**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, DC 20549**

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**FORM 10-Q**

**(Mark One)**
| **x**      | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**                              |
|------------|------------|---------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                                                |
| ** ** | ** ** | **For the quarterly period ended September 30, 2006**                                                                     |
| ** ** | ** ** | ** **                                                                                                                |
| ** ** | ** ** | **OR**                                                                                                                    |
| ** ** | ** ** | ** **                                                                                                                |
| **o**      | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**                             |
| ** ** | ** ** | ** **                                                                                                                |
| ** ** | ** ** | **For the transition period  from              to** |

 

**Commission file number 001-32593**

**Global Partners LP**

(Exact name of registrant as specified in its charter)

| **Delaware**                                                     |   | **74-3140887**                        |
|------------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of incorporation  or organization) |   | (I.R.S. Employer  Identification No.) |

 

**P.O. Box 9161800 South StreetWaltham, Massachusetts 02454-9161**

(Address of principalexecutive offices, including zip code)

**(781) 894-8800**

(Registrant’s telephone number,including area code)

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.  Yes  x  No  o

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer (as defined in Rule 12b-2 of the Exchange Act.(Check one):

| Large accelerated filer  o | Accelerated  filer o | Non-accelerated  filer x |
|--------------------------------------|---------------------------|-------------------------------|

 

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Exchange Act).  Yes  o  No  x

The issuer had 5,642,424 common units and 5,642,424subordinated units outstanding as of November 6, 2006.

 

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**TABLE OF CONTENTS**
| **PART I. FINANCIAL INFORMATION**                                                                               |   |
|-----------------------------------------------------------------------------------------------------------------|--------|
| ** **                                                                                                      |   |
| **Item 1. Financial Statements**                                                                                |   |
|                                                                                                            |   |
| Consolidated Balance Sheets as of September 30, 2006  and December 31, 2005                                     |   |
|                                                                                                            |   |
| Consolidated/Combined Statements of Operations for the  three and nine months ended September 30, 2006 and 2005 |   |
|                                                                                                            |   |
| Consolidated/Combined Statements of Cash Flows for the  nine months ended September 30, 2006 and 2005           |   |
|                                                                                                            |   |
| Consolidated Statements of Partners’ Equity for the  nine months ended September 30, 2006                  |   |
|                                                                                                            |   |
| Notes to Financial Statements                                                                                   |   |
|                                                                                                            |   |
| **Item 2. Management’s Discussion and Analysis of  Financial Condition and Results of Operations**         |   |
|                                                                                                            |   |
| **Item 3. Quantitative and Qualitative Disclosures about  Market Risk**                                         |   |
|                                                                                                            |   |
| **Item 4. Controls and Procedures**                                                                             |   |
|                                                                                                            |   |
| **PART  II.  OTHER INFORMATION**                                                                           |   |
|                                                                                                            |   |
| **Item  1. Legal Proceedings**                                                                                  |   |
|                                                                                                            |   |
| **Item  1A. Risk Factors**                                                                                      |   |
|                                                                                                            |   |
| **Item 6.  Exhibits**                                                                                           |   |
|                                                                                                            |   |
| **SIGNATURES**                                                                                                  |   |
|                                                                                                            |   |
| **INDEX  TO EXHIBITS**                                                                                          |   |

 

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**Item 1.    FinancialStatements**

**GLOBAL PARTNERS LP**

**CONSOLIDATEDBALANCE SHEETS(In thousands, except unit data)(Unaudited)**
|                                                                                                                                | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                                                     | ** ** | **2006**               | ** ** | **2005**              | ** ** |
| **Assets**                                                                                                                     | ** ** | ** **             | ** ** | ** **            | ** ** |
| Current assets:                                                                                                                |       |                   |       |                  |       |
| Cash and cash  equivalents                                                                                                     |       | $                      | 2,051      |                  | $          | 1,769 |   |
| Accounts  receivable, net                                                                                                      |       | 156,476                |       | 237,861               |       |
| Accounts  receivable – affiliates                                                                                         |       | 1,156                  |       | 2,005                 |       |
| Inventories                                                                                                                    |       | 250,112                |       | 260,714               |       |
| Brokerage margin  deposits                                                                                                     |       | 8,933                  |       | 9,210                 |       |
| Fair value of  forward fixed contracts                                                                                         |       | 59,170                 |       | —                |       |
| Prepaid expenses  and other current assets                                                                                     |       | 14,092                 |       | 7,781                 |       |
| Total current  assets                                                                                                          |       | 491,990                |       | 519,340               |       |
|                                                                                                                           |       |                   |       |                  |       |
| Property and equipment,  net                                                                                                   |       | 31,030                 |       | 21,975                |       |
| Intangible assets, net                                                                                                         |       | 9,434                  |       | 10,603                |       |
| Other assets                                                                                                                   |       | 2,648                  |       | 2,838                 |       |
|                                                                                                                           |       |                   |       |                  |       |
| Total assets                                                                                                                   |       | $                      | 535,102    |                  | $          | 554,756 |   |
|                                                                                                                           |       |                   |       |                  |       |
| **Liabilities and partners’  equity**                                                                                     | ** ** | ** **             | ** ** | ** **            | ** ** |
| Current liabilities:                                                                                                           |       |                   |       |                  |       |
| Accounts payable                                                                                                               |       | $                      | 158,239    |                  | $          | 259,463 |   |
| Notes payable,  other – current portion                                                                                   |       | 298                    |       | 297                   |       |
| Income taxes  payable                                                                                                          |       | 834                    |       | 1,200                 |       |
| Accrued expenses  and other current liabilities                                                                                |       | 25,815                 |       | 28,615                |       |
| Obligations on  forward fixed contracts and other derivatives                                                                  |       | —                 |       | 1,038                 |       |
| Total current  liabilities                                                                                                     |       | 185,186                |       | 290,613               |       |
|                                                                                                                           |       |                   |       |                  |       |
| Long-term liabilities:                                                                                                         |       |                   |       |                  |       |
| Revolving line  of credit                                                                                                      |       | 259,700                |       | 181,600               |       |
| Notes payable,  other – less current portion                                                                              |       | 1,337                  |       | 1,559                 |       |
| Other long-term  liabilities                                                                                                   |       | 4,834                  |       | 4,676                 |       |
| Total long-term  liabilities                                                                                                   |       | 265,871                |       | 187,835               |       |
|                                                                                                                           |       |                   |       |                  |       |
| Partners’ equity                                                                                                          |       |                   |       |                  |       |
| Common  unitholders (5,642,424 units issued and outstanding at September 30, 2006 and  December 31, 2005)                      |       | 101,304                |       | 97,512                |       |
| Subordinated  unitholders (5,642,424 units issued and outstanding at September 30, 2006 and  December 31, 2005)                |       | (16,581                | )          | (20,372               | )          |
| General partner  interest (2% interest with 230,303 equivalent units outstanding at September  30, 2006 and December 31, 2005) |       | (678                   | )          | (832                  | )          |
| Total partners’  equity                                                                                                   |       | 84,045                 |       | 76,308                |       |
|                                                                                                                           |       |                   |       |                  |       |
| Total liabilities and partners’ equity                                                                                    |       | $                      | 535,102    |                  | $          | 554,756 |   |

 

*The accompanying notes are anintegral part of these financial statements.*

1

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**GLOBAL PARTNERS LP**

**CONSOLIDATED/COMBINED STATEMENTS OF OPERATIONS(In thousands, except per unit data)(Unaudited)**
| ** **                                                                    | ** ** | **Successor**                                        | ** ** | **Predecessor**                                     | ** ** | **Successor**    | ** ** | **Predecessor** | ** **                                                                                 |
|-------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|------------------|------------|-----------------|--------------------------------------------------------------------------------------------|
| ** **                                                                    | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
| ** **                                                                    | ** ** | **2006**                                             | ** ** | **2005**                                            | ** ** | **2006**         | ** ** | **2005**        | ** **                                                                                 |
| ** **                                                                    | ** ** | **Consolidated**                                     | ** ** | **Combined**                                        | ** ** | **Consolidated** | ** ** | **Combined**    | ** **                                                                                 |
|                                                                          |       |                                                 |       |                                                |       |             |       |            |                                                                                       |
| Sales                                                                         |       | $                                                    | 995,834    |                                                | $          | 854,853          |       | $               | 3,378,210                                                                                  |   | $       2,770,129 |   |
| Cost of sales                                                                 |       | 970,113                                              |       | 835,903                                             |       | 3,299,628        |       | 2,708,300       |                                                                                       |
| Gross profit                                                                  |       | 25,721                                               |       | 18,950                                              |       | 78,582           |       | 61,829          |                                                                                       |
|                                                                          |       |                                                 |       |                                                |       |             |       |            |                                                                                       |
| Selling, general  and administrative expenses                                 |       | 10,284                                               |       | 11,644                                              |       | 30,272           |       | 29,427          |                                                                                       |
| Operating  expenses                                                           |       | 5,336                                                |       | 4,707                                               |       | 16,153           |       | 14,617          |                                                                                       |
| Amortization  expenses                                                        |       | 358                                                  |       | 406                                                 |       | 1,170            |       | 1,217           |                                                                                       |
| Operating income                                                              |       | 9,743                                                |       | 2,193                                               |       | 30,987           |       | 16,568          |                                                                                       |
|                                                                          |       |                                                 |       |                                                |       |             |       |            |                                                                                       |
| Interest expense                                                              |       | 3,414                                                |       | 3,191                                               |       | 7,520            |       | 7,169           |                                                                                       |
| Other expense                                                                 |       | —                                               |       | 1,050                                               |       | —           |       | 1,050           |                                                                                       |
|                                                                          |       |                                                 |       |                                                |       |             |       |            |                                                                                       |
| Income (loss)  before income tax expense                                      |       | 6,329                                                |       | (2,048                                              | )          | 23,467           |       | 8,349           |                                                                                       |
|                                                                          |       |                                                 |       |                                                |       |             |       |            |                                                                                       |
| Income tax  expense                                                           |       | 95                                                   |       | —                                              |       | 1,065            |       | —          |                                                                                       |
|                                                                          |       |                                                 |       |                                                |       |             |       |            |                                                                                       |
| Net income  (loss)                                                            |       | 6,234                                                |       | $                                                   | (2,048     | )                | 22,402     |            | $              8,349 |   |
|                                                                          |       |                                                 |       |                                                |       |             |       |            |                                                                                       |
| Less:                                                                         |       |                                                 |       |                                                |       |             |       |            |                                                                                       |
| General  partner’s interest in net income                                |       | 125                                                  |       |                                                |       | 449              |       |            |                                                                                       |
| Limited  partners’ interest in net income                                |       | $                                                    | 6,109      |                                                |       |             | $          | 21,953          |                                                                                       |   |   |
|                                                                          |       |                                                 |       |                                                |       |             |       |            |                                                                                       |
| Net income per  limited partner unit, basic and diluted(1)                    |       | $                                                    | 0.53       |                                                |       |             | $          | 1.68            |                                                                                       |   |   |
|                                                                          |       |                                                 |       |                                                |       |             |       |            |                                                                                       |
| Weighted average  limited partners’ units outstanding, basic and diluted |       | 11,285                                               |       |                                                |       | 11,285           |       |            |                                                                                       |

 

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(1)    See Note 3 for net income per limited partner unit calculation.

*The accompanying notes are anintegral part of these financial statements.*

2

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**GLOBAL PARTNERS LP**

**CONSOLIDATED/COMBINED STATEMENTS OF CASH FLOWS(In thousands)(Unaudited)**
| ** **                                                                     | ** ** | **Successor**                                       | ** ** | **Predecessor** | ** ** |
|--------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------|------------|
| ** **                                                                     | ** ** | **Nine Months Ended  September 30,** | ** ** |
| ** **                                                                     | ** ** | **2006**                                            | ** ** | **2005**        | ** ** |
| ** **                                                                     | ** ** | **Consolidated**                                    | ** ** | **Combined**    | ** ** |
| **Operating  activities**                                                      |       |                                                |       |            |       |
| Net income                                                                     |       | $                                                   | 22,402     |            | $          | 8,349 |   |
| Adjustments to  reconcile net income to net cash used in operating activities: |       |                                                |       |            |       |
| Depreciation and amortization                                                  |       | 2,989                                               |       | 2,896           |       |
| Amortization of deferred financing fees                                        |       | 298                                                 |       | 380             |       |
| Loss on surrender of split dollar insurance policy                             |       | —                                              |       | 1,050           |       |
| Disposition of property and equipment                                          |       | 175                                                 |       | 34              |       |
| Changes in operating assets and liabilities:                                   |       |                                                |       |            |       |
| Accounts receivable                                                            |       | 81,385                                              |       | (2,580          | )          |
| Accounts receivable – affiliate                                           |       | 849                                                 |       | (321            | )          |
| Inventories                                                                    |       | 10,602                                              |       | (134,328        | )          |
| Prepaid expenses, all other current assets and other  assets                   |       | (6,142                                              | )          | (14,776         | )          |
| Forward fixed contracts and other liabilities                                  |       | (60,208                                             | )          | 94,466          |       |
| Accounts payable and income taxes payable                                      |       | (101,590                                            | )          | 48,531          |       |
| Accrued expenses and all other current liabilities                             |       | (2,800                                              | )          | (5,764          | )          |
| Other long-term liabilities                                                    |       | 158                                                 |       | (313            | )          |
| Net cash used in  operating activities                                         |       | (51,882                                             | )          | (2,376          | )          |
| ** **                                                                     |       |                                                |       |            |       |
| **Investing  activities**                                                      |       |                                                |       |            |       |
| Terminal  acquisitions                                                         |       | (6,531                                              | )          | —          |       |
| Maintenance  capital expenditures                                              |       | (1,207                                              | )          | (1,037          | )          |
| Capital  improvement expenditures                                              |       | (3,334                                              | )          | —          |       |
| Proceeds from  sale of property and equipment                                  |       | 22                                                  |       | 144             |       |
| Net cash used in  investing activities                                         |       | (11,050                                             | )          | (893            | )          |
| ** **                                                                     |       |                                                |       |            |       |
| **Financing  activities**                                                      |       |                                                |       |            |       |
| Proceeds from  revolving line of credit, net                                   |       | 78,100                                              |       | 20,800          |       |
| Payments on note  payable, other                                               |       | (221                                                | )          | (206            | )          |
| Distributions to  partners                                                     |       | (14,665                                             | )          | —          |       |
| Distributions to  members                                                      |       | —                                              |       | (11,895         | )          |
| Net cash provided  by financing activities                                     |       | 63,214                                              |       | 8,699           |       |
|                                                                           |       |                                                |       |            |       |
| Increase in cash  and cash equivalents                                         |       | 282                                                 |       | 5,430           |       |
| Cash and cash  equivalents at beginning of period                              |       | 1,769                                               |       | 3,306           |       |
| Cash and cash  equivalents at end of period                                    |       | $                                                   | 2,051      |            | $          | 8,736 |   |
| ** **                                                                     |       |                                                |       |            |       |
| **Supplemental  information**                                                  |       |                                                |       |            |       |
| Cash paid during the  period for interest                                      |       | $                                                   | 7,403      |            | $          | 7,900 |   |

