financial statements december 31, 2010 and ... - emma… · loop operates a cavern storage system...

LOOP LLC

FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND 2009

(WITH INDEPENDENT AUDITORS’ REPORT THEREON)

Independent Auditors’ Report

The Owners of LOOP LLC:

We have audited the accompanying balance sheets of LOOP LLC (the Company) as of December 31, 2010 and 2009, and the related statements of income, comprehensive income, changes in owners’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of LOOP LLC as of December 31, 2010 and 2009, and the results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

February 4, 2011

KPMG LLP Suite 2900 909 Poydras Street New Orleans, LA 70112

KPMG LLP is a Delaware limited liability partnership, the U.S. member firm of KPMG International Cooperative, a Swiss entity.

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LOOP LLCBALANCE SHEETS

DECEMBER 31, 2010 AND 2009

ASSETS

2010 2009

CURRENT ASSETS: Cash and cash equivalents $22,004,342 $921,112 Receivables from affiliates 7,443,973 19,612,587 Receivables from non-affiliates 12,419,159 12,868,584 Materials and supplies 11,983,742 11,509,997 Prepayments 5,154,606 4,786,728

Total current assets 59,005,822 49,699,008

PROPERTY: Property, plant and equipment 1,288,138,579 1,203,576,102 Construction-in-progress 29,619,749 62,244,447 Accumulated depreciation (681,725,145) (661,251,993)

Net property 636,033,183 604,568,556

RESTRICTED CASH AND CASH EQUIVALENTS 90,175,923 -

OTHER ASSETS 24,778,430 8,906,401

$809,993,358 $663,173,965

LIABILITIES AND OWNERS' EQUITY

CURRENT LIABILITIES: Accounts payable and accrued expenses $30,697,889 $18,952,623 Line of credit - 5,000,000 Interest payable 3,058,875 2,872,518

Total current liabilities 33,756,764 26,825,141

NONCURRENT LIABILITIES: Long-term debt 489,015,000 410,745,000 Deferred revenue 11,524,213 12,671,607 Other noncurrent liabilities 34,536,837 30,850,215

Total noncurrent liabilities 535,076,050 454,266,822

OWNERS' EQUITY 241,160,544 182,082,002

$809,993,358 $663,173,965

See accompanying notes to financial statements.

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LOOP LLCSTATEMENTS OF INCOME

YEARS ENDED DECEMBER 31, 2010 AND 2009

2010 2009

OPERATING REVENUES: Offloading $121,691,426 $104,850,160 Domestic delivery 29,147,034 28,666,933 Tankage 33,838,505 23,879,884 Storage 15,299,187 46,155,687 Blending, in-system and incidental 10,850,835 9,476,308 Allowance oil 31,014,412 28,403,405 Management fees 2,236,784 2,148,671

Total operating revenues 244,078,183 243,581,048

OPERATING EXPENSES: Salaries and wages 17,695,663 17,641,700 Materials and supplies 4,214,827 3,269,513 Outside services 42,760,016 42,485,114 Fuel and power 13,353,706 13,042,522 Maintenance materials 4,897,131 4,655,597 Rentals 9,759,223 10,253,658 Oil loss allowance 13,426,450 20,842,711 Depreciation and amortization 23,446,431 17,565,264 Pension and benefits 5,875,745 6,122,739 Insurance and uninsured losses 3,489,713 6,566,343 Taxes – other than income 3,936,607 3,839,497

Total operating expenses 142,855,512 146,284,658

INCOME FROM OPERATIONS 101,222,671 97,296,390

INTEREST AND OTHER: Other income 4,317,672 244,994 Interest income 505,632 (35,418) Interest expense (11,995,690) (10,228,012)

Net interest expense and other (7,172,386) (10,018,436)

NET INCOME $94,050,285 $87,277,954


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LOOP LLCSTATEMENTS OF COMPREHENSIVE INCOME YEARS ENDED DECEMBER 31, 2010 AND 2009

2010 2009

Net Income $94,050,285 $87,277,954

Other comprehensive income: Actuarial loss arising during period (6,894,623) (1,874,734) Gain on plan assets 2,118,052 3,533,645 Included in net income: Amortization of prior service cost 10,829 24,311 Amortization of actuarial loss 1,293,999 1,681,660

Net change in other comprehensive income (3,471,743) 3,364,882

Comprehensive income $90,578,542 $90,642,836


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LOOP LLCSTATEMENTS OF CHANGES IN OWNERS’ EQUITY


2010 2009

RETAINED EARNINGSBalance at beginning of year $199,506,681 $166,228,727

Net Income 94,050,285 87,277,954

Owners’ distributions (31,500,000) (54,000,000)

