News Column

GLOBAL PARTNERS LP - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

May 9, 2014

The following discussion and analysis of financial condition and results of operations of Global Partners LP should be read in conjunction with the historical consolidated financial statements of Global Partners LP and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q.

Forward-Looking Statements



Some of the information contained in this Quarterly Report on Form 10-Q may contain forward-looking statements. Forward-looking statements include, without limitation, any statement that may project, indicate or imply future results, events, performance or achievements, and may contain the words "may," "believe," "should," "could," "expect," "anticipate," "plan," "intend," "estimate," "continue," "will likely result," or other similar expressions. In addition, any statement made by our management concerning future financial performance (including future revenues, earnings or growth rates), ongoing business strategies or prospects, and possible actions by us are also forward-looking statements. Although we believe these forward-looking statements are reasonable as and when made, there may be events in the future that we are not able to predict accurately or control, and there can be no assurance that future developments affecting our business will be those that we anticipate. Additionally, all statements concerning our expectations regarding future operating results are based on current forecasts for our existing operations and do not include the potential impact of any future acquisitions. The factors listed under Part I, Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the year ended December 31, 2013, as well as any cautionary language in this report, describe the known material risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Additional factors or events that may emerge from time to time, or those that we currently deem to be immaterial, could cause our actual results to differ, and it is not possible for us to predict all of them. You are cautioned not to place undue reliance on the forward-looking statements contained herein. The following factors are among those that may cause actual results to differ materially and adversely from our forward-looking statements:

We may not have sufficient cash from operations to enable us to pay



the minimum quarterly distribution or maintain distributions at current levels following establishment of cash reserves and payment of fees and expenses, including payments to our general partner.

A significant decrease in demand for the products we sell could



reduce our ability to make distributions to our unitholders.

Our sales of home heating oil and residual oil could be



significantly reduced by conversions to natural gas.

Erosion of the value of the Mobil brand could adversely affect our



gasoline sales and customer traffic.

Our gasoline sales could be significantly reduced by a reduction in



demand due to higher prices and to new technologies and alternative fuel sources, such as electric, hybrid or battery powered motor vehicles.

Our crude oil sales could be adversely affected by, among other



things, unanticipated changes in the crude oil market structure, grade differentials and volatility (or lack thereof), changes in refiner demand, severe weather conditions, significant changes in prices and interruptions in rail transportation services and other necessary services and equipment, such as railcars, trucks, loading equipment and qualified drivers.

We depend upon marine, pipeline, rail and truck transportation



services for a substantial portion of our logistics business in transporting the products we sell. A disruption in these transportation services could have an adverse effect on our financial condition, results of operations and cash available for distribution to our unitholders.

Changes to government usage mandates could adversely affect the



availability and pricing of ethanol, which could negatively impact our sales.

Warmer weather conditions could adversely affect our home heating



oil and residual oil sales.

Our risk management policies cannot eliminate all commodity risk. In



addition, noncompliance with our risk management policies could result in significant financial losses.

Our results of operations are affected by the overall forward market for the products we sell. 38



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Our business could be affected by a range of issues, such as changes



in commodity prices, energy conservation, competition, the global economic climate, movement of products between foreign locales and within the United States, changes in refiner demand, weekly and monthly refinery output levels, changes in local, domestic and worldwide inventory levels, changes in safety regulations, seasonality and supply, weather and logistics disruptions.

Increases and/or decreases in the prices of the products we sell



could adversely impact the amount of borrowing available for working capital under our credit agreement, which credit agreement has borrowing base limitations and advance rates.

We are exposed to trade credit risk in the ordinary course of our business. We are exposed to risk associated with our trade credit support in



the ordinary course of our business.

The condition of credit markets may adversely affect us. Our bank credit agreement and the indentures governing our senior



notes contain operating and financial covenants, and our credit agreement contains borrowing base requirements. A failure to comply with the operating and financial covenants in our credit agreement, the indentures and any future financing agreements could impact our access to bank loans and other sources of financing and restrict our ability to finance future operations or capital needs or to engage in, expand or pursue our business activities.

A significant increase in interest rates could adversely affect



our ability to service our indebtedness.

Our gasoline station and convenience store business could expose



us to an increase in consumer litigation and result in an unfavorable outcome or settlement of one or more lawsuits where insurance proceeds are insufficient or otherwise unavailable.

Adverse developments in the areas where we conduct our business



could reduce our ability to make distributions to our unitholders.

A serious disruption to our information technology systems could



significantly limit our ability to manage and operate our business efficiently.

We are exposed to performance risk in our supply chain. Our businesses are subject to both federal and state environmental



and non-environmental regulations which could have a material adverse effect on such businesses.

Our general partner and its affiliates have conflicts of interest



and limited fiduciary duties, which may permit them to favor their own interests to the detriment of unitholders.

Unitholders have limited voting rights and are not entitled to elect



our general partner or its directors or to remove our general partner without the consent of the holders of at least 66 2/3% of the outstanding units (including units held by our general partner and its affiliates), which could lower the trading price of our common units.

Our tax treatment depends on our status as a partnership for federal



income tax purposes.

Unitholders may be required to pay taxes on their share of our



income even if they do not receive any cash distributions from us.

Additional information about risks and uncertainties that could cause actual results to differ materially from forward-looking statements is contained in Part I, Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the year ended December 31, 2013 and Part II, Item 1A, "Risk Factors," in this Quarterly Report on Form 10-Q.

We expressly disclaim any obligation or undertaking to update these statements to reflect any change in our expectations or beliefs or any change in events, conditions or circumstances on which any forward-looking statement is based. All forward-looking statements included in this Quarterly Report on Form 10-Q and all subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements.

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Table of Contents Overview General



We are a midstream logistics and marketing company that engages in the purchasing, selling and logistics of transporting domestic and Canadian crude oil and other products via rail, establishing a "virtual pipeline" from the mid-continent region of the United States and Canada to refiners and other customers on the East and West Coasts. We own and control transload terminals in North Dakota and Oregon that extend our origin-to-destination capabilities. We also own, control or have access to one of the largest terminal networks of refined petroleum products and renewable fuels in Massachusetts, Maine, Connecticut, Vermont, New Hampshire, Rhode Island, New York, New Jersey and Pennsylvania (collectively, the "Northeast"). We are one of the largest distributors of gasoline (including gasoline blendstocks such as ethanol and naphtha), distillates (such as home heating oil, diesel and kerosene), residual oil and renewable fuels to wholesalers, retailers and commercial customers in the New England states and New York. We are a major multi-brand gasoline distributor and, as of March 31, 2014, had a portfolio of approximately 900 owned, leased and/or supplied gasoline stations primarily in the Northeast. We receive revenue from retail sales of gasoline, convenience store sales and gasoline station rental income. We are also a distributor of natural gas and propane.

We purchase refined petroleum products, renewable fuels, crude oil, natural gas and propane primarily from domestic and foreign refiners and ethanol producers, crude oil producers, major and independent oil companies and trading companies, and we sell these products in three reporting segments: (i) Wholesale, (ii) Gasoline Distribution and Station Operations ("GDSO") and (iii) Commercial which are discussed below.

Collectively, we sold approximately $5.1 billion of refined petroleum products, renewable fuels, crude oil, natural gas and propane for the three months ended March 31, 2014. In addition, we had other revenues of approximately $34.0 million for the three months ended March 31, 2014, primarily from convenience store sales at our directly operated stores and rental income from dealer leased or commission agent leased gasoline stations.

Like most independent marketers, we base our pricing on spot prices, fixed prices or indexed prices and routinely use the NYMEX, CME, IntercontinentalExchange ("ICE") or other counterparties to hedge the risk inherent in buying and selling commodities. Through the use of regulated exchanges or derivatives, we seek to maintain a position that is substantially balanced between purchased volumes and sales volumes or future delivery obligations.

Wholesale



This reportable segment includes sales of unbranded gasoline (including gasoline blendstocks such as ethanol and naphtha) and diesel to unbranded gasoline customers and other resellers of transportation fuels, home heating oil, diesel, kerosene, residual oil and propane to home heating oil and propane retailers and wholesale distributors, and crude oil to refiners. We also generate revenue through our logistics activities.