 

*The accompanying notes are anintegral part of these financial statements.*

3

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**GLOBAL PARTNERS LP**

**CONSOLIDATEDSTATEMENTS OF PARTNERS’ EQUITY(In thousands)(Unaudited)**
| ** **                     | ** ** | **Common  Unitholders** | ** ** | **Subordinated  Unitholders** | ** ** | **General  Partner  Interest** | ** ** | **Total  Partners’  Equity** | ** ** |
|--------------------------------|------------|-------------------------|------------|-------------------------------|------------|--------------------------------|------------|-----------------------------------|------------|
|                           |       |                    |       |                          |       |                           |       |                              |       |
| Balance at  December 31, 2005  |       | $                       | 97,512     |                          | $          | (20,372                        | )          | $                                 | (832       | ) | $ | 76,308 |   |
|                           |       |                    |       |                          |       |                           |       |                              |       |
| Distribution to  partners      |       | (7,185                  | )          | (7,185                        | )          | (295                           | )          | (14,665                           | )          |
|                           |       |                    |       |                          |       |                           |       |                              |       |
| Net income                     |       | 10,977                  |       | 10,976                        |       | 449                            |       | 22,402                            |       |
|                           |       |                    |       |                          |       |                           |       |                              |       |
| Balance at September  30, 2006 |       | $                       | 101,304    |                          | $          | (16,581                        | )          | $                                 | (678       | ) | $ | 84,045 |   |

 

*The accompanying notes are anintegral part of these financial statements.*

4

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**GLOBAL PARTNERS LP**

**NOTES TO FINANCIAL STATEMENTS(Unaudited)**

**Note 1.**                      Organization and Basis ofPresentation

**Organization**

Global Partners LP(the “Partnership”) is a publicly traded limited partnership that engages inthe wholesale and commercial distribution of refined petroleum products andnatural gas and provides ancillary services to companies domestically and, on alimited basis, internationally.  ThePartnership commenced operations on October 4, 2005 upon the completion of itsinitial public offering of common units (the “IPO”).  (See the Partnership’s Annual Report on Form10-K for the year ended December 31, 2005 for more information regarding theIPO.)

The Partnershiphas four operating subsidiaries:  GlobalCompanies LLC, its subsidiary, Glen Hes Corp., Global Montello Group Corp. andChelsea Sandwich LLC (the four operating subsidiaries, collectively, the“Companies”).  The Companies (other thanGlen Hes Corp.) are wholly owned by Global Operating LLC, a wholly ownedsubsidiary of the Partnership.

The Partnership’s2% general partner interest is held by Global GP LLC (the “GeneralPartner”).  The General Partner, which isowned by affiliates of the Slifka family, manages the Partnership’s operationsand activities and employs its officers and substantially all of itspersonnel.  Affiliates of the GeneralPartner, including its directors and executive officers, own 60,224 commonunits and 5,642,424 subordinated units, representing a combined 49.5% limitedpartner interest.

References to“Global Partners LP” or “the Partnership” or “the General Partner” as itrelates to the combined financial statements and these accompanying notes withrespect to the three and nine months ended September 30, 2005 refer to thebusiness of Global Companies LLC and its affiliates, Glen Hes Corp., GlobalMontello Group LLC and Chelsea Sandwich LLC (collectively, the “Predecessor”).

Immediately afterbecoming a publicly traded limited partnership, the Partnership convertedGlobal Montello Group LLC (the predecessor to Global Montello Group Corp.) intoa taxable corporation.  References to“the Companies” in the Partnership’s combined financial statements and theseaccompanying notes include Global Montello Group LLC with respect to the threeand nine months ended September 30, 2005 and, in the consolidated financialstatements and notes, Global Montello Group Corp. with respect to the three andnine months ended September 30, 2006.

**Basis of Presentation**

***Interim Financial Statements***

**Theaccompanying consolidated financial statements as of September 30, 2006 andDecember 31, 2005 and for the three and nine months ended September 30, 2006reflect the accounts of the Partnership. The accompanying combined financial statements for the three and ninemonths ended September 30, 2005 reflect the accounts of the Predecessor.  All intercompany balances and transactionshave been eliminated.**

The accompanying unaudited consolidated/combinedfinancial statements have been prepared in accordance with accountingprinciples generally accepted in the United States (“GAAP”) and reflect alladjustments (consisting only of normal recurring adjustments) which are, in theopinion of management, necessary for a fair presentation of the financialcondition and operating results for the interim periods.  The interim financial information, which hasbeen prepared pursuant to the rules and regulations of the Securities andExchange Commission (“SEC”), should be read in conjunction with theconsolidated/combined financial statements for the year ended December 31, 2005and notes thereto contained in the Partnership’s Annual Report on Form10-K.  The results of operations for thethree and nine months ended September 30, 2006 are not necessarily indicativeof the results of operations that will be realized for the entire year endingDecember 31, 2006.

5

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As demand for some of the Partnership’s refinedpetroleum products, especially home heating oil and residual oil for spaceheating purposes, is generally greater during the winter months, sales areexpected be higher during the first and fourth quarters of the calendar yearwhich may result in significant fluctuations in the Partnership’s quarterlyoperating results.

The balance sheet at December 31, 2005 has beenderived from the audited financial statements and footnotes thereto included inthe Partnership’s Annual Report on Form 10-K for the year ended December 31,2005.

**Note 2.**                      Reclassification

Certain prior year amounts in theconsolidated/combined financial statements and accompanying notes have beenreclassified to conform to the current year presentation.

**Note 3.**                      Net Income Per Limited PartnerUnit

The computation ofnet income per limited partner unit is based on the weighted average number ofcommon and subordinated units outstanding during the year.  Basic and diluted net income per limitedpartner unit are determined by dividing net income after deducting the amountallocated to the general partner interest (including its incentive distributionin excess of its 2% interest) by the weighted average number of outstandinglimited partner units during the period in accordance with Emerging Issues TaskForce (“EITF”) 03-06, “Participating Securities and the Two-Class Methodunder FASB Statement No. 128” (“EITF 03-06”). EITF 03-06 addresses the computation of earnings per share (in thePartnership’s case, net income per limited partner unit) by an entity that hasissued securities other than common stock (in the Partnership’s case, limitedpartner units) that contractually entitle the holder to participate individends and earnings of the entity when, and if, it declares dividends on itscommon stock (in the Partnership’s case, distributions on its units).  Essentially, EITF 03-06 provides thatin any accounting period where the Partnership’s aggregate net income exceedsits aggregate distribution for such period, the Partnership is required topresent net income per limited partner unit as if all of the earnings for theperiods were distributed, regardless of whether those earnings would actuallybe distributed during a particular period from an economic or practicalperspective.  EITF 03-06 does notimpact the Partnership’s overall net income or other financial results;however, for periods in which the Partnership’s aggregate net income exceedsits aggregate distributions for such period, it will have the impact ofreducing the earnings per limited partner unit. This result occurs as a larger portion of the Partnership’s aggregateearnings is allocated to the incentive distribution rights held by the GeneralPartner, as if distributed, even though the Partnership makes cashdistributions on the basis of cash available for distributions, not earnings,in any given accounting period.  Inaccounting periods where aggregate net income does not exceed aggregatedistributions for such period, EITF 03-06 does not have any impact on thePartnership’s net income per limited partner unit calculation.

6

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The following setsforth the net income allocation using this method for the three and nine monthsended September 30, 2006 (in thousands, except per unit data):
|                                                            | ** ** | **Three Months  Ended  September 30,  2006** | ** ** | **Nine Months  Ended  September 30,  2006** | ** ** |
|------------------------------------------------------------|------------|--------------------------------------------------------|------------|-------------------------------------------------------|------------|
|                                                       |       |                                                   |       |                                                  |       |
| Net income                                                 |       | $                                                      | 6,234      |                                                  | $          | 22,402 |   |
| Less:                                                      |       |                                                   |       |                                                  |       |
| General Partner’s 2% interest                         |       | (125                                                   | )          | (449                                                  | )          |
| Net income available to limited partners                   |       | 6,109                                                  |       | 21,953                                                |       |
| Dilutive impact of theoretical distribution of  earnings   |       | (123                                                   | )          | (2,995                                                | )          |
| Net income available to limited partners under EITF  03-06 |       | $                                                      | 5,986      |                                                  | $          | 18,958 |   |
|                                                       |       |                                                   |       |                                                  |       |
|                                                       |       |                                                   |       |                                                  |       |
| Per unit data:                                             |       |                                                   |       |                                                  |       |
| Net income available to limited partners                   |       | $                                                      | 0.54       |                                                  | $          | 1.95 |   |
| Dilutive impact of theoretical distribution of  earnings   |       | (0.1                                                   | )          | (0.27                                                 | )          |
| Net income available to limited partners under EITF  03-06 |       | $                                                      | 0.53       |                                                  | $          | 1.68 |   |
|                                                       |       |                                                   |       |                                                  |       |
| Weighted average  limited partner units outstanding        |       | 11,285                                                 |       | 11,285                                                |       |

 

The Partnershipdid not and was not required to declare cash distributions during the three andnine months ended September 30, 2006 which would result in an incentivedistribution to the General Partner.

**Note 4.**                      Inventories

Inventories, whichare valued at the lower of cost or market based on the first-in, first-outmethod, consisted of the following (in thousands):
|                                              | ** ** | **September 30,  2006** | ** ** | **December 31,  2005** | ** ** |
|----------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
|                                         |       |                         |       |                        |       |
| Distillates:  light oil, diesel and kerosene |       | $                            | 187,887    |                        | $          | 195,171 |   |
| Gasoline                                     |       | 11,092                       |       | 19,311                      |       |
| Blend stock                                  |       | 17,397                       |       | 6,782                       |       |
| Residual oil                                 |       | 33,736                       |       | 39,450                      |       |
| Total                                        |       | $                            | 250,112    |                        | $          | 260,714 |   |

 

The Partnershiphedges substantially all of its inventory purchases through futures and swapagreements.  In addition to its owninventory, the Partnership has exchange agreements with unrelated third-partysuppliers, whereby it may draw inventory from these other suppliers andsuppliers may draw inventory from the Partnership.  Positive exchange balances are accounted foras accounts receivable.  Negativeexchange balances are accounted for as accounts payable.  Exchange transactions are valued usingcurrent quoted market prices.  The impactof exchange agreements was not material to the Partnership’s financial statementsat September 30, 2006 and December 31, 2005.

7

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**Note 5.**                      Derivative Financial Instruments

**ThePartnership accounts for its derivatives in accordance with Statement ofFinancial Accounting Standards (“SFAS”) No. 133, “Accounting for DerivativeInstruments and Hedging Activities,” as amended (“SFAS No. 133”).  SFAS No. 133 establishes accounting andreporting standards for derivative instruments and hedging activities andrequires that an entity recognize derivatives as either assets or liabilitieson the balance sheet and measure the instruments at fair value.  The fair value of the Partnership’sderivatives is determined through the use of independent markets and is basedupon the prevailing market prices of such instruments at the date ofvaluation.  The Partnership enters intofutures contracts for the receipt or delivery of refined petroleum products infuture periods.  The contracts areentered into in the normal course of business to reduce risk of loss ofinventory on hand, which could result through fluctuations in market prices.  Changes in the fair value of these contracts,as well as the offsetting gain or loss on the hedged inventory item, arerecognized currently in earnings. Ineffectiveness related to these hedging activities was immaterial atSeptember 30, 2006.**

The Partnership also uses futures contracts and swapsto hedge exposure under forward purchase and sale commitments.  These agreements are intended to hedge thecost component of virtually all of the Partnership’s forward commitments.  Changes in the fair value of these contracts,as well as offsetting gains or losses on the forward fixed purchase and salecommitments, are recognized currently in earnings.  Gains and losses on net product margin fromforward fixed purchase and sale contracts are reflected in earnings as thesecontracts mature.

The composition andfair value of (obligations on) derivative instruments relating to forward fixedprice contracts on the Partnership’s balance sheet consisted of the following(in thousands):
|                                | ** ** | **September 30,  2006** | ** ** | **December 31,  2005** | ** ** |
|--------------------------------|------------|------------------------------|------------|-----------------------------|------------|
|                           |       |                         |       |                        |       |
| Forward  contracts             |       | $                            | 58,149     |                        | $          | 4,587 |   |
| Swaps, options  and other, net |       | 1,021                        |       | (5,625                      | )          |
|                           |       | $                            | 59,170     |                        | $          | (1,038 | ) |

 

The Partnership also markets and sells naturalgas.  The Partnership generally conductsbusiness by entering into forward purchase commitments for natural gas onlywhen it simultaneously enters into arrangements for the sale of product forphysical delivery to third-party users. The Partnership generally takes delivery under its purchase commitmentsat the same location as it delivers to third-party users.  Through these transactions, which establishan immediate margin, the Partnership seeks to maintain a position that issubstantially balanced between firm forward purchase and sales commitments.  Natural gas is generally purchased and soldat fixed prices and quantities.  Currentprice quotes from actively traded markets are used in all cases to determinethe contracts’ fair value.  Changes inthe fair value of these contracts are recognized currently in earnings as anincrease or decrease in cost of sales.

The Partnershipformally documents all relationships between hedging instruments and hedgeditems, after its risk management objectives and strategy for undertaking thehedge are determined.  The Partnershipcalculates hedge effectiveness on a quarterly basis.  This process includes specific identificationof the hedging instrument and the hedged transaction, the nature of the riskbeing hedged and how the hedging instrument’s effectiveness will be assessed.  Both at the inception of the hedge and on anongoing basis, the Partnership assesses whether the derivatives that are usedin hedging transactions are highly effective in offsetting changes in fairvalue of hedged items.  The derivativeinstruments that qualify for hedge accounting are fair value hedges.