Balance at end of year 262,056,966 199,506,681

ACCUMULATED OTHER COMPREHENSIVE INCOME

Defined Benefit Pension and Other Postretirement Plans:

Balance at beginning of year (17,424,679) (20,789,561) Net change in comprehensive income (3,471,743) 3,364,882

Balance at end of year (20,896,422) (17,424,679)

Owners’ Equity, end of year $241,160,544 $182,082,002


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LOOP LLCSTATEMENTS OF CASH FLOWS


2010 2009

CASH FLOWS FROM OPERATING ACTIVITIES: Net income $94,050,285 $87,277,954

Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 23,446,431 17,565,264 Inventory valuation write-down 109,516 334,692 Changes in operating assets and liabilities: Receivables from affiliates 12,168,614 (13,829,341) Receivables from non-affiliates 449,425 (200,868) Materials and supplies (473,745) (1,938,866) Prepayments (367,878) 40,284 Other assets (14,749,600) 3,239,105 Accounts payable and accrued expenses (6,389,219) (8,425,475) Interest payable 186,357 (101,093) Deferred revenue (1,147,394) (1,684,464) Other noncurrent liabilities (94,186) (1,330,029)

Total adjustments 13,138,321 (6,330,791)

Net cash provided by operating activities 107,188,606 80,947,163

CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (41,467,508) (65,641,081)

Net cash used in investing activities (41,467,508) (65,641,081)

CASH FLOWS FROM FINANCING ACTIVITIES: Change in restricted cash and cash equivalents (90,175,923) 36,819,415 Owners' distributions (31,500,000) (54,000,000) Borrowings on line of credit - 5,000,000 Borrowings on long-term debt 122,980,000 - Payments on long-term debt (44,710,000) (24,605,000) Bond issuance costs (1,231,945) -

Net cash used in financing activities (44,637,868) (36,785,585)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 21,083,230 (21,479,503)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 921,112 22,400,615

CASH AND CASH EQUIVALENTS, END OF YEAR $22,004,342 $921,112


LOOP LLC

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2010 and 2009

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1. ORGANIZATION AND OWNERSHIP

Organization & Operations

LOOP LLC (the Company or LOOP), a Delaware limited liability company, owns and operates a deepwater oil port off the coast of Louisiana. The deepwater port is operated as a common carrier and is under the regulatory authority of the United States Department of Transportation and the Louisiana Offshore Terminal Authority. The Port Complex provides deepwater off-loading accommodations for deep-draft and other oil tankers, and onshore salt dome oil storage facilities located in South Louisiana for the storage of oil prior to its transportation to refineries located on the Gulf Coast and in the Midwestern area of the United States. The Port Complex is the first stage of the facilities authorized under its Federal License. It consists of: (a) a marine terminal located in the Gulf of Mexico approximately 18 miles off the coast of Louisiana, which includes three single-point mooring buoys, platforms and collection pipelines for unloading oil from tankers, (b) a 48-inch diameter pipeline for transporting oil from the marine terminal to onshore storage facilities, including a booster pumping station near the shoreline, and (c) underground storage facilities located approximately 25 miles inland containing eight separate salt dome oil storage caverns. The Company also has twelve 600,000 barrel above ground storage tanks. Additional facilities include a small boat harbor and related ancillary properties. The Port Complex is designed to have a throughput capacity of 1.4 million barrels of oil per day. Operational capacity (limited by tanker offloading capability) is less than design capacity and is currently 1.0 to 1.2 million barrels of oil per day. Tanker offloading capability is affected by changes in tanker unloading and washing procedures, tanker size and tanker pumping rates, and changes in the sources of the supply of crude oil.

LOOP manages the operations of the LOCAP LLC (LOCAP) pipeline system under a long-term operating agreement. LOCAP connects LOOP’s storage facilities at Clovelly near Galliano, Louisiana with the St. James, Louisiana terminal of the Capline Pipeline System, the U.S. Department of Energy’s Strategic Petroleum Reserve, and with other connecting pipelines to local refineries.

LOOP operates a cavern storage system for the Mars Oil Pipeline Company (MOPC) under a long-term agreement (the Agreement). The MOPC Cavern System consists of an underground storage cavern, metering and surface facilities. Under the Agreement, the MOPC Cavern System is owned by LOOP with the facilities dedicated to and set aside for the temporary storage of crude petroleum received from the MOPC pipeline and re-delivered through the LOOP distribution system pursuant to the terms of the Agreement. The Agreement obligated MOPC to provide the funding for the MOPC Cavern System.

