News Column

WORLD POINT TERMINALS, LP - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.

August 13, 2014

Unless the context otherwise indicates, all references to "World Point Terminals, LP," "the Partnership," "us," "our," "we," or similar expressions for time periods prior to the initial public offering (the "Offering") refer to World Point Terminals, LP Predecessor, our predecessor for accounting purposes. For time periods subsequent to the Offering, these terms refer to the legal entity World Point Terminals, LP and its subsidiaries. The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read together with our unaudited consolidated financial statements, including the notes thereto, set forth herein. The following information and such unaudited consolidated financial statements should also be read in conjunction with our 2013 audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for

the year ended December 31, 2013.



Cautionary Note Regarding Forward-Looking Statements

This discussion and analysis contains forward-looking statements that involve risks and uncertainties. You can identify our forward-looking statements by the words "anticipate," "estimate," "believe," "budget," "continue," "could," "intend," "may," "plan," "potential," "predict," "seek," "should," "will," "would," "expect," "objective," "projection," "forecast," "goal," "guidance," "outlook," "effort," "target" and similar expressions. Without limiting the generality of the foregoing, these statements are based on certain assumptions made by the Partnership based on management's experience, expectations and perception of historical trends, current conditions, anticipated future developments and other factors believed to be appropriate. Accordingly, our actual outcomes and results may differ materially from what we have expressed or forecast in the forward-looking statements. Any differences could result from a variety of factors, including the following:



the volumes of light refined products, heavy refined products and crude oil we

handle;



the terminaling and storage fees with respect to volumes that we handle;

damage to pipelines facilities, related equipment and surrounding properties

caused by hurricanes, earthquakes, floods, fires, severe weather, explosions

and other natural disasters and acts of terrorism;



leaks or accidental releases of products or other materials into the

environment, whether as a result of human error or otherwise;



planned or unplanned shutdowns of the refineries and industrial production

facilities owned by or supplying our customers;



prevailing economic and market conditions;

difficulties in collecting our receivables because of credit or financial

problems of customers;



fluctuations in the prices for crude oil and refined petroleum products;

liabilities associated with the risks and operational hazards inherent in

gathering, storing, handling and transporting crude oil and refined petroleum

products;



curtailment of operations due to severe weather disruption; riots, strikes,

lockouts or other industrial disturbances; or failure of information technology

systems due to various causes, including unauthorized access or attack;



costs or liabilities associated with federal, state, and local laws and

regulations relating to environmental protection and safety, including spills,

releases and pipeline integrity;