The Partnershiphas a daily margin requirement with its broker based on the prior day’s marketresults on open futures contracts.  Therequired brokerage margin balance was $8.9 million and $9.2 million atSeptember 30, 2006 and December 31, 2005, respectively.

 

 

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The Partnership isexposed to credit loss in the event of nonperformance by counterparties offorward contracts, options and swap agreements, but the Partnership has nocurrent reason to expect any material nonperformance by any of thesecounterparties.  Futures contracts, theprimary derivative instrument utilized by the Partnership, are traded onregulated exchanges, greatly reducing potential credit risks.  Exposure on swap and certain optionagreements is limited to the amount of the recorded fair value as of thebalance sheet dates.  The Partnershiputilizes primarily one broker for all derivative transactions and the right ofoffset exists.  Accordingly, the fairvalue of all derivative instruments is displayed on a net basis on the balancesheets.

**Note 6.       Debt**

In connection withthe closing of its IPO, the Partnership entered into a four-year senior securedcredit agreement (the “Credit Agreement”) in an aggregate principal amount ofup to $400.0 million as further described below.  In November 2005, the Credit Agreement wasamended to increase total available commitments from $400.0 million to $500.0million.  In August 2006, the CreditAgreement was amended to increase the permanent working capital revolving creditfacility commitment by $100.0 million for total available commitments of $600.0million.

The creditfacilities are available to fund working capital, make acquisitions and providepayment for general partnership purposes. There are three facilities under the Credit Agreement:

·              a working capitalrevolving credit facility to be used for working capital purposes and lettersof credit in the principal amount equal to the lesser of the Partnership’sborrowing base and $550.0 million, of which two $50.0 million seasonal overlinefacilities are available each year only during the period between September 1st and June 30th;

·              a $35.0 millionacquisition facility to be used for funding acquisitions similar to thePartnership’s business line that have a purchase price of $25.0 million or lessor $35.0 million or less in the aggregate in any 12-month period; and

·              a$15.0 million revolving credit facility to be used for general purposes,including payment of distributions to the Partnership’s unitholders.

Borrowings underthe Partnership’s working capital revolving credit, acquisition credit andrevolving credit facilities currently bear interest at the Partnership’s optionat (1) the Eurodollar rate, plus 1%, 13⁄4% and 11⁄2%, respectively, (2) the cost offunds rate, plus 1%, 13⁄4% and 11⁄2%, respectively, or (3) the bank’s baserate.  The Partnership incurs a letter ofcredit fee of 1% per annum for each letter of credit issued.  In addition, the Partnership incurs acommitment fee on the unused portion of the three facilities under the CreditAgreement (including the unused portion of either of the seasonal overlinefacilities exercised by the Partnership) at a rate of 25 basis points perannum, a facility fee of 10 basis points per annum on any unexercised seasonaloverline facility during the period between September 1st and June 30th and a seasonal overline fee of $30,000 eachtime the Partnership elects to exercise either of the seasonal overlinefacilities.

The CreditAgreement will mature in October 2009. Accordingly, the Credit Agreement has been classified as long-term inthe accompanying balance sheets.  AtSeptember 30, 2006, availability under the Credit Agreement was reduced by theoutstanding balance under the working capital revolving credit facility ofapproximately $259.7 million and by letters of credit totaling approximately$67.5 million.  The total remainingavailability for borrowings and letters of credit at September 30, 2006 was$172.8 million, which includes the $35.0 million acquisition facility and the$15.0 million revolving credit facility and excludes the two $50.0 millionseasonal overline facilities the Partnership did not exercise as of September30, 2006.  The average interest rates forthe three and nine months ended September 30, 2006 were 6.3% and 5.9%,respectively.

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The CreditAgreement is secured by substantially all of the assets of the Partnership andeach of the Companies and is guaranteed by the General Partner.  The Credit Agreement imposes certainrequirements including, for example, a prohibition against distributions if anypotential default or event of default as defined in the Credit Agreement, asamended, would occur, and limitations on the Partnership’s ability to grantliens, make certain loans or investments, incur additional indebtedness orguarantee other indebtedness, make any material change to the nature of thePartnership’s business or undergo a fundamental change, make any materialdispositions, acquire another company, enter into a merger, consolidation, saleleaseback transaction or purchase of assets, or make capital expenditures inexcess of specified levels.

The CreditAgreement also imposes covenants that require the Partnership to maintaincertain minimum working capital amounts, a minimum EBITDA ratio, a minimuminterest coverage ratio and a maximum leverage ratio.  The Partnership was in compliance with thesecovenants at September 30, 2006.

The CreditAgreement limits distributions by the Partnership to its unitholders to theamount of the Partnership’s available cash and permits borrowings to fund suchdistributions only under the revolving credit facility.  The revolving credit facility is subject toan annual “clean-down” period, requiring the Partnership to reduce the amountoutstanding under the revolving credit facility to $0 for 30 consecutivecalendar days in each calendar year.

**Note 7.       EmployeeBenefit Plan with Related Party**

Effective October 4, 2005, the General Partner employssubstantially all of the Partnership’s employees and charges the Partnershipfor their services.  The Partnership alsoreimburses the General Partner for its contributions under the General Partner’s401(k) Savings and Profit Sharing Plan and the General Partner’s qualified andnon-qualified pension plans.  ThePartnership’s net periodic benefit cost for its defined benefit pension planconsisted of the following components (in thousands):
|                                 | ** ** | **Successor**                                        | ** ** | **Predecessor**                                     | ** ** | **Successor**    | ** ** | **Predecessor** | ** ** |
|---------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|------------------|------------|-----------------|------------|
| ** **                      | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
| ** **                      | ** ** | **2006**                                             | ** ** | **2005**                                            | ** ** | **2006**         | ** ** | **2005**        | ** ** |
| ** **                      | ** ** | **Consolidated**                                     | ** ** | **Combined**                                        | ** ** | **Consolidated** | ** ** | **Combined**    | ** ** |
| ** **                      |       |                                                 |       |                                                |       |             |       |            |       |
| Service cost                    |       | $                                                    | 192        |                                                | $          | 174              |       | $               | 574        |   | $ | 514 |   |
| Interest cost                   |       | 149                                                  |       | 142                                                 |       | 448              |       | 405             |       |
| Expected return  on plan assets |       | (145                                                 | )          | (141                                                | )          | (434             | )          | (413            | )          |
| Net periodic benefit  cost      |       | $                                                    | 196        |                                                | $          | 175              |       | $               | 588        |   | $ | 506 |   |

 

**Note 8.       RelatedParty Transactions**

In connection withthe Partnership’s IPO, the Partnership entered into a Second Amended andRestated Terminal Storage Rental and Throughput Agreement which, among otherthings, extended the term of the then current non-cancelable terminal facilityagreement with Global Petroleum Corp. (“GPC”) through December 2013.  The agreement is accounted for as anoperating lease.  The expense under thisagreement (or the applicable predecessor agreement with GPC, as the case maybe) was $2.0 million and $1.9 million for the three months ended September,2006 and 2005, respectively, and $6.1 million and $5.8 million for the ninemonths ended September 30, 2006 and 2005, respectively.

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GPC providescertain terminal operating management services to the Partnership and usescertain administrative, accounting and information processing services of thePartnership.  The expense from theseservices was approximately $19,000 and $16,000 for the three months endedSeptember 30, 2006 and 2005, respectively, and $58,000 and $50,000 for the ninemonths ended September 30, 2006 and 2005, respectively.  These affiliate charges have been recorded inselling, general and administrative expenses in the accompanying statements ofoperations.  In connection with the IPO,the Partnership entered into an Amended and Restated Services Agreement withGPC which, among other things, extended the term of the agreement throughDecember 31, 2007.

The Partnershipalso provides certain administrative, accounting and information processingservices, and the use of certain facilities, to Alliance Energy Corp. (“Alliance”),an affiliate of the Partnership that is 90% owned by members of the Slifkafamily.  The income from these serviceswas approximately $189,000 and $80,000 for the three months ended September 30,2006 and 2005, respectively, and $567,000 and $240,000 for the nine monthsended September 30, 2006 and 2005, respectively.  These fees have been recorded as an offset toselling, general and administrative expenses in the statements ofoperations.  In connection with the IPO,the Partnership entered into an Amended and Restated Services Agreement withAlliance which, among other things, extended the term of the agreement throughDecember 31, 2007.

The Partnershipsells refined petroleum products to Alliance at arm’s length and at prevailingmarket prices at the time of delivery. Sales to Alliance were $2.8 million and $6.1 million for the threemonths ended September 30, 2006 and 2005, respectively, and $14.3 million and$14.6 million for the nine months ended September 30, 2006 and 2005,respectively.

Effective October4, 2005, the General Partner employs substantially all of the Partnership’semployees and charges the Partnership for their services.  The amounts expensed for the three and ninemonths ended September 30, 2006, including payroll taxes and payroll accruals,were $5.3 million and $16.1 million, respectively.  The Partnership also reimburses the GeneralPartner for its contributions under the General Partner’s 401(k) Savings andProfit Sharing Plan and the General Partner’s qualified and non-qualifiedpension plans.

Thetable below presents receivables and payables incurred in connection with theservices agreements (or the applicable predecessor agreements, as the case maybe) between Alliance and GPC and the Partnership, as the case may be, andreceivables from the General Partner (in thousands):
|                                           | ** ** | **September 30,  2006** | ** ** | **December 31,  2005** | ** ** |
|-------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
|                                      |       |                    |       |                        |       |
| Receivables from  Alliance                |       | $                       | 931        |                        | $          | 1,748 |   |
| (Payables to)  receivables from GPC       |       | (29                     | )          | 56                          |       |
| Receivables from the  General Partner (1) |       | 225                     |       | 201                         |       |
|                                           |            |                         |            |                             |            |  |  |

 

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(1)    Receivables from the General Partner reflect the Partnership’sprepayment of payroll taxes and payroll accruals to the General Partner.

**Note 9.       CashDistributions**

The Partnershipintends to consider regular cash distributions to unitholders on a quarterlybasis, although there is no assurance as to the future cash distributions sincethey are dependent upon future cash flows, capital requirements, financialcondition and other factors.  The CreditAgreement prohibits the Partnership from making cash distributions if anypotential default or event of default, as defined in the Credit Agreement, occursor would result from the cash distribution.

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Within 45 daysafter the end of each quarter, the Partnership will distribute all of itsavailable cash (as defined in its partnership agreement) to unitholders ofrecord on the applicable record date. The amount of available cash is all cash on hand at the end of thequarter; plus all cash on hand on the date of determination of available cashfor the quarter resulting from working capital borrowings made after the end ofthe quarter; less the amount of cash reserves established by the GeneralPartner to provide for the proper conduct of the Partnership’s business, tocomply with applicable law, any of the Partnership’s debt instruments, or otheragreements or to provide funds for distributions to unitholders and to theGeneral Partner for any one or more of the next four quarters.  Working capital borrowings are generallyborrowings that are made under the Credit Agreement and in all cases are usedsolely for working capital purposes or to pay distributions to partners.

The Partnershipwill make distributions of available cash from operating surplus for anyquarter during the subordination period as defined in the partnership agreementin the following manner: firstly, 98% to the common unitholders, pro rata, and2% to the General Partner, until the Partnership distributes for eachoutstanding common unit an amount equal to the minimum quarterly distributionfor that quarter; secondly, 98% to the common unitholders, pro rata, and 2% tothe General Partner, until the Partnership distributes for each outstandingcommon unit an amount equal to any arrearages in payment of the minimumquarterly distribution on the common units for any prior quarters during thesubordination period; thirdly, 98% to the subordinated unitholders, pro rata,and 2% to the General Partner, until the Partnership distributes for eachsubordinated unit an amount equal to the minimum quarterly distribution forthat quarter; and thereafter, cash in excess of the minimum quarterlydistributions is distributed to the unitholders and the General Partner basedon the percentages as provided in the partnership agreement.

The Partnershippaid the following cash distributions during 2006 (in thousands, except perunit data):
| Cash  Distribution  Payment Date | ** ** | **Per Unit  Cash  Distribution** | ** ** | **Common  Units** | ** ** | **Subordinated**  Units | ** ** | **General  Partner** | ** ** | **Total Cash  Distribution** | ** ** |
|---------------------------------------|------------|---------------------------------------|------------|-------------------|------------|-------------------------|------------|----------------------|------------|-----------------------------------|------------|
|                                  |       |                                  |       |              |       |                    |       |                 |       |                              |       |
| 02/14/06                              |       | $                                     | 0.4111     |              | $          | 2,319                   |       | $                    | 2,319      |                              | $          | 95 |   | $ | 4,733 |   |
| 05/15/06                              |       | 0.4250                                |       | 2,398             |       | 2,398                   |       | 98                   |       | 4,894                             |       |
| 08/14/06                              |       | 0.4375                                |       | 2,469             |       | 2,469                   |       | 100                  |       | 5,038                             |       |
| 11/14/06 (1)                          |       | 0.4450                                |       | 2,511             |       | 2,511                   |       | 102                  |       | 5,124                             |       |
|                                       |            |                                       |            |                   |            |                         |            |                      |            |                                   |            |  |  |  |  |  |

 

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(1)    On October 24, 2006, the board of directors ofthe General Partner declared this distribution for the period from July 1, 2006through September 30, 2006 ($1.78 per unit on an annualized basis) to be paidon November 14, 2006 to the Partnership’s common and subordinated unitholdersof record as of the close of business on November 3, 2006.

**Note 10.     SegmentReporting**

The Partnership isa wholesale and commercial distributor of distillates, gasoline and residualoil whose business is organized within two operating segments (Wholesale andCommercial), based on the way the chief operating decision maker (CEO) managesthe business and on the similarity of customers and expected long-termfinancial performance of each segment. The accounting policies of the segments are the same as those describedin Note 2, Summary of Significant Accounting Policies, in the Partnership’sAnnual Report on Form 10-K for the year ended December 31, 2005.