Ownership

LOOP is owned by Marathon Petroleum Company LP (10%), Marathon Pipe Line LLC (40.7%), a wholly owned subsidiary of Marathon Petroleum LP, Murphy Oil Corporation (3.2%), Shell Oil Company (19.5%) and Shell Pipeline Company LP (26.6%), a wholly owned subsidiary of Shell Oil Company.

Under the Limited Liability Company Agreement and the First Stage Throughput and Deficiency Agreement (T&D), each company is obligated in accordance with its ownership percentage to ship oil

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through the Port Complex in quantities sufficient for LOOP to pay certain of its expenses and obligations, including LOOP’s long-term debt secured by the T&D, or to make cash payments to LOOP for which they receive credit for future throughput.

At December 31, 2010, the ownership of the Company and the associated T&D obligations were as follows:

Ownership T&D Obligation Marathon Petroleum Company LP 10.0% 50.7% Marathon Pipe Line LLC 40.7% * Murphy Oil Corporation 3.2% 3.2% ** Shell Oil Company 19.5% 46.1% Shell Pipeline Company LP 26.6% ***

* The T&D obligor is Marathon Petroleum Company LP.

** The T&D obligor is Murphy Oil USA Inc., a wholly owned subsidiary of Murphy Oil Corporation.

*** The T&D obligor is Shell Oil Company.

2. SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition

The Company derives revenue from services provided for the offloading, storing, and blending of oil. Revenue for these services is recognized as services are rendered, the price is fixed or determined, and collection of the resulting receivables is reasonably assured.

Deferred Revenue

Deferred revenue consists primarily of offloading revenue invoiced in advance of offloading services being provided. Deferred revenue is recognized as income after offloading services are provided, or at the expiration date of the contract.

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Receivables

Accounts receivable are recorded at the invoiced amount or the earned but not yet invoiced amount and do not bear interest. Past due balances, if any, are reviewed individually for collectability.

Materials and Supplies

Materials and supplies, which consist of spare parts, diesel fuel and other supplies, are stated at cost (average cost method for spare parts and supplies and first-in, first-out method for diesel fuel).

Property, Plant and Equipment

Property, plant and equipment are stated at cost and depreciated primarily on the units-of-throughput (UTD) basis. Under the UTD method, assets are depreciated based upon estimated total facility throughput. It is the Company’s policy to reassess remaining total facility throughput periodically and adjust depreciation rates according to revised estimates.

The Company reviews long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

Interest is capitalized in connection with the construction of major facilities. The capitalized interest is recorded as part of the asset to which it relates and is amortized over the asset’s estimated useful life. Interest capitalized was approximately $747,000 and $2,482,000 in 2010 and 2009, respectively.

Income Taxes

As a Delaware limited liability company, LOOP has elected to be taxed as a partnership. Therefore, no provision for federal or state income taxes has been made in the accompanying financial statements.

Asset Retirement Obligation

The Company records its asset retirement and removal costs in accordance with FASB Accounting Standards Codification (ASC) Subtopic 410-20, Asset Retirement Obligations, which requires entities to record the fair value of the liability for an asset retirement obligation in the period in which it is incurred and a corresponding increase in the carrying amount of the related long-lived asset. Accretion expense related to the asset retirement liability is presented in the income statement with depreciation and amortization.

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Other Assets

Other assets consist primarily of oil inventory (see Allowance Oil Revenue and Loss) and unamortized debt issuance costs of $3,265,000 and $2,791,000 at December 31, 2010 and 2009, respectively. Debt issuance costs, including legal fees, underwriting fees, and printing costs, are being amortized over the terms of the long-term debt to which they relate.

Allowance Oil Revenue and Loss

In accordance with the terms and conditions of service with its customers, the Company withholds one-tenth of one percent of the oil transported (adjusted for sediment and water content). This amount is valued at current market price and recorded as revenue, with an estimate of losses based upon the results of physical inventories recorded at then current market prices as an expense. The Company recorded approximately $17,588,000 and $7,561,000 in income during 2010 and 2009, respectively, for excess oil withheld over estimated losses. Included in the oil loss allowance expense are adjustments for approximately $110,000 and $335,000 for inventory market valuation write-downs in 2010 and 2009, respectively.