costs associated with compliance with evolving environmental laws and

regulations on climate change; and



other factors discussed below and elsewhere in "Risk Factors" in our

Prospectus. 20 When considering forward-looking statements, you should keep in mind the known material risk factors and other cautionary statements set forth in our Annual Report on Form 10-K for the year ended December 31, 2013 in Part 1, Item 1A,"Risk Factors." Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statements after the date they are made, whether because of new information, future events or otherwise. Overview of Business We are a fee-based, growth-oriented Delaware limited partnership recently formed to own, operate, develop and acquire terminals and other assets relating to the storage of light refined products, heavy refined products and crude oil. Our storage terminals are strategically located in the East Coast, Gulf Coast and Midwest regions of the United States and, as of June 30, 2014, had a combined available storage capacity of 14.6 million barrels. During 2013, we completed construction of and placed into service 0.2 million barrels of available storage capacity at our Galveston facility, acquired an additional 0.9 million barrels of available storage capacity (Jacksonville and Albany), acquired the 49% interest in the Newark terminal (0.5 million barrels), increasing our storage capacity by approximately 14%. In June 2014, we acquired two terminals in Mobile, Alabama (1.8 million barrels), increasing our storage capacity by an additional 14%. Most of our terminal facilities are strategically located on major waterways, providing ship or barge access for the movement of petroleum products, and have truck racks with efficient loading logistics. Several of our terminal facilities also have rail or pipeline access. The following discussion analyzes our financial condition and results of operations and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2013, as well as historical condensed consolidated financial statements and notes included elsewhere in this Quarterly Report. Recent Developments In June 2014, we entered the Mobile, Alabama market and acquired two terminals that will increase our total capacity by over 1.8 million barrels once necessary repairs and upgrades are made to the tanks. The Chickasaw terminal was purchased for $6.5 million and has a total storage capacity of 644,000 barrels for the storage of asphalt, crude oil, and residual fuels. The terminal is served by ship, barge, truck and rail. A substantial portion of the acquired capacity is not under contract. The Blakeley Island terminal was purchased for $7.2 million and has a total storage capacity of 1,182,000 barrels for the storage of crude oil, distillates and residual fuels. The terminal is currently served by ship and barge with the ability to add truck access. None of the tankage is currently under contract. How We Generate Revenues We operate in a single reportable segment consisting primarily of the fee-based storage and terminaling services we perform under contracts with our customers. We generally do not take title to the products we store or handle on behalf of our customers. For the six months ended June 30, 2014 and 2013, we generated approximately 82%, and 84%, respectively, of our revenue from storage services fees. Of our revenue for the six months ended June 30, 2014 and 2013, 80% and 82%, respectively, consisted of base storage services fees, which are fixed monthly fees paid at the beginning of each month to reserve dedicated tanks or storage space and to compensate us for handling up to a base amount of product volume at our terminals. Our customers are required to pay these base storage services fees to us regardless of the actual storage capacity they use or the volume of products that we receive. Our customers also pay us excess storage fees for volumes handled in excess of the amount attributable to their base storage services fees. The remainder of our revenues were generated from (1) ancillary fees for services such as heating, mixing and blending products, transferring products between tanks, rail car loading and dock operations and (2) fees for injecting additives, some of which are mandated by federal, state and local regulations. 21 Refiners typically use our terminals because they prefer to subcontract terminaling and storage services or their facilities do not have adequate storage capacity, dock infrastructure or do not meet specialized handling requirements for a particular product. We also provide storage services to distributors, marketers and traders that require access to large, strategically located storage capacity in close proximity to demand markets, export markets, transportation infrastructure and refineries. Our combination of geographic location, efficient and well maintained storage assets and access to multiple modes of transportation gives us the flexibility to meet the evolving demands of our existing customers, as well as the demands of prospective customers seeking terminaling and storage services throughout our areas of operation. On June 18, 2014, we acquired two terminals in Mobile, Alabama increasing our available storage capacity by 1.8 million barrels. A substantial portion of the acquired capacity is not under contract. As of June 30, 2014, approximately 85% of our total available storage capacity was under contract. During the five years ended December 31, 2013, more than 95% of our available storage capacity has been under contract, on average. While many of our contracts provide for a termination right after the expiration of the initial contract period, our long-standing relationships with our customers, including major integrated oil companies, have provided stable revenue. Our top ten customers (including Apex Oil Company, Inc. "Apex"), which represent approximately 80% of our revenue for the six months ended June 30, 2014, have used our services for an average of more than ten years.



Factors That Impact Our Business

The revenues generated by our storage business are generally driven by our aggregate storage capacity under contract, the commercial utilization of our terminal facilities in relation to their capacity and the prices we receive for our services, which in turn are driven by the demand for the products being shipped through or stored in our facilities. Though substantially all of our terminal service agreements require a customer to pay for tank capacity regardless of use, our revenues can be affected by (1) the length of the underlying service contracts and pricing changes and shifts in the products handled when the underlying storage capacity is recontracted, (2) fluctuations in product volumes to the extent revenues under the contracts are a function of the amount of product stored or transported, (3) changes in demand for additive services, (4) inflation adjustments in storage services contracts and (5) changes in the demand for ancillary services such as product heating, mixing or blending, transferring our customers' products between our tanks, rail car loading and dock operations. We believe key factors that influence our business are (1) the long-term demand for and supply of refined products and crude oil, (2) the indirect impact that changes in refined product and crude oil pricing has on terminal and storage demand and supply, (3) the needs of our customers together with the competitiveness of our service offerings with respect to location, price, reliability and flexibility and (4) our ability and the ability of our competitors to capitalize on growth opportunities and changing market dynamics.



Supply and Demand for Refined Products and Crude Oil

Our results of operations are dependent upon the volumes of refined products and crude oil we have contracted to handle and store and, to a lesser extent, on the actual volumes of refined products and crude oil we handle and store for our customers. An important factor in such contracting is the amount of production and demand for refined products and crude oil. The production of and demand for refined products and crude oil are driven by many factors, including the price for crude oil and general economic conditions. To the extent practicable and economically feasible, we generally attempt to mitigate the risk of reduced volumes and pricing by negotiating contracts with minimum payments based on available capacity and with multi-year terms. However, an increase or decrease in the demand for refined products and crude oil in the areas served by our terminals will have a corresponding effect on (1) the volumes we actually terminal and store and (2) the volumes we contract to terminal and store if we are not able to extend or replace our existing customer contracts. 22