In February 2013, we acquired a 60% membership interest in Basin Transload, which operates two transloading facilities in Columbus and Beulah, North Dakota for crude oil and other products, and 100% of the membership interest in Cascade Kelly, which owns a West Coast crude oil transloading and ethanol manufacturing facility near Portland, Oregon. In January 2013, we signed a five-year contract with Phillips 66 under which we use our storage, rail transloading, logistics and transportation system to deliver crude oil from the Bakken region to Phillips 66's Bayway, New Jersey refinery.

In our Wholesale segment, we obtain Renewable Identification Numbers ("RINs") in connection with our purchase of ethanol either to be used for bulk trading purposes or for blending with gasoline through our terminal system. A RIN is a renewable identification number associated with government-mandated renewable fuel standards. To evidence that the required volume of renewable fuel is blended with gasoline, obligated parties must retire sufficient RINs to cover their Renewable Volume Obligation ("RVO"). Our EPA obligations relative to renewable fuel reporting are largely limited to the foreign gasoline that we may choose to import.

Gasoline Distribution and Station Operations

This reportable segment includes sales of branded and unbranded gasoline to gasoline stations and other sub-jobbers as well as gasoline, convenience store, car wash and other ancillary sales at our directly operated stores and rental income from dealer leased or commission agent leased retail gasoline stations.

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In September 2010, we completed the acquisition from ExxonMobil Corporation of 190 retail gasoline stations, together with the rights to (i) supply Mobil-branded fuel to those stations as well as an additional 31 existing locations in Massachusetts, New Hampshire and Rhode Island, and (ii) expand supply opportunities for Mobil-branded and Exxon-branded fuel in certain other New England states. This acquisition expanded our wholesale supply business and added vertical integration to our transportation fuel business in New England. On March 1, 2012, we acquired Alliance Energy LLC ("Alliance"), a gasoline distributor and operator of gasoline stations and convenience stores. As of the date of the acquisition, Alliance's portfolio included approximately 540 gasoline stations in the Northeast, of which it owned or held under long-term lease approximately 250 stations, and had supply contracts for the remaining stations. The Alliance acquisition expanded our geographic footprint for gasoline stations to include Connecticut, New Jersey, New York, Pennsylvania, Maine and Vermont. Alliance is a top-tier distributor of multiple brands, including Exxon, Mobil, Shell, Sunoco, CITGO and Gulf. Prior to the closing of the acquisition, Alliance was wholly owned by AE Holdings Corp. ("AE Holdings") which, on March 1, 2012, was 95% owned by members of the Slifka family.

On April 26, 2012, we entered into an agreement with Getty Realty Corp. ("Getty Realty") to supply and provide management services to more than 200 of its gasoline stations in New York and New Jersey. In November 2012, we signed a long-term lease agreement with Getty Realty which, as amended, enables us to supply gasoline to and operate gasoline stations for approximately 100 of those 200 sites, primarily in the New York City boroughs of Queens, Manhattan and the Bronx as well as in Long Island and Westchester County. As of December 31, 2013, the supply and management agreement with respect to the remaining sites expired in accordance with the terms of the agreement.

Commercial



This segment includes sales and deliveries to end user customers in the public sector and to large commercial and industrial end users of unbranded gasoline, home heating oil, diesel, kerosene, residual oil, renewable fuels and natural gas. In the case of commercial and industrial end user customers, we sell our products primarily either through a competitive bidding process or through contracts of various terms. Our Commercial segment also includes sales of custom blended distillates and residual oil delivered by barge or from a terminal dock to ships through bunkering activity. For the three months ended March 31, 2014 and 2013, the Commercial operating segment did not meet the quantitative metrics for disclosure as a reportable segment on a stand-alone basis. However, we have elected to present segment disclosures for the Commercial operating segment as we believe such disclosures are meaningful to the user of our financial information.

Products and Operational Structure

Our products primarily include gasoline, distillates, residual oil, renewable fuels, crude oil, natural gas and propane. We sell gasoline to branded and unbranded gasoline stations and other resellers of transportation fuels, as well as to customers in the public sector. The distillates we sell are used primarily for fuel for trucks and off-road construction equipment and for space heating of residential and commercial buildings. We receive crude oil in the mid-continent region of the United States and Canada and aggregate crude oil by truck or pipeline in the mid-continent, transport it on land by train and ship it to refiners on the East and West Coasts in barges. We sell residual oil to major housing units, such as public housing authorities, colleges and hospitals and large industrial facilities that use processed steam in their manufacturing processes. In addition, we sell bunker fuel, which we can custom blend, to cruise ships, bulk carriers and fishing fleets. We sell our natural gas to end users and our propane to home heating oil and propane retailers and wholesale distributors.

Due to the nature of our business and our reliance, in part, on consumer travel and spending patterns, we may experience more demand for gasoline and gasoline blendstocks during the late spring and summer months than during the fall and winter. Travel and recreational activities are typically higher in these months in the geographic areas in which we operate, increasing the demand for gasoline and gasoline blendstocks that we distribute. Therefore, our volumes in gasoline and gasoline blendstocks are typically higher in the second and third quarters of the calendar year. As demand for some of our refined petroleum products, specifically home heating oil and residual oil for space heating purposes, is generally greater during the winter months, heating oil and residual oil sales are generally higher during the first and fourth quarters of the calendar year. These factors may result in significant fluctuations in our quarterly operating results.

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Generally, our wholesale customers use their own vehicles or contract carriers to take delivery of the gasoline and distillate products at bulk terminals and inland storage facilities that we own or control or with which we have throughput or exchange arrangements. Our crude oil is aggregated by truck or pipeline in the mid-continent, transported on land by train and shipped to refineries on the East and West Coasts in barges. We arrange to have our ethanol shipped primarily by rail and by barge. For our commercial customers, we generally arrange the delivery of the product to the customer's designated location, typically hiring third-party common carriers to deliver the product.

Outlook



This section identifies certain risks and certain economic or industry-wide factors that may affect our financial performance and results of operations in the future, both in the short-term and in the long-term. Our results of operations and financial condition depend, in part, upon the following:

Our business is influenced by the overall forward market for refined petroleum products, renewable fuels and crude oil, and increases and/or decreases in the prices of these products may adversely impact our financial condition, results of operations and cash available for distribution to our unitholders and the amount of borrowing available for working capital under our credit agreement. Results from our purchasing, storing, terminalling, transporting and selling operations are influenced by prices for refined petroleum products, renewable fuels and crude oil, pricing volatility and the market for such products. Prices in the overall forward market for these products may affect our financial condition, results of operations and cash available for distribution to our unitholders. Our margins can be significantly impacted by the forward product pricing curve, often referred to as the futures market. We typically hedge our exposure to petroleum product and renewable fuel price moves with futures contracts and, to a lesser extent, swaps. In markets where futures prices are higher than current prices, referred to as contango, we may use our storage capacity to improve our margins by storing products we have purchased at lower prices in the current market for delivery to customers at higher prices in the future. In markets where futures prices are lower than current prices, referred to as backwardation, inventories can depreciate in value and hedging costs are more expensive. For this reason, in these backward markets, we attempt to reduce our inventories in order to minimize these effects. When prices for the products we sell rise, some of our customers may have insufficient credit to purchase supply from us at their historical purchase volumes, and their customers, in turn, may adopt conservation measures which reduce consumption, thereby reducing demand for product. Furthermore, when prices increase rapidly and dramatically, we may be unable to promptly pass our additional costs on to our customers, resulting in lower margins for us which could adversely affect our results of operations. Higher prices for the products we sell may (1) diminish our access to trade credit support and/or cause it to become more expensive and (2) decrease the amount of borrowings available for working capital under our credit agreement as a result of total available commitments, borrowing base limitations and advance rates thereunder. When prices for the products we sell decline, our exposure to risk of loss in the event of nonperformance by our customers of our forward contracts may be increased as they and/or their customers may breach their contracts and purchase the products we sell at the then lower market price from a competitor. A significant decrease in the price for crude oil could adversely affect the economics of the domestic crude oil production for the product which, in turn, could have an adverse effect on our crude oil logistics activities and sales.