Cash and Cash Equivalents

For purposes of the statements of cash flows, short-term, highly liquid investments are considered cash equivalents. As of December 31, 2010 and 2009, cash equivalents were approximately $22,004,000 and $921,000 respectively, and there were no significant concentrations of commercial paper investments held at year-end. For commercial paper investments, it is the Company’s policy only to invest in prime-rated companies. In previous years the Company provided a reserve of $2,940,000 ($0 in 2010 and $240,000 in 2009) for the potential loss of value in one of its investments. This investment has been reclassified and is included in Other Assets. The commercial paper investment was a structured investment vehicle that was in receivership. The investment was made in accordance with the Company’s investment policy. The issue was resolved in 2010 when the assets of the structured investment vehicle were sold and the Company realized a loss of $2,478,000, which included a gain of $462,000 in 2010 (See Note 9).

Restricted cash and cash equivalents consist of remaining proceeds from the Series 2010B-1&2 Bonds held by the Trustee that are to be used to acquire, construct, improve and expand the facilities. The restricted cash balance was $90,176,000 as of December 31, 2010 (See note 4).

Fair Value

The Company applies the provisions of FASB ASC Topic 820 (ASC 820), Fair Value Measurements and Disclosures, for fair value measurements of financial assets and liabilities and for fair value measurements of non-financial items that are recognized or disclosed at fair value in the financial statements on a recurring basis. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a framework for measuring fair value and expands disclosures about fair value measurements. The three levels of the fair value hierarchy are as follows:

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Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 inputs are unobservable inputs for the asset or liability.

The level in the fair value hierarchy within which a fair measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety.

Pension and Other Postretirement Plans

The Company sponsors a defined benefit pension plan covering substantially all of its employees upon their retirement. The benefits are based on age, years of service and the level of compensation prior to retirement. The Company also sponsors a defined benefit healthcare plan for substantially all retirees.

The Company records annual amounts relating to its pension and postretirement plans based on calculations that incorporate various actuarial and other assumptions including discount rates, mortality, assumed rates of return, compensation increases, turnover rates and healthcare cost trend rates. The Company reviews its assumptions on an annual basis and makes modifications to the assumptions based on current rates and trends when it is appropriate to do so. The Company believes that the assumptions utilized in recording its obligations under its plans are reasonable based on its experience and market conditions.

The net periodic costs are recognized as employees render the services necessary to earn the postretirement benefits.

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3. PROPERTY, PLANT AND EQUIPMENT

As of December 31, 2010 and 2009, property, plant and equipment consisted of the following:

2010 (000’s)

2009 (000’s)

Land, leases and rights of way $ 13,362 $ 13,362 Buildings 50,239 48,945 Equipment and communications systems 26,058 25,964 Storage caverns and tanks 462,080 383,569 Delivery equipment 710,891 712,735 Furniture, fixtures and other 25,509 19,002 $ 1,288,139 $ 1,203,576

Total assets depreciated under the straight-line method have an original cost of approximately $143,000,000 and $150,113,000 at December 31, 2010 and 2009, respectively, and are depreciated over useful lives ranging from 5 to 25 years, with the exception of the Northpark headquarters, which is depreciated over a useful life of 50 years. The remaining assets are depreciated under the UTD method. It is the Company’s policy to reassess remaining total facility throughput periodically and adjust depreciation rates according to revised estimates. At current throughput levels, the remaining depreciable life is approximately 27 years as of December 31, 2010.

The following table reconciles the beginning and ending aggregate recorded amount of the asset retirement obligation, which is included in other noncurrent liabilities for the twelve months ended December 31, 2010 and 2009 are:

Asset Retirement

Obligation (000’s) December 31, 2008 $ 4,919

Accretion expense 291 December 31, 2009 5,210

Accretion expense 309 December 31, 2010 $ 5,519

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4. LONG-TERM DEBT AND FINANCING ARRANGEMENTS

The Louisiana Offshore Terminal Authority (the Authority) issued Deepwater Port Revenue Bonds (the Bonds) for the benefit of the Company as indicated below:

Original Outstanding as of Average Interest Amount December 31, 2010 Series Bonds Dated Rates for 2010 (000’s) (000’s) 1997A August 28, 1997 0.22% $ 24,710 $ 24,710 1999 June 8, 1999 * $ 24,605 24,605 2000 June 1, 2000 5.50% $ 23,125 22,345 2001 June 27, 2001 * $ 23,255 23,255 2003A April 1, 2003 0.36% $ 56,550 56,550 2003B April 1, 2003 0.27% $ 43,450 43,450 2003C April 1, 2003 4.50 – 5.25% $ 37,960 37,960 2003D April 29, 2003 * $ 22,520 22,520 2007A August 16, 2007 0.49% $ 81,020 81,020 2007B August 16, 2007 4.25 – 4.30% $ 100,000 100,000 2007B1B August 16, 2007 * $ 20,000 20,000 2010A April 1, 2010 3.95% $ 22,980 22,980 2010B-1 September 1, 2010 1.875% $ 70,000 70,000 2010B-2 October 1, 2010 2.10% $ 30,000 30,000 $ 579,395 1999, 2001, 2003D and Series 2007B1B Bonds Held as Treasury Bonds

(90,380)

$ 489,015

* Held in treasury.