Refined Product and Crude Oil Prices

Because we generally do not own the refined products or crude oil that we handle and do not engage in the trading of refined products or crude oil, we have minimal direct exposure to risks associated with fluctuating commodity prices. During 2013, one customer contract at our Chesapeake terminal provided for a base storage fee plus additional payments based on the customer's profits from liquid asphalt sales. These additional payments represented approximately 1% of our revenue in 2013. Beginning January 1, 2014, the asphalt tankage at Chesapeake is contracted to Apex based on a significantly higher base storage services fee and no profit sharing. In addition, extended periods of depressed or elevated refined product and crude oil prices can lead producers to increase or decrease production of refined products and crude oil, which can impact supply and demand dynamics. If the future prices of refined products and crude oil are substantially higher than the then-current prices, also called market contango, our customers' demand for excess storage generally increases. If the future prices of refined products and crude oil are lower than the then-current prices, also called market backwardation, our customers' demand for excess storage capacity generally decreases. We seek to mitigate the impact of near-term commodity market price dynamics by generally entering into long-term agreements with our customers that have significant base storage services fee components. However, the market has experienced long periods of contango and backwardation that can impact the demand for and supply of refined product and crude oil terminaling and storage services. Customers and Competition We provide storage and terminaling services for a broad mix of customers, including major integrated oil companies, marketers, distributors and chemical and petrochemical companies. In general, the mix of services we provide to our customers varies depending on market conditions, expectations for future market conditions and the overall competitiveness of our service offerings. The terminaling and storage markets in which we operate are very competitive, and we compete with operators of other terminaling facilities on the basis of rates, terms of service, types of service, supply and market access and flexibility and reliability of service. In addition, we also compete with major integrated oil companies, many of whom are also our customers, that own terminals. We continuously monitor the competitive environment, the evolving needs of our customers, current and forecasted market conditions and the competitiveness of our service offerings in order to maintain the proper balance between optimizing near-term earnings and cash flow and positioning the business for sustainable long term growth. Because of the significant investments we have made in maintaining high quality assets and because terminaling and storage are our core business, we believe that we can be more flexible and responsive to the needs of our customers than many of our competitors.



Organic Growth Opportunities

Regional refined products and crude oil supply and demand dynamics shift over time, which can lead to rapid and significant increases in demand for terminaling and storage services. At such times, we believe the terminaling companies that have positioned themselves for organic growth will be at a competitive advantage in capitalizing on the shifting market dynamics. Where feasible, we have designed the infrastructure at our terminals to facilitate future expansion, which we expect to both reduce our overall capital costs per additional barrel of storage capacity and shorten the duration and enhance the predictability of development timelines. Some of the specific infrastructure investments we have made that will facilitate incremental expansion include dock capacity capable of handling various products and easily expandable piping and manifolds to handle additional storage capacity. Our Galveston terminal has over fifty acres of available land that will allow us to greatly increase our storage capacity should market conditions warrant. Accordingly, we believe that we are well positioned to grow organically in response to changing market conditions. 23



Factors Impacting the Comparability of Our Financial Results

Our future results of operations may not be comparable to our historical results of operations for the following reasons:

We incur additional costs as a result of being a publicly traded partnership,

including external selling, general and administrative expenses of

approximately $3.0 million annually. Please read "-Overview of Our Results of

Operations-Selling, General and Administrative Expenses."



Our 2013 consolidated financial statements include state income tax expenses

associated with certain corporate operating subsidiaries. Due to our status as

a partnership, these subsidiaries are no longer in corporate form and will not

be subject to U.S. federal income tax and certain state income taxes in the

future.



Our 2013 consolidated financial statements do not include equity earnings from

our Cenex joint venture with Apex. The results of operations of the Albany

terminal, in which we acquired a 32% interest in August 2013, are represented

as equity earnings of the joint venture in our consolidated financial statements.



Our 2013 consolidated financial statements do not include compensation expense

related to our Long Term Incentive Plan ("LTIP"). Awards pursuant to the LTIP

will result in compensation expense being recorded over the restriction period,

if any, associated with the awards.



Overview of Our Results of Operations

Our management uses a variety of financial measurements to analyze our performance, including the following key measures:

revenues derived from (i) storage services fees, including excess storage

services fees, (ii) ancillary services and (iii) additive services; and

our operating and selling, general and administrative expenses.

We do not utilize depreciation and amortization expense in our key measures because we focus our performance management on cash flow generation and our assets have long useful lives. In our period to period comparisons of our revenues and expenses set forth below, we analyze the following revenue and expense components:

Revenues



We characterize our revenues into three different types, as follows:

Storage Services Fees. Our customers pay base storage services fees, which are fixed monthly fees paid at the beginning of each month to reserve storage capacity in our tanks and to compensate us for receiving up to a base product volume on their behalf. Our customers are required to pay these base storage services fees to us regardless of the actual storage capacity they use or the amount of product that we receive. Our customers also pay us additional fees when we handle product volume on their behalf that exceeds the volume contemplated in their monthly base storage services fee. Ancillary Services Fees. We charge ancillary services fees to our customers for providing services such as (i) heating, mixing and blending our customers' products that are stored in our tanks, (ii) transferring our customers' products between our tanks, (iii) at our Granite City terminal, adding polymer to liquid asphalt and (iv) rail car loading and dock operations. The revenues we generate from ancillary services fees vary based upon the activity levels of our customers. 24

