the fair value of these awards to be measured at the grant date. The unvested restricted units granted to NEDs as of January 1, 2019 were measured at the fair value as of that date. Previously, the fair value of these awards was equal to the market price of our common units at each reporting period.
International Employees. The outstanding restricted units granted to international employees are cash-settled and accounted for as liability-classified awards. These awards vest over three years and the fair value is equal to the market price of our common units at each reporting period. For the year ended December 31, 2021, we granted 10,396 restricted units and 8,344 restricted units vested.
A summary of our equity-classified restricted unit awards is as follows:
| | | | | | | | | | | | | | | | | |
| Measured at Grant Date Fair Value | | | | | | |
| Number of Units | | Weighted-Average Fair Value Per Unit | | | | | | |
Nonvested units as of January 1, 2019 (a) | 1,088,236 | | | $ | 29.00 | | | | | | | |
| | | | | | | | | |
Granted | 596,881 | | | 26.46 | | | | | | | |
Vested | (328,386) | | | 30.11 | | | | | | | |
Forfeited | (72,239) | | | 28.05 | | | | | | | |
Nonvested units as of December 31, 2019 | 1,284,492 | | | 27.48 | | | | | | | |
Granted | 1,454,998 | | | 12.10 | | | | | | | |
Vested | (374,847) | | | 28.47 | | | | | | | |
Forfeited | (30,749) | | | 26.75 | | | | | | | |
Nonvested units as of December 31, 2020 | 2,333,894 | | | 17.70 | | | | | | | |
Granted | 1,049,081 | | | 16.28 | | | | | | | |
Vested | (630,888) | | | 20.07 | | | | | | | |
Forfeited | (102,339) | | | 14.28 | | | | | | | |
Nonvested units as of December 31, 2021 | 2,649,748 | | | 16.57 | | | | | | | |
(a) Upon adoption of amended guidance, nonvested units include 59,752 units issued to NEDs which were measured at a fair value per unit of $20.93.
The total fair value of our equity-classified restricted unit awards vested for the years ended December 31, 2021, 2020 and 2019 was $10.3 million, $4.6 million and $9.3 million, respectively. We issued 460,076, 275,146 and 242,199 common units in connection with these award vestings, net of employee tax withholding requirements, for the years ended December 31, 2021, 2020 and 2019, respectively. Unrecognized compensation cost related to our equity-classified employee awards totaled $42.0 million as of December 31, 2021, which we expect to recognize over a weighted-average period of 3.7 years.
NUSTAR ENERGY L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Performance Awards
Performance awards are issued to certain of our key employees and represent either rights to receive our common units or cash upon achieving performance measures for the performance period established by the NuStar GP, LLC Compensation Committee. Achievement of the performance measures determines the rate at which the performance awards convert into our common units or cash, which ranges from zero to 200% for certain awards.
Performance awards vest in three annual increments (tranches), based upon our achievement of the performance measures set by the Compensation Committee during the performance periods that end on December 31 of each applicable year. Therefore, the performance awards are not considered granted for accounting purposes until the Compensation Committee has set the performance measures for each tranche of awards. Performance unit awards are equity-classified awards measured at the grant date fair value. In addition, since the performance unit awards granted do not receive DERs, the grant date fair value of these awards is reduced by the per unit distributions expected to be paid to common unitholders during the vesting period. Performance cash awards are accounted for as a liability but may be settled in common units. We record compensation expense ratably for each vesting tranche over its requisite service period (one year) if it is probable that the specified performance measures will be achieved. Additionally, changes in the actual or estimated outcomes that affect the quantity of performance awards expected to be converted into common units or paid in cash, are recognized as a cumulative adjustment. Performance units vested relate to the performance for the performance period ended December 31 of the previous year.