Concurrent with the issuance of the bonds, the Authority placed the proceeds with a trustee in exchange for promissory notes issued by LOOP. The notes are pledged by the Authority to the trustee as security for the Bonds which are collateralized by assignment of certain of LOOP’s rights to receive payments under the First Stage Throughput and Deficiency Agreement except for Series 1999, 2000, 2001, 2003D, 2007B and 2010A, B1&2 Bonds (See Note 1). The Series 1999, 2000, 2001, 2007B and 2010A, B1&2 Bonds were issued on an unsecured basis. The rights to receive payments under the First Stage Throughput and Deficiency Agreement for the Series 2003D Bonds were released in 2009 as the Series 2003D Bonds are held as Treasury Bonds.

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The terms of the notes require future payments to the trustee for principal payments and/or payments into a sinking fund of the following amounts:

Annual Amount (000’s)

Years 2011 $ - 2012 - 2013 - 2014 100,000 2015 18,505 Thereafter 370,510 $ 489,015

The Series 1997A Bonds are payable on September 1, 2017. The Series 1999 Bonds are payable on October 1, 2019. The Series 2000 Bonds are payable on October 1, 2020. The Series 2001 Bonds are payable on October 1, 2021. The Series 2003A and B Bonds are payable on September 1, 2014. The 2003C Bonds are payable in 2015 and 2016. The Series 2003D Bonds are payable on September 1, 2023. The Series 2007A Bonds are payable on September 1, 2027 and the 2007B Bonds are payable on October 1, 2037. The Series 2010A Bonds are payable on October 1, 2018. The Series 2010B-1&2 Bonds are payable on October 1, 2040. The Series 1997A, 1999, 2001, 2003A, B and D, 2007A and 2007B1B Bonds are redeemable by LOOP, in whole or in part, on any interest payment date at redemption price equal to the principal amount of the Bonds plus accrued interest. These Bonds are redeemable on any interest payment date after the applicable no-call period (measured from the fixed rate conversion date) with a premium of 1% for 1997A, 1999, 2003A and B, 2007A and 2007B1B Bonds should they be converted to a multi-annual (the interest rate is fixed for a period of one or more years) or Fixed Rate Mode. The Series 2003C Bonds are redeemable by LOOP on or after September 1, 2013, in whole or in part at a redemption price equal to 100% of the principal amount of the bonds plus accrued interest. The Series 2000, Series 2007B and Series 2010B-1&2 Bonds are currently in the Medium Term Note Mode.

All bonds are redeemable by LOOP if any extraordinary event as described in the indenture occurs. Interest payment dates for Series 2003C Bonds are March 1 and September 1 of each year. Interest on the Series 1997A, 1999, 2001, 2003A, B and D, 2007A and Series 2007B1B Bonds is variable and is calculated and paid as described in the indenture. Interest payment dates for the Series 2007B and 2010A, B-1&2 Bonds are April 1 and October 1 of each year. Interest payment dates for the Series 2000 Bonds are June 1 and December 1 of each year.

The Series 1997A, 1999, 2001, 2003A, B and D, 2007A and 2007B1B Bonds may be redeemed at the option of the bondholders on any remarketing date, as defined in the indenture, in which case, replacement Bonds are to be sold by the remarketing agent. Any principal payments required prior to maturity would first be supported by an irrevocable letter of credit, and if not remarketed by the maturity of the letter of credit, by the T&D, as described in Note 1, except as to the Series 1999, 2001, 2003D and 2010B1B Bonds. The average interest rate on Series 1997A Bonds during 2010 was .22% and .25% in

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2009. Interest averaged .36% during 2010 and .48% during 2009 on Series 2003A Bonds, .27% during 2010 and .40% during 2009 on Series 2003B, and .49% during 2010 and .85% during 2009 on Series 2007A.

Based on the borrowing rates currently available to the Company through the issuance of bonds with similar terms and average maturities, the fair value of Long-Term Debt less the Treasury Bonds as of December 31, 2010 is approximately $491,500,000.

The Series 1999 Bonds were converted to the flexible interest rate mode on August 3, 2009. The Series 2007B1B Bonds were separated from the 2007B1 Bonds and converted to the flexible interest rate mode on October 1, 2010. These Bonds were then purchased by LOOP and are currently being held as Treasury Bonds.