Additive Services Fees. We generate revenue from fees for injecting generic gasoline, proprietary gasoline, lubricity, red dye and cold flow additives to our customers' products. Certain of these additives are mandated by applicable federal, state and local regulations for all light refined products, and other additives, such as cold flow additive, are required to meet customer specifications. The revenues we generate from additive services fees vary based upon the activity levels of our customers. Operating Expenses Our operating expenses are comprised primarily of labor expenses, utility costs, insurance premiums, repairs and maintenance expenses, environmental compliance and property taxes. A large portion of these operating expenses are fixed, but can fluctuate from period to period depending on the mix of activities performed during that period and the timing of these expenses. We seek to manage our maintenance expenses by scheduling maintenance over time to avoid significant variability in our maintenance expenses and minimize their impact on our cash flow.



Selling, General and Administrative Expenses

Selling, general and administrative expenses include costs not directly attributable to the operations of our facilities and include costs such as professional services, compensation of non-operating personnel and expenses of the overall administration of the Partnership. We incur additional personnel and related costs and incremental external general and administrative expenses of approximately $3.0 million annually as a result of being a publicly traded partnership, consisting of costs associated with SEC reporting requirements, tax return and Schedule K-1 preparation and distribution, registered independent auditor fees, investor relations activities, Sarbanes-Oxley Act compliance, stock exchange listing, registrar and transfer agent fees, incremental director and officer liability insurance and director compensation. These additional personnel and related costs and incremental external selling, general and administrative expenses are not reflected in our historical financial statements. 25 Results of Operations The following tables and discussion are a summary of our results of operations for the periods indicated: For the Three Months Ended For the Six Months Ended June 30, June 30, 2014 2013 2014 2013 (Dollars in thousands) (Predecessor) (Predecessor) REVENUES Third parties $ 14,371$ 13,189$ 28,784$ 25,352 Affiliates 8,042 7,729 16,361 14,552 22,413 20,918 45,145 39,904 Operating costs, expenses and other Operating expenses 5,302 5,094 12,494 12,200 Operating expenses reimbursed to affiliates 802 981 1,473 1,650 Selling, general and administrative expenses 1,869 893 2,518 1,056 Selling, general and administrative expenses reimbursed to affiliates 451 515

905 1,029 Depreciation and amortization 4,964 4,489 9,795 8,358 Income from joint venture (132 ) - (261 ) - Total operating costs, expenses and other 13,256 11,972 26,924 24,293 INCOME FROM OPERATIONS 9,157 8,946 18,221 15,611 OTHER INCOME (EXPENSE) Interest expense (217 ) (46 ) (430 ) (137 ) Interest and dividend income 37 56 46 108 Gain (loss) on investments and other-net 130 (126 ) 159 664 Income before income taxes 9,107 8,830 17,996 16,246 Provision for income taxes 53 (889 ) 73 (643 ) NET INCOME $ 9,054$ 9,719$ 17,923$ 16,889 Operating Data: Available storage capacity, end of period (mbbls) 14,591 11,860 14,591 11,860 Average daily terminal throughput (mbbls) 197 162 189 148 The following table details the types and amounts of revenues generated for the periods indicated: For the Three Months Ended For the Six Months Ended June 30, June 30, 2014 2013 2014 2013 (in thousands) Storage services fees: Base storage services fees $ 18,265$ 16,872$ 36,164$ 32,393 Excess storage services fees 196 669

669 1,110 Ancillary services fees 3,261 2,552 6,672 5,015 Additive services fees 691 825 1,640 1,386 Revenue $ 22,413$ 20,918$ 45,145$ 39,904 26 The following table details the types and amounts of our operating expenses for the periods indicated: For the Three Months Ended For the Six Months Ended June 30, June 30, 2014 2013 2014 2013 (in thousands) Operating expenses: Labor $ 2,866$ 2,267$ 5,351$ 4,521 Utilities 1,210 983 2,627 2,056 Insurance premiums 273 321 715 633 Repairs and maintenance 786 724 1,814 2,296 Property taxes 526 413 1,051 921 Other 443 1,367 2,409 3,423 Total operating expenses $ 6,104$ 6,075$ 13,967$ 13,850 Less operating expenses reimbursed to affiliates (802 ) (981 ) (1,473 ) (1,650 ) Operating expenses $ 5,302$ 5,094$ 12,494$ 12,200



Three Months Ended June 30, 2014 Compared to Three Months Ended June 30, 2013

Revenues. Revenues for the three months ended June 30, 2014 increased $1.5 million, or 7%, compared to the three months ended June 30, 2013.

Storage Services Fees. Storage services fees increased $0.9 million for the three months ended June 30, 2014 compared to the same quarter in the prior year.