We commit substantial resources to pursuing acquisitions, although there is no certainty that we will successfully complete any acquisitions or receive the economic results we anticipate from completed acquisitions. We are continuously engaged in discussions with potential sellers and lessors of existing (or suitable for development) terminalling, storage, logistics and/or marketing assets, including gasoline stations, and related businesses. Our growth largely depends on our ability to make accretive acquisitions and/or accretive development projects. We may be unable to execute such accretive transactions for a number of reasons, including, but not limited to, the following: (1) we are unable to identify attractive transaction candidates or negotiate acceptable terms; (2) we are unable to obtain financing for such transactions on economically acceptable terms; or (3) we are outbid by competitors. In addition, we may consummate transactions that at the time of consummation we believe will be accretive but that ultimately may not be accretive. If any of these events were to occur, our future growth and ability to increase distributions could be limited. We can give no assurance that our transaction efforts will be successful or that any such efforts will be completed on terms that are favorable to us.

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The condition of credit markets may adversely affect our liquidity. In the past, world financial markets experienced a severe reduction in the availability of credit. Possible negative impacts in the future could include a decrease in the availability of borrowings under our credit agreement, increased counterparty credit risk on our derivatives contracts and our contractual counterparties requiring us to provide collateral. In addition, we could experience a tightening of trade credit from our suppliers.

We depend upon rail and marine transportation services for a substantial portion of our logistics business in transporting the products we sell. A disruption in rail and marine transportation services could have an adverse effect on our financial condition, results of operations and cash available for distribution to our unitholders. Hurricanes, flooding and other severe weather conditions could cause a disruption in the transportation services we depend upon which could affect the flow of service. In addition, accidents, labor disputes between the railroads and their employees and labor renegotiations, or a work stoppage at railroads could also disrupt rail service. These events could result in service disruptions and increased cost which could also adversely affect our financial condition, results of operations and cash available for distribution to our unitholders. Other disruptions, such as those due to an act of terrorism or war, could also adversely affect our business.

Our gasoline and gasoline blendstocks financial results are seasonal and generally lower in the first and fourth quarters of the calendar year. Due to the nature of our business and our reliance, in part, on consumer travel and spending patterns, we may experience more demand for gasoline and gasoline blendstocks during the late spring and summer months than during the fall and winter. Travel and recreational activities are typically higher in these months in the geographic areas in which we operate, increasing the demand for gasoline and gasoline blendstocks that we distribute. Therefore, our results of operations in gasoline and gasoline blendstocks are typically lower in the first and fourth quarters of the calendar year.

Our heating oil and residual oil financial results are seasonal and generally lower in the second and third quarters of the calendar year. Demand for some refined petroleum products, specifically home heating oil and residual oil for space heating purposes, is generally higher during November through March than during April through October. We obtain a significant portion of these sales during the winter months. Therefore, our results of operations in heating oil and residual oil for the first and fourth calendar quarters are generally better than for the second and third quarters.

Warmer weather conditions could adversely affect our results of operations and financial condition. Weather conditions generally have an impact on the demand for both home heating oil and residual oil. Because we supply distributors whose customers depend on home heating oil and residual oil for space heating purposes during the winter, warmer-than-normal temperatures during the first and fourth calendar quarters in the Northeast can decrease the total volume we sell and the gross profit realized on those sales.

Energy efficiency, higher prices, new technology and alternative fuels could reduce demand for our products. Increased conservation and technological advances have adversely affected the demand for home heating oil and residual oil. Consumption of residual oil has steadily declined over the last three decades. We could face additional competition from alternative energy sources as a result of future government-mandated controls or regulation further promoting the use of cleaner fuels. End users who are dual-fuel users have the ability to switch between residual oil and natural gas. Other end users may elect to convert to natural gas. During a period of increasing residual oil prices relative to the prices of natural gas, dual-fuel customers may switch and other end users may convert to natural gas. During periods of increasing home heating oil prices relative to the price of natural gas, residential users of home heating oil may also convert to natural gas. Such switching or conversion could have an adverse effect on our financial condition, results of operations and cash available for distribution to our unitholders. In addition, higher prices and new technologies and alternative fuel sources, such as electric, hybrid or battery powered motor vehicles, could reduce the demand for gasoline and adversely impact our gasoline sales. A reduction in gasoline sales could have an adverse effect on our financial condition, results of operations and cash available for distribution to our unitholders.

Changes in government usage mandates and tax credits could adversely affect the availability and pricing of ethanol, which could negatively impact our gasoline sales. Future demand for ethanol will be largely dependent upon the economic incentives to blend based upon the relative value of gasoline and ethanol, taking into consideration the EPA's regulations on the Renewable Fuels Standard ("RFS") program and oxygenate blending requirements. A reduction or waiver of the RFS mandate or oxygenate blending requirements could adversely affect the availability and pricing of ethanol, which in turn could adversely affect our future gasoline and ethanol sales. In addition, changes in blending requirements could affect the price of RINs which could

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impact the magnitude of the mark-to-market liability recorded for the deficiency, if any, in our RIN position relative to our RVO at a point in time.

New, stricter environmental laws and regulations could significantly impact our operations and/or increase our costs, which could adversely affect our results of operations and financial condition. Our operations are subject to federal, state and local laws and regulations regulating product quality specifications and other environmental matters. The trend in environmental regulation is towards more restrictions and limitations on activities that may affect the environment over time. Our business may be adversely affected by increased costs and liabilities resulting from such stricter laws and regulations. We try to anticipate future regulatory requirements that might be imposed and plan accordingly to remain in compliance with changing environmental laws and regulations and to minimize the costs of such compliance. However, there can be no assurances as to the timing and type of such changes in existing laws or the promulgation of new laws or the amount of any required expenditures associated therewith.

Results of Operations



Evaluating Our Results of Operations

Our management uses a variety of financial and operational measurements to analyze our performance. These measurements include: (1) product margin, (2) gross profit, (3) earnings before interest, taxes, depreciation and amortization ("EBITDA"), (4) distributable cash flow, (5) selling, general and administrative expenses ("SG&A"), (6) operating expenses, (7) net income per diluted limited partner unit and (8) degree day.

Product Margin



We view product margin as an important performance measure of the core profitability of our operations. We review product margin monthly for consistency and trend analysis. We define product margin as our product sales minus product costs. Product sales primarily include sales of unbranded and branded gasoline, distillates, residual oil, renewable fuels, crude oil, natural gas and propane, as well as convenience store sales, gasoline station rental income and revenue generated from our logistics activities. Product costs include the cost of acquiring the refined petroleum products, renewable fuels, crude oil, natural gas and propane and all associated costs including shipping and handling costs to bring such products to the point of sale as well as product costs related to convenience store items and costs associated with our logistics activities. We also look at product margin on a per unit basis (product margin divided by volume). Product margin is a non-GAAP financial measure used by management and external users of our consolidated financial statements to assess our business. Product margin should not be considered an alternative to net income, operating income, cash flow from operations, or any other measure of financial performance presented in accordance with GAAP. In addition, our product margin may not be comparable to product margin or a similarly titled measure of other companies.

Gross Profit



We define gross profit as our sales minus product costs and terminal and gasoline station related depreciation expense allocated to cost of sales.

EBITDA



EBITDA is a non-GAAP financial measure used as a supplemental financial measure by management and external users of our consolidated financial statements, such as investors, commercial banks and research analysts, to assess:

our compliance with certain financial covenants included in our debt agreements;

our financial performance without regard to financing methods, capital structure, income taxes or historical cost basis;

our ability to generate cash sufficient to pay interest on our indebtedness and to make distributions to our partners;

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our operating performance and return on invested capital as compared to those of other companies in the wholesale, marketing, storing and distribution of refined petroleum products, renewable fuels, crude oil, natural gas and propane without regard to financing methods and capital structure; and

the viability of acquisitions and capital expenditure projects and the overall rates of return of alternative investment opportunities.

EBITDA should not be considered as an alternative to net income, operating income, cash flow from operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. EBITDA excludes some, but not all, items that affect net income, and this measure may vary among other companies. Therefore, EBITDA may not be comparable to similarly titled measures of other companies.

Distributable Cash Flow



Distributable cash flow is an important non-GAAP financial measure for our limited partners since it serves as an indicator of our success in providing a cash return on their investment. Distributable cash flow means our net income plus depreciation and amortization minus maintenance capital expenditures, as well as adjustments to eliminate items approved by the audit committee of the board of directors of our general partner that are extraordinary or non-recurring in nature and that would otherwise increase distributable cash flow.