In the Wholesalesegment, the Partnership sells home heating oil, diesel, kerosene, unbrandedgasoline and residual oil to home heating oil retailers, retail gasolinestation operators and wholesale distributors. Generally, customers use their own vehicles or contract carriers to takedelivery of the product at bulk terminals and inland storage facilities thatthe Partnership owns or controls or with which it has throughput arrangements.

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The Commercialsegment includes (i) sales of home heating oil, diesel, kerosene, unbranded gasolineand residual oil to customers in the public sector through competitive biddingand to large commercial and industrial customers, and (ii) sales of customblended residual oil and distillates delivered by bunker barges or from aterminal dock.  Commercial segmentcustomers include federal and state agencies, municipalities, large industrialcompanies, many autonomous authorities such as transportation authorities andwater resource authorities, colleges and universities and a limited group ofsmall utilities.  Unlike the Wholesalesegment, in the Commercial segment, the Partnership generally arranges thedelivery of the product to the customer’s designated location, typically hiringthird-party common carriers to deliver the product.

The Partnership evaluatessegment performance based on net product margins before allocations ofcorporate and indirect operating costs, depreciation, amortization (includingnon-cash charges) and interest.  Based onthe way the CEO manages the business, it is not reasonably possible for thePartnership to allocate the components of operating costs and expenses betweenthe reportable segments.  Additionally,due to the commingled nature and uses of the Partnership’s assets, it is notreasonably possible for the Partnership to allocate assets between the twosegments.  There were no intersegmentsales for the periods presented below.

Summarizedfinancial information for the Partnership’s reportable segments is presentedbelow (in thousands):
|                                             | ** ** | **Successor**                                        | ** ** | **Predecessor**                                     | ** ** | **Successor**    | ** ** | **Predecessor** | ** ** |
|---------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|------------------|------------|-----------------|------------|
| ** **                                  | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
| ** **                                  | ** ** | **2006**                                             | ** ** | **2005**                                            | ** ** | **2006**         | ** ** | **2005**        | ** ** |
| ** **                                  | ** ** | **Consolidated**                                     | ** ** | **Combined**                                        | ** ** | **Consolidated** | ** ** | **Combined**    | ** ** |
| **Wholesale  Segment:**                     |       |                                                 |       |                                                |       |             |       |            |       |
| Sales                                       |       | $                                                    | 927,749    |                                                | $          | 776,664          |       | $               | 3,075,529  |   | $ | 2,488,010 |   |
| Net product margin (1)                      |       |                                                 |       |                                                |       |             |       |            |       |
| Distillates                                 |       | $                                                    | 11,873     |                                                | $          | 8,016            |       | $               | 37,462     |   | $ | 25,096 |   |
| Gasoline                                    |       | 8,003                                                |       | 4,797                                               |       | 18,405           |       | 11,941          |       |
| Residual oil                                |       | 3,536                                                |       | 4,285                                               |       | 13,456           |       | 16,723          |       |
| Total                                       |       | $                                                    | 23,412     |                                                | $          | 17,098           |       | $               | 69,323     |   | $ | 53,760 |   |
| **Commercial  Segment:**                    |       |                                                 |       |                                                |       |             |       |            |       |
| Sales                                       |       | $                                                    | 68,085     |                                                | $          | 78,189           |       | $               | 302,681    |   | $ | 282,119 |   |
| Net product margin (1)                      |       | 2,821                                                |       | 2,268                                               |       | 10,601           |       | 9,310           |       |
| **Combined  sales and net product margin:** |       |                                                 |       |                                                |       |             |       |            |       |
| Sales                                       |       | $                                                    | 995,834    |                                                | $          | 854,853          |       | $               | 3,378,210  |   | $ | 2,770,129 |   |
| Net product margin (1)                      |       | 26,233                                               |       | 19,366                                              |       | 79,924           |       | 63,070          |       |
| Depreciation allocated to cost of sales     |       | 512                                                  |       | 416                                                 |       | 1,342            |       | 1,241           |       |
| **Combined gross profit:**                  |       | $                                                    | 25,721     |                                                | $          | 18,950           |       | $               | 78,582     |   | $ | 61,829 |   |

 

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(1)    Net product margin is a supplemental non-GAAP financial measureused by management and external users of the Partnership’s financial statementsto assess product costs associated with the Partnership’s business.  The table above reconciles net product marginon a combined basis to gross profit, a directly comparable GAAP measure.

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A reconciliation of the totals reported for thereportable segments to the applicable line items in the consolidated/combinedfinancial statements is as follows (in thousands):
| ** **                                                              | ** ** | **Successor**                                        | ** ** | **Predecessor**                                     | ** ** | **Successor**    | ** ** | **Predecessor** | ** ** |
|-------------------------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|------------------|------------|-----------------|------------|
| ** **                                                              | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
| ** **                                                              | ** ** | **2006**                                             | ** ** | **2005**                                            | ** ** | **2006**         | ** ** | **2005**        | ** ** |
| ** **                                                              | ** ** | **Consolidated**                                     | ** ** | **Combined**                                        | ** ** | **Consolidated** | ** ** | **Combined**    | ** ** |
| ** **                                                              |       |                                                 |       |                                                |       |             |       |            |       |
| **Combined  gross profit**                                              |       | $                                                    | 25,721     |                                                | $          | 18,950           |       | $               | 78,582     |   | $ | 61,829 |   |
| **Operating  costs and expenses not allocated to reportable segments:** |       |                                                 |       |                                                |       |             |       |            |       |
| Selling, general and administrative expenses                            |       | 10,284                                               |       | 11,644                                              |       | 30,272           |       | 29,427          |       |
| Operating expenses                                                      |       | 5,336                                                |       | 4,707                                               |       | 16,153           |       | 14,617          |       |
| Amortization expenses                                                   |       | 358                                                  |       | 406                                                 |       | 1,170            |       | 1,217           |       |
| Operating income                                                        |       | 9,743                                                |       | 2,193                                               |       | 30,987           |       | 16,568          |       |
| Interest expense                                                        |       | 3,414                                                |       | 3,191                                               |       | 7,520            |       | 7,169           |       |
| Other expense                                                           |       | —                                               |       | 1,050                                               |       | —           |       | 1,050           |       |
| Income tax expense                                                      |       | 95                                                   |       | —                                              |       | 1,065            |       | —          |       |
| **Net income (loss)**                                                   |       | $                                                    | 6,234      |                                                | $          | (2,048           | )          | $               | 22,402     |   | $ | 8,349 |   |

 

There were noforeign sales for the three and nine months ended September 30, 2006 and2005.  The Partnership has no foreignassets.

**Note 11.     CapitalExpenditures**

The Partnership’sterminalling operations require investments to expand, upgrade or enhanceexisting operations and to meet environmental and operations regulations.  The Partnership’s capital requirementsprimarily consist of maintenance capital expenditures and capital improvementexpenditures.  Maintenance capitalexpenditures represent capital expenditures to replace partially or fullydepreciated assets to maintain the operating capacity of, or sales generatedby, existing assets and extend their useful lives such as expenditures requiredto maintain equipment reliability, tankage and pipeline integrity and safety,and to address environmental regulations. Capital improvement expenditures include expenditures to acquire assetsto grow the Partnership’s business and to expand existing facilities, such asprojects that increase operating capacity by increasing tankage or addingterminals.  Repair and maintenanceexpenses associated with existing assets that are minor in nature and do notextend the useful life of existing assets are charged to operating expenses asincurred.  The Partnership incurredapproximately $0.7 million and $0.4 million in maintenance capital expendituresfor the three months ended September 30, 2006 and 2005, respectively, and $1.2million and $1.0 million for the nine months ended September 30, 2006 and 2005,respectively.

**Note 12.     RecentlyIssued Accounting Standards**

In December 2004,the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123(revised), “Share-Based Payment” (“SFAS 123 (revised)”).  This revision prescribes the accounting for awide range of equity-based compensation arrangements, including share options,restricted share plans, performance-based awards, share appreciation rights andemployee share purchase plans, and generally requires the fair value ofequity-based awards to be expensed on the income statement.  SFAS 123 (revised) allows for either modifiedprospective recognition of compensation expense or modified retrospectiverecognition.  The Partnership adoptedSFAS 123 (revised) on January 1, 2006, and the adoption of this standard didnot have a material effect on its consolidated financial statements as thereare currently no awards outstanding.

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In September 2005,the EITF issued Issue No. 04-13, “Accounting for Purchases and Sales ofInventory with the Same Counterparty” (“EITF 04-13”).  The EITF concluded that inventory purchasesand sales transactions with the same counterparty should be combined foraccounting purposes if entered into in contemplation of each other.  The EITF provided indicators to be consideredfor purposes of determining whether such transactions are entered into incontemplation of each other.  Guidancewas also provided on the circumstances under which nonmonetary exchanges ofinventory within the same line of business should be recognized at fairvalue.  The Partnership adopted EITF 04-13on April 1, 2006, and the adoption of this standard did not have a materialimpact on its consolidated financial statements.

In June 2006, theFASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes— an interpretation of FASB Statement No. 109” (“FIN 48”).  FIN 48 clarifies the accounting foruncertainty in income taxes recognized in an enterprise’s financial statementsin accordance with SFAS No. 109, “Accounting for Income Taxes.”  It also prescribes a recognition thresholdand measurement attribute for the financial statement recognition andmeasurement of a tax position taken or expected to be taken in a tax return,and it provides guidance on derecognition, classification, interest andpenalties, accounting in interim periods, disclosure and transition.  FIN 48 is effective as of the beginning ofthe first fiscal year beginning after December 15, 2006.  The Partnership does not believe adoption ofFIN 48 will have a material impact on its consolidated financial statements.

In September 2006,the FASB issued SFAS No. 157, “FairValue Measurements” (“SFAS No. 157”). This statement defines fair value, establishes guidelines for measuringfair value and requires additional disclosures regarding fair valuemeasurements.  SFAS No. 157 applies onlyto fair value measurements currently required or permitted by other accountingstandards and is expected to increase the consistency of thosemeasurements.  SFAS No. 157 is effectivefor fiscal years beginning after November 15, 2007.  The Partnership will adopt this statement onJanuary 1, 2008 and is in the process of evaluating the impact of SFAS No. 157on its consolidated financial statements.

In September 2006,the FASB issued SFAS No. 158, “Employers’ Accounting for Defined BenefitPension and Other Postretirement Plans – an amendment of FASB Statements No.87, 88, 106, and 132(R)” (“SFAS No. 158”). This statement requires the recognition of the overfunded or underfundedstatus of a defined benefit plan in the statement of financial position withthe offset recognized through comprehensive income, changes the measurementdate for defined benefit plan assets and obligations to the entity’s fiscalyear-end and requires additional disclosures. The recognition and disclosures under SFAS No. 158 are required as ofthe end of the fiscal year ending after December 15, 2006 while the newmeasurement date is effective for fiscal years ending after December 15,2008.  The Partnership is in the processof evaluating the impact of SFAS No. 158 on its consolidated financialstatements.

**Note 13.     SubsequentEvents**

As previously disclosed in a Form 8-K filed on October 24, 2006, the General Partner’s board of directors declared a quarterly cash distribution of $0.4450 per unit for the period from July 1, 2006 through September 30, 2006 ($1.78 per unit on an annualized basis).  On November 14, 2006, the Partnership will pay this cash distribution to its common and subordinated unitholders of record as of the close of business November 3, 2006.

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** **

**Item 2.        Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

The followingdiscussion and analysis of financial condition and results of operations ofGlobal Partners LP should be read in conjunction with the historicalconsolidated financial statements of Global Partners LP and the notes theretoincluded elsewhere in this Quarterly Report on Form 10-Q.

**Forward-LookingStatements**

This QuarterlyReport on Form 10-Q contains certain forward-looking statements within themeaning of the federal securities laws. These forward-looking statements are identified as any statements thatdo not relate strictly to historical or current facts and can generally beidentified by the use of forward-looking terminology including “may,” “believe,”“expect,” “anticipate,” “estimate,” “continue” or other similar words.  Such statements may discuss futureexpectations for or contain projections of results of operations, financialcondition or our ability to make distributions to unitholders or state otherforward-looking information. Forward-looking statements are not guarantees of performance.  Although we believe these forward-lookingstatements are based on reasonable assumptions, statements made regardingfuture results are subject to a number of assumptions, uncertainties and risks,many of which are beyond our control, which may cause future results to bematerially different from the results stated or implied in this document.  These risks and uncertainties include, amongother things:

·              We may not havesufficient cash from operations to enable us to pay the minimum quarterly distributionfollowing establishment of cash reserves and payment of fees and expenses,including payments to our general partner.

·              Warmerweather conditions could adversely affect our results of operations and cashavailable for distribution to our unitholders.

·              Ourrisk management policies cannot eliminate all commodity risk.  In addition, any non-compliance with our riskmanagement policies could result in significant financial losses.

·              Weare exposed to trade credit risk in the ordinary course of our businessactivities.

·              Dueto our lack of asset and geographic diversification, adverse developments inthe terminals that we use or in our operating areas could reduce our ability tomake distributions to our unitholders.

·              Weare exposed to performance risk in our supply chain.

·              Ourgeneral partner and its affiliates have conflicts of interest and limitedfiduciary duties, which may permit them to favor their own interests to thedetriment of unitholders.

·              Unitholdershave limited voting rights and are not entitled to elect our general partner orits directors or initially to remove our general partner without its consent,which could lower the trading price of our common units.

·              Unitholdersmay be required to pay taxes on their share of our income even if they do notreceive any cash distributions from us.

Additionalinformation about risks and uncertainties that could cause actual results todiffer materially from forward-looking statements is contained in Part II, Item1A, “Risk Factors.”

All forward-lookingstatements included in this Form 10-Q and all subsequent written or oralforward-looking statements attributable to us or persons acting on our behalfare expressly qualified in their entirety by these cautionary statements.  The forward-looking statements speak only asof the date made, other than as required by law, and we undertake no obligationto publicly update or revise any forward-looking statements, whether as aresult of new information, future events or otherwise.

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**Overview**

***General***

Weown, control or have access to one of the largest terminal networks of refinedpetroleum products in the Northeast.  Weare one of the largest wholesale distributors of distillates (such as homeheating oil, diesel and kerosene), gasoline and residual oil to wholesalers,retailers and commercial customers in the Northeast.  We are also one of the largest wholesalemarketers of home heating oil in New England.