Base storage services fees. Base storage services fees for the three months

ended June 30, 2014 increased $1.4 million or 8% from the three months ended

June 30, 2013, primarily as a result of additional contracted capacity at the

Galveston terminal, the addition of tanks at the Baton Rouge terminal that were

unutilized for a portion of 2013 and increased base storage rates at the

Chesapeake terminal.

Excess storage services fees. Excess storage services fees for the three months

ended June 30, 2014 decreased $0.5 million compared to the three months ended

June 30, 2013, primarily as a result of decreased throughput at the

Jacksonville terminal and the elimination of profit sharing at the Chesapeake

terminal in 2014. Ancillary and Additive Services Fees. Ancillary and additive services for the three months ended June 30, 2014 increased $0.6 million or 17% compared to the three months ended June 30, 2013 primarily as a result of increased activity at 10 of our 16 terminals.

Operating Expenses. Operating expenses for the three months ended June 30, 2014 increased slightly compared to the three months ended June 30, 2013. This increase was primarily attributable to a (i) $0.6 million increase in labor costs due to the expanded operations at the Jacksonville terminal, the acquisition of the Chickasaw and Blakeley terminals and normal wage increases, (ii) $0.2 million increase in utility costs due to the higher level of heat applied to customers' products and (iii) $0.1 million increase in property taxes offset by a $0.9 million decrease in other operating expenses, primarily in connection with Hurricane Sandy at our Newark terminal. Selling, General and Administrative Expenses. Selling, general and administrative expenses for the three months ended June 30, 2014 increased $0.9 million, or 65%, compared to the three months ended June 30, 2013 as a result of costs incurred in connection with operating as a public company, including unit based compensation expense of $0.5 million in 2014. 27 Depreciation and Amortization Expense. Depreciation and amortization expense for the three months ended June 30, 2014 increased $0.5 million, or 11%, compared to the three months ended June 30, 2013. This increase is primarily due to (i) capital expenditures during the first and second quarters of 2014, (ii) assets under construction which were placed in service in the second quarter of 2013 at the Weirton and Galveston terminals, (iii) the acquisition of additional terminal assets adjacent to the Jacksonville terminal in the second quarter of 2013 and (iv) the acquisition of two terminals in Mobile, Alabama in the second quarter of 2014.

Interest Expense. Interest expense for the three months ended June 30, 2014 compared to the three months ended June 30, 2013 increased $0.2 million as a result of an increase in commitment fees and amortization of loan fees on our revolving credit agreement partially offset by a decrease in interest on the term loan that was repaid in the third quarter of 2013 in connection with our initial public offering. Interest and Dividend Income. Interest and dividend income for the three months ended June 30, 2014 decreased slightly compared to the three months ended June 30, 2013. This decrease was attributable to lower amounts of short-term investments. Gain (Loss) on Investments and Other-Net. Gain (loss) on investments for the three months ended June 30, 2014 increased $0.3 million compared to the three months ended June 30, 2013. The increase was primarily attributable to a larger mark-to-market gain on investments recorded at June 30, 2014. Income Tax Expense. Income tax expense for the three months ended June 30, 2014 increased $0.9 million compared with the three months ended June 30, 2013 primarily related to the reversal of deferred income taxes in the second quarter of 2013 which resulted in an income tax benefit for the period.



Net Income. Net income for the three months ended June 30, 2014 decreased $0.7 million, or 7%, compared to the three months ended June 30, 2013.

Six Months Ended June 30, 2014 Compared to Six Months Ended June 30, 2013

Revenues. Revenues for the six months ended June 30, 2014 increased $5.2 million, or 13%, compared to the six months ended June 30, 2013.

Storage Services Fees. Storage services fees increased $3.3 million for the six months ended June 30, 2014 compared to the same quarter in the prior year.

Base storage services fees. Base storage services fees for the six months ended

June 30, 2014 increased $3.8 million or 12% from the six months ended June 30,

2013, primarily as a result of additional contracted capacity at the Galveston

terminal, the addition of tanks at the Baton Rouge terminal that were unutilized for a portion of 2013 and increased base storage rates at the Chesapeake terminal.