Specifically, this financial measure indicates to investors whether or not we have generated sufficient earnings on a current or historic level that can sustain or support an increase in our quarterly cash distribution. Distributable cash flow is a quantitative standard used by the investment community with respect to publicly traded partnerships. Distributable cash flow should not be considered as an alternative to net income, operating income, cash flow from operations, or any other measure of financial performance presented in accordance with GAAP. In addition, our distributable cash flow may not be comparable to distributable cash flow or similarly titled measures of other companies.

Selling, General and Administrative Expenses

Our SG&A expenses include, among other things, marketing costs, corporate overhead, employee salaries and benefits, pension and 401(k) plan expenses, discretionary bonuses, non-interest financing costs, professional fees and information technology expenses. Employee-related expenses including employee salaries, discretionary bonuses and related payroll taxes, benefits, and pension and 401(k) plan expenses are paid by our general partner which, in turn, is reimbursed for these expenses by us.

Operating Expenses



Operating expenses are costs associated with the operation of the terminals, transload facilities and gasoline stations used in our business. Lease payments and storage expenses, maintenance and repair, utilities, taxes, labor and labor-related expenses comprise the most significant portion of our operating expenses. These expenses remain relatively stable independent of the volumes through our system but fluctuate slightly depending on the activities performed during a specific period.

Net Income Per Diluted Limited Partner Unit

We use net income per diluted limited partner unit to measure our financial performance on a per-unit basis. Net income per diluted limited partner unit is defined as net income, after deducting the amount allocated to noncontrolling interest, divided by the weighted average number of outstanding diluted common units, or limited partner units, during the period.

Degree Day



A "degree day" is an industry measurement of temperature designed to evaluate energy demand and consumption. Degree days are based on how far the average temperature departs from a human comfort level of 65F. Each degree of temperature above 65F is counted as one cooling degree day, and each degree of temperature below 65F is counted as one heating degree day. Degree days are accumulated each day over the course of a year and can be compared to a monthly or a long-term (multi-year) average, or normal, to see if a month or a year was warmer or cooler than usual.

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Degree days are officially observed by the National Weather Service and officially archived by the National Climatic Data Center. For purposes of evaluating our results of operations, we use the normal heating degree day amount as reported by the National Weather Service at its Logan International Airport station in Boston, Massachusetts.

Three Months Ended March 31, 2014 and 2013

During the three months ended March 31, 2014 and 2013, we experienced the following:

Temperatures for the three months ended March 31, 2014 were 9% colder than normal and 11% colder than the same period in 2013 which improved our product margins for other oils and related products in our Wholesale segment and for weather sensitive products in our Commercial segment.

Severe winter weather had both a positive and negative impact on our performance during the three months ended March 31, 2014. In our crude oil-by- rail business, extreme cold and snow impacted rail traffic, increasing congestion and causing delays which reduced crude oil activity. Those same weather conditions and resulting rail congestion contributed to very favorable market conditions for us in gasoline blendstocks as the availability of railcars for gasoline blendstocks was constrained and certain areas experienced shortages in that product.

In our GDSO segment, rising gasoline prices typically compress our gasoline product margins and declining gasoline prices typically improve our gasoline product margins. The extent of the impact on our product margins depends on the magnitude, duration and direction of the market. Our gasoline product margins were negatively impacted during the first quarter of 2014 and 2013 due to rising gasoline prices.

For the three months ended March 31, 2014, our wholesale gasoline and gasoline blendstocks business included a decrease in a mark to market loss related to RIN forward commitments of $6.0 million and a decrease in a mark to market value of a RVO deficiency of $9.2 million. The total decrease of $15.2 million was more than offset by the expense incurred to purchase RINS during the quarter to reduce these liabilities. For the three months ended March 31, 2013, our wholesale gasoline and gasoline blendstocks business was negatively impacted by increases in a mark to market loss related to RIN forward commitments of $32.7 million and in a mark to market value of a RVO deficiency of $2.6 million.

Our product margins are affected by a variety of factors, including, but not limited to, changes in commodity prices, movement of products between foreign locales and within the United States, changes in refiner demand, weekly and monthly refinery output levels, changes in local, domestic and worldwide inventory levels, seasonality, supply, weather and logistics disruptions.

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Table of Contents Key Performance Indicators The following table provides a summary of some of the key performance indicators that may be used to assess our results of operations. These comparisons are not necessarily indicative of future results (gallons and dollars in thousands, except per unit amounts): Three Months Ended March 31, 2014 2013



Net income (loss) attributable to Global Partners LP (1) $ 57,010$ (22,067 ) Net income (loss) per diluted limited partner unit (2) $ 2.03$ (0.83 ) EBITDA (1)(3)

$ 86,494$ 1,516 Distributable cash flow (1)(4) $ 69,520$ (10,679 ) Wholesale Segment (5): Volume (gallons) 1,433,421 1,578,469



Sales

Gasoline and gasoline blendstocks $ 1,994,556$ 2,201,469 Crude oil (6) 591,229 983,965 Other oils and related products (7) 1,412,771 1,332,554 Total $ 3,998,556$ 4,517,988 Product margin Gasoline and gasoline blendstocks (1) $ 49,663$ (29,426 ) Crude oil (6) 23,490 26,168 Other oils and related products (7) 34,616 17,658 Total (1) $ 107,769$ 14,400 Gasoline Distribution and Station Operations Segment: Volume (gallons) 236,667 243,311 Sales Gasoline $ 768,904$ 745,590 Station operations (8) 33,972 31,608 Total $ 802,876$ 777,198 Product margin Gasoline $ 33,280$ 28,193 Station operations (8) 19,134 17,836 Total $ 52,414$ 46,029 Commercial Segment: Volume (gallons) 116,265 114,235 Sales $ 315,496$ 294,004 Product margin $ 12,329$ 10,425 Combined sales and product margin: Sales $ 5,116,928$ 5,589,190 Product margin (1)(9) $ 172,512$ 70,854 Depreciation allocated to cost of sales (14,151 ) (11,782 ) Combined gross profit (1) $ 158,361$ 59,072 Weather conditions: Normal heating degree days 2,870 2,870 Actual heating degree days 3,129 2,811 Variance from normal heating degree days 9% (2%) Variance from prior period actual heating degree days 11% 22%



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(1) As of March 31, 2014, the mark to market loss related to RIN forward commitments was $0.1 million and the mark to market value of a RVO deficiency was $3.9 million. As of March 31, 2013, the mark to market loss related to RIN forward commitments was $32.7 million and the mark to market value of a RVO deficiency was $2.6 million.

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(2) See Note 3 of Notes to Consolidated Financial Statements for net income (loss) per diluted limited partner unit calculation.

(3) EBITDA is a non-GAAP financial measure which is discussed above under "-Evaluating Our Results of Operations." The table below presents reconciliations of EBITDA to the most directly comparable GAAP financial measures.

(4) Distributable cash flow is a non-GAAP financial measure which is discussed above under "-Evaluating Our Results of Operations." The table below presents reconciliations of distributable cash flow to the most directly comparable GAAP financial measures.

(5) Segment reporting results for the prior period have been reclassified to conform to our current presentation.

(6) Crude oil consists of our crude oil sales and revenue from our logistics activities and includes the February 2013 acquisitions of Basin Transload and Cascade Kelly. As the Basin Transload and Cascade Kelly assets were not in place for a portion of the quarter ended March 31, 2013, the above results are not directly comparable for periods prior to February 2013.

(7) Other oils and related products primarily consist of distillates, residual oil and propane.

(8) Station operations primarily consist of convenience store sales at our directly operated stores and rental income from dealer leased or commission agent leased gasoline stations.

(9) Product margin is a non-GAAP financial measure used by management and external users of our consolidated financial statements to assess our business. The table above includes a reconciliation of product margin on a combined basis to gross profit, a directly comparable GAAP measure.