Proceeds of $24,708,000 from the sale of Series 2010A Bonds sold at a premium along with $2,364 of Company funds were used to refund the Series 1998 Bonds.

Proceeds of $100,000,000 from the sale of Series 2010B-1&2 Bonds dated September 1, 2010 and October 1, 2010 were deposited with the Trustee and are to be used to acquire, construct, improve, install and expand the facilities, including directly related storage facilities and equipment, and including up to five 600,000 barrel crude oil tanks, which facilities are located in the Gulf Opportunity Zone as provided in the Gulf Opportunity Zone Act of 2005, and paying the cost of issuance of the Bonds. The proceeds held by the Trustee including interest earned at December 31, 2010 were approximately $90,176,000.

LOOP currently has four irrevocable letters of credit securing outstanding or contingent obligations. The first letter of credit with a commitment of $25,116,000 provides security for the Series 1997A Bonds and expires on March 31, 2012. The second letter of credit with a commitment of $57,480,000 provides security for the Series 2003A Bonds and expires on July 1, 2011. The third letter of credit with a commitment of $44,164,000 provides security for the Series 2003B Bonds and expires on March 31, 2013. The fourth letter of credit with a commitment of $82,352,000 provides security for the Series 2007A Bonds and expires on August 16, 2013. The Company also has a $50,000,000 committed line of credit for general corporate purposes. The line of credit expires on December 31, 2013. The amount outstanding on the line of credit at December 31, 2010 and 2009 was $0 and $5,000,000. These credit facilities are collateralized by the assignment of certain of LOOP’s rights to receive payments under the (T&D) (See Note 1). Cash paid for interest was approximately $10,175,000 and $10,861,000 in 2010 and 2009, respectively.

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5. RELATED-PARTY TRANSACTIONS

Revenues from owners and owner affiliates for offloading, storage, blending services, in-system transfers, allowance oil and oil inventory sales were approximately $96,637,000 in 2010 and approximately $175,136,000 in 2009.

LOOP receives a management fee under its contract to manage the operations of LOCAP. The contract is extended automatically from year-to-year unless terminated by either LOCAP or the Company. LOCAP is the largest pipeline of LOOP’s four connecting carriers and in 2010 handled 77% of LOOP’s deliveries. Two of LOOP’s owners are also shareholders of LOCAP. LOOP also receives a management fee under a terminalling agreement for the storage of MOPC crude oil. The contract was renewed in 2005 for a term of seven years and is automatically renewed unless terminated by MOPC.

6. COMMITMENTS AND CONTINGENCIES

LOOP is currently party to routine litigation incidental to its business. In the opinion of management and legal counsel, any liability for damages that might be imposed is either covered by insurance, or if not covered by insurance, will not result in losses that are material in relation to the overall financial position and results of operation of LOOP.

7. EMPLOYEES’ PENSION AND OTHER POSTRETIREMENT BENEFITS

LOOP sponsors defined benefit pension plans, which cover all employees of the Company. In addition, the Company provides postretirement healthcare and life insurance benefits to its retired employees.

FASB ASC Topic 715, Retirement Benefits, requires, among other things, the recognition of the funded status of each defined pension benefit plan, retiree healthcare and other post-retirement benefit plans and post employment benefit plans on the balance sheet. Each over funded plan is recognized as an asset and each under funded plan is recognized as a liability. The initial impact of the standard due to unrecognized prior service costs or credits and net actuarial gains or losses as well as subsequent changes in the funded status is recognized as a component of accumulated comprehensive loss in owners’ equity.

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The following table sets forth the plans’ benefit obligations, fair value of plan assets, and funded status at December 31, 2010 and 2009 (in thousands):

Pension Benefits Other

Postretirement Benefits 2010 2009 2010 2009 Change in projected benefit obligation Benefit obligation at January 1 $ 37,727 $ 33,618 $ 9,529 $ 9,018 Service cost 1,224 1,041 233 231 Interest cost 2,193 2,012 565 517 Participant contributions - - 70 59 Actuarial (gain) loss 5,935 1,883 960 (8) Benefit payments (1,005) (827) (297) (288) Curtailments, settlement and acquisitions - - - -

Benefit obligation at December 31 $ 46,074 $ 37,727 $ 11,060 $ 9,529 Accumulated benefit obligation $ 36,969 $ 30,332 $ 11,060 $ 9,529 Change in plan assets Fair value of plan assets at January 1 $ 26,793 20,279 $ - $ - Actual return on plan assets 4,304 5,174 - - Employer contributions 2,683 2,167 227 229 Participant contributions - - 70 59 Benefit payments (1,005) (827) (297) (288)