Excess storage services fees. Excess storage services fees for the six months

ended June 30, 2014 decreased $0.4 million compared to the six months ended

June 30, 2013, primarily as a result of decreased throughput at the

Jacksonville terminal and decreased payments related to profit sharing at the

Chesapeake terminal in 2014. Ancillary and Additive Services Fees. Ancillary and additive services for the six months ended June 30, 2014 increased $1.9 million or 30% compared to the six months ended June 30, 2013 primarily as a result of increased activity at 13 of our 16 terminals. Operating Expenses. Operating expenses for the six months ended June 30, 2014 increased $0.1 million, or 1%, compared to the six months ended June 30, 2013. This increase was primarily attributable to a (i) $0.8 million increase in labor costs due to the expanded operations at the Jacksonville terminal, the acquisition of the Chickasaw and Blakeley terminals and normal wage increases, (ii) $0.6 million increase in utility costs due to the higher level of heat applied to customers' products, (iii) $0.1 million increase in insurance premiums and (iv) $0.1 million increase in property taxes offset by a $0.5 million decrease in repairs and maintenance and a $1.0 million decrease in other operating expenses, primarily in connection with Hurricane Sandy at our Newark terminal. 28 Selling, General and Administrative Expenses. Selling, general and administrative expenses for the six months ended June 30, 2014 increased $1.3 million, or 64%, compared to the six months ended June 30, 2013 as a result of costs incurred in connection with operating as a public company, including unit based compensation expense of $0.7 million in 2014. Depreciation and Amortization Expense. Depreciation and amortization expense for the six months ended June 30, 2014 increased $1.4 million, or 17%, compared to the six months ended June 30, 2013. This increase is primarily due to (i) capital expenditures during the first and second quarters of 2014, (ii) assets under construction which were placed in service in the second quarter of 2013 at the Weirton and Galveston terminals, (iii) the acquisition of additional terminal assets adjacent to the Jacksonville terminal in the second quarter of 2013 and (iv) the acquisition of two terminals in Mobile, Alabama in the second quarter of 2014.



Interest Expense. Interest expense for the six months ended June 30, 2014 compared to the six months ended June 30, 2013 increased $0.3 million as a result of an increase in commitment fees and amortization of loan fees on the revolver partially offset by a decrease in interest on the term loan.

Interest and Dividend Income. Interest and dividend income for the six months ended June 30, 2014 decreased slightly compared to the six months ended June 30, 2013. This decrease was attributable to lower amounts of short-term investments. Gain (Loss) on Investments and Other-Net. Gain (loss) on investments for the six months ended June 30, 2014 decreased $0.5 million compared to the six months ended June 30, 2013. The decrease was primarily attributable to a larger mark-to-market gain on investments recorded at June 30, 2013.



Income Tax Expense. Income tax expense for the six months ended June 30, 2014 increased $0.7 million compared with the six months ended June 30, 2013 primarily relating to the reversal of deferred income taxes in the second quarter of 2013 which resulted in an income tax benefit for the period.

Net Income. Net income for the six months ended June 30, 2014 increased $1.0 million, or 6%, compared to the six months ended June 30, 2013.

Non-GAAP Financial Measure. In addition to the GAAP results provided in this quarterly report on Form 10-Q, we provide a non-GAAP financial measure, Adjusted EBITDA. A reconciliation from GAAP to the non-GAAP measurement is provided below. We define Adjusted EBITDA as net income (loss) before net interest expense, income tax expense and depreciation and amortization expense, as further adjusted to remove gain or loss on investments and on the disposition of assets and non-recurring items, such as the IPO expenses.



Adjusted EBITDA is a non-GAAP supplemental financial measure that management and external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, may use to assess:

our operating performance as compared to other publicly traded partnerships in

the midstream energy industry, without regard to historical cost basis or

financing methods;

the ability of our assets to generate sufficient cash flow to make

distributions to our unitholders;

our ability to incur and service debt and fund capital expenditures; and

the viability of acquisitions and other capital expenditure projects and the

returns on investment in various opportunities. 29

We believe that the presentation of Adjusted EBITDA will provide useful information to investors in assessing our financial condition and results of operations. The GAAP measure most directly comparable to Adjusted EBITDA is net income. Our non-GAAP financial measure of Adjusted EBITDA should not be considered as an alternative to GAAP net income. Adjusted EBITDA has important limitations as an analytical tool because it excludes some but not all items that affect net income. You should not consider Adjusted EBITDA in isolation or as a substitute for analysis of our results as reported under GAAP. Because Adjusted EBITDA may be defined differently by other companies in our industry, our definitions of Adjusted EBITDA may not be comparable to similarly titled measures of other companies, thereby diminishing its utility. The following table presents a reconciliation of Adjusted EBITDA to the most directly comparable GAAP financial measure for each of the periods indicated. For the Three Months Ended For the Six Months Ended June 30, June 30, 2014 2013 2014 2013 (Dollars in thousands) Reconciliation of Net Income to Adjusted EBITDA: Net income attributable to unitholders / shareholder $ 9,054$ 9,719$ 17,923$ 16,889 Depreciation and amortization 4,964 4,489 9,795 8,358 Depreciation and amortization - CENEX joint venture 46 - 67 - Provision for income taxes 53 (889 ) 73 (643 ) Interest expense and other 217 46 430 137 IPO expenses - 857 - 857