The following table presents reconciliations of EBITDA to the most directly comparable GAAP financial measures on a historical basis for each period presented (in thousands): Three Months Ended March 31, 2014 2013 Reconciliation of net income (loss) to EBITDA: Net income (loss) $ 57,154$ (22,316 ) Net (income) loss attributable to noncontrolling interest (144 ) 249 Net income attributable to Global Partners LP 57,010 (22,067 )



Depreciation and amortization, excluding the impact of noncontrolling interest

18,072 14,972



Interest expense, excluding the impact of noncontrolling interest

11,090 10,486 Income tax expense (benefit) 322 (1,875 ) EBITDA $ 86,494$ 1,516 Reconciliation of net cash provided by operating activities to EBITDA: Net cash provided by operating activities $ 53,146$ 282,778



Net changes in operating assets and liabilities and certain non-cash items

23,714 (289,005 ) Net cash from operating activities and changes in operating assets and liabilities attributable to noncontrolling interest (1,778 ) (868 ) Interest expense, excluding the impact of noncontrolling interest 11,090 10,486 Income tax expense (benefit) 322 (1,875 ) EBITDA $ 86,494$ 1,516



For the three months ended March 31, 2013, EBITDA was adversely impacted by a $32.7 million mark to market loss related to RIN forward commitments and a $2.6 million mark to market value of a RVO deficiency.

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The following table presents reconciliations of distributable cash flow to the most directly comparable GAAP financial measures on a historical basis for each period presented (in thousands):

Three Months Ended March 31, 2014 2013



Reconciliation of net income (loss) to distributable cash flow: Net income (loss)

$ 57,154$ (22,316 )



Net (income) loss attributable to noncontrolling interest (l44 ) 249 Net income attributable to Global Partners LP

57,010 (22,067 )



Depreciation and amortization, excluding the impact of noncontrolling interest

18,072 14,972 Amortization of deferred financing fees 1,283 1,571 Amortization of senior notes discount 105 53 Amortization of routine bank refinancing fees (1,001 ) (985 ) Maintenance capital expenditures (5,949 ) (4,223 ) Distributable cash flow $ 69,520$ (10,679 ) Reconciliation of net cash provided by operating activities to distributable cash flow: Net cash provided by operating activities $ 53,146$ 282,778



Net changes in operating assets and liabilities and certain non-cash items

23,714 (289,005 ) Amortization of deferred financing fees 1,283 1,571 Amortization of senior notes discount 105 53 Net cash from operating activities and changes in operating assets and liabilities attributable to noncontrolling interest (1,778 ) (868 ) Amortization of routine bank refinancing fees (1,001 ) (985 ) Maintenance capital expenditures (5,949 ) (4,223 ) Distributable cash flow $ 69,520$ (10,679 )



For the three months ended March 31, 2013, distributable cash flow was adversely impacted by a $32.7 million mark to market loss related to RIN forward commitments and a $2.6 million mark to market value of a RVO deficiency.

Consolidated Results



Our total sales for the three months ended March 31, 2014 decreased by $0.5 billion, or 8%, to $5.1 billion compared to $5.6 billion for the same period in 2013, primarily due to a decrease in volume sold. Our aggregate volume of product sold was 1.8 billion gallons for the first quarter of 2014 compared to 1.9 billion gallons for the same period in 2013, a decrease of 0.1 billion gallons. The decrease in volume sold includes decreases of 145 million gallons in our Wholesale segment, due primarily to decreases in our crude oil activities as a result, in part, of severe weather conditions, offset by increases in distillates and residual oil due to colder weather period over period. The number of actual heating degree days increased by 11% to 3,129 for the first quarter of 2014 compared to 2,811 for the same period in 2013. We also had a decrease in volume sold of 6 million gallons in our GDSO segment, offset by an increase of 2 million gallons in our Commercial segment. Our gross profit for the first quarter of 2014 was $158.4 million, an increase of $99.3 million, or 168%, compared to $59.1 million for the first quarter of 2013, due primarily to (i) severe winter weather, including extreme cold and snow and resulting rail congestion, which contributed to very favorable market conditions for us in gasoline blendstocks in the first quarter of 2014, (ii) the negative impact during the first quarter of 2013 from increases in a mark to market loss related to RIN forward commitments of $32.7 million and in a mark to market value of a RVO deficiency of $2.6 million, (iii) colder weather period over period which improved our product margins for other oils and related products in our Wholesale segment and for weather sensitive products in our Commercial segment, and (iv) improved GDSO product margins which were, however, negatively impacted by rising gasoline prices during the three months ended March 31, 2014 and 2013. Our gross profit was negatively impacted due to extreme cold and snow which impacted rail traffic, increasing congestion and causing delays which reduced crude oil activity.

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Table of Contents Wholesale Segment



Gasoline and Gasoline Blendstocks. Sales from wholesale gasoline and gasoline blendstocks were $2.0 billion for the three months ended March 31, 2014 compared to $2.2 billion for the same period in 2013. The decrease of $0.2 billion, or 9%, was due to a decrease in volume sold. Despite the decreases in sales and volume, our gasoline and gasoline blendstocks product margin increased by $79.1 million to $49.7 million for the three months ended March 31, 2014 compared to a negative product margin $29.4 million for the three months ended March 31, 2013. The increase was primarily due to an increase in gasoline blendstocks. During the first quarter of 2014, severe winter weather and resulting rail congestion contributed to very favorable market conditions for us in gasoline blendstocks as the availability of railcars for gasoline blendstocks was constrained and certain areas experienced shortages in that product. In addition, for the three months ended March 31, 2013, our gasoline and gasoline blendstocks product margin was negatively impacted by increases in a mark to market loss related to RIN forward commitments of $32.7 million and in a mark to market value of a RVO deficiency of $2.6 million.

Crude Oil. Crude oil sales and logistics revenues were $0.6 billion for the three months ended March 31, 2014 compared to $1.0 billion for the same period in 2013. The decrease of $0.4 billion, or 40%, was due to a decrease in volume sold. Our product margin from crude oil decreased by $2.7 million to $23.5 million for the three months ended March 31, 2014 compared to $26.2 million for same period in 2013 due to extreme cold and snow which impacted rail traffic, increasing congestion and causing delays which reduced crude oil activity.

Other Oils and Related Products. Sales from other oils and related products (primarily distillates, residual oil and propane) were $1.4 billion for the three months ended March 31, 2014 compared with $1.3 billion for the same period in 2013. The increase was primarily due to increases in distillates, residual oil and propane due to colder weather during the first quarter of 2014 compared to the same period in 2013. Primarily for the same reason, our product margin increased by $16.9 million to $34.6 million for the three months ended March 31, 2014 compared to $17.7 million for the same period in 2013.

Gasoline Distribution and Station Operations Segment

Gasoline Distribution. Sales from gasoline distribution were $768.9 million for the three months ended March 31, 2014 compared with $745.6 million for the three months ended March 31, 2013. The increase of $23.3 million, or 3%, was due primarily to an increase in gasoline prices. Our product margin from gasoline distribution increased by $5.1 million to $33.3 million for the three months ended March 31, 2014 compared to $28.2 million for the same period in 2013. Our product margins from gasoline distribution for the three months ended March 31, 2014 and 2013 were negatively impacted due to rising gasoline prices.

Station Operations. Our station operations, which consist primarily of convenience stores sales at our directly operated stores and rental income from dealer leased or commission agent leased gasoline stations, collectively generated revenues of approximately $34.0 million and $31.6 million for the three months ended March 31, 2014 and 2013, respectively. Our product margin from station operations was $19.1 million and $17.8 million for the three months ended March 31, 2014 and 2013, respectively.

Commercial Segment



Our commercial sales were $315.5 million and $294.0 million for the three months ended March 31, 2014 and 2013, respectively. Our commercial product margins were $12.3 million and $10.4 million for the three months ended March 31, 2014 and 2013, respectively. The increases of $21.5 million and $1.9 million in sales and product margin, respectively, were primarily due to colder weather period over period and to an increase in bunkering activity. In our Commercial segment, residual oil accounted for approximately 46% of our total commercial volume sold for each of the three months ended March 31, 2014 and 2013. Distillates, gasoline and natural gas accounted for the remainder of the total commercial sales, volume sold and product margin.

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Selling, General and Administrative Expenses

SG&A expenses increased by $11.6 million, or 45%, to $37.3 million for the three months ended March 31, 2014 compared to $25.7 million for the same period in 2013. The increase, which reflects expenses for a full first quarter of 2014 for Basin Transload and Cascade Kelly, includes increases of $8.5 million in incentive compensation, primarily accrued for in line with our performance, $2.7 million in professional fees, $1.8 million in overhead expenses, and $1.2 million in other SG&A expenses, offset by decreases of $1.7 million in bad debt expense and $0.9 million in bank fees.