A summary of our performance awards is shown below:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Performance Unit Awards |
| | | | | Granted for Accounting Purposes |
| Performance Cash Awards | | Total Performance Unit Awards Granted | | Performance Unit Awards | | Weighted-Average Grant Date Fair Value per Unit |
| (Thousands of Dollars) | | | | | | |
Outstanding as of January 1, 2019 | $ | — | | | 158,326 | | | 80,690 | | | $ | 23.43 | |
Granted | — | | | 95,969 | | | 74,439 | | | 28.01 | |
Vested | — | | | (80,690) | | | (80,690) | | | 23.43 | |
Forfeitures | — | | | (12,044) | | | — | | | — | |
Outstanding as of December 31, 2019 | — | | | 161,561 | | | 74,439 | | | 28.01 | |
Granted | 2,167 | | | — | | | 57,448 | | | 13.21 | |
Performance adjustment (a) | — | | | 72,951 | | | 72,951 | | | 28.01 | |
Vested | — | | | (147,390) | | | (147,390) | | | 28.01 | |
| | | | | | | |
Outstanding as of December 31, 2020 | 2,167 | | | 87,122 | | | 57,448 | | | 13.21 | |
Granted | 2,254 | | | 4,021 | | | 33,695 | | | 15.79 | |
| | | | | | | |
Vested (b) | (672) | | | (53,427) | | | (53,427) | | | 13.21 | |
Forfeitures | (51) | | | (4,021) | | | (4,021) | | | 13.21 | |
Outstanding as of December 31, 2021 | $ | 3,698 | | | 33,695 | | | 33,695 | | | 15.79 | |
(a) For the year ended December 31, 2020, common units granted and issued upon vesting of performance units earned at 198% of the 2019 target.
(b) For the year ended December 31, 2021, we settled performance cash awards in common units and issued 26,704 common units, net of employee tax withholding requirements.
The total fair value of our performance unit awards vested for the years ended December 31, 2021, 2020 and 2019 was $0.8 million, $4.2 million and $2.1 million, respectively. For the years ended December 31, 2021, 2020, and 2019 we issued 31,366, 93,440 and 50,054 common units in connection with the performance unit award vestings, net of employee tax withholding requirements, respectively.
On January 27, 2022, we settled performance cash awards in common units, and together with the performance unit awards, we issued 114,618 common units, net of employee tax withholding requirements, respectively.
NUSTAR ENERGY L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Unit Awards
Unit awards are equity-classified awards of fully vested common units. We accrued compensation expense in 2021 and 2019 that was paid in unit awards in the first quarters of the respective subsequent years. We base the number of unit awards granted on the fair value of the common units at the grant date. A summary of our unit awards is shown below:
| | | | | | | | | | | | | | | | | | | | |
Date of Grant | | Grant Date Fair Value | | Unit Awards Granted | | Common Units Issued, Net of Employee Withholding Tax |
| | (Thousands of Dollars) | | | | |
February 2022 | | $ | 4,645 | | | 280,685 | | | 186,190 | |
February and March 2020 | | $ | 22,941 | | | 834,224 | | | 571,735 | |
23. INCOME TAXES
Components of income tax expense related to certain of our continuing operations conducted through separate taxable wholly owned corporate subsidiaries were as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (Thousands of Dollars) |
Current: | | | | | |
U.S. | $ | 3,755 | | | $ | 36 | | | $ | 3,741 | |
Foreign | 221 | | | 2,415 | | | 1,489 | |
Foreign withholding tax | 1,281 | | | — | | | 101 | |
Total current | 5,257 | | | 2,451 | | | 5,331 | |
| | | | | |
Deferred: | | | | | |
U.S. | (93) | | | 300 | | | (490) | |
Foreign | (531) | | | (621) | | | (168) | |
Foreign withholding tax | (745) | | | 533 | | | 182 | |
Total deferred | (1,369) | | | 212 | | | (476) | |
| | | | | |
Less: amounts reported in discontinued operations | — | | | — | | | 101 | |
| | | | | |
Income tax expense | $ | 3,888 | | | $ | 2,663 | | | $ | 4,754 | |
The difference between income tax expense recorded in our consolidated statements of income (loss) and income taxes computed by applying the applicable statutory federal income tax rate to income before income tax expense is due to the fact that the majority of our income is not subject to federal income tax due to our status as a limited partnership. We record a tax provision related to the amount of undistributed earnings of our foreign subsidiaries expected to be repatriated.