Fair value of plan assets December 31 $ 32,775 $ 26,793 $ - $ -

Funded status of plans $ (13,299) $ (10,934) $ (11,060) $ (9,529) Amounts recognized in the balance sheet Current asset $ - $ - $ - $ - Noncurrent asset - - - - Current liability - - 383 369 Noncurrent liability 13,299 10,934 10,677 9,160 Accumulated other comprehensive income 18,702 16,139 2,194 1,285

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Components of net periodic retirement expense and other postretirement benefits expense consisted of the following (in thousands):

2010 2009 Pension Plans

Service cost $ 1,224 $ 1,041 Interest cost 2,193 2,012 Expected return on assets (2,178) (1,641) Amortization of prior service cost 11 24 Amortization of actuarial loss 1,243 1,650 Settlements - -

Net Periodic Pension Cost $ 2,493 $ 3,086 Other Postretirement Plans

Service cost $ 233 $ 231 Interest cost 565 517 Expected return on assets - - Amortization of actuarial loss 51 31 Amortization of prior service cost - 1

Net Other Postretirement Plans Cost $ 849 $ 780

Amounts recognized in accumulated comprehensive income were as follows (in thousands):


Postretirement Benefits 2010 2009 2010 2009 Net actuarial gain $ (18,702) $ (16,105) $ (2,194) $ (1,285) Prior service cost (24) (34) - - $ (18,726) $ (16,139) $ (2,194) $ (1,285)

The net gain and prior service cost for the defined benefit pension plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost in 2011 is $1,379,000 and $11,000, respectively. The net gain and prior service credit for the defined benefit postretirement plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost in 2011 is $89,000 and $26,000, respectively.

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Weighted average assumptions used to determine the benefit obligations for 2010 and 2009 were as follows:


Postretirement Benefits 2010 2009 2010 2009 Weighted-average assumptions December 31:

Discount rate 5.44% 5.91% 5.49% 5.93% Expected return on plan assets 8.0% 8.0% - - Rate of compensation increase 4.5% 4.5% 4.5% 4.0% Healthcare cost trend rate - - 7.5% 8.0% Rate to which cost trend declines - - 5.0% 5.0% Year rate reaches ultimate trend rate - - 2015 2014

The Company’s overall expected long-term return on plan assets is 8.0%. The long-term rate of return is determined by using the weighted-average of historical real returns for major asset classes based on target asset allocations. The result is then adjusted for the inflation assumption.

The Company’s overall investment strategy is to achieve a mix of investments with a diversification of assets types. The target ranges for plan assets are 35 – 75% equities, 25 – 65% bonds and 0 – 25% cash equivalents.

The asset allocations of the Company’s benefit plans as of December 31, 2010 were as follows:

Quoted Prices in Active

Markets for Identical Assets

Significant Other

Observable Inputs

Significant Unobservable

Inputs (Level 1) (Level 2) (Level 3) (in ‘000s) Money market funds (a) $ 348 $ - $ - Mutual funds (a) 21,195 - - Common/collective trust funds (b) - 11,232 -

(a) Money market funds and mutual funds

The shares of mutual funds and money market funds are valued at quoted market prices in an active exchange market.

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(b) Common/collective trust funds

The common/collective trust funds (CCTs) are valued based on the quoted redemption value of units owned by the Plan at year-end. CCTs are not available in an active exchange market; however, the fair value is determined based on the underlying investments as traded in an active exchange market.

The asset allocations of the Company’s benefit plans as of December 31, 2010 were as follows:

Plan Assets

in % Target Asset Category 2010 Allocation Equity securities 65 35% – 75% Debt securities 34 25% – 65% Cash 1 0% – 25% Total 100

The Company appoints members of a Committee, which is the named fiduciary of the plan. The members of the Committee establish policy for trust funding and plan administration. This Committee is authorized to appoint, discharge and replace investment advisors, and plan trustees. The Committee determines the plan’s short- and long-term financial needs regarding assets and communicates them to the Trustee at least annually. The Trustee has exclusive discretion to manage and control actual plan assets in accordance with the plan’s asset allocation policy.

The Company’s pension and postretirement plans use a measurement date of December 31.

A 1% increase in the assumed trend rates would result in an increase in the accumulated postretirement benefit obligation at December 31, 2010 of approximately $1,432,000; the aggregate increase of service cost and interest for the year ended December 31, 2010 would have been approximately $105,000.