Operating Expenses



Operating expenses increased by $4.6 million, or 11%, to $47.9 million for the three months ended March 31, 2014 compared to $43.3 million for the same period in 2013. The increase was primarily due to increases of $2.7 million in costs related to the operations of our retail gasoline stations, including expenses associated with management of the Getty Realty locations, $2.0 million in costs associated with our crude oil operations, including a full quarter of results related to our 2013 acquisitions of Basin Transload and Cascade Kelly, $0.8 million in operating costs associated with our terminals in Albany, New York and $0.2 million in other operating expenses. The increase in operating expenses was offset by a $1.1 million decrease in expenses at our East Providence, Rhode Island terminal as our lease expired in April 2013.

Interest Expense



Interest expense for the three months ended March 31, 2014 and 2013 was $11.1 million and $10.5 million, respectively. The increase $0.6 million was primarily attributed to additional borrowings related to our 2013 acquisitions of Basin Transload and Cascade Kelly.

Income Tax (Expense) Benefit



Income tax expense of $0.3 million and income tax benefit of $1.9 million for the three months ended March 31, 2014 and 2013, respectively, reflect the operating results of our wholly owned subsidiary, Global Montello Group Corp., which is a taxable entity for federal and state income tax purposes.

Net (Income) Loss Attributable to Noncontrolling Interest

On February 1, 2013, we acquired a 60% membership interest in Basin Transload. The net (income) loss attributable to noncontrolling interest of approximately ($0.1 million) and $0.2 million for the three months ended March 31, 2014 and 2013, respectively, represents Basin Transload's 40% ownership of the net (income) loss reported.

Liquidity and Capital Resources

Liquidity



Our primary liquidity needs are to fund our working capital requirements, capital expenditures and distributions and to service our indebtedness. Cash generated from operations and our working capital revolving credit facility provide our primary sources of liquidity. Working capital decreased by $147.2 million to $254.5 million at March 31, 2014 compared to $401.7 million at December 31, 2013, in part due to changes in accounts receivable, inventories and accounts payable. At March 31, 2014, working capital included an accrued liability for a mark to market value of a RVO deficiency of $3.9 million and a mark to market loss related to RIN forward commitments of $0.1 million. At December 31, 2013, working capital included an accrued liability for a mark to market value of a RVO deficiency of $13.1 million and a mark to market loss related to RIN forward commitments of $6.2 million.

On February 14, 2014, we paid a cash distribution to our common unitholders and our general partner of approximately $17.9 million for the fourth quarter of 2013. On April 23, 2014, the board of directors of our general partner declared a quarterly cash distribution of $0.6250 per unit ($2.50 per unit on an annualized basis) for the period from January 1, 2014 through March 31, 2014 to our common unitholders of record as of the close of business May 6, 2014. We expect to pay the cash distribution of approximately $18.3 million on May 15, 2014.

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Table of Contents Contractual Obligations We have contractual obligations that are required to be settled in cash. The amounts of our contractual obligations at March 31, 2014 were as follows (in thousands): Payments due by period Less than More than Total 1 year 1-3 years 4-5 years 5 years Revolver loan obligations (1) $ 816,594$ 20,168$ 389,526$ 406,900 $ - Term loan and senior notes obligation (2) 205,350 8,850 23,600 172,900 - Operating lease obligations (3) 541,749 71,647 188,888 128,238 152,976 Capital lease obligations 782 132 352 298 - Other long-term liabilities (4) 197,856 25,465 68,145 40,768 63,478 Total $ 1,762,331$ 126,262$ 670,511$ 749,104$ 216,454



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(1) Includes principal and interest on our working capital revolving credit facility and our revolving credit facility at March 31, 2014 and assumes a ratable payment through the expiration date. Our credit agreement has a contractual maturity of April 30, 2018 and no principal payments are required prior to that date. However, we repay amounts outstanding and reborrow funds based on our working capital requirements. Therefore, the current portion of the working capital revolving credit facility included in the accompanying balance sheets is the amount we expect to pay down during the course of the year, and the long-term portion of the working capital revolving credit facility is the amount we expect to be outstanding during the entire year.

(2) Includes principal and interest on our 8.00% senior notes due February 2018 and our 7.75% senior notes due December 2018. No principal payments are required prior to maturity.

(3) Includes operating lease obligations related to leases for office space and computer equipment, land, terminals and throughputs, gasoline stations, railcars, mobile equipment, access rights and a lease with a related party.

(4) Includes amounts related to our 15-year brand fee agreement entered into in 2010 with ExxonMobil, minimum freight requirements on the transportation of crude oil and ethanol to our Albany, New York terminal and pension and deferred compensation obligations.

Capital Expenditures



Our operations require investments to expand, upgrade and enhance existing operations and to meet environmental and operations regulations. We categorize our capital requirements as either maintenance capital expenditures or expansion capital expenditures. Maintenance capital expenditures represent capital expenditures to repair or replace partially or fully depreciated assets to maintain the operating capacity of, or revenues generated by, existing assets and extend their useful lives. Maintenance capital expenditures include expenditures required to maintain equipment reliability, tankage and pipeline integrity and safety and to address certain environmental regulations. We anticipate that maintenance capital expenditures will be funded with cash generated by operations. We had approximately $5.9 million and $4.2 million in maintenance capital expenditures for the three months ended March 31, 2014 and 2013, respectively, which are included in capital expenditures in the accompanying consolidated statements of cash flows. Repair and maintenance expenses 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.

Expansion capital expenditures include expenditures to acquire assets to grow our business or expand our existing facilities, such as projects that increase our operating capacity or revenues by increasing, by example, rail capacity, dock capacity and tankage, diversifying product availability and storage flexibility at various terminals and adding terminals. We have the ability to fund our expansion capital expenditures through cash from operations or our credit agreement or by issuing debt securities or additional equity. We had approximately $7.1 million and $81.1 million in expansion capital expenditures for the three months ended March 31, 2014 and 2013, respectively, which are included in capital expenditures in the accompanying consolidated statements of cash flows. Specifically, for the three months ended March 31, 2014, expansion capital expenditures included approximately $2.6 million in new site development, rebuilds, expansion and improvements at certain retail gasoline stations, $2.1 million in costs associated with our crude oil activities, $1.0 million in costs associated with our propane storage and distribution facility in Albany, New York and $1.4 million in other expansion capital expenditures including, in part, office and computer upgrades at various terminals.

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For the three months ended March 31, 2013, expansion capital expenditures included approximately $73.1 million in property and equipment associated with the acquisitions of Cascade Kelly and a 60% membership interest in Basin Transload. In addition, we had $8.0 million in expansion capital expenditures consisting of $3.5 million in costs associated with the building of a propane storage and distribution facility in Albany, New York, $2.3 million in site expansion and improvements at certain retail gasoline stations, $1.4 million in costs associated with our crude oil activities, $0.4 million for terminal equipment at our Albany terminal and $0.4 million in other expansion capital expenditures. The $1.4 million in costs associated with our crude oil activities include, in part, tank construction projects, a pipeline connection at one of our transloading facilities for the storage and handling of crude oil, a build- out project to increase the rail receipt and throughput storage capacities of primarily crude oil and converting certain storage tanks for the handling of crude oil at our Albany, New York terminal.

Certain of the $2.1 million and $1.4 million for the three months ended March 31, 2014 and 2013, respectively, in costs associated with our crude oil activities include expenditures related to our Beulah, North Dakota facility, 60% of which was funded by us and 40% was funded by the noncontrolling interest at Basin Transload. These costs are reported in the accompanying consolidated statement of cash flows as we concluded that we control the entity based on an evaluation of the outstanding voting interests (see Note 1 for additional information on the noncontrolling interest).

We believe that we will have sufficient cash flow from operations, borrowing capacity under our credit agreement and the ability to issue additional common units and/or debt securities to meet our financial commitments, debt service obligations, contingencies and anticipated capital expenditures. However, we are subject to business and operational risks that could adversely affect our cash flow. A material decrease in our cash flows would likely produce an adverse effect on our borrowing capacity as well as our ability to issue additional common units and/or debt securities.