NUSTAR ENERGY L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The tax effects of significant temporary differences representing deferred income tax assets and liabilities were as follows:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| (Thousands of Dollars) |
Deferred income tax assets: | | | |
Net operating losses | $ | 20,005 | | | $ | 18,459 | |
Employee benefits | 83 | | | 134 | |
Environmental and legal reserves | 47 | | | 105 | |
| | | |
Capital loss | 3,735 | | | 10,813 | |
Other | 495 | | | 834 | |
Total deferred income tax assets | 24,365 | | | 30,345 | |
Less: Valuation allowance | (23,718) | | | (28,211) | |
Net deferred income tax assets | 647 | | | 2,134 | |
| | | |
Deferred income tax liabilities: | | | |
Property, plant and equipment | (11,884) | | | (13,772) | |
Foreign withholding tax | (272) | | | (1,002) | |
Other | (322) | | | (371) | |
Total deferred income tax liabilities | (12,478) | | | (15,145) | |
| | | |
Net deferred income tax liability | $ | (11,831) | | | $ | (13,011) | |
| | | |
| | | |
| | | |
| | | |
| | | |
As of December 31, 2021, our U.S. and foreign corporate operations have net operating loss carryforwards for tax purposes totaling $63.4 million and $6.9 million, respectively, which are subject to various limitations on use and expire in years 2025 through 2034 for U.S. losses and in years 2021 through 2031 for foreign losses. However, U.S. losses generated after December 31, 2017, totaling $9.4 million, can be carried forward indefinitely. As of December 31, 2021, our U.S. corporate operations have a capital loss carryforward for tax purposes totaling $17.7 million, which is subject to limitations on use and expires in 2024. The capital loss carryforward decreased $33.8 million for the year ended December 31, 2021 due to changes in our estimates of loss carryforwards following the Texas City Sale.
As of December 31, 2021 and 2020, we have a valuation allowance of $23.7 million and $28.2 million, respectively, related to our deferred tax assets on net operating losses and capital losses. We estimate the amount of valuation allowance based upon our expectations of taxable income in the various jurisdictions in which we operate and the period over which we can utilize those future deductions. The valuation allowance reflects uncertainties related to our ability to utilize certain net operating loss carryforwards before they expire. In 2021, there was a $4.9 million decrease in the valuation allowance for the U.S. net operating loss and a $0.4 million increase in the foreign net operating loss valuation allowance due to changes in our estimates of the amount of loss carryforwards that will be realized, based upon future taxable income.
The realization of net deferred income tax assets recorded as of December 31, 2021 is dependent upon our ability to generate future taxable income in the United States. We believe it is more likely than not that the net deferred income tax assets as of December 31, 2021 will be realized, based on expected future taxable income.
NUSTAR ENERGY L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
24. SEGMENT INFORMATION
Our reportable business segments consist of the pipeline, storage and fuels marketing segments. 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. We are primarily engaged in the transportation, terminalling and storage of petroleum products and renewable fuels and the transportation of anhydrous ammonia. We also market petroleum products.