Interest and dividend income (37 ) (56 ) (46 ) (108 ) Equity based compensation expense 510 - 662 - (Gain) loss of investments and other - net (130 ) 126 (159 ) (664 ) Adjusted EBITDA $ 14,677$ 14,292$ 28,745$ 24,826



Liquidity and Capital Resources

Liquidity Our principal liquidity requirements are to finance current operations, fund capital expenditures, including acquisitions from time to time, and to service our debt. Our sources of liquidity include cash generated by our operations, borrowings under our revolving credit facility and issuances of equity and debt securities. We believe that cash generated from these sources will be sufficient to meet our short-term working capital requirements and long-term capital expenditure requirements. Revolving Credit Facility In connection with our initial public offering on August 14, 2013, we repaid our existing term loan and entered into a new $200 million senior secured revolving credit facility. The revolving credit facility is available to fund working capital and to finance acquisitions and other capital expenditures. Our obligations under the revolving credit facility are secured by a first priority lien on substantially all of our assets. Borrowings under our revolving credit facility bear interest at a rate equal to LIBOR plus an applicable margin. LIBOR and the applicable margin are defined in our revolving credit facility. The unused portion of the revolving credit facility is subject to an annual commitment fee. 30

The revolving credit facility contains covenants and conditions that, among other things, limit our ability to make cash distributions, incur indebtedness, create liens, make investments and enter into a merger or sale of substantially all of our assets. We are also subject to certain financial covenants, including a consolidated leverage ratio and an interest coverage ratio, and customary events of default under the revolving credit facility. We were in compliance with such covenants as of June 30, 2014. Capital Expenditures



The terminaling and storage business is capital-intensive, requiring significant investment for the maintenance of existing assets and the acquisition or development of new systems and facilities. We categorize our capital expenditures as either:

maintenance capital expenditures, which are cash expenditures (including

expenditures for the construction or development of new capital assets or the

replacement, improvement or expansion of existing capital assets) made to

maintain our long-term operating capacity or operating income; or

expansion capital expenditures, which are cash expenditures incurred for

acquisitions or capital improvements that we expect will increase our operating

capacity or operating income over the long term.

For the six months ended June 30, 2014, our capital expenditures were $19.0 million. Our capital spending program is focused on expanding our existing terminals where sufficient demand exists for our services and maintaining our facilities. Capital expenditure plans are generally evaluated based on regulatory requirements, return on investment and estimated incremental cash flow. We develop annual capital spending plans based on historical trends for maintenance capital, plus identified projects for expansion, technology and revenue-generating capital. In addition to the annually recurring capital expenditures, potential acquisition opportunities are evaluated based on their anticipated return on invested capital, accretive impact to operating results, and strategic fit.



Our capital expenditures for the periods indicated were as follows:

For the Three Months Ended For the Six Months Ended June 30, June 30, 2014 2013 2014 2013 (in thousands)



Maintenance capital expenditures $ 851 $ 2,259

$ 2,551$ 2,970 Expansion capital expenditures 14,949 24,068

16,464 25,610 Total $ 15,800$ 26,327$ 19,015$ 28,580

Of the $16.4 million of expansion capital expenditures during the first six months of 2014, $13.7 million related to the acquisition of two terminals in Mobile, Alabama, $0.8 million related to expanding the truck bay and connection of the expanded Jacksonville facility, $1.1 million was used to construct additional tanks at our terminals, $0.3 million was used to modify terminal assets in order to have the ability to accept additional products from customers and $0.5 million was used to increase unloading capacity at the Weirton terminal. We anticipate that these maintenance capital expenditures will be funded primarily with cash from operations. We expect that we will utilize external financing sources, including borrowings under our revolving credit facility and the issuance of debt and equity securities, in addition to cash from operations to fund some of our future expansion capital expenditures. 31 Cash Flows



Six Months Ended June 30, 2014 Compared to Six Months Ended June 30, 2013

Net cash provided by (used in) operating activities, investing activities and financing activities for the six months ended June 30, 2014 and 2013 were as follows: Six Months Ended June 30, 2014 2013 (in thousands)



Net cash provided by operating activities $ 28,117$ 24,413

Net cash used in investing activities $ (25,081 )$ (28,034 )

Net cash used in financing activities $ (19,911 )$ 3,032 Cash Flows From Operating Activities. Net cash flows from operating activities for the six months ended June 30, 2014 increased $3.7 million, compared to the six months ended June 30, 2013. The increase was primarily attributable to a $1.0 million increase in net income, a $1.9 million increase in non-cash items and a $1.4 million increase in depreciation offset by a $0.6 million decrease in cash provided by working capital. Cash Flows From Investing Activities. Net cash flows used in investing activities for the six months ended June 30, 2014 decreased $3.0 million, or 11%, compared to the six months ended June 30, 2013. This decrease was primarily attributable to lower capital expenditures of $9.5 million offset by higher investment activity of $6.5 million. Cash Flows From Financing Activities. Cash outflows used in financing activities for the six months ended June 30, 2014 increased $22.9 million or 757% compared to the six months ended June 30, 2013. This increase was attributable to higher distributions to unitholders/shareholders. Contractual Obligations