Wepurchase our refined petroleum products primarily from domestic and foreign refiners,traders and producers and sell these products in two segments, Wholesale andCommercial.  Like most independentmarketers of refined petroleum products, we base our pricing on spot physicalprices and routinely use the New YorkMercantile Exchange****(“NYMEX”)or derivatives to hedge our commodity risk inherent in buying and sellingenergy commodities.  Through the use ofregulated exchanges or derivatives, we maintain a position that issubstantially balanced between purchased volumes and sales volumes or futuredelivery obligations.  We earn a marginby selling the product for physical delivery to third parties.

OnOctober 4, 2005, we closed our initial public offering of 5,635,000 commonunits (including 735,000 common units issued pursuant to the underwriters’exercise of their over-allotment option) representing a 48.9% limited partnerinterest in us.  In connection with theclosing of this offering, (1) Global Companies LLC distributed $45.3 million incash to those affiliates of the Slifka family holding 100% of the ownershipinterests in Global Companies LLC and (2) Global Petroleum Corp., Montello OilCorporation, Larea Holdings, LLC, Larea Holdings II, LLC, Chelsea TerminalLimited Partnership and Sandwich Terminal, L.L.C. contributed all of theirownership interests in Global Companies LLC and its affiliates, Glen Hes Corp.,Global Montello Group LLC and Chelsea Sandwich LLC, to us.

Proceeds from the saleof common units in the initial public offering were used in part to repay $45.3million of borrowings under our then-existing revolving credit facility and$51.0 million of outstanding indebtedness under a term loan of Global PetroleumCorp. and certain other Slifka family entities guaranteed by affiliates ofGlobal Petroleum Corp., including Global Companies LLC and its Affiliates.

***Products and Operational Structure***

Ourproducts include distillates, gasoline, residual oil and bunker fuel.  The distillates we sell are used primarilyfor space heating of residential and commercial buildings and as fuel fortrucks and off-road construction equipment. We sell unbranded gasoline, diesel and heating oil under agreements withmajor suppliers of refined petroleum products. We sell residual oil to major housing units, such as public housingauthorities, colleges and hospitals and large industrial facilities that useprocessed steam in their manufacturing processes.  We sell bunker fuel, which we can customblend, to cruise ships, bulk carriers and fishing fleets.

Ourbusiness is divided into two segments:

·              *Wholesale.*  Thissegment includes sales of distillates, unbranded gasoline and residual oil tohome heating oil retailers, retail gasoline station operators and wholesaledistributors.

·              *Commercial.*  Thissegment includes sales and deliveries of distillates, unbranded gasoline,residual oil and small amounts of natural gas to customers in the public sectorand to large commercial and industrial customers, either through a competitivebidding process or through contracts of various terms.  This segment also purchases, custom blends,sells and delivers bunker fuel and diesel to cruise ships, bulk carriers andfishing fleets delivered by bunker barges.

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Ourbusiness activities are substantially comprised of purchasing, terminalling,storing and selling refined petroleum products. We believe that the combination of our terminalling and storageactivities, together with our marketing activities, provides a balance that hasa stabilizing effect on our results of operations and cash flows.  In a contango market (when product prices forfuture deliveries are higher than for current deliveries), we may use ourstorage capacity to improve our margins by storing products we have purchasedat lower prices in the current month for delivery to customers at higher pricesin future months.  In a backwardatedmarket (when product prices for future deliveries are lower than for currentdeliveries) because of our high turnover of inventory, we are able to minimizeour inventories and commodity risk while attempting to maintain or increase netproduct margins.

***Outlook***

Thissection identifies certain risks and certain economic or industry-wide factorsthat may affect our financial performance and results of operations in thefuture, both in the short-term and in the long-term.  Our primary short-term concerns anduncertainties are as follows:

·              *As a public company, we incur significant legal, accounting and otherexpenses that we did not incur as a private company.*  Webecame a public company on September 28, 2005. Prior to that, we had no history operating as a public company.  In addition, the Sarbanes-Oxley Act of 2002,as well as new rules subsequently implemented by the Securities and ExchangeCommission and the New York Stock Exchange, has required changes in corporate governancepractices of public companies.  We arecurrently evaluating and monitoring developments with respect to these newrules, and we cannot predict or estimate the amount of additional costs we mayincur or the timing of such costs.

·              *We commit substantial resources to pursuing acquisitions, though thereis no certainty that we will successfully complete any acquisitions or receivethe economic results we anticipate from completed acquisitions.* Consistent with our business strategy, we are continuously engaged indiscussions with potential sellers of terminalling, storage and/or marketingassets and related businesses.  In aneffort to prudently and economically leverage our asset base, knowledge baseand skill sets, management has also expanded its efforts to pursue businessesthat are closely related to or significantly intertwined with our existinglines of business.  Growth in our cashflow per unit may depend on our ability to make accretive acquisitions.  We may be unable to make such accretive acquisitionsfor a number of reasons, including, but not limited to, the following:  (1) we are unable to identify attractiveacquisition candidates or negotiate acceptable purchase contracts with them;(2) we are unable to raise financing for such acquisitions on economicallyacceptable terms; or (3) we are outbid by competitors.  In addition, we may consummate acquisitions,which at the time of consummation we believe will be accretive, but whichultimately may not be accretive.  If anyof these events were to occur, our future growth would be limited.  We can give no assurance that our current orfuture acquisition efforts will be successful or that any such acquisition willbe completed on terms that are favorable to us.

Ourresults of operations and financial condition, as well as those of ourcompetitors, depend in part upon certain economic or industry-wide factors,including the following:

·              *Warmer weather conditionscould adversely affect our results of operations and financial condition. *Because we supply distributors whose customers depend on home heatingoil and residual oil for space heating purposes during the winter, weatherconditions have a significant impact on the demand for both home heating oiland residual oil.  As a result,warmer-than-normal temperatures during the first and fourth calendar quartersin one or more regions in which we operate can decrease the total volume wesell and the gross profit realized on those sales and, consequently, couldadversely affect our results of operations.

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·              *Our financial results areseasonal and generally better in the first and fourth quarters of the calendaryear. *Demand for some of our refined petroleum products, specifically homeheating oil and residual oil for space heating purposes, is generally higherduring November through March than during April through October.  We obtain a significant portion of our salesduring these winter months.  Therefore,our results of operations for the first and fourth calendar quarters aregenerally better than for the second and third quarters.  With lower cash flow during the second andthird calendar quarters, we may be required to borrow money in order to pay theminimum quarterly distribution to our unitholders.

·              *Energy efficiency, newtechnology and alternative fuels, natural gas in particular, could reducedemand for our products.*  Increased conservation and technologicaladvances have adversely affected the demand for home heating oil and residualoil.  Consumption of residual oil hassteadily declined over the last three decades. We could face additional competition from alternative energy sources asa result of future government-mandated controls or regulation further promotingthe use of cleaner fuels.  Due in part tosupport for conversion to natural gas on environmental grounds, some industrialresidual oil users have switched to natural gas.  Those end users who are dual-fuel users havethe ability to switch between residual oil and natural gas.  During a period of increasing residual oilprices relative to the prices of natural gas, dual-fuel customers may switch tonatural gas, or over the long-term, may convert to natural gas.  Such switching or conversion could have anadverse effect on our results of operations and financial condition.

·              *New, stricter environmental lawsand regulations could significantly increase our costs, which could adverselyaffect our results of operations and financial condition.*  Ouroperations are subject to federal, state and local laws and regulationsregulating product quality specifications and other environmental matters.  The trend in environmental regulation istowards more restrictions and limitations on activities that may affect theenvironment.  Our business may beadversely affected by increased costs and liabilities resulting from suchstricter laws and regulations.  We try toanticipate future regulatory requirements that might be imposed and to planaccordingly to remain in compliance with changing environmental laws andregulations and to minimize the costs of such compliance.  However, there can be no assurances as to thetiming and type of such changes in existing laws or the promulgation of newlaws or the amount of any required expenditures associated therewith.

·              *Consolidation of the NewEngland supply network.*  In recent years, major terminals have beenacquired and their former owners have reduced or eliminated operations in thewholesale market.  The largest terminals,which form the core of the region’s supply network, are still operating but areowned by fewer companies.

**Resultsof Operations**

***Evaluating Our Results of Operations***

Our management uses avariety of financial and operational measurements to analyze ourperformance.  Thesemeasurements include: (1) net product margin, (2) gross profit, (3) selling,general and administrative expenses (“SG&A”), (4) operating expenses, (5)heating degree days, (6) adjusted net income per diluted limited partner unit,(7) earnings before interest, taxes, depreciation and amortization (“EBITDA”)and (8) distributable cash flow.

*Net Product Margin*

Weview net product margin as an important performance measure of the coreprofitability of our operations.  Wereview net product margin monthly for consistency and trend analysis.  We define net product margin as our salesminus product costs.  Sales include salesof distillates, unbranded gasoline, residual oil and bunker fuel and naturalgas.  Product costs include the cost ofacquiring the refined petroleum products that we sell and all associated costsincluding shipping and handling costs to bring such products to the point ofsale.

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*GrossProfit*

Wedefine gross profit as our sales minus product costs and terminal depreciationexpense allocated to cost of sales. Sales include sales of distillates, unbranded gasoline, residual oil andbunker fuel and natural gas.  Productcosts include the cost of acquiring the refined petroleum products that we selland all associated costs to bring such products to the point of sale.

*Selling, General and Administrative Expenses*

OurSG&A expenses include marketing costs, corporate overhead, employeesalaries and benefits, pension and 401(k) plan expenses, discretionary bonuses,non-interest financing costs, professional fees and information technologyexpenses.  Employee-related expensesincluding employee salaries, discretionary bonuses and related payroll taxes,and benefits, pension and 401(k) plan expenses are paid by our general partnerwhich, in turn, is reimbursed for these expenses by us.  We incur additional expenses related to beinga public company, most of which are the result of increased accounting andlegal expenses.

*Operating Expenses*

Operatingexpenses are costs associated with the operation of the terminals used in ourbusiness.  Lease payments and storage expenses,maintenance and repair, utilities, taxes, labor and labor-related expensescomprise the most significant portion of our operating expenses.  These expenses remain relatively stableindependent of the volumes through our system but fluctuate slightly dependingon the activities performed during a specific period.

*Degree Day*

A“degree day” is an industry measurement of temperature designed to evaluateenergy demand and consumption.  Degreedays are based on how far the average temperature departs from a human comfortlevel of 65°F.  Each degree oftemperature above 65°F is counted as one cooling degree day, and each degree oftemperature below 65°F is counted as one heating degree day.  Degree days are accumulated each day over thecourse 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 thanusual.  Degree days are officiallyobserved by the National Weather Service and officially archived by theNational Climatic Data Center.  Forpurposes of evaluating our results of operations, we use the normal heatingdegree day amount as reported by the National Weather Service at its LoganInternational Airport station in Boston, Massachusetts.

*AdjustedNet Income Per Diluted Limited Partner Unit*

Net income perdiluted limited partner unit as dictated by EITF 03-06 is theoretical and proforma in nature and does not reflect the economic probabilities of whetherearnings for an accounting period would or could be distributed tounitholders.  The partnership agreementdoes not provide for the quarterly distribution of net income, rather, itprovides for the distribution of available cash, which is a contractuallydefined term that generally means all cash on hand at the end of each quarterafter establishment of sufficient cash reserves required to operate ourbusiness in a prudent manner. Accordingly, the distributions we historically paid and will pay infuture periods are not impacted by net income per diluted limited partner unitas dictated by EITF 03-06.  We useadjusted net income per diluted limited partner unit to measure our financialperformance on a per-unit basis. Adjusted net income per diluted limited partner unit is defined as netincome after adding back the theoretical amount allocated to the generalpartner’s interest as provided under EITF 03-06, divided by the weightedaverage number of outstanding diluted limited partner units during the period.

*EBITDA*

EBITDAis used as a supplemental financial measure by management and by external usersof our financial statements, such as investors, commercial banks and researchanalysts, to assess:

·              our compliance with certain financialcovenants included in our debt agreements;

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

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

·              our operating performance and return oninvested capital as compared to those of other companies in the wholesalemarketing and distribution of refined petroleum products business, withoutregard to financing methods and capital structure; and

·              the viability of acquisitions and capitalexpenditure projects and the overall rates of return of alternative investmentopportunities.

EBITDA should not be considered analternative to net income, operating income, cash flow from operatingactivities or any other measure of financial performance or liquidity presentedin accordance with GAAP.  EBITDA excludessome, but not all, items that affect net income and operating income, and thesemeasures may vary among other companies. Therefore, EBITDA as presented below may not be comparable to similarlytitled measures of other companies.

*Distributable Cash Flow*

Distributable cash flow also is animportant non-GAAP financial measure for our limited partners since it servesas an indicator of our success in providing a cash return on theirinvestment.  Specifically, this financialmeasure indicates to investors whether or not we are generating cash flows at alevel that can sustain or support an increase in our quarterly cashdistribution.  Distributable cash flow isalso a quantitative standard used by the investment community with respect topublicly traded partnerships.  However,distributable cash flow is not a generally accepted accounting principlefinancial measure and should not be considered as an alternative to net income,cash flow from operations, or any other measure of financial performancepresented in accordance with accounting principles generally accepted in theUnited States.  In addition, ourdistributable cash flow may not be comparable to distributable cash flow orsimilarly titled measures of other companies. The generally accepted accounting measures most directly comparable todistributable cash flow are net income and cash flow from operating activities.