Cash Flow



The following table summarizes cash flow activity (in thousands):

Three Months Ended March 31, 2014 2013



Net cash provided by operating activities $ 53,146$ 282,778 Net cash used in investing activities $ (11,329 )$ (197,139 ) Net cash used in financing activities $ (37,970 )$ (78,678 )

Cash flow from operating activities generally reflects our net income, balance sheet changes arising from inventory purchasing patterns, the timing of collections on our accounts receivable, the seasonality of parts of our business, fluctuations in petroleum product prices, working capital requirements and general market conditions.

Net cash provided by operating activities was $53.1 million and $282.8 million for the three months ended March 31, 2014 and 2013, respectively, for a period-over-period decrease in cash provided by operating activities of $229.7 million. The primary drivers of the decrease include the following: Three Months Ended Period over March 31, Period 2014 2013 Change



Decrease (increase) in accounts receivable $ 41,898$ (145,293 )$ 187,191 Decrease in inventories

$ 112,328$ 206,435$ (94,107 )



(Decrease) increase in accounts payable $ (182,076 )$ 185,103$ (367,179 ) Decrease (increase) in the change in fair value of forward fixed price contracts $ 17,252$ (671 )$ 17,923

For the three months ended March 31, 2014, the decreases in accounts receivable, inventories and accounts payable primarily reflect the change in activity as we exited the heating season. The decreases in accounts payable and inventories were also due to carrying lower levels of inventory, in part as a result of extreme cold and snow which reduced crude oil activity.

In addition, through the use of regulated exchanges or derivatives, we maintain a position that is substantially hedged with respect to our inventories. Specifically, due to market direction, the contracts supporting our forward fixed price hedge program provided funds for the three months ended March 31, 2014.

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Comparatively, for the three months ended March 31, 2013, the increases in accounts receivable and accounts payable were due primarily to an increase in our crude oil activities, including the February 2013 acquisitions of Basin Transload and Cascade Kelly. The decrease in inventories was due to carrying lower levels of inventory. In addition, due to market direction, the contracts supporting our forward fixed price hedge program required margin payments for the three months ended March 31, 2013.

Net cash used in investing activities was $11.3 million for the three months ended March 31, 2014 and included $7.1 million in expansion capital expenditures and $5.9 million in maintenance capital expenditures, offset by $1.7 million in proceeds from the sale of property and equipment.

For the three months ended March 31, 2013, net cash used in investing activities was $197.1 million and included $185.3 million related to our 2013 acquisitions ($91.1 million for our 60% membership interest in Basin Transload and $94.2 million for Cascade Kelly), $8.0 million in expansion capital expenditures and $4.2 million in maintenance capital expenditures, offset by $0.4 million in proceeds from the sale of property and equipment.

See "-Capital Expenditures" for a discussion of our expansion capital expenditures for the three months ended March 31, 2014 and 2013.

Net cash used in financing activities was $38.0 million for the three months ended March 31, 2014 and included $20.2 million in net payments on our working capital revolving credit facility and $17.8 million in cash distributions to our common unitholders and our general partner.

For the three months ended March 31, 2013, net cash used in financing activities was $78.7 million and included $223.0 million payments on our working capital revolving credit facility, $22.3 million in payments on our revolving credit facility, and $16.3 million in cash distributions to our common unitholders and our general partner, offset by $115.0 million in borrowings under our term loan and $67.9 million in proceeds from our 8.00% senior notes.

Credit Agreement



On December 16, 2013, we entered into a second amended and restated credit agreement. Total commitments under our credit agreement are $1.625 billion. We repay amounts outstanding and reborrow funds based on our working capital requirements and, therefore, classify as a current liability the portion of the working capital revolving credit facility we expect to pay down during the course of the year. The long-term portion of the working capital revolving credit facility is the amount we expect to be outstanding during the entire year. The credit agreement will mature on April 30, 2018.

As of March 31, 2014, there were two facilities under the credit agreement:

a working capital revolving credit facility to be used for working capital purposes and letters of credit in the principal amount equal to the lesser of our borrowing base and $1.0 billion; and

a $625.0 million revolving credit facility to be used for acquisitions, joint ventures, capital expenditures, letters of credit and general corporate purposes.

In addition, the credit agreement has an accordion feature whereby we may request on the same terms and conditions of our then existing credit agreement, provided no Event of Default (as defined in the credit agreement) then exists, an increase to the working capital revolving credit facility, the revolving credit facility, or both, by up to another $300.0 million, in the aggregate, for a total credit facility of up to $1.925 billion. Any such request for an increase by us must be in a minimum amount of $5.0 million. We cannot provide assurance, however, that our lending group will agree to fund any request by us for additional amounts in excess of the total available commitments of $1.625 billion.

In addition, the credit agreement includes a swing line pursuant to which Bank of America, N.A., as the swing line lender, may make swing line loans in U.S. Dollars in an aggregate amount equal to the lesser of (a) $50.0 million and (b) the Aggregate WC Commitments (as defined in the credit agreement). Swing line loans will bear interest at the Base Rate (as defined in the credit agreement). The swing line is a sub-portion of the working capital revolving credit facility and is not an addition to the total available commitments of $1.625 billion.

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Borrowings under the credit agreement are available in U.S. Dollars and Canadian Dollars. The aggregate amount of loans made under the credit agreement denominated in Canadian Dollars cannot exceed $200.0 million.

Availability under the working capital revolving credit facility is subject to a borrowing base which is redetermined from time to time and based on specific advance rates on eligible current assets. Under the credit agreement, borrowings under the working capital revolving credit facility cannot exceed the then current borrowing base. Availability under the borrowing base may be affected by events beyond our control, such as changes in petroleum product prices, collection cycles, counterparty performance, advance rates and limits, and general economic conditions. These and other events could require us to seek waivers or amendments of covenants or alternative sources of financing or to reduce expenditures. We can provide no assurance that such waivers, amendments or alternative financing could be obtained or, if obtained, would be on terms acceptable to us.

Commencing December 16, 2013, borrowings under the working capital revolving credit facility bear interest at (1) the Eurocurrency rate plus 2.00% to 2.50%, (2) the cost of funds rate plus 2.00% to 2.50%, or (3) the base rate plus 1.00% to 1.50%, each depending on the Utilization Amount (as defined in the credit agreement). From January 1, 2013 through December 15, 2013, borrowings under the working capital revolving credit facility bore interest at (1) the Eurodollar rate plus 2.00% to 2.50%, (2) the cost of funds rate plus 2.00% to 2.50%, or (3) the base rate plus 1.00% to 1.50%, each depending on the Utilization Amount (as defined in the prior credit agreement).

Commencing December 16, 2013, borrowings under the revolving credit facility bear interest at (1) the Eurocurrency rate plus 2.25% to 3.25%, (2) the cost of funds rate plus 2.25% to 3.25%, or (3) the base rate plus 1.25% to 2.25%, each depending on the Combined Total Leverage Ratio (as defined in the credit agreement). From January 1, 2013 through December 15, 2013, borrowings under the revolving credit facility bore interest at (1) the Eurodollar rate plus 2.50% to 3.50%, (2) the cost of funds rate plus 2.50% to 3.50%, or (3) the base rate plus 1.50% to 2.50%, each depending on the Combined Total Leverage Ratio (as defined in the prior credit agreement).

The average interest rates for the credit agreement were 3.6% and 4.0% for the three months ended March 31, 2014 and 2013, respectively.

The credit agreement provides for a letter of credit fee equal to the then applicable working capital rate or then applicable revolver rate (each such rate as defined in the credit agreement) per annum for each letter of credit issued. In addition, we incur a commitment fee on the unused portion of each facility under the credit agreement, ranging from 0.375% to 0.50% per annum.

As of March 31, 2014, we had total borrowings outstanding under the credit agreement of $741.5 million, including $434.7 million outstanding on the revolving credit facility. In addition, we had outstanding letters of credit of $280.8 million. Subject to borrowing base limitations, the total remaining availability for borrowings and letters of credit was $602.7 million and $479.9 million at March 31, 2014 and December 31, 2013, respectively.

Our obligations under the credit agreement are secured by substantially all of our assets and the assets of our wholly-owned subsidiaries.