Results of operations for the reportable segments were as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (Thousands of Dollars) |
Revenues: | | | | | |
Pipeline | $ | 762,238 | | | $ | 718,823 | | | $ | 701,830 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Storage | 427,668 | | | 494,442 | | | 454,001 | |
| | | | | |
Fuels marketing | 428,608 | | | 268,345 | | | 342,215 | |
Consolidation and intersegment eliminations | (14) | | | (46) | | | (25) | |
Total revenues | $ | 1,618,500 | | | $ | 1,481,564 | | | $ | 1,498,021 | |
| | | | | |
Depreciation and amortization expense: | | | | | |
Pipeline | $ | 179,088 | | | $ | 177,384 | | | $ | 166,991 | |
Storage | 87,500 | | | 99,092 | | | 97,573 | |
| | | | | |
Total segment depreciation and amortization expense | 266,588 | | | 276,476 | | | 264,564 | |
Other depreciation and amortization expense | 7,792 | | | 8,625 | | | 8,360 | |
Total depreciation and amortization expense | $ | 274,380 | | | $ | 285,101 | | | $ | 272,924 | |
| | | | | |
Operating income: | | | | | |
Pipeline | $ | 321,472 | | | $ | 118,429 | | | $ | 332,480 | |
Storage | 24,800 | | | 189,781 | | | 154,105 | |
Fuels marketing | 11,181 | | | 12,233 | | | 20,578 | |
Consolidation and intersegment eliminations | — | | | — | | | (32) | |
Total segment operating income | 357,453 | | | 320,443 | | | 507,131 | |
General and administrative expenses | 113,207 | | | 102,716 | | | 107,855 | |
Other depreciation and amortization expense | 7,792 | | | 8,625 | | | 8,360 | |
| | | | | |
| | | | | |
Total operating income | $ | 236,454 | | | $ | 209,102 | | | $ | 390,916 | |
Revenues by geographic area are shown in the table below:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (Thousands of Dollars) |
United States | $ | 1,582,672 | | | $ | 1,441,892 | | | $ | 1,465,135 | |
Foreign | 35,828 | | | 39,672 | | | 32,886 | |
Consolidated revenues | $ | 1,618,500 | | | $ | 1,481,564 | | | $ | 1,498,021 | |
For the years ended December 31, 2021, 2020 and 2019, Valero Energy Corporation accounted for approximately 19%, or $308.5 million, 20%, or $295.1 million, and 21%, or $307.2 million, of our revenues, respectively. These revenues were included in all of our reportable business segments. No other single customer accounted for 10% or more of our consolidated revenues.
NUSTAR ENERGY L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Total amounts of property, plant and equipment, net by geographic area were as follows:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| (Thousands of Dollars) |
United States | $ | 3,428,441 | | | $ | 3,837,550 | |
Foreign | 113,201 | | | 119,962 | |
Consolidated property, plant and equipment, net | $ | 3,541,642 | | | $ | 3,957,512 | |
Total assets by reportable segment were as follows:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| (Thousands of Dollars) |
Pipeline | $ | 3,441,272 | | | $ | 3,609,508 | |
Storage | 1,537,037 | | | 1,897,167 | |
Fuels marketing | 41,562 | | | 31,967 | |
Total segment assets | 5,019,871 | | | 5,538,642 | |
| | | |
Other partnership assets | 136,461 | | | 278,376 | |
Total consolidated assets | $ | 5,156,332 | | | $ | 5,817,018 | |
Capital expenditures by reportable segment were as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (Thousands of Dollars) |
Pipeline | $ | 67,340 | | | $ | 122,512 | | | $ | 387,702 | |
Storage | 112,043 | | | 71,788 | | | 141,972 | |
| | | | | |
Other partnership assets | 1,750 | | | 3,779 | | | 3,894 | |
Total capital expenditures | $ | 181,133 | | | $ | 198,079 | | | $ | 533,568 | |
Capital expenditures have not been adjusted to separately disclose those capital expenditures related to discontinued operations, which are included in the storage segment totaling $28.0 million for the year ended December 31, 2019.
25. SUBSEQUENT EVENT
On February 11, 2022, we entered into an agreement to sell the equity interests in our wholly owned subsidiaries that own our Point Tupper terminal facility to EverWind Fuels for $60.0 million. During February 2022, sale negotiations with the potential buyer progressed significantly and management with appropriate authority agreed to the sale. The terminal facility has a storage capacity of 7.8 million barrels and is included in the storage segment. We expect to complete the sale in the first half of 2022 and utilize the sales proceeds to improve our debt metrics. The book value at closing is expected to exceed the agreed purchase price and result in an estimated non-cash loss in the range of $40.0 million to $50.0 million, primarily due to foreign currency translation losses accumulated since the acquisition of the Point Tupper facility in 2005.