***Three Months Ended September 30, 2006 and 2005;Nine Months Ended September 30, 2006 and 2005***

***Duringthe third quarter and the nine months ended September 30, 2006, we experiencedincreases in gross profits and net product margins across both our Wholesaleand Commercial segments.  Commodityprices rose throughout most of the nine months ended September 30, 2006.  Temperatures were 22% warmer and 7% warmerthan normal for the three and nine months ended September 30, 2006,respectively, as measured by aggregate heating degree days.***

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Thefollowing table provides a summary of some of the key performance indicatorsthat may be used to assess our results of operations.  These comparisons are not necessarilyindicative of future results (dollars in thousands, except per unit data):
| ** **                                                | ** ** | **Successor**                    | ** ** | **Predecessor**                 | ** ** | **Successor**    | ** ** | **Predecessor** | ** ** |
|-----------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|------------------|------------|-----------------|------------|
| ** **                                                | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
| ** **                                                | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                                                | ** ** | **2006**                         | ** ** | **2005**                        | ** ** | **2006**         | ** ** | **2005**        | ** ** |
| ** **                                                | ** ** | **Consolidated**                 | ** ** | **Combined**                    | ** ** | **Consolidated** | ** ** | **Combined**    | ** ** |
|                                                      |       |                             |       |                            |       |             |       |            |       |
| Adjusted net  income per diluted limited partner unit (1) |       | $                                | 0.54       |                            | $          | —           |       | $               | 1.95       |   | $ | — |   |
|                                                      |       |                             |       |                            |       |             |       |            |       |
| EBITDA (2)                                                |       | $                                | 10,870     |                            | $          | 2,192            |       | $               | 34,274     |   | $ | 18,794 |   |
|                                                      |       |                             |       |                            |       |             |       |            |       |
| Distributable  cash flow (3)                              |       | $                                | 6,669      |                            | $          | —           |       | $               | 24,482     |   | $ | — |   |
|                                                      |       |                             |       |                            |       |             |       |            |       |
| **Wholesale  Segment:**                                   |       |                             |       |                            |       |             |       |            |       |
| Volume (gallons)                                          |       | 469,737                          |       | 425,080                         |       | 1,620,308        |       | 1,638,608       |       |
| Sales                                                     |       | $                                | 927,749    |                            | $          | 776,664          |       | $               | 3,075,529  |   | $ | 2,488,010 |   |
| Net product margin (4)                                    |       |                             |       |                            |       |             |       |            |       |
| Distillates                                               |       | 11,873                           |       | 8,016                           |       | 37,462           |       | 25,096          |       |
| Gasoline                                                  |       | 8,003                            |       | 4,797                           |       | 18,405           |       | 11,941          |       |
| Residual oil                                              |       | 3,536                            |       | 4,285                           |       | 13,456           |       | 16,723          |       |
| Total                                                     |       | $                                | 23,412     |                            | $          | 17,098           |       | $               | 69,323     |   | $ | 53,760 |   |
| **Commercial  Segment:**                                  |       |                             |       |                            |       |             |       |            |       |
| Volume (gallons)                                          |       | 48,282                           |       | 62,088                          |       | 214,589          |       | 263,265         |       |
| Sales                                                     |       | $                                | 68,085     |                            | $          | 78,189           |       | $               | 302,681    |   | $ | 282,119 |   |
| Net product margin (4)                                    |       | 2,821                            |       | 2,268                           |       | 10,601           |       | 9,310           |       |
| **Combined  sales and net product margin:**               |       |                             |       |                            |       |             |       |            |       |
| Sales                                                     |       | $                                | 995,834    |                            | $          | 854,853          |       | $               | 3,378,210  |   | $ | 2,770,129 |   |
| Net product margin (4)                                    |       | 26,233                           |       | 19,366                          |       | 79,924           |       | 63,070          |       |
| Depreciation allocated to cost of sales                   |       | 512                              |       | 416                             |       | 1,342            |       | 1,241           |       |
| **Combined  gross profit**                                |       | $                                | 25,721     |                            | $          | 18,950           |       | $               | 78,582     |   | $ | 61,829 |   |
|                                                      |       |                             |       |                            |       |             |       |            |       |
| **Weather  conditions:**                                  | ** ** | ** **                       | ** ** | ** **                      | ** ** | ** **       | ** ** | ** **      | ** ** |
| Normal heating  degree days                               |       | 96                               |       | 96                              |       | 3,750            |       | 3,750           |       |
| Actual heating  degree days                               |       | 75                               |       | 42                              |       | 3,472            |       | 3,985           |       |
| Variance from  normal heating degree days                 |       | (21.9                            | )%         | (56.3                           | )%         | (7.4             | )%         | 6.3             | %          |
| Variance from prior  period actual heating degree days    |       | 78.6                             | %          | (34.4                           | )%         | (12.9            | )%         | 3.1             | %          |

 

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(1)    Adjusted net income per diluted limitedpartner unit is a non-GAAP financial measure which is discussed above under “EvaluatingOur Operating Results.”  The table belowpresents a reconciliation of adjusted net income per diluted limited partnerunit to the most directly comparable GAAP financial measure.

(2)    EBITDA is a non-GAAP financial measure whichis discussed above under “Evaluating Our Operating Results.”  The table below presents a reconciliation ofEBITDA to the most directly comparable GAAP financial measures.

(3)    Distributable cash flow is a non-GAAPfinancial measure which is discussed above under “Evaluating Our OperatingResults.”  On October 4, 2005, wecompleted our IPO.  Accordingly,distributable cash flow is presented for the three and nine months ended September30, 2006.  The table below presents areconciliation of distributable cash flow to the most directly comparable GAAPfinancial measure.

(4)    Net product margin is a supplementalnon-GAAP financial measure used by management and external users of our financialstatements to assess product costs associated with our business.  The table above reconciles net product marginon a combined basis to gross profit, a directly comparable GAAP measure.

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The following table presents a reconciliation ofadjusted net income per diluted limited partner unit to the most directlycomparable GAAP financial measure on a historical basis for the three and ninemonths ended September 30, 2006:
|                                                                                                                              | ** ** | **Three Months  Ended   September 30,  2006** | ** ** | **Nine Months  Ended   September 30,  2006** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| **Reconciliation  of net income per diluted limited partner unit to adjusted net income per  diluted limited partner unit:** |       |                                                         |       |                                                        |       |
| Net income per diluted limited partner unit under  EITF 03-06                                                                |       | $                                                            | 0.53       |                                                        | $          | 1.68 |   |
| Dilutive impact of theoretical distribution of  earnings                                                                     |       | 0.01                                                         |       | 0.27                                                        |       |
| Adjusted net  income per diluted limited partner unit                                                                        |       | $                                                            | 0.54       |                                                        | $          | 1.95 |   |

 

The followingtable presents a reconciliation of EBITDA to the most directly comparable GAAPfinancial measures on a historical basis for each of the periods indicated (inthousands):
| ** **                                                               | ** ** | **Successor**                                        | ** **   | **Predecessor**                                     | ** **   | **Successor**    | ** ** | **Predecessor** | ** ** |
|--------------------------------------------------------------------------|------------|------------------------------------------------------|--------------|-----------------------------------------------------|--------------|------------------|------------|-----------------|------------|
| ** **                                                               | ** ** | **Three Months Ended  September 30,** | *** *** | **Nine Months Ended  September 30,** | *** *** |
| ** **                                                               | ** ** | **2006**                                             | ** **   | **2005**                                            | ** **   | **2006**         | ** ** | **2005**        | ** ** |
| ** **                                                               | ** ** | **Consolidated**                                     | ** **   | **Combined**                                        | ** **   | **Consolidated** | ** ** | **Combined**    | ** ** |
| **Reconciliation  of net income (loss) to EBITDA:**                      |       |                                                 |         |                                                |         |             |       |            |       |
| Net income (loss)                                                        |       | $                                                    | 6,234        |                                                | $            | (2,048           | )          | $               | 22,402     |   | $ | 8,349 |   |
| Add:                                                                     |       |                                                 |         |                                                |         |             |       |            |       |
| Depreciation and amortization                                            |       | 1,127                                                |         | 1,049                                               |         | 3,287            |       | 3,276           |       |
| Interest expense                                                         |       | 3,414                                                |         | 3,191                                               |         | 7,520            |       | 7,169           |       |
| Income tax expense                                                       |       | 95                                                   |         | —                                              |         | 1,065            |       | —          |       |
| EBITDA                                                                   |       | $                                                    | 10,870       |                                                | $            | 2,192            |       | $               | 34,274     |   | $ | 18,794 |   |
|                                                                     |       |                                                 |         |                                                |         |             |       |            |       |
| **Reconciliation  of cash flow used in operating activities to EBITDA:** |       |                                                 |         |                                                |         |             |       |            |       |
| Cash flow used in operating activities                                   |       | $                                                    | (64,121      | )                                                   | $            | (43,337          | )          | $               | (51,882    | ) | $ | (2,376 | ) |
| Increase in operating assets and liabilities                             |       | 71,482                                               |         | 42,338                                              |         | 77,571           |       | 14,001          |       |
| Interest expense                                                         |       | 3,414                                                |         | 3,191                                               |         | 7,520            |       | 7,169           |       |
| Income tax expense                                                       |       | 95                                                   |         | —                                              |         | 1,065            |       | —          |       |
| EBITDA                                                                   |       | $                                                    | 10,870       |                                                | $            | 2,192            |       | $               | 34,274     |   | $ | 18,794 |   |

 

The following presents reconciliations ofdistributable cash flow to the most directly comparable GAAP financial measureson a historical basis for the three and nine months ended September 30, 2006(in thousands):
|                                                                                           | ** ** | **Three Months  Ended  September 30,  2006** | ** ** | **Nine Months  Ended   September 30,  2006** | ** ** |
|-------------------------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| **Reconciliation  of net income to distributable cash flow:**                             |       |                                                   |       |                                                        |       |
| Net income                                                                                |       | $                                                      | 6,234      |                                                        | $          | 22,402 |   |
| Depreciation and amortization                                                             |       | 1,127                                                  |       | 3,287                                                       |       |
| Maintenance capital expenditures                                                          |       | (692                                                   | )          | (1,207                                                      | )          |
| Distributable cash flow                                                                   |       | $                                                      | 6,669      |                                                        | $          | 24,482 |   |
| **Reconciliation  of cash flow used in operating activities to distributable cash flow:** |       |                                                   |       |                                                        |       |
| Cash flow used in operating activities                                                    |       | $                                                      | (64,121    | )                                                           | $          | (51,882 | ) |
| Increase in operating assets and liabilities                                              |       | 71,482                                                 |       | 77,571                                                      |       |
| Maintenance capital expenditures                                                          |       | (692                                                   | )          | (1,207                                                      | )          |
| Distributable  cash flow                                                                  |       | $                                                      | 6,669      |                                                        | $          | 24,482 |   |

*** ***

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***ConsolidatedResults***

Ourtotal sales for the third quarter of 2006 increased $141.0 million, or 16%, to$995.8 million compared to $854.9 million for the same period in 2005.  Theincrease was driven by higher refined petroleum product prices and an increaseof approximately 30 million gallons, or 6%, to 518 million gallons in aggregatevolume of product sold.  The increase inaggregate volume sold primarily includes increases of 27 million and 13 milliongallons in distillates and gasoline, respectively, offset by a 7 million gallondecrease in residual oil.  The number ofactual heating degree days increased 79% to 75 compared to 42 for the quartersended September 30, 2006 and 2005, respectively.  Our gross profit for the three monthsended September 30, 2006 was $25.7 million, an increase of $6.8 million, or36%, compared to $19.0 million for the same period in 2005.

Ourtotal sales for the nine months ended September 30, 2006 increased $608.1million, or 22%, to $3,378.2 million compared to $2,770.1 million for the sameperiod in 2005.  The increase was due to higher refined petroleum product prices despite adecrease of approximately 67 million gallons, or 4%, to 1,835 million gallonsin aggregate volume of product sold for the nine months ended September 30,2006 compared to the same period in 2005. The decrease in aggregate volume sold was primarily attributable todecreases of 78 million and 25 million gallons in distillates and residual oil,respectively, offset by a 36 million gallon increase in gasoline.  The number of actual heating degree daysdeclined 13% to 3,472 compared to 3,985 for the nine months ended September 30,2006 and 2005, respectively.  Our grossprofit for the nine months ended September 30, 2006 was $78.6 million, anincrease of $16.8 million, or 27%, compared to $61.8 million for the sameperiod in 2005.  The increases in ourgross profits for the three and nine months ended September 30, 2006 were primarilydue to higher net product margins in our Wholesale and Commercial segments.

*Wholesale Segment*

Distillates.  Wholesale distillate sales for the threemonths ended September 30, 2006 increased $85.1 million, or 25%, to $421.3million from $336.2 million for three months ended September 30, 2005 due tohigher distillate prices and an increase of 15% in distillate volume sold.  During the first nine months of 2006,wholesale distillate sales were $1,706.1 million compared to $1,458.1 millionfor the same period in 2005.  Theincrease of $248.0 million, or 17%, was due to higher distillate prices despite a decrease of 7% in distillate volume sold forthe nine months ended September 30, 2006 compared to the same period in2005.  We attribute the decrease involume sold to the expiration of supply contracts in the ordinary course of businessand a reduction in bulk sales transactions to local competitors.

Our net product margin contribution from distillatesales increased $3.9 million, or 48%, to $11.9 million and $12.4 million, or49%, to $37.5 million for the three and nine months ended September 30, 2006,respectively, compared to the same periods in 2005.  These increases were, in part, the result ofour ability to pass through to customers our increased costs related to sales.

Gasoline.  Wholesale gasoline sales for the three monthsended September 30, 2006 were $482.0 million compared to $419.3 million for thethree months ended September 30, 2005. During the first nine months of 2006, wholesale gasoline sales were$1,286.3 million compared to $979.7 million for the same period in 2005.  The increasesof $62.7 million, or 15%, and $306.6 million, or 31%, for the three and ninemonths ended September 30, 2006, respectively, were due to higher gasoline prices and an increase of 6% involume sold for each of the respective periods.

Ournet product margin from gasoline sales increased$3.2 million, or 67%, to $8.0 million and $6.5 million, or 54%, to $18.4million for the three and nine months ended September 30, 2006, respectively,compared to the same periods in 2005.  Weattribute these increases in netproduct margin to increases in our volume of sales as well as sales to highermargin customers.

ResidualOil.  Wholesale residualoil sales for the three months ended September 30, 2006 were $24.5 millioncompared to $21.2 million for the three months ended September 30, 2005.  During the first nine months of 2006,residual oil sales were $83.1 million compared to $50.2 million for the sameperiod in 2005.  The increases of $3.3million, or 16%, and $32.9 million, or 65%, for the three and nine months endedSeptember 30, 2006, respectively, were the result of higher residual oil prices and increases of 22% and38% in residual oil volume sold for the respective periods.

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Our net product margin contribution fromresidual oil sales decreased $0.7 million, or 17%, to $3.5 million for thethree months ended September 30, 2006 and $3.3 million, or 20%, to $13.5million for the nine months ended September 30, 2006, primarily due to a perunit margin reduction.