We have contractual obligations that are required to be settled in cash. Our contractual obligations as of June 30, 2014 were as follows:

Payments Due by Period (in thousands) Less than 1-3 4-5 More than Total 1 year years years 5 years Loan commitment fee $ 2,508$ 608$ 1,218$ 682 - Operating lease obligations 1,629 179 535 506 409 Total $ 4,137$ 787$ 1,753$ 1,188$ 409 Future Trends and Outlook We expect that certain trends and economic or industry-wide factors will continue to affect our business, both in the short and long term. We have based our expectations described below on assumptions made by us and on the basis of information currently available to us. To the extent our underlying assumptions about or interpretation of available information prove to be incorrect, our actual results may vary materially from our expected results. Please read "Risk Factors" for additional information about the risks associated with purchasing our common units. 32



Existing Base Storage Contracts

Some of our terminal services agreements currently in effect are operating in the automatic renewal phase of the contract that begins upon the expiration of the primary contract term. While a significant portion of our tankage may only be subject to a one year commitment, historically these customers have continued to renew or expand their business. Our top ten customers have used our services for an average of more than ten years. The following table details the base storage services fees expected to be generated over the next five years ending December 31, 2018 based on remaining contract terms at June 30, 2014 excluding any consumer price index adjustments. Expected Revenue under Base Year ending December 31, Storage Contracts (In thousands) 2014 $ 69,283 2015 47,227 2016 26,863 2017 19,494 2018 and beyond 8,920 Supply of Storage Capacity An important factor in determining the value of storage capacity and therefore the rates we are able to charge for new contracts or contract renewals is whether a surplus or shortfall of storage capacity exists relative to the overall demand for storage services in a given market area. We monitor local developments around each of our facilities closely. We believe that significant barriers to entry exist in the refined product and crude oil terminaling and storage business. These barriers include significant costs and execution risk, a lengthy permitting and development cycle, shortage of personnel with the requisite expertise and the finite number of sites that are suitable for development.



Entry of Competitors into the Markets in Which We Operate

The competitiveness of our service offerings could be significantly impacted by the entry of new competitors into the markets in which our terminals operate. We believe, however, that significant barriers to entry exist in the refined products and crude oil terminaling and storage business, particularly for marine terminals. These barriers include significant costs and execution risk, a lengthy permitting and development cycle, such as environmental permitting, financing challenges, shortage of personnel with the requisite expertise and the finite number of sites with comparable connectivity suitable for development. Economic Conditions

The condition of credit markets may adversely affect our liquidity. In the recent past, world financial markets experienced a severe reduction in the availability of credit. Although we were not substantially impacted by this situation because of the long-term nature of our customer contracts, possible negative impacts in the future could include a decrease in the availability of credit. In addition, we could experience a tightening of trade credit from our suppliers and our customers' businesses may be effected by their access to

credit. 33 Growth Opportunities

We expect to expand the storage capacity at our current terminal facilities over the near and medium term. In addition, we will selectively pursue strategic asset acquisitions from Apex and third parties that complement our existing asset base or provide attractive potential returns in new areas within our geographic footprint. Our long-term strategy includes operating fee-based, qualifying income producing infrastructure assets throughout North America. Recent evidence of this strategy includes our June 2014 acquisition of two terminals that marked our entry into the Mobile, Alabama market. We believe that we will be well positioned to acquire assets from third parties should such opportunities arise, and identifying and executing acquisitions will be a key part of our strategy. However, if we do not make acquisitions on economically acceptable terms, our future growth will be limited, and it is possible that any acquisitions we do make will reduce, rather than increase, our cash available for distribution per unit.



Demand for Refined Products and Crude Oil

In the near-term, we expect demand for refined products and crude oil to remain stable. Even if demand for refined products and crude oil decreases sharply, however, our historical experience during recessionary periods has been that our results of operations are not materially impacted in the near term. We believe this is because of several factors, including: (i) we mitigate the risk of reduced volumes and pricing by negotiating contracts with minimum payments based on available capacity and with multi-year terms, and (ii) sharp decreases in demand for refined products and crude oil generally increase the short and medium-term need for storage of those products, as customers search for buyers at appropriate prices.



Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Critical Accounting Policies and Estimates

As of June 30, 2014, there have been no significant changes to our critical accounting estimates disclosed in Partnership's 2013 Annual Report on Form 10-K.


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Source: Edgar Glimpses


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