The credit agreement imposes financial covenants that require us to maintain certain minimum working capital amounts, a minimum combined interest coverage ratio, a maximum senior secured leverage ratio and a maximum total leverage ratio. We were in compliance with the foregoing covenants at March 31, 2014. The credit agreement also contains a representation whereby there can be no event or circumstance, either individually or in the aggregate, that has had or could reasonably be expected to have a Material Adverse Effect (as defined in the credit agreement). In addition, the credit agreement limits distributions by us to our unitholders to the amount of Available Cash (as defined in the partnership agreement).

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On February 14, 2013, we entered into a Note Purchase Agreement (the "February Purchase Agreement") with FS Energy and Power Fund ("FS Energy"), with respect to the issue and sale by us to FS Energy of an aggregate principal amount of $70.0 million unsecured 8.00% Senior Notes due 2018 (the "8.00% Notes"). The 8.00% Notes were issued in a private placement exempt from registration under the Securities Act of 1933, as amended (the "Securities Act") and have not been registered under the Securities Act or any state securities laws, and may not be offered or sold except pursuant to an exemption from the registration requirements of the Securities Act and applicable state laws.

Closing of the offering occurred on February 14, 2013. The 8.00% Notes were sold to FS Energy at 97% of their face amount, resulting in net proceeds to us of approximately $67.9 million. Additionally, we separately paid fees and offering expenses. The discount of $2.1 million at issuance will be accreted as additional interest over the expected term on the 8.00% Notes. On February 15, 2013, we used the net proceeds from the offering, after paying fees and offering expenses, to finance a portion of our acquisition of all of the outstanding membership interests in Cascade Kelly and to pay related transaction costs.

The 8.00% Notes were issued pursuant to an indenture dated as of February 14, 2013 (as amended or supplemented, the "February Indenture") among us, our subsidiary guarantors and FS Energy. The 8.00% Notes will mature on February 14, 2018. Interest on the 8.00% Notes accrued from February 14, 2013 and is paid semi-annually on February 14 and August 14 of each year, beginning on August 14, 2013.

We may redeem all or some of the 8.00% Notes at any time or from time to time pursuant to the terms of the February Indenture. The 8.00% Notes are also subject to optional or mandatory exchange for HY Bonds (as such term is defined in the February Indenture) at the time and on the terms specified in the February Indenture. The holders of the 8.00% Notes may require us to repurchase the 8.00% Notes following certain asset sales or a Change of Control (as defined in the February Indenture) at the prices and on the terms specified in the February Indenture.

On December 20, 2013, we, our subsidiary guarantors and FS Energy entered into a Second Supplemental Indenture, which is supplemental to the February Indenture (the "Second Supplemental Indenture"). The Second Supplemental Indenture (i) adds Global CNG LLC as a guarantor, (ii) increases the amount of Equity Interests (as defined in the February Indenture) of us or any Restricted Subsidiary (as defined in the February Indenture) of us that we and the Restricted Subsidiaries may purchase, redeem or otherwise acquire in any calendar year from $5.0 million to $10.0 million, and (iii) allows us and our Restricted Subsidiaries to incur Indebtedness (as defined in the February Indenture) represented by Capital Lease Obligations (as defined in the February Indenture), mortgage financings or purchase money obligations incurred to finance construction or improvement of property, plant or equipment, up to the greater of $60.0 million or 5.5% of our Consolidated Net Tangible Assets (as defined in the February Indenture).

The 8.00% Notes are guaranteed on a senior, unsecured basis by certain of our wholly-owned subsidiaries. The February Indenture contains covenants that are no more restrictive to us in the aggregate than the terms, conditions, covenants and defaults contained in our credit agreement and will limit our ability to, among other things, incur additional indebtedness, make distributions to equity owners, make certain investments, restrict distributions by our subsidiaries, create liens, enter into sale-leaseback transactions, sell assets or merge with other entities.

7.75% Senior Notes



On December 23, 2013, we entered into a Note Purchase Agreement (the "December Purchase Agreement") with FS Energy and Power Fund, KARBO, L.P., Kayne Anderson Capital Income Partners (QP), L.P., Kayne Anderson Income Partners, L.P., Kayne Anderson Infrastructure Income Fund, L.P., Kayne Anderson Non-Traditional Investments, L.P., KANTI (QP), L.P. and Kayne Energy Credit Opportunities, L.P. as purchasers (the "Purchasers"), with respect to the issue and sale by us to the Purchasers of an aggregate principal amount of $80.0 million unsecured 7.75% Senior Notes due 2018 (the "7.75% Notes"). The 7.75% Notes were issued in a private placement exempt from registration under the Securities Act and have not been registered under the Securities Act or any state securities laws, and may not be offered or sold except pursuant to an exemption from the registration requirements of the Securities Act and applicable state laws.

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Closing of the offering occurred on December 23, 2013. The 7.75% Notes were sold to the Purchasers at their face amount, resulting in proceeds to us of $80.0 million. Additionally, we separately paid fees and offering expenses. We used a portion of the net proceeds from the offering to pay outstanding indebtedness and for general partnership purposes.

The 7.75% Notes were issued pursuant to an indenture dated as of December 23, 2013 (the "December Indenture") among us, our subsidiary guarantors and the Purchasers. The 7.75% Notes will mature on December 23, 2018. Interest on the 7.75% Notes accrued from December 23, 2013. Interest will be paid on the 7.75% Notes semi-annually on December 23 and June 23 of each year, beginning on June 23, 2014.

We may redeem all or some of the 7.75% Notes at any time or from time to time pursuant to the terms of the December Indenture. The 7.75% Notes are also subject to optional or mandatory exchange for HY Bonds (as such term is defined in the December Indenture) at the time and on the terms specified in the December Indenture. The holders of the 7.75% Notes may require us to repurchase the 7.75% Notes following certain asset sales or a Change of Control (as defined in the December Indenture) at the prices and on the terms specified in the December Indenture.

The 7.75% Notes are guaranteed on a senior, unsecured basis by certain of our wholly-owned subsidiaries. The December Indenture contains covenants that are no more restrictive to us in the aggregate than the terms, conditions, covenants and defaults contained in our credit agreement and will limit our ability to, among other things, incur additional indebtedness, make distributions to equity owners, make certain investments, restrict distributions by our subsidiaries, create liens, enter into sale-leaseback transactions, sell assets or merge with other entities.

Line of Credit



On December 9, 2013, Basin Transload entered into a line of credit facility which allows for borrowings by Basin Transload of up to $10.0 million on a revolving basis. The facility matures on December 9, 2014 and had an outstanding balance of $3.7 million at March 31, 2014 and December 31, 2013. The facility is secured by substantially all of the assets of Basin Transload and is not guaranteed by us or any of our wholly owned subsidiaries.

Deferred Financing Fees

We incur bank fees related to our credit agreement and other financing arrangements. These deferred financing fees are amortized over the life of the credit agreement or other financing arrangements. We did not capitalize additional financing fees for the three months ended March 31, 2014. Amortization expenses of approximately $1.3 million and $1.6 million for the three months ended March 31, 2014 and 2013, respectively, are included in interest expense in the accompanying consolidated statements of operations. Unamortized fees are included in other current assets and other long-term assets.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Critical Accounting Policies and Estimates

Management's Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates under different assumptions or conditions.

These estimates are based on our knowledge and understanding of current conditions and actions that we may take in the future. Changes in these estimates will occur as a result of the passage of time and the occurrence of future events. Subsequent changes in these estimates may have a significant impact on our financial condition and results of operations and are recorded in the period in which they become known. We have identified the following estimates that, in our opinion, are subjective in nature, require the exercise of judgment, and involve complex analysis: inventory, leases, revenue recognition, derivative financial instruments, valuation of intangibles and other long-lived assets, goodwill, environmental and other liabilities and related party transactions.

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The significant accounting policies and estimates that we have adopted and followed in the preparation of our consolidated financial statements are detailed in Note 2 of Notes to Consolidated Financial Statements, "Summary of Significant Accounting Policies" included in our Annual Report on Form 10-K for the year ended December 31, 2013. There have been no subsequent changes in these policies and estimates that had a significant impact on our financial condition and results of operations for the periods covered in this report.

Recent Accounting Pronouncements

A description and related impact expected from the adoption of certain new accounting pronouncements is provided in Note 17 of Notes to Consolidated Financial Statements.


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Source: Edgar Glimpses


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