*Commercial Segment*

Inour Commercial segment, residual oil accounted for approximately 71% and 84% oftotal volume sold for the three months ended September 30, 2006 and 2005,respectively, and approximately 80% and 84% of total volume sold for the ninemonths ended September 30, 2006 and 2005, respectively.  Distillates, gasoline and natural gasaccounted for the remainder of the total volume sold.

Commercialresidual oil sales for the quarter ended September 30, 2006 decreased 42%compared to the same period in 2005 due to a 45% decrease in volume sold.  For the nine months ended September 30, 2006,residual oil sales decreased $8.8 million, or 6%, compared to the same periodin 2005 due to a 29% decrease in volume sold. We attribute the decreases in volume sold to the closure of plantsand/or reductions in production by certain cyclical industry participants inour territory and competitive pricing from natural gas.

*Selling,General and Administrative*

SG&Aexpenses decreased $1.4 million, or 12%, to $10.3 million for the three monthsended September 30, 2006 compared to $11.6 million for the same period in2005.  During the third quarter of 2005,we paid $3.1 million in bonuses to certain officers and employees in connectionwith the IPO.  During the third quarterof 2006, we had increases in accrued bonuses of $0.5 million, legal fees of$0.1 million and expenses associated with becoming a public company, includingincreased expenses in audit and tax review fees of approximately $0.6 million,director and officer insurance and fees of $0.2 million and Sarbanes-Oxley 404compliance of $0.1 million.

Duringthe nine months ended September 30, 2006, SG&A expenses increased $0.8million, or 3%, to $30.3 million compared to $29.4 million for the same periodin 2005.  During the third quarter 2005,we paid $3.1 million in bonuses to certain officers and employees in connectionwith the IPO.  During the first ninemonths of 2006, we had increases in accrued bonuses of $0.9 million, legal feesof $0.1 million, insurance related fees of $0.2 million and expenses associatedwith becoming a public company, including increased expenses in audit and taxreview fees of approximately $1.3 million, director and officer insurance andfees of $0.5 million, Schedule K-1 preparation and distribution expenses of$0.3 million and Sarbanes-Oxley 404 compliance, planning and documentation of$0.6 million.

*Operating Expenses*

Operatingexpenses increased $0.6 million, or 13%, to $5.3 million for the three monthsended September 30, 2006 compared to $4.7 million for the same period in2005.  The increase was primarily due toa $0.3 million increase in rent for additional tankage at the Capitol Terminalin East Providence, Rhode Island, and $0.4 million in operating costsassociated with the 2006 acquisitions of the Bridgeport, Connecticut, andMacungie, Pennsylvania, facilities.

Operatingexpenses for the nine months ended September 30, 2006 increased $1.5 million,or 11%, to $16.2 million compared to $14.6 million for the same period in2005.  The increase was primarily due topipeline repair expenses of $0.3 million and other repair and maintenanceexpenses of $0.1 million at the terminal in Chelsea, Massachusetts, a $0.6million increase in rent for additional tankage at the Capitol Terminal in EastProvidence, Rhode Island, $0.1 million in costs in connection with theexpiration of the New Bedford, Massachusetts, terminal lease and $0.4 millionin operating costs associated with the 2006 acquisitions of the Bridgeport,Connecticut, and Macungie, Pennsylvania, facilities.

*Amortizationexpense*

Amortizationexpense was $0.4 million for each of the three months ended September 30, 2006and 2005 and $1.2 million for each of the nine months ended September 30, 2006and 2005.

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***Interest expense***

***Interest expense for the three monthsended September 30, 2006 increased $0.2 million, or 7%, to $3.4 millioncompared to $3.2 million for the same period in 2005.  Interest expense for the nine months endedSeptember 30, 2006 increased $0.3 million, or 5%, to $7.5 million compared to$7.2 million for the same period in 2005. We attribute these***increases to a rise in the market prices throughoutmost of 2006 for purchases of products and the resulting increased costs ofcarrying inventory and accounts receivable.

***Other expense***

***Other expense for the three and ninemonths ended September 30, 2005 represented a split dollar life insurancepolicy that was surrendered when the cash value of the policy was less than theamount of premiums paid, resulting in a loss of $1.1 million.***

**Liquidityand Capital Resources**

***Liquidity***

Our primaryliquidity needs are to fund our capital expenditures and our working capitalrequirements.  Cash generated fromoperations and our working capital revolving credit facility provides ourprimary sources of liquidity.  Workingcapital was $306.8 million at September 30, 2006 compared to $228.7 million atDecember 31, 2005.

***Capital Expenditures***

Our terminallingoperations require investments to expand, upgrade or enhance existingoperations and to meet environmental and operations regulations.  Our capital requirements primarily consist ofmaintenance capital expenditures and capital improvement expenditures.  Maintenance capital expenditures representcapital expenditures to replace partially or fully depreciated assets tomaintain the operating capacity of, or sales generated by, existing assets andextend their useful lives, such as expenditures required to maintain equipmentreliability, tankage and pipeline integrity and safety, and to addressenvironmental regulations.  We hadapproximately $0.7 million and $0.4 million in maintenance capital expendituresfor the three months ended September 30, 2006 and 2005, respectively, and $1.2million and $1.0 million for the nine months ended September 30, 2006 and 2005,respectively.

Capitalimprovement expenditures include expenditures to acquire assets to grow ourbusiness and to expand existing facilities, such as projects that increaseoperating capacity by increasing tankage or adding terminals.  We had approximately $4.8 million and $9.8 millionin capital improvement expenditures for the three and nine months endedSeptember 30, 2006, respectively, to increase operating capacity andcapabilities.  In May of 2006, weacquired the Bridgeport, Connecticut facility for approximately $2.4 million,and in September of 2006, we acquired the Macungie, Pennsylvania facility forapproximately $4.1 million.  We did notincur capital improvement expenditures for the three and nine months endedSeptember 30, 2005.  Repair andmaintenance expenses associated with existing assets that are minor in natureand do not extend the useful life of existing assets are charged to operatingexpenses as incurred.

We anticipate thatsuch maintenance capital expenditures will be funded with cash generated byoperations.  We believe that we havesufficient liquid assets, cash flow from operations and borrowing capacityunder our credit agreement to meet our financial commitments, debt serviceobligations, contingencies and anticipated capital expenditures.  However, we are subject to business andoperational risks that could adversely affect our cash flow.  A material decrease in our cash flows wouldlikely produce a corollary adverse effect on our borrowing capacity.

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***Cash Flow***

The followingtable summarizes cash flow activity (in thousands):
|                                            | ** ** | **Successor**                                       | ** ** | **Predecessor** | ** ** |
|--------------------------------------------|------------|-----------------------------------------------------|------------|-----------------|------------|
| ** **                                 | ** ** | **Nine Months Ended  September 30,** | ** ** |
| ** **                                 | ** ** | **2006**                                            | ** ** | **2005**        | ** ** |
| ** **                                 | ** ** | **Consolidated**                                    | ** ** | **Combined**    | ** ** |
| ** **                                 |       |                                                |       |            |       |
| Net cash used in  operating activities     |       | $                                                   | (51,882    | )               | $          | (2,376 | ) |
| Net cash used in  investing activities     |       | $                                                   | (11,050    | )               | $          | (893 | ) |
| Net cash provided by  financing activities |       | $                                                   | 63,214     |            | $          | 8,699 |   |

 

Net cash used inoperating activities increased $49.5 million to $51.9 million for the ninemonths ended September 30, 2006 from $2.4 million for the nine months endedSeptember 30, 2005.  Net income increased$14.1 million to $22.4 million for the nine months ended September 30, 2006from $8.3 million for the nine months ended September 30, 2005.  Cash flow from operating activities generallyincreases during the second and third quarters of the calendar year as accountsreceivable, accounts payable and inventories contract as we continue operatingduring those quarters when sales from heat-based products are typicallylower.  Because of fluctuations in theprice of petroleum products for the nine months ended September 30, 2006, weelected to use our storage capacity to maintain inventories of petroleumproducts that were similar to the inventories maintained as of September 30,2005.  In addition, because offluctuations in the price of petroleum products, we used cash to fund thechange in the fair value of our forward fixed purchase and sale contracts.

Net cash used ininvesting activities increased $10.2 million to $11.1 million for the ninemonths ended September 30, 2006 from $0.9 million for the same period in2005.  The increase is primarilyattributable to $6.5 million in cash used to acquire our Bridgeport, Connecticut,and Macungie, Pennsylvania, terminals and $3.3 million and $1.2 million in cashused for capital improvement expenditures and maintenance capital expenditures,respectively, for the nine months ended September 30, 2006.

Net cash providedby financing activities increased $54.5 million to $63.2 million for the ninemonths ended September 30, 2006 from $8.7 million for the same period in2005.  For the nine months endedSeptember 30, 2006, we paid cash distributions of $14.7 million to our commonand subordinated unitholders and had proceeds of $78.1 million from ofour revolving credit facility to finance business operations.  In comparison, for the nine months endedSeptember 30, 2005, we paid cash distributions of $11.9 million to members ofthe Predecessor and had proceeds of $20.8 million from our credit facility.

***Credit Agreement***

In November 2005,we, our general partner, our operating company and our operating subsidiariesamended our four-year senior secured credit agreement to increase total availablecommitments thereunder from $400.0 million to $500.0 million.  In August 2006, the Credit Agreement wasamended to increase the permanent working capital revolving credit facilitycommitment by $100.0 million for total available commitments of $600.0million.  As of September 30, 2006, wehad borrowings outstanding under our working capital revolving credit facilityof $259.7 million and outstanding letters of credit of $67.5 million, for atotal indebtedness of $327.2 million. The total remaining availability for borrowings and letters of credit atSeptember 30, 2006 was $172.8 million, which includes the $35.0 millionacquisition facility and the $15.0 million revolving credit facility andexcludes the two $50.0 million seasonal overline facilities the Partnership didnot exercise as of September 30, 2006.

The creditfacilities are available to fund working capital, make acquisitions and providepayment for general partnership purposes. There are three facilities under ourcredit agreement:

·              a working capitalrevolving credit facility to be used for working capital purposes and lettersof credit in the principal amount equal to the lesser of our borrowing base and$550.0 million, of which two $50.0 million seasonal overline facilities areavailable each year only during the period between September 1st and June 30th;

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·              a $35.0 millionacquisition facility to be used for funding acquisitions similar to ourbusiness line that have a purchase price of $25.0 million or less or $35.0million or less in the aggregate in any 12-month period; and

·              a $15.0 millionrevolving credit facility to be used for general purposes, including payment ofdistributions to our unitholders.

Our obligationsunder the credit agreement are secured by substantially all of our assets andthe assets of our operating company and operating subsidiaries.

Indebtedness underthe credit agreement is guaranteed by our general partner.  Pursuant to the agreement, interest onborrowings under our working capital revolving credit, acquisition credit, andrevolving credit facilities is payable at our option at:  (1) the Eurodollar rate, plus 1%, 13⁄4% and 11⁄2%, respectively, (2) the cost of funds rate,****plus1%, 13⁄4% and 11⁄2 %, respectively**,** or (3) thebank’s base rate (the average rates for the three and nine months endedSeptember 30, 2006 were approximately 6.3% and 5.9%, respectively).  We incur a letter of credit fee of 1% perannum for each letter of credit issued. In addition, we incur a commitment fee on the unused portion of the threefacilities (including any seasonal overline facility exercised by us) under thecredit agreement at a rate of 25 basis points per annum, a facility fee of 10basis points per annum on any unexercised seasonal overline facility during theperiod between September 1st and June 30th, and a seasonal overline feeof $30,000 each time we elect to exercise either of the seasonal overlinefacilities.  The credit agreement willmature in October of 2009.  At that time,the credit agreement will terminate and all outstanding amounts thereunder willbe due and payable, unless the credit agreement is amended.

The creditagreement prohibits us from making distributions to unitholders if anypotential default or event of default, as defined in the credit agreement,occurs or would result from the distribution. In addition, the credit agreement contains various covenants that maylimit, among other things, our ability to:

·              grant liens;

·              make certain loansor investments;

·              incur additionalindebtedness or guarantee other indebtedness;

·              make any materialchange to the nature of our business or undergo a fundamental change;

·              make any materialdispositions;

·              acquire anothercompany;

·              enter into a merger,consolidation, sale leaseback transaction or purchase of assets;

·              make distributionsif any potential default or event of default occurs; or

·              make capitalexpenditures in excess of specified levels.

The credit agreement also contains financial covenantsrequiring us to maintain:

·              minimum workingcapital of $25.0 million through March 31, 2006 and $30.0 million thereafter;

·              minimum EBITDA (asdefined in the credit agreement) of $20.0 million;

·              a minimum EBITDAless capital expenditures to interest coverage ratio of 2.75 to 1; and

·              amaximum leverage to minimum EBITDA ratio of 2.5 to 1 with respect to theaggregate amount of borrowings outstanding under the $15.0 million revolvingcredit facility and the $35.0 million acquisition facility and other fundedindebtedness.

If an event ofdefault exists under the credit agreement, the lenders are able to acceleratethe maturity of the credit agreement and exercise other rights andremedies.  Each of the following could bean event of default:

·              failure to pay anyprincipal when due or any interest, fees or other amounts when due;

·              failure of anyrepresentation or warranty to be true and correct in any material respect;

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·              failure to performor otherwise comply with the covenants in the credit agreement or in other loandocuments to which we are a borrower;

·              any default in theperformance of any obligation or condition beyond the applicable grace periodrelating to any other indebtedness of more than $2.0 million if the effect ofthe default is to permit or cause the acceleration of the indebtedness;

·              a judgment defaultfor monetary judgments exceeding $2.0 million or a default under anynonmonetary judgment if such default could have a material adverse effect onus;

·              a change inmanagement or ownership control; and

·              anERISA violation or a bankruptcy or insolvency event involving us, our generalpartner or any of our subsidiaries.

The creditagreement limits distributions to our unitholders to available cash, andborrowings to fund such distributions are only permitted under the $15.0million revolving credit facility.  The$15.0 million revolving credit facility is subject to an annual “clean-down”period, requiring us to reduce the amount outstanding under the $15.0 millionrevolving credit facility to $0 for 30 consecutive calendar days in eachcalendar year.

***Off-Balance Sheet Arrangements***

We have nooff-balance sheet arrangements.