Pension Benefits

Other Postretirement

Benefits 2010 2009 2010 2009 Benefit cost $ 2,493 $ 3,086 $ 850 $ 780 Employer contributions 2,692 2,167 227 229 Participant contributions - - 70 59 Benefits paid 1,005 827 297 288

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The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in thousands):

Pension Other Benefits Benefits 2011 $1,237 $384 2012 1,425 369 2013 1,623 401 2014 1,787 406 2015 2,002 472

Years 2016 – 2020 $13,194 $ 2,839

LOOP also sponsors a Thrift Plan to assist eligible employees in providing for retirement or other future financial needs. Employee contributions (up to 7% of their earnings) are matched by LOOP at a rate of 100%. LOOP’s contributions to the Thrift Plan were $1,075,000 and $994,000 in 2010 and 2009, respectively.

8. LEASES

Certain land and vessels are leased. Except for the lease on land for the new headquarters office building, all leases are operating leases and were entered into in the normal course of business. Each has varying terms, renewal options and escalation provisions. In 2007, the Company entered into a lease in the Northpark Business Park in Covington, Louisiana for the land on which the headquarters’ office building has been constructed. The lease is for a 25 year primary term with available options to extend the lease for an additional 50 years. The lessor has an option to require the Company to buy the land through 2016. The lease also contains an option for the Company to purchase the land after 10 years, which obligates the lessor to sell the land. The parties have agreed that the Company will buy the land in March 2017. Construction of the new building was completed in August 2009. The Company capitalized this lease obligation.

LOOP has underground storage caverns located near Galliano, Louisiana, which provide interim storage for crude oil prior to delivery to connecting pipelines. This facility consists principally of eight underground caverns, with a total capacity of approximately 49 million barrels of crude oil, leached out of salt in a naturally occurring salt dome. The land for the underground storage caverns is leased from two major oil companies, one of which is an owner of the Company. The primary lease term is 30 years with an option to renew for two additional ten-year periods. The annual rental is based on storage capacity and a per-barrel fee. The minimum annual rental is $1,050,000 with an adjustment for increases in storage capacity and the Consumer Price Index. The Company may cancel the lease at any time by paying a $20,000 cancellation fee.

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Rental expenses were approximately $18,422,000 and $17,369,000 for the years ended December 31, 2010 and 2009, respectively. Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) and future minimum capital lease payments as of December 31, 2010 are as follows:

Capital Operating

leases (000’s)

leases (000’s)

2011 $ 150 $ 18,319 2012 178 19,092 2013 180 2,601 2014 180 2,694 2015 180 2,791 Thereafter 2,212 8,988 Total minimum lease payments $ 3,080 $ 54,485 Less amount representing interest (667) Present value of net minimum capital lease payments $ 2,413

9. FAIR VALUE MEASUREMENTS

The fair values of financial and nonfinancial items represent management’s best estimates of the amounts that would be received to sell assets or paid to transfer liabilities in an orderly transaction between market participants at the balance sheet date. Those fair values maximize the use of observable inputs. However, in situations where there is little, if any, market activity for the asset or liability at the measurement date, the fair value measurement reflects the Company’s own judgments about the assumptions that market participants would use in pricing the asset or liability. Those judgments are developed by the Company based on the best information available in the circumstances.

As of December 31, 2010, there are no assets and liabilities, that are measured at fair value other than those included in Note 7.

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At December 31, 2009 the carrying amount of the Golden Key investment, a structured investment vehicle (SIV) in receivership, was included in the balance sheet in Other Assets (Level 3). The investment had a face value of $6,000,000 net of unrealized losses of $2,940,000 ($240,000 recorded in 2009). The fair value of the investment was determined by applying an estimated recovery rate to the face value of the Company’s investment. The issue was resolved in 2010 when the assets of the SIV were sold and the Company realized a loss of $2,478,000 which was less than booked in previous years thus income of $461,512 was recognized in 2010.

The following table presents the Company’s activity for items measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the year ended December 31, 2010:

Assets

Golden Key Investment

Balance at December 31, 2009 $ 3,060,000

Total realized and unrealized income:

Included in income 461,512

Purchases, issuance and d l settlements (net) (3,521,512)

Balance at December 31, 2010 $ - Total income for 2010 included in

income attributable to the change

in unrealized losses relating to assets held at December 31, 2009 $ 461,512

10. SUBSEQUENT EVENTS

The Company has evaluated all events that occurred prior to February 4, 2011, the date of issuance of the Company’s financial statements, and has determined that there are no subsequent events that require disclosure.

financial statements december 31, 2010 and ... - emma… · loop operates a cavern storage system...

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