**Critical Accounting Policies and Estimates**

Management’sDiscussion and Analysis of Financial Condition and Results of Operationsdiscusses our consolidated/combined financial statements, which have beenprepared in accordance with GAAP.  Thepreparation of these financial statements requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities andthe disclosure of contingent assets and liabilities at the date of thefinancial statements and the reported amounts of revenues and expenses duringthe reporting period.  Actual results maydiffer from these estimates under different assumptions or conditions.

These estimatesare based on our knowledge and understanding of current conditions and actionsthat we may take in the future.  Changesin these estimates will occur as a result of the passage of time and theoccurrence of future events.  We haveidentified the following estimates that, in our opinion, are subjective innature, require the exercise of judgment, and involve complex analysis:  inventory, leases, revenue recognition,derivative financial instruments and environmental and other liabilities.

The significantaccounting policies and estimates that we have adopted and followed in thepreparation of our consolidated/combined financial statements are detailed inItem 7, “Management’s Discussion and Analysis of Financial Condition andResults of Operations – Critical Accounting Policies and Estimates” and Note 2of Notes to Financial Statements, “Summary of Significant Accounting Policies”included in our Annual Report on Form 10-K for the fiscal year ended December31, 2005.  There have been no subsequentchanges in these policies and estimates that had a significant impact on ourfinancial condition and results of operations for the periods covered in thisreport.

**Recently Issued AccountingStandards**

A description andrelated impact expected from the adoption of certain new accountingpronouncements is provided in Note 12 of Notes to Financial Statements.

**Item 3.        Quantitativeand Qualitative Disclosures about Market Risk**

Market risk is therisk of loss arising from adverse changes in market rates and prices.  The principal market risks to which we areexposed are interest rate risk and commodity risk.  We utilize various derivative instruments tomanage exposure to commodity risk. Because the outstanding amount under our credit facility fluctuates dueto commodity prices and the seasonality of our business, we have chosencurrently and historically not to enter into any hedging instruments related toour variable rate debt.

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***Interest Rate Risk***

We utilizevariable rate debt and are exposed to market risk due to the floating interestrates on our current credit facility and term loan.  Therefore, from time to time, we may utilizeinterest rate swaps and collars to hedge interest obligations on specific andanticipated debt issuances.  We had no interest rate hedging instrumentsoutstanding as of September 30, 2006.  Borrowingsunder our working capital revolving credit, acquisition credit and revolvingcredit facilities currently bear interest at our option at (1) the Eurodollarrate, plus 1%, 13⁄4% and 11⁄2 %, respectively, (2) the cost of funds rate, plus 1%,13⁄4% and 11⁄2 %, respectively, or (3) the bank’s base rate.  As of September 30, 2006, we had borrowingsoutstanding under our working capital revolving credit facility of $259.7million.  The impact of a 1% increase inthe interest rate on this amount of debt would have resulted in an increase ininterest expense, and a corresponding decrease in our results of operations, ofapproximately $2.6 million annually, assuming, however, that our indebtednessremained constant throughout the year.

***Commodity Risk***

We hedge ourexposure to price fluctuations with respect to refined petroleum products instorage and expected purchases and sales of these commodities.  The derivative instruments utilized consistprimarily of futures and option contracts traded on the NYMEX andover-the-counter transactions, including swap contracts entered into withestablished financial institutions and other credit-approved energy companies.  Our policy is generally to purchase onlyproducts for which we have a market and to structure our sales contracts sothat price fluctuations do not materially affect the profit we receive.  While our policies are designed to minimizemarket risk, some degree of exposure to unforeseen fluctuations in marketconditions remains.  Except for thecontrolled trading program discussed below, we do not acquire and hold futurescontracts or other derivative products for the purpose of speculating on pricechanges that might expose us to indeterminable losses.

While we seek tomaintain a position that is substantially balanced within our product purchaseactivities, we may experience net unbalanced positions for short periods oftime as a result of variances in daily sales and transportation and deliveryschedules as well as logistical issues associated with inclement weatherconditions.  In connection with managingthese positions and maintaining a constant presence in the marketplace, bothnecessary for our business, we engage in a controlled trading program for up toan aggregate of 250,000 barrels of refined petroleum products.

We enter intofuture contracts to minimize or hedge the impact of market fluctuations on ourpurchase and fixed forward sales of refined petroleum products.  Any hedge ineffectiveness is reflected in ourresults of operations.  We utilize theNYMEX, which is a regulated exchange for energy products that it trades,thereby reducing potential delivery and supply risks.  Generally, our practice is to close all NYMEXpositions rather than to make or receive physical deliveries.  With respect to other energy products, weenter into derivative agreements with counterparties that we believe have astrong credit profile, in order to hedge market fluctuations and/or lock-inmargins relative to our commitments.

At September 30,2006, the fair value of all of our commodity risk derivative instruments andthe change in fair value that would be expected from a 10% price decrease areshown in the table below (in thousands):

(Loss) gain:
|                                | ** ** | **Fair Value at  September 30, 2006** | ** ** | **Effect of 10%  Price Decrease** | ** ** |
|--------------------------------|------------|-----------------------------------------------------------|------------|--------------------------------------------------|------------|
|                           |       |                                                      |       |                                             |       |
| NYMEX contracts                |       | $                                                         | (19,852    | )                                                | $          | (34,898 | ) |
| Swaps, options  and other, net |       | (393                                                      | )          | 117                                              |       |
|                           |       | $                                                         | (20,245    | )                                                | $          | (34,781 | ) |

 

The fair values ofthe futures contracts are based on quoted market prices obtained from theNYMEX.  The fair value of the swaps andoption contracts are estimated based on quoted prices from various sources suchas independent reporting services, industry publications and brokers.  These quotes are compared to the contractprice of the swap, which approximates the gain or loss that would have beenrealized if the contracts had been closed out at September 30, 2006.  For positions where independent quotationsare not available, an estimate is provided, or the prevailing market price atwhich the positions could be liquidated is used.  All hedge positions offset physical exposuresto the spot market; none of these offsetting physical exposures are included inthe above table.  Price-risksensitivities were calculated by assuming an across-the-board 10% decrease inprice regardless of term or historical relationships between 

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the contractual price ofthe instruments and the underlying commodity price.  In the event of an actual 10% change inprompt month prices, the fair value of our derivative portfolio would typicallychange less than that shown in the table due to lower volatility in out-monthprices.  We have a daily marginrequirement to maintain a cash deposit with our broker based on the prior day’smarket results on open futures contracts. The balance of this deposit will fluctuate based on our open marketpositions and the commodity exchange’s requirements.  The required brokerage margin balance was$8.9 million at September 30, 2006.

We are exposed tocredit loss in the event of nonperformance by counterparties of forwardcontracts, options and swap agreements, but do not anticipate nonperformance byany of these counterparties.  Futurescontracts, the primary derivative instrument utilized, are traded on regulatedexchanges, greatly reducing potential credit risks.  Exposure on swap and certain optionagreements is limited to the amount of the recorded fair value as of thebalance sheet dates.  We utilizeprimarily one broker, a major financial institution, for all derivativetransactions and the right of offset exists. Accordingly, the fair value of all derivative instruments is displayedon a net basis.

**Item 4.        Controlsand Procedures**

Indesigning and evaluating controls and procedures, our management recognizesthat any controls and procedures, no matter how well designed and operated, canprovide only reasonable assurance of achieving the desired control objectives,and management is required to apply its judgment in evaluating the cost-benefitrelationship of possible controls and procedures.

Ourmanagement, with the participation of our principal executive officer andprincipal financial officer, evaluated the effectiveness of our disclosurecontrols and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of theSecurities Exchange Act of 1934 (the “Exchange Act”)) as of the fiscal quarterended September 30, 2006.  Based on thisevaluation, our principal executive officer and principal financial officerhave concluded that our disclosure controls and procedures are effective toensure that the information required to be disclosed by us in the reports wefile or submit under the Exchange Act is recorded, processed, summarized andreported within the time periods specified in SEC rules and forms.

There has not been any change in our internal controlover financial reporting (as defined in Rule 13a-15(f) under the Exchange Act)that occurred during the fiscal quarter ended September 30, 2006 that hasmaterially affected, or is reasonably likely to materially affect, our internalcontrol over financial reporting.

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** **

**PARTII.  OTHER INFORMATION**

**Item 1.        LegalProceedings**

***General***

Although we may,from time to time, be involved in litigation and claims arising out of ouroperations in the normal course of business, we do not believe that we are aparty to any litigation that will have a material adverse impact on ourfinancial condition or results of operations. Except as described below, we are not aware of any significant legal orgovernmental proceedings against us, or contemplated to be brought againstus.  We maintain insurance policies withinsurers in amounts and with coverage and deductibles as our general partnerbelieves are reasonable and prudent. However, we can provide no assurance that this insurance will beadequate to protect us from all material expenses related to potential futureclaims for personal and property damage or that these levels of insurance willbe available in the future at economical prices.

***Environmental***

Global CompaniesLLC, in addition to several affiliates, has been named as one of over 50defendants in two lawsuits alleging methyl tertiary-butyl ether (“MTBE”)contamination of groundwater in Massachusetts. MTBE is an oxygenate that has been used extensively to reduce motorvehicle tailpipe emissions.  In the casesof Town of Duxbury, et al. v. Amerada Hess Corp., et al., filed December 31,2003, and City of Lowell v. Amerada Hess Corp., et al., filed December 30,2004, plaintiffs allege that manufacturers, refiners and others involved in thedistribution of gasoline containing MTBE are liable for the costs ofinvestigating possible MTBE groundwater contamination, treating suchcontaminated groundwater where found, and related relief including trebledamages and injunctive relief.  Theplaintiffs in these cases generally claim to be public water providers ormunicipal or other government authorities. These cases have been consolidated in multi-district litigation withover 60 other MTBE cases in federal court in the Southern District of NewYork.  We intend to vigorously defendthese cases.  We do not believe thatthese cases will have a material impact on our operations although we canprovide no assurances in this regard.

On November 29,2004, a consent decree was lodged by the U.S. Department of Justice in thefederal District Court for Massachusetts whereby Global Companies LLC andGlobal Petroleum Corp. settled alleged violations of Clean Air Act regulationsrelated to fuel quality specifications. This consent decree was entered by the court on January 21, 2005.  As part of this settlement, Global CompaniesLLC has paid a $500,000 civil penalty and instituted a compliance program forthree years to ensure compliance with Clean Air Act fuel qualityspecifications.  The alleged violationsstemmed from the importation of finished conventional gasoline, which was not asubstantial part of our operations at the time of the alleged violations.  We do not believe that compliance with theterms of the consent decree will result in material costs.

***Other***

On September 15,2005, the Office of the Attorney General of the Commonwealth of Massachusettsissued a Civil Investigative Demand to us in connection with an investigationof gasoline distributors and retailers in Massachusetts in the wake ofHurricane Katrina.  We believe that theAttorney General’s office has issued similar demands to other distributors andretailers.  We have taken steps to complywith the demand.  While we cannot predictthe outcome of the investigation, we do not expect that the outcome will have amaterial adverse effect on us.

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** **

**Item 1A.     RiskFactors**

There have been nomaterial changes to the Risk Factors disclosed in the Partnership’s AnnualReport on Form 10-K for the fiscal year ended December 31, 2005.

**Item 6.        Exhibits**
| 31.1           |   | — |   | Rule 13a-14(a)/15d-14(a) Certification of Principal  Executive Officer of Global GP LLC, general partner of Global Partners LP. |
|----------------|--------|--------|--------|---------------------------------------------------------------------------------------------------------------------------------|
|           |   |   |   |                                                                                                                            |
| 31.2           |   | — |   | Rule 13a-14(a)/15d-14(a) Certification of Principal  Financial Officer of Global GP LLC, general partner of Global Partners LP. |
|           |   |   |   |                                                                                                                            |
| 32.1**†** |   | — |   | Section 1350 Certification of Chief Executive  Officer of Global GP LLC, general partner of Global Partners LP.                 |
|           |   |   |   |                                                                                                                            |
| 32.2**†** |   | — |   | Section 1350 Certification of Chief Financial  Officer of Global GP LLC, general partner of Global Partners LP.                 |

 

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**†      **Notdeemed “filed” for purposes of Section 18 of the Securities Exchange Act of1934 or otherwise subject to the liability of that section.

33

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** **

**SIGNATURES**

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.
|                           | ** ** | **GLOBAL PARTNERS LP** |
|---------------------------|------------|------------------------|
|                      |       | By:                    | Global GP LLC, |
|                      |       |                   | its general partner |
|                      |       |                   |   |   |
|                      |       |                   |   |   |
| Dated: November  14, 2006 |       |                   | By: | /s/ Eric Slifka |   |
|                      |       |                   |   | Eric Slifka |
|                      |       |                   |   | President and Chief Executive Officer |
|                      |       |                   |   | (Principal Executive Officer) |
|                      |       |                   |   |   |
|                      |       |                   |   |   |
| Dated: November  14, 2006 |       |                   | By: | /s/ Thomas J. Hollister |   |
|                      |       |                   |   | Thomas J. Hollister |
|                      |       |                   |   | Executive Vice President and Chief Financial Officer |
|                      |       |                   |   | (Principal Financial Officer) |

 

34

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**INDEX TO EXHIBITS**
| Exhibit  Number | ** ** | ** ** | ** ** | **Description**                                                                                                                 |
|-----------------|------------|------------|------------|---------------------------------------------------------------------------------------------------------------------------------|
|            |       |       |       |                                                                                                                            |
| 31.1            |       | —     |       | Rule 13a-14(a)/15d-14(a) Certification of Principal  Executive Officer of Global GP LLC, general partner of Global Partners LP. |
|            |       |       |       |                                                                                                                            |
| 31.2            |       | —     |       | Rule 13a-14(a)/15d-14(a) Certification of Principal  Financial Officer of Global GP LLC, general partner of Global Partners LP. |
|            |       |       |       |                                                                                                                            |
| 32.1**†**  |       | —     |       | Section 1350 Certification of Chief Executive  Officer of Global GP LLC, general partner of Global Partners LP.                 |
|            |       |       |       |                                                                                                                            |
| 32.2**†**  |       | —     |       | Section 1350 Certification of Chief Financial  Officer of Global GP LLC, general partner of Global Partners LP.                 |

 

----

**†      **Notdeemed “filed” for purposes of Section 18 of the Securities Exchange Act of1934 or otherwise subject to the liability of that section.

35

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